Tech

Apple slides after one of its facial recognition suppliers cut its outlook, hinting at weak iPhone orders

Key Points
  • One of Apple's facial recognition suppliers, Lumentum, reduced its outlook for the quarter, citing a reduced shipment request from one of its biggest customers.
  • Apple shares slide on the news.
  • The announcement adds to the speculation that Apple is reducing production of its latest iPhones.
Tim Cook, CEO of Apple Inc.
Adam Jeffery | CNBC

Apple shares closed down 5 percent Monday morning after one of its facial recognition suppliers cut its outlook, citing a reduced shipment request from a large customer.

Lumentum, a manufacturer that makes lasers capable of sensing in 3-D, announced the reduced outlook Monday. The company creates components for the front-facing camera of Apple's newer iPhones that enable FaceID and augmented reality. The report builds speculation around the success of Apple's latest iPhones as the holiday season approaches. Last week, Nikkei reported that Apple stopped a production boost for its new iPhone XR.

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In a statement, Lumentum President and CEO Alan Lowe said, "We recently received a request from one of our largest Industrial and Consumer customers for laser diodes for 3D sensing to materially reduce shipments to them during our fiscal second quarter for previously placed orders that were originally scheduled for delivery during the quarter."

In Lumentum's annual filing for fiscal year 2018, it listed Apple as its largest customer, accounting for 30 percent of revenue. However, Lumentum did not mention Apple by name in its report Monday.

In a note Monday, Wells Fargo gave Apple a market perform rating and said "investors could consider Lumentum's updated guide as reflecting as much as a 30% cut in Apple orders."

Bank of America Merrill Lynch had a rosier outlook, maintaining its neutral rating for Apple. In a note Monday, analysts wrote that the guidance update could indicate "inventory build and also an earlier start to production ... that could magnify the perceived impact of these cuts." The note added that the new iPad Pro also uses FaceID, so the shipment cut may not translate directly to iPhone production.

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