Apple Supplier Jabil Circuit Drops on Margin Challenge

Jabil Circuit Inc. (JBL) fell the most in more than a year after reporting profit that missed analysts’ estimates, a sign that higher spending to manufacture casings for Apple Inc. (AAPL)’s iPhone 5 is crimping margins.

Shares of the St. Petersburg, Florida-based electronics supplier declined 9.9 percent to $18.90 at the close in New York, for the biggest decrease since August 2011. The stock has lost 3.9 percent this year.

Apple is one of Jabil Circuit’s biggest customers, generating at least 10 percent of sales for the 2012 fiscal year, which ended in August. The business unit making the iPhone casings accounted for 70 percent of $481 million in capital expenditures for the year, with about $202 million of the outlay occurring in the fourth quarter.

“These guys are spending hundreds of millions of dollars to meet Apple’s supply needs for the iPhone in a very narrow window,” Thomas Dinges, an analyst at IHS ISuppli, said in a telephone interview today. “Most of it is in machining, hiring and R&D.”

Profit excluding some costs was 54 cents in the fourth quarter, trailing analysts’ average estimate by 4 cents, according to data compiled by Bloomberg.

“Results from the fourth quarter were negatively impacted by a challenging new program ramp,” Chief Executive Officer Timothy Main said in a statement yesterday. Beth Walters, a spokeswoman for Jabil Circuit, and Natalie Harrison, a spokeswoman for Apple, didn’t return calls seeking comment on Jabil Circuit’s role in manufacturing the iPhone 5.

‘Segment Underperformance’

Net income for the period fell 28 percent to $82.8 million, or 39 cents a share, from $114.3 million, or 52 cents, a year earlier. Revenue rose 1.4 percent to $4.34 billion, topping analysts’s average $4.22 billion estimate.

The diversified manufacturing services unit, which includes the iPhone casings business, contributed about 45 percent of sales in the period, or approximately $1.9 billion, the company said during a conference call yesterday. That was less than analysts had expected, James Kelleher, an analyst at Argus Research, wrote in a research report today.

“The disappointment in the diversified manufacturing services segment reflected underperformance in a large, complex new product ramp,” Kelleher said. “Although Jabil was tight- lipped, this operation may have been providing casings for the iPhone 5 ramp.”

For the 2013 fiscal year, Jabil Circuit expects to have “one 10 percent customer,” the company said during the conference call. That client is Apple, Sean Hannan, an analyst at Needham & Co., said in an interview today.

‘Aluminum Casing’

“Jabil has efficiency issues with the continued sharp ramp-up of the iPhone 5 production,” Hannan said. “Most suspect that Jabil is one of the important suppliers of the aluminum casing.”

Profit excluding some items for the fiscal first quarter, which ends in November, will be 51 cents to 62 cents a share, Jabil Circuit said. That fell short of analysts’ average 67 cent estimate.

Besides Apple, Jabil Circuit got at least 10 percent of sales from two other customers in fiscal 2012, Cisco Systems Inc. and Research In Motion Ltd. (RIM), the components maker said during the conference call.

To contact the reporter on this story: Ryan Faughnder in New York at rfaughnder@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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