For Suppliers, Good Apple Earnings Aren't Enough
Consumer technology giant Apple may have reported first quarter earnings that exceeded market expectations, but the company's disappointing forward guidance spells trouble for its Asian suppliers, said analysts.
While shares of Apple's main contract manufacturer Hon Hai Precision, camera-lens maker Largan and Korean chipmaker SK Hynix rose between 1 and 2 percent Wednesday following the earnings release, the bounce may prove to be short-lived.
"Suppliers are likely moving on the positive surprise in Apple's top line - but the company's outlook was dismal and that would put pressure on the suppliers," Rob Enderle, president and principal analyst at Enderle Group told CNBC.
Apple reported fiscal second-quarter earnings of $10.09 a share on revenue of $43.60 billion, beating expectations of $10.00 per share on revenue of $42.33 billion, according to consensus estimates from Thomson Reuters.
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For the third quarter, however, the company forecasts revenue of between $33.5 billion and $35.5 billion, well below the $38.25 billion Wall Street was expecting. Apple also expects its gross margin to continue to slide to between 36 percent and 37 percent from 37.5 percent currently.
"Apple's weaker margin trend will put even more pricing pressure on its Asia suppliers. We are cautious on Asia tech hardware companies that have high exposure to Apple," said Kirk Yang, Head of Asia Tech Hardware Research at Barclays.
Apple's CEO Tim Cook is a supply chain expert, so it is likely that he will target more aggressive pricing from suppliers, added Enderle.
With Apple's sales guidance well below consensus, this suggests that the company's new product launches such as the iPhone 5s and lower-priced iPhone will not be introduced until late in the third quarter, said Yang. Product launches typically provide an earnings boost to Apple suppliers.
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This implies that the company's component makers are unlikely see a pickup until July-August, said analysts.
Steven Pelayo, Regional Head of Technology Research, Asia-Pacific at HSBC added that uncertainty over Apple's product line up is a concern for the supply chain.
"Apple is facing intense competitive environment and a product roadmap that looks like a rudderless ship right now so we're trying to figure out what direction it's going to go," he said.