Our Theme of Apple Component Supplier Stocks, which includes a diverse set of companies that supply components for Apple’s devices, has declined by about 25% over 2022, outperforming Apple stock which was down 29%.
While the decline over the past year was largely due to rising interest rates and a broader sell-off in tech stocks, Apple’s iPhone supply chain is also seeing some disruption. While China has eased Covid-19-related restrictions, cases have surged in the country in recent weeks and this is likely to temporarily impact production. Moreover, there have also been protests at Apple contract manufacturer Foxconn’s factory in Zhengzhou which produces a majority of the iPhone 14 Pro and Pro Max devices. This is likely to have weighed on the availability of the premium iPhones – which are apparently seeing stronger demand versus the base iPhone 14 – through the holidays. This is likely to temporarily weigh on the performance of Apple suppliers as well.
Moreover, we also have some concerns about margins for Apple’s component suppliers. Apple has essentially kept prices for its new flagship iPhones flat over the last five years in spite of rising inflation. For perspective, the flagship 2022 iPhone 14 Pro starts at $1000, the same price as the 2017 iPhone X. Despite the flat pricing, Apple has actually been improving its gross margins. This could translate into some pricing and margin pressure for Apple’s component vendors.
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While these are negative developments for Apple’s suppliers, there could be some trends that could help the stocks in our theme as well. The broader industry transition to 5G wireless networks is likely to help Apple’s suppliers, who are largely focused on wireless chipsets and related semiconductors. For example, Android device vendors have been looking to equip more of their mid-range and lower-end models with 5G capabilities. Apple’s iPhone model mix is also increasingly skewing toward premium devices and this could also be seen as a positive trend for Apple’s suppliers.
Within our theme, Qorvo (NASDAQ:QRVO), a semiconductor vendor best known for supplying radio frequency components, ultra-wideband, and WiFi solutions for consumer electronics products, has been the weakest performer, with its stock falling by about 43% over the past year. On the other side, Jabil (NYSE:JBL) stock has been a relative outperformer in our theme, declining by just about 3% over the last year.
|S&P 500 Return||0%||0%||71%|
|Trefis Multi-Strategy Portfolio||0%||0%||215%|
 Month-to-date and year-to-date as of 1/3/2023
 Cumulative total returns since the end of 2016