What happened

Shares of Knowles (KN 1.53%), a manufacturer of micro-acoustic microphones and balanced armature speakers, slumped by 17% as of midday today. The move comes after a disappointing set of second-quarter earnings and guidance.

Consumer discretionary spending is weak, and Knowles' exposure to consumer products (Apple is its largest customer, representing 16% of its sales in 2021) means it's inevitably a victim of the slowdown. 

The company has two business segments. Sales in the Audio segment (audio products, microphones, speakers for mobile, computing, and health markets) declined by a whopping 14.2% in the second quarter to $128.5 million. In contrast, Precision Devices (capacitor products and radio frequency devices for technical customers) generated a 19% increase in sales in the quarter to $59.6 million. 

Management also announced a restructuring (to be complete by the fourth quarter) in the audio segment. The restructuring will cost $35 million to $45 million, with $23 million to $28 million in cash, but it is estimated to generate annual savings of $25 million to $35 million.

So what

The results and news are disappointing, and Knowles is not the only company suffering. However, the management of another company with smartphone exposure, industrial giant 3M (MMM -0.41%), recently argued that although phone production was forecast to be down 4% for the full year, production would be up 7% to 8% in the second half versus the first. As such, Knowles could see some relative improvement in the second half. 

Now what

Investors will be hoping that Knowles will pass an inflection point somewhere in the next quarter and begin to build a framework for sales growth in 2023, accompanied by the savings generated by the restructuring plan. All eyes are on smartphone/computing sales and production plans.