Analysts Discuss Broadcom's New Supply Agreement With Apple

Broadcom Inc AVGO confirmed Monday in a regulatory filing a new two-year agreement to supply Apple Inc. AAPL with radio-frequency components for its smartphones, tablets and watches.

The Analysts

Morgan Stanley's Craig Hettenbach maintains an Equal-Weight rating on Broadcom with an unchanged $262 price target.

Wells Fargo's Aaron Rakers maintains at Market Perform, $290 price target.

'Headline Positive'

Hettenbach said in a note Broadcom's filing suggests Apple has agreed (but is not required) to exclusively use Broadcom for all RF components so long as the company is able to maintain development, supply and quality commitments. The new agreement follows a prior three-year deal that expired this year and likely accounted for 10-15 percent of Broadcom's total revenue.

Hettenach said first-hand checks suggest Broadcom is in a position to gain back some lost market share at Apple. In fact, the company has been "vocal" in recent months about potentially gaining market share with the iPhone maker.

Broadcom's announcement is a "headline positive" although shouldn't have any notable impact on estimates over the near-term, according to the analyst.

Financial details of Broadcom's agreement with Apple weren't disclosed but should still be viewed as a "positive announcement," Rakers wrote in a note. The deal follows the company's 30 percent year-over-year decline in its wireless communication business as the result of the loss of FBAR content in the iPhone. As such, the deal creates the potential for upside to current expectations for the back half of 2019 and 2020.

Price Action

Shares of Broadcom hit a session high of $290.49 early Tuesday morning, but traded around $281.50 at time of publication.

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Photo credit: Floirian Knodt, Flickr