Our office is closed today for the holiday, but since we’re getting a bunch of new questions about a Motley Fool 5G pitch heading into tomorrow’s iPhone release event, I thought I’d at least share a teaser solution that I (half-heartedly, I admit) included in a Friday File for the Irregulars a few weeks ago… and actually, let’s roll in a few of those other “5G iPhone” teasers that are circulating anew this week…
What follows was in response to a reader question in the Friday File I posted on September 25. It has not been updated…
From 9/25 Friday File: Let me close out my thoughts this week by taking a few reader questions… including one about a newer Motley Fool 5G tease:
Here are the clues that a reader sent along recently (I’m told it’s from the Motley Fool, but haven’t actually seen this ad yet):
“Because this under-the-radar Pennsylvania company makes a component so essential to the improvements in Apple’s 5G iPhone—that Apple is expected to include it in every single new iPhone they make.
“And that means that this tiny company could ring the cash-register every single time a new iPhone is sold.
“You don’t need to be a math whiz to understand what that kind of sales growth can do to a company’s share price.
“And that’s why so many investors are buzzing with excitement about the new report from David Gardner’s team at Motley Fool Stock Advisor.
“The name of this report is ‘5G Supercycle: An investor’s guide to Apple’s next must-have device.’”
The Fool’s most ardent pitches in recent years, at least when it comes to 5G, have generally circled around the wireless part of that leap forward, with teaser campaigns promoting American Tower (AMT) and Skyworks Solutions (SWKS) lying pretty thick on the ground here still, but the limited clues here tell me this is very likely to be our old favorite photonics company, II-VI (IIVI), which is one of the suppliers of 3D scanning technology for the iPhone (or, at least, has been in past iPhones — both under their own name and Finisar, the competitor they bought a couple years ago). IIVI and Lumentum (LITE) are the two big optical component/3D sensing providers that are usually mentioned in connection with Apple and other consumer devices, though they also are primarily dependent on optical networking for most of their revenue — providing the lasers and other equipment that make fiber-optic networks, well, work.
And on that front, they’re mostly seeing a drop in demand this year — other telecom suppliers like Ciena (CIEN), Cisco (CSCO) and Arista Networks (ANET) telegraphed that weakness, with activity slowed in network development and data center upgrading both because of the pandemic and because of supply chain issues with China, which themselves are partially pandemic-related and partially a result of the ongoing trade war.
I stopped out of my IIVI position earlier this year, quite near the bottom as luck would have it, but it is a solid company with some good prospects as we resume our spending spree on upgrades to optical networks in the coming years. I haven’t bought back in, and their merger with Finisar is not yet yielding much fruit in terms of improved earnings or margins but did bring some additional debt onto the books, so the weakness this year is probably worrying investors a little bit (Lumentum’s big merger with Oclaro was a little earlier, and their financials are actually holding up a little better at the moment, though the two firms are not necessarily directly comparable). I’d consider getting back into IIVI in the next few months, but we’ll see how that story develops. They’re expected to report on November 12, though the quarterly report a couple weeks before that from Lumentum, expected on October 30, might provide a little insight into the sector going into that update. We’ll see.
Back to October here: So there you have a quick tidbit to chew on, at least.
We’ll see plenty of other iPhone suppliers teased today and tomorrow, I expect, the other big one that I didn’t mention above, and that the Motley Fool has teased many times since 2017 (though for their Rule Breakers service, not so much for Stock Advisor) has been Universal Display (OLED), which they’ve often pushed with something like with a “goodbye, iPhone, this could be 40X better” spiel. If you’re curious about that one, I last covered it in some detail after they reported earnings in August — here’s a little excerpt from that