Semiconductor firms that supply Apple with chips for iPhones, iPads and Macs might sound like a safe bet for investors but they also come with an element of risk, according to one analyst who follows the sector.
UBS’s Francois-Xavier Bouvignies told CNBC Wednesday that his firm has a “neutral” rating on French-Italian chip firm STMicroelectronics because of the company’s exposure to smartphones and Apple in particular.
Work with smartphone firms account for 30% of STMicroelectronics total revenues, and the company has 25% exposure to Apple, Bouvignies said.
“For us, it’s kind of a risk to have such exposure to one customer, which is always difficult to predict,” Bouvignies said.
Apple and STMicroelectronics did not immediately respond to a CNBC request for comment.
Apple has been bringing an increasing amount of chip development in-house over the last few years, hurting smaller players in the process.
The Cupertino-based company decided to cut ties with British chip designer Imagination Technologies in 2017 to develop processing units for the iPhone and iPad in-house.
That news sent the once-listed firm’s shares tumbling as much as 71%, due to concerns it would heavily impact its future. And it did. Imagination Technologies was subsequently sold to China-backed private equity buyer Canyon Bridge Capital Partners for £550 million ($727 million).
Apple and Imagination Technologies announced a new relationship in Jan. 2020.
A safer bet?
UBS said it prefers German chipmaker Infineon over STMicroelectronics because it doesn’t have the same level of exposure to the smartphone industry, Bouvignies said.
While STMicroelectronics has a neutral rating from UBS, Infineon has a buy rating.
Both companies, however, are poised to benefit from the electrification of the car, according to Bouvignies, who said the automotive industry accounts for 10% of the global demand for semiconductors.
“We would prefer Infineon over STMicro but it will still benefit from the electrification of the car,” he said.
Infineon is the world leader in the semiconductors that are used to manage power in cars, according to Bouvignies, who said that the company has about 30% of global market share.
STMicroelectronics is investing significant amounts of capital in the space as part of an effort to keep up, he added.
Cars with internal combustion engines typically use around $80 worth of semiconductors in the powertrain, but electric vehicles use around $550 worth, he said.
