5 Suppliers To Watch In Light Of Apple Stock Decline

Apple (AAPL) shares are on the spotlight again. Since closing below $500, to $485.92 on January 15, Apple’s market capitalization closed at $457.10 billion. As sentiment remains negative, a build-up could take place when Apple reports earnings on January 23.   Exxon Mobile Corporation (XOM) could be a benchmark for Apple’s valuation in the meantime: the integrated oil and gas company has a market capitalization of $408.20 billion. Non-technology companies frequently become the source of comparison when negativity rises for technology and investors gain interest in the more traditional sectors.

The rumor of a cut in supply orders by Apple is even more significant for the suppliers.

These are the companies investors should watch.   In no particular order: 

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1. Cirrus Logic Inc. ( CRUS): Develops high-precision analog and mixed-signal integrated circuits (ICs). Market cap at $1.83B, most recent closing price at $27.95.

Cirrus dropped 2.34% on the day.  Cirrus generates over 60% of its revenue from Apple. After the drop, the audio codec maker is valued at around 7x FY 2014 earnings per share. The sell-off of Cirrus in recent sessions on negative news in Apple is nothing new. The company dropped dramatically in November 2012, when the company was dragged down by related suppliers like Skyworks and OmniVision.

 

 

2. Broadcom Corp. ( BRCM): Designs and develops semiconductors for wired and wireless communications. Market cap at $19.28B, most recent closing price at $34.19.

Broadcom pays a dividend of $0.40 per share, or 1.17% in yield. The Broadcom WiFi chip is used by the iPad Mini and iPhone 5. Still, Broadcom chips are used in Samsung’s Galaxy S3, Note II, HTC Droid, and LG Optimus. Broadcom shares are healthy even if Apple shares are not.
 

 

3. Skyworks Solutions Inc. ( SWKS): Together with its subsidiaries, offers analog and mixed signal semiconductors worldwide. Market cap at $3.98B, most recent closing price at $20.50.

Skyworks is now valued at 8.4 times its FY14 earnings per share estimates. In November 2012, the company authorized a stock buyback program totaling $200 million, or 5.1% of its outstanding shares. Earlier that month, Skyworks fell because it forecast revenue of $450 million, and earnings of $0.54 per share in Q1.
 

 

4. Avago Technologies Limited ( AVGO): Engages in the design, development, and supply of analog semiconductor devices worldwide. Market cap at $8.31B, most recent closing price at $33.87.

Avago Technologies was estimated by Barclays to earn between $2.40 and $2.70 per iPhone 5 unit sales, close to the $3 per phone earned by Skyworks. The $8.31 billion company rebounded from the $31 low in December, but is still below its $37-level made in August 2012.
 

 

5. Micron Technology Inc. ( MU): Engages in the manufacture and marketing of semiconductor devices worldwide. Market cap at $7.77B, most recent closing price at $7.60.

Micron supplies memory for Apple, but it also makes PCM, or phase-change memory chips, for Nokia (NOK). The chip gives better performance than NAND flash memory. Data is not lost when the power is lost. In its Q1, Micron reported weak DRAM sales, but this was due to the weak PC market.
 

Further Analysis 

Valuation will matter. So will forward P/E, debt ratios, and past quarterly sales: 

 

 

Written by Kapitall's Chris Lau

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