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AAC Audio for Mobile SmartPhones Under Pressure

August 19th, 2013

AAC - Mobile Audio TechnologyAAC the Audio Technology Provider for Mobiles and SmartPhones is the world’s technology leader in miniature acoustic components

AAC may be negatively impacted by manufacturing issues with iPhone 5S. Digitimes reported that production of iPhone 5S could reach only 3-4mn units in 3Q due to issues in integrating iOS 7 with fingerprint sensor chips as well as low yields in packaging the chips at Xintec. AAC itself is also experiencing yield issues in iPhone 5S speaker boxes, probably due to its smaller footprint to accommodate the fingerprint sensor. For other customers, AAC shall benefit from stronger momentum at Motorola (Moto X has a build plan of 2mn per month) and Xiaomi (recently raised forecasts to the supply chain).

Samsung’s audio IC supplier, Audience, recently guided 33% q/q decline in 3Q sales to Samsung. Audience’s Samsung model portfolio includes high-end smartphones such as S3 and S4, thus being similar to AAC. Although AAC has begun shipping for Galaxy Tabs and Note 3, we believe the volumes are far from covering the shortfall particularly in S4. Checks suggest Samsung plans to build 9mn units of Note 3 by end of year, less than one month of S4 volume in initial ramp.

AAC is seeing strong pricing pressure from Apple. Second, it indicates that AAC is now willing to compromise margins to a certain degree in securing orders. Third and more importantly, it suggests a negative structural shift that AAC can no longer defend margins by continually selling products of better specifications.

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