Digitmes - Component demand for iPhone X weakening, say sources

Component demand for iPhone X weakening, say sources

Despite having enjoyed a surge in orders for the iPhone X in September and October, sources from the upstream component supply chain saw their shipments for iPhone devices weaken in November and are likely to drop further in December.
With demand for key component not growing as strong as expected, the sources are concerned that Apple may reduce its iPhone X shipment target for the first quarter of 2018. The sources pointed out that Apple's component orders for the iPhone X in November were around 30% lower than its earlier forecast.
The weakening in component demand comes as the yield rates for the production of the iPhone X have improved, shortening the waiting period for pre-orders from 5-6 weeks to 1-2 weeks, indicated the sources.
Apple's key component supplier Largan Precision saw its November revenues grow a mere 0.05% from a month ago and expects its December revenues to decline on month as its clients may weaken their efforts on pulling in orders.
Other Apple suppliers also experienced a similar scenario. Chassis maker Catcher Technology saw its November revenues drop 10.4% on month, while touch panel supplier General Interface Solution (GIS) also suffered a 15.53% sequential decline in November revenues. GIS had originally expected its sales momentum to continue into 2018.
Meanwhile, GIS and TPK Holding both expect their December revenues to slide from a month ago.
For the first quarter of 2018, the sources expect iPhone X shipments in January and February to be at the comparable level as that seen in November 2017 and will decline sharply in March. Overall iPhone X shipments are expected to be down by around 30% sequentially in the first quarter of 2018 because of seasonality and fewer working days caused by the Lunar New Year holidays.
However, the sources believe Apple's iPhone shipments in the first quarter of 2018 may still be better than those recorded in the same period of 2017.
With the recent market rumors indicating that Apple may release a new 6-inch iPhone with a design similar to that of the iPhone X and also featuring the face recognition function in 2018, market observers believe that some consumers may decide to delay their purchasing plans to wait for the new device.

>>> Europe : Brokers Upgrades & DOwngrades - 8th of December 2017

>>> Up
* Aryzta Upgraded to Buy at Mirabaud Securities; PT 42 Francs
* Burckhardt Upgraded to Buy at Research Partners; PT 360 Francs
* Capgemini Upgraded to Add at AlphaValue 
* Centrica Upgraded to Buy at UBS; PT 1.65 Pounds
* Fresnillo Upgraded to Neutral at Goldman
* Galp Upgraded to Overweight at JPMorgan; PT 17.50 Euros
* Hammerson Upgraded to Buy at Goldman; PT 6.25 Pounds
* Orange Upgraded to Hold at Berenberg
* RWE Upgraded to Buy at SocGen; PT 22.90 Euros
* Vodafone Upgraded to Overweight at Barclays; PT 2.80 Pounds
* Wolford Raised to Hold at Raiffeisen Centrobank; PT 13.50 Euros

>>> Down
* Asos Downgraded to Underweight at Morgan Stanley; PT 50 Pounds 
* BMW Downgraded to Sell at Goldman; PT 85 Euros
* Halma Cut to Underweight at JPMorgan; Price Target 10.60 Pounds
* KPN Downgraded to Equal-weight at Barclays; PT 3.50 Euros
* Nokian Renkaat Downgraded to Sell at Goldman; PT 34 Euros
* Norsk Hydro Downgraded to Neutral at Goldman
* Peugeot Downgraded to Sell at Goldman; PT 16.60 Euros
* Schaeffler Downgraded to Neutral at Goldman; PT 16.50 Euros
* SKF Cut to Underweight at JPMorgan; Price Target 175 Kronor
* Total Downgraded to Underweight at JPMorgan

>>> Initiation
* Axel Springer Reinstated Hold at Independent Research
* Essity Rated New Equal-weight at Morgan Stanley; PT 255 Kronor
* Gecina Reinstated at Goldman With Neutral; PT 149 Euros
* Grifols Rated New Neutral at Credit Suisse; PT 26 Euros
* Kappahl Rated New Reduce at Kepler Cheuvreux; PT 42 Kronor
* Millicom GDRs Rated New Sector Perform at Scotiabank
* MQ Rated New Hold at Kepler Cheuvreux; PT 28 Kronor
* New Wave Rated New Buy at Kepler Cheuvreux; PT 63 Kronor
* Ontex Rated New Equal-weight at Morgan Stanley; PT 28 Euros
* TI Fluid Systems Rated New Buy at HSBC; PT 3.25 Pounds

