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The Force Touch Is Not With This Apple, Inc. Supplier

By Evan Niu, CFA - Jan 15, 2016 at 1:00PM

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Force Touch may not have turned out to be a major driver for iPhone 6s sales.

The steady stream of evidence that iPhone sales are indeed slowing continues. Analog Devices (ADI 0.27%) has just revised its guidance lower for the fourth quarter, which doesn't bode well for Apple (AAPL -0.19%), either.

Analog Devices provides the microcontroller that facilitates the new Force Touch feature in the new iPhone 6s and 6s Plus, and the company has acknowledged that a lot of the prior guidance range was being driven by a "specific product" that is "specific to one customer."

Moving on down
Now, Analog Devices expects sales to come in between $745 million to $765 million, down from the prior outlook of $805 million to $855 million. Analysts were modeling for the company to put up $830 million in revenue.

In no uncertain terms, the chipmaker attributes the lower sales to weakness in its "portable consumer business unit" that began in December and is expected to continue into the current quarter. Analog Devices says demand for its other business segments are still on track.

What it means for Apple and Analog
This is certainly a blow to Analog Devices, as its consumer segment has been an important growth driver. The consumer business comprised about a third of revenue last quarter at $317.4 million. That was up 53% sequentially and 234% year over year. Slower demand within this business hurts, but it isn't fatal by any means, since Analog Devices is diversified in many other sectors like industrial, automotive, and communications.

Apple, on the other hand, is far more susceptible to changing sentiments around its iPhone business. The Mac maker's weakness over the past month can be entirely attributed to negative storylines regarding iPhone demand, with various rumors that Apple is reducing orders at its suppliers. Analog's release reinforces these storylines.

Is Force Touch a flop?
It was obvious long ago that Force Touch would be the key selling feature of the iPhone 6s, even before Apple officially announced it. Apple Watch's 3D Touch was the clear precursor, and it seems that perhaps Force Touch isn't the effective upgrade driver that Apple had hoped.

The timing couldn't be worse, either. The possibility of an unsuccessful iPhone launch has always been a huge risk factor for Apple, and a potentially underwhelming upgrade cycle is coming at a time when the iPhone's growth potential is being questioned. It's not that the iPhone 6s is necessarily "unsuccessful," but it could be worse than expected.

A lack of interest in Force Touch also has implications for the iPad. The feature is expected to make its way to Apple's tablet eventually, even if it takes time to technically achieve it on the much larger display. But if the demand isn't there, Apple may not be able to rely on Force Touch to drive iPad upgrades either.

Apple has said that it expects the iPhone to grow in the fourth quarter, both in terms of revenue and units. That outcome is seemingly less likely by the day.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Apple Inc. Stock Quote
Apple Inc.
$174.22 (-0.19%) $0.33
Analog Devices, Inc. Stock Quote
Analog Devices, Inc.
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