Bernstein ID's Apple Suppliers That Track iPhone Revenue Trends

Apple Inc. AAPL shares have been trending sideways after an initial spike following the launch of the newest iPhone models in mid-September 2017. Given mixed views concerning the newest phones' ramp, Bernstein looked at data points from the Apple supply chain and their implications in a Wednesday note.

The Analyst

Bernstein analyst Toni Sacconaghi Jr. rates Apple with an Outperform and $195 price target.

The Thesis

Based on an analysis of data points released by Apple suppliers, most of which are listed in Taiwan, Bernstein said it sees limited risk to December quarter iPhone unit forecasts. The firm estimates sales of 76 million to 84 million units compared to the consensus forecast of 79.2 million units. (See Sacconaghi's track record here.) 

The March quarter could see weak sequential growth, with unit shipments likely to come well below the consensus estimate of 62.1 million units, Sacconaghi said. The 33-percent sequential drop implied by the unit shipment forecast is only modestly higher than the 30-percent decline Apple has seen in each of the last two quarters, he said. 

The unit shipment forecast for the March quarter would mean a mere 3-4 percent iPhone unit growth for all of 2018 and a decline in iPhone upgrade rates year-over-year, Sacconaghi said. This projected estimate pales in comparison to the "super cycle" many were expecting, according to Bernstein. 

See also: Analysts Take The Measure Of Apple's iPhone X

That said, Bernstein believes average selling price, or ASP, could offset unit weakness, suggesting 15-20 percent year-over-year growth in iPhone revenues for the March quarter. Additionally, the company could benefit from a lower tax rate, boosting the bottom line and continued strength in services and other revenue, according to Bernstein. 

Bernstein's deduction is based on its analysis of 45 companies in Apple's supply chain which derive over 7 percent of their revenue from Apple. The firm indicated that 18 of these companies are listed in Taiwan and release monthly sales data, Sacconaghi said.

Running a correlation between the supplier's revenue growth and iPhone performance over time, the firm identified 10 companies with high revenue exposure to Apple and strong correlation with iPhone revenues.

Bernstein identified the following companies as having good iPhone predictive power: 

• DIALOG SEMICONDUCT DLGNF
• Flexium
• CATCHER TECHNOLOGY CHERF
• Pegatron Corp PGTRF
• Shenzhen Desay Battery
• Hon Hai Precision Industry Co., Ltd.-ADR HNHPF
• Largan
• Skyworks Solutions Inc SWKS
• Advanced Semiconductor Engnrng Inc (ADR) ASX
• Lens Technology

The Price Action

Apple shares are up over 46 percent over the past year, although they have gained only about 10 percent since the iPhone 8 and iPhone X launches.

At the time of writing, Apple shares were slipping 1.25 percent to $174.82. 

Related Link:

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Photo courtesy of Apple.