the iphone profits

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1E X P O N E N T I A L T E C H I N V E S T O R

iPHONEPROFITS

THE

BLUEPRINT:5G ED IT ION


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Apple is one of the most innovative companies around… It’s constantly looking for new ways to expand and grow its business, all the while providing consumers new products with an incredible appeal.

And as I shared in another report, I believe it’s on the cusp of releasing a whole new product line – the iCar. Apple is breaking into the electric vehicle space, where it will no doubt make waves. And in that report, I shared exactly how we will play this move as investors.

But the iCar isn’t the only way we can profit from Apple’s success…

As you probably know by now, Apple just released a new version of the iPhone – their most advanced smartphone yet… It’s the device millions have been waiting for, and a whopping 44% of iPhone users are planning to upgrade to the new smartphone.

This works out to 300 million new iPhones sold in the coming weeks and months. And it’s set to generate an enormous profit for Apple, with a large chunk of the profits flowing right back to tiny Apple suppliers.

With fifth-generation (5G) wireless networks expanding across the world over the past year, the iPhone 12 marked a number of firsts for consumers. It was the first time that many users were able to benefit from the high speed, low latency (delay), and innovative applications enabled by this network upgrade.

And Apple’s iPhone 12 was the first 5G-enabled phone to offer a set of advanced features like its LIDAR (light detection and ranging)-enabled 3D-sensing camera and enhancements in artificial intelligence (AI) and machine learning (ML) applications.

These innovations enabled and improved a whole slew of features that were harder to realize on older phones – from augmented reality (AR) applications to AI-enabled facial recognition.

And with the launch of the iPhone 13, Apple will spark a whole new wave of consumer adoption in the 5G space. The iPhone 13 will build on the advanced imaging technology and 5G capabilities of the previous model.

And in particular, it will provide even more horsepower for augmented reality and 3D-imaging applications, which I’ll touch on in this report.

We are about to hit an inflection point in one of the most consequential smartphone upgrade cycles in history. And even though Apple isn’t the only player cornering the market on this tech… I believe it’s the best player in the 5G smartphone market right now. And it’s going to lead the competition for years to come.

Now, I’m not telling you to go and load up on Apple (AAPL) shares. The time has passed for the biggest gains in AAPL. We have to target technology stocks that are much, much smaller to find the potential for 5–10X returns – or more.

In fact, the investment case for Apple iPhone

The iPhone Profits Blueprint5G Edition

By Jeff Brown, Editor, Exponential Tech Investor

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technology goes far beyond what most people see on the surface… There is an entire ecosystem of companies that benefit from Apple’s existence. And many of them offer far greater opportunities to make a small fortune than most investors realize.

These small companies are so exciting because their technology can have exciting applications other than the iPhone itself. That makes the profit potential much, much greater.

These companies are the suppliers of essential components – the underlying semiconductors, optical components, and other technology our iPhones and other Apple products run on.

We may not be familiar with them by name… But rest assured, these are the companies that will really benefit as wideband 5G networks become accessible to more people across the world.

And in this report, we’ll show readers the best way to profit from Apple’s success – by investing in some of its key technology suppliers.

Welcome To Exponential Tech Investor

Welcome to Exponential Tech Investor. My name is Jeff Brown. You’ve picked an incredible time to join us.

In Exponential Tech Investor, our mission is simple.

We invest in small- and micro-cap technology companies at the forefront of progress. To be clear, we’re not interested in so-so returns. The companies I recommend in this service have the potential to be the next Apple, Amazon, or Google.

Many of my recommendations have the potential to triple. And some will even give us 5–10x returns in the years ahead.

If this is your first time reading my research, then allow me to introduce myself. For nearly 30 years, I’ve worked at the executive level for some of the world’s most dominant technology firms like Qualcomm, NXP Semiconductors, and Juniper Networks. I’m also an active angel investor in early stage technology companies. As of this writing, I’ve invested in 200+ private deals.

My experiences in the technology sphere have allowed me to witness – and help usher in – some of the biggest trends in tech today. I was an executive at chipmaker Qualcomm, one of Apple’s leading providers of mobile payment chips. Our microchips were in each of the millions of iPhones out there, and Steve Jobs personally agreed to pay Qualcomm a royalty for each iPhone sold.

