This past week, the first Kindle Fires arrived at tear down shop iFixit, giving investors the chance to sneak a peek at supply chain winners.
Most consumers don't spend a lot of time thinking about the inside of their mobile devices.
Beyond worrying over diminishing battery life, it's unlikely most people spend any time considering how major products, such as Amazon's Kindle Fire, can affect supplier volume and profit.
And, that's okay. Their collective ignorance can be our bliss, because we know it's both fun and profit friendly to consider who makes the chips powering these plug and play devices.
Texas Instruments (NASDAQ:TXN) remains the guts behind the glory.
So, what did the folks at iFixit find?
The original Fire was powered by Texas's OMAP 4430. For the new entry-level Fire, Amazon decided to keep the aging chip in order to drop the tablet's price. But, the entry level Fire isn't identical to its predecessor. To boost performance, they doubled the RAM.
The new 7" Fire HD version got the newer TI OMAP 4460 processor, which is also teamed up with 1 GB of memory.
The 1 GHz 4430 was fine for basic surfing and shopping. But, the 4460 can be clocked as high as 1.5 GHz, which is important when you're talking about watching Batman - The Dark Knight Rises in HD someday.
Rumor has it the 8.9" and LTE version will sport the OMAP 4470, which can deliver up to 1.8 GHz. For those interested, both the 4430 and 4460 are 45 nanometer, not 28 nanometer, chips. So, it's unlikely there will be any supply constraints. The good news for TI is they're likely to have shipped solid inventory this quarter. The bad news is the older 4430 and 4470 chips offer unfriendly margins compared to the newer 4470. And, it's probably safe to say Amazon will sell far more of the cheaper devices than the more pricey 8.9" model.
Memory remains highly commoditized, so the winner is whoever is cheapest on the build date.
The processor was teamed up with 1 GB of RAM, which is good for a bump in memory demand. But, the industry remains highly commoditized and OEM's are unlikely to stick with any one vendor.
For example, the 4460 was paired with memory from Elpida in the iFixit teardown and with Samsung (OTC:SSNLF) in another teardown from Techinsights. It's unlikely investors have any reason to traffic in memory plays tied to this device. Instead, they should simply continue to treat memory makers as pure cyclicals.
Other suppliers include Broadcom and Atmel.
The display is 1920 x 1200 and comes courtesy of LG Display (NYSE:LPL).
One of the two wireless integrated circuits is Broadcom's (NASDAQ:BRCM) BCM2076, which is a Bluetooth, FM and GPS combo chip. The BCM2076 is Bluetooth 4.0 compliant and has integrated voice enhancing technology.
The second IC is more mysterious. It's likely responsible for the tablets MIMO technology, which uses dual bands to improve Wi-Fi connectivity, but the maker hasn't been identified...yet.
Texas Instruments also won the power management socket with its TWL6032.
Wolfson WM8962E got the audio codec slot -- sorry Cirrus (NASDAQ:CRUS); you'll have to continue to rely on Apple.
And, finally Atmel (NASDAQ:ATML) got the nod for the touchscreen controller, supplying the MaxTouch mXT768E.
Across the supply chain, each of these companies will benefit from volume tied to inventory building. But, I wouldn't look for any of these plays to see the Fire HD help with margins. Just like Apple is notoriously tough on suppliers, Amazon is too. But, for a different reason. Apple's tight fisted negotiating is geared to maintain healthy margins. Amazon's is tied to keeping the product cheap enough so it doesn't lose more than it can make back selling high margin content.
Finally, investors may want to keep in mind the seasonality of these vendors. The holidays offer plenty of unit moving opportunities and investors tend to embrace the chip players in Q4, rather than avoid them.
Atmel has finished higher 8 of the past 10 Q4's, producing a median return of 9.16% in the quarter. That's better than both Texas Instruments and Broadcom. However, those returns come with risk, Atmel boasts the highest standard deviation of the three suppliers listed below.
|Symbol||# Years Up||Q4||Q4||Q4|
|(of 10)||Avg. Return||Median Return||Std. Deviation|