The news from the Apple (AAPL -2.41%) supply chain hasn't been inspiring lately, something that's led Apple shares to -- following their post-earnings drop -- keep shedding value.
Earlier this month, Nikkei Asian Review reported that Apple was "telling its top smartphone assemblers Foxconn and Pegatron to halt plans for additional production lines dedicated to the relatively cost-effective [iPhone] that hit shelves in late October," referring to the iPhone XR.
Image source: Apple.
Apple did, however, reportedly boost iPhone 8 and iPhone 8 Plus production by about 5 million units.
Not long after that report came out, Apple 3D sensing component vendor Lumentum (LITE -0.95%) announced a dramatic reduction in its financial outlook for the quarter, reducing its revenue guidance from a range of $405-430 million to $335-355 million and earnings per share guidance to a range of $1.15-$1.34 from $1.60-$1.75.
That reduction came on Nov. 12, just 11 days after the company issued its original guidance.
"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 out fiscal second quarter for previously placed orders that were originally schedule for delivery during the quarter," Lumentum president and CEO Alan Lowe was quoted as saying in the press release.
By contrast, AppleInsider reports that Dialog Semiconductor (DLGN.F) CEO Jalal Bagherli recently indicated that his company "hasn't seen the same hit to its business that other Apple suppliers have encountered in recent times."
There's a simple explanation for that.
Lumentum vs. Dialog Semiconductor
Lumentum's role in the iPhone is as a supplier of components that enable the 3D sensing functionality present in the iPhone XS, iPhone XS Max, and the iPhone XR. Dialog Semiconductor, by contrast, provides power management chips into all of Apple's iPhones (although it doesn't supply the main power management IC, or PMIC, into the iPhone XS Max).
Remember how the Nikkei Asian Review report claimed that Apple was actually tasking its suppliers to build more iPhone 8 and iPhone 8 Plus devices and fewer-than-expected iPhone XR devices? Well, to the extent that such a shift occurs, Lumentum simply loses because the iPhone 8 and iPhone 8 Plus don't have 3D sensing capability.
Dialog Semiconductor, on the other hand, still sells components even if customers choose an iPhone 8-series device over an iPhone XR. (Although the components in the older iPhones could be less advanced and, ultimately, command lower average selling prices than components sold into new iPhones.)
A long-term silver lining
A silver lining for Lumentum, as well as other suppliers of 3D sensing components to Apple, is that over time all of Apple's iPhones should incorporate TrueDepth cameras -- Apple's marketing name for the front-facing 3D sensing cameras on the iPhone X, iPhone XS, iPhone XS Max, and iPhone XR.
Indeed, I expect that next year, Apple will cut the price of today's iPhone XR and that device will replace the current iPhone 8 and iPhone 8 Plus, subsequently leading to a discontinuation of the iPhone 7 and iPhone 7 Plus. Then, the year after that, the iPhone 8 and iPhone 8 Plus should also be bumped out of Apple's product stack in favor of a further price-reduced iPhone XR.
Assuming Apple's total iPhone shipment volumes don't drop dramatically over the next two product cycles, the increased proliferation of Apple's TrueDepth camera across the iPhone product stack should mean that Apple's consumption of 3D sensing components should grow over the next two product cycles.
