Weighing Apple Using 3 Distinct Scales: Skyworks Solutions, Qorvo And Cirrus Logic
- Early February guidance by key Apple suppliers suggest that analysts' estimate of $93 billion for the March quarter might be in line.
- We haven't found updates that would alter the estimate.
- We aren't trying to predict price action.
- If Apple reaches the analyst target revenue, Cirrus Logic's revenue will likely be at or slightly above the upper end of guidance being $400 million.
- Apple could sell between 52-55 million iPhone units in March.
With Apple's (NASDAQ:AAPL) practice of hiding its hand, outside sources become invaluable when weighing in balance coming quarters especially the next quarter. A few companies, Cirrus Logic (CRUS), Skyworks Solutions (SWKS) and Qorvo (QRVO) provide firm quarterly guidance at conference calls, which can be used to weigh in balance Apple's financial performance. Often, the guidance predicts impeccably the next report. We believe that this time for the March quarter, the guidance taken in aggregate offers investors real insight.
Apple Analysts Predictions
Yahoo Finance shows Apple's analysts revenue estimate for March at $93 billion with an average earnings of $1.43. Last quarter, December, the company reported revenue of $117 billion significantly missing by approximately $5 billion. We are evaluating that possibility for March.
The weighing includes Apple, Cirrus Logic, Skyworks and Qorvo. The first weight on one side of the scale, is Apple. Analysts must truly guess the number. Cirrus Logic, an almost perfect proxy for Apple, with its 80% exposure, offers a more clear window into future near-term estimates. Skyworks treads second with its 60+% exposure. The final opposite weight, Qorvo, has exposure in the 30%+ range. We discussed Apple above.
Each of the opposite weights maybe off balance with over purchases made by Apple particularly during the September quarter. At times, Apple uses the June quarter to correct, which may upset drastically the balance. For Cirrus, the June quarter has at times been ugly and misrepresentative of the Apple business especially if Apple is changing Cirrus parts. What we have noticed is that starting with the September quarter, Apple seems to be in inventory balance. Our analysis begins with September.
Weighing Cirrus Logic
We begin with determining the Cirrus weight for two reasons: it is the Apple proxy and more accurate ASPs for critical parts are known. Our first task includes a table showing Apple's performance in the last few quarters.
Apple's Numbers (Billions)
|December 2022||$20.1|| |
|September 2022|| |
*Wearables include: Apple Watch, AirPods, AirPods Pro, AirPods Max, HomePod, Beats headphones, and more. Data suggests that approximately 25% of the Wearables revenue comes from AirPods. Most of the balance comes from Apple Watch. Apple likely sells at least 60 million Apple Watches a year.
** Apple purportedly sold 19 million tablets in the December quarter 2022 making the average ASP equal to $500.
*** IDC estimated a unit volume of 73 million iPhones sold in December or an average ASP of $900.
**** Assumed the same ASP for iPhone unit sales.
A few more long-term observations are also in order. Cirrus generally delivers between 10 and 15 million in extra parts to Apple in the September quarter. Apples generally uses all or more of its Cirrus parts by the end of December. The long-term seasonal average for units sold follows a 60%-40% pattern, September and December being the 60%. Lastly, when there is an inventory spill over, Apple, generally, but not always, uses the June quarter to correct inventory. At times, Apple also includes March.
Generating a revenue model for Apple required a lot of research and some math. In wearables Cirrus has both codec, codex/amplifiers and amplifiers. We have estimated ASPs for Cirrus at between $0.75 - $2.5. Cirrus sells a fairly complex amplifier used in each AirPod likely with an ASP of $0.75 per pod or $1.5 per set. The best information shows that Apple sold 20 million Air Pod units in the March quarter of 22 and 80 million for the whole year. Cirrus's revenue using that basis might have been $35 million per quarter.
The more difficult ASP spread lies with the Apple Watch. Cirrus' ASP ranges from a simple amplifier at $0.50 - $0.75 to a complex amplifier/codec with an ASP over $2. Sources suggest that Apple sold 50 million Apple Watches (Subscription Required) in all of 2022. Taking 60% for the September/December quarter together, 30 million watches might have been sold in that period. Cirrus' revenue might be $45 million for the two quarters or an average of $22 million.
The final piece is for MACs. Sources again suggest that Apple sold 7 million units in September quarter creating an ASP of $1500. With this ASP, 5 million MACs sold in December. Cirrus, in the past, supplied a codec valued at $1.5 - $2.0 per unit. Revenue for the two quarters might have been $20 million or on average, $10 million.
Cirrus' total revenue from MACs and Wearables for the two quarters might have been $135 million or on average, $67 million.
