Please ensure Javascript is enabled for purposes of website accessibility

Why Stocks of Smartphone Suppliers Crashed Last Month

By Anders Bylund - Apr 7, 2020 at 3:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Flagship smartphones might miss the holiday season in 2020, and that's bad news for the makers of their internal components.

What happened

Many stocks with connections to the smartphone market fell hard in March. According to data from S&P Global Market Intelligence, communications chip designer Qualcomm (QCOM -1.38%) dropped 13.6%, while phone-screen glass maker Corning (GLW 0.54%) took a 13.9% haircut, and screen technology researcher Universal Display (OLED -0.63%) lost 17%.

By comparison, iPhone maker Apple (AAPL -0.09%) recorded a milder 7% drop in March.

So what

The first three companies all supply parts to iPhone manufacturing lines, and they often amplify the larger company's market moves. The dark cloud hanging over the smartphone market in March was the COVID-19 pandemic.

In early March, it started to look like the next iPhone model would be delayed by the coronavirus crisis. If mighty Apple is having infrastructure issues, you can bet that the leading Android phone makers are experiencing delays as well. A late release could cause Apple to miss the all-important holiday shopping season, perhaps pushing the next iPhone model all the way into 2021. That would be uncomfortable news for component makers, some of which already struggled in early 2020 due to the trade tensions between Washington and Beijing.

A young woman walking down an empty street, holding a smartphone while wearing headphones and a surgical mask.

Image source: Getty Images.

Now what

This virus-based delay comes at a particularly unfortunate time since the wireless industry was hoping for a great year, rolling out infrastructure and flagship phones supporting 5G networks. Qualcomm happens to be a leading developer of 5G technologies, and the phone-screen specialists would benefit from a broad wave of handset upgrades.

The next few quarters will be difficult for smartphone stocks, separating the long-term winners from more short-lived success stories. Corning and Qualcomm were dealing with heavy debt loads and muted revenue growth before the COVID-19 crisis started, and those issues can only be amplified by a much weaker business environment. Universal Display, on the other hand, has the luxury of running a lean business model with $656 million of cash on hand and zero long-term debt.

I'm sure that industry giant Qualcomm and 169-year-old business veteran Corning will find a way through this dark time, but it won't be easy. Universal Display's return to full health looks much simpler and well-nigh guaranteed. All three are trading at serious discounts to their 52-week highs, but Universal Display is the only one I would be tempted to buy today.

Anders Bylund owns shares of Universal Display. The Motley Fool owns shares of and recommends Apple and Universal Display. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$150.03 (-1.38%) $-2.10
Corning Incorporated Stock Quote
Corning Incorporated
GLW
$37.38 (0.54%) $0.20
Universal Display Corporation Stock Quote
Universal Display Corporation
OLED
$124.43 (-0.63%) $0.79
Apple Inc. Stock Quote
Apple Inc.
AAPL
$173.03 (-0.09%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.