Fewer orders at Apple suppliers could signal first iPhone sales decline

JAN 22, 20166:31 PM

[TAIPEI] Some of Apple Inc's main Asian suppliers expect revenues and orders to drop this quarter, indicating iPhone sales are almost certain to post their first annual decline since the flagship product was launched almost a decade ago.

The forecasts of lacklustre sales by companies including Taiwan Semiconductor Manufacturing Co (TSMC), the world's biggest contract chipmaker, and smartphone camera lens producer Largan Precision Co Ltd add to concerns about Apple's outlook amid slowing global demand for smartphones.

Industry executives say the latest iPhone did not have enough new features from the previous model to tempt users, raising fears that Apple's innovative streak - and the profits it has generated - may be running its course.

Apple, which reports December-quarter results on Tuesday, declined to comment on its sales outlook. "Visibility is only a month at a time and demand is quite weak," Largan Precision Chief Executive Adam Lin told an earnings briefing, referring to his company's overall business.

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Other suppliers said Apple now only gave them orders one month in advance, instead of the usual three months. "We have to be very flexible in terms of capacity," said an executive at one of those firms, declining to identify their company or be named due to a confidentiality agreement that prevents Apple suppliers from discussing its order book.

Apple has previously said that individual data from its supply chain was not an accurate reflection of its outlook.

But TSMC, which makes some of the chips that go into iPhones, forecast this month that first-quarter revenues would likely fall by up to 11 per cent year-on-year, adding that demand for high-end smartphones would also be weak.

An 11 per cent quarterly decline would be the steepest revenue drop for TSMC in almost 7 years, Thomson Reuters data shows.

Earlier this month, people familiar with the matter told Reuters that Taiwan-based Foxconn, which assembles most iPhones, had taken a rare decision to cut working hours over a major holiday during which workers usually rack up overtime.

Foxconn, the trade name for Hon Hai Precision Industry Co Ltd, saw its December revenues slump by a fifth and 2015 sales miss expectations.

A more detailed picture about Apple's outlook could emerge next week if key suppliers including LG Display Co Ltd , SK Hynix Inc and Samsung Electronics Co provide first-quarter forecasts when they report December-quarter earnings.

First-quarter revenues at both LG Display and Hynix are expected to fall around 10 per cent, according to Thomson Reuters I/B/E/S data.

Analysts say iPhone sales could pick up during the second half of the year, when the company usually launches new products, but with competitors such as Samsung Electronics and Huawei Technologies Co Ltd sharpening their edge, some suppliers are not so sure. "The pace of innovation has slowed. Apple is going toward the same direction as other brand names," said another Taiwanese Apple supplier.

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BlackRock's Fink sees buying opportunity as Soros cautions

JAN 22, 201610:27 PM

[BOSTON] Laurence D Fink, who runs the world's largest asset manager, said the recent stock market decline presents a buying opportunity because markets are poised to gain over the course of the next year.

"You can't walk away from these movements," Fink, chief executive officer of BlackRock Inc, said Friday in an interview with Erik Schatzker and David Westin from the World Economic Forum in Davos. "Use these as an opportunity."

Fink said while markets have currently capitulated amid slumping oil and inconsistent messages coming from China, he doesn't expect a bear market in equities. BlackRock, which oversees US$4.6 trillion for clients, saw institutional investors starting to come back into markets on Wednesday, when US stocks briefly fell as much as 3.7 per cent before recovering most of the losses.

Top investors such as George Soros and Jeffrey Gundlach have advised investors to use short-term market rebounds to sell assets. Soros said yesterday that China's economy is headed for a hard landing, a slump that will worsen global deflationary pressures, drag down stocks and boost US government bonds. Other investment managers, including Guggenheim Partners' Scott Minerd and Bridgewater Associates' Ray Dalio, have warned that the market likely has further to fall.

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Soros, who shorted the Standard & Poor's 500 Index, said it is still too early to buy equities, while Gundlach said he expects a "protracted decline in the S&P 500." Dalio cautioned that global markets face risks to the downside as economies near the end of a long-term debt cycle.

The warnings come as oil prices have plunged and China's growth has slowed.

Fink said China needs to expand its international markets faster and allow more foreign investors, which would create a more stable, less volatile market, he said. "What China struggles with is an immature capital market that is heavily dependent on leverage retail," he said.

Fink said it would "be horrible" if China devalues its currency because it would have a huge global deflationary impact and would mean the country is moving back to an export-driven economy.

His views diverge from others, including hedge fund manager Mark Hart and Goldman Sachs Group Inc. President Gary Cohn. Hart, who is betting against the yuan, said China should weaken its currency by more than 50 per cent this year. A one-off devaluation would ease pressure on China's foreign exchange reserves and remove an incentive for capital outflows, he said. Cohn said that China will likely have to devalue its currency in the next six months to address slowing growth.

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French economy minister doubts China growth data

France's economy minister, Emmanuel Macron, said on Friday he believes China's official figures overstate the true pace of its economic expansion, warning that the tough international climate will not help Europe. 

