Apple Supply Chain Faces Risk Here, Pacific Crest Warns

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  • Pacific Crest’s John Vinh said that iPhone 6s sell-through had been disappointing in October, resulting in a significant inventory build.
  • Apple Inc. AAPL supply-chain names are likely to remain range-bound, and there is risk to their forward estimates, Vinh mentioned.

Pacific Crest’s carrier survey indicated that iPhone 6s sell-through continued to be short of expectations in October, while declining significantly on a y/y basis. Disappointing iPhone 6s sell-through resulted in a spike in inventory levels in October.

“Despite being only one month into the launch of the iPhone 6s, inventory levels on a days-of-inventory (DOI) basis have already exceeded levels that were not reached until three months after the launch of the iPhone 6,” analyst John Vinh wrote.

Conversations with supply chain partners had indicated lower-than-anticipated component orders in Q4 for some suppliers, while component suppliers with longer lead times have suffered a downward revision in 1Q16 expectations. Some have indicated a below-seasonal Q1, which is normally down 30 percent sequentially.

Thus, there is increased risk to the estimates for 4Q15 and 1Q16. “Until we get through a reset in forward expectations in regard to Apple iPhone expectations, we believe Apple supplier-related names will likely remain range-bound,” Vinh commented.

There is risk to the forward estimates for ARM Holdings plc (ADR) ARMH, Avago Technologies Ltd AVGO, Qorvo Inc QRVO and Skyworks Solutions Inc SWKS. “For the long term, our favorite names in mobile are ARMH, AVGO and SWKS,” Vinh mentioned.

Pacific Crest has an Overweight rating on ARM Holdings [$63 PT], Avago Technologies [$170 PT] and Skyworks Solutions [$100 PT], and a Sector Weight rating on Qorvo.

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Posted In: Analyst ColorReiterationAnalyst RatingsMoversJohn VinhPacific Crest
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