by Travis Johnson, Stock Gumshoe | August 29, 2017 3:54 pm
It’s time for the parade of “what’s in the next iPhone” pitches to begin, I suppose…
And actually, we’re a little late — the prognosticating about the next Apple supplier to make you rich usually starts before this point, just a few weeks before the next product announcement, so perhaps that investing theme has lost a little steam over the years.
But still, we know that when Apple releases its next iPhones, which is now expected by everyone to be on September 12, the first ones to be delivered will immediately be taken apart and analyzed to see which chips and components are inside those little suckers.
And if any of those chips are surprises, stocks will likely move — either because they didn’t get built in, or because they did. That’s the way it rolls when you’ve got a product like the iPhone that sells in massive, company-making (or destroying) volume, and when plans are kept pretty well locked up to avoid leaks.
Lots of things do leak, of course, when it comes to expected phone features or designs… but it’s not so often that you have any real certainty about which specific suppliers will be involved, or whether they’re getting a piece of the pie or the whole thing.
The meat of this latest teaser pitch, which is for Jeff Brown’s Exponential Tech Investor ($2,500/year — and unlike many publishers, they still offer a brief “trial period” with refund guarantee), is that Brown has a couple ideas about companies that will be benefitting from Apple’s newest product.
So in order to keep you from throwing $2,500 at a hyped-up “1,000% returns” secret, let’s throw the Thinkolator at it and see if we can get you a little info first. Then, once we’ve named the stocks for you, you can go ahead and sign up for the newsletter if you want to… but since you’ll have done a little research on your own, you’ll be a little bit more ready to think critically about the recommendation.
Here’s the headline from the ad:
“Silicon Valley Insider Leaks PROOF That Apple’s September iPhone Launch Could Be 3 Times Bigger for Investors Than the iPad, Apple Watch and Original iPhone Combined…
“And reveals a unique way to play this event that could make you 21 times your money as this situation evolves, if you invest before September 6th…”Are you getting our free Daily Update
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The claim of “Apple insider” status for Brown does have some basis in reality, at least — he worked about both NXP Semiconductor (NXPI) and Qualcomm (QCOM) before becoming an investing pundit, so he probably does have connections at Apple and its suppliers. Whether that helps him to predict the future or not, I have no idea.
And he cites several 1,000% gainers to point out the “Apple Effect” on supplier stocks (though to be clear, those gains in companies like Omnivision, Imagination Technologies and Cirrus Logic were not instant — some took a year or two, some almost a decade, and they’re just a small sample… not every Apple supplier climbed, and some who didn’t have enough of a competitive edge even fell in price thanks to the relentless price-cutting pressure from Apple).
But yes, it’s this general idea that new Apple suppliers soar, and also move higher when other companies adopt the same technologies as Apple, that Brown calls the “Apple Effect:”
“There is an entire ecosystem of companies that benefit from Apple’s existence. And many of them offer much bigger opportunities for you to make a small fortune than most investors realize.
“The reason these small companies are so exciting is because if you find the right one, their technology often has far greater applications than the iPhone itself… so the profit potential is much greater.
“For example, when competitors come along wanting to copy Apple’s technology – guess who they turn to?
“You bet… It’s those same small companies.”
So that’s the big picture… let’s get down to specifics. What are the features Brown sees coming with the next iPhone that might knock our socks off… or pad our wallets?
Here are our clues:
“Apple Leak #1:
“The Next Major Consumer Electronic Trend Could Be 3 Times Bigger than the Introduction of the iPhone, the iPad and the Personal Computer – COMBINED….
“On July 6, 2016, the next major revolution in consumer electronics kicked off – and it’s going to be a key feature of the new iPhone.
“Augmented and mixed reality….
“It’s a trend Apple can’t ignore… Indeed, Bloomberg reports Apple CEO Tim Cook recently said:
We will all ‘have AR experiences every day, almost like eating three meals a day. It will become that much a part of you.'”
I didn’t quote the whole segment there, but the big “hook” is Pokemon Go and the huge impact that made on its little creator — and the potential it represents for augmented reality, though he also cites other “real world” applications beyond gaming for this blending of the real and virtual worlds.
“Imagine what you might see from the right company in that space…
“A company whose shares should rocket skyward as augmented reality makes its debut in the iPhone 8….
“Right now, the only people interested in investing in these opportunities are the big tech insiders….
“However, there is one public company that has the potential to grow exponentially on the back of this trend…
“I’m scheduled to meet with the CEO on September 8th – two days after I believe Apple will release the first look at its new iPhone….”
OK, so everyone else is expecting September 12, but that’s neither here nor there — do we get any other clues about this “one public company?”
Indeed we do! I’ll feed these tidbits to the Thinkolator for you:
“The company came back on my radar last September when I saw them present at a conference. I was also able to briefly speak with the CEO at that time….
“… just a few weeks ago, the company announced that it received an order for $6.7 million for one of its display modules from an ‘Asian electronics device manufacturer.’
“The manufacturer plans to use the module in smartphones later this year in China.
