S&P: How a slowdown in Apple iPhone sales could impact Jabil

A slowdown in iPhone sales is unlikely to meaningfully affect Jabil Inc.’s performance over the next few quarters, a new report from S& Global Ratings said.

Jabil (NYSE: JBL), based in St. Petersburg and one of the largest employers in the area, is a major supplier for Apple (Nasdaq: AAPL), but provides components for products besides the iPhone, the S&P report said.

The credit rating agency expects fiscal 2019 to be a challenging year for Apple, with iPhone unit sales dropping nearly 20 percent and overall revenue declining by a mid-single-digit percentage.

Apple accounted for 28 percent of Jabil’s $22.1 billion in total revenue in the fiscal year ended Aug. 31.

“We estimate Jabil’s Apple revenues grew in the 30 percent to 40 percent range in fiscal 2018, much higher than the mid-teens growth for Apple itself. We believe this is because it expanded into nonphone categories,” the S&P report said.

Jabil’s diversified manufacturing segment is the part of the company that most deals with Apple. For that segment, “We expect revenue growth to be above 10 percent in fiscal year 2019 supported by good growth opportunities in cloud, automotive, healthcare, and 5G,” the report said.

If iPhone sales were to drop another 20 percent in fiscal 2020, the credit impact on Apple suppliers could be magnified, S&P said.

“However, we think in this scenario Jabil would likely avoid a [credit rating] downgrade as it would likely generate more cash through liquidating inventory, curtail some capital spending, and manage its balance sheet to preserve its ‘BBB-’ rating and remain in the investment grade category, although downgrade risk would certainly be elevated,” the report said.

The S&P report included 18 Apple suppliers. Only two other firms — Hon Hai Precision Industry Co. Ltd. and Qorvo Inc. — get a larger percentage of revenue from Apple than does Jabil, S&P said.