I’ve watched shares of companies like Qualcomm soar on the back of Apple’s success. I know exactly how lucrative a partnership with Apple can be for investors.

As President of NXP Semiconductors Japan, for example, I worked closely with industry giants like Sony and Apple to provide the essential chipsets powering their products.

NXP’s chips are what enabled the touchscreen functionality in Apple’s iPhone 5 – and what enabled Apple Pay to become one of the top payment apps in use today. And that’s just a small part of the work that I supported as a leading tech executive.

Whether I was working with Sony to develop the chipsets that mobile phones use to send payments… or bolstering the speed and accessibility of our mobile networks with the “edge” of network-enabled semis… I’ve made it my life’s work to keep my finger on the pulse of the technological megatrends that reflect the way we’ll live next.


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I’ve devoted my entire life to researching, working with, and investing in bleeding-edge technologies. And these days, I use my technology and investing expertise to share the best technology investments with investors like you.

So during my recent deep dive into Apple’s vast network of supplier companies, three particular companies stood out – and their technology is critical to the new iPhone. And that’s not an exaggeration.

To guarantee a steady stream supply of iPhone components, Apple invested $800 million in just one of these three companies. In the words of Apple’s chief operating officer Luca Maestri, this tiny supplier is “pushing the boundaries of innovation.”

It’s an opportunity years in the making. The companies I’ve singled out are on the bleeding edge of progress.

As the dust around the new iPhone settles, I believe investors in these three stocks will be richly rewarded.

So let’s dive in with the first company…

Company #1: II-VI (IIVI)

To explain the importance of this company, we’re going to be discussing a key aspect of the 5G wireless network build-out. As a reminder, 5G is the next generation in the evolution of wireless networks underlying our smartphones.

The technology can deliver data download speeds an average of 100 times faster than what we have today. It will enable us to experience technology that was once in the realm of science fiction – like self-driving cars or holographic telepresence. And this company will be a key supplier of

essential components in the 5G age.

II-VI (IIVI), pronounced “two-six,” is an optical communications company providing one of the essential components powering the 5G wireless network build-out: reconfigurable optical add-drop multiplexers, otherwise known as ROADMs.

We can think of ROADMs as devices that allow fiber-optic networks to be configured remotely. They allow network operators to enable configuration and reconfiguration from anywhere in the world. And over the past decade, II-VI Incorporated has been strategically positioning itself to be one of the key suppliers of this tech.

It focuses on manufacturers of ROADM products as well as vertical-cavity surface-emitting lasers (VCSELs) for optical communications networks, Light Detection and Ranging (LIDAR)-enabled semiconductors for mobile devices, and other critical components.

How did II-VI strengthen its position in these essential technologies? Well, the company has made a series of strategic acquisitions over the years. Each one has served to position II-VI as a powerhouse supplier for the 5G-enabled mobile phone market.

In March 2016, II-VI purchased semiconductor company ANADIGICS. This was a financially troubled company that still had some strong assets. The deal was done for $78.2 million and was received with skepticism at the time.

Yet months later in June, II-VI sold off a group of assets acquired through ANADIGICS for $50 million and retained the fabrication plant used for producing VCSELs.

This in turn strengthened its manufacturing capabilities. And in June 2017, II-VI acquired an optoelectronics product company called


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Integrated Photonics for $45 million. It provided the magneto-optic materials used in optical transceivers and amplifiers.

These two deals in particular have allowed II-VI to become one of the top producers of VCSEL products for both optical communications networks (necessary for the 5G infrastructure build-out) and for 3D-sensing applications in mobile devices.

And it’s continuing to fortify its strong position in these markets with a wave of innovations driven by these past acquisitions…

In 2021, the company introduced a new production process with its “Heated Ion Implantation Foundry Services for 150-Millimeter Silicon Carbide Wafers.” This new system will enable higher reliability in electronics by assembling the wafers at temperatures of up to 650 degrees Celsius.

The advanced process will eliminate nearly all defects through a high level of precision and concentration. That will only help II-VI’s products become ever more reliable for its key customers.

