Apple's (AAPL 0.64%) latest generation of iPhone has been announced and will go on sale in early November, and the new devices could not have come out at a better time as the world transitions to fifth-generation (5G) wireless networks.
The company reportedly has millions of iPhone users that are currently in an upgrade window, and the aggressive pricing of the iPhone 12 line-up could trigger a "supercycle." As such, Apple looks all set to reap the benefits of the shift to 5G smartphones, as hundreds of millions of such devices are expected to be sold over the next few years.
Apple, however, could lift a lot of other companies that supply iPhone components as well. For instance, the likes of Synaptics (SYNA 4.59%) and Skyworks Solutions (SWKS 1.21%) could be key beneficiaries of a spurt in 5G iPhone sales because of their close relationships with the California computer company. Let's see how.
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1. Synaptics: The OLED-equipped iPhone 12 lineup is great news for this supplier
Synaptics has been a longtime Apple supplier, providing liquid-crystal display (LCD) display drivers for different iPhone generations over the years. The chipmaker has been in the news this year for reportedly winning the touch controller business for Apple's organic light-emitting diode (OLED)-equipped iPhone 12 line-up.
Synaptics' numbers and management commentary over the past year indicate that its relationship with Apple has strengthened in the run-up to the iPhone 12 launch, and the iPhone maker could be supplying as much as 21% of its revenue. The chipmaker has also indicated that it won the contract to supply display drivers for the iPhone SE earlier this year. That wouldn't be surprising, as Synaptics has established itself as a supplier of touch controllers for Tier 1 smartphone original equipment manufacturers (OEMs).
Apple's shift toward an all-OLED, 5G-equipped iPhone 12 lineup could give Synaptics a major shot in the arm. The Cupertino-based company is expected to build around 60 million to 65 million iPhone 12 units in the fourth quarter of 2020, according to Wedbush, contributing to a massive increase in OLED screen shipments.
UBI Research estimates that OLED panel shipments could jump 66% in the second half of 2020 to 383 million units, driven by new smartphone launches from the likes of Apple. Smartphones accounted for around 82% of the OLED panel shipments in the first half of 2020, indicating that Synaptics' addressable market is all set to jump higher.
At the same time, the OLED driver business is driving higher margins for Synaptics.
SYNA Gross Profit Margin data by YCharts
So don't be surprised to see Synaptics' results and guidance outperform Wall Street's expectations when the company releases its first-quarter results for fiscal 2021 in the first week of November.
2. Skyworks Solutions is likely to step on the gas
Skyworks Solutions has scheduled the release of its fiscal 2020 fourth-quarter results for Nov. 2. The chipmaker expects its top line to return to growth and earnings to remain flat, but there is the possibility of the chipmaker outperforming its own expectations.
That's because Skyworks gets just over half of its revenue from selling radio-frequency (RF) chips to Apple, which is a market that's expected to record terrific growth thanks to the advent of 5G smartphones. A third-party report points out that the 5G RF transceiver market could clock a compound annual growth rate of 30.4% over the next decade.
Skyworks' peer Qorvo has also pointed out that each 5G smartphone could create an additional content opportunity of $5 to $7 for RF chipmakers. As a result, Skyworks stands to gain from a combination of both volume and content growth from the latest generation of iPhones, which are expected to become Apple's greatest hit since the iPhone 6 sold close to 136 million units in two quarters after its launch.
DigiTimes predicts that Apple could ship more than 80 million units by the end of the year, which varies significantly from what Wedbush estimates. As a result, Apple suppliers are reportedly bumping up incentives for assembly line workers to increase output.
However, Skyworks is simply scratching the surface right now. Apple's strong share in key 5G markets such as the U.S. and Skyworks' relationships with other major smartphone OEMs such as Samsung are likely to unlock a multi-year growth opportunity for the chipmaker. A teardown of the Galaxy S20 Ultra 5G smartphone -- Samsung's 2020 flagship -- revealed a lot of Skyworks content inside the device.
The share of 5G smartphones as a percentage of the global market is expected to grow from less than 12% this year to more than 51% by 2023 as per third-party estimates. Considering the tailwinds it is sitting on, Skyworks Solutions could be a top 5G stock to take advantage of the market's long-term growth.