“Needless to say, if this company supplied the technology for the iPhone 8, or licensed technology directly to other iPhone suppliers, the stock would go through the roof.”
And it’s apparently a very low-priced stock, which probably means it’s a small company…
“And I believe we could see this company grow in value 21 times where it is trading today….
“It currently trades for less than $3 per share. So you can get in now for cheap.”
So what’s our solution? Thinkolator sez this is Microvision (MVIS).
Microvision makes a laser beam scanning/projection technology — and it has been around for years as a “tiny projector” company, the stock was there for the dot-com boom and peaked in 2000, but was also pitched pretty aggressively by newsletters starting a decade or so ago — I wrote about it here in 2007 when Christian DeHaemer teased it as a “tiny $5 microcap” that “dazzles cell phone titans” and would soon have its technology in the next hot phone (that was just a few months after the first iPhone was released), and it did sound awfully cool at the time.
And it still sounds cool now — you can see it described on their website here — but it has to be cool for the company to have survived at all, frankly. The stock has not been treated well in the ensuing decade — if you adjust for the reverse split they had to do about five years ago, it’s now down about 90% since 2007, and the annual revenue has gone from about $10 million in 2007 to $9 million over the last four quarters. The world of consumer electronics moves fast, and it doesn’t seem like Microvision has ever been able to jump on the right train at the right time.
Will MVIS get built into the next iPhone? That’s a leap and a half, in my book — if they knew they were on the verge of any kind of high-volume business, either as a component supplier or as a licensor of their patents and technology, I would assume that they would not have wanted to raise $10 million at a discounted share price… which is what they did just a couple weeks ago. It may be that Microvision’s technology will get built into the iPhone or some other smartphone in the next year or two, I have no idea, but I’m finding it hard to believe that it will be in this next iPhone that is released in a few weeks.
That doesn’t mean the company is junk, of course, just that I think you should go into your analysis with a somewhat more cynical expectation than might be conveyed by Brown’s language in the ad. They did get that one $6.7 million order from a Chinese smartphone maker back in March, as teased, and presumably that will up their revenue in the second half of the year by roughly that amount… though they’ll still be a long way from break-even, and in the world of smartphones $6.7 million could easily be a wild test, an R&D-type expense.
So… feel free to go out, research this company, and place your bets — there’s clearly some potential for this PicoP technology, and it remains cool as heck, at least in theory, when it comes to possible laser scanning, projection, and interactive projection possibilities… but the company has been such a serial disappointment that I’d have to pull out my best rose-colored glasses to foresee a brilliant future for them. Maybe I’m being too cynical, but hopefully that will at least balance the optimism you feel from Brown’s ad.
And Brown teased a second company in this ad as well… so we’ll move on to look for that one now.
“Apple Leak #2: I’m certain Apple will use this technology
“At a recent analyst meeting on June 5th, I got a big hint that one other company is about to profit from Apple’s new iPhone launch…
“This company developed a tool that makes the augmented reality tech I just mentioned even more powerful.
“I’m talking about 3-D sensing technology.”
We get some details for what Brown envisions:
“… it’s expected that Apple will release a major update to its flagship product. The indications are that it will have a seamless OLED (organic light emitting diode) screen, and a front-facing camera with 3D-sensing capabilities.
“Imagine being able to stand on a street corner, hold up your phone, and “scan” the environment around you. On your smartphone screen, your augmented reality application would be able to “tag” people, objects, and stores around you.”
So what else? Other clues?
You betcha. More from Brown:
“Once the tech is in the smartphone, it can be paired with mixed reality eyewear and the applications become even more powerful.
“That is this company’s specialty….
“Two investment banks have come out with the news, and the company itself has been dropping hints on its analyst calls.
“At the analyst meeting, the CEO spoke about the production orders received from a ‘large customer.’ He also referred to receiving production orders from other customers as well, and that the company was ‘ramping up.'”
Brown says he’s certain that the large customer is Foxconn, which makes most iPhones for Apple. And he says the company also tends to have “fast followers” who adopt the technology after this “large customer.”
So who is it? Unlike with “leak #1” there are multiple possibilities for this one — there are plenty of relatively large companies in the optical sensing sector that are excited about supplying 3D sensor technologies to the next wave of smartphones, from Finisar (FNSR) to Lumentum (LITE) to HiMax (HIMX), and I’ve never researched them in any kind of depth so I don’t have any great judgement to pass on who the long-term winners might be… but going from Brown’s clues, I’d give the edge for our teaser solution, at least, to Lumentum (LITE).
Lumentum is much more of a “real” company than Microvision — it’s been around for a long time (it used to be part of JDS Uniphase, if memory serves), and it’s a $3.4 billion company that just hit $1 billion in annual revenue… and it has indeed been rumored as an iPhone supplier all year, with the focus largely on the 3D face-sensing technology that might be used to replace the fingerprint identification that’s currently used for iPhone security.