And continuing its dealmaking streak, II-VI made another big acquisition in 2021 when it acquired Coherent, one of the world’s leading providers of lasers, laser-based technologies, and laser-based system solutions. Coherent’s already robust technology will be implemented into IIVI’s own line of products in due time.

As long as II-VI is able to keep up its streak of innovation, it will strengthen its position among the major smartphone suppliers.

And what’s more, II-VI has strong free cash flows to ensure it keeps pace with its competitors. In 2020, the year that the iPhone 12 was released, IIVI saw its capital position hit all-time highs,

with over $422 million in cash on hand. Like many suppliers, II-VI has experienced difficulties due to the effects of the global production halts caused by the pandemic.

But it’s still sitting on a solid amount of cash to power its next wave of tech and acquisitions. And as these supply chain crises ease, II-VI will be in a great position to supply essential components for mobile device manufacturers.

I’m looking forward to seeing how II-VI continues to strengthen its position as a top supplier of smartphone components in the years to come. This is a stock that we won’t want to miss out on.

Action to Take: Please refer to our model portfolio for the most current recommended buy-up-to price for II-VI (IIVI). Be sure to use a limit order when placing trades. For the time being, we will hold IIVI with no stop loss. Always remember to use rational position sizing.

Risk Management: Because we will be holding IIVI without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go “all in” on any one investment. Our mission is to build a portfolio of our companies. That’s how we’ll optimize our success.

Company #2: MACOM Technology Solutions (MTSI)

MACOM Technology Solutions (MTSI) is a supplier of radio frequency (RF), wireless communications, and millimeter-wave semiconductors based in Lowell, Massachusetts.

The company got its start in the 1950s, providing technology used for military communications.

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Since then, it has evolved into a leading company that develops semiconductors primarily for optical and wireless networks.

Significantly, MACOM’s bleeding-edge optical components and semiconductors have become huge drivers of the ongoing 5G build-out. Back when I first suggested this stock to my readers in 2018, we were just barely at the start of the 5G upgrade cycle. MACOM was already working to provide the essential components for the broader network overhaul… but it faced a huge problem.

Demand for its leading semis suddenly stopped. The distribution channels were stuffed with product, which means there was no more buying. Its production base in China suddenly ground to a halt. MACOM appeared to be at a major impasse.

But this was only a temporary setback… And I let readers know that MACOM had an extremely well-leveraged position in the space based on one signature piece of tech that would drive its success in the years to come – its gallium nitride (GaN) technology.

As a semiconductor material, GaN is one of the essential puzzle pieces for 5G networks. It’s 10 times faster than silicon, and it’s capable of operating at much higher voltages. It’s also a more efficient material to manage power conversion.

As if that weren’t enough, GaN provides anywhere from 5 – 50 times performance improvement over the silicon MOSFETs (metal-oxide-semiconductor field-effect transistors) typical in older wireless networks. To sum it up, GaN is a far superior material for semiconductors than the materials used today.

And in 2014, MACOM acquired one of the leading-edge semiconductor companies in this space – Nitronex. Nitronex holds foundational patents on GaN materials applied to RF, as well

as the manufacturing of GaN on top of a silicon substrate. This is what allows GaN technology to be produced at competitive prices compared to traditional silicon solutions.

That acquisition essentially made MACOM the controlling interest over those patents, providing it a significant lead over its competitors to supply this technology. And in the years since, we’ve seen MACOM become one of the dominant suppliers to 5G infrastructure providers. Its GaN pure carbide amplifiers are widely used in today’s 5G wireless networks and in aerospace and defense applications.

MACOM’s GaN RF Power Amplifier

Source: MACOM Technology Solutions

The semiconductor technology landscape for wireless infrastructure is undergoing a major transformation. No longer are power amplifier (PA) and laterally diffused metal oxide semiconductor (LDMOS) amplifiers the dominant chips serving wireless networks.

With GaN semis, we’re seeing an exponential increase in the speed and reliability of wireless base station performance and a decrease in operating costs. MACOM’s industry-leading products in this space will continue to drive its business for years to come. And it’s strengthening its position in the 5G infrastructure build-out with its latest selection of laser arrays.

