Semiconductor companies supplying Apple with chips for iPhones, iPads, and Macs may sound a safe bet for investors, but they also involve some risk, according to an analyst who tracks the sector.
UBS’s Francois-Xavier Bouvignies told CNBC on Wednesday that his company has given French-Italian chipmaker STMicroelectronics a “neutral” rating based on the company’s exposure to smartphones, and particularly Apple.
Working with smartphone companies makes up 30% of STMicroelectronics’ total sales, and the company has 25% exposure to Apple, Bouvignies said.
“For us it is a risk to be exposed to a customer in such a way, which is always difficult to predict,” said Bouvignies.
Apple and STMicroelectronics did not immediately respond to a CNBC request for comment.
Apple has done more and more chip developments in-house in recent years, which has harmed smaller players.
The Cupertino-based company decided in 2017 to end its collaboration with British chip designer Imagination Technologies to develop processing units for the iPhone and iPad in-house.
This news caused the shares of the once publicly traded company to plummet as much as 71% amid fears it would severely affect its future. And it did. Imagination Technologies was subsequently sold to China-backed private equity buyer Canyon Bridge Capital Partners for £ 550 million ($ 727 million).
Apple and Imagination Technologies announced a new relationship in January 2020.
UBS said it preferred German chipmaker Infineon STMicroelectronics because it didn’t have the same level of involvement in the smartphone industry, Bouvignies said.
While STMicroelectronics has a neutral rating from UBS, Infineon has a buy rating.
However, both companies are poised to benefit from the electrification of the car, according to Bouvignies, who said the automotive industry accounts for 10% of global demand for semiconductors.
“We’d prefer Infineon STMicro, but it will still benefit from electrifying the car,” he said.
According to Bouvignies, Infineon is the world leader in semiconductors used to power cars.
STMicroelectronics is investing significant sums in this area to keep up, he added.
Internal combustion engine cars typically consume around $ 80 worth of semiconductors in the powertrain, but electric vehicles consume around $ 550 worth of semiconductors, he said.