Piper Jaffray’s analyst noted in May that he thought Lumentum would get 100% of the orders for the VCSEL sensor in the next phone, and the analyst from Needham expressed similar sentiment when he upgraded his price forecast to $80 in June… so there are your two investment banks to match the tease, and Lumentum’s CEO did talk up the fact that they’re “ramping” their 3D sensing production and expect to have a high market share of this segment in a June 5 analyst conference, including those references to “fast followers” who will need them to boost their production two or threefold or more, so I’m pretty confident the Thinkolator is right on this one.
The larger business for Lumentum is still lasers and related fiber-optics equipment, though — their challenges have been in the China market when it comes to big buildouts from China Mobile and others, but the market for fiber-optic equipment from both data centers and telecom companies is the big driver for their revenue right now. They are a real company, with a billion dollars in revenue in the last fiscal year, but it’s important to note that while the 3d sensor business is likely growing for them, and will grow more if their technology is in the iPhone, it’s growing from a much, much lower base.
As of the last quarter, their division that includes 3D sensing booked revenue of $16.5 million, but that’s only 7.5% of total revenue… and the company is guiding for growth to $255 million in revenue next quarter (from about $220 million last quarter), so if they’re expecting big growth from supplying components to Apple it’s presumably not exponential growth. I’d guess that the pace of investment by telecom companies and data center operators will quite possibly continue to be more important to Lumentum than 3D sensing for the foreseeable future.
That’s not to say this is a bust, or a made-up idea — the consensus seems to be that Lumentum will be in the iPhone, and an $80 price target from Piper Jaffray sounds pretty good for a stock that’s in the mid-$50s right now… and the … but it also seems quite possible that fiber-optic infrastructure upgrade and investment decisions by China Mobile and Verizon and their ilk could be more important to all of these players when it comes to profits.
Beyond that, well you’ll have to make your own call — have a forecast for Microvision or Lumentum for your fellow investors, or other assessments you’d like to make about the 3D sensing or augmented reality markets? There’s a good chance that you’re better informed than I am, so please feel free to let your opinions flow with a comment below.
P.S. (8/30) I didn’t get to the “wireless charging” part of Brown’s pitch originally, but I got a couple questions about that so I went back and looked. Here’s what I added in a comment below, thought the folks who don’t read comments might want to see it:
I went in and checked that Wireless Charging tease in the ad, and it looks like it is indeed hinting at Energous (WATT) — here’s what’s in the pitch:
“It’s something I discovered at the Apple Worldwide Development Conference… A breadcrumb that led me to a “Mega Trend” 100 years in the making… Wireless charging.
“In short, imagine never having to plug your phone in to charge it again.
“I believe this is a certainty to happen…
“Because an image was leaked early on in Apple’s development…
“That the company made aggressive moves to pull down…. The words, ‘Can charge inductive.’
“And the very interesting thing is one company has developed and owns key patents around broadcasting power over radio frequency.
“Don’t worry – it’s perfectly safe. Just as safe as listening to your radio.
“But the idea is this radio frequency can charge your devices automatically, possibly from a very close distance, or perhaps as far as 15 feet away.”
That’s pretty disingenuous, taking advantage of the fact that most folks don’t know anything about wireless charging. Radio Frequency charging is Energous’ technology, not inductive charging.
Inductive charging is the fairly widespread technology that’s been around for a while, requiring you to be within a few millimeters or in contact with a charging pad or similar surface… it’s what’s used by Samsung phones and the Apple Watch in slightly different variations, for example.
Wireless charging through the air is a different thing entirely, though Energous is trying to develop their technology by first releasing products that are similar to inductive charging and require very close contact, their “Near Field” WattUp chargers and receiver chips, and then moving on to get FCC approval for their medium range and long range WattUp transmitters that create WiFi-like “power networks” to charge over the air. The latter is where the big promise lies, since “close contact” charging is already available and proven in the field, but they hope to get at least a little traction in Near Field with small products to get them a few design wins and some actual production after years of overpromising and delay.
It’s very cool technology, and it has been pitched as an Apple possibility several times over the years — partly because they probably have done some work with Apple in testing the technology, though Apple likely tests a lot of things that don’t ever go into production. But Apple isn’t going to be first with an untested technology that they roll out to 80 million iPhones all of a sudden…. and Energous isn’t ever going to get any traction unless they get a huge customer who can drive “network effect” design wins (having an Apple WattUp-compatible iPhone, for example, would make you more likely to buy a WattUp Transmitter, or a WattUp-enabled wearable, or whatever, and if more people have the technology then more places will buy the transmitters and offer the charging, and more customers will buy products that use the technology in a cascading effect — but they need at least one big consumer product first, and it’s almost certainly not going to be Apple this year, just like it wasn’t last year or the year before).
I’ve been hoping that Energous (WATT) would get hyped up again this Summer, like it has in past years pre-iPhone release, so that I could short the stock going into the Apple announcement. That didn’t happen this year, the failure to get products released has kept WATT shares weak and falling, and there haven’t been any widespread Energous rumors this year to drive the hype cycle. Maybe next year…
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