• AMS AG, a 3D sensor provider to Apple, issued guidance ~9% higher than the Street for the Sep-18 quarter.
• This is further evidence that advanced 3D sensing and AR will be key features in the new iPhones coming this fall, which should drive ASPs higher. The Street is modeling for ASPs to decline from $741 in FY18 to $739 in FY19.
• However, two iPhone suppliers had cautionary comments (Taiwan Semiconductor and Samsung) regarding broader smartphone demand.
• iPhone uncertainty is currently reflected in Street numbers. We remain comfortable with Street expectations of y/y iPhone unit growth of 3% in Jun-18, 1% in Sep-18, and flat in FY19.

Who is AMS?

AMS AG supplies optical components for 3D sensing to hardware makers including Apple. The company reported Jun-18 quarter results and provided upbeat Sep-18 quarter guidance. 3D sensing is a premium feature going into the iPhone X, as well as new iPhones to be released this fall, which will allow facial recognition and other augmented reality applications. We expect Apple to release 3 new iPhones incorporating advanced 3D sensing technologies. We see AMS as a leading player within the computer perception space. AMS is included in the Loup Frontier Tech Index.

AMS Issues Favorable Results & Guidance

AMS reported Jun-18 results with revenues above the guidance range. More importantly, the company guided Sep-18 revenues to $450M-$490M, ~9% above analyst expectations (cons $433M). The company indicated that the favorable guidance was driven by growth in smartphone sensing solutions.

Other Suppliers Suggest Contradictory Demand Trends

On the flip side, Taiwan Semiconductor, which is Apple’s leading chip supplier, cut full year guidance last week citing slowing smartphone demand. Samsung also cut full year growth exceptions earlier this month, citing slowing smartphone sales and increasing competition from lower-cost rivals.

What Does This Mean For Apple?

We believe these data points are positive for iPhone X demand and for the mix of new iPhones that will incorporate 3D sensing. However, the Taiwan Semiconductor and Samsung results carry more weight for overall iPhone demand. Net-net, overall iPhone demand remains uncertain, but Wall Street expectations for iPhone unit sales are low. Consensus estimates call for 3% y/y iPhone unit growth in the Jun-18 qtr and 1% y/y in the Sep-18 qtr. The Street expects flat unit growth in FY19. Assuming the mix of iPhone X sales remain strong, we believe higher ASPs could offset overall iPhone softness.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.