Apple Downgrade at Citigroup Sends Asian Suppliers’ Shares Down

Apple Inc. (AAPL)’s Asian suppliers fell after the iPhone maker was downgraded by Citigroup Inc. because a cut in orders to its vendors raised concerns about demand for the iPhone 5 model.

“We are turning cautious on Apple supply chain, as we believe we are at the peak of many product cycles,” Jeff Pu, a Taipei-based analyst at Fubon Financial Holding Co., wrote in a report today. “The most important message is ‘iPhone 5 is game over,’ as demand appears to be weaker than expected -- i.e., US peaking, China launch just so so.”

Hon Hai Precision Industry Co. (2317), the iPhone assembler, tumbled the most in more than seven months in Taipei trading, leading shares of speaker supplier AAC Technologies Holdings Inc. (2018), Flexium Interconnect Inc. (6269) and other vendors lower. Cupertino, California-based Apple, the world’s most-valuable company with a market capitalization of $480 billion, fell to the lowest level since Feb. 17 in Friday trading in New York.

The iPhone, which debuted in 2007, is Apple’s biggest product by revenue. It accounted for 51.42 percent of revenue in the year ended September, according to data compiled by Bloomberg.

The prospect of weak iPhone 5 shipments creates near-term earnings downside for Apple’s supply chain, and the companies are likely to see further selling pressure in the near term, Citigroup analyst Kevin Chang wrote in a note dated Dec. 14.

Photographer: SeongJoon Cho/Bloomberg

The iPhone, which debuted in 2007, is Apple’s biggest product by revenue. Close

The iPhone, which debuted in 2007, is Apple’s biggest product by revenue.

Close
Open
Photographer: SeongJoon Cho/Bloomberg

The iPhone, which debuted in 2007, is Apple’s biggest product by revenue.

Samsung, Google

Citigroup analyst Glen Yeung downgraded Apple to neutral from buy and reduced his price target to $575 from $675. Near- term supply-chain order cuts, while inconclusive, raise questions about iPhone 5’s strength, Yeung said in the note after checks of the hardware supply-chain in Asia.

Taipei-based Hon Hai fell as much as 5.5 percent to NT$86.50 and Taiwan’s Taiex index lost 1.1 percent, poised for the biggest decline since Nov. 13 and making it the worst- performing gauge in Asia today. AAC declined as much as 8.6 percent to HK$25.05 in Hong Kong trading. Apple fell 3.8 percent to $509.79 in New York trading Dec. 14.

Apple is vying with rivals Samsung Electronics Co., HTC Corp. and Google Inc.’s Motorola Mobility for dominance in a global smartphone market that reached $219.1 billion last year, according to data compiled by Bloomberg Industries. Those manufacturers primarily use Google’s Android operating system, which is the world’s most-popular mobile software.

Galaxy Competition

“Apple is still a very popular product but it’s not breaking massive records like it would have two years ago,” said Shaun Rein, managing director of the China Market Research Group. “Apple is losing its luster. It’s not the prestige status symbol it once was, and it’s not the market leader any more for high-end smart phones.”

Apple’s global introduction of the iPhone 5 was Sept. 21, and more than 5 million devices were sold in the nine countries and territories that participated in the first wave of sales, the company said Sept. 24. The model is Apple’s flagship phone to take on the Galaxy S III produced by Samsung, the Suwon, South Korea-based company that’s the world’s biggest phonemaker.

Apple today said iPhone 5 posted record sales in its first weekend of availability in China, the world’s largest mobile- phone market by users. The company sold more than 2 million of its latest handsets in the three days following its Dec. 14 introduction in the country, according to a statement.

$35 Billion Erased

Carolyn Wu, a Beijing-based spokeswoman for Apple, said she didn’t have comparable data to release on initial sales in China of previous models.

Apple shares declined the most in almost four years on Dec. 5 because of concern the company will lose ground in smartphones to Nokia Oyj in China while giving up market share to Google in tablets. Apple’s 6.4 percent fall that day erased $34.9 billion from its market value, the steepest loss since at least 1988, according to data compiled by Bloomberg.

Apple “is losing some steam as it’s no longer leading the innovation and the competition is closing in quickly and sometimes are ahead of Apple in hardware specs,” said Sandy Shen, a Gartner Inc. analyst. “We’ve observed some serial iPhone users, people that have used several iPhone models, start switching to Android devices, indicating the company is losing some of its loyal users.”

--Edmond Lococo, Tim Culpan, Sarah Gill. With assistance from Weiyi Lim in Singapore and Nick Gentle in Hong Kong. Editors: Anand Krishnamoorthy, Michael Tighe.

To contact Bloomberg News staff on this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net; Sarah Gill in Sydney at sgill23@bloomberg.net

To contact the editor responsible for this story: Michael Tighe mtighe4@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.