Stock market gains from a “strategic relationship” with Apple Inc. (NASDAQ:AAPL) appear to be sharp but ephemeral, at least as far as the case of Pixelworks proves. Back in early March, it was revealed that Pixelworks gained much of its profit from deals with Apple, which caused an immediate, same-day jump of 80% in the value of the smaller company’s shares. At the same time, Apple’s shares were undervalued and were to remain so until the unexpectedly positive Q2 2014 earnings report that gave the Cupertino firm’s stock market reputation a major boost.
Pixelworks showed solid financial gains for its Q2 2014 accounting period, which ended on June 30th. The chip manufacturer’s revenues for the quarter just ended were $15.2 million, 12.6% higher than first quarter revenues of $13.5 million. Of course, doing better than the first quarter is hardly surprising, since this is often the period when a company experiences its weakest sales. Year-over-year performance, however, is much more solid.
Pixelworks’ (NASDAQ: PXLW) $15.2 million Q2 2014 revenue is much higher than its $9.6 million Q2 2013 revenue, a 58.3% year-over-year gain. The company cites chip sales and its mobile video processor, Iris, as the sources of its robust revenue expansion. Iris is said to provide “cinematic-quality video playback to mobile devices,” and it will be interesting to see if it appears in future Apple (AAPL) devices.
Despite its excellent revenue growth and ties to Apple, Pixelworks’ stock appears to be stalled just short of $10 per share. Zacks’ downgraded the small but fiesty stock from “outperform” to “neutral,” with a price target of $10.10 per share.
Recently, analysts have noted how the shares of Apple’s suppliers show much bigger gains than the main company when positive news about future orders or the like surfaces. While this is true, the case of Pixelworks (PXLW) proves that such upward spikes are volatile and passing, while the more modest gains made by Apple are far more solid and reliable. Though investor panic can eliminate any company’s gains in a matter of minutes in extraordinary circumstances, Apple still appears to be more solid long-term bet than its suppliers.
Small companies like Pixelworks may experience a brief surge of massive share price gains thanks to a prominent deal with Apple or another big firm, but quickly sink again into obscurity. Day traders may reap quick profits from these stocks, but long-term portfolios are still likely better served with the more stable “big name” investments such as Apple.
