Semiconductors Alert:iPhone Preorder Activity Good for Semis in Apple Supply Chain

Overall pre-order sales activity for the iPhone 7 appears encouraging with bothSprint and T-Mobile experiencing pre-order volumes above prior year levels. Webelieve this will benefit semiconductor stocks in the Apple supply chain such asSkyworks (37% exposure to Apple), Qorvo (34%), Broadcom (15%), AnalogDevices (12%) and Texas Instruments (11%).

    Pre-order sales for iPhone 7 appear encouraging… According to our Citi Appleanalyst, Jim Suva, pre-order sales for the iPhone 7 appear encouraging as volumesfrom T-Mobile and Sprint were above last year’s levels (please see Jim’s Sep 13note). T-Mobile stated its pre-orders from Friday through Monday were up close to4X compared to the next most popular iPhone while Sprint stated pre-orders in thefirst three days increased 375% YoY.

    …good for semi stocks in the Apple supply chain. We believe the strong initialpre-order activity is good for semiconductor stocks in the Apple supply chain suchas Skyworks (37% exposure to Apple, covered by Atif Malik), Qorvo (34%, coveredby Atif Malik), Broadcom (15%), Analog Devices (12%) and Texas Instruments(11%).

    Our recent checks from Asia indicate better order rates. We note our recentchecks from Asia indicate order rates were better than expected for smartphones,memory, and foundry (please see our Sep 9 note).

    Still not jumping in the pool, afraid of the hangover. Although initial Applepreorder activity appears encouraging, we believe overall demand remains middlingand order rates for semiconductors could fall off in 4Q16. As a result, we remaincautious on the sector.

    Our top pick is Microchip. Given the middling demand environment, we still favorstocks that benefit from M&A such as Broadcom, Microchip, and ON Semi and ourtop pick is Microchip. Our other Buy-rated stock is TI.