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iPhone Manufacturers’ Slowing Sales Are a Bad Omen for Apple

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  • iPhone Manufacturers’ Slowing Sales Are a Bad Omen for Apple

Investors hunting for clues to the iPhone X’s reception can take a deeper look at its main manufacturing partners. And the latest doesn’t look good.

Apple Inc.’s five largest device assemblers reported a sharp slowdown after peaking at the end of last year, suggesting demand for the high-end device may have faded just a quarter after its release.

While Hai Precision Industry Co., Pegatron Corp. and three other key suppliers reported an 8 percent rise in their total sales across the March quarter, growth slowed sharply later in the period — a drop that in the past has presaged a downturn for Apple.

The concern is that the iPhone X, while enjoying a customary holiday quarter spike for new-generation Apple gadgets, fizzled out rapidly. Apple’s costliest smartphone has struggled to draw customers in emerging markets, while competitors from Huawei to Xiaomi roll out more premium phones and dominate China — the U.S. company’s biggest foreign market. On Friday, Morgan Stanley cut its estimate on iPhone shipments by 6 million, underscoring the growing unease since Taiwan Semiconductor Manufacturing Co., the maker of iPhone processors, issued a disappointing outlook that triggered a 7 percent loss in Apple’s value over just two days.

Apple’s sales growth bears close correlation with that of its main quintet of assemblers, which depend on the iPhone maker for their own business growth — Hon Hai alone gets about half its revenue from Cupertino. While it’s difficult to translate their numbers directly into Apple’s, a look at reported figures since 2016 suggests it’s possible to draw certain conclusions at the general health of the U.S. smartphone titan’s top-line.

The group is responsible for finishing most of Apple’s gizmos: Hon Hai, Pegatron and Wistron Corp. assemble iPhones. Hon Hai also has a role in other Apple products, splitting MacBooks with Quanta Computer Inc. and sharing iPads with Compal Electronics Inc. Quanta and Compal also make Apple Watches.

Hon Hai and crew can indeed offer insights into Apple’s sales but to a limited extent, said Jusy Hong, a director with IHS Markit. While Hon Hai, Quanta and Pegatron both rely on Cupertino for more than half their business, Wistron and Compal are far less dependent on Apple, according to data compiled by Bloomberg. In addition, as hardware mavens, their operations would have no impact on sales of software and services, a significant and growing part of Apple’s top and bottom line.

“It’s true that they are major assemblers of Apple but at the same time they have other customers,” he said in an email.

Investors remain concerned that iPhone sales at Apple, which reports results May 1, failed to meet their lofty expectations. Mia Huang, an analyst at Taipei-based research firm Trendforce, estimates that overall iPhone production volumes grew slightly to 54-56 million units in the March quarter — barely up from 52 million in the same period of last year, when it was propelled by demand for lower-priced and older models like the iPhone 6S and ramp up of the iPhone 7.

“According to our estimates, iPhone X’s production volume fell by 50% in the first quarter compared to the fourth quarter,” said Huang.

Still, the iPhone X’s higher price tag ensured a tidy jump in revenue. For now, analysts are still counting on the first three months this year to have been Apple’s best second quarter ever with an average estimate for $61 billion in revenue. And while its assembly quintet saw sales decelerate during the period, their collective growth is still double that of a year earlier.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

Investment

Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies

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Barclays Bank

Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies

Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.

According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.

The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.

It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.

“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”

Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.

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Economy

Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension

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  • Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension

Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.

OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.

In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.

Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.

Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.

While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.

Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.

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Economy

Gold Dips by 2 Percent on Better Than Expected Job Report

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  • Gold Dips by 2 Percent on Better Than Expected Job Report

Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.

The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.

The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.

“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.

Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.

Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.

The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.

Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.

Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.

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