PHOTO: BLOOMBERG

JAN 23, 20167:57 AM

[DAVOS, Switzerland] France's economy minister, Emmanuel Macron, said on Friday he believes China's official figures overstate the true pace of its economic expansion, warning that the tough international climate will not help Europe.

The minister cast doubt on the reliability of China's figures, including its announcement this week that its economy grew by 6.9 per cent in 2015, the slowest rate in a quarter century.

"I said a few months ago that I don't believe for a second the figures that are being given. I think those that are still being officially announced are probably well above the reality but we just have to live with it," Mr Macron said at a gathering of the business and political elite in the Swiss ski resort of Davos.

Concerns that the slowdown in Chinese economic growth may be more brutal than Beijing admits have contributed to deep concern on world financial markets.

The global economic environment is unlikely to be helpful to the French or European economies, the minister said, underscoring the need to pursue economic reforms.

"What is really worrying is to see to what extent we have an economic and geopolitical environment that has become extremely volatile," Mr Macron told reporters.

"Honestly, to be clear, we cannot expect any surprise events to boost French and European growth," he added.

"Truly, if we should focus on something this year it is to reform our economy as radically as possible," said the minister, who is fighting to push through economic reforms including making it easier for shops to open on Sundays.

Besides the slowdown in growth in China, the world's second largest economy after the United States, slumping oil prices were also destabilising petroleum-exporting countries, he said.

Adding to global uncertainties were the problems facing emerging economies, financial market volatility, conflict in the Middle East, the refugee crisis and jihadist terror attacks in Europe, he said.

The Europe Union's internal tensions compounded the difficulties, he said.

"We have the risks of fragmentation, the divergence of our economies, of our political choices, of our collective preferences," he said, evoking notably terrorism and European nations' response to the huge flow of refugees from fighting in the Middle East.

France emerged from three years of economic stagnation last year with growth of more than 1.0 per cent, but 650,000 people have been added to the jobless total since Francois Hollande became president in 2012.

Mr Hollande pledged on Monday to spend more than 2.0 billion euros (S$2.9 billion) on tackling France's "state of economic emergency".

Joblessness, which stands at around 10 per cent or 3.57 million people in the eurozone's second-largest economy, was the "only issue that ranks above security for the French people", the president said.

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Faced with cheap oil prices, biofuels industry sees no déjà vu

JAN 23, 20168:03 AM

[NEW YORK] Ethanol producers may feel less pain from sinking oil prices than in previous tough times, as a government rule ensures a minimum use of the biofuel and recent consolidation gives them both financial strength and output flexibility.

Oil prices at 2003 lows and the highest ethanol stocks for nearly four years have given some in the trade flashbacks to 2008 and 2012 when weak margins forced many plants to close.

The Environmental Protection Agency (EPA) in late November set Renewable Fuel Standard (RFS) targets that are expected to push 14.5 billion gallons of ethanol into gasoline this year - potentially accounting for over 10 per cent of fuel use.

The controversial RFS targets force fuel companies to blend ethanol even if the corn-based fuel is trading at a higher price than gasoline or other octane-boosters.

That "doesn't assure the ethanol industry will be profitable, but it sets a floor for production and price, regardless of what happens to gasoline prices," said Scott Irwin, an agricultural economist at the University of Illinois.

Indeed, ethanol has been trading at a rare, stubborn premium to gasoline for the longest period since 2009.

The front-month Chicago Board of Trade ethanol futures contract has been above RBOB gasoline prices for nearly five months, the longest since a seven-month run to May 2009, according to Reuters data.

The premium is partly supported by the niche market for biofuels compliance credits known as Renewable Identification Numbers (RINs), which oil refiners and importers are required to have to prove compliance with the government's Renewable Fuel Standard.

Those credits are trading at around 64 cents each - helping to subsidize the cost of using ethanol, according to many traders.

In addition, consolidation in the ethanol industry has put about two-thirds of more than 200 plants into the hands of companies with multiple facilities, according to trade estimates. That compares with 40 per cent before 2008.

Major oil refiners like Flint Hills Resources and Valero Energy Corp, larger ethanol producers like Poet, Green Plains Inc, and commodities merchants like Noble Group scooped up more than 60 plants since 2008, according to data compiled by the Renewable Fuels Association.

Pacific Ethanol Inc, which merged with Aventine Renewable Energy Holdings last year, has said that the consolidation means major producers relying on more than one plant are more easily able to throttle back capacity when needed.

U.S. government data this week showed producers had slowed run-rates by 30,000 barrels per day to 983,0000 barrels per day.

The big ethanol producers also have the financial firepower to cope with a tough environment after a year of record margins in 2014. Publicly-traded producers like Archer Daniels Midland Co and Valero Energy Corp made less profit in 2015, but did not slip to losses.

Still, for those on the margins, the situation may get worse before it gets better as the cold weather drives up the price of natural gas used to run their plants and cuts drivers' miles.

Tyton Biofuels' 55-million-gallon-per-year plant in Raeford, North Carolina, idled a week ago. "Margins are very slim right now, and our costs are high because it's winter," said Rick Brehm, the plant's general manager. He said they hope to reopen after the winter months.

REUTERS