Apple (AAPL) has already sent out colorful invites for its iPhone launch event slated to be held on September10. Apart from the traditional event at Cupertino, Apple will also hold satellite events in Berlin, Tokyo, and most importantly Beijing. The colorful invite also makes the possibility of a cheaper iPhone 5C stronger as numerous leaks have already suggested that the mid-range iPhone will be available in various colors.
The launch of a cheaper iPhone will be an important moment in Apple's history as the company goes from making just premium devices to one for the masses, as it looks to capture the emerging markets. The roll out of 4G in China and tremendous growth of the smartphone market in the country as consumers move from feature phones to smartphones is fueling growth.
Apple has also been reported to be in negotiations with the world's biggest telecom company China Mobile as it looks to unlock the potential of 740 million customers that the carrier has. This means that Apple is looking to provide a boost to its low-cost iPhone. Coupled with the millions that the traditional iPhone has historically sold and is expected to sell, the smartphone giant looks set to create a new record in terms of devices sold this time.
While this is great news for Apple, this also means that the Apple supply chain is also in for windfall gains this time. Let's take a look at three companies that could benefit from the upcoming iPhones.
The memory play
SanDisk (SNDK) made an appearance in the iPhone 5 last year. The company supplied flash memory to the iPhone and looks like it is set for a return this time. SanDisk released its latest set of results in July and its performance was outstanding. In the second quarter, SanDisk's revenue had jumped 43% from the prior year period to $1.48 billion while net income climbed remarkably to $262 million from $13 million in the year-ago period. The results were better than estimates.
SanDisk's outlook was also terrific as the company guided for revenue of $1.55 billion at the mid-point while estimates were pegged at $1.49 billion. SanDisk also raised its full-year guidance to $6 billion in revenue at the mid-point and this was the second time that the company had raised guidance this year.
So it is pretty much evident that SanDisk is expecting some strong improvements in its business going forward. Apart from the pricing improvements that SanDisk has seen for its NAND products, the upcoming iPhone launch might have something to do with its superior guidance as well.
SanDisk expects that smartphone shipments this year will hit 900 million and tablet shipments will be 200 million. The company expects its embedded solutions and SD cards to witness strong demand. Moreover, it has also been reported that Apple has started using SanDisk's solid-state drive in the retina MacBook Pro. This suggests that SanDisk would be a big beneficiary of Apple reducing its reliance on Samsung for products as the Korean company used to be the primary supplier of memory to Apple.
SanDisk has gained an impressive 34% this year and given its recent growth rate, a trailing P/E of under 20 looks pretty reasonable. Apple's upcoming devices should help the company perform even better and if it manages to land a spot inside the cheaper iPhone then the addressable market is poised to increase.
Two radio frequency players -- Take your pick
TriQuint Semiconductor (TQNT) has been a revelation this year with a gain of 65% but things look set to get even better for the company. When the company last reported earnings in July, it beat consensus estimates and its guidance was also terrific.
TriQuint guided for revenue in the range of $245 million to $255 million while analysts were expecting $228 million. The earnings outlook was even more handsome with TriQuint expecting earnings of $0.09 to $0.11 per share, which is miles ahead of the $0.03 estimate. What's most surprising is that TriQuint is expecting a profit of $0.05 per share whereas analysts expected it to report a $0.10 per share loss.
This highly optimistic outlook on TriQuint's part suggests that it is expecting huge gains from iDevices this time. The company has been a long time supplier of power amplifier modules to Apple and gets 22% of its revenue from Foxconn. An added advantage for investors of TriQuint is that it is also a Samsung supplier and the recent launch of the Galaxy Note 3 can provide it with more tailwinds.
TriQuint also boasted of a strong book-to-bill ratio of 1.17 in the previous quarter and this means that the company's chips are in good demand. A forward P/E of 15 looks reasonable for a company whose earnings are expected to grow to $0.51 per share (according to Yahoo! Finance) in the next fiscal year from $0.05 in the ongoing one.
Skyworks Solutions (SWKS) rounds out the list of expected beneficiaries from Apple's upcoming devices. Like the other companies mentioned in this article, even Skyworks's guidance for the ongoing quarter was handsomely ahead of what analysts were expecting.
Skyworks, which derived 29% of revenue from Apple last year, guided for revenue of $475 million and earnings of $0.62 per share. In comparison, analysts were expecting revenue of $434 million and earnings of $0.53 a share. Like TriQuint, even Skyworks has been a long time fixture in Apple products and last time, it supplied GSM and CDMA power amplifier modules along with WiFi components, according to Chipworks.
What's more, Skyworks supplies components to almost all Apple products -- the iPhone, the iPad and the iPad mini. Hence, given the company's strong guidance last time, it can be expected that it would be a probable beneficiary of a low-cost iPhone. The fact that it is present across Apple's portfolio of devices is another reason why Skyworks looks like a good bet to benefit from the next generation of devices.
Like TriQuint, even Skyworks is a Samsung supplier and it had supplied a slew of components for the Galaxy S4. The recent launch of the Galaxy Note 3 might be another revenue driver going forward along with iDevices and the Galaxy S4.
As Apple expands its iPhone portfolio, component suppliers should benefit strongly. But it is a risky proposition to depend on just one source for revenue and so the companies listed here have other growth drivers as well. SanDisk is positioned to benefit from the growth of SSDs and smartphones as a whole while TriQuint and Skyworks have a diversified clientele that includes Chinese smartphone makers as well.
Moreover, their guidance is also an indication of the fact that Apple's iPhone(s) launch will be yet another catalyst for these companies.