uploads/2016/05/Series2.png

Talk of Apple’s iPhone 7 Production Drives Semiconductor Stocks

By

Updated

Apple stock rises on iPhone 7 rumor

In the previous part of the series, we looked at the rumor surrounding Apple’s (AAPL) new iPhone 7 and its possible record production in anticipation of a strong demand. The Market reacted to this news positively. Apple stock rose 4.6% in just four days after the news was leaked. The news also drove up the stock of several large and small semiconductor companies.

Article continues below advertisement

Semiconductor companies with high exposure to Apple

Apple is a strong player in the smartphone market and a key customer for many semiconductor companies. Below are the approximate revenues Apple provides for some of the major semiconductor companies:

Suppliers that reacted aggressively to news about Apple

As you can see in the above table, the stock of semiconductor equipment manufacturer Applied Materials (AMAT) rose 18.8% in just four days after the news leak. It was the most optimistic reaction. It was followed by CRUS, Micron Technology (MU), and Sony (SNE), which all rose 6% or more in the same period.

iPhone 7 production came as a relief to Micron, which reported losses in 1Q16, and CRUS, which reported profit declines during the same period.

Article continues below advertisement

Suppliers that reacted moderately to Apple’s news 

The decline in iPhone sales has had a huge impact on the companies in the above table, sending several of them into losses. However, some suppliers have already tried to mitigate the impact of slowing iPhone sales by diversifying.

Companies such as NXP Semiconductors (NXPI) and Broadcom (AVGO) have reduced their exposures to Apple by diversifying into adjacent markets. Their stocks thus reacted moderately, rising above 4%.

Suppliers that reacted little to Apple’s news 

SWKS, QCOM, Texas Instruments (TXN), and IDTI have diversified aggressively. Their stocks rose 2.5%–3.5% after the news about Apple production. Although SWKS and QCOM reported weaker guidance for 2Q16 due to slowing iPhone sales, their stocks had already adjusted to strong growth expected from the iPhone 7.

TXN and IDTI are faring well in adjacent markets, especially automotive. They’ve reported strong guidance for 2Q16. Their stocks thus reacted less to the news.

In the coming parts of the series, we’ll look at the impact of the iPhone 7 on the above semiconductor companies’ earnings. You can gain exposure to Apple suppliers by investing in the VanEck Vectors Semiconductor ETF (SMH). It has a 5.4% holding in TXN, 5.2% in Broadcom (BRCM), 3.6% in SWKS, and 3.2% in MU.

Advertisement

More From Market Realist