Will Apple Pressure Its Supplier Stocks With iPhone 13?

by Trefis Team
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Apple launched its much anticipated iPhone 13 lineup last week, with the new devices featuring upgrades to cameras, displays, and battery capacity. So what does the launch mean for Apple Component Supplier Stocks?

Apple has kept pricing unchanged versus last year’s devices, despite offering more advanced features and higher storage on entry-level modes. This is noteworthy as the consumer electronics industry has been contending with a significant supply crunch for semiconductors and supply chain headwinds, which should translate into higher costs. Considering that Apple has rarely taken a hit on margins (gross margins soared about 400 bps year-over-year to 42% in Q3’FY’21), we think that Apple’s suppliers might face some margins pressure with the current iPhone cycle. That being said, Apple is looking at bigger volumes over the iPhone 13 cycle, and this could compensate suppliers to an extent. Bloomberg has indicated that Apple is likely to produce about 20% more of the new devices initially than it did for the iPhone 12. Moreover, carriers are also offering much more attractive promos on iPhones this year and that could also benefit Apple revenues and demand for its suppliers.

Our theme of Apple Component Supplier Stocks has declined by about 4% over the last week. While this is partly due to the broader market sell-off due to the real estate crisis in China, it’s possible that the iPhone launch event and the lack of price increases also hurt supplier stocks. The theme has also underperformed in 2021, rising by about 10% year-to-date, versus the S&P 500 which was up by about 17% over the same period. However, the theme has outperformed since early 2020, rising by about 39%, versus about 36% for the S&P 500. Within our theme, Jabil Circuit (JBL) a company known for making casings for iDevices has been the strongest performer, with its stock up by 42% year-to-date. On the other side, Qualcomm (QCOM), a company known for its modems and application processors, has been the weakest performer, with its stock down by about 13% year-to-date.

[8/25/2021] Apple Is Poised For An Eventful September. Will Apple Suppliers Stocks Benefit Too?

Our indicative theme on  Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for iPhones and other iDevices – is up by about 13% year-to-date, roughly in line with the returns for Apple stock, although the theme has underperformed the broader S&P 500, which is up by roughly 20% over the same period. However, the near-term outlook for the theme is looking better.

September promises to be an eventful month for Apple, with the company reportedly planning multiple product launches that are likely to include the iPhone 13, refreshed Apple Watches and AirPods, and possibly updated versions of the MacBook Pro and iPad Mini. This should also bode well for Apple suppliers, as newer products often have more sophisticated, higher-value components. Apple is likely to ensure a stronger supply of this year’s flagship devices. For example, Bloomberg reported that suppliers are preparing to build as many as 90 million new iPhones this year, a 20% bump over its initial production run for the iPhone 12. Demand for Apple’s devices is also likely to remain strong, as the remote working trend is likely to continue for several more quarters, as U.S. companies have been delaying their return to office plans following the spread of the highly infectious Delta variant of the coronavirus. However, there are some near-term risks for suppliers. The recent surge in Covid-19 cases in Asia could result in some supply chain disruptions and the ongoing semiconductor shortages could also cause some headwinds for component makers.

Within our theme,  Jabil Circuit (NYSE:JBL) a company that makes encasements for iPhones and iPads, has been the strongest performer, with its stock rising by about 41% year-to-date. On the other side, modem supplier Qualcomm (NASDAQ:QCOM), which is a fabless semiconductor company, has been the worst performer, declining by about 5% this year, partly due to the current chip scarcity and reports that Apple has started developing its own modem chips.

[8/6/2021] Jabil, Qualcomm: Apple Supplier Stocks To Buy Ahead Of iPhone 13 Launch

Our indicative theme on  Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for iPhones and other iDevices – is up by about 15% year-to-date, outperforming Apple stock (NASDAQ:AAPL), which is up by about 11% year-to-date. However, the broader S&P 500 has fared slightly better, rising by about 17% year to date. It’s likely that the stocks in our theme could continue to rise in the near term, for a couple of reasons. Apple is poised to launch its new iPhones this fall (likely called iPhone 13 or iPhone 12 S) and Bloomberg has indicated that Apple is likely to produce about 20% more of the new devices initially than it did for the iPhone 12. This should translate into higher volumes for Apple’s component suppliers. Moreover, Apple’s iPhones tend to use pricier components with each successive model year. For instance, the components that go into the iPhone 12 cost about 21% more compared to the iPhone 11, per Counterpoint Research. Although the changes this year are likely to be more incremental compared to last year’s big redesign, it’s likely that the cost of the bill of materials for the new iPhones will be higher, and this could bode well for Apple’s suppliers.

