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.