Suppliers with large exposure to Apple
In the earlier parts of the series, we saw how orders from Apple (AAPL) would impact large semiconductor companies that have limited exposure to the iPhone maker. However, there are some suppliers that depend heavily on Apple for their earnings. Among them are Cirrus Logic (CRUS), which earned 81% of its fiscal 2018 revenue from Apple, and Skyworks (SWKS), which earned 40% of its revenue from Apple in fiscal 2017.
Heavy dependence on a single customer is not healthy for a company. If the customer faces a weak business environment or if it decides to switch to another supplier, it could significantly impact the company’s revenue.
Cirrus Logic and Apple
Cirrus Logic supplies high-quality sound technology like codecs and amplifiers for all Apple products. Even Apple relies heavily on Cirrus Logic to differentiate its products in terms of sound performance.
In 2018, Apple removed the $9 lightning-to-headphone jack adapters to its new iPhones. The company also removed these jack adapters from the older iPhone 7 and iPhone 8. This move sent Cirrus Logic’s stock down 13% between September 6 and 19, 2018.
Cirrus Logic will continue to supply sound technology for other Apple products, but this iPhone design change comes as a big blow, as iPhone accounts for 60% of its revenue. The chip supplier expects its revenue to fall by 22.5% YoY (year-over-year) in the fourth quarter.
While Cirrus Logic did not diversify its customer base, Skyworks did. Skyworks supplies power-amplifier chips that help Apple’s iPhones transmit data at higher speeds. But the declining iPhone shipments encouraged the chip maker to diversify its customer base beyond Apple to Samsung (SSNLF), Huawei, and other smartphone giants. It also diversified into the adjacent market of IoT (Internet of Things).
While it is risky to have high exposure to one customer, it has its own benefits. For instance, Skyworks expects its revenue to increase 11% to 13% sequentially to above $1 billion in the fourth quarter of 2018 driven by orders from Apple.
Next, we will look at Apple’s memory supplier, Micron.
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