Shares of chip maker Cypress Semiconductor (CY) are down 21 cents, or 1.6%, at $13.07, after Craig Hallum‘s Anthony Stoss warned the company may make far less than initially expected supplying Apple‘s (AAPL) next iPhone, presumably the ” iPhone 8,” presumably to be unveiled next month, because Apple is going to skimp on fast charging, in his view.
Stoss, who has a Buy rating on Cypress stock, and a $20 price target, thinks there will be less upside for Cypress in the September and December quarters than previously thought. But he argues for buying the stock given the shares fetch just 11 times his projected 2018 earnings, which is less than the 20 times or more that peer stocks fetch.
The next iPhone supposedly will have a capacity for extra-speedy charging of its battery, commonly known as fast charging.
But Apple, he writes, plans not to give buyers the cable inside the box to do that fast charging, instead selling that cable as a $25 extra.
That will cut some of the ” UBS-C ” chips that Cypress gets paid for that underlie the charging, at least on the initial purchase of the phone, even though Cypress can make up the lost chip sales when Apple sells the accessory.
Stoss wonders aloud whether Apple’s customers will be outraged at being chinced by Apple:
Apple has decided to go with a lower end/cheaper version of USB-C. In an effort to generate higher profits from accessory sales, Apple will now sell separately either a USB-C super-fast charging cord or a wireless charging pad (using USB-C chips). Apple will only include a slower speed charging cord in the box at launch. We believe Apple will likely price the USB-C charging cord at about $25 and will likely list the wireless charging pad at $40-$50. CY has USB-C content in both, but not including this technology in the box will impact upside to the coming quarters. We believe this move to generate higher profits by Apple could face negative publicity as consumers grow outraged to have to spend more, on top of the rumored $1,000 per phone, to turn on features (USB-C fast charging) embedded in the phone. We now believe CY will receive about $0.35 for the chip embedded in the phone and has another $0.35 in content in the charging cord and a similar amount in the wireless charging pad. This $0.70 in total content from Apple’s recent move to lower end chips is down from our prior view of $1.25-$1.50 per phone which expected the cord to be included in the box
Stoss keeps his estimates the same, he writes, because “we had not factored in much from Apple until we could better handicap the impact from USB-C.”
“We now see only modest upside to our September and December quarter estimates coming mainly from the white hot IoT business at CY. “
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