>>> Asian Update

Asia Market Update: Markets trade mostly higher, US payrolls report in focus; China Trade Surplus above ests on exports; Fed meeting next week

General Themes: Chip-related shares track earlier gains in the US
-Retail name Li & Fung gains over 10% amid broker upgrade
-Tencent gains over 2% on session in volatile week of trading

China/Hong Kong
-Markets opened mixed: Shanghai -0.2%, Hang Seng +0.3%
Hang Seng Information Technology Index +1.9%, Materials +1.7%, Consumer Goods +1.7% (Li & Fung +10% amid broker upgrade) ; Energy -0.7%
-Conglomerate HNA Group: Says it is adjusting portfolio and not ‘blindly’ selling assets; Asset sales not related to liquidity; Stakes in Deutsche Bank and Hilton are 'profitable' investments, has no interest in selling the stakes in 'near future'
-(CN) China Nov Retail Auto Sales Y/Y: +3.2% v 2.7% prior - PCA
-(CN) Dalian Iron Ore extends weakness seen on Thursday’s session, down a further 3% today (**Note: Traded limit down-over 5%- on yesterday’s session)
-(CN) CHINA NOV TRADE BALANCE ($): V $40.2B V $35.0BE; Exports Y/Y: 12.3% v 5.3%e (fastest growth since March)
(CN) CHINA NOV TRADE BALANCE (CNY): 263.6B V 240.8BE; Exports Y/Y: 10.3% v 2.0%e
(CN) China Jan-Nov Iron Ore Imports Y/Y: 991M tons, +6%; Nov Iron Ore imports 94.77M tons v79.49M m/m; Nov Natural Gas imports 6.4M tons (record high)
-(CN) China State Planner NDRC issues guidelines on producer and user coal stockpiles: Plans to set a cap and floor for stockpiles
-(CN) China Nov Export Leading Index M/M: +0.2 to 41.8
-(CN) PBoC Open Market Operations (OMO): Skips OMO and says banking system overall liquidity at ‘moderate level*’ v CNY270B injected in 7,14 and 28-day reverse repos prior; Net drain CNY10B v nil prior (*Note: On Dec 5th, the PBoC said that current banking liquidity was at a ‘high level’)
-(CN) PBoC sets yuan reference rate at 6.6218 v 6.6195 prior
-(CN) CHINA NOV FOREIGN RESERVES: $3.119T V $3.124TE (10th straight month of increases)
(CN) China FX Regulator SAFE: Forex reserves size to remain stable overall
-(CN) China PBoC regulators are reportedly clamping down on unlicensed payment companies - China press
-(CN) China PBoC said to meet major commercial banks amid the recent bond market sell-off - financial press
-(CN) Reportedly 10 Chinese banks push back at new asset management rules in closed meeting - sources
Looking Ahead: China Nov CPI and PPI tentatively scheduled for over the weekend

Japan
-Nikkei 225 opened +0.6%: closed: +1.4%
TOPIX Securities index +1%
Chip-related shares gain: Toshiba +1%, SUMCO +2.5%, Tokyo Electron +2.5% (follow-through buying, tracks gains in US chip space)
Softbank +0.7%, Fast Retailing +2%
Dec Nikkei 225 Futures and Options seen settling at ~22,590 – financial press
-USD/JPY trades marginally higher with the Nov US payrolls report in focus
-Q3 GDP revised higher supported by Capex
JAPAN Q3 FINAL GDP Q/Q: 0.6% V 0.4%E; ANNUALIZED SA Q/Q: 2.5% V 1.5%E; NOMINAL Q/Q: 0.8% V 0.7%E; Business Spending Q/Q: 1.1% v 0.4%e (highest reading since Q4 2017, revised upwards from +0.2%)
-JAPAN OCT LABOR CASH EARNINGS Y/Y: 0.6% V 0.8%E; REAL CASH EARNINGS Y/Y: 0.2% (weakest reading since July) V 0.2%E
-Japan Oct BoP Current Account: ¥2.18T v ¥1.72Te (40th straight surplus)
-Japan Oct Trade Balance BoP Basis: ¥430.2B v ¥418.1Be
-Japan Nov Bank Lending Incl Trusts Y/Y: 2.7% v 2.8%e; Ex-Trusts Y/Y: 2.7% v 2.8% prior
-Japan Nov Eco Watchers Survey Current:55.1 v 52.1e: Outlook:53.8 v 54.0e

