Apple crisis warning: the entire technology supply chain is facing serious inventory problems

  Bloomberg News commented that Apple's revised revenue forecast set off a strong market shock, but in terms of inventory levels and cash conversion, the iPhone maker's ability to cope with the market decline is still stronger than other technology companies. This is a big problem.

Apple recently cut its revenue forecast sharply, causing the stock to plummet 10% on the 3rd, mainly due to the slowdown in China's economy and slower iPhone sales.

But Bloomberg columnist Tim Culpan pointed out on the 4th that Apple is at the forefront of the soundness of the technology industry, and it faces serious challenges. The situation of other companies is even more worrying.

Gao Canming has warned in the column on August 28 last year that the dark clouds over the global technology industry are gathering. At that time, he picked out nine companies, including well-known electronic equipment brands, product assemblers and chip makers. After analyzing the data of these companies, he concluded that the technology industry party that lasted for ten years seemed to be ending with a serious hangover because of the supply. The chain is facing inventory problems.

Now, Gao Canming added the same analysis after adding the inventory level, inventory turnover rate and cash conversion cycle data of the third quarter of last year, and the results showed that "the situation is even more ugly than four months ago."

Gao Canming said that Apple’s revenue alert this week is only a small part of the troubles of the technology industry.

For example, he said that Chinese smartphone maker Xiaomi may be in a dilemma. How can I see it? Because as of the end of September 2018, Xiaomi's inventory level has increased by 22% from the end of June, and a 62% increase compared with December 2017.

In contrast, Apple's inventory level has fallen to its lowest level since June 2017, including a 19% decrease from a year ago. This means that although Apple has revised its revenue forecast, the preparation for the decline in the technology industry is relatively better in the industry.

The situation of Intel and Samsung Electronics does not seem too bad. However, Samsung's inventory turnover rate, cash conversion cycle, and inventory conversion cash data are all going in the wrong direction. In particular, the latter two cash flow indicators have all risen to historical highs. This is not a good phenomenon.

Gao Canming pointed out that the hidden concerns faced by assembly companies are even greater. Hon Hai (Foxconn), Heshuo and Wistron's customers cover most of the major electronics brands, including Apple, Sony, Nintendo, HP and Dell Technologies. If Lenovo Group is also added, the inventory that continues to climb will rise even higher, and it has reached the level that the current global economic environment cannot support. This cannot be taken only by the phrase “seasonal inventory accumulation”.

Before Bloomberg reported that Hon Hai plans to cut costs, Fu Zhikang, a non-Apple smartphone division, said that layoffs were said. Hon Hai’s supervisor did not comment before Gao Canming’s deadline.

Gao Canming believes that such cost-cutting measures may not be enough to save the profits of technology companies. Although Apple CEO Cook has offered some strategies to slow down the growth and arrogance, only one move back to the treasury stocks can support the earnings per share. Other technology players seem to have no skills to offer.

Gao Canming said that the inventory and cash conversion data reflects past operating performance, but it can also be used as a leading indicator of net income, because the technology industry will become worthless for a long time unsold products on the shelves. If the sales situation in the fourth quarter of last year and the first quarter of this year is not enough to rationalize these rising stock levels, the significant write-down of asset value will surely follow.