Apple iPhone Delay Mars Broadcom View, Puts Suppliers at Risk

Apple AAPL has not provided any official statement regarding iPhone delay but the guidance provided by Broadcom AVGO substantiates it to a certain extent.

In fact, rumors regarding the same have been doing the rounds for quite some time now. (Read more: Will Apple Delay 5G iPhone Launch Due to Coronavirus Mess?)

Broadcom, a notable supplier of RF power amplifiers to Apple, recently delivered better-than-expected second-quarter fiscal 2020 results. However, the company provided a bleak fiscal third-quarter revenue guidance.

The chipmaker estimates semiconductor revenues in wireless domain to decline in fiscal third quarter as its “large North American mobile phone customer”, in all probability indicating Apple, delays launch of its next-generation smartphone. Markedly, Apple usually updates its iPhone portfolio in September, annually.

Otherwise, in fiscal third quarter, Broadcom would “normally expect to see a double-digit sequential uplift in revenue.” Hence, management now expects to witness uptick in wireless revenues in the fiscal fourth quarter.

Moreover, management has stated that there are no changes in terms of design and content.

For third-quarter fiscal 2020, Broadcom anticipates revenues of $5.75 billion (+/- $150 million). The Zacks Consensus Estimate is currently pegged at $5.84 billion. (Read more: Broadcom Q2 Earnings & Revenues Surpass Estimates)

Markedly, on Jan 23, 2020, Broadcom, which currently carries a Zacks Rank #2 (Buy), inked two separate multi-year agreements with iPhone maker, Apple. Per the 8K filed with the SEC, the deal is anticipated to generate $15 billion for the chipmaker. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Further, it may be noted that Apple contributed nearly 20% to its net revenues in fiscal 2019.

Lingering Coronavirus Woes Disturb Apple

The possible delay of the launch of its first 5G-supported iPhone device — iPhone 12 — can be attributed to coronavirus crisis-induced supply-chain constraints and anticipations of sluggish demand in the wake of the adverse economic scenario.

Moreover, in its March quarter, Apple witnessed a decrease of 6.7% in iPhone sales. Both demand and supply were negatively impacted by the outbreak of coronavirus. Notably, Apple’s share in the global smartphone market fell from 18% in fourth-quarter 2019 to 14% in first-quarter 2020, per Counterpoint Research. (Read more: IDC Predicts Low Smartphone Shipments on Coronavirus Impacts)

Nevertheless, this Zacks Rank #2 (Buy) company has been undertaking hiring efforts from Intel and Qualcomm to work on 5G modems and reduce dependence on suppliers. Further, beginning 2021, all iPhone models are expected to support 5G.

5 Other Suppliers at Near-Term Risk on iPhone 12 Delay

The deference of iPhone 12 launch is likely to affect the company’s supplier base at least in the near term. Moreover, Apple is known to keep suppliers on their toes, wherein even minimal changes in demand and supply of iPhone related devices create a stir in its supplier base.

In this context, investors are anticipated to become more apprehensive regarding the near-term prospects of these suppliers, which depend on the iPhone-maker for significant portion of their total revenues.

Other prominent suppliers apart from Broadcom include Cirrus Logic CRUS, Skyworks SWKS, Qorvo QRVO, Lumentum Holdings LITE and Synaptics SYNA, which are likely to bear the brunt of iPhone 12 delay.

Year-to-Date Price Performance

Cirrus Logic generates major part of revenues through selling audio amplifier chips utilized in iPhone devices. Plausible iPhone 12 delay is likely to weigh on this Zacks Rank #3 (Hold) stock’s first-quarter fiscal 2021 revenues. Markedly, Apple, its largest client, accounted for 75% of sales in fiscal fourth quarter.

Notably, Cirrus Logic projects the coronavirus pandemic to adversely impact smartphone volumes in the near term, consequently denting its operating results.

Skyworks, a provider of radio frequency chips to Apple, also falls in the same category. In fiscal 2019, Apple accounted for 51% of Skyworks’ net revenues. Notably, uncertainty arising as a result of coronavirus pandemic-induced supply-chain woes compelled this Zacks Rank #4 (Sell) company to widen guidance range compared with prior quarters. For third-quarter fiscal 2020, revenues are expected in the range of $670-$710 million. The Zacks Consensus Estimate is currently pegged at $690.1 million.

Furthermore, Skyworks’ peer in semiconductor radio-frequency market, Qorvo is anticipated to be affected as well. Apple accounted for 33% of the company’s total revenues in fiscal 2020. The company currently has a Zacks Rank #3.

For first-quarter fiscal 2021, Qorvo anticipates revenues between $710 million and $750 million. The guidance range for revenues is wider than normal due to COVID-19 induced uncertainties prevailing in the market. However, consistent growth in mobile 5G and infrastructure is expected to drive performance in first-quarter fiscal 2021. The Zacks Consensus Estimate is currently pegged at $730.4 million.

Moreover, Lumentum Holdings, which supplies 3D chips utilized in FaceID architecture, generated 21% of total revenues in fiscal 2019 (ended Jun 29, 2019) from Apple.

The company, currently carrying a Zacks Rank #3, anticipates net revenues for fourth-quarter fiscal 2020 in the range of $325-$365 million. The guidance incorporates $90 million reduction in revenues in the view of the coronavirus outbreak. The Zacks Consensus Estimate is currently pegged at $347.4 million.

Further, Synaptics’ near-term top-line performance is likely to get impacted. The company, currently carrying a Zacks Rank #3, is a display component supplier of Apple, which puts it in this list.

Synaptics anticipates total revenues for fourth-quarter fiscal 2020 in the range of $260-$290 million, a wider than usual guidance that takes into account coronavirus-led supply chain woes. The Zacks Consensus Estimate is currently pegged at $275.5 million. The company anticipates revenue mix from Mobile PC products to be 45%.

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