Apple Inc's shares fell below $400 on Wednesday for the first time since
December 2011 after a chip supplier's disappointing revenue forecast
fanned fears about weakening demand for the iPhone and iPad as
The stock dropped below $400 briefly before
bouncing back to end 5.5 percent lower at $402.80, losing more than $22
billion of market value in a single day.
Cirrus Logic, which makes
analog and audio chips for the iPhone and iPad, on Tuesday warned of a
reduced product forecast from one customer - which it did not name. But
90 percent or more of its business comes from Apple, making it a key
indicator of demand for iPhones and iPads.
The surprise warning
fueled fears that demand for the iPhone - which makes up more than half
of Apple's revenue - is falling faster than expected as Samsung
Electronics and other rivals who use Google Inc's Android software flood
the market with cheaper phones. Typically, many Apple fans also hold
off on buying the gadgets if they believe a new model will be introduced
in the next few months.
Apple is to report quarterly results on
Tuesday. Analysts say Cirrus Logic's reduced outlook lends weight to
arguments that consumers' love affair with the iPhone is waning as
challengers such as Samsung <005930.KS> vie for their attention.
is a tough environment. Apple is in transition between products," said
Michael Yoshikami, a portfolio manager at Destination Wealth Management,
which owns about 50,000 Apple shares. Cirrus's warning "makes it more
likely Apple's not going to surprise on upside."
September 2012 peak, Apple has lost 40 percent of its market value or
more than $280 billion - slightly more than Google's entire
capitalization - battered by worries about the effect on Apple's
industry-leading margins if it's forced to do faster updates of its
products to keep up.
Some believe Apple will not be able to
sustain its high gross margins as competition in the tablet and
smartphone markets leads to lower prices. Shorter product cycles limit
Apple's ability to bring down component costs, Bernstein Research
analyst Toni Sacconaghi said in a note to clients.
forecast follows a 19 percent decline in first-quarter sales at Taiwan's
Hon Hai Precision Industry Co Ltd, Apple's main contract manufacturer.
a reminder of weakening demand and the challenges around product
transitions," Shannon Cross, of Cross Research, said. "There's not a lot
of conviction about what the second half is going to look like."
Communications Inc, which with Vodafone controls the No. 1 U.S.
wireless carrier Verizon Wireless, reports results on Thursday and may
offer more clues to iPhone and iPad demand in the quarter.
Investors are growing increasingly nervous about Apple's growth prospects.
of other chip makers and Apple suppliers, including Qualcomm, Avago
Technologies, Broadcom and Skyworks, fell between 2 and 6 percent on a
day that saw broad weakness in financial markets.
analyst Bill Shope said in a note on Wednesday that Apple's momentum
could weaken further before it launches new products later this year.
which relies heavily on new products to drive its revenue growth, has
not had a launch since last October when it unveiled its 7.9-inch iPad
mini and an updated full-size iPad.
The company typically launches
a new iPad in the spring, but it is unlikely to do so because of the
October update. Looking forward, investors now expect an upcoming new
iPhone to power earnings in the second half. The two versions of the
iPad are also likely to get an update in the fall.
In the past
week, analysts had reduced their estimates for Apple's March quarter
revenue on average to $42.53 billion from $42.68 billion. Following
Cirrus' warning on Tuesday, some think Apple's results could miss those
already reduced expectations.
Apple is expected to report a 9
percent increase in quarterly revenue, with net profit expected to
decline 17 percent to $9.59 billion, or $10.08 a share, for its fiscal
second quarter, according to average analysts' estimates.
who lowered his revenue estimate to $41.1 billion from $42.4 billion,
said he expects mixed results with Apple's revenue coming in below
consensus and earnings per share largely as expected.
implied volatility, which measures perceived risk of future stock
movement, shot up on Wednesday. The implied volatility for the next 30
days for Apple stood at 43.73 percent, a 16.7 percent increase.
price volatility should increase into earnings and surpass an annual
high in the next few days, said Ophir Gottlieb, managing director of
options analytics firm Livevol.
© Thomson Reuters 2013