Shipments of touch and memory modules by Apple’s iPhone supply chain makers are expected to suffer significant setbacks in the first quarter of 2019 due largely to disappointing sales of iPhone XS and XR series products.

Apple’s top-two touch module suppliers – General Interface Solution (GIS) and TPK Holding – are likely to see low order visibility in the first quarter, although their revenues hit highs in the fourth quarter of 2018, driven by shipments to the handset and tablet sectors.

The two firms had been expecting brisk sales in line with the launch of the LCD-based iPhone XR, which features their out-cell (add-on) touch modules. However, their shipments of out-cell touch modules were delayed to the end of the third quarter of 2018. The delay shored up their sales in the fourth quarter, but since then their orders have been slashed significantly due to weaker than expected iPhone XR sales.

GIS, whose revenues for the fourth-quarter of 2018 surged 65.01% sequentially to a record high of NT$51.677 billion (US$1.684 billion), is now expected to see its sales plunge as much as 50% sequentially in the first quarter of 2019.

TPK, whose fourth-quarter revenues expanded 32.5% sequentially to NT$42.645 billion, is set to see its sales tumble by more than 30% sequentially in the first quarter, and by the same rate for the first half of the year.

Speculation has indicatied Apple may ditch 3D Force Touch technology for its next-generation iPhone devices to be launched in the second half of 2019. Sales at GIS and TPK will be affected if that really happens.

Apple could also opt to use OLED panels for all of its mobile phones launched in 2020 and beyond, a decision that could further undermine GIS and TPK’s position in the iPhone supply chain.

Nevertheless, GIS and TPK could still be able to maintain their shipment momentum in the first quarter thanks to shipments of touch solutions for two entry-level iPad models expected to be launched by Apple in the first half of the year.

Memory products

Taiwan’s suppliers are not in iPhone’s memory supply chain, but the high inventory levels of iPhone XS and XR have forced Apple to defer further procurement of memory products, worsening the sentiment of a memory market already hit by oversupply.

Major chip suppliers, including Samsung Electronics, Micron Technology, Toshiba and SK Hynix, which had been competing for Apple’s orders for DRAM+NAND flash chips used in iPhone XS Max, are now worried about how to keep their memory production capacity occupied.

The good news for the otherwise bearish memory market is that Android-based smartphone makers are likely to further upgrade their hardware specs by rolling out flagship models with higher memory capacity, such as 8GB or 10GB RAM, in 2019. For NAND flash, China’s handset brands may also push up 256GB ROM to mainstream in the year.

(This is part of a series of articles about the outlook of Apple’s supply chain partners.)


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