Two Of Apple’s Largest Suppliers Had Bad News To Report

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Beyond its wonderful A-series processors developed in-house and some other minor components, Apple (NASDAQ:AAPL) relies on strategic partners to provide parts for its popular iPhone and iPad devices.

We can typically get a good feel for Apple's product shipments by looking to these suppliers and how their revenue numbers look as we can assume as Apple sells less, it also orders less components to replenish its production lines.

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This week we saw two major iPhone suppliers report earnings and the outlook is poor. Foxconn, perhaps Apple most famous supplier and assembly partner, reported $637 million for the first quarter, a large 17.7 percent drop (year on year).

Apple suppliers dip in revenue while Apple seeks to diversify into services

apple foxconn

Foxconn, formally known as Hon Hai Precision Industry, is Apple's top supplier by the numbers and is probably the clearest barometer of Apple's demand on its global supply chain that we have available today. The company assembles the vast majority of Apple iPhones overseas before shipping them to the U.S. and other countries. When they miss targets by as much as 20 percent its something to take notice of. Shares of Foxconn slid 2 percent today after the poor results were released.

Japan Display, another major Apple supplier, also reported a similar 17.2 percent decline in revenue for the first quarter. JD noted that many manufacturers are switching to OLED panels and Japan Display only produces LCD panels, at least for now. The company has indeed finally began pushing into OLED tech, and reports surfaced last month that JD won the contract to supply Apple's needs for its Watch screens.

Despite winning work to supply screens for the Apple Watch, the Japanese firm will struggle against its Korean counterpart, Samsung, when it comes to bidding for the much higher volume contract to supply Apple's iPhone Xs series OLED panels as Samsung has a clear benefit in technology and expertise here. Japan Display's woes here aren't as much tied to declining iPhone shipments, but are more of a result of JD lagging behind in OLED tech.

However Apple is actually doing OK. The company has seen strength in its iPad and computer product lines, and of course, the company is continually striving to make good on its promise to convert into a "services" based company. This promise will see the Cuppertino, CA-based firm diversify and grow with its News, Music, and TV services, among others. Its also important to remember that its not just Apple struggling here. Every major smartphone manufacturer, except Huawei, struggled last year and global shipments of smartphones dropped last year by around 4 percent.

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Shares of the iPhone maker were up 1.2 percent today, among a generally good day for all tech stocks.

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