When it comes to the fate of the US stock market (and economy), no company is more important than Apple. As reported previously, the world's most valuable company by market cap not only accounted for 20% of all U.S. margin expansion since 2010 [6], but is among the key drivers behind US retail sales, and thus GDP growth. In short, if AAPL is about to hit a growth wall, then say goodbye to US margin growth and say hello to the service (because manufacturing is already in it) recession.
Unfortunately, this worst case scenario increasingly looks like the most likely one.
Recall that last week, [7]just as the market was about to be sent into junk bond shock, we reported that not one, not two, but three channel checks (from Credit Suisse, from OTR Global, and from Pacific Crest) all hinted that not only is AAPL facing deteriorating iPhone sales, but worse, the risk of a sharp inventory correction is imminent.
Today, JPM joined the chorus of warnings that what has been a clear global slowdown in spending has hit the world's largest smartphone maker.
According to JPM's Narci Chang, "November sales signal signs of early weakness of Phone 6S cycle." As the table below shows, most Apple supply chain names demonstrated significant MoM downtrends in November, while those names which saw a modest MoM increase (GIS, Hon Hai, Radiant, Catcher) did so thanks to support from the iPad Pro and market-share gains.
JPM notes that "the weak November numbers reaffirm our cautious call on the Apple supply chain back to October. Our previous research suggests 75-80mn units for iPhone build plan in 4Q15. Now we believe it is more likely towards the low end of the range (75-77mn).
Bottom line: JPM believes the consensus estimate for iPhone sales (50-55mm) is at least 10% too high from the final print in the 45-50 million range:
1Q16 bears potential downside risks, while 2Q16 Street estimates seem unrealistic: Although the Street has lowered its expectations on the Apple supply chain, we still see downside risk to 1Q16 consensus numbers of 50-55mn units. TSMC saw 10% order cuts in November, which we believe is from Apple business with the impact during the end of 1Q16 or early 2Q. We believe 45-50mn is a more reasonable target. While there is no visibility for 2Q16 right now, we think it is more likely to trend down QoQ and current Street expectations of flat to up QoQ seasonality are too optimistic.
The conclusion: JPM is very cautious on the Apple supply chain; as it expects "to see meaningful stock price corrections for Apple supply chain names in 1Q16 with lowered Street expectations and disappointing Apple sell-through numbers. We expect to see meaningful stock price corrections for Apple supply chain names in 1Q16 with lowered Street expectations and disappointing Apple sell-through numbers. We prefer selected market-share gainers in the Apple supply chain."
And, by implication, if the AAPL supply chain is about to be rocked lower as a result of a substantial repricing of iPhone sales growth expectations, AAPL itself won't be far behind.
