Just when you think they have finally tightened the noose around Apple Inc. (NASDAQ: AAPL), the company comes out and not only beats analysts expectations on the bottom line, but they present iPhone sales for the quarter that match expectations and also announced a massive stock buyback program that Wall Street is very enthusiastic about. While the second-quarter expectations are against a reasonably low bar, the positives in the report cannot be ignored.
A new Deutsche Bank research report examines the suppliers to Apple that may benefit from the company’s positive showing. While the percentage of business that companies have with Apple tends to shift, there is no denying that significant sales to the technology behemoth are a positive.
The Deutsche Bank team focused on six companies in the report, and also tempered their results and research with this:
Apple reported results that we believe should be viewed as a positive for the semiconductor supply chain under our coverage. We think that the key risk to the supply chain could come from their inventory figure, which came in at $7.77 billion (+73% quarter over quarter highest figure ever by ~$3 billion). We believe we’ve captured Apples unit weakness going forward in our estimates, with the caveat that 1) should the weakness be prolonged across multiple quarters, this could impact our estimates as some models assume a modest rebound and 2) the magnitude of declines could be greater than expected, thus rebounds could come off a lower base.
Here are the six companies that are affected by Apple purchasing.
This stock has been on fire over the past year and remains a top pick at Deutsche Bank and across Wall Street. Broadcom Ltd. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.
Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
The company does a large part of its business with Apple, in excess of 20% in fiscal 2017, and the analysts noted this in the report:
We expect Broadcom’s Apple exposure to be more driven by Apple units rather than content expansion over the next 12 months. We also expect 802.11ax could potentially be a dollar content driver in late-2018 or 2019. We forecast the company’s Wireless Communications segment growing +15% y/y to $6.23b in FY18E, representing 30% of sales.
Broadcom shareholders are paid a solid 3.06% dividend. Deutsche Bank rates the stock at Buy and has a $310 price target on the shares. The Wall Street consensus target was last seen at $321.50. The shares traded early Thursday at $225.85 apiece.