Apple / Hi-P

Apple / Hi-P: 2Q12 sales rose 23% to US$35b. Net profit climbed 21% to US$8.82b, or US$9.32/ sh, falling short of consensus estimates of US$10.37/ sh on revenue of US$37.2b. Shares fell as much as 6% in late trading. The company’s sales climbed at the slowest pace since mid-2009, following a 26% drop in purchases in 2Q12, as consumers wait out for the next iPhone model to be introduced. The iPhone is Apple’s biggest source of revenue. The 26m iPhones sold compared with consensus estimates of 28.4m sales volume. Looking ahead to the current quarter, Apple forecast revenue of ~US$34b and net profit of US$7.65/ sh. That compares with consensus’ forecast of sales of US$38b and net profit of US$10.27/ sh. Competition may be another factor for Apple’s sales disappointment, as it battles with Samsung for leadership in the global smartphone market. While Apple has debuted one new model iPhone every year, Samsung has released a variety of handsets, including the Galaxy S III released in May, which is touted as the “iPhone-killer”. Already, Hi-P has to contend with a slowdown in orders from its top customer Blackberry. The latter has been having trouble competing in the smartphone space, and has been posting lower earnings guidance and culling staff. In response, Hi-P recently shuttered its Mexican factory. Slower growth in Apple iPhone sales would likely be further detrimental to Hi-P, which produces iPhone components, and counts Apple as its number 2 customer. Combined, both Blackberry and Hi-P are estimated to account for ~30% of Hi-P’s sales. Hi-P stock trades at 8.6x P/E, 1x P/B.