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Business trends

Taiwan's 10-year iPhone boom shows signs of ending

Big month of sales will not save Apple suppliers from peaking market and trade war

An Apple Store in Beijing takes in customers after this year's new iPhones went on sale. The headwinds against Apple's device are being felt across the supply chain.   © Reuters

TAIPEI -- Taiwan's top tech companies scored their highest sales in over five years in October, Nikkei's monthly watch list has shown. But analysts say this could be the peak of a decade-long boom in iPhone sales, as a slowdown in orders signals a decline ahead, one that may last until 2020.

October revenues logged by 19 Taiwanese companies monitored by the Nikkei Asian Review, delivered a combined 13.6% jump in sales on the year, reaching 1.32 trillion New Taiwan dollars ($42.8 billion), the highest since Nikkei began tracking them in January 2013. The 19 companies serve as suppliers for smartphones, personal computers and servers -- the pillars of the world's electronics industry.

The list includes nine key Apple suppliers, many of which contribute to flagship iPhones. They drove the overall performance, generating record October sales of NT$1.15 trillion. Foxconn Technology Group, which trades as Hon Hai Precision Industry, boosted revenue 21.5% on the year while Pegatron gained 11.7%.

But Foxconn's net income fell below the market's consensus estimate by nearly 12%, even though the NT$24.87 billion for the September-end quarter represented an 18% increase on the year. The iPhone assembler's weaker-than-expected performance reported on Nov. 13 underscores the intensifying competition amid the maturing smartphone industry, market watchers said.

Nomura Securities predicts that parts shipments for Apple's newest model, the XR, will fall 40% to 50% from November to January, after the Nikkei Asian Review revealed this month that major assemblers Foxconn and Pegatron were asked to cancel extra production for the highly anticipated iPhone XR.

Kylie Huang, an analyst at Daiwa Securities, suggested the supply chain has encountered order cuts across all new iPhone models for the December quarter, especially the highly anticipated XR.

"Due to the rising risks in sell-through rate, we expect further order cuts for the first quarter of 2019," Huang said in a recent research note.

"I tend to agree that October could be the peak for the iPhone decade-long cycle," Yuanta Investment Consulting analyst Vincent Chen told the Nikkei Asian Review. "It would be difficult for Apple to see stellar growth in iPhone again, unless there are some revolutionary and innovative features."

"It's likely that many smartphone suppliers' revenue could peak in October, and we could start to see some suppliers report year-over-year sales declines for this quarter," Jeff Pu, an analyst at GF Securities, told the Nikkei Asian Review.

Taiwan Semiconductor Manufacturing Co., the sole supplier of core processors for iPhones and Huawei's premium models, lifted October sales more than 7% from a year ago. TPK Holding, an iPhone touch module maker, raised revenue more than 71% on the year

But Lumentum Holdings, the key 3D sensor supplier for iPhone's Face ID technology, slashed $70 million from its revenue forecast for the October-December quarter on Nov. 12. The company blamed the cut on a fall in orders from one of its largest clients, which analysts said could only be Apple.

Fellow iPhone supplier Japan Display also lowered its full-year outlook due to sluggish demand from smartphone makers. The company serves as the key supplier of liquid crystal displays for Apple's cost-effective iPhone XR this year.

Largan Precision, a key camera lens provider for Apple and Huawei, previously warned that November revenue could be lower than the October figure after reporting a nearly 7% decline on the year for last month.

Allen Horng, chairman of iPhone metal frame maker Catcher Technology, said he did not rule out a correction given the market dynamics.

Just a month after the release of the XR, it may be too early to judge the model's performance. Demand for the iPhone X, released last year, was also expected to be weak, but more than 60 million units were sold over a year. Nevertheless, smartphone sales in general are weakening.

Global smartphone sales fell 6% on the year in the July-September quarter, U.S. research company IDC says. The global smartphone market grew rapidly after the iPhone was launched in 2007 until dipping for the first time in 2017, and another decline is expected this year.

"The overall smartphone industry might need to wait till the year of 2020 to see if new 5G technology could energize new demand," Pu of GF Securities said.

Shares in many smartphone suppliers already have fallen as investors anticipate a slowdown in demand.

Meanwhile, the intensifying trade war between Washington and Beijing continues to cast a shadow over the already sluggish PC market. As reported by the Nikkei Asian Review, a shortage of Intel central processing units -- caused by Intel's increase in iPhone modem chip orders -- has hampered PC vendors.

Jerry Shen, CEO of Asustek Computer, the world's fifth-largest PC maker, on Nov. 13 cited low order visibility for upcoming quarters.

"The trade war between the world's two biggest economies has hit emerging market currencies badly and really drag our profitability," Shen said. "Current visibility for orders is as low as 20% now compared with about 50% of orders in the past." The lower the number, the fewer distributors can give Asustek a clear forecast for orders.

The shortage of Intel's CPUs will last at least until April-June 2019, he said, putting heavy pressure on the Taiwanese PC brand. Asustek's October revenue dropped more than 10% on the year.

Quanta Computer, the world's largest contract notebook computer maker, estimated on Nov. 13 that its notebook shipments would drop 5% in the October-December period from the previous quarter due to the component shortage and market uncertainties. The Taiwanese company makes roughly 40 million notebooks per year and counts HP, Dell and Apple as customers.

"After factoring in this quarter's shipment forecast, we now expect the company's total notebook shipment this year to contract by at least 10% from last year," Chief Financial Officer Elton Yang told reporters.

In June, Quanta estimated its annual notebook shipments would decline only by a single-digit percentage from 2017.

Intel said it is taking a customer-first approach, working to align demand with available supply while the world's biggest microprocessor maker adds $1.5 billion more to its 2018 capital expenditures in order to increase production capacity.

Apple said it will cease reporting unit shipments for iPhones, Macs and iPads beginning in the December quarter. The policy change spurred concerns that the U.S. tech giant is struggling to push unit sales growth on hardware looking ahead.

Nikkei staff writers Chien Chia-Hung and Hideaki Ryugen contributed to the report.

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