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Apple's iPhone Order Cut Report May Hurt These ETFs

Sanghamitra Saha
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Shares of Apple (AAPL) declined about 1% on Jun 8 thanks to reports that the tech giant is likely to ship fewer iPhones in the second half of 2018. Apple has reportedly told its supply chain to manufacture about 20% lesser (compared with 2017’s orders) components for iPhones slated to be unveiled in the second half of this year, per Nikkei. Apple is expected to launch three new iPhones this year, expected to be shipped in September.

With this, Apple is preparing for 80 million iPhone shipments this year. However, Apple did not respond to this news. The news reinforces the forecast that global demand for smartphone is waning. In April, Taiwan Semiconductor Manufacturing Co Ltd (TSM), the world’s one of biggest contract chipmakers, cut its full-year revenue target to the low end of its prior guidance thanks to “softer demand for smartphones and uncertainty in the cryptocurrency mining market.”

Notably, TSMC makes chips for tech biggies like Apple. That time, TSMC also mentioned that there were order cuts from the current Apple iPhone X processor. The company pointed to the prevailing feeble demand from the high-end mobile sector.

Other Evidences of Softening Smartphone Demand

IMF said that the smartphone-driven tech cycle had probably topped in late 2015. And now saturation in demand in developed markets and lengthening of upgrade cycles are weighing on overall smartphone sales.

On a year-over-year basis, Apple logged a decline (5%) in iPhone sales in the fourth quarter of 2017 and Samsung saw a unit decline of 3.6%. IMF even noted that China’s domestic smartphone market shrunk for the first time in 2017.

According to research company IDC, the global smartphone shipment rate fell 0.3% in 2017, marking the first-ever retreat in the industry. The decline in China's smartphone shipments mainly pulled back the overall industry. IDC expects worldwide smartphone shipments to decrease even this year but India is expected to help the space recover in 2019.

Below we highlight a few ETF areas that may be troubled if iPhone shipments decline or any kind of delay or production quality issues are noticed in the launches. Last year, Apple faced these issues that kept iPhone X from coming online until November.

ETF Areas

Apple ETFs

ETFs which have a considerable exposure to Apple may thus underperform. These funds include iShares U.S. Technology ETF (IYW) Select Sector SPDR Technology ETF (XLK) and Vanguard Information Technology ETF (VGT) (see all Technology ETFs here).

Semiconductor ETFs

Apple’s suppliers meaning several semiconductors companies should feel the brunt of it. One of its suppliers, AMS AG, saw share prices being hurt by the news. Other European semiconductor stocks including Dialog Semiconductor, STMicroelectronics and Infineon Technologies all nosedived after Nikkei’s report, per the source (read: 5 Reason Why FANG ETFs Lost Their Charm in March).

VanEck Vectors Semiconductor ETF SMH, iShares PHLX Semiconductor ETF SOXX and PowerShares Dynamic Semiconductors ETF PSI are likely to be pressured, if the news comes true.

Smartphone ETF

Who can forget the pure-play smartphone ETF, First Trust Nasdaq Smartphone Index Fund FONE? This comes at the forefront due to fading smartphone demand.  

Taiwan ETF

The fate of pure-play Taiwan ETF, iShares MSCI Taiwan ETF (EWT), is often related to Apple. This is because the fund puts heavy weights in Apple’s suppliers like TSMC and Hon Hai Precision.

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