Friendship With Apple Proving Costly For Suppliers

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Apple suppliers are projecting lower revenue for the first half of 2016, suggesting slow sales of the company’s latest iPhones. Often it has been that the first half of a year is relatively slow for Apple’s supply chain and for the broader gadget industry.

Blames weakening smartphone demand

On Thursday, Taiwan Semiconductor Manufacturing, which supplies chips for iPhones and other popular electronic devices, said it expects a revenue decline of 11% YoY basis in the first quarter. The Taiwanese firm cited weakening demand for high-end smartphones as the reason for the lower projections.

Yesterday, one of TSMC’s co-chief executives, Mark Liu, said at an investor conference that the company sees a decline in high-end smartphone demand, but he did not mention specifically the customers he was talking about. Liu said the company could see “signs of recovery” in China and other emerging markets and expects to return to growth after the first quarter.

Apple launched the iPhone 6s and iPhone 6 Plus last fall, and sales of both devices have been sluggish, indicating that the slowdown this year could be more pronounced than the booming popularity of the iPhone 6 in 2014, says a report from The Wall Street Journal citing people familiar with iPhone production.

Last week, The WSJ reported that Apple has cut its order forecasts to iPhone suppliers in the past few months. It has happened for the first time in the last 15 months that Apple’s stock price has dived below $100 due to concerns about slowing iPhone demand.

Warnings from other Apple suppliers

In a note, Credit Suisse stated that TSMC, the world’s largest contract chip maker, generates 20% of its sales from supplying components to Apple. The iPhone maker gets camera modules from Largan Precision, which too expects a weaker first quarter. Catcher Technology, which supplies metal casings for the iPhone, forecast revenue for the first half to be flat from what it was a year ago.

Earlier this month, Samsung Electronics, which supplies processors for smartphones, said it expects competition for all of its main products to intensify, memory chips included. The Korean firm not only supplies components to Apple but competes with it as well in selling smartphones in the U.S.

On Thursday, Apple shares closed up 2.19% at $99.52. Year to date, the stock is down by over 5%, while in the last month, it is down by almost 12%.

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