Huge Apple Earnings Look Very Positive for 5 Top Chip Companies

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Analog Devices

This stock could very well benefit from an increase in information technology spending. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.

Last year the company introduced a highly integrated polyphase analog front end with power quality analysis designed to help extend the health and life of industrial equipment while saving developers significant time and cost over custom solutions. Achieving extremely accurate, high-performance power quality monitoring typically requires customized development, which can be expensive and time-consuming.

This company does a sizable portion of business with Apple, and the analysts noted this:

Apple was a 14% customer in 2017 and a 13% customer in 2016, though we expect this to decline to the 5-7% range over the next 12, months and likely stabilize ~5% in 2019. Analog Devices mainly supplies the 3D touch modules in iPhones, though with the recent design out, the company will still have exposure to Apple through other Analog parts. We forecast the company’s Consumer segment declining -22% year over year to $823 million in fiscal 2018 estimated, representing 13% of sales.

Investors receive a 2.00% dividend. Deutsche Bank has a $93 price target with a Hold rating. The consensus target is posted higher at $108.26, and the stock closed Wednesday at $96.04.

ON Semiconductor

Aggressive accounts may want to look at this smaller cap play. ON Semiconductor Corp. (NASDAQ: ON) is a vendor of analog power management, analog signal conditioning, standard logic integrated circuits and discrete chips into the automotive, communications, computing, consumer, industrial and medical applications. It is in the midst of a transformation from a seller of commodity discrete chips into higher value-added analog integrated circuits both through organic growth and acquisitions.

The analysts view ON as an underappreciated way for investors to benefit from the emergence of advanced driver-assistance systems and eventually autonomous driving. While the company is inherently levered (operationally and financially) and therefore subject to investor fears of cyclical volatility, many continue to see structural upside for the shares.

This company could be gaining Apple business, and the analysts explained why:

ON has not historically had a meaningful exposure to Apple; however, we believe that their content is likely rising at Apple in next-gen devices. Specifically, we see them gaining content in Apple’s fast charging solution (charger side vs. device side). We estimate that this could mean that Apple is ~3-5% of ON sales in 2018 estimated.

Deutsche Bank has a Buy rating with a $27 price target. The consensus target is $27.42. Shares closed Wednesday at $22.26.

Qualcomm

This company still has some ongoing legal issues with Apple. Qualcomm Inc. (NASDAQ: QCOM) designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents.

In addition, Qualcomm provides systems software and components to wireless handset vendors and promotes applications and services that run on high-speed wireless networks. The company operates primarily through two segments: CDMA Technologies and Technology Licensing.

While the court battles between the two companies go on, the company still will do business with Apple, and the analysts explain how:

Qualcomm has acknowledged share loss in the next gen iPhones as Apple will utilize a competitors’ modems, though Qualcomm will continue to supply prior iPhone/ iPad generations. As litigation between Apple and Qualcomm remains ongoing, Qualcomm is not currently receiving royalty payments from Apple. We model some resolution to Qualcomm’s formal/inform disputes with its licensees beginning in the the second quarter of 2019, albeit at a lower than historical implied royalty rate.

Shareholders receive a 3.84% dividend. The stock is rated Hold with a $67 price target at Deutsche Bank, while the consensus target is $66.29. Shares closed Wednesday at $64.35.

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Apple is right on the brink of becoming the first $1 trillion market cap company, and supply chain vendors that stay in the good graces of the tech behemoth could be in good shape for years to come. All these chip companies are good stock choices for aggressive accounts to consider.