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Apple, Suppliers Drop As Company Cuts Demand For iPhone Parts

Apple, Suppliers Drop As Company Cuts Demand For iPhone Parts
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Apple Inc. (NASDAQ: AAPL) advised its supply chain to cut iPhone component production by about 20 percent in the back half of the year, according to a Friday report from Nikkei Asian Review.

The tech giant expects to ship just 80 million iPhone units this year against the 100 million forecasted around the same time last year.

Apple’s stock dropped 2.2 percent on the news.

Why It’s Important

The move vindicates analysts’ anticipation of Apple’s shift from a hardware focus to a services focus.

Loup Ventures’ Gene Munster expects five-year services growth from 14 percent to 20 percent of total revenue; Bernstein’s Toni Sacconaghi expects services revenue to double by the end of 2020; and KeyBanc’s Andy Hargreaves expects the segment “creates a more stable profit pool than hardware.”

The transition may be healthy for Apple, but not for Apple’s supply chain.

Lumentum Holdings Inc (NASDAQ: LITE) fell 2.6 percent on the news, while Qorvo Inc (NASDAQ: QRVO) dropped 1.9 percent and  Broadcom Inc (NASDAQ: AVGO) 2.2 percent.

What’s Next

If analyst instincts are correct, the decrease in devices and rise in services could push Apple toward a higher-margin mix.

Apple did not yet comment on the report.

Related Links:

Maxim Group: Apple's Long-Term Services Business 'Not Attractive Enough' For Bullish Rating

What's Driving The Ramp In Apple's Services Revenue?

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