In particular, I argued that because Avago is guiding for a "normal" seasonal decline in wireless-related revenue for the coming quarter (whereas last year Avago's sales here bucked the seasonal trend), iPhone demand likely isn't holding up as well as it did last year.
Over on Twitter (NYSE:TWTR) a follower of mine pointed out that Avago's sales to Apple are "likely no more than 20% of sales" and that Avago's results may not be the best indicator of how iPhone demand is holding up.
This is definitely a valid point, but I'd like to demonstrate why I believe Avago's results are, indeed, a good indicator of the health of iPhone 6s/6s Plus relative to the health of iPhone 6/6 Plus last year.
Understanding Avago's Apple exposure
During the last three quarters, sales to Apple have represented "more than 10%" of Avago's entire revenue base and I have little doubt this was the case in the company's most recent quarter as well.
Although it might not seem like much, it's important to understand that Avago's revenues don't all come from wireless. In fact, during its most recent quarter, wireless represented just 37% of the company's overall business.
However, it's also worth noting that the vast majority of, if not the entirety of, Apple's direct business with Avago is in the latter's "wireless" operating segment.
This means that if sales to Apple represented exactly 10% of Avago's net revenue last quarter, this would imply that sales to Apple made up no less than 27% of the company's overall wireless revenue. Given that Apple is a more than 10% customer, I'd imagine an even larger percentage of Avago's wireless revenue comes from Apple than the 27% figure.
Decoding Avago's results
In its most recent quarter, Avago reported that its wireless-related revenue was up 8% year over year and 10% quarter over quarter. Management attributed this to the "customary product ramp at [its] North American customer partially offset by the product cycle rollover at one of our large Asian customers."
What those results tell me is that in the company's most recent quarter, it shipped more components to Apple during the quarter than it did at the same time in the prior year. The nice thing about these results is that Avago management indicated its RF content in the iPhone 6s/6s Plus is identical to the content in the iPhone 6/6 Plus (Avago didn't have the manufacturing capacity to handle supplying additional components), so Avago's results give us a reasonably good idea of iPhone build trends.
These results are consistent with Apple's expectation that iPhone sales will grow this quarter from the prior year period.
However, the fact that Avago is guiding to a fairly steep fall-off in wireless-related revenue in the coming quarter -- given how large a part of Avago's wireless business sales to Apple represent -- seems to suggest that Apple will be substantially lowering its build activity in anticipation of a large, seasonal drop-off in demand.
Now, it's worth keeping in mind that part of this more typically seasonal drop in demand is seemingly due to Apple having a better handle a priori of the kind of demand it expected to see for iPhone 6s/6s Plus in the first quarter following the launch of the devices (hence the year-over-year growth that Avago experienced in the most recent quarter).
That said, Avago's results seem to suggest that following the blockbuster launch quarter for which Apple has guided to year-over-year growth, the iDevice maker might find it difficult to post year-over-year growth in the remaining quarters of the fiscal year.
It's not all bad news for Apple stock
What might potentially be good news for Apple stock is that all of this information is out in the open. Despite this, Apple stock seems to be holding up fairly well.
This could be a sign that a potential decline in iPhone sales during the current fiscal year is "baked in" to the share price and that investors might be looking ahead to the coming fiscal year once the "tough compare" of the last fiscal year (thanks to iPhone 6/6 Plus) is behind the company.