Understanding The Implications Of iPhone X Supply Constraints

Apple Inc. AAPL iPhone suppliers may have to wait a little bit longer than expected to ride the iPhone X tailwinds. KeyBanc analyst John Vinh expects most iPhone supplier stocks to remain range-bound while Apple works past temporary iPhone supply constraints.

According to Vinh, these constraints make it unlikely that suppliers will exceed near-term estimates, and true demand for the iPhone X will be difficult to measure for the time being.

“As we recently noted following our recent trip to Asia, we believe supply constraints associated with the 3D sensing ‘transmit’ module are likely to put an expectation for sales of 40M iPhone X units in 2H17 at risk,” Vinh wrote Sunday.

Vihn noted that these supply constraints could persist into the first quarter of 2018. While fourth-quarter guidance numbers for iPhone suppliers may be ok for now, iPhone suppliers may dial back market expectations for Q1 2018.

Channel checks with iPhone carriers indicate iPhone 8 supply is lean, but iPhone 7 demand has also been troublingly high. The reportedly higher-than-expected iPhone 7 demand could cannibalize iPhone 8 sales and weigh on Apple’s average sales price and margins. Vihn said this trend is “modestly worrisome.”

For now, he says traders should expect iPhone supplier stocks to mostly remain range-bound while the market pieces together the iPhone X supply situation and ultimately the market demand for the device.

KeyBanc maintains the following ratings and price targets for major suppliers:

• Broadcom Ltd AVGO: Overweight, $290 target.
• Cirrus Logic, Inc. CRUS: Overweight, $70 target.
• Skyworks Solutions Inc SWKS: Overweight, $120 target.
• Qorvo Inc QRVO: Sector Perform, no target.
• Synaptics, Incorporated SYNA: Sector Perform, no target.

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