Dive Brief:
- Suppliers for Apple took a stock market hit after the tech company warned investors it was lowering its first quarter revenue forecast, Financial Times reported.
- AMS, a European chipmaker that supplies Apple, saw its shares drop nearly 20% after Apple warned of slowing iPhone sales. Asian suppliers' stocks also fell, as did shares of Samsung.
- In a letter to investors, Apple CEO Tim Cook pointed to a slowing economy, particularly in China. "We believe the economic environment in China has been further impacted by rising trade tensions with the United States," he wrote.
Dive Insight:
With a company as large and dominant as Apple, any uncertainty or concern in the company reverberates quickly and sharply throughout the company's supply chain.
Investors appear to be not only losing confidence in the tech company — which has seen its stock drop almost 40% since October 2018 — but its suppliers as well. Two Hong Kong-listed Apple suppliers' stocks fell after Apple issued its warning, putting them among the worst performers of the day, according to Financial Times.
Cook acknowledged in his Jan. 2 letter to investors that Apple expected a difficult first quarter, due to the timing of the release of new iPhone models. Last summer, the tech company warned its suppliers to send fewer iPhone parts, projecting lower demand for the phones in the second half of 2018.
The company also anticipated some economic challenges in emerging markets, although "this turned out to have a significantly greater impact than we had projected," Cook wrote. "We did not foresee the magnitude of the economic deceleration."
The stock market can at times be fickle and reactive, but in this case, Apple's struggles may be indicative of a larger global economic trend.
The tech company's troubles send a message for companies doing business in China, or suppliers with customers that do business in China, that the effects of trade tensions and a slowing economy are rippling to consumers, curbing demand and spending.
I think Apple is hitting a difficult iPhone period. People are upgrading less, carrier subsidies aren’t enough, and $1,000 phones are making consumers pause and consider. Mix that in with fears of a recession, and 2019 could be challenging for Apple and many others
— Tom Warren (@tomwarren) January 2, 2019
Although Cook pointed fingers at China nearly a dozen times in his letter, many analysts believe Apple's underlying issues are far more complex than a slowdown in one market. The smartphone market worldwide is highly saturated with fierce competition, and consumers are upgrading to new phones less often.
