So what about these small chip companies that attach themselves to Apple’s future?
The ones like Qorvo (QRVO), Skyworks Solutions (SWKS), and Cirrus Logic (CRUS).
Many refuse to invest in them because they are too reliant on Apple.
I would argue the exact opposite.
It’s exactly because they have strong relationships with Apple that readers need to invest in these stocks.
The issue is that they are highly volatile and missing the optimal entry point can mean the difference between a profit and a loss.
Apple can’t develop everything internally.
It’s just too much to do.
I don’t believe the tech giant could gradually replace most of its third-party components with first-party ones.
Furthermore, I do not see Apple abruptly swapping suppliers or canceling an existing supplier's orders with its competitors to secure lower prices.
As a result, most of Apple's suppliers can negotiate favorable terms.
For 2023, iPhone shipments appear stable as the market continues to recover from weak demand and ongoing macroeconomic challenges, but I believe this is just a short-term blip.
Cirrus Logic mainly sells audio converters and chips, but it also develops other mixed-signal processing chips for wireless headsets, wearables, augmented reality/virtual reality (AR/VR) headsets, notebook computers, and mobile devices. Apple installs Cirrus' audio chips and IC controllers in its iPhones, iPads, and Macs.
Skyworks produces a wide range of wireless chips for the mobile, automotive, home automation, wireless infrastructure, and industrial markets. Apple installs Skyworks' wireless chips in its iPhones, iPads, Macs, Apple Watches, and other devices.
Lumentum is a diversified supplier of optical chips for service providers, 3D-sensing chips which are used in mobile devices, cars, 3D printers, and other industrial machines, as well as commercial lasers for manufacturing various products. Apple uses Lumentum's 3D-sensing chips and lasers to power its Face ID features.
These companies bask in the glory of being connected to Apple when many other chip companies wish they were in the same position.
Cirrus relied on Apple for 79% of its revenue in 2022 and the gains from this contract are precisely why it is great to hold this company's stock.
Skyworks generated 58% of its revenue from Apple in fiscal 2022, while Lumentum generated 29% of its revenue from Apple in 2022.
The semiconductor industry has been prone to cycles. Periods of soaring demand are followed by periods of drought, causing some wild swings in many chip stocks. But some news reports predict that because of the demand for chips throughout the economy, these boom-bust cycles might be over.
Semiconductors are now going into various devices between 5G, cloud datacenters, phones, PCs, laptops, cars are using more and more semiconductors that the demand is becoming so diversified and that supply is becoming so expensive to bring on. It's going to be much more of a steadier business going forward, more like a steady growth business rather than a cyclical business with booms and busts.
Don’t believe the naysayers who urge investors to stay out of chip stocks because of overreliance. That is like saying Warren Buffet is too reliant on Apple which is false.
Wait for a big dip of 15% or 20% to invest in these small chip stocks.
