Apple’s smaller suppliers
Large semiconductor companies can absorb the loss of business from a tech giant like Apple (AAPL), but smaller companies often depend on the iPhone maker for revenues. Any decline in iPhone sales could have a significant impact on these companies.
These smaller suppliers include Cirrus Logic (CRUS) and Qorvo (QRVO). Skyworks Solutions (SWKS) has strong exposure to Apple, but it has diversified its business to reduce its dependence on one handset maker. Let’s look at each of these companies separately.
Cirrus Logic (CRUS) supplies audio codec chips for iPhones and similar technology for Macs and iPads. It earns 80% of its annual revenues from Apple, according to RBC Capital. Cirrus Logic’s earnings depend heavily on the performance of Apple’s products.
When Apple announced production cuts in December 2016, Cirrus Logic was hit the most among the three suppliers. The company’s revenues fell 37.0% sequentially in 1Q17, higher than Apple’s sequential revenue declines of 32.0%. With the launch of the iPhone 8, Cirrus Logic reported its highest sequential revenue growth of 33.0% among the three companies in 3Q17.
Despite reporting strong revenue growth, CRUS stock price rose only 1.0% from January 3 to November 8, 2017. The stock prices of APPL, QRVO, and SWKS rose more than 50% during the same timeframe. CRUS stock was impacted, as it is one of the suppliers that analysts believe Apple is looking to replace by producing in-house chips.
Qorvo (QRVO) earns more than 40.0% of its revenues by supplying RF (radio frequency) chips to Apple. Because of its high exposure to Apple, the chipmaker’s revenues fell 22.0% sequentially in 1Q17 due to iPhone 7 production cuts.
However, its revenue rose more than it fell in 3Q17 as the RF content increased 40.0% in the iPhone 8.
Skyworks Solutions (SWKS) is another supplier of RF chips to Apple. However, the chipmaker also serves other top smartphone vendors such as Samsung (SSNLF), Huawei, Lenovo, and Xiaomi. Because of its diversified revenue base, Skyworks was the least impacted among the three by the iPhone 7 production cuts and the iPhone 8 launch.
KeyBanc estimates that Cirrus Logic and Skyworks Solutions could earn $0.05–$0.08 in earnings per share for every 5 million iPhone 8 and iPhone X models sold by Apple. This trend would help the two suppliers report better-than-expected earnings.
Next, we’ll see the impact of iPhone X production bottlenecks on Apple’s manufacturing and assembly partners.