Apple stock sinks as concerns over slowing iPhone demand take hold

Shares of Apple Inc. took a dive Monday toward a 3 1/2-month low, as a profit and revenue warning from an optical equipment supplier suggested investor worries that iPhone demand may be weakening was becoming reality.

Apple’s stock

AAPL, -4.18%

tumbled 4.2% in midday trade, putting it on track for its lowest close since July 31. The stock has now plunged 15.6% since its Oct. 3 record close of $232.07.

Meanwhile, Lumentum Holdings Inc. shares

LITE, -30.83%

plummeted 29% toward a 21-month low, after the company said before Monday’s open that it “recently received a request from one of our largest industrial and consumer customers for laser diodes for 3D sensing to materially reduce shipments” during its fiscal second quarter, which ends December.

As a result, Lumentum slashed its adjusted earnings-per-share guidance range for the quarter to $1.15 to $1.34 from $1.60 to $1.75 and its revenue outlook to $335 million to $355 million from $405 million to $430 million. The previous guidance was provided less than two weeks ago, when the company reported first-quarter results before the Nov. 1 open.

Apple’s stock was down 0.9% in premarket trade just prior to Lumentum’s announcement, then sank to a decline of over 2% right after the announcement, before extending declines after the open.

FactSet, MarketWatch

The reason for the stock’s sudden selloff? Lumentum disclosed in August in its 10-K annual report filing with the Securities and Exchange Commission that Apple was its largest customer, accounting for 30% of total revenue for fiscal 2018 ending June 30, after representing less than 10% of revenue in fiscal 2017 and 2016.

In its 10-Q quarterly filing earlier this month, Lumentum said “Customer A” accounted for 30.5% of its total revenue.

Lumentum listed China-based Huawei Technologies and Ciena Corp.

CIEN, -2.21%

as its other largest customers, with both companies accounting for 11% of total revenue. Ciena shares slipped 1.7% Monday.

Wells Fargo analyst Aaron Rakers suggested Apple was the reason for Lumentum’s reduced outlook. “We think investors could consider Lumentum’s updated guide as reflecting as much as a 30% cut in Apple orders,” Rakers wrote in a note to clients.

D.A. Davidson’s Mark Kellerher said “we believe Apple” was the customer the asked for reduced shipments. He said there are a number of reasons for the 3D sensing revenue shortfall at its largest customer, such as excess inventory, loss of market share or simply just less demand for iPhones. But given the sudden nature of the change from guidance provided just 12 days before, “we believe slower end-user demand for iPhones is the most probable explanation,” Kellerher wrote.

Lumentum told MarketWatch it had “no comment” beyond what was said in its press release. Apple has not responded to a request for comment.

Concerns that iPhone demand was slowing have been bubbling up after Apple’s fiscal fourth-quarter report released after the Nov. 1 close, in which the company provided a downbeat first-quarter outlook and said it would no longer provide unit-sales figures for iPhones.

Don’t miss: When the going gets tough, Apple hides its numbers.

Then came reports that Apple had curbed plans for additional iPhone XR production lines and chip maker Skyworks Solutions Inc.

SWKS, -3.70%

blaming “unit declines in premium smartphones and overall China softness” for a downbeat profit and sales outlook.

On Monday, J.P. Morgan analyst Samik Chatterjee cut his price target for Apple’s stock to $266 from $270, citing lowered forecasts for iPhone shipments for this year and next.