Apple Shares Fall By 5% On Monday, Wiping Off $40 Billion
Apple Inc. (AAPL) Shares caved by 5% on Monday dragging down the US markets and erasing more than $40billion (£31 billion) of market value. The fall followed profit warning from firm suppliers, which aggravated concerns that demands for iPhone are slowing. Apple shares closed at around $194 which is down 5% for the day and more than 15% below their pinnacle in October.
The Technology stocks have led the Wall Street sell-off which show shares in most sectors drop. The tech firms helped boost many of the stock market gains earlier on in the year but now face rising calls for regulatory and tax charges that could damage growth.
Amazon shares lost more than 4%; Alphabet dropped over 2.5% whilst Facebook fell 2.3%. Apple shares price decline came after Humentum, as US manufacturer of facial recognition technology and Apple supplier, said one of its significant customers had downsized its shipments. As a result, Lumentum downgraded its sales and profit outlook, sending its shares to drop over 30%. Lumentum's warning came not long after another Apple supplier Japan Display also cut its full-year guidance blaming "volatile customer demands".
Apple has insisted that it is optimistic about its Christmas season outlook, attributing the weaker than anticipated forecast to one-off changes, such as the timing of the release of new phones and temporary supply chain issues. It continues to make record profits, thanks to increasing prices and growing income from the App Store, Apple Pay and Apple Music which is their service businesses. They have warned that Apple's reliance on raising its prices could make it especially vulnerable if there is a broader pullback in consumer spending. Analysts have remained dubious especially following the firm stating it would stop sharing the number of iPhones, iPads and Macs it sells with investors.
Meanwhile, Goldman Sachs is involved in a corruption scandal at Malaysia's state-backed development fund which also dragged Wall Street indexes lower. Shares in the investment bank ended down at 7.5% after a Malaysian official stated the country wanted a refund of the feed Goldman had earned for work on bond sales for the 1MDM fund.
A former Goldman executive has pleaded guilty to US charges that he had participated in a scheme to use a fraction of the money raised in offerings for bribes. The US market declined have come amid, an extended period of volatility on Wall Street. Leading to investors being prudent due to warnings of a slowdown in global growth, falling oil prices, trade tensions, and rising interest rates. US companies are also facing a price increase on the dollar which damages sales overseas. With this combination of factors, it has facilitated speculation that corporate profits may potentially be at its peak, especially following several companies including Apple and Amazon, issued weaker than anticipated sales forecasts for the following months ahead.
Humentum CEO Alan Lowe noted, "We recently received a request from one of our largest industrial and consumer customers for laser diodes for 3D sensing to reduce shipments to them during our fiscal second quarter for previously places orders that were originally scheduled for delivery during the quarter"; Humentum noted in its recent 10-K that Apple was its number customer and has accounted for 30% of its revenues in the prior fiscal year.
So, while Lowe did not name Apple in his release, the market quickly deduced that there must have been lower orders for iPhone components that drove Humentum to cut its earnings forecast by almost 25%. This is one of the many times in the last three years; an Apple iPhone supplier issues weak guidance, and Apple stocks drop as analysts impute lower iPhone unit sales for the following quarter.
The fantastic run of Apple with a close of $90.52 on May 13th, 2016 to the 28th of September closing price of $225.74 created an almost unthinkable $630 billion in market value. Apple has achieved a lot since 2016, such as the passage of Republican tax reform in December 2016. The new tax reform not only cut the corporate base rate from 35% to 21% but it also galvanized Apple to bring some of its much-admired offshore cash pile back inland, where tax rules streamline its use for dividend payment and share repurchases.
Apple has lost $120billion in market capitalization since the last trading day of September. That is an extraordinary amount in dollar terms but viewed against the $630 billion in appreciation since May 2016 still leaves substantial unrealised capital gains for investors prescient enough to have bought Apple shares then.
The market started to make a turn in October, and I believe this correction has enormous downside momentum. Against that backdrop shares of companies that slash guidance as Humentum did, will be destroyed and companies that issue guidance that is mildly disappointing as Apple did for its most - final December quarter when its issued quarterly results on November 1st makes it entirely possible that the shares will be punished.
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