Bearishness in Apple Inc. (NASDAQ:AAPL) is creating an opportunity for investors interested in the company’s component suppliers. When Apple Inc. (NASDAQ:AAPL) traded below $400 intraday, the decline was based on worries from an analyst that the company had high iPhone channel inventories. Wal-Mart and AT&T also said they would cut the price of the iPhone 5 to $129 on a 2 year contract. Apple Inc. (NASDAQ:AAPL), along with suppliers, sold off in recent sessions as a result.
Supplier Sell-off
Cirrus Logic, Inc. (NASDAQ:CRUS) and Skyworks Solutions Inc (NASDAQ:SWKS) were the biggest decliners over the last year. Cirrus Logic, Inc. (NASDAQ:CRUS) supplies analog and mixed-signal integrated circuits to a number of industries, but its growth relies on Apple Inc. (NASDAQ:AAPL). Cirrus supplies audio chips for Apple Inc. (NASDAQ:AAPL)’s mobile devices–in fact, up to 90% of its revenue comes from Apple Inc. (NASDAQ:AAPL).
In April, Cirrus warned the market that quarterly results would not meet expectations. The company expected to write down inventory and blamed a single customer for its lowered outlook.
Skyworks Solutions Inc (NASDAQ:SWKS) sings a different tune for investors. The company, which makes analog semiconductors, started the year with a strong forecast. Skyworks expected positive momentum to be supported from product ramps and growth from new product categories. This countered the normally slower seasonality in the early part of this year. The company supplies the quad band module for Apple, but also counts Samsung, an Android phone maker, as a customer.
These Suppliers outperform
NXP Semiconductors NV (NASDAQ:NXPI) and OmniVision Technologies, Inc. (NASDAQ:OVTI) are giving a positive return in the past year, and for good reason. OmniVision Technologies, Inc. (NASDAQ:OVTI) earned $0.31 a share last quarter, beating estimates by $0.01 per share. Sales were also higher ($336.2 million compared to consensus estimates averaging $318.3 million). The company also forecast sales and earnings higher than consensus. It was clear that the company’s fortunes are not tied solely to Apple hardware sales.
NXP Semiconductors NV (NASDAQ:NXPI) makes NFC chips for many mobile devices, and does not rely on Apple alone. The “emerging ID” business is a growing segment NFC chips, where NXP is practically the sole supplier. Design wins for more mobile tablets and smartphones will support positive growth for the semiconductor company in the quarters ahead.
NXP still faces risks. QUALCOMM, Inc. (NASDAQ:QCOM) entered the NFC market recently, and the Snapdragon S4 processor maker could release an NFC chip in mass volume for device makers by the third quarter of this year. Integrating the NFC chip would give QUALCOMM, Inc. (NASDAQ:QCOM) and edge. The chip giant also has a large market share for smartphone processors, and Qualcomm could leverage that strength to win sales for NFC chips.
Foolish Bottom Line
When a company relies too heavily for sales on a single customer, that is a red flag. This means that the companies discussed, such as NXP, Skyworks, and OmniVision are good investing ideas. Negative news around Apple could pull down these companies, creating a buying opportunity. One company to avoid is Cirrus Logic. Cirrus Logic relies too heavily on Apple for its fortunes, whilst the other suppliers have a broader customer base. As sales slow for Apple, due to expectations for an iPhone 5 refresh, Cirrus Logic shares will be hurt the most.
The article Avoid this Supplier as Apple Sales Decline originally appeared on Fool.com and is written by Chris Lau.
Chris Lau has no position in any stocks mentioned. The Motley Fool recommends NXP Semiconductors. The Motley Fool owns shares of Cirrus Logic. Chris is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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