Live by the Apple (AAPL) sword, die by the Apple sword.
That's what is happening on the eve of Apple's earnings and it has an awful lot of investors squirming. That's because a little German outfit, Dialog Semi, put out some pretty flat projections that took people's breath away given that more than 70% of that company's business purports to be Apple-related. It was basically a preannouncement that said the next quarter's not going to be a good one. The presumption the market's making? Apple's got too much inventory on its hands and doesn't need to make any more phones. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
That's why so many are panicking about Apple. Of course, it's not just Apple. We've got all of the Apple semi suppliers cascading as if each could be in the same shape as Dialog.
We have seen two types of semiconductor moves in this market: the Apple-relateds and the non-Apple-relateds. For example, Intel (INTC), which doesn't do much with Apple, and Texas Instruments (TXN), which has some Apple business but is pretty diversified, have seen their stocks soar on their quarters. Texas Instruments electrified all of tech with its spectacular quarter even though I would attribute the numbers more to industrial and Internet of Things, but there was a hefty positive Apple read-through, too. No one, though, thinks Texas Instruments is hostage to Apple.
But Avago (AVGO), NXP Semiconductor (NXPI), Skyworks (SWKS), Cirrus Logic (CRUS) and Qorvo (QRVO), the once incredibly popular growth semiconductors? They are a different story. All are considered to be key Apple suppliers and their stocks are plummeting in a guilt-by-association thesis to Dialog. (Skyworks is part of TheStreet's Growth Seeker portfolio.)
With Apple on the eve of reporting, this chilling impact of one supplier has people reassessing, as always, whether they want to be as hostage as they are to the actions of one company. It's almost as if these are suppliers to Wal-Mart (WMT) -- and nothing but Wal-Mart, no other chain -- and if Wal-Mart decides it doesn't want to use them anymore, that's pretty much the end of their prospects.
Or, to put it another way, if Wal-Mart's same-store sales are slowing, then you don't want to own a supplier with Wal-Mart as its bread and butter.
We don't have any update from Apple until tomorrow, but you can't blame traders for taking evasive action in the group.
As usual, the scuttlebutt about Apple is a shortfall in China where so much of the growth is. That chatter's occurring despite Apple assuring us not that long ago that business in China is good, something that's been confirmed by everyone from McDonald's (MCD) to Nike (NKE).
What do you do in this case? First, you have to take a deep breath as these growth semis have been going down for weeks. Second, you have to accept that you have signed on to tag along with Apple the whole way if you own these. Third, if you want that tag along, why not just own shares of Apple itself? You have much less volatility and a long-term call on other Apple products being developed besides the cellphone.
I have no idea what Apple will report tomorrow. I have had one view on Apple for ages: Own it, don't trade it. Will tomorrow bring a severe shortfall? I do know the bar has been set high by other techs, but the price to earnings multiple of Apple is uniquely low. I have found that almost all attempts to game Apple by looking at suppliers have failed. They may not be indicative at all. More important, I have found that some stocks, if they get hit, are more attractive, not less. Don't own Apple? Then wait to see if Dialog is right and then perhaps get some shares at a nice discount. But don't own suppliers to Apple? I think there's no need to. The action today is just too vicious to fathom. Who needs that level of pain?