Shares of Broadcom (AVGO 4.37%), Taiwan Semiconductor Manufacturing (TSM 3.16%), and Arm Holdings (ARM 7.98%) were down 3.3%, 2.5%, and 4.3% on Monday as of 11:30 a.m. ET. Shares of all three were down even more earlier in the morning.
All three of these companies are key suppliers to the Apple iPhone. This morning, a notable Asia-based Apple analyst wrote that initial orders for the iPhone 16 were weaker than expected. So, all three of these stocks fell in sympathy on the news.
NASDAQ: AVGO
Key Data Points
So much for the iPhone "Supercycle?"
This morning, TF International Securities analyst Ming-Chi Kuo wrote a blog post on Medium outlining a pessimistic early take on the iPhone 16. Kuo wrote that based on early channel checks with suppliers and pre-order data scraped from Apple's websites, he estimates Apple's first weekend preorder sales were just 37 million. That would be down 12.7% from last year, with the difference being lower "Pro" model preorders relative to 2023.
That may have surprised some who were expecting an iPhone "Supercycle," due to the introduction Apple's artificial intelligence (AI) platform, Apple Intelligence. However, Kuo points out that Apple Intelligence won't be available at launch this month, so that could explain the low preorders for the Pro model. The first Apple Intelligence features won't be available until the release of iOS 18.1 in October. And even then, all of the AI features discussed at the June WWDC conference likely won't be available at that point.
In addition to the Apple Intelligence explanation, Kuo also believes a weak Chinese economy and intense domestic Chinese competition have played a role in tepid iPhone preorders. China accounted for 17.2% of Apple's total revenue last quarter.
TSMC, the largest foundry in the world, makes Apple's A-series phone processors, which are based on the Arm architecture. Broadcom also uses TSMC and designs the film bulk acoustic resonator (FBAR), Wi-Fi, Bluetooth, and fast-charging chips in the iPhone. So Apple is a key customer of all three companies. Hence the uniform downturn in shares today after each had a strong week last week.
iPhone rumors always abound this time of year
Before you abandon these stocks en masse, you should be aware this is the time of year when all sorts of Apple rumors and tea-leaf readings emerge from analysts based in Asia. Sometimes they turn out to be true, but other times, they don't.
Furthermore, with short-term interest rates still high, consumers may be holding off on large-ticket purchases, like a new iPhone, unless necessary. Beyond deep-pocketed early adopters, it's possible many are holding off on preordering a phone until they hear and see what friends and others are experiencing with Apple Intelligence. As noted, those features won't be introduced until October.
Therefore, even if preorders are weak today, the rollout of Apple Intelligence and the likely interest rate cuts beginning this week could be catalysts for the iPhone later during the holiday season. So, I would regard today's news as noise. But should demand remain weak even after rate cuts and Apple Intelligence is introduced, that may be more of a reason to worry.
Meanwhile, each of these Apple suppliers also have strong AI growth potential outside the iPhone. Broadcom makes the key networking chips for AI data centers, as well as custom ASICs for several cloud giants' self-designed AI accelerators. Arm was also upgraded last week on the prospects for increased edge AI data center penetration. Meanwhile, TSMC recently reported strong August sales figures, likely on the back of strong AI-related data center GPU orders.
