Expectations that sales of the iPhone will return to modest growth provided Apple (AAPL) - Get Report suppliers such as Broadcom (AVGO) - Get Report , Cirrus Logic (CRUS) - Get Report , Analog Devices (ADI) - Get Report , Skyworks (SWKS) - Get Report , Synaptics (SYNA) - Get Report and others have some positive news, though it wasn't necessarily apparent in their stocks on Wednesday.
Showing modest losses on Wednesday afternoon, Broadcom dropped 0.5% to $172.71, Skyworks fell 0.6% to $77.60 and Synaptics lost 0.4% to $67.38. Posting larger declines were Analog Devices, falling 1.25% to $63.26, and Cirrus, dropping 2% to $52.65.
A mix of "modest upside" from Apple and "elevated expectations" in the market may account for the drag on suppliers' stocks, Oppenheimer analyst Rick Shafer explained in a note that followed Apple's Tuesday earnings report.
Apple shipped 45.5 million iPhones in the fourth fiscal quarter, a decline of 2.5 million from a year ago but 700,000 above forecasts. iPhones revenues in the period came to $28.2 billion, topping the forecasts of $27.8 billion. In the first fiscal quarter, which includes the holidays and is Apple's biggest quarter, Apple expects iPhone sales to hit $76 billion to $78 billion, or $2 billion above forecasts.
In theory, Apple is poised to benefit from the debacle with Samsung's (SSNLF) flagship Galaxy Note 7 and its combustible batteries. "Following Samsung's Galaxy Note 7 challenges and product cancellation, we believe iPhone 7 is well positioned for the holiday season to gain market share," Canaccord analyst Michael Walkley wrote.
Samsung's travails have had a muted impact so far, however, because Apple cannot keep up with demand for the new iPhones. "When you talk about other competitors," Apple CFO Luca Maestri told investors on the company's earnings call, "it's not particularly relevant to us right now because we are selling everything that we can produce."
Issues of supply aside, the iPhone 7 and 7 Plus present opportunities for a number of chip makers.
"We view Broadcom as one of the major beneficiaries of healthy iPhone 7/7+ demand," Pacific Crest analyst Michael McConnell wrote, estimating that the company is supplying 25% to 30% more components in the latest refresh of the device. Apple accounts for about 25% of Broadcom's sales, Pacific Crest forecasts.
Oppenheimer's Schafer suggested that Broadcom, Skyworks and Cirrus Logic have the best chances of increasing the products they supply to Apple, thereby positioning themselves for growth in a flat market overall for smart phones.
Cirrus Logic gets about three-quarters of its sales from Apple, Schafer noted, and has historically provided audio technology for the iPhone. For the latest iPhones, Cirrus supplied new audio amps and other products, Schafer wrote, increasing the amount of components it supplies by 70%.
Skyworks saw a 20% boost in the components it supplies from the iPhone 6s to the iPhone 7, Oppenheimer estimates. The company obtains about 40% of its sales overall from Apple.
Analog Devices, which is one of Pacific Crest's top Apple supplier picks, gets about 10% to 15% of sales from the iPhone maker.
Also among Pacific Crest's "highest conviction picks" is touch-screen supplier Synaptics. Apple supplies 15% to 20% of the company's top line, Pacific Crest estimates.
Synaptics will provide a window into Apple's supply chain when it reports quarterly earnings on Thursday.
Looking past this earnings season, next year marks the 10th anniversary of the iPhone, which appears promising. Apple is rumored to be planning a significant jump in technology with its next iPhone in 2017, driving more demand for cutting edge chips and components.