iPhone disappointment hammers suppliers

Hong Kong - Apple’s latest products are getting a thumbs down, at least by investors in the company’s Asian suppliers. That’s especially bad news for Taiwan equities.

Hon Hai Precision Industry, which assembles the iPhone and other Apple devices, has fallen 10% in Taipei since Apple unveiled its collection of new gadgets for the holidays this month. Other suppliers across the region, including Taiwan’s Pegatron and South Korea’s LG Innotek have plunged more than 13%.

Taiwan’s $1.1trn equity market is particularly exposed to the swinging fortunes of Apple products, due to the dominance of parts manufacturers. Hon Hai and Taiwan Semiconductor Manufacturing, Apple’s main chip-maker, together make up a quarter of the Taiex total weighting, while exports account for more than half of the island’s gross domestic product.

"Orders of the new iPhone have disappointed the market and foreign investors may continue net selling Taiwan stocks," said Alan Tseng, Taipei-based vice president at Capital Investment Management. "The retreat of Apple suppliers has pulled down the benchmark index and could drag the index even lower in the coming month."

Overseas investors pulled a net $677m from the island’s stock market last week, the biggest outflows in three months. Earlier optimism that the iPhone would bolster Taiwan earnings had sent the Taiex to a 17-year high as inflows swelled. The Taiex slid 0.8% as of 11:21 local time, poised for its lowest close in a month.

Apple iPhone 8 pre-orders are "substantially lower" than iPhone 7 and iPhone 6 levels, Rosenblatt Securities analyst Jun Zhang wrote in a note last week. Initial feedback suggests iPhone 8 volume is below predecessors in the US and even more so in China, according to Zhang.

Hon Hai was down 1.9% in Taipei. Other suppliers also fell on Monday. AAC Technologies Holdings retreated 4.8% in Hong Kong, while China Airlines - which had rallied on bets its cargo operations will benefit from orders by Apple - retreated 3.9%.

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