Skyworks Solutions and Broadcom are being defended at Bank of America after it was reported that Apple is looking to build wireless chips in-house, news that sent shares of both semiconductor companies sharply lower.
Analyst Vivek Arya, who rates Broadcom (AVGO) buy with a $750 price target and Skyworks (SWKS) neutral with a $190 price target, notes that both companies have significant exposure to Apple (AAPL), with 20% for Broadcom and 59% for Skyworks, but industry checks suggest the impact is "overblown in the near to medium term." Apple's hiring could be for its plans to develop its own 5G modem, which would hurt Qualcomm (NASDAQ:QCOM) and not Broadcom or Skyworks.
Skyworks (SWKS) fell more than 8% to close at $146.39 on Thursday and are down another 1% on Friday. Broadcom declined 3% to close at $620.68 and are slightly lower on Friday.
Arya notes that Broadcom (AVGO) has a $15 billion contract with Apple (AAPL) that runs through 2023 and all RF design is not "created equal." He adds that RF design is a "very broad capability," which requires experience for a wide variety of use cases in smartphones, including the transceiver, which Arya believes the report was talking about.
Apple (AAPL) purchases RF-front parts from Broadcom (AVGO), Skyworks (SWKS), Qorvo (NASDAQ:QRVO) and Qualcomm (QCOM), including amplifiers, filters and switches and "we have heard of no plans for Apple to insource these parts that require very specific recipes, intellectual property and specialty materials/fabs," the analyst added.
Apple (AAPL) also gets the Wi-Fi and Bluetooth chips from Broadcom (AVGO) and the RF front-end from Skyworks and the analyst said to his knowledge, "there are no plans for Apple to insource these currently," though he admitted that the low-end Apple Watch uses some of Apple's own silicon for this.
On Thursday, Goldman Sachs said Apple (AAPL) iPhone supply was getting better, becoming more in-line with demand.