Apple Inc. (AAPL) Poised For Weaker Than Average Q1

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Apple Inc. (AAPL) Poised For Weaker Than Average Q1
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Cantor Fitzgerald Equity Research managing director Brian J. White runs Apple Inc. (NASDAQ:AAPL) through a series of barometers and comes to some conclusions about how Apple is kicking off 2014.

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Summary: All of our Taiwan Barometers experienced weaker than typical seasonality this February.

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In our view, the early Chinese New Year this year negatively impacted January sales, but we believe it should have positively impacted February; however, this was not the case.

Final ODM Barometer February Sales are Weaker Than Average Seasonality

Final February sales for our ODM (original design manufacturer) Barometer declined by 10% MoM and was weaker than the average decline of 6% MoM for February over the past nine years. If we assume average MoM sales growth in March, we estimate 1Q:14 sales for our ODM Barometer will fall by 16% QoQ, slightly worse than the average decrease of 14% between 2006-2012 (we excluded 1Q:13 due to a change in revenue reporting). Our ODM Barometer primarily reflects trends in the notebook market but also has exposure to smartphones, LCD TVs, tablets, and other consumer electronic devices. In our coverage universe, Hewlett-Packard (30% of 1Q:FY14 sales) is the largest PC vendor, followed by Apple (11% of 1Q:FY14 sales).

Final Component & PCB Barometer Miss Seasonal Averages in February

Final sales for our Component Barometer in February fell by 18% MoM and was softer than the average decrease of 15% over the past nine years. In our coverage universe, Amphenol is an example of a component vendor, and it holds the #2 position in the connector market. For our PCB Barometer, final February sales fell by 21% MoM and were much weaker than the average decrease of 10% over the past nine years.

Apple Barometer and Hon Hai are Poised for a Weaker-Than-Seasonal 1Q:14

Final February sales for the companies in our Apple Inc. (NASDAQ:AAPL) Barometer fell by 28% MoM and were much weaker than the February average of down 10% over the past nine years. If we assume the average MoM March sales increase experienced over the past nine years for our Apple Barometer, we estimate 1Q:14 sales will fall by 33% QoQ, much weaker than the average decline of 17% between 2006-2012 (we excluded 1Q:13 due to a change in revenue reporting). In fact, this would represent the sharpest QoQ decrease in the March quarter in the history of our Apple Barometer. Also, Apple Inc. (NASDAQ:AAPL) supplier Hon Hai Precision Industry Co., Ltd. (TPE:2317) (OTCMKTS:HNHPF) reported a 17% MoM decline in sales during February, which was slightly softer than the average decrease of 16% over the past nine years. If we assume average MoM sales growth for Hon Hai during March, we estimate 1Q:14 sales will fall by 33% QoQ and be much weaker than the average decrease of 20% between 2006-2012 (we excluded 1Q:13 due to a change in revenue reporting). Given this extreme weakness, we wonder if there is a change in the timing of the iPhone cycle at Apple Inc. (NASDAQ:AAPL) in 2014.

A Weak February for Our Taiwan LCD Panel Barometer

February sales for our Taiwan LCD Panel Barometer fell by 9% MoM and were much weaker than the average decrease of 2% MoM for Februaries over the past eight years. In our coverage universe, AU Optronics and LG Display are examples of leading LCD panel makers, while Corning is a leading LCD glass vendor that sells into the panel supply chain.

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