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Will Apple's Coronavirus Woes Affect Supplier Stocks As Well?

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Apple (AAPL - Free Report) recently issued an investor update stating that the company does not anticipate meeting the revenue guidance provided on Jan 28, 2020 for second-quarter fiscal 2020.

The company stated that “worldwide iPhone supply will be temporarily constrained” owing to impact from the outbreak of coronavirus disease (or COVID-19). Moreover, the iPhone maker is witnessing lower demand in China.

Per the initial guidance, Apple, currently a Zacks Rank #2 (Buy) stock, had projected second-quarter fiscal 2020 revenues between $63 billion and $67 billion. Management had noted that the wider guidance takes into account the uncertainty pertaining to coronavirus crisis in China.

The Zacks Consensus Estimate for Apple’s second-quarter fiscal 2020 revenues is currently pegged at $64.99 billion, indicating growth of 12% from the prior-year quarter.

5 Suppliers at Near Term Risk on Apple’s COVID-19 Woes

Although the iPhone maker hasn’t provided any revised quantified revenue guidance, the recent move of acknowledging the crisis is likely to affect the company’s supplier base at least in the near term.

Moreover, Apple is known to keep suppliers on their toes to such an extent that even minimal changes in demand of iPhone related devices create a stir among its supplier base.

In this context, investors are anticipated to become more apprehensive with regard to these suppliers, which depend on the iPhone-maker for significant portion of their total revenues.

Suppliers including Cirrus Logic CRUS, Skyworks SWKS, Qorvo QRVO, Lumentum Holdings LITE and Broadcom AVGO, are likely to bear the brunt of anticipated constrained worldwide iPhone supply.

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Cirrus is generates major part of revenues through selling audio amplifier chips utilized in iPhone devices. The latest development is likely to weigh on this Zacks Rank #1 (Strong Buy) stock’s fourth-quarter fiscal 2020 revenues. Markedly, Apple, its largest client, accounted for 83% of its sales in fiscal third quarter.

Skyworks, a provider of radio frequency chips to Apple, also falls in the same category. In fiscal 2019, Apple accounted for 51% of Skyworks’ net revenues.

Furthermore, Skywork’s peer in semiconductor radio-frequency market, Qorvo is also anticipated to be affected. Apple accounted for 32% of company’s total revenues in fiscal 2019.

While Skyworks currently has a Zacks Rank #2, Qorvo flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, Lumentum Holdings, which supplies 3D chips used in FaceID architecture, generated 30% of total revenues in fiscal 2018, ended Jun 30, 2018, from Apple.

The company’s fiscal third-quarter guidance incorporates $15-$20 million reduction in revenues at the mid-point to take the impact from the coronavirus outbreak into account. Notably, the company anticipates net revenues for the fiscal third quarter in the range of $400-$425 million.

Nonetheless, Lumentum, currently sporting Zacks Rank #1, anticipates revenues to improve sequentially on strength across Telecom and Datacom verticals.

Further, Broadcom’s near-term top-line performance is likely to get impacted. The company’s dependence on Apple, which contributed nearly 20% to net revenues in fiscal 2019, puts it in this list.

Notably, on Jan 23, 2020, Broadcom, which currently carries a Zacks Rank #2, inked two separate multi-year agreements with iPhone maker, Apple. Per the 8K filed with the SEC, the deal is anticipated to generate $15 billion for the chipmaker.

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