ARM Holdings slides on Apple concerns, Jefferies downgrade

Chip designer ARM Holdings was under the cosh amid reports Apple - one of its biggest customers - will continue its reduced production of iPhones due to sluggish sales. At the same time, a downgrade to ‘hold’ from ‘buy’ from Jefferies weighed on the stock.

According to the Nikkei, which cited parts suppliers notified of the plan, Apple will continue its reduced production in the quarter ending June.

The Nikkei also said the production cut could last longer than the one introduced back in 2013, when the technology giant scaled back production orders for its cheaper iPhone 5C a month after launch.

Meanwhile, Jefferies said ARM has been “the darling of the UK tech sector”, its years of quarterly outperformance driven by both licensing and royalties.

However, times are changing. “Our deep dive into the drivers of its royalty revenue from here…suggests the consensus trend to a more than doubling of EPS to 2020 is more complex and potentially risky than the journey to date.”

“We model EPS more than doubling by 2020 (on trend with consensus), but strongly believe the multiple the market has on that growth is too high.”

Going into the first quarter 2016 print, the bank said it was seeking more comfort on smartphone chip pricing and increases in accrued revenue.

Jefferies cut its price target on ARM to 923p from 1,140p.

At 1200 BST, ARM shares were down 2.9% to 961p.