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Jabil Circuit’s Weak Guidance Suggests Soft Apple iPhone Demand

Analysts reading the tea leaves of Jabil Circuit ’s ( JBL ) latest quarterly report on Wednesday said it provides a negative data point for Apple ( AAPL ). The contract manufacturer got 24% of its total revenue from Apple in its fiscal year ended last August. Jabil’s stock closed down 10.6% at 19.63 Thursday. “Jabil Circuit’s weak fiscal Q3 (May) guidance supports our view that current iPhone demand is relatively soft,” Pacific Crest Securities analyst Andy Hargreaves said in a report. “Although this is likely to remain a near-term challenge, we continue to believe normal replacement volume and moderated declines in new subscribers will drive solid growth in iPhone units during the iPhone 7 cycle, and commensurate earnings growth.” Hargreaves rates Apple stock as overweight with a price target of 127. Apple closed down 0.2% on the stock market today . Jabil slightly missed expectations for its fiscal 2016 Q2, which ended Feb. 29. It reported earnings per share of 57 cents on sales of $4.4 billion, vs. analyst expectations of 60 cents EPS and $4.5 billion in sales. “While February-quarter results were close to expectations, the real concern is the softer-than-expected May-quarter and fiscal-year guide,” RBC Capital Markets analyst Amit Daryanani said in a report. “Jabil attributed the softer guide (May-quarter EPS at 15 cents vs. Street at 51 cents) due to late-quarter and sustained slowdown with a mobility customer (we think Apple). We think the softness reflects a delayed reaction to Apple iPhone softness that has been well publicized across the supply chain (likely Jabil over-shipped in the November quarter, and now inventory is getting adjusted).” Daryanani maintained his sector perform rating on Jabil but cut his price target to 21 from 23. Jabil said its May quarter revenue in its diversified manufacturing segment (DMS), which includes Apple business, would be down 10% year over year, vs. Wall Street’s expectation for an increase of 16%. Jabil’s DMS business should improve in fiscal Q4 when it benefits from the production ramp for the iPhone 7, due out in September, UBS analyst Steven Milunovich said in a report. He reiterated his neutral rating on Jabil but cut his 12-month price target to 22 from 25.

Apple-Alphabet Cloud Accord Could Help Google Catch Up With Amazon

Google-owner Alphabet ( GOOGL ) has snared iPhone maker Apple ( AAPL ) as a customer for its Google Cloud Platform, a deal that could help Google’s service catch up with industry leader Amazon.com ( AMZN ), says an industry note from Pacific Crest Securities on Thursday. Amazon unit Amazon Web Services (AWS) is now the biggest provider of infrastructure as a service (IaaS), where customers rent computer servers and data storage systems via the Internet. Microsoft ( MSFT ) and Alphabet’s Google rank next. Apple signed a contract worth between $400 million and $600 million to use Google’s Cloud Platform, according to CRN . Apple now uses cloud services from Amazon and Microsoft, but intends to end its reliance on all its rivals in the next few years, as it builds its own data centers, according to Re/Code. While Apple has reportedly used AWS historically for iCloud, “the more surprising shift is from Apple to Google, which are odd bedfellows given the two companies’ mudslinging and competition in other areas,” wrote Pacific Crest Securities analyst Evan Wilson. “Did Google throw in free cloud as a way to renegotiate the search contract? Definitely adds to the perception of Google’s momentum,” Wilson added. The deal has not been confirmed by Google or Apple, but Apple did disclose its reliance on AWS and on Microsoft’s Azure in a 2014 white paper. The alleged Apple-Google accord would help “Google Cloud Platform catch up to Amazon and Microsoft — at least in terms of perception — as a real third player in the space instead of a distant third. Google has done similar deals with Snapchat, PricewaterhouseCoopers, General Mills ( GIS ) Coca-Cola ( KO ), HTC and Best Buy ( BBY ),” said Wilson. In total, the cloud opportunity is big enough for all three Internet powerhouses, said Wilson, who estimated “a potential $25 billion windfall opportunity in cloud services for Amazon, Microsoft and Google, collectively.” While AWS has been the biggest IaaS price-cutter of the last decade, Google Cloud Platform (GCP) has been aggressive since moving into the market. Google slashed prices in March 2014, October 2014 and May-June 2015, Goldman analyst Heather Bellini said in an industry report last month. Goldman Sachs says that the top three service providers are gaining share as Verizon Communications ( VZ ),   Hewlett Packard Enterprise ( HPE ) and others exit the public IaaS market and focus on private clouds. Goldman Sachs estimates that AWS’ revenue will hit $12.5 billion in 2016, up from $7.88 billion last year. Apple stock was down a fraction in midday trading in the stock market today , near 106. Alphabet was up a fraction, near 760, while Microsoft stock was also up a fraction, near 55. IBD 50 stock Alphabet gets a best-possible Composite Rating of 99 from IBD. Microsoft has a 75 and Apple a 70. Image provided by Shutterstock .

Apple Watch Shipments Slowing Ahead Of Version 2

Apple Watch shipments will rise just 21% this year, despite having 12 months of sales to last year’s eight, market research firm IDC predicted Thursday. Apple ( AAPL ) launched its smartwatch on April 24 with limited availability in nine countries, including the U.S. IDC estimates that Apple shipped 11.6 million units of Apple Watch in 2015 and is likely to ship 14 million units in 2016. Apple Watch “is likely to see some slowdown in the early part of 2016 as anticipation builds for the second-generation device,” IDC said in a press release . “However, with newer hardware and an evolving ecosystem, Apple will remain the smartwatch leader” through 2020. Apple and its suppliers have not yet signaled when a second-generation Apple Watch will hit the market. Apple is expected to unveil new watch bands for the wearable at a spring product launch event on Monday. Apple Watch leads the nascent smartwatch market and is expected to claim 49.4% market share this year, IDC says. Alphabet ’s ( GOOGL ) Android Wear operating system is expected to be on 6.1 million smartwatches shipped this year, accounting for 21.4% of the market and good enough for second place, IDC says. IDC predicts that Apple Watch shipments will reach 31 million units in 2020, with a 5-year compound annual growth rate of 22%. Meanwhile, Android Wear smartwatches are seen growing to 28.8 million units in 2020, with a 5-year CAGR of 48%. RELATED:  Smartwatch Shipments Skyrocket In Q4, Passing Swiss Watches