Australia/New Zealand
-ASX 200 opened +0.2%; Energy Index +0.7%, Financials +0.6%; Resources -0.2%; Closed +0.3%
AWE: +7% (received higher bid from China Energy and Chemical Group)
(AU) Lynas, Pilbara Minerals and Wisetech to be added to the S&P ASX 200; To replace Flexigroup, Japara and Regis Healthcare; effective at open of trade on Dec 18th
-(AU) Australia Oct Home Loans M/M: -0.6% v -2.0%e; Investment Lending: +1.6% v -6.2% prior
-(AU) Australia sells A$500M in Dec 2021 Bonds, avg yield 2.0730%, bid to cover 8.54x
-(NZ) New Zealand Q3 Manufacturing Activity Q/Q: 0.5% v 3.9% prior; Mfg Activity Volume: 0.3% v 1.0% prior

Korea
-Kospi opened +0.3%
Samsung Electronics +1.6%, Hynix Semi +2.1%
Shipbuilder Samsung Heavy continues to decline after recent profit warning and capital raise announcement; -4.5%
-South Korea to announce measures related to shipbuilding in early 2018; to establish a KRW1T corporate restructuring fund – South Korea Press
-South Korea Finance Ministry: To enhance monitoring of ‘debt-ridden’ companies to prevent corporate insolvency; Sees economic recovery to continue on 'robust' exports
-Russia Foreign Min Lavrov: North Korea would like talks with the US over security guarantees – press

Other Asia
-Taiwan computing products firm Compal Electronics plays down speculation Lenovo is seeking a 20% stake
-Taiwan Semi: Reports Nov Rev NT$93.2B v NT$94.5B m/m, +0.1% y/y
-(TW) Taiwan said to forecast 2018 GDP growth 2.4-2.6% (*Note: On Nov 24th, Taiwan’s government maintained its 2018 GDP growth forecast at 2.3%)

Europe
-(EU) ECB's Draghi: confirms Basel III is completed; it's a great day and a major milestone
-(EU) EU: Reiterates UK PM May and EU Commission President Juncker likely to meet at 7 AM CET in Brussels; 7:30 CET press conference 'possible'
-(UK) EU officials reportedly tell negotiators they hope for a Brexit breakthrough tomorrow morning (Friday) – press
-(DE) Germany SPD Party Congress votes in favor of entering talks on joining grand coalition with Merkel's party – press

North America
US equities ended higher: Dow +0.3%, S&P500 +0.3%, Nasdaq +0.5%, Russell 2000 +2.1%
S&P500 Industrials Sector +0.9%, Tech +0.6%; Consumer Staples -1%
-(US) Senate passes stopgap spending measure that will keep the govt funded through Dec 22nd; vote 81 to 14
-(US) Trump admin reportedly preparing infrastructure plan announcement in Jan – press
-(US) Fed's Dudley (dove, FOMC voter): high college costs lower economic mobility; Did not discuss monetary policy in prepared remarks
M&A: Silicon Labs agrees to acquire Sigma Designs, Inc. for $7.05/shr in $282M deal
Looking Ahead: US Nov Avg Hourly Earnings and Nonfarm payrolls due for release on Friday
-Fed FOMC meeting due on Dec 12-13 (Tues-Wed)

***Levels as of 01:00ET***
- Hang Seng +1%; Shanghai Composite +0.6%%; Kospi +0.2%
- Equity Futures: S&P500 +0.1%; Nasdaq100 +0.4%, Dax +0.1%%; FTSE100 flat
- EUR 1.1761-1.1777 ; JPY 113.08-113.39 ; AUD 0.7502-0.7517 ;NZD 0.6823-0.6841
- Dec Gold -0.2% at $1,250/oz; Jan Crude Oil flat at $56.67/brl; Dec Copper +0.7%% at $2.984lb

>>> Us Close Modest Gains Ahead of Friday's Jobs Rep


TICKER ALERT: WRAPX

Closing Market Summary: Modest Gains Ahead of Friday's Jobs Report

U.S. equities recouped some of the losses registered earlier in the week on Thursday, with industrial shares pacing the advance.

