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AlphaOne's Dan Niles: 'Things are running worse' than expected for Apple

Key Points
  • "Things are definitely running worse than what was expected" for Apple, AlphaOne Capital Partners' Dan Niles says.
  • Lumentum's reductions amount to a "21 million unit shortfall" for Apple, Niles says.
  • He says Apple's woes will have a negative effect on its suppliers' businesses.
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Apple will sell fewer iPhones in the fourth quarter and cause "a ripple effect throughout the supply chain," AlphaOne Capital Partners founding partner Dan Niles told CNBC on Monday.

His prediction followed a report that Lumentum, a facial recognition and augmented reality parts supplier for the tech giant, lowered its outlook because "one of our largest Industrial and Consumer customers" cut back on 3-D sensing shipments.

That's "code for, pretty much, Apple," Niles said on "Closing Bell."

"So, my belief is that fourth-quarter sales of iPhones is going to be less than expected, and I think what you're seeing today — with Lumentum cutting their estimates just 11 days after they already lowered guidance when they reported — is that things are definitely running worse than what was expected," he said.

Adjustments to Lumentum's guidance amount to a "21 million unit shortfall" for Apple, which left investors with mixed feelings after it announced it would end reporting unit sales of iPhones, iPads and Macs in its earnings reports, Niles said.

Shares of Apple fell more than 5 percent on Monday, closing at $194.17. Lumentum took a bigger hit, plummeting nearly 33 percent to end the day at $37.50.

Apple will run into more problems selling its iPhone and other products because of issues facing markets in China, Brazil and India, Niles said.

"What people should be really nervous about is all the hardware companies underneath [Apple and] how that's going to impact them, because I don't think Lumentum is going to be the only one that's going to preannounce negatively driven by Apple when you get through this year," he said.

Some Apple bulls defended the company's decision to stop reporting unit sales as a sign that investors should take Apple's services business into consideration moving forward.

"AAPL will stop disclosing unit sales figures next qtr, fueling fears the company has something to hide," Jefferies Group, who calls the stock a buy, said earlier this month. "But AAPL will disclose Services gross margin for the first time ever, a potential catalyst for the stock. We believe AAPL intends to tell a compelling Services story, which we believe has 2x higher gross margin than hardware and improving."

Niles, who is short Apple, said the Apple bulls "are wrong" because the company's "ecosystem" that's built on iPhone customers will not grow.

Niles acknowledged there is a lot of "optimism" because Apple, which is up more than 20 percent year to date, is outperforming the S&P 500, which is up about 2 percent year to date. But Niles said that Apple "should be under-performing the market."

"You can't sell services to somebody if they don't have an iPhone," he said. "Services is a lagging indicator, it's not a leading indicator. And if you're selling that many less iPhones to users, you can't sell them services."