Time to Bail on AAPL Stock?
Apple Inc. (NASDAQ:AAPL) stock bulls are trying to paint a rosy picture for the company, but reports of tumbling chip shipments are poking holes in that thesis.
On Thursday, the Nikkei Asian Review reported shipments for “iPhone” chips will likely shrink by 70% to 80% versus their volume in the same period last year. (Source: “Apple suppliers face bleak year as demand for iPhone 7 weak,” Nikkei Asian Review, May 12, 2016.)
One source told the Japanese media company that peak season shipments will “not be able to compare to the past few years”: “Taiwan’s tech suppliers will get significantly fewer orders from Apple Inc. in the second half of this year compared with a year ago, no thanks to an ongoing slump in demand for premium smartphones and a lack of groundbreaking features for the upcoming iPhone 7, sources familiar with the matter told the Nikkei Asian Review.” (Source: Ibid.)
The news spooked traders. In Thursday trading, shares of AAPL stock plunged to a fresh 52-week low. As of 11:50 a.m. EST, shares were down 2.6% to $90.11.
Components makers are planted early in the supply chain, so they often signal what’s ahead for tech giants like Apple. While the slowdown in “iPhone 6” sales has been well documented, Apple stock bulls have argued the new “iPhone 7” will boost revenue later this year. Today’s report from Nikkei throws cold water on that idea.
Worse still, this isn’t an isolated report. Over the past few weeks, we’ve seen weak earnings reports from other suppliers. Component makers like Pegatron Corp., Minebea Co., and Japan Display Inc. all disappointed analysts. Adding to the dour mood, Lenovo Group Ltd. tumbled to fresh multi-year lows as analysts warned that rising competition could eat into margins.
If you wanted any more proof the iPhone bonanza is coming to an end, this is it. There’s only so much innovation you can cram into a six-ounce plastic box. With a smartphone in everyone’s pocket, the market is becoming saturated.
No wonder AAPL stock is getting its clocked creamed this morning. Brace yourself for slowing sales, tighter margins, and intense competition.