The S&P 500 added 0.3%, as did the Dow Jones Industrial Average, while the tech-heavy Nasdaq Composite outperformed, climbing 0.5%. Small caps showed relative strength, pushing the Russell 2000 higher by 0.8%. The S&P 500 will enter Friday's session with a week-to-date loss of 0.2%.

A Friday night deadline to secure government funding kept investors on their toes on Thursday. Lawmakers are expected to agree to a short-term extension that would fund the government for another two weeks, perhaps giving the GOP just enough time to pass its tax reform bill before having to take up the issue again.

President Trump met with congressional leaders on Thursday afternoon to discuss the issue, but no agreement was announced.

Separately, Bloomberg reported that the White House plans to release its long-promised infrastructure plan in early January. The report helped support the S&P 500's industrial sector (+0.9%), which was already strong amid another transport rally; the Dow Jones Transportation Average finished higher by 1.3%.

The top-weighted technology sector (+0.7%) also outperformed on Thursday, with Facebook (FB 180.14, +4.08) and Alphabet (GOOG 1030.93, +12.55) jumping 2.3% and 1.2%, respectively. Chipmaker Broadcom (AVGO 263.89, 0.00) started off strong after reporting upbeat quarterly earnings, but finished at its unchanged mark.

In total, nine of eleven sectors settled in the green, with the consumer staples sector (-0.9%) being the only group to finish with a sizable loss. Within the sector, Dow components Procter & Gamble (PG 90.10, -1.15) and Coca-Cola (KO 45.78, -0.67) dropped around 1.3% apiece. 

U.S. Treasuries were flat through much of the session but eventually finished below their unchanged marks, with longer-dated issues showing particular weakness. The yield on the benchmark 10-yr Treasury note jumped five basis points to 2.38%, while the 2-yr yield climbed just one basis point to 1.81%.

Elsewhere, equities indices in the Asia-Pacific region settled Thursday mixed--with Japan's Nikkei (+1.5%) showing relative strength and China's Shanghai Composite (-0.7%) showing relative weakness--while the Euro Stoxx 50 jumped 0.4%.

Reviewing Thursday's economic data, which was limited to weekly Initial Jobless Claims and October Consumer Credit:

  • The latest weekly initial jobless claims count totaled 236,000, while the Briefing.com consensus expected a reading of 240,000. Today's tally was below the unrevised prior week count of 238,000. As for continuing claims, they declined to 1.908 million from a revised count of 1.960 million (from 1.957 million).
    • The initial claims report has been glossed over by market participants who have their labor market sights set on the November Employment Situation report, which will be released before the open on Friday.
  • The October Consumer Credit Report showed an increase of $20.5 billion (Briefing.com consensus +$17.0 billion). The September credit growth was revised to $19.2 billion from $20.8 billion.

The Employment Situation Report for November (Briefing.com consensus +190,000) will be released at 8:30 ET on Friday, followed by the 10:00 ET release of October Wholesale Inventories (Briefing.com consensus -0.4%) and the preliminary reading of the University of Michigan Consumer Sentiment Index for December (Briefing.com consensus 98.8).

  • Nasdaq Composite +26.6% YTD
  • Dow Jones Industrial Average +22.5% YTD
  • S&P 500 +17.8% YTD
  • Russell 2000 +12.0% YTD 

>>> Petrofac represents test for industry's risk appetite – sector advisers

MergerMArketr
Petrofac represents test for industry's risk appetite – sector advisers
Analysis 07 DEC 2017

Prolonged SFO investigation likely deterrent to bidders
KBR, Saipem also tipped as potential bidders
Middle East focus unlikely to lead to competition obstacles

Petrofac [LON:PFC], The UK-headquartered oilfield services company, would test the limit of bidders' risk appetite despite being undervalued due to an investigation by the Serious Fraud Office (SFO), sector advisers said.

On 11 November, the Sunday Telegraph reported that the company is putting together information that would help it fend off any hostile takeover bid and has a refreshed advisory team preparing to carry out an in-depth study of the true value of the business.

