While other computer and smartphone makers have repeatedly suffered from price wars, Apple Inc. (NASDAQ:AAPL) always takes a different path. The consumer technology giant prefers to deliver the most advanced products at premium points.
Such an approach can create a great user experience, but can mean real headaches for tech suppliers that want to do business with Apple Inc. (NASDAQ:AAPL). To be selected by the company, you need to make heavy investments in research and development (R&D) to make sure your products are up to Apple Inc. (NASDAQ:AAPL)’s very high standards.
A pair of companies are meeting that challenge and are poised to flourish as Apple embarks on a new cycle of hardware releases. Shares of Apple Inc. (NASDAQ:AAPL) have surged 20% this quarter in anticipation of that product refresh, and these companies look set to ride Apple’s tailwind.
When I last looked at Apple’s preferred supplier of audio chips, Cirrus Logic, Inc. (NASDAQ:CRUS), back in April, its shares had just suffered a 43% plunge over the prior six months. That’s the downside of a heavy dependency on Apple Inc. (NASDAQ:AAPL). Famine often follows feast when it comes to cyclical demand.
At the time, I thought shares began to look like a bargain, with a single-digit forward multiple. But that call was premature, and shares slipped a bit further. Belatedly, they are now moving higher.
Much of the renewed optimism for Cirrus Logic, Inc. (NASDAQ:CRUS) and other suppliers is due to imminent launches of new iPhones and a wearable watchlike device. Hopes are rising that the new iPhones will sell well in the all-important Chinese market, if Apple Inc. (NASDAQ:AAPL) can deepen its relationship with China Mobile, that country’s largest wireless service provider (with more than 700 million subscribers).
Because Apple is so tight-lipped about its supplier base and production plans, there has been some controversy surrounding Cirrus Logic, Inc. (NASDAQ:CRUS)’s role in Apple’s future plans. Might Apple switch vendors? It’s always possible, but recent industry commentary suggests the relationship remains firmly intact.
Still, 10.3 million shares of Cirrus are held by short sellers, which is the highest level since the end of May and represents 16% of the float and six days’ trading volume. If the shorts are wrong, then a massive short squeeze might ensue.
However, analysts’ estimates for the current fiscal year (which ends in March) have been rising, not falling, indicating that few on Wall Street doubt that Apple’s relationship with Cirrus remains on solid ground.
The Soft Touch
While Cirrus has played a leading role in Apple’s audio efforts, Cypress Semiconductor Corporation (NASDAQ:CY) has been a leading supplier of chips that facilitate the touchscreens in iPads and other devices.