A major iPhone supplier is trying to persuade investors that it’s not about to be destroyed by Apple — but analysts are worried (AAPL)
- Chip designer Dialog Semiconductor said it has a “growing” relationship with Apple, after months of speculation that Apple could bring chip design in-house.
- CEO Jalal Bagherli said he’s not aware of Apple specifically working on chip design, but analysts said there are signs Apple is speeding up its capabilities.
- Bagherli said the firm would continue to supply Apple to at least 2020, and that it’s working on new Apple products.
- Analysts estimate that more than 70% of Dialog’s revenue depends on Apple.
iPhone chip supplier Dialog Semiconductor tried to persuade investors on Wednesday that it has a “continuing and growing” business with Apple — but analysts remain worried about the strength of the relationship.
CEO Jalal Bagherli said Dialog would likely supply chips to Apple until at least 2020, but couldn’t make any predictions beyond that.
The firm reported $332 million ($244 million) in revenue, up 23% year-on-year, for the three months to 30 March 2018. Its net income stood at $17.4 million, down 25% year-on-year.
Robin Brass, an equity analyst at Hauck & Aufhäuser, told Business Insider that he didn’t feel positive: “They don’t 100% know what will happen — Apple will not give them a final yes or no before the end of this year. They will have to wait until November for Apple to tell them exactly.
“[Bagherli] is definitely positive that the Apple relationship will not end, but the amount of [Dialog] content with phones might drop, we can’t tell. Therefore it’s not over-optimistic, but he’s clear they will still have some business with Apple.”
Dialog is best known for designing power management integrate circuits (PMICs) for smartphones, and Apple is its biggest customer, accounting for an estimated 70% of the firm’s revenue. The firm designs the main PMIC for the iPhone, as well as “sub-PMICs” which take on additional processing load.
Dialog’s stock began falling dramatically last April, after Bankhaus Lampe analyst Karsten Iltgen said Apple could start bringing chip design in-house. He also spotted an ongoing brain drain from Dialog to Apple.
Dialog last year took the unusual step of actually naming Apple as a customer and explaining the state of its relationship to investors, to try and counteract the rumours. Normally Apple doesn’t allow suppliers to talk about contracts, but made an exception in this case.
Even during Dialog’s first quarter results call with analysts on Wednesday, Bagherli barely namechecked Apple, instead referring obliquely to “our largest customer.” During the call, analysts repeatedly quizzed Bagherli about the state of the relationship, and how long the firm would continue supplying Apple.
The worry, according to Brass, is that Apple will bring design for the core iPhone PMIC in-house, and farm out the cheaper sub-PMIC design to Dialog. A similar fate befell chip supplier Imagination Technologies, which lost its COO to Apple and then had to sell itself after the iPhone maker took design in-house.
According to Karsten Iltgen, Apple is actually speeding up its internal chip development. “[We] now see the risk that Dialog revenues may already be affected in 2018,” he wrote in an investor note in March, sending the firm’s shares down again.
On the call, Bagherli pleaded ignorance. “I’m not aware of specific products being released or volume being planned or in preparation,” he said. “But it is relatively early for 2019. It’s possible and I just want you to be aware.”
Bagherli also hinted the Dialog might supply Apple on new products beyond the iPhone, iPad, and Apple Watch.
“It’s a continuing and growing business relationship on a number of areas and beginning more visibility of non-power products as well, which we’re very pleased with,” he said. “And we hope to land the number of significant opportunities in those areas that we can report on in the future.”
According to Hauck & Aufhäuser analyst Robin Brass, that might mean Apple’s much-rumoured smart glasses. But ultimately, it might not be enough.
“It’s a little bit of a trend and, especially for power management, those are produced by Taiwan Semiconductor, it’s just that the design is by Dialog. It wouldn’t be a huge effort for Apple to do it in-house — they don’t need the capability for factories or thousands of workers, just 50 or 60 people who are experts.”