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STATS ChipPAC: Apple’s Way To Ditch Samsung
Recalling half a year ago when Apple Corporation’s iPhone 5S was first launched, which attracted hordes of crowd around the world to undyingly queue up at their local apple and telecommunications stores, hoping to pick up the mobile device made by the Cupertino-based company.
In contrary to how people are treating this marvellous piece of hardware like how Gollum protects the one ring in the Lord of the Rings, how would one react if we were to take the iPhone apart?
No, I have not lost my mind. The intention of such a move might seem less ludicrous if one’s intentions were to try and unravel the origins for each internal component within the iPhone.
Taking for instance, an iPhone’s beautiful “Retina” display screen is made by Toshiba in Japan, the audio chip responsible for producing sound is made by Cirrus Logic in the US, etc.
The story completes when all of these components are made and shipped to China where Foxconn, Apple’s official assembler with a 200,000 man strong assembling line, puts these components together into an iPhone.
This explains how the iPhone gets the words “Assembled in China” printed on its back.
So how is this even related to an investor like me? The relevance is that the chipset or simply the computer’s brain was originally manufactured by Samsung but due to some grizzly disputes in litigation between the two tech titans, causing Apple to shift its reliance on Samsung as a supplier of its chipsets to others.
Apple’s call to action to shift away from Samsung has not gone unseen, as it has reportedly been tapping on other companies for production of its chipset. Orders for packaging works of the latest class of chipsets, “A8”, rumoured to be equipped in the upcoming iPhone 6 which is speculated to be released later this year, are said to have landed on Amkor Technology, Advanced Semiconductor Engineering and STATS ChipPAC.
A teaser of how the A8 chip would look like according to Ben Miller at Giga.de
Between the three companies, both Amkor and STATS have landed the lion share of orders for the chipsets with 40 percent each. Considering that Apple has sold almost 10 million iPhone 5s for the first three months upon release, it is rather safe to assume that the same sales figure can be expected for the next iPhone release, in which case, STATS will be a large beneficiary of the results.
Investment Merits
A potential counter listed on the Singapore Exchange to ride on Apple’s growth when A8 chipset orders are confirmed for STATS
Relatively strong balance sheet underpinned by a reasonable current ratio of 1.1, a good amount of cash pile and a conservative debt to equity ratio of 0.7
Investment Risks
Speculative play at this juncture before Apple’s order is confirmed
Apple has repeatedly pressed on its suppliers’ price which potentially could have an adverse impact on STATS’ gross margin
Maintaining high capital expenditure at around $120 million annually
SI Research Takeaway
Since the announcement, STATS’ share price has made a huge jump by as much as 14.5 percent. At this juncture, Apple’s orders have potentially been priced into STATS’ share price. With that in mind, it wouldn’t be too late to initiate positions in STATS upon Apple’s confirmations.
Assuming gross margins on Apple’s orders that are not too compressed by the company’s strong bargaining power, STATS should see stronger numbers in its bottomline, which ultimately benefit its share price.
Lastly, judging at how Apple selects and sticks with its suppliers, orders from Apple would create a source of consistent income stream for STATS as the company moves forward.
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