Why Broadcom, Taiwan Semiconductor and Arm Holdings fell on Monday

Actions of Broadcom (AVGO -2.64%), Taiwan Semiconductor Manufacturing (TSM -2.46%)and Arm holds (ARM -5.67%) were down 3.3%, 2.5% and 4.3% on Monday as of 11:30 a.m. ET. Shares of all three fell further in the morning.

All three of these companies are key suppliers to Apple iPhone. This morning, a prominent Apple analyst in Asia wrote that initial orders for the iPhone 16 were weaker than expected. So all three of these stocks fell in sympathy on the news.

So for the iPhone “Supercycle?”

This morning, TF International Securities analyst Ming-Chi Kuo wrote a blog post on Medium outlining an early pessimistic view of the iPhone 16. Kuo wrote that based on early channel checks with suppliers and pre-order data scraped by on Apple’s website, he estimates that Apple’s first-weekend pre-order sales were only 37 million. That would be down 12.7% from last year, with the difference being lower pre-orders of the ‘Pro’ model compared to 2023.

It may have surprised some who expected an iPhone “Supercycle” thanks to the introduction of Apple’s artificial intelligence (AI) platform, Apple Intelligence. However, Kuo points out that Apple Intelligence won’t be available at launch this month, so that could explain the low pre-orders for the Pro model. The first Apple Intelligence features won’t be available until iOS 18.1 is released in October. And even then, all the AI ​​features discussed at WWDC in June likely won’t be available at that time.

In addition to the Apple Intelligence explanation, Kuo also believes that a weak Chinese economy and intense domestic Chinese competition played a role in the warm iPhone pre-orders. China accounted for 17.2% of Apple’s total revenue last quarter.

TSMC, the world’s largest foundry, produces Apple’s A-series phone processors, which are based on the Arm architecture. Broadcom also uses TSMC and designs the film acoustic resonator (FBAR), Wi-Fi, Bluetooth and fast charging chips for the iPhone. Therefore, Apple is a key customer of all three companies. Hence the flat decline in stocks today after each had a strong week last week.

iPhone rumors always abound this time of year

Before you abandon these stocks en masse, you should know that this is the time of year when all kinds of Apple rumors and tea leaf readings from Asian analysts come out. Sometimes they turn out to be true, but sometimes they don’t.

Plus, with short-term interest rates still high, consumers may hold off on big-ticket purchases like a new iPhone if they’re not needed. Beyond early adopters, many are likely to hold off on pre-ordering a phone until they hear and see what friends and others are experiencing with Apple Intelligence. As mentioned, these features won’t roll out until October.

So even if pre-orders are weak today, the release of Apple Intelligence and likely interest rate cuts starting this week could be catalysts for the iPhone later in the holiday season. So, I would consider today’s news to be noise. But if demand remains weak even after the rate cuts and the introduction of Apple Intelligence, that may be more of a cause for concern.

Meanwhile, each of these Apple vendors also has strong AI growth potential outside of the iPhone. Broadcom makes the key network chips for AI data centers, as well as custom ASICs for AI accelerators built by several cloud giants. Arm was also updated last week on the prospects for increased AI data center penetration. Meanwhile, TSMC recently reported strong August sales numbers, likely due to strong AI-related data center GPU orders.