According to a report from Digitimes, chip suppliers to Apple (NASDAQ:AAPL) have begun to "book production capacity" at both foundry and back-end (i.e., packaging and test) partners.
In particular, the report cites Cirrus Logic (NASDAQ:CRUS) -- a key audio component vendor for Apple's products -- and Analog Devices (NASDAQ:ADI) (provider of key 3D Touch components into the iPhone 6s/6s Plus) as having told their vendors to "reserve a significant portion of their production capacities in the second and third quarters [of the year]."
The report claims that both Cirrus and Analog Devices will "play a key role in the brand-new design" for Apple's next-generation iPhone 7 devices. The devices are said to be both "slimmer than existing iPhone models" and will not include a 3.5 millimeter headphone jack -- both in line with reports that have been circulating in the press for quite some time.
Finally, the report claims that chipmaker Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is expected to "grab most of or probably all orders for Apple's A10 processors." This is in line with a story that The Commercial Times broke late last year and that a number of independent sources (including KGI Securities' Ming-Chi Kuo as well as yours truly) managed to confirm.
Let's take a look at what the implications should be for each of these vendors.
Cirrus said to get a major content boost
A key theme driving the bull case for Cirrus Logic recently has been the notion that it will gain further dollar content in the iDevice maker's next-generation smartphones. Though there is some debate as to how extensive these content gains will be, the consensus seems to be that it goes up from here.
In a nutshell, this means that even if Apple fails to grow unit shipments during the iPhone 7 cycle (though I am hopeful that it will return to growth), Cirrus has a good shot of seeing Apple-related revenue growth thanks to the added content.
Analog Devices also looks like a winner
Analog Devices was put in the spotlight ahead of the iPhone 6s cycle as it was reported to supply analog-to-digital converters in support of the new 3D Touch feature. As long as Analog Devices hangs on to the 3D Touch socket in the iPhone 7, then it should benefit from an increase in the number of iPhones sold with 3D Touch capability in the coming fiscal year.
Beyond this, however, Digitimes claims that Analog Devices will "offer driver components for a dual-lens design for the [iPhone 7]," suggesting additional content share capture. I now expect Analog Devices' iPhone-related revenues to jump nicely year over year during the iPhone 7 cycle.
A win for TSMC, too
After triumphing over archrival Samsung (NASDAQOTH:SSNLF) in grabbing all of Apple's A8 manufacturing orders, Taiwan-based TSMC was forced to yet again split chip orders with Samsung for the A9.
However, with the A10 said to be going exclusively to TSMC, TSMC should enjoy a nice revenue boost in the second half of the year associated with that. Additionally, the A10 is said to employ TSMC's InFO Wafer Level packaging, which should mean additional dollar content per chip for TSMC.
All told, it looks like the iPhone 7 cycle should be good to TSMC on a dollar content per-phone basis.