Why Apple's Suppliers Are Plunging As Mega Tech Thrives

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

Technology stocks have been ripping higher over the past 52 weeks, with the Technology SPDR ETF (XLK) up by over 37 percent, but two Apple Inc. (AAPL) suppliers have struggled mightily. Both Qorvo Inc. (QRVO) and Skyworks Solutions Inc. (SWKS) are up only 8 and 10 percent. The two stocks fell sharply in early November as the market began to sour on the latest iPhone "super cycle." 

What's most surprising is that as the market has soured on the new iPhone, Apple shares have continued to thrive and hold on to the past year's gains, while Skyworks and Qorvo shares have fallen by nearly 16 percent since early November. Based on the performance of the three stocks, it seems the market has already decided that the latest Apple super cycle has peaked, despite not even having one full quarter of iPhone sales reported or forward guidance even given.

SWKS Chart

SWKS data by YCharts

Super Cycle Gone Bust

Before the steep decline, both Skyworks and Qorvo had been up by nearly 55 percent for the period between November 6, 2016 and November 6, 2017.

Meanwhile, Apple had climbed by almost 60 percent during this same period, as investors began to dream of the next iPhone cycle. The previous super cycle occurred when Apple released the iPhone 6 and iPhone 6 Plus in September 2014, introducing the new larger phones. 

SWKS Chart

SWKS data by YCharts

Not The Same Cycle

But to this point, the excitement of the iPhone 8, iPhone 8 Plus, and the iPhone X has waned quickly when compared to the iPhone 6 cycle. The iPhone 6 was released in September 2014, and shares of Skyworks rallied and peaked in June 2015, nearly nine months after the release of the iPhone 6.

But Apple shares peaked in February 2015, almost 4 months after the release, eventually leading to Apple stock declining by nearly 27 percent from roughly $130 to $95.

SWKS Chart

SWKS data by YCharts

Very Different Cycle

But this cycle seems to be very different and has failed to live up to the hype, with shares of Skyworks and Qorvo both peaking right around the same time as the release of the iPhone X in early November 2017. Meanwhile, Apple shares have also stalled but have yet to decline. This leaves one to wonder if it is the suppliers that will lead the way lower for Apple this time around. That battle is being waged in the markets presently, with the underperformance of Skyworks and Qorvo, while Apple stalls despite the strength of the technology sector. 

It is yet to be seen just how strong or weak the latest Apple iPhone super cycle is, or how right or wrong the market will be. 

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 holdings. Information 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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