Should Semiconductor Investors Worry about Apple’s Weak Guidance?



What’s behind Apple’s downtrend?

Previously, we saw that Apple (AAPL) has been hit by slowing iPhone demand, which sent the company’s stock on a downward path. The stock has fallen 36% to a new 52-week low of $142 between November 1, 2018, and January 3, 2019. The downtrend started on November 1 when the company reported lower-than-expected revenue guidance of $91 billion at the midpoint for the first quarter of fiscal 2019, which ended December 29, 2018.

The steepest decline in Apple stock came on January 3 after the company revised its revenue guidance by 7.7% to $84 billion, representing a decline of 5% from a year ago.

Semiconductor suppliers hit by Apple’s weak guidance

Apple is one of the largest customers in the semiconductor industry. Companies like Qorvo (QRVO), Cirrus Logic (CRUS), and Skyworks (SWKS) depend heavily on the iPhone maker for revenue. Weak revenue from Apple will lower orders from the iPhone maker, thereby impacting suppliers’ earnings. Thus, stocks of the above three companies fell more than 8% on January 3. Broadcom (AVGO) also took a big hit, as it is one of Apple’s biggest suppliers and supplies various components for iPhones.

As the smartphone market slowed, some suppliers reduced their dependence on Apple by diversifying their revenue streams, which mitigated the impact of Apple’s weak guidance on their stocks. The stock of Apple’s sole foundry partner for A12 processors, TSMC (TSM), fell 5.9% on January 3. TSMC has been increasing its exposure to high computing processors. The declines from Apple are likely to be offset by new orders from Qualcomm (QCOM) and Advanced Micro Devices (AMD).

The stock of Intel (INTC), Apple’s sole modem supplier, fell 5.5% on January 3, as the latter’s modem business contributes little towards its revenue. Apple’s power management chip supplier, Texas Instruments (TXN), fell 5.9% on the same day, as the latter reduced its exposure to the iPhone maker by diversifying into automotive and industrial markets.

The stocks of the above suppliers could recover from the January 3 fall but are likely to see another fall when Apple releases its fiscal 2019 first-quarter earnings on January 29. Thus, investors should keep an eye on Apple’s upcoming earnings.

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