(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of SWKS.)

The chipmakers got crushed on October 19, falling in sympathy with Apple Inc. (AAPL) after reports surfaced that iPhone 8 component orders were cut by as much as 50 percent. After the report, shares of Apple fell by roughly 2.5 percent. For some Apple suppliers, it was much worse. Shares of Crirus Logic Inc. (CRUS) and Skyworks Solutions Inc (SWKS) fell by roughly 4 percent, while Qorvo Inc (QRVO) fell by nearly 3 percent. (See also: Apple Cuts iPhone Component Orders By Half: Report.)

If it feels like this news is familiar, it's because a similar story circulated on September 25, when Digitimes reported that Apple had instructed component suppliers to withhold shipments for the production of the iPhone X, representing 40 percent of the quantities initially planned for. The market went through the same rollercoaster ride back then as it is now. 

No Revenue Estimates Cut Yet

SWKS Revenue Estimates for Next Quarter Chart

SWKS Revenue Estimates for Next Quarter data by YCharts

However, Wall Street analysts have yet to cut revenue estimates for the next quarter for Apple or for some of its most prominent suppliers since that initial iPhone X report surfaced. Furthermore, the same analyst community has yet to cut revenue estimates for next year. 

SWKS Revenue Estimates for Next Fiscal Year Chart

SWKS Revenue Estimates for Next Fiscal Year data by YCharts

Why?

This has to make you wonder why revenue numbers have not started coming down, at least on the annual side of the equation. If nearly 50 percent of orders are being cut, as reported on the iPhone 8, it is undoubtedly going to impact revenues for these companies. The average price target on any of these companies has yet to be lowered as of this writing.

SWKS Price Target Chart

SWKS Price Target data by YCharts

Could the market be overreacting to the latest iPhone chatter? Potentially. Unfortunately, we will all have to wait and see how good or bad things are until Apple reports its financial results on November 2. Typically, one can get clues when Apple's suppliers report their results ahead of Apple. But this quarter, with the exception of Qrovo, which reports on November 1, Skyworks, Cirrus Logic, and Broadcom report on the same day or after Apple. 

This means investors should get ready for the bumpy ride in shares of Apple and its suppliers to continue until financial results are reported in early November. More important than results will be the guidance that Apple provides going forward. Until then, let the rumors swirl, and hang on tight.

 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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