Dialog Has Managed The Apple Situation Well, But Considerable Uncertainty Remains For What's Next

For a company that relies upon Apple (AAPL) for about three-quarters of its revenue, and has acknowledged that Apple will be switching to insourced options for more than half of that relatively soon, I believe Dialog Semiconductor’s (OTCPK:DLGNF) (DLGS.XE) executive team has managed the ensuing chaos about as well as you could reasonably ask. An IP/asset transfer and revenue-prepay deal de-risks the next few years and gives more clarity on what the new Dialog may look like, and a cash-rich balance sheet gives management M&A options while also funding a decent-sized buyback.

There’s a lot that Dialog still has to figure out. Still, this is a company that should have a non-Apple business with over $500 million in revenue in 2020, growing at a double-digit rate and supporting operating margins at least in the mid-to-high teens. If the company can find a value-building M&A transaction or two (and that’s a bigger-than-normal “if” with this company), there’s a real chance that Dialog 2.0 could be an interesting company. Valuation is more complicated now, but I do still see some upside in the shares, though I’d note that there are a lot of decent bargains in the chip space that don’t have this level of drama or uncertainty.

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Dialog Has Managed The Apple Situation Well, But Considerable Uncertainty Remains For What's Next