The report noted that Petrofac’s share price has dropped sharply since the beginning of the SFO investigation into alleged links to a corruption scandal. On 11 May, Petrofac announced that the SFO had commenced an investigation into the company in connection with the SFO’s investigation into Unaoil, and that its CEO and CFO had been questioned under caution.

Petrofac’s share price dropped from 814.5p on 11 May, to a low of 349p on 7 June, and currently trades at around 418.6p, giving it a market capitalisation of GBP 1.45bn.

On 17 November, The Daily Telegraph cited City sources who said Schlumberger [NYSE:SLB], Halliburton [NYSE:HAL] and an unidentified party from the Middle East have hired advisers to consider an opportunistic takeover offer for Petrofac.

However, the reason for Petrofac’s devaluation - the SFO investigation - remains a major hurdle to any attempted takeover, the advisers said.

Risk appetite in the oilfield service sector is changing, and Amec Foster Wheeler’s involvement in the same investigation did not prevent its merger with John Wood Group [LON:WG]. But the ongoing investigation is still a major issue to put off potential Petrofac buyers, a sector lawyer said. What’s more, the investigation doesn’t seem to be progressing very quickly, a sector banker said.

Potential bidders must have concerns on how endemic the problem is at Petrofac, and would therefore need to be hugely opportunistic to take a run, the first sector lawyer said.

Ayman Asfari, chief executive officer and its largest shareholder with over 18%, is himself a key part of the investigation. On 25 May, Petrofac announced that Asfari, though remaining CEO, will not be involved in any matters connected to the investigation, and will have no role or responsibilities for engaging with or liaising with agents and consultants.

Yet, a new owner could reasonably claim no connection to past misdemeanours and rebrand the company, if the SFO situation can first be contained, a sector consultant said.

Another question is whether Asfari wants to exit Petrofac, as his stake means that any potential acquirer must engage directly with him, a second sector banker said.

He is a big part of Petrofac’s success, but he is also objective, another sector consultant said. He could look to leave in order to pursue other opportunities, especially once the SFO investigation has passed, this consultant said.

Bidder universe

Schlumberger and Halliburton may want to build up their presence in the Middle East, which is the main area of focus for Petrofac, the two sector bankers said. Halliburton, for example, has its non-US headquarters in Dubai, the first consultant said.

However, if they wanted to buy a business in this space they could have pursued the recently for sale North Sea division of Amec Foster Wheeler, the first banker said.

Joint ventures have presaged other oilfield service hookups, and Schlumberger and Petrofac did have a Mexican field rehabilitation venture, the first consultant said.

Schlumberger’s acquisition of Cameron and the merger of Technip and FMC Technologies were both preceded by joint ventures.

But these previous deals were vertical consolidation within the two parties’ value chain, while Petrofac’s engineering, construction and project management are less aligned to Schlumberger and Halliburton’s business model, the consultant suggested.

Petrofac is more closely aligned to KBR [NYSE:KBR], the engineering, procurement, and construction company that was separated from Halliburton, the consultant said. Another company in the space which has yet to do any major deal is Saipem [BIT:SPM], which has closed a recent restructuring, the second sector banker said.

Work also needs to be done to identify which areas of Petrofac’s business would overlap with any potential acquirers, as recent deals in the space have been the subject of merger control issues, a second sector lawyer said.

The Amec Foster Wheeler/John Wood Group merger saw the need to divest the aforementioned North Sea business, while the USD 28bn combination of Halliburton and Baker Hughes [NYSE:BHGE], first announced in 2015, fell through following concerns by US and European anti-trust regulators.

However, much of Petrofac’s revenue is accounted for in the Middle East and the same competition issues are unlikely to occur, the two consultants and first sector banker said.

That said, due to the uncertainty over whether long term contracts will result in profit, an acquirer would likely need to have some concentration in the same space, the second sector banker and first lawyer said.

This would suggest it is less of a target to potential private equity bidders, the lawyer said. Also, Petrofac is not a distressed business, so there is no opportunistic reason for PE to try to acquire, the first banker said.

Schlumberger and Saipem did not respond to requests for comment. Petrofac, Halliburton and KBR declined to comment.