Asia Tech Stocks Slump, Further Apple Pain Seen

Asian technology stocks slumped on Wednesday after Apple’s quarterly earnings missed expectations, and analysts say there could be further weakness for the tech giant’s regional supply chain in the coming months because of declining iPhone sales.

Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen, Guangdong province, China.
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Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen, Guangdong province, China.

Shares of Taiwan’s Hon Hai Precision Industry and its Hong Kong-listed subsidiary Foxconn , which assembles iPhones and iPads in China, fell 4.3 percent and 3.7 percent, respectively. Apple orders account for 35-45 percent of revenue at Hon Hai and Foxconn. Japanese circuit board producer Ibiden and memory chipmaker Toshiba, meanwhile, slumped 6.5 percent and 7.3 percent, each.

Wayne Dong, analyst at Barclays, who recommends staying clear of the components makers right now, warns that Apple’s earnings are likely to disappoint next quarter as well, noting that iPhone sales will continue to fall ahead of the launch of the iPhone 5 later this year.

He adds that Taiwan-based components makers such as Foxconn are likely to report disappointing earnings for the first-half, which could further weigh on their share prices. Foxconn warned in late April that weaker demand from some key customers could result in a wider-than-expected loss for the January-June period.

Helen Chiang, Senior Research Manager, PC and Peripheral at IDC Taiwan, is also cautious on the outlook for the component makers in the coming months.

“There are rumours within the supply chain that some Apple products that are due to be launched in the second-half will be postponed, (if this happens) this will impact their annual shipments and sales.”

“They (components makers) have already prepared the components – so they would be sitting on a lot of inventory,” she noted.

On a medium-term perspective, however, Steven Pelayo, Regional Head of Technology Research, Asia-Pacific at HSBC, says he is upbeat on the Apple supply chain, noting that Apple’s last quarter’s earnings are merely a result of “product transition issues”.

“iPhone (sales) are weak but we do think this (product) transition is going to get through. I do believe as a result of the pent up demand, we will see a strong rebound in the fourth quarter,” Pelayo said.

Apple’s revenue rose 22.6 percent to $35 billion from a year earlier— down almost 60 percent from the previous quarter. Analysts were expecting revenue of around $37.2 billion, according to a consensus estimate from Thomson Reuters

The fall in earnings was driven by weakness in Europe and lower-than-forecast sales of the iPhone as consumers held off purchases ahead of the release of a new model expected at the end of September. Sales momentum in the consumer tech giant’s second largest market - China - also declined compared to the previous quarter.