MACOM announced a laser portfolio to address


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global 5G and data center applications earlier this year.

All products in the portfolio incorporate a new single ridge design for enhanced optical performance and utilize MACOM’s patented Etched Facet Technology (EFT) and wafer-scale Indium Phosphide (InP) manufacturing capabilities for high-volume applications.

All told, MACOM is experiencing solid growth, expanding its gross margins, generating healthy free cash flow – and square in the middle of the 5G infrastructure build-out. At an enterprise value of $4.5 billion, I believe MACOM has room to run higher as it continues to drive huge gains from its 5G-enabled semis.

As the market for 5G continues to heat up in 2021 and 2022, we will see even higher valuation multiples across the board for companies delivering solutions to the industry – including MACOM.

Let’s make sure we establish a position in MACOM as the move higher continues…

Action to Take: Please refer to our model portfolio for the most current recommend-ed buy-up-to price for MACOM Technology Solutions (MTSI). Be sure to use a limit or-der when placing trades. For the time being, we will hold MTSI with no stop loss. Always remember to use rational position sizing.

Risk Management: Because we will be holding MTSI without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go “all in” on any one investment. Our mission is to build a portfolio of our companies. That’s how we’ll optimize our success.

Company #3: Lumentum (LITE)

Apple has quietly snatched up companies pioneering key technology it needs to roll out its biggest product innovation in at least the last five years.

But to pull this off, Apple will need the help of one company that it hasn’t acquired… That’s right… The company we’re investing in will be a critical component supplier for future releases of Apple’s iPhone, one of the most successful consumer electronics products ever.

But because this technology is so new and such a niche segment of today’s company, the market has failed to see this opportunity. And that’s why we have an edge over every other investor. But we have to get in now.

You see, I track developments at Apple closely. When Apple comes out with a hit product, it literally moves markets. And when technology suppliers forge strategic relationships with Apple on smartphones, those companies have the potential to soar.

And today, we’re seeing that same potential in a small, unknown hardware supplier… one that’s critical to Apple’s future innovations.

The $6 Billion Secret

Apple’s “secret” was let out of the box at its annual Worldwide Developers Conference on June 5, 2017. It announced its new “ARKit,” short for Augmented Reality Kit, which would enable developers to build AR applications for the iPhone.

But the new iPhone platform is different from previous smartphone generations. That’s because it implements a new technology called 3D sensing. In late June 2017, I attended an industry conference in Silicon Valley dedicated to sensor technology.




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As I was doing my market research for this report, I became more and more excited about the potential for the exponential growth of these 3D sensors and their applications. In fact, the market for consumer applications of 3D imaging sensors is about to explode.

The market size in 2017 was less than $1 billion; it’s become a roughly $6 billion market as of 2020. But that begs the question: What company is going to sell Apple the hardware that enables this exciting functionality?

The answer: The perfect company to dominate the market for 3D sensing is… Lumentum Holdings (LITE).

When I wrote about Lumentum back in 2018, 3D sensing made up just 2% of its business. But I knew it was only a matter of time before it grew.

In three years, it’s grown 1,410%... And that is outstanding.

Lumentum is the best-in-class option for supplying these key optical components to meet the worldwide demand for the exponential growth of data over networks around the world.

Its products that serve the telecommunications, data communications, lasers, and industrial and consumer segments make up nearly 70% of Lumentum’s current revenues.

These segments are fantastic for Lumentum. However, it’s the remaining 30% of revenue that led me to recommended we invest in Lumentum (back when it was only 2%). And that’s 3D sensing.

The market can easily value the telecommunications, data communications, commercial laser, consumer, and industrial segments of Lumentum’s business. That’s because Lumentum is a division of Silicon Valley legend JDS Uniphase, which has been in business for more than 20 years – it’s very well-established and understood.

And where the market has historically struggled, and where we have an edge, is in valuing emerging technology like 3D sensing.

Remember, this is a $6 billion market… and growing. We have hit the inflection point where exponential growth gets exciting. What is important, and what gets me excited, is the reason for the growth…

The Technology Behind the Next Smartphone Evolution

We talked about VCSELs (vertical-cavity surface-emitting lasers) for II-VI.


