Apple shares hit over smartphone sale slowdown fears

Tech stocks faced a widespread sell-off on Friday after an update from one of Apple's biggest suppliers, Taiwan Semiconductor, raised expectations of a sharper slowdown in smartphone sales this year.

The chipmaker said in an earnings update that second-quarter revenues would be hit by “weak demand from the mobile sector”, unnerving investors who fear that smartphone sales have entered a structural slowdown after a decade of rapid growth.

Apple's shares fell 3 per cent on Thursday while international chipmakers including Analogue Devices, Cirrus Logic, Dialog Semiconductor, Qualcomm and Qorvo fell between 3 per cent and 6 per cent during Friday trading. Taiwan Semiconductor ended the trading day down 6 per cent at 229 Taiwan dollars.

Chipmakers and smartphone suppliers have attempted to drum up more demand from manufacturers of "internet of things" devices and automated cars to offset the slowdown, but phones still account for a large proportion of revenues. Companies including Intel and UK-based Dialog and Imagination Technologies have also been punished over the past year by an over-reliance on Apple as a customer.

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Smartphone sales in China, the world's biggest market, fell last year for the first time since 2009 while global sales fell in the fourth quarter for the first time since 2004.

"Product mix always go with the customers' demand," said Li Mei He Ho, chief financial officer for Taiwan Semiconductor in an earnings call.

Technology stocks, which were a key driver in last year’s sharp rally in global equities, have wobbled over the past month. MSCI’s broad measure tracking the share price of tech companies around the world has slumped 5.2 per cent from the all time peak recorded on March 12th, according to FactSet data. The index remains up 4.7 per cent so far this year.

The recent fall captures declines in the share price of some of the largest companies in the industry. Apple has pulled back 4.9 per cent from record levels struck in March, while Google-parent Alphabet is off 8.3 per cent from the high it hit in January.

Facebook, the world's biggest social network, has had a particularly rough time, falling 12.9 per cent from its February high. The Silicon Valley group has faced intense pressure over the leakage of data on up to 87 million users to Cambridge Analytica, a group that performed political work for the Trump campaign.

Apple, which has emphasised its focus on privacy, was relatively insulated from a sell-off in tech stocks after the scandal.

Overall, market volatility has done little to dissuade investors from pumping money into the sector. The industry has garnered $27.4 billion in net inflows globally this year, stronger than any of the other major sectors, according to data compiled by Jefferies, the investment bank.

Jonathan Golub, chief US equity strategist at Credit Suisse, said this week the Swiss bank remains bullish on the US tech industry and favours it over other major sectors.

“Despite recent concerns around tech, the group is the most compelling, with strong fundamentals, above market revenue and organic earnings growth (adjusted for tax change), and attractive free cash flow valuations,” he said.

The S&P 500 index of large US tech stocks was expected to post sales growth for the first quarter of 14.2 per cent, roughly double the rate of the broad index, FactSet data showed.

The next two weeks will prove critical to how these expectations play out: 37 S&P 500 tech groups are due to report earnings. Among the roster of companies due to report their results will be Alphabet, Apple, Intel, Microsoft and Texas Instruments. – Copyright The Financial Times Limited 2018