Domestic parts makers to feel the pain
"LG Innotek would inevitably be in the red"
Domestic companies that supply parts to Apple are also expected to suffer difficulties for some time due to the sluggish iPhone sales. LG Innotek, which relies heavily on iPhone sales, is expected to be hurt significantly.
According to the earnings reports for the first quarter of the fiscal year 2019 (October-December 2018) released on the 29th (EST), Apple forecasted the sales of $55 billion to $59 billion (around 61 to 66 trillion won) for the first three months of this year. This is 2 to 6 billion dollars lower than actual sales of $61.1 billion in the same period last year. It expected a 'reverse growth.'
Apple's iPhone sales declined 15% year-over-year to $52 billion (about 58 trillion won) in the October-December quarter. This is below the market forecast of $52.7 billion (about 59 trillion won). The sales in China were hit hard. The sales in China fell by a whopping 27%. Apple's quarterly sales of $84.3 billion, or 95 trillion won, exceeded its recent forecast, but it was lower than the originally expected amount due to the sluggish iPhone sales. Earlier today, Apple lowered its earnings forecast to $84 billion (about 94 trillion won) from the initial $89 billion to $93 billion (about 99~104 trillion won) due to the slowing economy in China.
As it is expected that the iPhone sales would remain sluggish, the earnings outlook for the domestic sales of camera modules, displays, and printed circuit boards (PCBs) has been clouded.
LG Innotek, which supplies dual cameras and 3D sensing modules to the iPhone, is concerned that the earnings will be switched to be in the red in the first quarter. Lee Jae-Yoon, a researcher at Yuanta Securities, said, "We are expecting a decrease in major parts orders and a pressure to reduce the sales prices from its major customers in North America. It is inevitable that the optical solution division will be in a deficit and the company will be in the red.” The optical solution division accounts for approximately 60% of LG Innotek's total sales.
Samsung Electro-Mechanics, which supplies substrates (RFPCB) and multilayer ceramic capacitors (MLCC), is also expected to be hurt in the first half of the year. Kim Yoon-Ho, a researcher at IBK Investment & Securities, said, "We expect the deficit in the 1Q operating profit of the substrate division that produces RFPCB to increase from the fourth quarter of 2018." This is because the volume of RFPCB is likely to fall sharply in 1Q due to a decrease in the volume of products of Apple.
INNOX Advanced Materials, which produces organic light emitting diode (OLED) materials for the iPhone, is reportedly cutting its production volumes. BHflex, which supplies RFPCB to the iPhone, Samsung Display, which provides organic light-emitting diode (OLED) panels, and LG Display, which provides liquid crystal displays (LCD), are also expected to suffer from the sluggish iPhone sales.