For the iPhone ASP, we begin with a comment posted by Seeking Alpha from KeyBanc Capital Markets analyst John Vinh.
|ASP||I-14 Pro||I-14 *||I-13 **||SE ***||Weighed Ave|
* $1 ASP lower with fewer parts.
** Missing CLCs plus $1 ASP.
*** Codec, 2 amplifiers, 1 haptic.
**** Rounded down to $5.0 in the model.
A few years ago, we calculated a weighted average ASP for iPads reaching a conclusion of $4.5 in content. Apple granted Cirrus an ASP increase of approximately 10% last year. With that in mind, we used $5.
Next a review of Skyworks follows. It is a much more difficult analysis with management often not directly discussing its Apple percentage and with little ASP data available. We look at this using a qualitative approach. A table included next summarizes last September, December and March quarters.
|2022||$1.4||$1.3 *||$1.15 ** 23|
|2021||$1.4 ***||$1.5|| |
* 68% Apple.
*** 63% Apple.
**** 54% Apple.
***** 50% Apple.
What Skyworks tells us is that revenue has weakened over the past three quarters much different than Cirrus with its big December quarter at near $600 million. Part of this softness is extreme weakness in Android, but it is also clear that March is weaker than the past few years even with Qorvo's reporting that Android inventories dropped significantly in the December quarter. The gradual decline in 2022 toward March 2023 reflects weakness at Apple, thus qualitatively, Skyworks suggests weakness in March with Apple.
We once again include a table showing results for Qorvo over the past few years. With the same issue as Skyworks, our look is qualitative. It is also noted that Qorvo doesn't disclose largest customer percentages on a quarterly basis, but only in its annual reports. In better years, Apple represented $300-$330 million per quarter (30-33%).
|2022||$1.2||$0.74||$0.62 * 2023|
Several important observations pop out. For Qorvo, March revenue can be greater than December showing its Android strength vs. Apple strength. The huge drop off in revenue in 2022 continuing into March 2023 shows how precipitous Android business became. But, management noted that a significant drop in Android inventories occurred during December, and also noted a significant drop off in revenue with its largest customer. During more normal years, Qorvo's revenue guide, with Apple being normally approximately $300 plus million a quarter, reflects and suggests a significant drop in Apple revenue.
Model Results & Sensitivity
With one quantitative analysis followed by two qualitative reviews, a model predicting Apple's revenue considering three key suppliers offers investors a confident view of Apple's view at the early part of the quarter. We warn Apple investors that this view reflects only what Apple saw early on. That can change, positively or negatively. A table summarizes the results.
|Revenue||Cirrus Wearable (Millions) *||Cirrus Spillover March (Millions)||Apple Revenue (Billions) Cirrus Mid-Range||Apple Revenue (Billions) Cirrus Mid-Range **|
|Case 2||$60||$70||$88|| |
* With softness in calculating Cirrus' wearable revenue and its inherent sensitivity to the Apple predictions, we created three cases.
** Used $10 billion for wearables, $20 billion for services and $8 billion for MACs.
With Apple generally front loading 10-15 million units with either iPhones or tablets in September with its Cirrus' orders, the spillover calculation at the end of December carries meaning. The calculated spillover value at $60 million for wearables plus MACs, equals roughly 13 million units or from history, mid-range. It is important to note that IDC claimed Apple sold 10 million fewer iPhone units in December 2022 than in December of 2021. That difference is almost a perfect proxy for the left over Cirrus revenue at the end of December.
A few observations seem in order:
- At $60 million for wearables/MACs at Cirrus Logic, Cirrus' guidance suggests that the analyst estimate is reasonable though maybe slightly high.
- The $60 million wearable/MAC number reflects a reasonable spillover value adding weight.
- Our guess is that Apple foresaw revenue in January at approximately $90-$94 billion.
- Without news claiming improvements during the quarter, our belief is that Apple's revenue will be at or slightly below analyst estimates.
- If Apple hits analysts' numbers, Cirrus Logic will report revenue above guidance at its high end of $400 million.
- The weakness showing at Qorvo and Skyworks suggests that upside, if any, is unlikely.
Risks & Meanings
Risks remain very real. Retail markets are in a flux with inflation rates high and U. S. credit card debt extremely high. Discretionary spending might fall off significantly. China's reopening of its economy could stall. But thus far, news about changes with Apple's has been numb. Yet, in a report posted on Zero Hedge, Apple is purportedly now experiencing a hiring freeze plus contractor firing before contract completion. Does this suggest a worsening market environment?
We aren't predicting what the price of Apple stock will do after the March quarter report or from articles purportedly stating negative business climates. Investors have looked past the valley toward the next mountain. What seems most likely is a year-over-year March quarter decline from $97 to $93 billion. Markets are challenged especially retail markets. We would refrain from purchasing stock until after the report.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of CRUS either through stock ownership, options, or other derivatives. 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.
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