Apple IPhone Suppliers Decline on Report Orders Cut by 50%

Sharp Corp. (6753) and other Apple (AAPL) Inc. suppliers declined in Asia trading after the Nikkei newswire said orders for iPhone 5 parts had been cut about 50 percent following lower-than-expected sales. 

Sharp, which makes display panels for the iPhone 5, fell 2.7 percent to close at 321 yen in Tokyo. Samsung Electronics Co. (005930), which supplies Apple and makes its own competing phones, declined 2.6 percent in Seoul. Speaker-maker AAC Technologies Holdings Inc. (2018) dropped 2.8 percent in Hong Kong. 

Apple hit an 11-month low in New York yesterday after the Nikkei report underscored concerns about iPhone 5 sales and the wider smartphone market. Ex-Chief Executive Officer John Sculley also said today the Cupertino, California-based company needs to develop cheaper phones to boost sales in emerging markets. 

Slower iPhone demand “will inevitably have a negative impact on component suppliers,” said Park Hyun, an analyst at Tong Yang Securities Inc. in Seoul. “The center of growth in the market is moving toward the mid-end segment.” 

Apple intended to order parts for about 65 million iPhone 5s this quarter, Nikkei said, citing unidentified executives at parts suppliers. Steve Dowling, a spokesman for Apple, declined to comment.

The suppliers’ declines today were limited by earlier reports the iPhone 5 was trailing sales targets and that Apple was cutting production, said Keita Wakabayashi, an analyst at Mito Securities Co. in Tokyo. The phone maker cut production about 30 percent last month, USB AG analyst Steven Milunovich wrote in a note yesterday.

“This is not entirely a new story,” Tokyo-based Wakabayashi said. “That’s why stocks aren’t plunging dramatically.”

Apple may have pared iPhone production to rebalance inventory or because of lower consumer demand, according to Milunovich. Order cuts may also be due to suppliers becoming more adept at assembling the latest iPhone, reducing the need for excess inventory, he said.

Milunovich’s projection for 25 million iPhone 5 units to be sold in the quarters ending in December and in March will still be exceeded under the scenario Nikkei reported, he said.

BOCI Research Ltd. analyst Tony Yang in Hong Kong said checks with Apple suppliers failed to produce any signs of “a huge iPhone 5 shipment drop.” Barclays Plc analyst Jones Ku also said there were no indications of a large order cut for speakers made by Shenzhen, China-based AAC. 

“The actual order cut for iPhone 5s in the first quarter is exaggerated,” Ku said in Hong Kong. “The large cut for displays is mainly due to the over-purchase of displays in the fourth quarter.” 

AAC spokesman Louis So declined to comment. 

LG Display Co. (034220) fell 3.5 percent in Seoul. In Taiwan, Hon Hai Precision Industry Co. (2317), which assembles iPhones, dropped 3.4 percent and circuit-board maker Zhen Ding Technology Holding Ltd. (4958) declined 3 percent. 

Sharp is cutting production at a plant making iPhone panels in Kameyama, Japan, to about 40 percent of capacity from close to 100 percent in the previous three months, the Nikkei said. The company gets 3.4 percent of sales from Apple, its biggest customer, according to data compiled by Bloomberg. Sharp last year said there was “material doubt” about its ability to survive because of tumbling TV sales. 

Miyuki Nakayama, a spokeswoman for the Osaka-based company, declined to comment yesterday, citing Sharp’s policy of not commenting on customers. Nam Ki Yung, a spokesman for Samsung Electronics, and Claire Ohm, a spokeswoman for LG Display, declined to comment. 

Sculley said in an interview with Bloomberg TV the phone- maker needs to overhaul its supply chain to meet demand for lower-cost smartphones in emerging markets. The U.S. and European markets offer little room for growth because they are saturated, he said. 

“Apple needs to adapt to a very different world,” he said. “As we go from $500 smartphones to even as low, for some companies, as $100 for a smartphone, you’ve got to dramatically rethink the supply chain and how you can make these products and do it profitably.” 

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Mariko Yasu in Tokyo at myasu@bloomberg.net

 

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

From Bloomberg