For weeks now, Apple Inc. (NASDAQ:AAPL) has been said to be cutting production of its iPhone 5C because of weak demand. Earlier reports had been toned down by media outlets, although now we have what some may consider to be more concrete evidence that those reports might be true. Pegatron Corporation (TPE:4938) (OTCMKTS:PGTRF) reported weak third quarter profits today, and it sounds like production ramp-up is to blame. Unfortunately for Pegatron, suggestions that iPhone 5C production is being cut also continue, which may mean the company won’t see very good returns on its ramp-up costs.
Pegatron helped and hurt by Apple’s iPhone 5C
Foxconn Technology Co., Ltd (TPE:2354) has long been Apple Inc. (NASDAQ:AAPL)’s iPhone supplier, but Pegatron got into the action with the iPhone 5C this year. That new contract was a boon for Pegatron, but if Apple’s production cuts are why Pegatron missed expectations for profits, then it may turn out to be a curse.
Pegatron reported net profits of NT$2.48 billion or $84.29 million, which came up short of analyst estimates of NT$2.55 billion. That’s still a 52% increase compared to last year’s third quarter results. The company’s third quarter revenue was a new record high of NT$253.98 billion. Pegatron Corporation (TPE:4938) (OTCMKTS:PGTRF)’s September sales almost doubled from August and increased 75% year over year. However, manufacturing operating margins were still less than 1% because of ramp-up of production for the iPhone 5C.
The Apple Inc. (NASDAQ:AAPL) supplier also warned that sales growth will slow down during the December growth to single digits for their non-computing segment.
Apple said to cut iPhone 5C orders
The Wall Street Journal’s Eva Dou reports that Pegatron Corporation (TPE:4938) (OTCMKTS:PGTRF) reported record third quarter revenue tempered by lower profit margins because of costs associated with ramping up production of the iPhone 5C. She also reports that after Pegatron spent to ramp up iPhone 5C production, Apple Inc. (NASDAQ:AAPL) slashed orders of the handset while increasing orders for the iPhone 5S with Foxconn’s Hon Hai. Reuters also reports (via Yahoo! Finance) that Apple is cutting orders for the iPhone 5C. At this point these reports of order cuts seem just as unsubstantiated as they were when The Wall Street Journal first reported them, but it’s difficult to tell since Apple doesn’t break down its iPhone sales by handset.
Analysts estimate that Apple Inc. (NASDAQ:AAPL) makes up about 30% of sales at Pegatron and 40% of sales at Hon Hai.