Special thanks to Austin Bohlig for his work on this note.
Two of Apple’s key iPhone X component suppliers, Lumentum (LITE) and AMS AG (AMS), reported strong Dec-17 quarter results and more importantly provided upbeat 2018 outlooks. Both company’s supply key components going into the flood illuminator and dot projector on the face of the iPhone X (see below), which allows for 3D sensing and enables augmented reality applications such as facial recognition. While Apple recently guided for lower-than-expected iPhone sales in the Mar-18 quarter, we believe the robust 2018 guidance and capacity expansion initiatives indicate two things. First, iPhone X demand is healthy, and we continue to expect iPhone X will account for about 25% of total iPhones in FY18. Second, 3D sensing, as well as augmented reality applications, will remain a core feature and be added into new iPhone SKUs to be introduced in Fall 2018.
Lumentum – Lumentum is the world’s leading vertical-cavity-surface-emitting laser (VCSEL), which is the key component going into the flood illuminator and dot projector. The company reported 3D Sensing revenues of ~$200M, which exceeded the company’s expectation and is up from $40M in the Sep-17 quarter. Due to seasonality, the company expects 3D sensing revenues to be down $60 – 65M in the Mar-18 and Jun-18 quarters. However, the company continues to see strong order flow and aggressively adds VCSEL capacity. But most importantly, Management indicated 3D Sensing volume should “more than double” in 2H18 over 2H17, which we believe a high percentage of these orders will be going into current and new Apple SKUs this fall.
AMS AG – AMS is an Austria-based semiconductor that provides additional optical components for the iPhone X that enables 3D sensing applications. While the company positively preannounced last Monday, they waited to issue guidance until they announced earnings this morning. In-line with Lumentums comments, AMS foresees a very strong second half 2018, based on currently available forecasts, with substantial sequential revenue growth rates in the second half year, similar to 2017. AMS anticipates high volume ramps in its consumer business to drive this strong expected second half development. AMS also decided to accelerate new internal production capacity for VCSEL laser products in the second half 2018 and beyond. Lastly, AMS increased their 2016 – 2019 revenue outlook to 60%+ CAGR over this time period, which bodes well for the future for AR.
What this means for Apple. iPhone X demand is healthy, and we continue to expect iPhone X will account for 25% of total iPhones sold in FY18. Given Lumentum and AMS strong 2018 outlook, we believe 3D sensing will remain a key feature in iPhone SKUs, as well as augmented reality (AR) applications. However, both companies are beginning to work with more Android related customers, and it is not 100% clear what percentage of these sales are going to Apple. Importantly, both Management’s team’s comments around contributions from new wins, we believe the majority of these sales will continue to go Apple.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. 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.