Semiconductors: Apple and Broadcom
Bloomberg’s global semiconductor index rose almost 8% in May after falling 4% in April. Concerns about weak Apple iPhone X sales, bloated Asian component inventories and weaker NAND prices have dissipated on a slew of positive news reports over the course of the month. The VFTP Thematic Model Portfolio holds a basket of Japan and Asian semi, or chip-related, companies in its Asian Tech Basket.
On May 1st, Apple announced better than expected results and bullish commentary on smartphones during its management call. This positive sentiment to the sector was followed up by strong 2Q earnings results from many global semi firms including bellwether companies Micron and AMD and most recently; Marvell Tech and Microchip which were up +2.8% and 3.8%, respectively on Friday. Some of the general corporate commentary that has been calming investors is confidence that the cycle, which is already 3 years long, is not over, belief that supply disciple will continue and visible strength in other product lines to compensate for the weakness in smartphones.
There are two catalysts this week which might provide further support for the sector. First is Apple’s big annual show, the Worldwide Developers Show (WWDC) on Monday which gives the company a chance to preview new ideas or enhancements and, secondly, Broadcom’s results on Thursday.
At last year’s event Apple introduced the HomePod smart speaker, upgraded functions on its Mac computers and introduced software developer tools for creating augmented reality (AR) apps. This year analysts expect the company to debut a second-generation AR software kit, introduce its iOS 12 software for mobile devices, reveal improvements to its voice assistant, Siri, and perhaps discuss new functionality for the Apple watch.
Apple’s Siri is the world’s most used voiced activated PA, however, it is perceived to have less accuracy than the rival products made by Amazon and Google. Analysts are expecting Apple to showcase software and introduce AI tools that will upgrade the Siri experience and better integrate it with third party apps.
Augmented reality will also be a big push with one analyst expecting Apple to “double down” on its AR effort. Some of the software introduced last year was popular but didn’t take off in a meaningful way. The company is making a huge bet on becoming a major player in this area.
Other areas where analysts are anticipating some announcements are on updating the operating system for the Apple Watch and Apple TV, AI tools for iPhone photo organization and methods to regulate screen time.
In 2018, Broadcom has underperformed the S&P and its peer group, down about 5% ytd. This weakness stems from its bid on Qualcomm, which has now been withdrawn, and the company’s commentary about the slower than expected mobile market. Broadcom produces a wide range of highly sophisticated semiconductors for smartphones, enterprise storage solutions and industrial end-user markets.
On April 30, the company lowered it 2Q guidance to $5.01 billion, the bottom-end its of its range on weakness in wireless which is its biggest business group. However, some analysts are anticipating that we may have seen the low-point for this year in the segment. Any positive commentary would be a huge boost for the stock and for the sector.