Apple (AAPL) Slapped on a Double Dose of Negative News
Shares of Apple (NASDAQ: AAPL) are weaker in pre-open trade Wednesday as two items weigh. First, supplier Jabil (NYSE: JBL) posted a weak quarter and outlook and its shares are getting crushed to the tune of 19%. Second, a China Mobile (NYSE: CHL) deal has not been announced as expected.
On Jabil, the contract manufacturer reported Q1 EPS of $0.51, $0.04 worse than the analyst estimate of $0.55. Revenue for the quarter came in at $4.6 billion versus the consensus estimate of $4.49 billion. Sees Q2 2014 EPS of $0.05-$0.15, versus the consensus of $0.52. Also sees Q2 2014 revenue of $3.5-3.7 Billion, versus the consensus of $4.28 Billion. Apple was 19% of the company's revenue is FY 2013.
On China Mobile, Reuters reported that China Mobile said it is still in talks with Apple about selling its iPhone. At today's conference, where the Apple deal was expected to be announced, China Mobile's Chairman Xi Guohua said there was no announcement to make.
Weighing in on the Jabil news, Citigroup analyst Glen Yeung notes that Jabil's lower Q2 forecast was largely due to its Diversified Manufacturing Services unit, which will see revenue drop 25% year-over-year. He notes Apple accounts for approximately 50% of this unit's revenue and the drop-off is indicative of a steeper fall-off in iPhone production year-over-year. This, he says, creates risk to their 38 million iPhone shipment estimates for Apple's fiscal Q2. Yeung rates shares of Apple a Neutral.
Meanwhile, Jefferies' Peter Misek believes Jabil's negative Q2 forecast is related to Apple's product mix in favor of iPhone 5s over iPhone 5c. "Our checks indicate that Jabil supplies half of the iPhone 5c casings, and we believe the weakness is due mainly to a mix shift from the 5c to the 5s rather than broad-based Apple weakness", he said. He maintained his Buy rating and $650 price target on Apple.
On the China Mobile news, Yeung comments: "Despite press reports suggesting an Apple/China Mobile deal would be announced on 12/18/13, China Mobile's Chairman has now denied this will happen, indicating Apple and CM are still in negotiation. This may be a contributing factor to Apple's production cuts. We remind investors however, that we did not estimate a dramatic contribution from CM. Assuming a 50% increase in subsidy budget and 40% allocation to Apple, we derived only 6-7M units attributable to CM in 2014."
Shares of Apple are down 1.55% in early trade.