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What This Apple Supplier Just Told Us About iPhone X Demand

By Ashraf Eassa - Dec 10, 2017 at 10:00AM

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The supercycle may be real.

For quite a while, chipmaker Broadcom (AVGO -1.64%) has telegraphed to the investment community that it expects to see a substantial boost in the dollar content within Apple's (AAPL 1.62%) 2017 iPhone lineup -- something on the order of a 40% jump

Unsurprisingly, then, when Broadcom reported results for its fourth fiscal quarter, its wireless chip business, which depends heavily on sales of chips to Apple, saw a 33% surge in sales. 

Apple exec Phil Schiller standing in front of a projected image of the iPhone X.

Image source: Apple.

"Fourth quarter wireless revenue was driven by the ramp in shipments of [a] next-generation platform from our large North American smartphone customer," Broadcom CEO Hock Tan said, in a thinly veiled reference to Apple. 

The 33% growth in wireless chip sales seemingly understated the growth in revenue from Apple, as Tan indicated that the increase in revenue from Apple was "partially offset by a decline in shipments to other customers." 

What seems to be even more encouraging, though, is that Broadcom doesn't expect that its most recent quarterly results represented a near-term peak in its wireless business. 

"As we look into the first quarter of 2018, unlike the last two years, we expect wireless revenue to grow sequentially," Tan said, explaining that demand from Apple was "pushed out compared to prior years." 

This is obviously great news for Broadcom, since it'll be following a huge quarter for its wireless chip business up with an even bigger quarter, but what's probably more interesting to a lot of investors is what this could tell us about iPhone demand. 

Apple seemingly expects continued strong demand

Broadcom's fourth fiscal quarter ended on Oct. 29. This means that the revenue that Broadcom enjoyed in its most recently reported quarter reflected substantial shipments of chips in support of iPhone 8 and iPhone 8 Plus manufacturing as well as for the initial batches of iPhone X phones. 

The fact that Broadcom expects to not only see wireless revenue hold up quarter over quarter but to actually see an increase seems to suggest that Apple probably plans to build more of its newest iPhones between Oct. 30 (the beginning of Broadcom's current quarter) and roughly the end of January than it did between July 31 (the beginning of Broadcom's fiscal third quarter) and Oct. 29. 

It's important to keep in mind that Broadcom's own financial guidance isn't a wild guess or based on speculation -- its wireless chip revenue forecast is necessarily based on the feedback that it gets from major customers. 

So, if Broadcom is expecting sales of wireless chips to Apple to hold up during the current quarter compared to its most recent one, then Apple must've told Broadcom that it expects to keep selling a lot of iPhones. 

That's seemingly good news for Apple and its stockholders. 

A sneak peak at 2018 iPhone wireless content

During Broadcom's earnings call, Tan also gave investors a sneak peak into what kind of dollar-content growth the company expects to see in next year's smartphones. Tan expects the company to enjoy a "significant increase in FBAR content driven by the need for additional filtering at the antenna." 

Apple's iPhones in a "mosaic" pattern.

Image source: Apple.

An FBAR filter is a chip that, per Broadcom, makes sure that "multiple transmissions and receptions of voice and data streams do not interfere with each other." 

Beyond the growth in FBAR dollar content in the next-generation flagship smartphones like the iPhone, Tan also highlighted the company's opportunity to grow dollar content with the introduction of more advanced Wi-Fi chips that support the new 802.11ax standard. If Apple adopts those new Wi-Fi chips in its 2018 iPhone lineup, that could potentially help boost Broadcom's wireless chip revenue.

I doubt that Broadcom will enjoy the roughly 40% wireless content growth that it saw with this year's iPhones in next year's models, but I still think content will ultimately go up, which would be a win for Broadcom and its shareholders.

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