Apple shares fell below $US400 ($A385) on Wednesday for the first time since December 2011 after a chip supplier's disappointing revenue forecast fanned fears about weakening demand for the iPhone and iPad.
Apple, whose shares dropped below $400 briefly before bouncing back to stand 5.5 percent lower at about $403, have lost more than 40 percent of its market value since its record high last September, battered by worries about intensifying competition and the effect on Apple's industry-leading margins.
Cirrus Logic's, which makes analog and audio chips for the iPhone and iPad, late on Tuesday said it will record a total net inventory reserve for its fiscal fourth quarter ended March 30 of $23.3 million, most of it due to reduced forecast for one product from one customer.
Cirrus did not name the customer, but Apple accounted for over 90 percent of its business in the December quarter, something that makes Cirrus's forecast a key indicator of Apple demand.
Cirrus also forecast revenue for its first quarter ending in June of $US150 million to $US170 million, well below Wall Street's average forecast of more than $US190 million.
"This is a tough environment, Apple is in transition between products," said Michael Yoshikami, a portfolio manager at Destination Wealth Management, which owns about 50,000 Apple shares. Cirrus's warning "makes it more likely Apple's not going to surprise on upside."
Apple is to report quarterly results on Tuesday. Analysts say Cirrus Logic's reduced outlook lends weight to arguments that consumers' love affair with the iPhone is waning as challengers such as Samsung Electronics vie for their attention.
Some believe Apple will not be able to sustain its high gross margins as competition in the tablet and smartphone markets leads to lower prices. Shorter product cycles limit Apple's ability to bring down component costs, Bernstein Research analyst Toni Sacconaghi said in a note to clients.
Cirrus's weak forecast follows a 19 percent decline in first-quarter sales at Taiwan's Hon Hai Precision Industry Co Ltd, Apple's main contract manufacturer.
"It's a reminder of weakening demand and the challenges around product transitions," Shannon Cross, of Cross Research, said. "There's not a lot of conviction about what the second half is going to look like."
Goldman Sachs analyst Bill Shope said in a note on Wednesday that Apple's momentum could weaken further before it launches new products later this year.
Apple, which relies heavily on new products to drive its revenue growth, has not had a launch since last October when it unveiled its 7.9-inch iPad mini and an updated full-size iPad.
The company typically launches a new iPad in the spring, but it is unlikely to do so because of the October update. Looking forward, investors now expect an upcoming new iPhone to power earnings in the second half. The two versions of the iPad are also likely to get an update in the fall.
In the past week, analysts had reduced their estimates for Apple's March quarter revenue on average to $US42.53 billion from $US42.68 billion. Following Cirrus' warning on Tuesday, some think Apple's results could miss those already reduced expectations.
Apple is expected to report a 9 percent increase in quarterly revenue, with net profit expected to decline 17 percent to $9.59 billion, or $10.08 a share, for its fiscal second quarter, according to average analysts' estimates.
Sacconaghi, who lowered his revenue estimate to $US41.1 billion from $US42.4 billion, said he expects mixed results with Apple's revenue coming in below consensus and earnings per share largely as expected.
Shares of other chip makers and Apple suppliers, including Qualcomm, Avago Technologies, Broadcom and Skyworks, also were hit on a day that saw broad weakness in financial markets.
Investors and analysts will look for more clues about Apple later on Wednesday when flash memory chip maker SanDisk Corp reports results. Apple accounted for 13 percent of SanDisk's revenue in fiscal 2012.
"There's no doubt we'll look at SanDisk to try to figure out what it tells us about overall demand at Apple," RBC analyst Doug Freedman said. "You'll get little nuggets of data that hopefully add up to a bigger picture."