Apple Inc.  (NASDAQ:AAPL) first calendar quarter results for 2014 could be at risk. That’s according to Citi analysts, who are concerned after the exceptionally weak guidance from Jabil Circuit, Inc. (NYSE:JBL), one of the company’s main suppliers.

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Jabil’s guidance far below consensus

The Apple supplier guided for February quarter revenue of $3.6 billion, although analysts had been expecting guidance of $4.28 billion. Jabil Circuit, Inc. (NYSE:JBL) also guided for declines of 25% year over year and 33% quarter over quarter in its DMS business. That’s where most of the missed guidance came from.

Of course Jabil will not say which of its clients is basically responsible for its weak expectations, but Citi analysts Glen Yeung, C. Adeline Lee and Samuel Meehan say Apple Inc. (NASDAQ:AAPL) is a 19% customer of Jabil and makes up about half of the company’s DMS revenues.  Jabil makes high-end metal and plastic and ceramic moldings. It also does part of the assembly for both the iPhone 5S and the iPhone 5C. Citi analysts note that there is a direct correlation between Jabil’s DMS revenues and Apple’s iPhone shipments:


Learning from past history

The analysts say last year Jabil saw its February quarter DMS sales decline 4.8% quarter over quarter when Apple Inc. (NASDAQ:AAPL) cut orders for the iPhone 5. That was after a 12.7% increase in the November quarter and a 3.1% increase in the August quarter. This year, Jabil Circuit, Inc. (NYSE:JBL) reported an 8.6% increase in the November quarter and a 3% increase in the August quarter. As a result, the Citi team see the expected 33% decline for the February quarter as a sign that iPhone production is going to fall off even more dramatically this year.

Apple expected to miss consensus

The analysts said recently that they believed Apple was cutting March production for the iPhone, although Jabil’s guidance was even worse than they were projecting. They believe Apple cut builds for the iPhone 5C from 23 million to 15 million during the December quarter and note that the iPhone 5S is now much more readily available.

The analysts said if they assume Jabil’s expected sequential production decline corresponds directly to Apple’s build activity, then it would suggest 38 million units for Apple’s March quarter. They said if there are more iPhone 5C handsets in the reduction, then unit production could fall even lower. Consensus estimates suggest Apple Inc. (NASDAQ:AAPL) will ship 42 million iPhones for the March quarter.

Citi continues to rate Apple as Neutral with a $580 per share price target.