Includes a helpful list of stocks not to buy.
From a note to clients by Rosenblatt’s Jun Zhang that landed on my desktop Thursday:
We believe Samsung’s supply chain faces increasing inventory risks. We expect some component inventory at Samsung to reach ~8-weeks, higher than the normal 4-week inventory level. In addition, we believe Samsung’s smartphone shipments may decline 8-10% y/y in Q4 due to weak sales for the Samsung Note 9 and midend products. We believe the weak sales are mainly due to Samsung losing share to Chinese OEMs in many markets, including the European markets.
We believe Apple’s supply chain may also face risks after the holiday season. We believe this is due to weak iPhone XS sales, as well as weaker than expected iPhone XR preorders. Apple’s initial component orders have been conservative, however, leading us to believe there is more likely to be a small correction in the Apple supply chain around the holiday season.
Overall, we suggest investors avoid smartphone supply chain companies. We highlight our cautious view on Universal Display, Skyworks, Qorvo , Synaptics, Dialog Semi, Cirrus Logic, AAC Technologies, Sunny Optical, and Mediatek. We believe STMicroelectronics and Maxim’s business at Samsung may also face some inventory correction risk.
My take: I’d worry more about Samsung’s suppliers.
It’s way too early for this kind of speculation. But that’s never stopped writers and publisbers of this crap before….
The analyst is claiming, “weak iPhone XS sales, as well as weaker than expected iPhone XR preorders.” I think the claims lack validity. It’s kind of you to even respond to the remarks.
As to the other smartphone maker mentioned, we know already the manufacturer is vulnerable to competition in a commodity market and the operating system used on those devices is fading in relevance in the high-end smartphone market.
(Incidentally, to me it makes sense to take the quarter just past and the current quarter as a unit, since the staggered introduction of the iPhone models will likely raise ASPs for the FY4thQ at the expense of units sold, and lower ASPs for the current quarter, as massive sales of the iPhone XR roll in — higher volume, lower sales price.) Sadly, the Street is blind to these subtleties, so we will have to deal with the quarterly results and their fallout separately.
I think you’re on the mark when you say “the Street is blind to these subtleties”. And it has been that way for a long time.
Somewhat OT, this market has been ignoring the elephant in the room, Apple’s cash generating capability, for the last ten years. Ignoring an elephant is relatively easy if you are always looking at stuff that’s only two feet away. Well, I’ve finally gotten 10 years of data that I can look at. From that far away, what it’s showing me is that Apple’s cash has been hard at work for the last ten years building value that even the myopic Mr. Market can no longer ignore. And as near as I can determine, that cash stream is only going to increase over time.
Apple closed today under $220/share. In the aftermarket, it plunged to close to $215/share. Talk about a “tell” on how completely misunderstood a stock AAPL is! This represents a golden opportunity for anyone buying AAPL, but you’d have to have enough long term vision to understand that, which very few have. At this point, I expect the general downward current of the market to impact the shares of AAPL going forward, holding the stock under where it should be. That is exceedingly good news for people like myself that are heavily invested in AAPL and would like to see Apple be able to leverage it’s cash to the maximum degree possible, juicing it’s buybacks and shrinking the number of “pie slices” the incredible Apple pie is cut into.
So from an odd POV, I’m actually grateful to poor old myopic Mr. Market. Isn’t that a kick?
I agree and appreciate your descriptive prose about Apple’s relationships with its suppliers. I also have come to the hard-earned conclusion if one desires to invest in Apple’s success the best investment is an investment in Apple.
To my knowledge, Apple contracts for production capacity whether or not the suppliers are tasked with delivering product up to that capacity. So when Apple clarifies the volume of its planned orders to its suppliers reports run rampant that Apple has “cut” its production requests. In my understanding, Apple doesn’t “cut” its orders. Apple clarifies the volume of product that will be ordered. Unfortunately, these reports occur every year as Apple clarifies the volume of its product or component orders following the peak demand period.
Apple often contracts for custom product and will pay above commodity-grade prices for the custom or specially designed product. It’s in the supplier’s financial interest to make Apple’s product orders a priority. Apple’s volume orders fuel the supplier’s ability to innovate and invest in product development.
In the article referenced, the analyst seems to say two contradictory things. The analyst first says Apple suppliers are at risk after the holiday season from “weak” demand and then says Apple’s supply orders have been conservative and thus the risk is diminished. So which is it?
On your point the June quarter and September quarters might best be viewed as a seamless 6-month period, I also agree. I would say the same about the December and March quarters as well.
As PED mentioned, the note best applies to supply orders from the other smartphone maker mentioned and has little to no applicability to Apple.