"iPhone Story Is Showing Cracks": Apple Slides Under $200 After Key Supplier Plummets On Forecast Cut

Still confused by Apple's shocking announcement that it would halt its quarterly reporting of iPhone unit sales?

Don't be.

Overnight, Longbow analyst Shawn Harrison published the latest bearish note on the "neutral" rated Apple, warning that the iPhone story "is showing cracks with contacts now citing weaker iPhone orders year over year and Baidu iPhones search trends highlighting a red flag."

Longbow was also the latest firm to sound a warning about the company’s most important product line, noting that Baidu iPhone searches "fell off a cliff for October, indicating potential risk of faltering China demand", a key market for the Cupertino company, which is expected to derive 20% of its 2018 revenue from China.

Additionally, Harrison said he expects sharp iPhone production cuts to hit suppliers, specifically noting read through for companies with >10% exposure to Apple like Skyworks, Qorvo, Broadcom, and ON Semiconductor. Ominously, he added that while the total revenue of Taiwan’s major Apple suppliers rose 15% in October, "we expect a sharp reversal in this dynamic."

Well, Longbow was right because just a few hours after the note was published, Apple stock dropped below $200 after Lumentum Holdings (LITE) cut its fiscal second quarter outlook as "one of its largest Industrial and Consumer customers" for laser diodes for 3D sensing asked to "meaningfully reduce shipments" for previously placed orders. 

While LITE didn’t name the customer, shares of Apple extended their decline after LITE released its statement. According to Bloomberg, Apple is LITE’s biggest customer. As a result of the guidance cut, LITE stock tumbled as much as 31%, while AAPL stock was 2.5% lower, and back under $200, its $1 trillion market cap now a distant memory.

With LITE set to present Monday at 3pm ET at the UBS Global Technology Conference in San Francisco, expect more weakness to hit the tech sector as the company elaborates on what are clearly distressed supply chains resulting from collapsing demand.

There was a silver lining: according to Lonbow, despite the iPhone weakness, "a continued push of ASPs across devices, ongoing strength in services, Watch, and AirPods, and aggressive capital return will drive FY19 EPS growth." The problem is that Apple's bet to gamble everything on premium - and rising - pricing will prove to be a disaster during the next downturn when demand for $1000+ phones and $2000+ notebooks will fall off a cliff.