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And this special 3D-sensing product enables a whole suite of incredible applications that will forever change the way we use our smartphones.

Now, I don’t want to lose you with technical jargon. But you ought to have an idea of what VCSEL technology does. Simply, it uses laser technology to “illuminate” whatever’s in front of the smartphone’s camera.

It does this with an infrared laser – invisible to the human eye – that enables the smartphone to create a 3D rendering of what the camera sees. It’s that simple. That’s why it’s called 3D sensing. The VCSEL enables the smartphone to “sense” in 3D whatever it sees through its lens. And that enables some pretty spectacular applications.

Think about something like facial recognition. Facial recognition can be used to replace the fingerprint scanners that are so common on smartphones today. In fact, using facial recognition is far more secure than using fingerprints to unlock a smartphone. Facial Recognition Software And this is not something for the future.

Apple’s current generation of the iPhone, the iPhone X, uses 3D depth sensing so users can unlock their smartphone by simply looking at it. This same facial recognition technology can be used to create avatars – a virtual representation of yourself.

Facial Recognition Technology

Source: venngage.com

This technology is already widely used in Hollywood today. Have a look at the following picture from the film of the same name… “Avatar.”

Technology Used in “Avatar”

Source: 20th Century Fox

During an analyst meeting held on June 5, 2017, Lumentum CEO Alan Lowe spoke about the production orders received from a large customer. He also referred to receiving production orders from other customers and said that Lumentum was “ramping up.”

When asked about Lumentum’s competitive positioning, Lowe replied that Lumentum “will get an extremely large share in the first round.” He also referred to his direct customer by saying it was “very well integrated with our lead customer on mobile devices.”

As it turns out, the direct customer was Foxconn,


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Apple’s largest contract manufacturer for the iPhone, and Lumentum’s reference to its “lead customer” was Apple. Apple is always the big elephant in the room, but it legally restricts its suppliers from speaking publicly about the company or any projects.

If you want to do business with Apple, you have to agree – plain and simple. This is well known in the industry, but I also know from personal experience. Apple pioneered the use of 3D-sensing technology in smartphones… and the rest of the industry rushed to catch up.

And every major smartphone manufacturer is expected to integrate 3D-sensing technology into their products. Now if all of this were not exciting enough, there are already independent forecasts that indicate demand for 1 billion units of these VCSELs per year.

The pricing for each VCSEL array is around $2–4. At a billion units a year, that’s a range of $2–4 billion of revenue per year. And my conservative estimates are that Lumentum will capture about 50% of that market share. This would equate to a range of $1–2 billion in additional revenue per year.

If you have any doubts about potential volumes on smartphones, consider this: Around 1.4 billion smartphones shipped in 2019. 3D sensing is becoming a standard feature on smartphones, and there will be an explosion of security features, augmented- and mixed-reality applications, social applications, and most certainly a couple of interesting applications that we haven’t thought of yet… all enabled by this technology.

Furthermore, the 5G infrastructure build-out will bolster the utility and innovative features of these applications. More people will start using them, and in turn, more developers will build on the

platform. On top of everything else, Lumentum is already an attractive buyout candidate.

I can guarantee that the company is on the lists of potential acquisition targets of many semiconductor companies, private equity funds, and even optical component companies. Finisar, the world’s leading supplier of optical communication products, is the most obvious possibility.

If any of those players believe in the potential of the application of 3D sensing and Lumentum’s VCSELs like I do, they know how expensive Lumentum is about to get.

In fact, a buyout might be imminent.

Action to Take: Please refer to our model portfolio for the most current recommend-ed buy-up-to price for Lumentum Holdings (LITE). Be sure to use a limit order when placing trades. For the time being, we will hold LITE with no stop loss. Always remem-ber to use rational position sizing.

Risk Management: Because we will be holding LITE without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go “all in” on any one investment. Our mission is to build a portfolio of our companies. That’s how we’ll optimize our success.

Regards,

Jeff Brown Editor, Exponential Tech Investor




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the iphone profits

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