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As Apple makes more of its own chips, one supplier is especially threatened, says analyst

Tim Cook
Adam Jeffery | CNBC
Tim Cook

Apple is on a quest to design more of its own chips — and its suppliers are in the line of fire.

U.K. chip designer Imagination Technologies was Apple's most recent victim: Its stock tumbled as much as 71 percent in a single day after an announcement that Apple would stop using its intellectual property within 15 months to two years. Apple has also gone after Qualcomm, launching a $1 billion legal attack over royalty charges.

Now a company called Synaptics may be at risk, according to Pacific Crest analyst John Vinh. That's because Synaptics makes the technology that helps power mobile phone displays — an industry where change is afoot.

More smartphone manufacturers are favoring OLED displays — the kind of colorful, edge-to-edge screens smartphone screens made almost exclusively by Samsung. If Apple wants to use those screens in upcoming phones, it may seek to reduce its reliance on rival Samsung and make its own technology, Vinh wrote.

Suppliers that may be less at risk include Cirrus Logic, Broadcom, Qorvo and Skyworks, according to Vinh.

To be sure, not everyone agrees: A Needham analysis published by Barron's over the weekend speculated that Synaptics has upside "after Apple de-risking."

Synaptics declined to comment, citing a quiet period ahead of its quarterly earnings. Shares fell about 2 percent on Wednesday.

Apple's chip ambitions

Apple has been investing heavily in making and designing its own chips.

Apple spent more than $10 billion on research and development in 2016, up from $8.07 billion in 2015 and $6.04 billion in 2014. Much of that spending goes to chips, chief financial officer Luca Maestri said earlier this year. The iPhone maker is particularly powerful because a litany of companies rely on it for 20 percent of their revenue or more.

Maestri said that making its own chips helps Apple "push the envelope on innovation .... better control timing, cost, quality."

"We think Samsung looks to integrate semiconductors to save costs, but Apple is different as it only looks to integrate components if it believes it can get performance benefits to differentiate its products," Vinh wrote.

Companies that get 20 percent of their revenue or more from Apple

Company Name
Symbol
% of Revenue
Multi-Fineline Electronix, Inc. MFLX-US 75.00%
Cirrus Logic, Inc. CRUS-US 66.00%
Japan Display Inc. 6740-JP 53.70%
Glu Mobile Inc. GLUU-US 52.70%
Gungho Online Entertainment, In... 3765-JP 51.70%
COLOPL, Inc. 3668-JP 49.40%
Aehr Test Systems AEHR-US 47.00%
KLab Inc. 3656-JP 47.00%
Nissha Printing Co., Ltd. 7915-JP 46.40%
Zynga Inc. Class A ZNGA-US 46.00%
Aiming, Inc. 3911-JP 45.50%
Foster Electric Company, Limite... 6794-JP 43.90%
Invensense, Inc. INVN-US 40.00%
IGNIS LTD. 3689-JP 38.10%
gumi, Inc. 3903-JP 37.70%
Gameloft SE Sponsored ADR GLOFY-US 33.28%
Voltage Incorporation 3639-JP 31.60%
Cave Interactive Co., Ltd. 3760-JP 27.70%
Sharp Corporation 6753-JP 27.10%
Ateam Inc. 3662-JP 25.40%
InterDigital, Inc. IDCC-US 25.00%
Jabil Circuit, Inc. JBL-US 24.00%
NOK Corporation 7240-JP 23.80%
KAYAC, Inc. 3904-JP 22.21%
GREE, Inc. 3632-JP 20.30%
Kingnet Network Co., Ltd. Class... 002517-CN 20.20%
Avago Technologies Limited 06M8S0-E 20.00%

Disclosure: Pacific Crest makes a market in shares of Broadcom, Cirrus Logic, Qorvo, Skyworks Solutions and Synaptics. Pacific Crest expects to receive or intends to seek compensation for investment banking services from Broadcom, Cirrus Logic, Qorvo, Skyworks Solutions and Synaptics within the next three months.