Chipmaker Cirrus Logic (NASDAQ:CRUS), which supplies audio-related chips to smartphone giant Apple (NASDAQ:AAPL), issued an earnings warning after market close on Jan. 7. The company, which derives much of its revenue from Apple, said that fiscal third-quarter revenue would come in at just $347 million, down from a previous guidance range of $370 million to $400 million.
Cirrus also expects that the weakness that it saw in its fiscal third quarter to "significantly impact [its] revenue in the March quarter."
Separately, RF component vendor Qorvo (NASDAQ:QRVO) (the combination of TriQuint Semi and RF Micro Devices) also issued a revenue warning. The company now expects fiscal third-quarter revenue of just $620 million, down from a previous guidance range of between $720 million and $730 million.
It's also calling for fiscal fourth-quarter revenue to be "flat" to the levels that it saw in its fiscal third quarter, coming in well below consensus of $641.87 million.
I don't think there's any doubt at this point that Apple has cut -- quite significantly -- its iPhone component orders. We're no longer talking about rumors but actual, reported financial results.
Wait, how do you know that this is related to Apple?
The immediate response that I would expect to this assertion is something along the lines of: "Well, how do you know that these supplier cuts are Apple related and not due to weakness elsewhere in the smartphone market?"
Well, the Cirrus Logic comments pretty much give it away.
The company is reporting weakness in its December quarter, during which it was probably supplying components for what Apple is building for its own March quarter and claims that the weakness "escalated over the last few weeks of December."
That's pretty much in line with what the rumors have been pointing to.
Furthermore, the company says that this weakness is expected to persist into the March quarter, during which Cirrus is likely building products in support of Apple's iPhone shipments for the June quarter.
Given that the non-Apple flagship phone vendors haven't even launched their new phone models yet, it's hard to imagine that they are already "cutting orders." It's even more doubtful that they would have much visibility into the kinds of build activity that would need to happen for these phones to support demand in the June quarter.
There is little doubt in my mind that Apple is responding to lackluster demand for iPhone 6s/6s Plus by cutting component orders.
It will be interesting to see how Tim Cook and his team explain this
At this point, it's clear that Apple is going to issue lackluster guidance for its fiscal second quarter. I am genuinely curious to see how Apple CEO Tim Cook and CFO Luca Maestri will explain this shortfall to shareholders on Jan. 26.
The problem that I see is that there's no explanation that makes things look "good" for Apple -- just "bad" and "less bad."
If the iPhone 6s/6s Plus aren't doing that well because the products simply aren't compelling enough, then Apple should be able to "course correct" by introducing substantially better products with the iPhone 7/7 Plus.
If the iPhone 6s/6s Plus aren't doing that well because the high end of the smartphone market has basically hit saturation, then this is a worse situation for the iDevice maker as it's not clear that a new iPhone -- no matter how compelling it is -- will do much to "fix" the situation.
At any rate, there's no way that Apple management would admit to the first on an earnings call, especially at this point in the iPhone 6s/6s Plus lifecycle (even if it were true). I do expect management to, perhaps, cite macroeconomic issues, currency headwinds, and perhaps a few other non-Apple-specific issues.
Jan. 26 can't come soon enough.