Supplier Demand

Apple Bulls Can Find Cheer in Taiwan

Fresh sales results from Apple's main supplier may keep sentiment high.
Photographer: Lucas Schifres/Bloomberg
At Closing, February 16th
172.43 USD

It's not often that Apple Inc. analysts downgrade the stock. And with a 52 percent run-up this year, you can understand why the bulls have pummeled the bears.

Head over to Taiwan, though, and you'll notice that sell-side pundits have been concerned about shares of iPhone assembler Hon Hai Precision Industry Co. for about three months. Hon Hai is the Taipei-listed flagship of Foxconn Technology Group and gets half its sales from that one client from Cupertino, California.

To date, both groups of analysts have been right.

For most of the year, shares of Apple and Hon Hai charted the same path: upward.

But supply constraints, perceptions of weak demand and poor monthly sales figures at Hon Hai spurred the two to diverge.

Two Stories

Investors in Apple and Hon Hai were on the same page for most of this year until October, when shares of the supplier dropped and those of the client kept climbing

Source: Bloomberg

Analysts began curbing their enthusiasm for Hon Hai around mid-September, and the stock is down 19.3 percent from an Oct. 19 high. Apple's shares have advanced 13.1 percent since then and hit an all-time high on Monday before retreating a bit on Tuesday. Analyst ratings have trended upward. Until now.

Differing Views

Apple analysts kept raising their ratings after iPhone X was unveiled. Hon Hai analysts saw things differently.

Source: Bloomberg

Note: Buy = 5, Hold = 3, Sell = 1

A decision by Nomura Instinet's Jeffrey Kvaal to cut Apple to neutral takes the stock's consensus rating to 4.64 points out of a five-point scale, the lowest since October. Bloomberg gives five points for a buy, three for a neutral and one for a sell.

Hon Hai's consensus rating is now 3.85 with almost as many hold and sell calls (nine) as buys (11).

Yet those wanting to maintain a positive stance on Apple can also look to Taiwan, thanks to rules there that require monthly reporting of revenue figures. Hon Hai sales jumped 18.5 percent for November, a record high and the fastest growth in two years. 

Big Boost

Hon Hai, which assembles Apple's iPhone, saw a massive jump in November sales after earlier supply constraints

Source: Hon Hai

It's possible that not all of this boost will make it to Hon Hai's bottom line, eaten up by higher production costs or non-operating items. Yet most of it can be connected to iPhone demand, or at least Apple and its resellers' predictions for iPhone demand heading into the holiday shopping season.

And that alone may be enough to justify a little bit more Apple bullishness.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at

    To contact the editor responsible for this story:
    Daniel Niemi at

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