Hon Hai, the company also known as Foxconn (OTCPK:FXCNY), has been seeing a steep slowdown in revenue and one analyst argues that Apple sales may not live up to expectations.
JMP Securities analyst Alex Gauna downgraded Apple (AAPL) from market outperform to market perform on the argument that Foxconn and Apple sales track each other closely.
We are reducing estimates and downgrading Apple from Market Outperform to Market Perform to reflect risk associated with the notable deceleration in its primary manufacturing partner Hon Hai (Foxconn) that was emerging even prior to the amplified uncertainty created by developments in Japan. Hon Hai sales growth decelerated from 84% y/y in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the >70% y/y sales growth consensus is looking for in the March quarter and >50% in June.
Gauna says that he doesn’t know why Foxconn sales are coming up short, but it could mean Apple’s iPhone sales are merely in line with expectations and the product transition to the iPad 2. I’d bet heavily that the iPad 2 transition is a big reason for the Foxconn slowdown.
In addition, Apple is also likely to see a Japan hit. Apple gets 6 percent of its sales from Japan as well as components such as flash memory and hard drives.