October 13, 2011
To your average consumer, the iPhone event to circle on your calendars is Apple's (Nasdaq: AAPL ) big launch events. These events are followed by thousands of reporters, where every feature introduced undergoes intense media pressure. However, to chip investors, the real excitement starts a few weeks later, when the new iPhone hits store shelves and gets torn apart to reveal which companies supplied the parts that make it tick.
The iPhone rules the smartphone world; last quarter it moved 20.3 million units alone. Better yet, the models are consistent throughout the entire year. If a chipmaker wins a slot in a competing phone from Samsung, it might lose its space when Samsung releases its next gotta-have-it phone a few short months later. However, winning a slot in the iPhone assures a full year of profits in Apple's premier phone.
Today, the repair sleuths at iFixit tore down the iPhone 4S to reveal which chipmakers will profit from this generation's iPhone.
- Baseband: It's no surprise that Qualcomm (Nasdaq: QCOM ) makes the cut. The company is supplying a chipset that's upgraded compared with the one it supplied for Verizon's (NYSE: VZ ) CDMA iPhone, which was introduced earlier this year. The minute Apple revealed that the newest iPhone would be a single-model "world phone," it was virtually assured that this was Qualcomm's space, yet the chip giant still rose 2.4% -- with all the gains coming after iFixit's teardown was posted.
The baseband and transceiver chips were previously supplied by Infineon's wireless unit and combined made up about $14 worth of components in each iPhone. With Apple having moved 20.3 million iPhones last quarter, and with that number likely to increase in the coming quarters, it's not unreasonable to say that across the next year, Qualcomm's inclusion in the iPhone could yield more than $1 billion in revenue for the company. Considering that the chip unit has $8.1 billion in trailing sales, that's a pretty significant win.
- Radio frequency: When the iPhone 4 came out last summer, this space was split between TriQuint (Nasdaq: TQNT ) and Skyworks (Nasdaq: SWKS ) . Then TriQuint didn't make the cut when the Verizon iPhone hit, presumably because TriQuint was unable to meet demand, stoking uncertainty over who would supply the RF components in the next iPhone. Across the summer, there were constant conflicting reports about which direction Apple would go, with widely circulated reports that Skyworks would be out and replaced with Avago (Nasdaq: AVGO ) . Now that the iPhone has been torn down, which RF companies made the cut?
Everyone. iFixit identified four power-amplifier sockets, with Skyworks and Avago both having one and TriQuint taking home two spots. Maybe in a sign of uncertainty surrounding which RF companies were set to win space in the iPhone, all the companies rose in response to the news. Avago shot skyward when reports first broke that it was in the iPhone 4S but settled down to only a 1.2% gain. Skyworks investors, happy not to be shut out, bid shares up 3.4%.
However, the biggest winner by far was TriQuint, whose stock popped a stunning 24.6% today and is up another 7% after hours. The company's shares have been absolutely pummeled recently, in part because of repeated guidance cuts. When TriQuint issued updated guidance for the most recent quarter it included the ominous warnings that sales were soft because of "reduced demand from the company's largest customer." Since Apple is TriQuint's largest customer, investors interpreted this news as some kind of share loss in the iPhone. So the discovery that TriQuint retained a strong presence in the new phone was met with an outsized jump in the company's share price.
- The unknowns: A few key areas remain to be seen, the most obvious of which centers on the iPhone's upgraded 8MP camera. Throughout the summer, there were reports that Omnivision (Nasdaq: OVTI ) , which supplied camera sensors for the iPhone 4, wouldn't be the exclusive provider for the iPhone 4S, instead, splitting the spot with Sony. Today's teardown didn't reveal whether Omnivision or Sony made the cut, so investors will have to wait another tense day for clarity.
Another well-known iPhone component play that wasn't revealed today is the audio codec. Cirrus Logic (Nasdaq: CRUS ) is in the pole position and has a long history of supplying audio products to Apple, but it could be a few more days before investors get verification that the company once again made the cut.
Finally, the Wi-Fi supplier remains unknown. Taiwan Semiconductor (NYSE: TSM ) recently posted surprisingly strong August results on the back of rush orders from an unnamed customer. Reports have suggested that the customer is Broadcom (Nasdaq: BRCM ) rushing to fill iPhone demand. The company was a key player in the iPhone 4; researcher iSuppli estimated its component cost at about $9.55 per iPhone.
Other components remain hidden as well. From touchscreen controllers to accelerometers, there's a lot of different chip plays within the iPhone. To stay updated as more news breaks concerning which companies are finding a space in the iPhone and what it means, make sure to add these companies to our free My Watchlist service. It'll deliver up-to-date news and analysis on all your favorite iPhone supplier plays. Just click on any of the companies below to get started today!