(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of AAPL.)
Apple Inc.'s (AAPL) stock came under pressure the week of December 26, 2017, on reports that the company was slashing its sales forecast of the iPhone X to 30 million units from 50 million units for the upcoming fiscal second quarter of 2018. But two Apple suppliers, Broadcom Ltd. (AVGO) and Jabil Inc. (JBL), have not indicated such a dramatic cutback (of nearly 40 percent) in iPhone orders based on their recent forward quarterly guidance.
The forward guidance from both Jabil and Broadcom came in higher than analyst estimates when both companies reported results in mid-December. Broadcom's current quarter runs mid-way through Apple's fiscal second quarter, while Jabil's current quarter likely ends in February, nearly two-thirds of the way through Apple's second quarter.
If Apple were slashing production numbers, why would Broadcom and Jabil have issued better-than-expected guidance for the current quarter? It is possible a significant slowdown could come in March, but Jabil noted that it expects to see continued growth throughout the second half of 2018.
In its 2017 10-K filing, Jabil noted that Apple accounted for 24 percent of its total revenue in fiscal 2017, 2016, and 2015. On December 14, the company provided revenue guidance of $4.9 billion at the mid-point and adjusted earnings per shares of $0.62 for the fiscal second quarter.
Both the revenue and EPS estimates came in better than analyst projections of $4.75 billion and $0.60 per share, according to data from YCharts.
The previous week, Broadcom also issued guidance for its fiscal first quarter, calling for revenue of $5.3 billion at the midpoint, which was higher than analyst estimates of $4.78 billion. According to its latest 10-K, Broadcom noted that in fiscal 2017, Apple accounted for more than 20 percent of its total revenue.
A Big Slowdown?
Something seems off with the recent reports of Apple slashing iPhone X orders by nearly 40 percent. Two of its suppliers have yet to see an impact, at least through the end of February.
Could Apple be preparing for a big slowdown in future quarters? It's possible, but it is likely that products and shipments from both Broadcom and Jabil will be used in a period after March because of a lead time that is needed in preparing that many parts.
As of right now, the rumors of a significant Apple decline in iPhone production has yet to show up in the supply chain.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.