Apple's iPhone 7 Cuts On Semi Supply Chain: Not As Bad As Last Year

Business in the semiconductor segment appears to be “pretty good” and the implications of recent iPhone reductions on the semiconductor supply chain aren't as bad as they were last year, Bluefin’s Paul Peterson said in a report.

Semiconductor companies largely announced modest Q3 earnings beats, with revenue at 100 bps [basis points] higher than the consensus estimates. The projections for Q4 have on average been in-line with expectations, “breaking a string of disappointing growth guidance,” Peterson mentioned.

So far, Q4 seemed to be tracking slightly ahead of expectations, especially driven by strength in China. Management commentary suggested relatively healthy demand in the semiconductor market. Peterson commented that demand upside could continue to come from China, especially in view of the government’s aggressive monetary and fiscal policy.

Implications Of Recent iPhone 7 Reductions

The recent iPhone supply chain cuts had been mainly on account of weakening demand for Apple Inc.'s AAPL iPhone 7 model. Bluefin analysts reduced their March quarter estimate for builds by 10 percent, while keeping the December-quarter projections unchanged.

“While we do expect the recent forecast reductions to be a headwind for semiconductor suppliers with iPhone exposure in the March quarter, these cuts are not of the same magnitude of reductions for the iPhone 6s when cuts began in December 2015 and continued with additional reductions in January and April 2016,” Peterson wrote.

iPhone builds declined by 44 percent quarter-over-quarter in Q1 2016, while the reduction expected in Q1 2017 is 34 percent. Moreover, the Q1 2017 builds are currently 20 percent higher than the levels a year earlier.

The supply chain inventory glut had driven builds 7 million units below shipments in Q1 2016. This is unlikely to happen in Q1 2017, the analyst said. He added that the recent cuts would not have a significant impact on Broadcom Ltd’s AVGO outlook for the January quarter.