Will Huawei Production Woes Aid Apple's Supplier Stocks?
Chinese telecom equipment manufacturer giant, Huawei Technologies Co., Ltd., has been plagued with production troubles for quite some time now.
Per the latest sanction, effective Sep 15, the U.S. Commerce Department has prohibited exports of semiconductors produced with American technology to Huawei, sparing just the shipments in transit.
The shortage of chips, as a result, is hurting Huawei’s smartphone business. Nevertheless, the sanction has spared enough room for rivals, including Apple AAPL and Samsung, to capture the wider market share with surging smartphone sales.
Analysts are, in fact, raising targets on iPhone share gains, which, in turn, brings spotlight on notable Apple supplier stocks, including Cirrus Logic CRUS, Qorvo QRVO, Skyworks SWKS, Lumentum Holdings LITE, Taiwan Semiconductor Manufacturing Company Limited TSM, and Broadcom AVGO.
Markedly, it was on May 16, 2019, the Bureau of Industry and Security (BIS) added Huawei and 68 of its affiliates to the “Entity List” maintained by the U.S. Department of Commerce. The decision barred several chip companies from supplying products to Huawei and its affiliates on security concerns.
6 Suppliers Poised to Gain on Uptick in iPhone Sales
Apple’s iPhone sales inched up 1.7% from the year-ago quarter to $26.42 billion, accounting for 44.3% of the total sales in third-quarter fiscal 2020. This marginal year-over-year growth was driven by strong demand in May and June, primarily for iPhone SE.
Apple, currently carrying a Zacks Rank #3 (Hold), expects fourth-quarter fiscal 2020 iPhone sales to benefit from the solid demand for iPhone SE. Further, during the fiscal third-quarter earnings conference, Apple stated that the sale of the latest iPhones will begin a few weeks later instead of the usual late September.
Remarkably, even minimal changes in demand of iPhone-related devices create a stir among Apple’s supplier base. In this context, investors’ optimism will likely get a boost with regard to these suppliers, which depend on the iPhone maker for significant portions of their total revenues.
Year-to-Date Price Performance
Cirrus generates major part of revenues through selling audio amplifier chips utilized in iPhone devices. The projected uptick in iPhone sales on Huawei’s production woes positions this Zacks Rank #2 (Buy) stock well to gain from the increased chip demand.
Notably, Apple, its largest client, accounted for 83% of the company’s sales in first-quarter fiscal 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Qorvo, a provider of radio frequency chips to Apple, also falls in the same category. Apple accounted for 33% of company’s total revenues in fiscal 2020. Qorvo is benefiting from the increase in production ramp of 5G smartphones. In fact, the company has raised the fiscal second-quarter revenue guidance, citing heightened demand for 4G and 5G mobile products utilized in flagship smartphones.
The solid uptake of Bulk Acoustic Wave (BAW) filters, as economies started to reopen, is expected to boost top-line growth.
Furthermore, Qorvo’s peer in the semiconductor radio-frequency market — Skyworks — is anticipated to benefit from the projected momentum in iPhone sales. In fiscal 2020, Apple accounted for 51% of Skyworks’ net revenues.
Besides, Skyworks is well poised to gain from the surging demand for 5G handsets as its offerings are widely used by Samsung, and Motorola as well as other players for 5G mobile platforms. Also, Skyworks is witnessing strong momentum for BAW-enabled modules in both mobile and broad markets.
While Qorvo currently carries a Zacks Rank #2, Skyworks has a Zacks Rank #3 (Hold).
Moreover, Lumentum Holdings, which supplies 3D chips used in FaceID architecture, generated 26% of total revenues in fiscal 2020, ended Jun 27, 2020, from Apple.
Notably, Lumentum, currently carrying a Zacks Rank of 3, anticipates revenues from Huawei to have declined in the first quarter of fiscal 2021. Nevertheless, the company anticipates the top line to have improved sequentially on strength across the Telecom and Datacom vertical, robust demand, and sales recovery from the coronavirus crisis-induced supply constraints.
Furthermore, Broadcom’s strength in its RF chips portfolio positions it well to capitalize on the increased iPhone demand. Apple contributed nearly 20% to net revenues in fiscal 2019. Acceleration in 5G deployment, significant production ramp-up and increase in RF content favor the company’s prospects.
On Jan 23, Broadcom, which currently carries a Zacks Rank #3, inked two separate multi-year agreements with iPhone maker, Apple. Per the 8K filed with the SEC, the deals are collectively anticipated to generate $15 billion for the chipmaker.
Additionally, Apple utilizes Taiwan Semiconductor’s advanced chips, featuring low power consumption, high performance, and compact size, which puts it in this list. In 2019, Taiwan Semiconductor’s largest customer, likely indicating Apple, accounted for 23% of its net revenues.
More so, Taiwan Semiconductor, the world's largest dedicated integrated circuit foundry, is well poised to bank on the 5G boom on strength in its robust 7-nanometer (nm) and 5-nm production processes. The company carries a Zacks Rank of 3, at present.
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Apple Inc. (AAPL) : Free Stock Analysis Report
Skyworks Solutions, Inc. (SWKS) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
Cirrus Logic, Inc. (CRUS) : Free Stock Analysis Report
Qorvo, Inc. (QRVO) : Free Stock Analysis Report
Lumentum Holdings Inc. (LITE) : Free Stock Analysis Report
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