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Just look at Cirrus Logic (CRUS), which makes micro chips used in Apple devices, including the iPhone. After running up in anticipation of blockbuster numbers from Apple, shares of Cirrus tumbled nearly 7% on Wednesday in the wake of the results.
Cirrus recently said Apple orders represented an eye-popping 72% of its fiscal 2015 sales. That's easily the highest percentage among all Apple suppliers, according to FactSet.
Q2 hasn’t been great for a number of chipmakers and some EMS providers:
- Altera Corp. announced second quarter sales of $414.2 million, down 5 percent from the first quarter of 2015 and down 16 percent from the second quarter of 2014.
- Maxim Integrated Products, Inc. reported net revenue of $583 million for its fourth quarter of fiscal 2015 ended June 27, 2015, a 1% increase from the $577 million revenue recorded in the prior quarter, and a 9% decrease from the same quarter of last year.
- Celestica reported revenue of $1.42 billion, within its guidance range of $1.35 billion to $1.45 billion (announced April 21, 2015), increased 9% sequentially and decreased 4% compared to the second quarter of 2014.
- Flextronics' net sales for the first quarter ended June 26, 2015 were just under $5.6 billion, slightly below its previously provided revenue guidance of $5.6 billion to $6.2 billion.
Arrow Electronics, Inc.’s Q2 global components sales of $3.7 billion, by comparison, grew 4 percent year over year. The disparity between the distributor’s growth and chip makers’ softness was noted by analysts during Arrow’s quarterly conference call. One analyst flat out asked: “How do you do it?”
CEO Mike Long’s answer could be echoed by many companies in the distribution channel. Arrow, he said, has a diverse customer base. “Our broad customer base helps us balance our results,” Long said. “We are not reliant on a few big customers.”
That trend was borne out regionally and among Arrow’s vertical markets. Arrow’s adjusted sales growth in Europe was 11 percent; in Asia, 4 percent; and in the Americas, 3 percent. In Europe, Long said, Arrow had a few things going for it. The company added sales and engineering staff; design wins increased; and the defense, aerospace and transportation markets are growing. In China, Arrow is still seeing growth in the lighting, industrial, and power and transportation markets. “What we have seen is a decrease in the wireless [business] there,” Long said.
“What I think you are seeing among suppliers,” Long added, “has more to do with the wireless business than it does with the broader market.” The vast majority of suppliers suffering weakness in Q2 have a few large customers, he said. Arrow has seen strength across most markets. “Overall for us we are still seeing business as usual, with the bend in China slowing us somewhat. We are dealing with more of a customer base than our suppliers, and that does help us.”
The Americas market continues to be sluggish and choppy, Long said. “There is still a continuation of the transference of business going to Asia,” he explained, “and we fight that constantly. Additionally, we think the sluggish economy is to blame. Things were pretty good in aerospace, but quarter after quarter some of our verticals were up and some were down, and that has been the struggle for the past year or so.”
The same dynamic, however, helps Arrow in the current market. “Those verticals will play off of one another, which is how our business also manages to maintain its balance," Long said.
Arrow reported second-quarter 2015 net income of $123.9 million, or $1.28 per share on a diluted basis, compared with net income of $127.9 million, or $1.27 per share on a diluted basis, in the second quarter of 2014. Excluding certain items in the second quarters of 2015 and 2014, net income would have been $148.9 million, or $1.54 per share on a diluted basis, in the second quarter of 2015, compared with net income of $144.3 million, or $1.43 per share on a diluted basis, in the second quarter of 2014. Second-quarter sales of $5.83 billion increased 3 percent from sales of $5.68 billion in the prior year. Second-quarter sales, adjusted for the impact of acquisitions and changes in foreign currencies, also increased 3 percent year over year. In the second quarter of 2015, changes in foreign currencies had negative impacts on growth of $350 million on sales and $.10 or 7 percent on earnings per share on a diluted basis compared to the second quarter of 2014.
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