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Face-Recognition Chipmaker AMS Hit by Apple Order Delays

AMS sensors are used by Apple to deliver face-recognition features that make its flagship iPhone X stand out from rival smartphones and the Austrian company is widely expected to win follow-on contracts for the next iPhones and iPads.

Reuters

Updated:April 25, 2018, 10:27 AM IST
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Face-Recognition Chipmaker AMS Hit by Apple Order Delays
Face-Recognition Chipmaker AMS Hit by Apple Order Delays (Image: REUTERS/Lucy Nicholson/File Photo)
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Shares of Austrian chipmaker AMS tumbled as much as 14 percent after the supplier to tech giant Apple warned of a major customer's continued delays in finalising product plans, dealing a blow to its second-quarter outlook. Apple, which analysts estimate is responsible for half of AMS revenue, is winding down production of its iPhone X line before gearing up for new products in the autumn. Although that transition was widely expected, the impact on AMS is magnified by the U.S. company's delays in finalising parts specifications. AMS sensors are used by Apple to deliver face-recognition features that make its flagship iPhone X stand out from rival smartphones and the Austrian company is widely expected to win follow-on contracts for the next iPhones and iPads.

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"Due to these product transitions and product changes in a major consumer programme preventing pre-production of parts, AMS also expects a significant under-utilisation of capacity," the company said. It had reported late on Monday that first-quarter sales were towards the lower end of its previous guidance range and delivered its warning about the current quarter. Shares in the chipmaker suffered their biggest daily decline in two years on Tuesday before mounting a partial recovery after AMS executives told investors results would bounce back in the second half once the key customer, which it declined to name, okayed new product specifications.

By 1139 GMT Zurich-listed shares in AMS were down 9.1 percent at 86.90 Swiss francs, with other Apple suppliers also taking a hit. Dialog Semiconductor, which supplies power management chips to Apple, fell 5.4 percent while STMicro, another Apple sensor chip supplier, fell as much as 4 percent in early trading before recovering losses to trade 1 percent down.

MARGINS BLOW

AMS said it expected second-quarter sales to drop to between $220 million and $250 million, roughly half the $452.7 million in sales it posted for the first three months of 2018. It added that the reduced utilisation of capacity at its biggest plant in Singapore will hit profit margins. AMS also confirmed its mid-term growth and profitability guidance, aiming for a 60 percent compound annual growth rate between 2016 and 2019, combined with an adjusted margin target of 30 percent from 2019 onwards.

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Executives at the company emphasised that there are no plans to lay off factory employees because the key customer remains committed to using AMS products. The order shortfall is expected to reverse in the second half of 2018 as the customer ramps up its purchasing. "The imminent end of life for iPhone X is leading to a deeper trough than the most cautious of estimates," Barclays analyst Andrew Gardiner said in a research note to clients.

Barclays projects that stronger adoption by Apple of the chipmaker's 3D sensors in the second half of 2018 and by major Asian Android smartphone makers next year will drive AMS revenue to 1.6 billion euros ($1.95 billion) in 2018, rising to 2.2 billion euros in 2019. The company, which also makes sensors used in cars and industrial gear, also said it expects to have a broader base of customers for its 3D optical sensor products in 2019.

It did not identify potential new customers, but analysts said they could include China's Huawei, Xiaomi or Korea's Samsung Electronics.

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