The wait is finally over. Apple Inc. (AAPL) is set to release its iPhone 12 at its “Hi, Speed” event on October 13. This event has been scheduled within a month of an event, focused on iPods and the Apple Watch. Like always, there is a lot of hype around the new iPhones, but even more this year. There are many firsts in the iPhone 12 series, and the biggest change is the introduction of 5G technology in the iPhone. This could encourage its loyal customer base to upgrade to the new models.
iPhone12: Rumor has it
There are rumors that AAPL will launch four models in the iPhone 12 series, introducing the new member in the lower-end price range “Mini.”
- The new iPhone 12 mini ($699) with a 5.4-inch display
- iPhone 12 ($799) with a 6.1-inch display
- iPhone 12 Pro ($999) with a 6.1-inch display
- iPhone 12 Pro Max ($1,099), with a 6.7-inch display (the largest iPhone to date)
The four models will come in three sizes, and all of them will feature 5G connectivity and OLED Super Retina XDR display technology. And surprisingly, there wouldn’t be any significant price hikes for the new technology.
According to the rumors, even though all four models will have 5G, only the higher-end phones will provide 5G mmWave support in few countries. Another rumor suggests that AAPL will bring back the wireless magnetic charging system as it might not provide a power adapter with iPhone 12. This rumor was confirmed when the power adapter was missing from the Apple Watch Series 6 box. This is probably AAPL’s way of adjusting to the 5G cost.
It is these rumors that are fuelling investors’ anticipation and driving the shares of Apple and its suppliers to new highs. The stock prices of Apple, QUALCOMM Incorporated (QCOM), Taiwan Semiconductor Manufacturing Company Ltd. (TSM), and NXP Semiconductors N.V. (NXPI) soared between 9% and 18% in the last 12 trading days. This rally began on September 23rd when MacRumors reported unconfirmed information that AAPL could launch iPhone 12 on October 13. These stocks would rally further after the event if most of the rumors get confirmed.
Apple Inc. (AAPL)
October 13this a big day for Apple as it unveils its first 5G iPhones to the world. AAPL launch events have always been an investor event as they flock to buy the stock. AAPL stock soared 42% between October and December 2019 as its iPhone 11 models drove its iPhone revenue 7.65% year-over-year.
We could see an even higher growth this year with the iPhone 12 launch as a new mini model is coming in, which could drive volume sales. Moreover, the 5G technology at attractive prices could encourage customers to upgrade their version of iPhones. However, there are rumors that AAPL would launch iPhone 12 and iPhone 12 Pro in October. But the mini and max version might not hit the markets before November, and when they do, the availability would be limited. These delays are understandable as the COVID-19 pandemic impacted manufacturing.
The delay in iPhone release could push the product’s revenue into the fiscal second quarter of 2021. Some analysts are expecting a Christmas rush for iPhone 12. This year, AAPL could also see some strong sales from the world’s second-largest smartphone market India, where it has recently opened its first online store.
However, its $2 trillion valuation makes the stock price a little expensive, trading at 35.5 times its EPS. Adding up the yin (high stock valuation) and yang (iPhone 12 revenue drivers), AAPL is rated a “Buy” in our POWR Ratings system. It holds an “A” in Trade Grade and a “B” in Industry Rank. The stock is also ranked #4 stock in the 30-stock Technology – Hardware industry.
QUALCOMM Incorporated (QCOM)
AAPL is the largest customer of the semiconductor industry, and QCOM is a good example of what happens when you win and lose a customer like AAPL. QCOM is the largest mobile communication chipset company in the world, with its chips powering more than 90% of smartphones worldwide.
QCOM has a monopoly in modem technology and has faced several fines and lawsuits for its anti-competitive practices. But none affected the chip giant, except when AAPL challenged to duel with QCOM in 2017. The latter’s stock dipped 12% while the duel lasted from January 2017 to April 2019. The two declared a truce in April 2019 and AAPL decided to use QCOM’s modems in iPhones once again. Since then, the chip giant’s stock has soared 115%.
AAPL’s 5G modem orders would add more than $1 billion to QCOM’s revenue. The chip giant expects its fiscal 2020 fourth-quarter (ending October 2020) revenue to surge 25% year-over-year to $5.9 billion. This revenue growth would continue into the next quarter due to the delay in the iPhone launch.
This revenue growth plus its 5G supremacy make QCOM a “Strong Buy” in the POWR Ratings. It holds straight “A” in Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. It is also the #3 ranked stock in the 86-stock Semiconductor & Wireless Chip industry.
Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
TSM is another name that goes along with AAPL as its sole foundry partner. AAPL has been using its in-house A-series processors to power its iPhones, and TSM has been manufacturing these chips for Apple since 2016. This year, TSM will manufacture A14 series processors on its 5-nanometer process technology.
While AAPL is not TSM’s only customer, the first glimpse of the magnitude of the order was visible in its September sales, which soared 24.9% year-over-year. Some of these orders are also from Advanced Micro Devices (AMD), which is making chips for Sony’s (SNE) and Microsoft’s (MSFT) next-generation game consoles that are expected to be launched in the fourth quarter.
This year, AAPL is launching iPhone 12 mini, which means more orders for TSM. According to Focus Taiwan, an Asian brokerage expects Apple’s orders for A14 processors to increase to 90 million units from the current estimate of 75 million to 80 million. TSM stock surged 14% since the rumor floated around the October 13 event.
Just two days after the iPhone event, TSM will release its third-quarter earnings, giving investors all the more reason to be bullish. Hence, it is rated a “Strong Buy” in our POWR Ratings system. It holds an “A” in Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. It is also the #1 ranked stock in the 86-stock Semiconductor & Wireless Chip industry.
NXP Semiconductors N.V. (NXPI)
While there are many other AAPL suppliers, NXPI stands out as it is also supplying an additional component ultra-wideband chip (UWC). This chip first appeared in the iPhone 11 and Apple watch. It is a short-range radio connectivity chip, which is more secure and accurate than Bluetooth and WiFi. Secure and accurate is what makes AAPL command a premium price for its products.
NXPI supplies near-field communication, a Touch ID sensor, a controller, and a charging component for AAPL’s iPhones. While NXPI doesn’t reveal its revenue exposure to AAPL, the iPhone maker is its second-largest customer. The chipmaker, which earns 47% of its revenue from automotive chips, took a hit as the pandemic significantly reduced auto sales. Its automotive revenue fell 32% sequentially in the second quarter.
NXPI expects its third-quarter revenue to surge 10% sequentially as AAPL orders make up for some of the lost automotive revenue. The bullishness around iPhones sent NXPI stock up 18% in the last 12 days. The stock is rated a “Strong Buy” in the POWR Ratings. It holds an “A” in Trade Grade, Buy & Hold Grade, and Industry Rank and a “B” in Peer Grade. It is also the #20 ranked stock in the Semiconductor & Wireless Chip industry.
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AAPL shares rose $0.28 (+0.23%) in after-hours trading Monday. Year-to-date, AAPL has gained 70.39%, versus a 11.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Puja Tayal
Puja is a seasoned writer working with financial publishing companies like Motley Fool Canada and Market Realist. With over 13 years of experience in the field of fundamental research, she brings a blend of comprehensive, well-researched insights into her articles. More...
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