After the bombshell that Apple (NASDAQ:AAPL) dropped on current graphics technology supplier Imagination Technologies (NASDAQOTH:IGNMF), analysts with Bankhaus Lampe said (by way of Reuters) that Apple is working on a custom power-management integrated circuit (PMIC).
Such a chip would replace the PMICs that Dialog Semiconductor (NASDAQOTH:DLGNF) currently sells to Apple.
That would be extremely bad news for Dialog -- potentially game-ending, in fact -- because in its fiscal year 2016, sales to Apple made up more than 74% of its total revenue, according to its most recent annual report.
Reuters, citing a "source familiar with the matter," reports that Apple is, at the very least, "recruiting top Dialog engineers in Munich" and even quoted that source as saying that "They [Apple] are poaching like crazy."
Apple's working on something
I set out to try to gather some evidence myself. One of the best ways to do that was to stroll over to Apple's job boards to see what the company is hiring for.
I did a search for "PMIC," and sure enough I found a listing for a "Chip Architect" position in Munich, Germany. The job summary reads: "Technical leadership of Mixed Signal Power Management IC for battery operated portable devices."
The iPhone is, quite clearly, such a device.
The job description also says that this engineer will work to "define optimum chip architecture for mixed signal IC in cooperation with power management system team" and will "collaborate with system architect and system team to specify overall requirements for overall PMIC system."
A search for the broader term "power management" on Apple's job board, including looking for positions in Germany, revealed nine job postings that appear to be related to the development of PMICs or related subsystems.
It seems reasonably likely that Apple is cooking up something.
Dialog issued a press release following the public dissemination of the key contents of the Bankhaus Lampe report. In that release, Dialog said that it "knows of no business reason for this movement [in the stock price] and confirms that it remains comfortable with its guidance for the first quarter and its prospects for the year."
Dialog also said that it its "level of visibility into the design cycle of its leading customers remains unchanged" and that the "business relationships are in line with the normal course of business."
Should investors be soothed by this response?
Investors were apparently soothed by this response as Dialog's stock price, after initially tanking, made up some (though not all) of the ground that it lost following the Bankhaus Lampe report.
Dialog reaffirmed its guidance for the current quarter and for the rest of the year and even offered some comforting words about its "level of visibility" into upcoming product designs at its "leading customers,: which presumably, includes Apple.
That probably means Dialog is safe for at least a couple of product generations, an argument that analysts with RBC made in defending the stock. That's good, but here's the thing: Apple had been building up its graphics chops for years, dating at least to 2013, and it wasn't until a couple of weeks ago that Apple told Imagination Technologies that it'd be designed out of future Apple processors within 15 to 24 months.
My purpose in pointing this out isn't to necessarily say that Dialog will necessarily lose Apple's business in the near to medium term, but to make the point that the lead time between when Apple starts staffing up to try to "roll its own" components and when those components wind up in devices can be quite long -- well outside a supplier's level of visibility.
For that reason, it's important to be a bit cautious when investing in companies with large portions of revenue coming from a handful of customers.