Apple's 2020 iPhone Delay - Impact On The Mobile DRAM Market

Summary

• Apple's 2020 iPhone introduction may be delayed for 1-2 months because of supply chain cycle delays.
• Smartphones shipments have been decreasing since they peaked in 2016, but more DRAM content per phone is a headwind for the mobile DRAM market.
• Apple's iPhone DRAM demand represents only 12% of mobile DRAMs and its iPhones have less DRAM content than Android phones.
• Huawei's smartphone shipments in 2019 demanded twice the DRAM content of Apple, but U.S. Commerce restrictions could be a headwind.
• This idea was discussed in more depth with members of my private investing community, Semiconductor Deep Dive. Get started today »

Broadcom's (AVGO) CEO Hock E. Tan in his FYQ2 (ending May 3, 2020) earnings report on June 4, stated:

we are designing obviously in those flagship -- big flagship phones in our large North American OEM phone makers. We are, there is no question. The question is the timing. And you're right. In the past years, seasonally -- the business is seasonal and the trough of every fiscal year has been Q2. We believe, because of product cycle delays, the trough for our fiscal year will be Q3, this coming quarter. And that's why we reflected -- in our forecast that's reflected in our number and in the way we are guiding Q3.”

This product cycle delay by “our large North American OEM phone maker” implies Apple (NASDAQ:AAPL) will delay the introduction of its 5G smartphone beyond its typical September introduction.

This article presents an analysis of the mobile DRAM market and the impact of Apple's 2020 iPhone introduction delay.

Chart 1 shows my forecast for 5G smartphones, growing from just 19 million units in 2019 to 1,042 million in 2024, driving demand for mobile DRAMs. China’s Huawei, which sold 7 million 5G phones in 2019, is forecast to sell 214 million in 2023. I forecast Apple will ship 40 million iPhones in 2020, assuming the delay will last 1-2 months.

Mobile DRAMs have been impacted by slow smartphone sales since they peaked in 2016. Table 1 shows that the average content per smartphone increased from 1.4 GB in 2015 to 3.9 GB in 2019. I forecast that amount to grow to 5.6 GB/phone in 2021, driven by 5G phone content.

Interestingly, Apple has less DRAM content per iPhone than the competitor's Android phones. This is part of the iPhone design, as the way iOS is coded makes a huge difference. In Androids, all processes run on single thread which includes all apps, games, and the Android system. But in Apple's iOS there are two threads running one for all the apps. And the other for its main system. This extra thread makes the iPhone work better, thus requiring less DRAM.

This is important in the context of this article – delays of 1-2 months in the introduction of the 2020 iPhone will have less of an impact on the mobile DRAM market than a similar delay would have on an Android phone.

Of course, the impact of the delay is not only dependent on the DRAM content per phone, but on the number of iPhones shipped. In Table 2, we see that DRAM bit demand by Apple will fall further behind major competitors Huawei and Samsung Electronics (OTCPK:SSNLF). Again, this minimizes the impact of any iPhone delays on the DRAM market.

Investor Takeaway

Mobile DRAM demand in 2020 will grow at only 7.5% YoY, based on my analysis of the number of smartphones shipped and the DRAM content per smartphone, as shown in Table 3. Apple may delay its 2020 iPhone introduction due to supply chain constraints. However, the impact of a possible 1-2 month delay will be minimal for the mobile DRAM market, primarily because Apple has only a 12% share of mobile DRAM demand in 2019. Its 5G introduction, which will be all 5G, will mitigate the drop in DRAM demand as there will be greater DRAM content for its 5G iPhones.

2021 will be a different story, with 5G smartphones a catalyst for DRAM growth due to increased DRAM content per smartphone. I project that the mobile DRAM market will grow 34% YoY in 2021 as a result.

Huawei remains a question mark; its DRAM content per smartphone is forecast to reach 8GB. That would mean Huawei’s DRAM bit growth demand would grow 49.4% YoY in 2021. Based on the U.S. Dept. of Commerce restrictions on Huawei, the question as to who will supply Huawei with DRAMs becomes critical. U.S.-based Micron Technology (MU) has abided by the Commerce edicts, leaving Samsung and SK Hynix (OTC:HXSCL) the possible suppliers. China’s DRAM supplier CXMT is essentially a no-show in meeting demand, at least through 2021. How these new restrictions play out, particularly in an election year, remain to be seen.

Thus, a 1-2 month delay in the Apple 2020 smartphone introduction will have a negligible impact on the mobile DRAM market in 2020. Huawei's situation is different, and it could have a significant impact.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.