Lumentum (LITE 39.47, -16.48, -29.45%) lowered second quarter guidance
significantly this morning. Releasing this news, the company stated, "We
recently received a request from one of our largest Industrial and Consumer
customers for laser diodes for 3D sensing to materially reduce shipments to
them during our fiscal second quarter for previously placed orders that were
originally scheduled for delivery during the quarter."
The warning from Lumentum is adding to concerns over demand for Apple's (AAPL -5%) new iPhones. Lumentum is the primary supplier for vertical-cavity surface-emitting lasers (VCSELs), which enable 3D sensing (Face ID) technology in the iPhone. So while Lumentum’s note did not name Apple specifically, the writing was on the wall. Apple accounted for 30% of Lumentum's revenue last year, according to the company’s 10-K filing.
Lumentum's warning jives with what the Nikkei reported one week ago -- namely, that Apple had recently cut orders for the iPhone XR and increased orders for the iPhone 8 and 8 Plus. The iPhone XR is Apple's newest lower-cost offering that incorporates Face ID technology while the iPhone 8/8+ are last year's cheaper models, and they lack the 3D sensing/Face ID capability.
Recall that Apple offered soft guidance for the holiday quarter on November 1 while announcing that it will no longer disclose product shipment disclosures going forward. Apple is using higher priced iPhones to drive growth in a saturated smartphone market in which the replacement cycle is getting longer. One analyst suggested that Apple's December quarter guidance implied that unit shipments will be down 5-10% year/year.
Lumentum's warning comes less than two weeks after the company reported first quarter results and offered guidance for the second quarter.
Interestingly, the number two and three VCSEL manufacturers, II-VI (IIVI -12%) and Finisar (FNSR -5%), announced a merger on Friday morning. Last December, Apple invested $390 mln in Finisar to help it exponentially increase its R&D spending and high-volume production of VCSELs. Apple announced in late October that its newest iPads will feature Face ID technology.
Weakness in Apple is weighing suppliers and Semiconductors (SMH -4%) and the Technology sector (XLK -3%).
Apple has recently given up its status as the $1 trillion company. With a ~$935 bln market cap, Apple trades at just under 15x earnings estimates for its current fiscal year.
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