It's no secret that Apple's (NASDAQ:AAPL) iPhone XR -- the cheapest of its newest set of iPhones -- hasn't been selling as well as hoped. We've seen mid-quarter guidance reductions from important Apple suppliers, as well as reports from reputable news sources to that effect. Unsurprisingly, this has led to a sell-off in Apple stock as the company's business depends heavily on the performance of its iPhone product line.
About a month ago, Nikkei Asian Review reported that Apple had told "its top smartphone assemblers Foxconn and Pegatron to halt plans for additional product lines dedicated to the [iPhone XR] that hit shelves in late October."
Additionally, the report claimed that Apple was having those suppliers crank out more of its older, discounted iPhone 8 and iPhone 8 Plus devices.
"Apple previously planned 20 million units for the older iPhone models this quarter, but raised the figure to 25 million units," wrote Nikkei Asian Review.
As it turns out, this report was, at the very least in terms of general direction, right on the money based on what Apple supplier Broadcom (NASDAQ:AVGO) had to say during its fourth-quarter earnings conference call.
The Broadcom drama
Broadcom sells wireless chips to Apple for many of its products, with the most lucrative for the chipmaker being the iPhone. Unfortunately for the chip giant's wireless business, Apple shifted some chip content for the iPhone XR away from Broadcom and to an alternate supplier.
What's interesting, though, is that on Broadcom's fourth-quarter earnings call, CEO Hock Tan said that the company's "wireless revenue ... was somewhat better than our expectations for the fourth quarter as we benefited from upside volumes of legacy phone generations at our North American OEM customer." (That customer is widely understood to be Apple.)
This suggests that Apple has, indeed, increased its orders for the older iPhone 8 and iPhone 8 Plus compared to its original expectations -- just as Nikkei Asian Review reported a month ago. While Apple probably isn't too happy to sell older iPhone 8 devices in place of its newer iPhone XR products, Broadcom clearly stands to benefit from this situation.
Broadcom strikes back
Tan told investors that "we believe the reset in our wireless business in the first half of 2019 from share loss in the current phone generation will be followed by a substantial recovery in the second half as we take share back for the next generation."
In the fourth quarter of fiscal 2018, Broadcom's wireless business was "down 5% year on year" and "represented 31% of our total revenue," according to Tan.
Additionally, CFO Tom Krause told participants on the call that during its fiscal 2020, the company expects its wireless business "to see a return to more standard mid-single-digit growth rates."
It's worth noting that since Broadcom's wireless business makes up a significant portion of the company's revenue, and since sales to Apple represent a significant portion of the company's wireless business (nearly 66% in fiscal 2017), winning back that lost share at Apple and getting its wireless business back on a growth trajectory is certainly something that Broadcom shareholders should want to see.