Apple Inc. (NASDAQ:AAPL) gets a thumbs up from Barclays analysts, but they’ve turned bearish on at least five of the company’s suppliers in Taiwan. These companies have benefitted from the iPhone 6 and 6 Plus launches, but now the analysts think they have peaked.
Apple (AAPL) suppliers downgraded
In a report dated Oct. 14, 2014, analyst Kent Chan and the rest of the Barclays team list the companies they have downgraded. They include Hon Hai Precision Industry Co., Ltd. (TPE:2317), Zhen Ding Technology Holding Ltd (TPE:4958), Unimicron Technology Corp. (TPE:3037), Radiant and ASE.
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Currently their top picks in Apple’s supply chain are Pegatron Corporation (TPE:4938), Catcher Technology Co., Ltd. (TPE:2474), Largan Precision Co., Ltd. (TPE:3008), Media Tek Inc. (TPE:2454) and Taiwan Semiconductor Mfg. Co. Ltd. (TPE:2330) (NYSE:TSM).
iPhone 6, 6 Plus shipments peak in Q4
The reason the Barclays team has become bearish on Apple Inc. (NASDAQ:AAPL)’s Taiwanese suppliers is because they don’t see an upside risk to iPhone sell-in forecasts for the fourth quarter. They estimate 90 million units or 70 million to 80 million units if there continues to be a shortage of iPhone panels.
One reason they think Taiwanese suppliers have peaked is because of the rollover in earnings revision indices for hardware and semiconductors. Also they noted high PC inventories, although they have bottomed out and seem to be rising within the supply chain. In addition, they noted that investors sold off the Asian supply chain after Apple launched the two new iPhone models.
As a result, they think expectations for Apple Inc. (NASDAQ:AAPL) suppliers might be too high. They do say that it’s possible they’re making this call a quarter early though, noting that earnings won’t be out until late January or early February. Nonetheless, they expect to see sales peak in November. They’re recommending “that investors trim Apple exposure into this strength” because they don’t see a big enough catalyst next year to beat this year’s iPhone 6 and 6 Plus success.
Still bullish on Apple
They do continue to like Apple Inc. (NASDAQ:AAPL), however, saying that they see upside to the company’s margins throughout the iPhone 6 cycle because of the apparent mix shift toward the more expensive iPhone 6 Plus. They also expect benefits from the company’s pivot toward software and services, which of course would make Apple be more than just hardware.
The Barclays team reiterated their Overweight rating and $116 per share price target on Apple Inc. (NASDAQ:AAPL).