It’s that time of year—Apple (AAPL), the world’s largest handset maker by revenue, is launching its new iPhones. Rumors suggest there will be three models, the iPhone 11 Pro, iPhone 11R, and iPhone 11 Max. Apple is many semiconductor companies’ biggest client, as its feature-rich iPhones rely heavily on semiconductors. Apple chip supplier stocks have risen by a mid-to-high-single-digit percentage one week ahead of the iPhone launch event.
Between September 3 and 9, Apple stock rose 4%. Meanwhile, Skyworks Solutions (SWKS), Qorvo (QRVO), and Cirrus Logic (CRUS) stocks rose 7.5%, 8.1%, and 3.9%, respectively. These three chip stocks are sensitive to Apple news, as they earn 45%, 35%, and 80% of their revenue from the iPhone maker.
Skyworks and Qorvo supply RF (radio frequency) chips and Cirrus Logic supplies audio codec chips for iPhones and other Apple products. With every new generation of iPhone, the amount of RF content per device increases by an average of 20%. Skyworks and Qorvo gain as content and sales rise.
Skyworks and Qorvo stocks rallied 5% and 4.5% in the week leading up to the iPhone launch last year. Why have they risen more this year?
Last year, when Apple launched its iPhone XS models, the US-China trade war had not yet started. However, when the second round of tariffs started in October, demand from China fell significantly and the country cut iPhone production in November 2018. Apple earns 20% of its revenue from the Asian nation. In the fourth quarter, Apple’s iPhone revenue fell for the first time. It fell 15% YoY (year-over-year) to $52 billion due to to weak demand from China.
The trade war has worsened this year, and investors have priced in its impact. Apple and chip supplier stocks have fallen steeply since October 2, 2018. However, many investors believe the stocks have seen the worst and that the new iPhones will revive them in the fourth quarter.
Moreover, Donald Trump has delayed the 15% tariff on smartphones and laptops to December 15. This delay could encourage customers to do their holiday shopping before the tariff is levied, thereby boosting Apple sales in the fourth quarter. Apple’s YoY iPhone sales growth may also be helped because last year’s fourth-quarter sales were weak. Given these factors are boosting investor enthusiasm, we expect Skyworks and Qorvo stocks to rise by a mid-to-high-single-digit percentage over the next five trading days.
Broadcom (AVGO), Texas Instruments (TXN), and Qualcomm (QCOM) earn around 10% of their revenue from Apple. Although they have a more diversified customer base and more stable revenue than Qorvo and Skyworks, their stocks have also rallied ahead of the iPhone launch.
Broadcom stock rose 6.8% between September 3 and 9. The company supplies eight components for Apple iPhones, including Wi-Fi and Bluetooth combo chips. Although this supplier role makes it the biggest beneficiary of higher iPhone unit sales, it has also been heavily impacted by the trade war and Huawei ban. On June 13, Broadcom cut its fiscal 2019 revenue guidance by $2 billion because of the trade war. Broadcom stock’s rally in the last week has been influenced by three factors:
Texas Instruments and Qualcomm stocks have risen 4% in the last week. Like Broadcom, Texas Instruments was also impacted by the China trade and Huawei ban. Demand is weakening in the company’s automotive and industrial segments, where it earns more than 50% of its revenue. However, the 5G (fifth-generation) rollout is driving demand in TXN’s communications segment, and Apple orders could boost demand in this year’s second half.
Amid a lawsuit last year, Qualcomm lost licensing revenue from Apple. The two settled the lawsuit in April. As a part of the settlement, Apple will use Qualcomm modems in its latest iPhone devices, which could boost Qualcomm’s revenue in the second half of the year.
It’s been a tough year for the smartphone industry. It remains to be seen whether the iPhone 11 can meet Apple fans’ expectations and generate better revenue than its predecessor. We’ll analyze the situation after the iPhone launch.