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Pacific Crest Sees Near-Term Risk For Apple (AAPL) Supply Chain as iPhone 6s Sell-Through Disappoints (ARMH) (AVGO) (SWKS)

November 3, 2015 8:54 AM EST
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As Apple (NASDAQ: AAPL) iPhone 6s sell-through continues to disappoint, it increases near-term risk for the supply chain, according to Pacific Crest analyst John Vinh. The report noted iPhone inventories continue to build and supply-chain feedback indicated increased risk to outlook.

"Our carrier survey for October indicates iPhone 6s sell-through fell short of expectations and continued to decline meaningfully on a year-over-year basis. Accordingly, inventory levels have increased sharply since the launch on Sept. 25. Despite being only one month into the launch of the iPhone 6s, inventory levels on a days-of-inventory (DOI) basis have already exceeded levels that were not reached until three months after the launch of the iPhone 6. While we previously encountered tight supply of the "rose gold" iPhone 6s and of the larger iPhone 6s Plus, our latest monthly surveys indicated ample supply of both," said Vinh.

"Conversations with supply-chain partners indicate a reduction to Q4 component orders for some suppliers, while component suppliers with longer lead times have seen a reduction in 1Q16 expectations and some expect a below-seasonal Q1, which is normally down 30% sequentially. Thus far, four out of six key Apple suppliers (Dialog (DLG.DE), INVN, NXPI and SYNA) have either missed Q3 estimates, guided Q4 lower or both," continued the analyst.

Vinh added, "Given disappointing sell-through, rising inventories and lowered component orders, we see risk to forward estimates for ARMH (NASDAQ: ARMH), AVGO (NASDAQ: AVGO), QRVO (NASDAQ: QRVO) and SWKS (NASDAQ: SWKS). Until we get through a reset in forward expectations in regard to Apple iPhone expectations, we believe Apple supplier-related names will likely remain range-bound. For the long term, our favorite names in mobile are ARMH, AVGO and SWKS."

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