Apple Celebrates New iPhone Models as Asia Suppliers Suffer

Share on Facebook Tweet Share Share Reddit Comment
Apple Celebrates New iPhone Models as Asia Suppliers Suffer

Highlights

  • General Interface Solution is the worst performer in MSCI Taiwan Index
  • There is increasing competition from Chinese suppliers
  • Apple assemblers need higher volumes to drive profit growth: expert

With a suite of new devices and a market value of $1 trillion (roughly Rs. 72,000 crores), Apple has given its investors cause to celebrate. That's not the case for a number of its suppliers in Taiwan which have suffered from stagnating shipment growth.

General Interface Solution Holding is the worst performer in the MSCI Taiwan Index over the past year, dropping 58 percent. Also making the top 10 of poor performers are Apple's main iPhone assemblers, Hon Hai Precision Industry Co. and Pegatron Corp. which have both slumped by more than a third.

Apple's focus on selling higher priced devices as well as content and accessories is leading to a boost in revenue and profit even as the number of iPhones it ships remains little changed. The Taiwanese hardware makers are struggling to adjust to that new dynamic because they rely on the number of devices sold for their revenue and don't see any income from their major customer's other businesses.

"Apple suppliers are no longer relatively attractive investment targets because the number of units sold are not growing and there are few technological breakthroughs," said Christine Wu, vice president at Yuanta Securities Investment Trust.

Assemblers such as Hon Hai and Pegatron need higher volumes to drive profit growth, said Kevin Liu, Taipei-based fund manager at Eastspring Securities Investment Trust.

"Low factory utilisation rate certainly will hurt suppliers' profitability. Further, Apple's strategy to ensure its own profits is to cut suppliers' asking prices while recruiting more suppliers," Liu said. "Assembler margins are affected by a rise in the component and labor costs, plus iPhones are not selling fast enough, so their stocks remains weak."

While Taiwanese companies have traditionally had an edge when it comes to supplying Apple and its peers, massive investments by Chinese rivals is narrowing the gap. O-film Tech Co. is eating into the market share of Global Interface and TPK Holding Co., according to William Tsai, an analyst at President Securities.

"Chinese competition is a long-term threat and this is part of the reason why both companies will see their profits drop this year," said Tsai.

General Interface has had its recommendation cut by at least two brokers since the start of last month, including Macquarie which warned of a hit to margins as customers change their product lines and competition from China increases. According to the average of estimates compiled by Bloomberg, its net income will slump 23 percent this year.

Earnings at Hon Hai are expected to slump 12 percent this year while profits for TPK could slide more than 40 percent.

"For Taiwan suppliers, there is also increasing competition from Chinese suppliers," said Manish Nigam, an analyst at Credit Suisse Group AG. "So if units are not growing and suppliers grow from two companies to four companies, obviously that's not good for you."

The benefits for Taiwanese suppliers may be more closely aligned to the price of the latest devices, with cheaper iPhones potentially leading to a growth in volumes.

"Apple products are not going to lift all boats. It's going to lift a few, but not all," Credit Suisse's Nigam said.

© 2018 Bloomberg LP


Will Apple ever launch reasonably priced iPhones in India? We discussed this on Orbital, our weekly technology podcast, which you can subscribe to via Apple Podcasts or RSS, download the episode, or just hit the play button below.

Comments

For the latest tech news and reviews, follow Gadgets 360 on Twitter, Facebook, and subscribe to our YouTube channel.

Further reading: Apple, Taiwan
Apple to Revise Out-of-Warranty iPhone Battery Replacement Price on January 1
Jio Effect: Airtel Rs. 97 Combo Recharge Offers 1.5GB Data, 350 Minutes of Voice Calls
 
 

Advertisement

 

Advertisement