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Handset/IT Parts Industry: Apple-related Companies Cut Earnings Expectations
Negative Impact from COVID-19 Likely to Be Limited to 1Q20
Handset/IT Parts Industry: Apple-related Companies Cut Earnings Expectations
  • By Lee Kyu-ha
  • March 10, 2020, 14:04
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The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.

 

Due to the impact of Covid-19, iPhone-related companies have cut their 1Q20 guidance. However, the negative impact should be limited to 1Q20, with normal operations set to resume from end-March. While domestic parts makers are also likely to be hit in 1Q20, a dip-buying strategy is recommended considering the release schedule for new Apple products.

Apple-related companies cut their 1Q20 guidance due to Covid-19

Due to the impact of Covid-19, most iPhone-related manufacturers, including Apple, have lowered their 1Q20 earnings expectations. However, Foxconn, the largest assembly company for Apple, said that it will be able to resume normal operations from end-March, which suggests that the negative impact of Covid-19 will be limited to 1Q20 and early 2Q20. Given that the iPhone 9 (iPhone SE2) and iPhone 5G are set to be released in early April and 2H20, respectively, we recommend a dip-buying strategy for domestic Apple-related stocks (LG Innotek, ITM Semiconductor, BH Flex, and Derkwoo Electronics).

While Apple has yet to offer details regarding its guidance adjustment, related parts makers such as Qorvo and Skyworks cut their 1Q20 sales forecasts by 5%. Meanwhile, with its sales plunging in February (-18.1% y-y) due to factory shutdowns, Foxconn, the largest producer for the iPhone, predicts that its 1Q20 sales will drop by at least 15% y-y.

That said, as Apple and Foxconn have claimed that normal operations will resume from end-March, the negative impact of Covid-19 should be limited to 1Q20 and early 2Q20.

Korean parts makers to be impacted, but dip-buying strategy recommended given new product release schedule

We believe that domestic Apple-related parts makers’ 1Q20 results will fall short of expectations. Considering that Qorvo and Skyworks, for which Apple represents around 30% of sales, have lowered their 1Q20 guidance by around 5%, we expect Korean parts makers’ earnings to be impacted by around 10%.

However, as market predictions are already low and the deferred replacement demand should be seen when the iPhone 9 is released in early April, new product sales should exceed expectations. Accordingly, we recommend a dip-buying strategy for Apple-related parts makers.