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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 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 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 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 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 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 SWKS which is up around 24% driven by a significant earnings beat. On the other hand, Qualcomm 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.

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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 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 – 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 – 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, 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 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., 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, manufactures semiconductors for use in radio frequency 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, 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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