Apple's Self-Reliance Strategy Hurts Chip Suppliers Most

Apple’s (NASDAQ:AAPL) strategy of becoming self-reliant has had a detrimental effect on suppliers like Dialog Semiconductor DLGNF. The iPhone-maker recently lowered its order for power-management chips (PMICs), of which Dialog is the primary supplier, by almost 30%.

Apple’s decision to multi-source PMIC chips for one of its three new iPhone models, set to release in 2018, is expected to hurt Dialog’s top-line by 5%. However, Dialog still expects to report year-over-year growth in 2018.

Notably, Apple contributed 77% of Dialog’s total revenues in 2017.

Apple’s In-house Strategy Hurts Most Suppliers

Apple’s focus on building a closed ecosystem of semiconductor solutions is likely to affect suppliers like Dialog, Cirrus Logic (NASDAQ:CRUS) and Qorvo (NASDAQ:QRVO) .

The company is gradually bringing most of its silicon designs in-house. Apart from power management chip and batteries, the company designs its own A-series CPUs and GPUs, which are found in iPhones and iPads. It also designs Apple Watch processors. Notably, all these chips are manufactured by Taiwan Semiconductor as per Apple’s design requirements.

Moreover, the iPhone maker is also designing its own modem, although the product would take some time to materialize. The acquisitions of mobile processor companies like P.A. Semi and Intrinsity, flash controller maker Anobit, and fingerprint security company AuthenTec is actually helping it to design the products in-house.

Apple also has plans to utilize its own chips in MacBook, instead of Intel (NASDAQ:INTC) chips by 2020. The company already develops co-processors for Mac that manage hardware's camera, organic light-emitting diode (OLED) Touch Bar, boot process and fingerprint sensor.

Moreover, Apple is reportedly developing MicroLED screens in its own facilities in California and Taiwan. The move had hurt its display and related component suppliers namely Samsung (KS:005930), Sharp, LG Display, and Japan Display.

Reportedly, Apple is planning to use OLED panels in all three new iPhone models planned for next year.

Zacks Rank

Currently, both Apple and Intel carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Suppliers like Dialog and Cirrus Logic has a Zacks Rank #4 (Sell). Qorvo carries a Zacks Rank #5 (Strong Sell).

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