Is it Game Over for Apple Suppliers?

Apple (AAPL) and Apple suppliers are off to a rough start in 2016. While the likes of Skyworks Solutions (SWKS) and Qorvo (QRVO) have deprecated substantially this year, Avago Technologies (AVGO) has managed to minimize the impact due to its diversification. The minor correction shouldn’t bother long-term investors. In fact, I think investors should add to their positions of the pull back as Avago Technologies looks set to continue its upward trajectory.

Avago’s Apple exposure

Avago Technologies is an outstanding combination of good value and a high growth tech stock.
It is a very big company, producing just under $7B in revenue, including high growth revenue streams balancing macro threat. The company effectively maintains its leading position in each sector, particularly in mobile chips, data infrastructure, and cloud segment.

In spite of the saturated semiconductor industry, the company produced strong quarterly results in last quarter of 2015. In Q4FY15, the company shared earnings per share of $2.51, $0.13 more than the analyst estimate of $2.38, whereas revenue for the quarter came in at $1.84 billion compared to analyst estimate of $1.85 billion. The company showed robust double-digit year-over-year growth of 10%, just below the amazing quarter from Apple and iPhone sales.

Although Apple accounts for a lesser percentage of revenue, it’s important to know that the company’s revenue doesn’t come entirely from wireless segment. As a matter of fact, in Avago Technologies’ recent quarter, wireless represented only 37% of the company’s overall business.

Yet, it is also worth noticing that the huge majority of Apple’s straight business with the company is in the latter’s wireless operating sector.

This clearly means that if sales to Apple accounted for 10% of the company’s overall revenue last quarter. This would indicate that sales to Apple accounts for no less than 27% of the Avago’s total wireless revenue.

One important thing is that the company’s management pointed out that its RF content used in the iPhone 6s and 6s Plus is same to that used in the iPhone 6 and 6 Plus, so Avago’s results offers us a sensibly decent idea of iPhone build trends.

Clearly, Avago Technologies is benefiting from its presence in the iPhone and investors can expect the company to gain dollar content going forward. Investors can use the recent pullback as an entry point because the stock is comparatively cheap. It also has a decent dividend yield and is a great growth stock to own in the present market.
Published on Jan 13, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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