Within our theme,  Jabil Circuit (NYSE:JBL) a company that makes encasements for iPhones and iPads, has been the strongest performer, with its stock rising by about 39%. On the other side, modem supplier Qualcomm (NASDAQ:QCOM), which is a fabless semiconductor company, has been the worst performer, declining by about 3% this year, partly due to the current chip scarcity and reports that Apple has started developing its own modem chips.

[6/7/2021] Apple Suppliers Will Continue To Outperform Apple Stock

Our indicative theme on  Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for iPhones and other iDevices – is up by about 11% year-to-date, outperforming Apple (NASDAQ:AAPL) stock, which remains down by about 3% year-to-date. However, the S&P 500 has fared slightly better, rising by about 13% year to date. So will the outperformance versus Apple continue? We think it will, at least in the near-to-medium term. Demand for Apple’s first generation of 5G iPhones has remained robust, with the company reporting 65% growth in iPhone sales over Q2 FY’21, with demand expanding across all geographic segments. However, much of these gains are likely priced into Apple stock. The next iPhone, likely due this fall, is expected to be a more iterative update, and Apple’s growth rates are likely to moderate significantly and this is also likely to reflect on its stock. Component suppliers, on the other hand, could see a more secular demand trend, considering that the 5G cycle is really just getting started, with mid-range and lower-end smartphone OEMs expected to launch more 5G enabled devices. These companies are also likely to benefit from demand for more sophisticated components and higher per-device content. Moreover, most of the component suppliers in our theme trade at valuation multiples that are below Apple (and the broader market) and stand to benefit as investors continue to rotate out of high-growth stocks to value names.

Within our theme,  Jabil Circuit (NYSE:JBL) a company that makes encasements for iPhones and iPad has been the strongest performer, with its stock rising by about 36%. On the other hand, modem supplier Qualcomm (NASDAQ:QCOM), which is a fabless semiconductor company, has been the worst performer, declining by about -12% this year, partly due to the current chip scarcity and reports that Apple has started developing its own modem chips.

[3/18/2021] Apple Supplier Stocks Impacted By Semiconductor Crunch?

Our indicative theme on  Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for iPhones, iPads, and other Apple (NASDAQ:AAPL) devices, is up by about 4.2% year-to-date compared to the 5.3% return on the S&P 500. Demand for the new 5G iPhones has mostly been strong, with Nikkei reporting that Apple intends to produce around 230 million handsets in 2021, an increase of over 11% year-over-year. That said, there are some near-term concerns for suppliers. Semiconductor demand is outstripping supply this year, with key industries such as automotive and consumer electronics being impacted. In fact, even smartphone and memory chip behemoth Samsung has warned that it might need to delay the launch of its new Galaxy Note smartphone due to the chip supply crunch. Now although Apple – the largest smartphone maker by revenues and profits – is likely to be prioritized, some of its suppliers could feel the impact in terms of higher costs or lower volume growth.

[2/16/2021] Apple Supplier Stocks Are Riding Strong iPhone Demand

Our indicative theme on  Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for iPhones and other Apple (NASDAQ:AAPL) devices – is up by about 37% since the end of 2019, compared to a gain of about 22% on the S&P 500. The theme has also returned about 7.5% year-to-date, versus 5% for the S&P 500. Much of the gains have come from the launch of the iPhone 12, which has seen stronger than expected demand. iPhone revenues jumped by around 17% over Q1 2021 and the device helped Apple post its largest-ever holiday quarter. This has had a positive impact on Apple suppliers across the board, with all seven companies in our theme beating earnings expectations over their most recent quarterly reports. Within our theme, the strongest performer year-to-date has been Skyworks Solutions (NASDAQ:SWKS) which is up around 24% driven by a significant earnings beat. On the other hand, Qualcomm (NASDAQ:QCOM) stock has lagged, declining by about 3% year-to-date, as its revenues over the most recent quarter fell slightly short of expectations. Moreover, there were reports in December that Apple had started working on its own modem chips for future devices and this also likely hurt Qualcomm stock.

