iPhone's Halo Effect

Though revenues should perk up for suppliers of the Apple phone's components, most of them are too big to get much of a lift in stock price

by Bruce Meyerson

With Apple's (AAPL) stock up nearly 40% since the iPhone was unveiled Jan. 9, investors might be wondering whether there's money to be made with the shares of component suppliers and accessory makers that may profit from the device.

It's an alluring hunch, no doubt. But be careful, for in many cases, the smart money may be well ahead of you. Shares of Balda, the maker of iPhone's touch screen, have soared as much as 50% since early January. And it's useful to note that some of Apple's partners are big corporations that generate tens of billions of dollars in sales a year. However close their association with iPhone, it won't be easy to move the profit needle far enough to lead to higher shares.

Possible Winners

Still, should iPhone live up to the hype and deliver blowout sales, here's a handful of companies that stand to gain:

ARM Holdings (ARMHY) is the widely presumed provider of the phone's so-called chip architecture—think of it as the blueprint for how chips are laid out inside the phone. Britain's ARM makes no semiconductors itself, but gets paid for each one made by the chipmakers that license its architecture. For mobile devices, ARM says, this averages 10¢ per processor.

Since ARM technology is already used in the majority of the billion or so mobile phones sold each year, it could take huge iPhone sales to make a difference in its stock price. If, for example, Apple meets Chief Executive Steve Jobs' prediction of 10 million iPhones sold by the end of 2008, that might amount to just $1 million in extra revenue for a company with nearly $500 million in total sales in 2006.

Balda, the German company making the iPhone's multitouch screen, saw its shares rocket higher as soon as Apple unveiled the device (see BusinessWeek.com, 4/15/07, "Balda: The iPhone's German Accent"). They're 42% above where they sat back in those drab days before iPhone.

Still, an estimate earlier this year by research firm iSuppli put the cost of each iPhone's 3.5-inch display at $33.50, an expense that rose recently after Apple opted to toughen the screen with a glass cover in place of plastic. While it's unclear how accurate the estimate remains, or how much the screens cost Balda to make, 10 million iPhones shipped would mean a big revenue boost for a company that generated a little more than $400 million in sales in the most recent fiscal year.

Micron Technology (MU) may be the supplier of the imaging chip for the handset's camera, but its stock has retreated nearly 10% in spite of the iPhone mania of the past half-year. For a company with $5.6 billion in sales across multiple lines in the volatile semiconductor industry, new revenue from Apple may not have such a substantial impact. Similarly, after a fleeting iPhone bounce in January, Marvell Technology (MRVL) has declined 12% over the first half of 2007. Marvell, says iSuppli, may be the provider of the Wi-Fi wireless networking chip in the iPhone.

What's a Few Million More?

AT&T (T), of course, being the exclusive service provider for the iPhone in the U.S., is the most obvious beneficiary of the iPhone hysteria. It's hard to say whether the expected sales boost might already be baked in to its stock price. AT&T's stock, already a strong performer in 2006 before the company's association with iPhone became public, has risen 18% since the device was announced.

Apple and AT&T are expected to share the $36 activation fee for every new iPhone. And in addition to monthly revenue from calling plans, each iPhone will produce $20 a month for mobile Web surfing and multimedia services. A recent estimate by UBS (UBS) analyst John Hodulik postulated 2 million iPhones sold on AT&T's network this year, so it's easy to see how the iPhone could fuel hundreds of millions of dollars in new sales in short order. Yet this is a company that saw $117 billion in 2006 revenue across its telecommunications empire.

Samsung, considered the likely supplier of the audio chips for the iPhone's music player, may fall into the same camp as AT&T. Its shares are more or less unchanged from before the iPhone was unveiled. But here's a company whose more than $80 billion in sales from myriad other lines of business, including its own competing mobile phones, may not be much affected by iPhone-related revenue. And its stock price, which is susceptible to all the crosscurrents that afflict any business in the unpredictable consumer electronics sector, will turn on more than the iPhone. For this electronics maker, like some of the other companies associated with the iPhone phenomenon, stock gains may be diffuse even if sales surge.

Meyerson is Deputy Technology Editor for BusinessWeek.com.