Dialog Semiconductor Takes a Step Back From the iPhone Precipice

(Bloomberg Gadfly) -- It's been a harsh winter for Dialog Semiconductor Plc, which depends on Apple Inc. for three-quarters of revenue. A warning that the iPhone maker might stop using its power-management chips wiped 43 percent off the British firm's market value in three weeks.

On Wednesday, the chip designer took a step back from the precipice, with Chief Executive Officer Jalal Bagherli allaying some investor concerns about Dialog's immediate future. 

While ensuring he didn't break Apple's strict non-disclosure agreements, Bagherli's assertion that the second half of the year will be stronger than the first suggests the company is still winning iPhone contracts. The smartphone typically goes on sale in September, with production ramping up in the months beforehand.

Apple has largely sealed all the supply contracts for this year's product line-up. Bloomberg News reported on Monday that will include a trio of new handsets. Dialog is benefiting from the introduction of 3-D sensors to unlock phones and run augmented reality features.

The energy-intensive 3-D sensors Apple's Face-ID system uses need more power management technology. After inclusion in last year's iPhone X, the sensor array will spread to the iPad and cheaper iPhone models this year, generating more demand for Dialog's technology.

There were also grounds for optimism in 2019. Bagherli indicated that Dialog has secured contracts for lower-volume products such as the iPad and Apple Watch, and is in price and volume negotiations for next year's iPhone.

Investors still have reason to be concerned about the company's prospects after that point. Apple has been hiring droves of power management circuit engineers, not least from Dialog itself, and Cupertino executives are on the record as saying that Apple's in-house chips work more seamlessly with its operating systems. With smartphone demand slackening, designing the gear itself can help squeeze more profit from each handset. Both Apple and Dialog chips are largely built under contract by the same manufacturer, Taiwan Semiconductor Manufacturing Co. Ltd.

Dialog has bought some time to find alternative revenue sources, and research spending increased last year. Bagherli offered a few breadcrumbs -- mentioning over-the-air charging and the possibility of securing orders from "a major smartphone vendor" for chips in smart-glasses from next year. Dialog chips handle the Bluetooth connection to smartphones.

Bagherli's presentation helped to send the shares up as much as 13 percent on Wednesday. But it will take more than that to prove the company is safely back from the Apple-shaped precipice.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Alex Webb is a Bloomberg Gadfly columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

To contact the author of this story: Alex Webb in San Francisco at awebb25@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net.

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