Apple's dimming luster roils suppliers, investors
(Reuters) - Apple Inc marketing chief Phil Schiller let slip during last August's courtroom battle with Samsung that when setting forecasts for new iPhones, the inside joke was that people should assume sales would equal all previous versions combined.
Context & Ripple Effects
The story lands three months after Wall Street's January admission that it could not get a handle on Apple's numbers (Investors Struggle to Get Handle on Apple), and this week supplies the missing variable: growth assumptions. Phil Schiller's courtroom testimony that new-iPhone forecasts were set assuming sales equal to all previous versions combined is being read as evidence of how aggressive the internal baseline was.
The market has already voted — confirmed reporting puts the stock down more than 40% from its $702 September peak to about $406, trading at 9X earnings against a market average near 15X. With Samsung's Galaxy S4 arriving imminently to contest the high end against the HTC One, the question shifts from whether Apple decelerates to who carries the inventory and capacity risk when it does.
First-order effects
- Suppliers sized to the 'all previous versions combined' forecast logic now face order books calibrated to a growth curve the market has stopped believing, while holders of a stock at 9X earnings have already repriced the company below the market multiple.
Second-order effects
- Samsung's imminent Galaxy S4 launch gives component vendors an alternative flagship to allocate toward, weakening Apple's pull as the anchor customer just as its own volumes come into doubt.
Third-order effects
- If a dominant customer's internal forecasts can overshoot by this margin, contract manufacturers and component makers will be pushed to diversify their customer bases rather than build capacity to a single buyer's projections.
The trend: Smartphone supply chains are beginning to price the risk that a dominant customer's growth assumptions, not just its shipments, drive their own revenue volatility.