Infineon (IFX) to Benefit from 3G iPhone Sales

Let me preface this by saying I have absolutely no idea how much this will affect Infineon's (IFX) bottom line, but I would imagine it would have a solid impact. Everyone is expecting the 3G iPhone to be a big hit worldwide, which obviously benefits Apple (AAPL). But, there might be some other ways to play it if you're interested. With a little bit of digging today, I was able to find someone who had already disassembled the 3g iPhone (in New Zealand no less... since it's already out there). The people over at ifixit have literally taken apart the entire new iPhone to find all its components. Now, while there are still a few unidentified pieces in there, they have managed to identify the vast majority of components. And, I immediately noticed something: the 3g iPhone has numerous Infineon components. Again, let me reiterate that I am not sure exactly how much this will impact Infineon's bottom line, but it is obviously a positive for them.

The Infineon components can be found on the iPhone's logic board. As of right now, the team at ifixit have identified 3 chips as Infineon chips. And, there are rumors that 2 additional unidentified as of yet chips are from Infineon as well. They write that the identified Infineon chips include:

- "The largest chip in the top left corner is an Infineon 337S3394 WEDGE baseband."

- "Small chip to the right of the NOR: Infineon BGA736 (Tri-Band HSDPA LNA)"

- "The chip in the top middle is SMP 3i 6820, Infineon SM-Power3i. From Infineon: the part is 'optimized to support modem and data card applications based upon X-GOLD208 and X-GOLD 608, with features ranging from EDGE up to 3G and HSDPA.' "

Then, the 2 unidentified chips are believed to be the following Infineon components:

- "SP836175 G0822 337S3394 (rumored to be an Infineon baseband)"

- "338S03532Z 60814 (rumored to be an Infineon RF transceiver)"

(click to enlarge)

So, there are for sure 3 Infineon chips in the 3g iPhone, and possibly as many as 5. Obviously this should boost Infineon's revenue (and their stock as well). And, I noticed something interesting today. Infineon stock (IFX) saw very heavy buying on weakness today. I've talked about buying on weakness before and basically its a metric tracked by the Wall Street Journal which shows stocks that are down for the day but have seen the largest inflow of cash. IFX was #3 on that list today. Hmmmm, I wonder why? /End sarcasm. Not to mention, the stock is up around 2% after hours. I really don't think this news is mainstream yet. And, I really think that the buying today was by those people really paying close attention to the fact that the iPhone is technically released 'early' in the eastern half of the world and has already been disassembled. Seen below is a screenshot of the top half of today's buying on weakness list. You can check out the Wall Street Journal daily updated Buying on Weakness list here.

(click to enlarge)

The iPhone does not come out in the USA until tomorrow (the 11th), but the phone has already been released in the eastern half of the world. And, the guys down in New Zealand wasted no time disassembling the iPhone to find out what's inside. Clearly some people have noticed what I have: Infineon parts are all over the iPhone. You would think that IFX trades higher once this information hits the mainstream. Beforehand, the 3g iPhone components were a mystery. You could make logical guesses, but there was no way of knowing for sure. But, now that the information is public, there are a few stocks poised to benefit. And, Infineon (IFX) clearly leads the pack.

If I buy this name at all it will simply be for a trade and nothing more. I don't consider this news to be mainstream yet, but you never know. This information could already by completely priced into the stock. Although their component presence in the iPhone is obviously bullish for the company, they still operate in the very competitive chip space, where I don't necessarily want to invest. So, the fact that they have numerous chips in the iPhone is alone not enough reason for me to invest in this name. For now, its simply a trading vehicle.

You can check out ifixit's entire iPhone disassembly here.

3g iPhone = Huge Margins?

Let me start out by saying: don't worry, this is not yet another 3g iPhone hype post that you can find all over the internet. Instead, this is a post about meaningful implications for AAPL as a stock based on some recent information. Ok, so we all know the 1st iPhone was a semi-success, but now that AAPL will be releasing an even better version, expectations are much higher. The initial hype surrounding the 1st iPhone was about growth. "Oh this will be a huge growth product for Apple..." blah blah. The point is that apparently now not only will the iPhone be a growth story for Apple, but it could also be a huge margins story. Portelligent (through EETimes) are out with research stating that they think the new iPhone will cost as little as $100 to produce. This when the 1st gen iPhone cost around $170 to produce. Note: They haven't actually gotten their hands on a new iPhone and disassembled it. Instead, they've done some channel checks in terms of components to gauge pricing and come up with this sum. Although this can be an accurate ballpark figure, I just want to throw that caveat in there. But, even if that figure is just slightly off, the point is that AAPL will still be seeing huge margins and here's why.

AAPL is Billy Badass when it comes to component pricing. If you're familiar with their tactics, then you know they aggressively buy components to ensure their competitive market advantage. Carl Howe over at The Yankee Group gives a timeline of AAPL's business savvy:

"Apple paid $1.25 billion in 2005 to guarantee flash memory for iPods through 2008; that purchase made it nearly impossible for other flash music players to have competitive supplies and profit margins. Apple reportedly negotiated another similar deal in 2007."

And, Howe made this powerful statement as well:

"In fact, if these numbers are true and the carriers are subsidizing the phone, the iPhone 3G could end up being the most profitable product Apple makes. But more likely, this means that Apple has a lot more pricing flexibility than analysts have given them credit for."

The point is that AAPL will be paying much less for components this time around due to technological/engineering advancements and the bullying approach they take in the component space. The display will most likely cost them half as much this time around. Additionally, AAPL will be getting memory for the phone on the cheap and in turn can sell it to consumers for nearly 5x as much as they got it for. The point is that AAPL has significantly reduced their input costs this time around; even with more/newer components in the phone.

In terms of pricing, the phone will most likely sell for $399 straight up no-contract or $199 with the At&t subsidy for a 2 year contract. These figures already show the huge margins AAPL will be seeing with this product. The At&t subsidy is actually a great thing for AAPL because they will be selling the phones to At&t at full price ($399 or so) and then At&t will take the hit in terms of the subsidy to guarantee they get customers in the door buying the phone and signing up for 2 years of service. Zero risk for AAPL there, they don't take a hit.

So, why is this all important? Well, we all know the iPhone is a growth story for AAPL. What I don't think most people realize is the huge margins AAPL will be seeing with this product. With all the high-tech gadgetry inside this phone, people assumed it would cost a pretty penny to produce so AAPL's margins wouldn't be all that high. Au contraire; it sounds though as if those revenue figures would be massively understated. The Mac computer has been the driving force behind AAPL's success all along as they continue to steal market share and crank out sales of macbooks and mac computers. This is the perfect silhouette for what the iPhone very well could be. Mac computers = high growth + high margins. If the new iPhone follows this same formula, then AAPL could see a meaningful boost to their bottom line come September/October. And, the best part is, At&t will be taking the hit by providing users with the subsidy. This gives the iPhone a very competitive price point and many of the features the first gen iPhone lacked. In the end, all you have to ask is: What is AAPL best at? They create high margin products that people HAVE to have. End of.