May 12, 2016 12:20 am JST

Apple suppliers face bleak year as demand for iPhone 7 weak

DEBBY WU and CHENG TING-FANG, Nikkei staff writers

TAIPEI -- Taiwan's tech suppliers will get significantly fewer orders from Apple Inc. in the second half of this year compared with a year ago, no thanks to an ongoing slump in demand for premium smartphones and a lack of groundbreaking features for the upcoming iPhone 7, sources familiar with the matter told the Nikkei Asian Review.

"Suppliers are saying that they are getting fewer orders for the second half of this year compared with the year-ago period," a source said. "The traditional peak season this year will not be able to compare to the past few years."

Another source said that for Taiwan Semiconductor Manufacturing Company, the sole supplier for the latest A10 chips used in iPhone 7, its iPhone 6s and iPhone 7 chip shipments for the June to December period will likely shrink to 70%--80% of the level reached in the second half of 2015.

The decline is particularly grim, given that the Taiwanese chipmaker, also the world's largest contract chip maker with 55% of the global market share, was not the only one supplying to Apple in the second half of last year. Its South Korean rival Samsung Electronics was also supplying the A9 chips used in iPhone 6 and iPhone 6s.

"TSMC's revenue in U.S. dollar terms will grow a tepid 4% year-over-year for all of 2016, while its operating profit is likely to stay flat due to Apple's lackluster performance," a person familiar with the company's operations said.

"Only China's Huawei and OPPO show healthy growth amid a slower-than-expected market," the person said.

Apple is TSMC's biggest client, accounting for 16% of the Taiwanese company's revenue.

Last year, TSMC generated a record $843.49 billion New Taiwan dollars ($25.93 billion) in sales and NT$320.4 billion in operating profit.

TSMC is unlikely to hit its own previous projection of a 5% to 10% growth in both revenue and operating profit for 2016. Morris Chang, founder and chairman of TSMC, also said in January the company could maintain a 5% to 10% compound annual growth rate in both revenue and operating profit from 2016 to 2020.

A TSMC spokesperson declined to comment on whether Apple has cut back on orders, and she also declined to say if the company would revise its forecast.

A person at a major Taiwanese supplier for Apple said iPhone 7's lack of innovation is to be blamed for the weak demand.

Meanwhile, key iPhone assembler Pegatron has also expressed wariness about the second half of 2016.

"We don't see any good news in the first half of this year although we expect the current quarter to bottom out," Pegatron Chief Executive Jason Cheng said on Tuesday. "Looking forward to the second half of 2016, we believe it looks better than the first half; however, we are still cautious due to some unfavorable uncertainties."

A spokesman for Pegatron's bigger rival Hon Hai Precision Industry, better known as Foxconn Technology Group, did not immediately respond to a request seeking comments. Apple did not immediately respond to a request seeking comments.

A recent Nikkei survey of brokerages, market research companies and electronic component makers concluded that Apple will ship slightly more than 200 million handsets this year, down from 230 million in 2015.

Woeful first half

According to the survey, Apple's shipments for the first six months of this year may fall more than 10% year-over-year and some of that downturn has already been reflected in various suppliers' lukewarm earnings.

For the January-March period, Pegatron booked a revenue of NT$256.38 billion, down 6.5% from a year ago. Net profit also dropped 35.1% year-over-year to NT$4.1 billion.

Foxconn's revenue for the four-month period through April also fell 6.33% to NT$1.28 trillion.

Major iPhone panel supplier LG Display, too, said its net profit for the first quarter ended in March plunged 99% year-over-year to 1.2 billion won ($1 million).

Asia300

Taiwan Semiconductor Manufacturing Co., Ltd.

Taiwan

Market(Ticker): TAI(2330)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 210,875.84M
Shares: 25,930.38M
Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 366,536.44M
Shares: 147.34M
Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 60,354.73M
Shares: 17,328.73M
Asia300

LG Display Co., Ltd.

South Korea

Market(Ticker): KRX(034220)
Sector:
Industry:
Distribution Services
Electronics Distributors
Market cap(USD): 10,334.91M
Shares: 357.81M
Asia300

Pegatron Corp.

Taiwan

Market(Ticker): TAI(4938)
Sector:
Industry:
Electronic Technology
Computer Processing Hardware
Market cap(USD): 6,152.14M
Shares: 2,614.53M

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