Apple has failed to prop up its global revenue with higher prices for the iPhone...
TAIPEI — Apple's first cut in its sales forecasts since 2002 is expected to have a wider impact on its global suppliers.
The companies likely to feel the most pain — Foxconn, Lumentum, Cirrus Logic and Skyworks — count on Apple for as much as 45% of their revenue.
While Apple CEO Tim Cook blamed an unexpected economic downturn in China for the poor outlook, the impact may spread to electronics companies in the U.S., South Korea and Taiwan. One fundamental problem that Cook didn’t mention was Apple’s failure to come up with a new hit product in nearly a decade. Apple appears to be losing steam, according to analysts interviewed by EE Times.
"Lack of innovation is a major problem for Apple," said Andrew Lu, the head of technology with China-based Sinolink Securities. "The U.S.-China trade war drove the Chinese people to support local phones."
Apple has failed to prop up its global revenue with higher prices for the iPhone, said Mike Feibus, principal analyst with FeibusTech.
"It’s been particularly unsuccessful in China, where domestic suppliers are producing such high-quality products at such compelling prices," Feibus said.
The downturn may signal better news for China’s Huawei, which has overtaken Apple to become the new No. 2 in smartphones, according to the analysts.
Huawei has stepped up the competition with its flagship SoC, the 7nm Kirin 980.
At this point, the only companies to announce 7nm processors for smartphones are Apple and Huawei. Taiwan Semiconductor Manufacturing Co. (TSMC) makes the chips for both companies.
On Jan. 17, when TSMC announces its results for the fourth quarter of 2018 and provides its outlook for the first quarter of this year, it is likely to forecast a quarter-on-quarter drop of as much as 20% in sales revenue, with about half of the decline coming from Apple, according to Lu.
A Lack of Diversity
Apple, the world’s largest electronics company, may have a diversification problem.
Nearly 60% of Apple’s revenue comes from the iPhone. What’s worse, more than 75% of Apple’s revenue depends on mature product lines — the iPhone, iPad and Macintosh, Feibus noted.
The top-two smartphone suppliers, Samsung and Huawei, have a wider range of products supporting their operations, he added.
"They both have other businesses big enough and vibrant enough to offset bumps in the smartphone road," Feibus said. :"Apple does not."
Huawei has been one key target in the U.S.-China trade war.
According to The Wall Street Journal, the U.S. government has contacted Germany, Japan, Italy and other friendly countries, apparently raising concerns about cybersecurity risks if they use Huawei-made components to build their 5G infrastructures. That broadside against the Chinese company may have had unintended consequences that hurt the U.S. tech industry.
"(Donald) Trump doesn’t care about the tech sector," said Lu. "The government is killing its own tech industry."
Smartphones are no longer the key driver of electronics sales that they once were. Forecasts of an upturn for handsets this year may have been premature.
Last month, market research firm International Data Corporation (IDC) said smartphone shipments would rebound this year, returning to low single-digit growth, after falling by about 3% last year.
IDG said emerging markets, 5G and new product form factors would help revive the smartphone market.
5G, however, is unlikely to give Apple a tailwind in the China smartphone market, according to Brett Simpson, senior analyst at Arete Research in London.
He told us, “If you look at the China smartphone market I think Apple’s position will weaken further over the next 12-18months because they are unlikely to have a 5G iPhone until 2H20.” He noted, “As the Chinese government are expected to roll out 5G subsidies (towards the end of 2019 or early 2020) market sentiment shifts against Apple.”
"The more far-reaching problem concerns upgrades," Feibus said. "The refresh cycle that smartphone suppliers have come to rely on is breaking down. There is now a perilous level of satisfaction among consumers with the smartphones they already own."
Just last month, a court in China granted Qualcomm an injunction against Apple. Is it affecting Apple’s iPhone sales in China?
Simpson said, “We haven’t seen the full effect of the recent iPhone injunction in China. And there are several other litigation verdicts due in China that could compound matters.” He added, “We think an imminent settlement between the two is a likely outcome.”
Sinolink Securities analyst Lu doesn’t expect a significant recovery until 5G and AI start entering the product mix in 2020. By the second half of this year, there will be a seasonal recovery as an inventory rebuild starts, he says.
Meanwhile, Simpson gave us a muted forecast for the chip industry. “Overall when looking at semiconductor industry, I don’t think we are in a prolonged downturn for tech, there are too many important drivers ahead long term like AI, 5G and IoT….but we are going to see significant estimate cuts for 2019.” He explained, “We are coming off a strong year for IT spending in 2018, semiconductor industry has overbuilt across the board, macro is weakening and supply chains are reeling from all the market uncertainty around US/China potential import duties.”