iPhone 5 sales: British supply firms set to benefit from Apple’s success
Designers ARM Holdings and chip wafer makers IQE are among five UK firms with profits strongly affected by their client Apple
Record queues outside Apple stores in nine countries on Friday suggest the iPhone 5 will be a blockbuster. The new model will be available in 100 countries by the end of the year, in what the company is calling “the fastest phone rollout ever”. But the tills are ringing not only in Apple’s sleek glass and steel retail spaces but at the many smaller businesses in its long supply chain.
A successful iPhone 5 will send ripples around the world, from the vast production lines of Foxconn’s Chinese assembly plants to the Texan chip foundries owned by Samsung, an arch rival but also a major supplier. Apple’s 2011 list names some 150 companies with which it spends money on materials, manufacturing and assembly, but there are many more who profit, such as those that licence their intellectual property.
The fortunes of five UK companies are known to be closely tied to Apple’s. Of these only Volex and Laird Technologies feature on the supplier list, but chip designers ARM Holdings and Imagination Technologies, and semiconductor wafer maker IQE have profited indirectly, and handsomely.
“If you have exposure to Apple you are doing really well, if you don’t it’s more challenging,” says Numis technology analyst Nick James. “ARM and Imagination have been standout stocks and that is at least partly driven by their exposure to Apple globally.”
ARM designs but does not make computer chips. Originally created as a division of Acorn Computers in Cambridge, it owes its very existence as a standalone business to Apple. In the late 1980s, Steve Jobs started working with Acorn on chip designs for the Newton, a tablet computer resembling today’s more basic e-readers that was a little ahead of its time.
The work was so important that ARM was spun out of Acorn, with Apple taking a stake – although it sold its shares in the 1990s when the Cupertino firm was facing bankruptcy. Today its designs, popular because of their power efficiency, are in use in 90% of smartphones and 28% of all electronic devices, from car-part sensors to digital cameras.
Companies using ARM’s chip architecture pay a licence fee, and a small royalty on each chip or wafer. The iPhone 5 is likely to contain several, including the A6 processor which speeds up functions such as loading apps and web pages.
Analysts estimate around 10% of ARM’s £490m-a-year revenues come from Apple products.
This Hertfordshire-based company was founded in 1985 and designs 2D and 3D graphics, video and audio technologies. Like ARM, its blueprints are licensed to semiconductor manufacturers. As a sideline, it also manufactures the Pure range of digital radios.
Apple owns a near 9% stake, while chipmaker Intel holds nearly 15%.
Headed by Iranian-born Hossein Yassaie since 1998, Imagination’s designs are to be found in games consoles, cameras, radios and set-top boxes, as well as the latest iPads and the iPhone 5. Analyst Eoin Lambe at broker Liberum Capital estimates 30% of Imagination’s £128m annual revenues are attributable to Apple products.
The business shipped designs on 325m chips during the last financial year, and has set itself a target of 1bn a year by 2016. But its share price has fallen in recent days.
“While Apple is a fantastic customer to have, Imagination need to diversify,” says Lambe.
Established as a Liverpool ironworks in 1824, Laird built the first iron ship for the British government. Today it makes the metal casings that protect the internal workings of mobile phones from heat and from electromagnetic interference from other phones.
Laird built ships and trains until it moved into computer components in the 1980s. Today it employs 9,000 people, has revenues of £590m a year and has headquarters in London. Its two main business lines are mobile phone antennas – Nokia was a major customer – and electromagnetic shields.
Its customers include Cisco, Dell and Chrysler, but the largest is Apple. According to Espirito Santo bank, Apple accounted for 16% of first-half revenues, with half of that coming from the iPhone.
With its headquarters in Cardiff, IQE uses nanotechnology to create chip wafers – some of which can consist of up to 300 individual layers, each as little as two atoms thick. These layers contain semiconductor materials such as aluminium, arsenic and gallium, arranged in perfect crystal lattices. Their precise construction is used for chips that need to operate at high speed on low power. These chips are found in 3G and 4G internet phones, helping to run the radios that communicate with the base stations, at speeds that can switch on and off several thousands of million times a second.
IQE, which listed in London in 1999, reported revenues of £75m in 2011. Espirito Santo bank says 75% of its revenues are from its phones division, but because it also supplies chip makers like TriQuint Semiconductor and Skyworks Solutions – who in turn supply Apple and other companies – its dependence on iPhone sales is difficult to estimate.
Designing power cables and USB leads for Apple’s laptops, iPhones and iPads has cost Volex dearly this year. The 120-year-old London-based company, in which billionaire financier Nathaniel Rothschild owns a 24% stake, racked up £3m in costs redesigning its products after Apple decided to do its bit for the environment with a move towards halogen-free power cables, which are less toxic when disposed of.
Then Apple announced the iPhone 5 would have a smaller connector, and days later Volex issued a profit warning which sent its shares to their lowest point for four years.
Broker Charles Stanley estimates around 30% of Volex’s £320m annual revenues come from Apple, its largest customer.