Will this momentum hold up for Apple suppliers? It seems likely. Several iPhone models remained back-ordered through the holidays and as Apple fulfills demand, it should help suppliers. Moreover, the iPhone looks poised for a strong 2021 overall, and we project that Apple’s iPhone revenues will rise by about 15% this year, after posting a small decline in FY’20.  Moreover, the broader consumer electronics market should see demand hold up post-Covid, helping suppliers. That said, one key concern for many players will be the current semiconductor fabrication shortages, which could impact supply levels and margins.

See our dashboard on Apple Component Supplier Stocks for a detailed look at the companies in our theme and how they have fared in recent years.

[12/28/2020] How Are Apple Suppliers Faring

The stock prices of Apple (NASDAQ:AAPL) suppliers have fared well since the launch of the 5G iPhone 12 in mid-October. The new handsets have seen robust demand with multiple models remaining out of stock globally. This is a positive development for Apple’s suppliers, considering that the 5G devices are apparently more expensive to produce with more advanced semiconductors and components. Our indicative theme on  Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for iPhones and other Apple devices – is up by about 20% over the last two months on an equally weighted basis, compared to the S&P 500 which was up by about 12% over the same period. Jabil Circuit (NYSE:JBL) – a company that makes encasements for iPhones – has been the strongest performer in recent weeks, with its stock rising by about 35% since late October, driven by an earnings beat and higher Revenue guidance for the fiscal year. Qorvo (NASDAQ:QRVO) – a semiconductor player that supplies RF solutions – has also done well, rising by over 30% since late October.

[Updated 11/5/2020] Apple Suppliers Poised To Gain Big From iPhone 12

The iPhone 12 lineup is likely to drive a big upgrade cycle for Apple (NASDAQ:AAPL), considering the 5G radios, new screen size options, and refreshed industrial design. While Apple stock – which is up about 55% this year – looks slightly overvalued in our view, Apple suppliers could see more upside from the new devices. Shipments of the new iPhones are likely to be higher compared to last year and components could also be pricier considering the increased costs associated with 5G. There is already some evidence that suppliers are benefiting from the new devices. Earlier this week, Apple’s 5G modem supplier Qualcomm published a strong set of Q4 results, driven in part by 5G chips used in the new iPhone, while Skyworks – a supplier of radio frequency components – also posted strong quarterly numbers. Our indicative theme of Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for iPhones and other Apple devices – is up by about 16% year-to-date, on an equally weighted basis, compared to the S&P 500 which has gained about 7%. Qualcomm, up 46% year-to-date, is a major driver of the theme’s return this year. On the other hand, Jabil Circuit was the worst performer, down roughly -17% this year. Below is a bit more about these companies.

Qualcomm (QCOM) sells application processors, modems, and licenses wireless technology to key handset manufacturers. The company is seen as a leader in 5G technology and could be a big beneficiary as the broader smartphone market transitions to the new technology over the next few years. The stock is up by about 46% year-to-date.

Qorvo, Inc. (QRVO), is a semiconductor player that supplies RF solutions focused on cellular, Ultra-wideband, and Wi-Fi to manufacturers of mobile products such as smartphones, wearables, and tablets. The stock is up by about 15% year-to-date.

QRVO

Skyworks Solutions (SWKS), manufactures semiconductors for use in radio frequency (RF) systems and components such as switches and amplifiers. It’s likely that more complex requirements for 5G iPhones will drive demand for the company. The stock has rallied 15% this year.

Jabil Circuit (JBL), is a manufacturing firm that makes encasements for Apple’s iPhones and iPad. Jabil stock is down -17% this year, as the Coronavirus impacted the company’s electronic manufacturing services business.

Corning (GLW) produces specialty glass, ceramics, and related materials. The company has been the key supplier of the glass used on iPhones, including the tougher “Ceramic Shield” glass used on the iPhone 12.  The stock is up 15% this year.

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