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Dimmed AMS outlook adds to signs of flagging iPhone sales

Dimmed AMS outlook adds to signs of flagging iPhone sales
FILE PHOTO: A customer compares the size of the new iPhone XS and iPhone XS Max at the Apple Store in Singapore September 21, 2018. REUTERS/Edgar Su/File Photo   -   Copyright  Edgar Su(Reuters)
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By Kirsti Knolle

VIENNA (Reuters) – Austria’s AMS <AMS.S>, which makes facial recognition technology, became the latest Apple chip supplier to cut its revenue forecast, adding to growing evidence that the latest iPhones are not selling well.

Shares in the Swiss-listed group fell 9 percent at market open on Thursday before swinging back into positive territory after it cut its fourth-quarter revenue outlook by 15 percent and pushed back its medium-term targets, weighed down by changes to demand from a major customer.

Apple <AAPL.O> shocked investors two weeks ago with a lower than expected sales forecast for the Christmas quarter, prompting suppliers including Lumentum <LITE.O> to issue warnings that pointed to weakness in new iPhone sales.

AMS did not identify Apple as its customer, but analysts estimate that the U.S. giant accounts for 40 percent of the Austrian group’s sales.

Like Lumentum, AMS supplies Apple with software components needed for its FaceID technology. AMS shares have lost nearly 30 percent since Apple’s latest earnings release and are down 70 percent since the beginning of the year.

For the past year, investors had largely been willing to overlook stagnating unit sales of the iPhone because average selling prices kept rising. But Apple now faces fierce competition from mid-priced phones from makers such as Xiaomi Corp <1810.HK>.

Deutsche Bank analysts said on Wednesday they expected Apple to produce 5 million fewer iPhones using FaceID in the fourth quarter than initially planned, “with most of that cut owing to the iPhone XR, a product where we note the ‘value’ proposition appears to have not delivered”.

The California-based firm started selling its latest phone generation, the iPhone XS and XS Max in September and the XR model last month.


AMS now expects revenue to come in between $480 million (369 million pounds) and $520 million in the three months to Dec. 31, compared with the $570-$610 million it forecast last month.

The adjusted operating margin for the quarter is now expected to reach the low to mid-teen percentage range after previous guidance for the margin to rise to 16-20 percent.

AMS sees increasing volatility in consumer customers’ demand patterns,” the company said.

“As a consequence, AMS discontinues the previous reference to specific time periods for its mid-term targets for growth and profitability.”

AMS abandoned 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 adjusted operating margin but no longer gives a specific time frame. It had already postponed the target to 2020 from 2019.

“Positive news was that the company continues to expect for the fourth quarter a positive adjusted EBIT margin… and strong cash flow supporting its balance sheet structure,” said Baader analyst Guenther Hollfelder in a note to clients.

He still has a Buy recommodation on the stock, whereas many other banks including JP Morgan and Credit Suisse cut their ratings in recent weeks.

AMS, which has invested heavily in research and development and in production expansion, is now tackling underutilised facilities, increasing competition and its reliance on Apple.

(Reporting by Kirsti Knolle; Editing by David Goodman and Keith Weir)

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