3 Apple Suppliers Poised for Outperformance

Morgan Stanley expects the upcoming iPhone 6 to be a blockbuster. Which iPhone suppliers should you buy?

Jul 14, 2014 at 7:30PM

Apple's iPhone 6 (NASDAQ:AAPL) is coming, and probably with a bang. Katy Huberty of Morgan Stanley, after her tour in Asia, recently noted that orders for iPhone 6 are 20% higher than they were for iPhone 5s -- up from the previously estimated 12%. 

This, of course, will contribute in boosting Apple's top line. But hardware and software suppliers -- namely, Micron (NASDAQ:MU), Jabil Circuit (NYSE:JBL), and Glu Mobile (NASDAQ:GLUU) -- also stand to benefit immensely. Do these companies deserve a place in your portfolio? Let's find out.

DRAM modules
Apple's A-series chips, just like any other computing processors, require access to a speedy DRAM memory. And the currently available iPhone 5s and 5c variants are equipped with LPDDR3 and LPDDR2 memory modules, respectively. Tear downs of iPhone 4s, 5, 5c and 5s indicate that these chips were manufactured by Elpida Memory -- a subsidiary of Micron. 

Trefis estimates that Apple uses about 80% of Elpida Memory's installed mobile DRAM manufacturing capacity. Plus, it is estimated sales to Apple account for 13% of Micron's overall sales. Since Apple and Elpida have had a long and successful corporate relationship in the past, there is no reason to suggest that Apple will drop Elpida as its prime mobile DRAM supplier anytime in the future. This, in turn, suggests that Micron will continue to benefit from surging iPhone sales.

The chipmaker has already sent its next-gen LPDDR4 modules for rigorous sampling and testing purposes. These modules, as compared to LPDDR3 standards, are about 60% faster and consume 40% less power -- a major technological upgrade. 

Hardware components
Jabil Circuit, on the other hand, is a global provider of electronics manufacturing services and solutions. For Apple, though, the electronic-component maker manufactures iPhone 5c cases and metal exteriors for the iPhone 5s. 

Jabil Circuit is a fairly diversified company, with its manufacturing services representing about 40% of its overall sales. On a client-basis, however, Apple is Jabil Circuit's largest components buyer; sales to Apple represent about 19% of the component maker's overall revenue. 

Investors should note that Apple recently rejected the chassis supplied by Catcher Techology's for its iPhone 6, due to manufacturing defects. According to China-based Economic Daily News, Apple has now reluctantly placed its iPhone 6 chassis orders to Foxconn and Jabil Circuit. 

This not only strengthens Jabil's relationship with Apple, but also positions the former to benefit immensely from the expected surge in iPhone 6 shipments.

iOS apps
Glu Mobile is another prominent Apple supplier. But unlike its mentioned hardware-only peers, Glu develops and distributes engaging apps for mobile devices -- something that decides the adoption and retention rate of a mobile platform.

The app developer currently distributes about 50 games on popular mobile platforms including iOS, Android, and FireOS. Despite its diversified clientele and product-portfolio, however, Glu Mobile generates about 64% of its revenue from Apple's app store. 

Needless to say, Glu Mobile stands to benefit immensely from the growth in iPhone 6 shipments. And to further expand its user-base, the app-maker has tied-up with EON Productions and MGM Interactive to launch its first free-to-play mobile game under its James Bond franchise license. 

Management of Glu also intends to release follow-up iterations of its financially blockbuster franchisees later this year -- including Frontline Commando: D-Day, Blood and Glory, Deer Hunter, and a theatrical title of Hercules. These launches should, in theory, contribute in further boosting the app-developer's growth. 

Foolish final thoughts
All the mentioned companies have a significant operating exposure to Apple's iPhone devices. Needless to say, these companies seem well positioned to benefit from the surging iPhone sales. Investors, however, might want consider diversifying their portfolio to balance their rewards and to reduce their risk.

This 4th Apple supplier may be the best buy
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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