How Could Apple Hurt Its Suppliers?
Tuesday, Apple released its fiscal second quarter earnings, which showed that revenue and earnings per share actually managed to stay above the consensus estimates, according to Thomson Reuters. Earnings per share hit $10.09 on $43.6 billion in revenue, compared to average expectations for $10.00 per share on revenue of $42.33 billion.
The better-than-expected results gave Apple’s stock a temporary boost, shares increased slightly in after-hours trading. The stock rose as high as $410 Wednesday morning, but it dropped shortly thereafter, settling around $400 close to noon.
Some of the excitement over Apple’s results may have bled over into the shares of a number of Apple suppliers. Shares for Foxconn (FXCNY.PK) rose 1.3 percent after Apple’s earnings call. A maker of Apple’s camera lenses, Largan Precision, saw a 1.7 percent boost. TPK Holding, which makes touchscreens, inched up 0.7 percent. And, with the biggest climb of all these suppliers, Radiant — which supplies back-light units — saw shares go up 1.8 percent…
Despite the happy day — or maybe less than a whole day — that Apple and its suppliers got after the earnings call, things could quickly turn around as investors focus on the Apple’s fiscal third quarter and beyond. One of the big notes out of the earnings call was that Apple may not have any new products until autumn and 2014. That leaves a wide open field of nothing to really spark shares in Apple’s third quarter.
For consumers, a lack of new Apple products is just dull. For Apple, it could renew a negative outlook on the company and its stock — especially given the companies guidance of $33.5 billion to $35.5 billion in revenue for the third quarter that fell below expectations of $38.25 billion. A lack of new products could also be damaging to those suppliers mentioned earlier.
Last week, Cirrus Logic (NASDAQ:CRUS) reported a “net inventory reserve of $23.3 million, of which approximately $20.7 million is due to decreased forecast for a high volume product.” The belief was that Cirrus was talking about Apple’s iPhones, and Apple shares quickly slipped after the report, showing how connected suppliers can be to Apple. The channel could go both ways…
If Apple doesn’t have any new products, it might also have lower sales, with effects likely running right up the supply chain. Some companies do a large amount of their business with Apple only — Foxconn and Cirrus Logic bring in a big chunk of their revenue from working with Apple — and a lack of new products to work on could damage their revenues.
Adding to the trouble is Apple’s slipping margins, a problem that could be passed on to suppliers. As competition has grown more fierce, it hasn’t been as easy for Apple to command the same margins that it once did, and Enderle Group’s president and principal analyst, Rob Enderle, told CNBC that Apple CEO Tim Cook will likely “target more aggressive pricing from suppliers.”
Over the next few months and into autumn and 2014, relationships could be tense between Apple and suppliers, and the stocks could be volatile, reacting to news from anyone in the supply chain.
Don’t Miss: Why Is China Getting This Apple Store Barrage?