(By Mani) As was increasingly anticipated, Apple, Inc. (NASDAQ:AAPL)
announced the arrival of the iPhone 5, along with redesigned iPod touch/Nano, a
development that bodes well for Jabil Circuit, Inc. (NYSE:JBL).
Jabil is an electronic product solutions company providing
comprehensive electronics design, manufacturing and aftermarket product
management services to global electronics and technology companies. The key
factor that works in favor of Jabil is that it builds the products, allowing customers
to develop the products rather than building it. The cost advantage also gets
customers for Jabil.
Jabil gets about $2 billion in annual sales from Apple, which is
one of the company's largest customers. Jabil is an integral supplier to Apple,
and manufactures casings and accessories for the company through its GreenPoint
operations.
"We estimate that AAPL accounts for 12%+ of revenues and likely
a higher percentage of the JBL EPS contributions," RBC Capital Markets analyst
Amit Daryanani said in a client note.
Apple's revenue share is likely to increase further upon the iPhone
5 launch and as when the production increases there would be more revenue for
Jabil in the long run.
"Given the new form factor, we believe initial yields could be
lower at JBL with lower margins in the early part of the iPhone 5 ramp. Such
was the case with the iPhone 4 as well," UBS analyst Amitabh Passi said in a
client note.
However, this is now increasingly embedded in street
expectations, and any negative impact is expected to be short-lived, likely to
resolve in a quarter or two.
"Further, our analysis of JBL capex vs. iPhone shipments still
implies further volume upside to our estimates," Passi noted.
Historically, Jabil has generated significant cash and offers
room for an increase in dividend than the current 8 cents a share. As of May
31, it had cash and cash equivalents of $742.13 million.
"Finally, we believe there still exists the possibility of some
upside (increasingly modest) from the potential ramp of RIMM's BB10 devices.
The expected timing for the release of BB10 devices to the market is still
CY1Q13," Passi said.
Meanwhile, Jabil's medical device manufacturing unit generates
higher margins than consumer electronics. However, the increasing spending
among all of the markets that the company serves should boost its earnings and
revenue in the next two years.