Apple Cuts iPhone Parts Orders; Entire Ecosystem Plunges

Apple (NASDAQ: AAPL) never falls alone.

When Cupertino's shares took a 4.5% plunge on Friday, it brought a whole bunch of peripheral stocks along for the ride. Some fell even harder than Apple.

Audio-chip supplier Cirrus Logic (NASDAQ: CRUS) lost as much as 7.6%. Wireless-radio producer Skyworks Solutions (NASDAQ: SWKS) took an 8.5% dive. Camera-chip designer OmniVision Technologies (NASDAQ: OVTI) lost 3.5% at most, and even mighty Qualcomm (NASDAQ: QCOM), which ships a number of chips in every iPad and iPhone, dropped 5.2%. And the beat goes on.

This is the downside to riding Apple's powerful coattails. When Apple jumps, so do Cirrus and Skyworks. But when Cupertino drops, OmniVision and Qualcomm take a fall, too.

AAPL Chart

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That's particularly true when Apple's weakness stems from potential shortfalls on unit sales. These suppliers couldn't care less whether Apple maintains its ultra-rich profit margins, but disappointing unit sales are cause for concern.

And that's what's happening here. In separate research notes, two analyst firms slashed their iPhone unit forecasts based on order cuts they've seen while talking to Chinese supply-chain players. Jefferies analyst Peter Misek posits that Apple may have built too many iPhones in the current quarter while UBS analyst Steve Milunovich saw the iPhone 5 doing worse than the previous generation's iPhone 4S.

Both firms took great pains to explain that Apple isn't dead or even dying, but the prospect of "peak iPhone" must be unnerving to Apple investors.

I would add that Apple's margins and bottom-line profits would be damaged if consumers start looking for lower-cost alternatives. Cupertino would obviously rather sell iPad 3 and 4 rather than the iPad Mini and graybeard iPad 2, because the newer products carry much wider margins. The same goes for iPhone 5 versus older and cheaper iPhone 4S models.

But many of its component suppliers really don't care. Some Qualcomm and Cirrus chips haven't changed at all from one generation to the next, and a unit is a unit is a unit. So if Apple has started to cannibalize itself, this could be a great time to start positions in many of its hangers-on.

Playing Apple by proxy still seems like the safest bet to me. Qualcomm and Cirrus get my vote as the Apple suppliers most likely to thrive if Cupertino goes haywire, but your mileage may vary.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and, more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On December 15, 2012, at 6:40 PM, peto3 wrote:

    Rank speculation and conjecture from a couple of headline seeking analysts courtesy of their highly questionable "sources" resulting in billions of dollars of lost market capitalization ...

  • Report this Comment On December 16, 2012, at 8:17 AM, lrd555 wrote:

    Like it doesn't take a rocket scientist to figure out they with less than a week until Xmas, Apple would start cutting orders for the 1st quarter of 2013.

    Anyone who understands the supply chain would know this.

    Then again, that's what happens when you get a bunch of liberal arts majors blogging- useless crap.

  • Report this Comment On December 16, 2012, at 10:08 AM, applefan1 wrote:

    I think Hurricane Sandy impact was unknown and that's probably a large part of any pull back.

  • Report this Comment On December 16, 2012, at 10:05 PM, vv234 wrote:

    I think the margin pressure is real whether we like it or not. It's hard to imagine Apple can sell a lot of Iphone 5 at

    $850 each in China. If they refuse to lower the price, their market share in China will have to go down even further given that Nokia's recent deal with China Mobile.

    I do not think Apple wants to go back to niche product maker again. So they have to act fast by lowering their prices to protect/grow their market shares.

  • Report this Comment On December 18, 2012, at 4:13 PM, AnalystsRchumps wrote:

    Blind and stupid(read as typical analysts,such as the authors of these articles) leading the gullible. I d like to see a substantial increase in per trade taxes and short term capital gains on corporate investors. Will put a dent in these manipulators and chicken littles. One week it's gold same stock a few weeks later becomes lead. Wall Street idiocy. And these aren't even liberal arts ppl. They are just dumb and contribute nothing to society.

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