"Spectacular Miss" By Key Apple Supplier Paints Ominous Picture For iPhone Demand

Another day, another flashing red warning that sales of the iPhone X are far worse than Tim Cook had ever expected; this time courtesy of Austrian chipmaker AMS AG - which makes the optical sensors that control brightness and color  - which just days after a similar warning from semiconductor giant Taiwan Semi, became the latest Apple-supplier to cast doubt over the iPhone's chilled reception.

AMS shares plunged as much as 14%, the most this year, after warning on negative operating margins because of low production capacity at its Singapore factories, and after its guidance for sequential revenue drop in 2Q missed the lowest estimate among analysts in a Bloomberg survey, adding to the recent negative datapoints in the iPhone X supply chain.

Mirabaud analyst Neil Campling said AMS’ "spectacular miss on guidance" was so bad, "it’s surprising the company didn’t preannounce." Campling also said that major product changes and product transitions blamed are “all Apple, specifically iPhone X" and added that "phasing down iPhone X has taken the supply chain by surprise."

With regard to AMS, he said that even as 3D sensing is a complex technology, AMS is another semiconductor company to have re-rated higher, valuation needs to reset. And while other analysts noted AMS’ expertise in complex 3D sensing technology should provide some long-term cover, the lack of short-term visibility will keep shares under pressure in the near term.

Following the AMS reports, European chipmakers including Dialog Semi, STMicro and IQE all fell, with industry concerns further fueled by a disappointing report from South Korea’s SK Hynix. Following last week's surprise guidance miss, today the bulk of Apple's supply chain was lower, with Dialog Semi -5.9%, STMicro -4%, ASML -2.1%, and Infineon -1.6%.

Following the report, Apple's five largest device assemblers have all reported a sharp slowdown after peaking at the end of last year, suggesting demand for the high-end device may have faded just a quarter after its release. As Bloomberg notes, while Hai Precision Industry Co., Pegatron Corp. and three other key suppliers reported an 8 percent rise in their total sales across the March quarter, growth cratered later in the period - a drop that in the past has presaged a downturn for Apple, hardly what AAPL longs want to hear one week ahead of earnings, which are expected on May 1.

As Bloomberg also notes, the concern is that the iPhone X, while enjoying a customary holiday quarter spike for new-generation Apple gadgets, "fizzled out rapidly."

Apple’s costliest smartphone has struggled to draw customers in emerging markets, while competitors from Huawei to Xiaomi roll out more premium phones and dominate China -- the U.S. company’s biggest foreign market. On Friday, Morgan Stanley cut its estimate on iPhone shipments by 6 million, underscoringthe growing unease since Taiwan Semiconductor Manufacturing Co., the maker of iPhone processors, issued a disappointing outlook that triggered a 7 percent loss in Apple’s value over the past three days.

As AAPL's recent stock troubles confirm, investors remain concerned that iPhone failed to meet their lofty expectations. Mia Huang, an analyst at Taipei-based research firm Trendforce, estimates that overall iPhone production volumes grew slightly to 54-56 million units in the March quarter - barely up from 52 million in the same period of last year, when it was propelled by demand for lower-priced and older models like the iPhone 6S and ramp up of the iPhone 7.

“According to our estimates, iPhone X’s production volume fell by 50% in the first quarter compared to the fourth quarter,” said Huang.

Hardly a ringing endorsement for the world's most valuable company...