INTERNATIONAL - Whisper it in the cafes of Silicon Valley, mutter it in the teashops of Shenzhen, yell it from the Austrian mountain top, where only the goats will hear you. The supercycle is dead.

I'm calling it. Before Apple Inc. unveiled the iPhone X in September, investors expected the company's new flagship product to drive a multi-year growth cycle, much as the iPhone 6 did three years previously.

On Monday, Austrian chipmaker AMS AG became the latest to warn that its business was being affected by "a more difficult short-term demand environment in the smartphone market." In other words, people are buying fewer iPhone Xs than expected. Baader Bank analyst Guenther Hollfelder estimates that the AMS numbers indicate between 20 million and 25 million fewer iPhone X sales than expected.

Ultimately, the lack of stellar unit sales might not matter to the Cupertino giant. Apple has managed to offset those disappointing numbers with higher prices, and is accelerating its push into services – a business that includes the App Store, iCloud and Apple Music and is generally more profitable than the iPhone.

None of that helps suppliers, who don't get a piece of Apple's improved margin. The slower unit sales are a problem for AMS, which provides key components for the 3-D sensing system used in the iPhone X's Face ID. Its shares fell 13 percent on Tuesday.

The 7 billion Swiss franc ($7.2 billion) company has placed chunky bets on iPhone components and 3-D sensors in particular over the past two years. It wrote a $570 million check to acquire Singaporean optics firm Heptagon last year, adding to a series of smaller deals. Operating expenses surged last year as it invested in new manufacturing facilities to meet anticipated iPhone X demand.

On one level, this was a smart strategic move. One of the biggest emerging risks for chipmakers is Apple's push to bring more semiconductor capabilities in-house: it designs processors which it then commissions Taiwan Semiconductor Manufacturing Co. Ltd to produce on its behalf.



AMS has, however, focused on components, such as vertical cavity surface-emitting lasers and wafer-level optics, that are on the whole not silicon-based and therefore harder for TSMC to crank off its production lines. But this also means that, with iPhone X sales stuttering, AMS has warned that much of its expanded production capacity will sit idle. The company will endure negative adjusted Ebitda in the second quarter as a consequence.

All is not lost. Following Apple's lead, a flurry of other smartphone-makers will probably introduce 3-D sensors over the course of the next two years, and AMS is well placed to capitalize. That's why it has maintained its earnings goals for 2019 and is not cutting staff numbers at its Asian facilities. It expects capacity to be gobbled up as Apple introduces Face ID for cheaper models and others pile into the technology.

The supercycle may be over, but there's probably still just enough growth left for AMS's investments to have proven worthwhile.

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- BLOOMBERG