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Apple Suppliers Blame ‘Tepid’ iPhone 7 Demand On Lack Of Innovation

Taiwan Semiconductor Manufacturing ( TSM ) will grow 4% in 2016, missing projections for 5%-10% growth, as Apple ( AAPL ) cuts its iPhone 7 orders June through December, a source told the Nikkei Asian Review on Wednesday. Nikkei’s report comes on the heels of disappointing June-quarter guidance from Apple suppliers Skyworks Solutions ( SWKS ), Cirrus Logic ( CRUS ) and InvenSense ( INVN ). Tuesday, TSM reported Q1 sales that missed by $30 million and dipped 13% year over year. In afternoon trading on the stock market today , Taiwan Semi stock was down a fraction, near 23. June through December, TSM’s chip shipments will shrink to 70%-80% of year-earlier levels, sources told Nikkei. TSM is now projected for “tepid” 4% year-over-year sales growth and flat operating profits in 2016. In 2015, sales rose 7.5% to $25.95 billion. “Suppliers are saying that they are getting fewer orders for the second half of this year compared with the year-ago period,” a source told Nikkei. “The traditional peak season this year will not be able to compare to the past few years.” The report jibes with worries of a slowdown in smartphone sales. Last month, Apple missed its March-quarter Q2 sales for the first time in 13 years and guided its June-quarter sales down 15%-19% sequentially, which is the seasonal norm. The only Chinese smartphone makers showing healthy growth are Huawei and Oppo, the source said. Apple CEO Tim Cook has said his company plans to lower its channel inventories by $2 billion in the June quarter “in light of the macroeconomic environment.” Apple has tapped TSM as the sole source of its A10 processor for the iPhone 7, expected for release in September. Last year, TSM and South Korean rival Samsung both supplied the A9 processor for the iPhone 6S. About 16% of TSM’s sales stem from Apple. Nikkei estimates Apple will ship more than 200 million iPhones this year, down from 230 million in 2015. A source with a major Taiwanese supplier blamed the lack of innovation in the iPhone 7 for the weak demand, Nikkei reported.

Apple-Samsung Battle In China To Force Qorvo, Skyworks Volatility

Apple ( AAPL ) and Huawei will take share from Samsung and Xiaomi within the Chinese smartphone market, leading to mass volatility and an inventory work-down for chipmakers like Broadcom ( AVGO ), Qorvo ( QRVO ) and Skyworks Solutions ( SWKS ), an MKM analyst predicted Wednesday. Shares of Broadcom, Qorvo and Skyworks were up a fraction each in early afternoon trading on the stock market today , while Apple stock was down a fraction. Last month, Apple reported March-quarter sales that missed views for the first time since 2003, undercutting chip stocks, which have broadly fallen since. The Apple report bolsters concerns of a smartphone slowdown, fresh off worries that Chinese smartphone saturation would stunt further growth. But, MKM analyst Ian Ing notes, the brimming Chinese market is still buying. Of 1,000 Chinese respondents in an MKM survey, more than 60% plan to buy a new smartphone within the next three to six months vs. less than 25% of U.S. respondents, Ing wrote in a research report. Of those in China, 38% plan to switch brands. “Chinese consumers are even more gadget-friendly relative to U.S. consumers,” Ing wrote. “Ownership is higher across smartphones, PCs and tablets in rank order.” Nearly 97% of Chinese consumers own a smartphone vs. 84% of Americans, but 25% of Chinese respondents plan to add another smartphone account — likely expanding to children and the elderly — vs. only 7.5% of Americans, Ing wrote, suggesting that Chinese users refresh their smartphones annually. Advances in wireless charging and fingerprint sensing will drive further adoption, he wrote. In smartphones, Apple, Huawei and LeTV look likely to take share from Xiaomi, Samsung and Lenovo, Ing wrote. Chinese consumers are more driven by brand (68% vs. 43% of Americans) and less by cost (33% vs. 61% of Americans). Those dramatic swings in share could affect chipmakers like Qorvo and Skyworks, which are 32% and 20% exposed to China, respectively. Ing estimates 40% of Qorvo’s mobile sales stem from China. Fellow Apple suppliers Qualcomm ( QCOM ) and Broadcom are less exposed — mid-teens and less than 10%, respectively, Ing said. “That said, Qorvo is favorably exposed to Huawei as a 10% customer,” he noted.

Apple Stock Gets Price-Target Cut On Longer iPhone Upgrade Cycle

Apple ( AAPL ) stock dipped Wednesday following a price-target cut by investment bank UBS. Apple shares were down a fraction, near 93, in midday trading on the stock market today . UBS analyst Steven Milunovich reiterated his buy rating on Apple stock but lowered his 12-month price target to 115 from 120. Milunovich also reduced his sales and earnings estimates for fiscal years 2016 and 2017 based on a more cautious view of iPhone growth. Apple’s fiscal 2016 ends Sept. 24. “Our installed base analysis reflects that the iPhone 6 was unusually well received, as perhaps 37% of the installed base entering fiscal 2015 purchased a new iPhone,” Milunovich said in a research report. “The ramification is being felt in fiscal 2016 with a much lower 25% upgrade rate expected. “Our base case for fiscal 2017 is total iPhone unit growth of 4% to 217 million based on a 23% upgrade rate and a decline in new customers.” Milunovich said his base case assumes that iPhone owners upgrade their handsets every 2.5 years. On Tuesday, Drexel Hamilton analyst Brian White said “ gloom and doom ” sentiment around Apple stock had reached “extreme” levels. He reiterated his buy rating on Apple stock, with a price target of 185. RELATED: When Tim Cook Gives A TV Interview, Apple Investors Should Beware