Dialog Semiconductor, a chipmaker that’s currently supplying Apple (NASDAQ:AAPL), saw its stocks plunge recently as investors gained reason to worry about the company’s long-term future. Dialog Semiconductor (DE:DLGS) shareholders are concerned that Apple might drop the company as one of its suppliers ahead of forthcoming product releases, meaning the company’s leadership needs to act fact before the current stock spiral gets much worse.
Worries over Apple
After reports surfaced that Apple might begin internally designing and producing the vital power chips needed to make many of its forthcoming products work, investors began eyeing Dialog with serious suspicion. Such a move by Apple could prove disastrous to Dialog’s future; the company has a serious stake with the tech behemoth, and will rely on its continued success for much of its future expansion.
Dialog, which is headquartered in the UK, even conceded that Apple has the capacity, or at the very least will soon, to develop its own chips in house. Such an admission has investors scrambling, with Dialog’s shares plummeting by nearly 35% since late November. Dialog highlighted the fact that it will continue to supply the lucrative power chips to Apple in 2018, however, and executives are pivoting to present a bold new strategy to the investors they hope to woo.
Such work by Dialog’s leadership could be done in vain, however; previous companies that lost lucrative partnerships with Apple have bit the dust over the past few years, including other UK chipmakers like Imagination Technologies. Investors will have such examples at the forefront of their minds when they decide whether they’re sticking with Dialog through this slump.
While it’s unlikely that Apple will pivot to full internal production immediately, the company could supply up to half of its own power management chips used in iPhones, thus alleviating concerns that it’s too dependent on outside suppliers and cutting back on cost.
A shakeup is desperately needed
For Dialog Semiconductor to survive well into the 21st century, it needs a sudden shakeup desperately. The company’s lifeline in the form of its contract with Apple is likely to go away soon, if not immediately, and it needs a new long-term strategy if it intends to bring any new investors on board. As it stands, shareholders are concerned that the company lacks any post-Apple vision, and having seen the fates of other tech suppliers to Apple, wise investors have gotten cold feet when it comes to backing Dialog.
The company certainly isn’t toast; better innovations on the part of Dialog could result in new technologies that make smartphones more effective at saving battery, for instance. Dialog is still a competent company with savvy individuals who can churn out new products in an extraordinarily lucrative market. The only question is how it can survive should Apple be producing most or all of its own power chips by 2020, and where else it might look for a lucrative partnership.
Dialog earned a record $363 million in 2017 third-quarter revenue, an impressive figure likely to prevent too many shareholders from instantly jumping ship. Long term investors will be wondering how it can convert its growing revenue figures into a sustainable business model, however, and the company will need to show how it’s allocating its profits to deal with future projects that look beyond its Apple partnership.
Other contracts signed with Apple’s competitors seems unlikely, and Dialog will likely need to look at more in-house innovation if it intends to remain relevant for long. The company’s work on battery life in particular is promising, and its human capital could yet churn out a new service capable of keeping Apple’s recurring business, but Dialog will have to jump into overdrive if it wants to avoid a total collapse. Rather that suffering the fate of company’s like Imagination Technologies, Dialog needs to get started now on its work to prove to investors that it’s more than a mere Apple-crony. More likely than not, the company can expect consistent business with Apple until the end of 2018, meaning it should use the time until then to plot out its next strategy and clearly lay out to investors how it intends to survive. Dialog isn’t in the grave yet, but the company certainly has one foot halfway in; whether or not Dialog survives is really a matter of how well it can innovate.