I think the confetti from Apple (AAPL) headquarters is just now starting to settle in the streets after the company reported the sort of earnings that placed the market in awe. But the reality is, it was both a surprise and a non-surprise at the same time. For as great as the numbers were, I'm not sure anyone had any doubts that the company would earn as spectacularly well as it did. The first thing I started to do was try to find the companies that stand to benefit from its so-called "halo effect." This is the idea that Apple's success can potentially spill over to other companies (for any reason), whether directly or indirectly part of its ecosystem.
Analysts were expecting earnings of $10.08 per share on revenue of $38.85 billion for the quarter, according to consensus forecasts from Thomson Reuters. The company said it shipped 37.04 million iPhones for the quarter - a number that surpassed the average analysts' forecast for just more than 30 million units sold. In a call with analysts, Apple CEO Tim Cook said the company made a "very bold bet" with its manufacturing targets for the iPhone 4S, but still came up short on supply amid heavy demand for the device.
It was the last part of that statement that caught my attention-- more specifically, the reference to "manufacturing target" which followed "heavy demand for the devices." So it stands to reason that as Apple has reaped the benefits of its hardware, so too should those companies that contribute towards producing its platform. Here are some of the ones that I have come up with.
To its credit, Nvidia delivered a decent third quarter. In fact, I can say that it was a good quarter considering the fears that I had upon seeing the declines from the likes of Oracle (ORCL) that signaled weakness in technology spending -- and to some extent, from Cisco (CSCO) as well. Both firms typically are used as a gauge for monitoring corporate spending habits. As with both ARM (ARMH) and Atmel (ATML), Nvidia stands to benefit immensely from Apple's success. The question is, can it make more ground in the tablet and smart phone market? This is the challenge that its management must address.
Nvidia still remains intriguing at this point. While the stock has indeed taken a significant beating for most of 2011, and has hovered near its 52-week low for quite some time, it may be prudent to wait one more quarter until all the dust settles before taking a position. But investors that have a high risk tolerance, and are willing to bet on its ability to secure the type of share required to generate growth from higher margins, may consider it at any point.
ARM Holdings (ARMH)
The very first name that I thought of was ARM Holdings. Not only has this once unknown company come out of nowhere to take a chunk out of Intel's (INTC) market share, but it has also forged huge deals with Microsoft (MSFT) for use of its chip technology in the upcoming release of Windows 8. Furthermore, it is widely known that PCs are losing share while smartphones and tablets are becoming more ubiquitous in both the consumer and corporate environments.
So the question is, why not own a company that produces the technology being used by many smartphone and tablet manufacturers? It's really that simple, and ARM Holdings is now the clear cut answer, given that ARM already owns 75 percent of the mobile processing market that is only going to grow more in popularity.
As with ARM, there is a case for a company such as Atmel, -- really for a lot of the same reasons. The company competes in a wide variety of different markets in the chip industry. The company's products include microcontrollers, programmable logic devices, and a wide range of proprietary system-on-chips and nonvolatile memory chips. The company manufactured about 93% of its own chips in 2007. It sells its products into many different end markets, including communications, consumer electronics, computing, as well as automotive.
Granted, as has been the case for most tech companies, it has had its own fundamental challenges at the onset of the recession. But not all companies succeed in self-improvement to the extent that Atmel has. This modest semiconductor company is a good example of the rewards that can accrue when patient shareholders and committed management intersect. From a fundamental standpoint, Atmel has outpaced its peers over the past several quarters. Its microcontroller business is healthy, and though I have pointed out the benefit of it being a part of Apple's ecosystem, it is worth noting that Atmel is also gaining share in the non-Apple gadget market, as well with its line of maXTouch controllers which basically run the touch-screen interfaces on several devices. Atmel is a buy!