Apple Inc.: Gene Munster Encouraged on iPhone X Prospects After iPhone X Suppliers Issue Stellar 2H18 Guides

A look behind Lumentum and AMS AG- two of the iPhone X's most important suppliers- and why their positive 2018 guides spell out good things for Apple.


After two leading iPhone X component suppliers for Apple Inc. (NASDAQ:AAPL) delivered standout second fiscal quarter performances and positive guides for the new year,  expert of the tech-verse Gene Munster – from his research-driven, venture capital firm Loup Ventures – believes this positively foreshadows the opportunity ahead for the iPhone X.

Here’s why-

Though the company released a weaker-than-anticipated iPhone sales guide for its second fiscal quarter of 2018, standout guides from Lumentum and AMS AG along with capacity expansion endeavors speak to two key points: 1) iPhone X demand is alive and well, leaving Munster angling for the new gadget to comprise of around a quarter of the company’s total iPhones for fiscal 2018; 2) 3D sensing coupled with augmented reality (AR) applications will continue to be “core” to the iPhone X, primed to be involved in the new iPhone SKUs set for unveiling in the fall of this year.

Worthy of note, Lumentum stands as the global leader in vertical-cavity-surface-emitting laser market (VCSEL), a big part of the iPhone X’s flood illuminator and dot projector. Austria-based chip maker AMS offers further optical components for the company’s 10th edition of the iPhone facilitating 3D sensing applications.

For the fourth quarter, Lumentum posted roughly $200 million in 3D Sensing revenues, outclassing its own guide and marking a $40 million rise from the first fiscal quarter of 2018. Considering seasonality, Lumentum is bracing for a 60% to 65% dip in 3D sensing revenues for the third fiscal quarter, suggesting around $121 to $125 million in 3D sensing revenues.

Munster notes, “However, the company continues to see strong order flow and aggressively adds VCSEL capacity. But most importantly, Management indicated 3D Sensing revenues should ‘more than double’ in 2H18 over 2H17, which we believe a high percentage of these orders will be going into current and new Apple SKUs this fall.”

Though AMS had already positively preannounced a week ago and a half ago, the company only issued the outlook yesterday morning. Likewise, Munster commends what looks to be a stellar second half awaiting AMS in the back half of this year, where revenue growth rates are set to hit meaningful sequential gains. As the company boosted their revenue guide for 2016 to 2019 to over 60% CAGR, Munster wagers “this bodes well for the future of AR.”

How does this translate for the titan?

Bottom line, “iPhone X demand is healthy, and we continue to expect iPhone X will account for 25% of total iPhones sold in FY18. Given Lumentum and AMS strong 2018 outlook, we believe 3D sensing will remain a key feature in iPhone SKUs, as well as augmented reality (AR) applications. However, both companies are beginning to work with more Android related customers, and it is not 100% clear what percentage of these sales are going to Apple. Importantly, both Management’s team’s comments around contributions from new wins, we believe the majority of these sales will continue to go Apple,” Munster surmises.

TipRanks demonstrates mostly confidence on Wall Street when it comes to the big Apple. Out of 30 analysts polled in the last 3 months, 18 are bullish on Apple stock with just 12 playing it safe on the sidelines. With a return potential of nearly 21%, the stock’s consensus target price stands at $192.52.