Looking back, the third quarter of 2015 was a tough one for owners of Apple (AAPL). Apple stock peaked at $132 per share in July, only to slide 17% all the way back to a close near $110 by the end of September. The slide came on concerns that demand for the company’s watch was unexpectedly weak, followed by even bigger concerns that sales of the iPhone 6s were lackluster.
As rough as things were for Apple stock during that time, they were just as bad — if not worse — for stocks of companies like Cirrus Logic (CRUS), Skyworks Solutions (SWKS), and Analog Devices (ADI) that supply components for Apple’s devices.
SWKS fell 25% from its recent high to its recent low, CRUS is still down 24% from its peak, while ADI tumbled about the same from its late-June peak.
Well, as it turns out, for the same reason Apple stock was unduly oversold, so too were shares of companies associated with it. That AAPL-led pendulum looks like it’s about to swing the other way again … just as much is it swung in a bearish direction.
What’s Good For the Goose…
It’s a familiar, almost-tired premise. That is, companies that make the guts and frames for the iPhone (and the iPad, and the Apple watch, etc.) frequently find themselves doing an inordinate amount of work for the huge consumer technology company.
That’s not always a bad thing; more business means more revenue and therefore more profits. On the flipside, too much reliance on one company’s business leaves a supplier vulnerable to the customer’s stumbles.
But what if the market is wrong about the demand for the giant company’s products? As it turns out, the market was wrong — Apple is selling plenty of product.
Giving credit where it’s due, it was J.P. Morgan’s recent channel checks that revealed the company is ramping up its planned calendar-Q4 receipts of the iPhone 6s to a range of 75 million to 80 million — upping both ends by a count of 5 million.
It’s not a huge leap, but it’s a leap in a surprising direction. It was only a few days ago investors were told the estimated Q4 delivery total was only between 65 million and 70 million iPhone 6s units.
It’s also worth noting that, although it’s been tough to get a bead on just how many iPhones Apple needs or even wants for calendar Q4, that may be because we’re in uncharted territory here and nobody really knows what the “right” number is — the debut weekend for the iPhone 6s was yet another record-breaker, with 13 million units being sold.
Alternatives to Apple Stock
While the swing back to optimism has been good for Apple stock (and should continue to be so for a while), the same names that got hit hardest when it looked like Apple was hitting a headwind are getting back into a bullish groove as well.
These names include the aforementioned Cirrus Logic, Skyworks Solutions, and Analog Devices.
Skyworks Solutions makes RF chips for Apple, and though Apple is a major customer, the company has been weaning itself from its reliance on AAPL. Cirrus Logic also makes chips for the iPhone, and brings especially-solid audio technologies to the table. The most interesting of the three, though — and perhaps the biggest opportunity among them — is Analog Devices.
While the new iPhone looks and feels a lot like the previous ones, there was one new technology on board this one that hasn’t been on the others … 3-D touch technology. This 3-D technology not only tracks where a user’s finger is touching the device’s screen, but how hard that finger is pressing. Different pressures elicit different responses. Analog Devices is the company that exclusively makes the circuit boards required for 3-D touch to work.
While the iPhone 6s was the first device to have the technology, it isn’t going away. Future versions of the iPhone will also have it, and it’s not unreasonable to expect future iPads to offer the same. Technology research firm Counterpoint reckons that, although 3-D touch technology will only be found on 3% of smartphones made this year, that figure should reach 28% by 2017. Presumably, Analog Devices will remain the go-to choice for Apple.
Regardless of which Apple suppliers looks strongest right now, as Apple stock perks up, the rest of the usual suspects are following that lead.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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