Cowan: Apple supply chain lumpy but on track

From a note to clients by analysts Karl Ackerman and Matthew Ramsay that landed on my desktop Wednesday:

We remain cautious on the smartphone supply chain, as our field work in Taiwan indicates relatively unchanged production plans for CQ4 and CQ1. Indeed, we are increasing our smartphone unit production estimates for Apple/Samsung/Huawei/Oppo/ Vivo/Xiaomi from 281MM units to 288MM units for CQ4 (up 9% Q/Q) but are lowering our estimates for CQ1 from 239MM to 235MM (down 18% Q/Q, down 5% Y/Y). Near term, relative strength at Huawei is offsetting our less robust outlook on Samsung units…

In congruence with Apple and Samsung commentary above, we are leaving estimates for our smartphone-exposed names unchanged.

We would remind investors that we cut estimates on Cirrus Logic (CRUS) and Broadcom (AVGO) on last month’s update. Cirrus Logic is the most heavily exposed name to both smartphones and Apple within our coverage, with Apple ~75%+ of annual revenue.

While we continue to remain encouraged by long-term opportunities across voice biometrics, MEMS mics, boosted amps, and digital/ noise-cancelling headsets, these remain early and are dwarfed by unit swings at Apple as shown by the recent negative pre-announcement.

Elsewhere in the smartphone supply chain, we estimate Wireless to represent only ~26% of Broadcom’s business post-CA; however, management has continued to express confidence in regaining high-band share from Qorvo in the 2019 iPhone. CEVA has also benefited from Intel garnering 100% modem share in the 2018 iPhone, which we believe also includes ~30-40% royalty/unit increase from a more complex DSP core. We would also highlight improving 5G fundamentals as a secular driver for CEVA, and would remind investors that we estimate CEVA is poised to generate high-ASP royalties on all non-Huawei 5G basestations.

While the timing of rollouts is likely lumpy, we estimate a $20M+ revenue potential just from announced partners Nokia and ZTE. Lastly, while we admit to limited visibility, we believe increased public clashing between Apple and Qualcomm (QCOM), pending court dates, and increased 5G chatter could drive a settlement between the two companies sooner rather than later. We remain positive on Qualcomm despite this uncertainty as we believe the company’s baseband IP remains well ahead of peers, and will be a key enabling technology when commercial 5G handsets ramp.

Below: Cowan’s estimated iPhone supply by quarter and model.

Click to enlarge.

My take: Note the two consecutive quarters of lower unit sales in Cowan’s estimates above. Sounds like they’ve already been priced in.