How Are Qualcomm And Other Apple Suppliers Faring This Year?

Our Theme of Apple Component Supplier Stocks, which includes a diverse set of companies that supply components for Apple’s devices, has remained roughly flat year to date in 2024, underperforming the S&P 500 which remains up by 9% and compared to Apple stock (NASDAQ: AAPL), which has declined 2%. Within our theme, Qualcomm stock (NASDAQ:QCOM), a company known for making modem chips and applications processors, has been the strongest performer, rising by almost 30% year-to-date. On the other side, Skyworks (NASDAQ:SWKS) – which supplies radio components for the iPhone – has been one of the weaker performers with its stock down by 16% year-to-date.

QCOM stock has witnessed gains of 20% from levels of $150 in early January 2021 to around $180 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in QCOM stock has been far from consistent. Returns for the stock were 20% in 2021, -40% in 2022, and 32% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that QCOM underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including MSFT, AAPL, and NVDA, and even for the mega-cap stars GOOG, TSLA, and AMZN.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could QCOM face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

The demand environment for Apple products has been somewhat mixed. For Q2 FY’24, revenue fell by 4% year-over-year to $90.8 billion, and earnings came in at $1.53 per share, roughly flat versus last year. Apple saw its iPhone sales fall almost 10% year-over-year to  $45.96 billion for the quarter amid slower demand in China, where it faces mounting competition from high-end devices manufactured by Huawei. Apple’s Mac business saw a small turnaround over the quarter after a tough 2023, with sales rising by about 4%, driven by the launch of the new MacBook Air models with an upgraded M3 chipset. That said, Apple has been able to keep margins relatively high. Over Q2, gross margins came in at 46.6%, up from 44.2% in Q2 FY’23, driven by a more premium mix of products and higher services sales. Higher average iPhone prices and gross margins could give suppliers some more room to negotiate better deals with Apple. Apple is also slated to launch a new line of iPads in early May, and this could also help suppliers to an extent. There were no new tablet launches by Apple in 2023. Besides new product launches and higher average pricing, we also believe that Apple suppliers could see margins improve as supply chain issues faced by semiconductor players through Covid-19 continue to ease.

[1] Returns as of 5/7/2024
[2] Cumulative total returns since the end of 2016

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