It's official. Apple's (AAPL) new iPhone family is off to a great start as the numbers from the first weekend of sale tell us. The Cupertino-based giant sold 9 million iPhone 5S and 5C's, which is way ahead of the 5 million iPhone 5 sales it had witnessed in the first three days last year. Moreover, it tells us that both iPhones are probably doing well and Apple CEO Tim Cook also stated that the initial supply of the iPhone 5S was sold out.
Apple also threw light on its guidance for the ongoing quarter, stating that it expects revenue to be at the higher end of its $34 billion to $37 billion guidance range. The gross profit margin is also expected to be near the upper end of the previously guided 36%-37% range. The strong initial performance of the iPhones and Apple's positive guidance led many analysts to upgrade their views on the stock.
Keeping this in mind, it would make sense to take a look at a few component suppliers who have won a spot inside the latest iPhones as they could also help investors profit from Apple's latest devices. Repair firm iFixit has already pried open the two new iPhones. In addition, research firm IHS and teardown expert Chipworks have also performed their own teardowns. In this article, we would take a look at what investment ideas the new devices throw up.
The Mobile Chipzilla
Qualcomm (QCOM) kept its spot in the flagship iPhone and also extended its total addressable market by finding spots inside the 5C as well. Qualcomm supplied three chips each to both the iPhones - the LTE modem, the transceiver, and the radio frequency power management chip. Qualcomm has been a long-time fixture inside Apple products and the story was no different this time.
In fact, with the addition of the iPhone 5C to its portfolio, it won't be surprising if Qualcomm's superb financial performance continues. Apple was a 10%-plus customer of Qualcomm in the previous fiscal year and the addition of another member to the iPhone family would probably lead to greater revenue from Apple and help Qualcomm continue its rapid growth.
In the last reported third quarter, Qualcomm posted revenue of $6.24 billion and net income of $1.58 billion, or $0.90 per share. The results beat estimates and revenue was up a whopping 35% from the year-ago period with earnings increasing 31% from last year as well. The growing demand for smartphones in Asia was one of the reasons behind Qualcomm's terrific performance.
Moreover, it is rumored that China Mobile (CHL), the world's largest carrier, is preparing advertising materials for the 3G variants of the iPhone 5S and 5C. Apple's foray into China through China Mobile would be another tailwind for Qualcomm.
Thus, given Qualcomm's solid growth of late its trailing P/E of 18x looks fairly inexpensive and the company also pays a dividend that yields 2% annually. Qualcomm's forward P/E is just under 14x and its PEG ratio of 0.92 also signifies that there's growth expected going forward. So investors looking for a more established play from the latest iPhones should definitely consider Qualcomm for their portfolio.
Buying its way in
As reported by IHS (via AllThingsD), memory chip suppliers for the latest iPhones include SK Hynix, Samsung, and Elpida. Now, Micron Technology (MU) has completed the acquisition of Elpida and this has helped its buy its way into the iPhone. Elpida had supplied memory for the iPhone 5 as well and it looks like it is increasingly becoming a close Apple partner with the latest win.
Like Qualcomm, it looks like Elpida has landed a spot inside both iPhones as well. This is certainly great news for Micron investors who have enjoyed solid gains so far this year. Micron shares are up close to 180% this year and the company's terrific run looks set to continue due to rising DRAM and NAND prices.
Micron is seeing solid sales of its chips for solid-state drives and this has led to a boost in production of NAND chips. The acquisition of Elpida has helped Micron strengthen its position in the DRAM market and the booming demand for mobile DRAM should help it do even better.
Micron is expected to report its fourth-quarter earnings very soon and analysts are looking for earnings of $0.24 per share on revenue of $2.69 billion. The earnings estimate has been revised upward by seven analysts over the past 30 days, which means that a strong performance is expected. Moreover, analysts expect Micron to grow its earnings at a decent clip of 19% per year over the next five years, and given the company's latest Apple win, it won't be surprising if it exceeds those estimates.
TriQuint on a sprint
Radio frequency chips supplier TriQuint Semiconductor's (TQNT) year has been terrific so far and it looks set to get even better. The stock's up almost 75% this year and has been in turnaround mode. The company beat estimates in its last reported second quarter by turning in revenue of $190.1 million and a loss per share of $0.07.
But its outlook was even more stellar as it guided for revenue between $245 million and $255 million for the third quarter while Wall Street was looking for $228.4 million. Earnings guidance of $0.09 to $0.11 per share was also significantly ahead of the $0.03 per share estimate. Now given the fact that TriQuint has landed a spot inside both the iPhones this time, it should be able to continue its stellar run.
Apple accounted for 22% of its revenue in the previous quarter [via Foxconn (FXCNF.PK)] and this share should increase this time since the 5C should increase the total addressable market of TriQuint's products. It was probably because of the addition of the iPhone 5C that TriQuint saw its order book overflowing in the previous quarter, reporting a book-to-bill ratio of 1.17.
Some more points that make TriQuint a solid investment are its almost debt-free balance sheet, a forward P/E of just 16x, and expected earnings growth of a whopping 600% this fiscal year and 920% next fiscal year (according to Yahoo! Finance).
It looks like consumers love the new iPhones and investors should take a look at these important component suppliers since they are in a good position to benefit from the Apple accounts. It should also be considered that Qualcomm, Micron, and TriQuint have a diversified customer base and Apple is one of the many (but very important) catalysts that they would enjoy. Investors looking for iPhone derivative plays should definitely look at these stocks.