What: Shares of Cirrus Logic (NASDAQ:CRUS) fell 11% on Monday morning, dragged down by a business update from across the Atlantic. Dialog Semiconductor (OTC:DLGNF), a London-based industry peer and fellow components supplier to many Apple (NASDAQ:AAPL) devices, posted preliminary third-quarter results in the early morning hours. Many investors saw this report as a harbinger of bad news for Apple and its supplier ecosystem.
So what: Dialog missed analyst targets on both the top and bottom lines in the third quarter, and followed up with fourth-quarter revenue guidance far below the current analyst view. Dialog shares plunged 20% lower on the news. Since Apple represented 79% of Dialog's sales in 2014, there must be some sort of connection to Cupertino baked into this preliminary report. Apple shares fell as much as 3.3% on Dialog's news.
Now what: Cirrus, of course, derives about 80% of its annual sales from Apple, so any market news that just might indicate slow iPhone and iPad sales is sure to bring Cirrus down. Many other well-known Apple partners also swooned on Monday.
So why didn't Cirrus fall 20%, in lockstep with its similarly Apple-depended industry rival? Because there's no guarantee that Dialog's weakness will translate into disappointments across Apple's entire supplier network.
Yes, it's possible that Apple had to slow down its device builds due to sagging consumer demand. However, Dialog could also have lost the contract for one or more Apple devices, thus shifting that power conversion or radio signal amplifier opportunity to someone else. Or Apple may simply have renegotiated its Dialog agreements, leaving lower profit margins on the component supplier's end of the table.
So the problem could very well be Dialog's alone, and there's no guarantee that Dialog's bad news will translate into evil omens for Apple itself. Some Cirrus investors are making the pessimistic judgment call here, and others are hoping for a different outcome. That's how Cirrus shares landed at an 11% decline today.