Spotlight on Smartphone Suppliers

 | Sep 10, 2013 | 10:00 AM EDT
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One of the biggest events of the trading week occurs at 1 p.m. EST today when Apple (AAPL) unveils its new iPhones, the 5S and 5C. Look for the event to get its share of headlines and commentary for the rest of the day and week. Obviously, this is a huge event for Apple as how the new phones are received will be critical drivers to earnings and revenues going forward.

The stock has already run up more than $100 a share since its lows in late June, partly on the coming launch of the latest versions of its iconic iPhone franchise. Others will undoubtedly cover thoroughly the unveiling and how it impacts Apple this week.

I would like to look at some of the suppliers to the giant from Cupertino who also will be affected by the success or failure of the new smartphones.

IDC recently came out with a report projecting smartphone sales will increase 40% worldwide in 2014. While this increase would be slightly down from this year, it is still very robust growth. Here are a couple of smartphone suppliers that look to be well-positioned for the coming year.

It is hard to have a conversation about key suppliers within the smartphone space without mentioning Qualcomm (QCOM). This arms merchant supplies Apple, Samsung and other manufacturers in this sector. It has grown to become a behemoth in the wireless broadband marketplace with a market capitalization approaching $120 billion.

The stock has had a nice run of its own moving to just under $70 a share currently from $60 a share a few months ago. Revenues are tracking to almost a 30% gain this year and analysts expect growth to come in at the low double digits in FY2014. QCOM is very reasonably priced, given this growth at 14x forward earnings, which is a discount to its five-year average (16.9).

The company sports a robust balance sheet with over $11 billion in net cash. The stock also yields 2.1% and Qualcomm has almost quadrupled its dividend payout over the past eight years.

Avago Technologies (AVGO) produces radio frequency (RF) amplifiers, filters, front-end modules and other communication products. Like Qualcomm, it supplies both giants in the smartphone space. The company has already been a beneficiary of the approaching rollout of the new iPhones. It recently blew through quarterly estimates and upped its forward guidance partly as the result of this demand.

Due to this upward revision to guidance and earnings beat, consensus earnings estimates have moved up some 15% for FY2013 and more than 10% in FY2014 in the last month. The stock still goes for under 12x forward earnings and analysts expect the company to post almost 20% revenue growth in the approaching fiscal year.

Like Qualcomm, Avago has a strong balance sheet with roughly 10% of its market capitalization represented by net cash. It also pays a 2.2% dividend.

It will be an interesting week for Apple's shareholders as well as its suppliers as the first reviews of the new iPhones hit the wires. All will be crossing their fingers for a well-received and successful launch.

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