16 November 2018 08:18 IST
AMS Austria, which makes facial recognition technology, became Apple's latest supplier to cut its earnings projections, adding to the growing evidence that the latest iPhone is not in demand.
The registered Swiss group cut its outlook for fourth-quarter earnings by 15 percent and pushed back its medium-term target, blaming "recent demand changes from major customers".
AMS, which specializes in sensors, does not call Apple a customer, but analysts estimate that the US giant accounts for 40 percent of Austrian group sales.
Apple surprised investors two weeks ago with lower-than-expected sales for the Christmas quarter, prompting suppliers including US company Lumentum, British chip maker IQE and Japanese screen maker Display to issue a warning that showed weakness in the sale of the new iPhone.
Like Lumentum, AMS supplies Apple with the software components needed for its FaceID technology.
Chip designer Anglo-German Dialog Semiconductor, who reached a $ 600 million agreement with the US technology giant last month against a negative trend when it said late Wednesday did not see a drop in demand from Apple.
The dialogue confirmed this by showing that it supplied more products than the latest iPhone.
During the past year, investors were mostly willing to ignore the stagnant iPhone unit sales because the average selling price continued to increase. But Apple is now facing fierce competition from mobile phones at medium prices from makers like Xiaomi Corp.
The California-based company began selling the newest generation of cellphones, iPhone XS and XS Max in September and the XR model last month.
The new AMS guide suggests between 11 and 18 million fewer iPhones will be produced in the fourth quarter from an initial estimate of 77-82 million, Credit Suisse analysts said in a note to customers.
"This is largely in line to read from the recent Lumentum warning," they said, adding that the Lumentum guide would imply an impact of 15-20 million iPhones.
AMS shares rose as much as 6.4 percent to 29.65 Swiss francs after a sharp decline in early trade.
They have lost nearly 30 percent since the release of Apple's latest revenue and have fallen 70 percent since the beginning of the year and some investors have seen opportunities to buy, traders said.
AMS expects revenue to come between $ 480 million and $ 520 million in the three months to December 31, compared with $ 570 – $ 610 million estimated last month.
The adjusted operating margin for this quarter is expected to reach a low percentage range until mid-teens after the previous guidelines for margins rose to 16-20 percent.
AMS also left its 2019 revenue target of more than $ 2.7 billion, saying it now expects annual double-digit revenue growth for the coming years.
It still aims for a 30 percent operating margin that is adjusted but no longer provides a specific time frame. That has delayed the target for 2020 from 2019 in July, at that time because of delays in orders from major customers.
"These people have no more visibility," said Mark Taylor, a senior sales trader at the Mirabaud Securities Global Thematic Group.
AMS, which has invested heavily in research and development and in production expansion, is now trying to address underutilized facilities, increasing competition and dependence on Apple.
Although a number of analysts have cut their recommendations recently, many recommendations on target prices are still above 40 Swiss francs. "I wouldn't be surprised at the rally (stock)," Taylor said.