Fri, Mar 18, 2011 - Page 11 News List

Apple downgrade hits shares of its local suppliers

CORRELATION?Another analyst questioned using Hon Hai as a proxy to gauge Apple’s performance, saying the US firm’s contribution to Hon Hai’s revenue was limited

By Kevin Chen  /  Staff Reporter, with Bloomberg

Shares of Hon Hai Precision Industry Co (鴻海精密) and other local suppliers to Apple Inc fell in local trading yesterday after JMP Securities downgraded the US firm’s stock.

JMP Securities analyst Alex Gauna said in a client note on Wednesday that Apple was facing increased risks associated with a “notable deceleration” in the sales of its primary manufacturing partner, Hon Hai, last month — which may be an indication of slowing sales at Apple — as well as bearish sentiment toward the industry in the wake of the devastating earthquake in Japan.

The US brokerage downgraded Apple, which sells the popular iPhones, iPad tablets and Macintosh computers, to “market perform” from “market outperform,” the note showed.

Shares of Hon Hai, the world’s largest electronics parts maker, fell 4.27 percent to NT$101, compared with the TAIEX’s 0.5 percent drop.

Apple’s shares dropped 4.5 percent to end at US$330.01 in New York trading on Wednesday. Apple announced on Tuesday that it was postponing the launch of its iPad 2 tablets in Japan, a market that accounts for about 6 percent of its revenue.

Shares of other local companies in Apple’s supply chain also saw a knock-on effect, with TPK Holding Co (宸鴻), which supplies touch panels for the iPhone, falling 3.49 percent to NT$719, casing producer Catcher Technology Co (可成) dropping 2.34 percent to NT$125, and handset lens supplier Largan Precision Co (大立光) edging down 0.65 percent to NT$760.

Oppenheimer & Co analyst Yair Reiner, however, did not agree with Gauna’s conclusion of a strong correlation between Apple’s and Hon Hai’s sales. He said Apple’s contributions to Hon Hai’s revenue was limited and that it wasn’t a good proxy for gauging Apple’s performance.

The downgrade is the first for Apple since October, when Gus Papageorgiou at Scotia Capital and Jens Hasselmeier at Independent Research GmbH reduced their ratings. Of the 55 analysts covering Apple tracked by Bloomberg, 50 recommend buying the stock, while five rated it a “hold.”

“My sense in talking to investors was that they were not paying attention to this deceleration,” Gauna said in an interview.

“We’ve seen estimates going uniformly in one direction and that strikes me as dangerous,” he added.

Hon Hai’s revenue reached NT$152.88 billion last month, 17.9 percent lower than January’s NT$186.23 billion, the company said in a statement on March 10, citing seasonal factors and fewer working days because of the Lunar New Year holiday.

On an annual basis, last month’s revenue rose 25.86 percent.

Cumulative revenue in the first two months of the year totaled NT$339.11 billion, up 31.54 percent from the NT$257.81 billion it made a year earlier, company data showed.

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