Shares in Dialog Semiconductor, the publicly listed British firm which supplies power management chips for the iPhone, are plunging after its chief executive admitted that Apple could one day bring chip design in-house.
CEO Jalal Bagherli said Apple probably had the capability to produce its own chips but said there was no indication that the firm was about to do so. Apple is Dialog's biggest customer.
Nonetheless, Dialog is planning for "several scenarios," including Apple totally or partially replacing its chip. Bagherli added: "We are not talking about the entire business, or the entire chips in a phone."
In a conference call on Monday morning, Bagherli told analysts and investors: "Our position remains that we have no material change in our ongoing business relationship with Apple Inc. Specifically ... we continue to be included in new design engagements and opportunities in power management."
He said the firm wouldn't know until February or March the commercial terms of Apple's business for 2019. He said Dialog had already begun sharing chip designs for 2019's iPhone with Apple.
"We expect to remain Apple's main supplier," he added. "We feel it's reasonable to recognise Apple has the resources and capability to design its own [power management chips].
"As far as 2018, I want to be clear that Dialog has no reason to believe its current expectation of business with Apple will be impacted by any such actions."
It's unusual for an a supplier to publicly comment on the relationship with Apple, but Bagherli sought "special dispensation" to talk about Dialog's biggest customer after a Nikkei report suggested the iPhone maker would bring chip design in-house.
The reports sent Dialog's shares plunging, as investors worried that the firm could meet the same fate as Imagination, the British chip firm which was hurriedly sold off in September after Apple stopped using its technology .
Bagherli pointed to the fact Apple is producing a bigger range of iPhones as a reason to be confident.
"I think it's fair to say we believe they can design the main [power management chip] for, say, a phone. They would probably have the capability for one. [...] You've all seen that the range of product is getting broader in terms of the low-end, mid-end, and high-end from before, when there was only one phone. Maybe lower specs could be used for developing countries, there could be a different power management chip. These are the types of things to think about."
Dialog's share price stands at €26.92 (£23.76), down more than 30% on a week ago.
But in a follow-up note to the call, Morgan Stanley analysts issued a target price of $55 (€46.44, £40.97).
Analyst Francois A. Meunier wrote: "As Dialog's statement indicates, Apple has not taken a decision as of yet,and this is not the only instance where Apple has been working on an internally designed chip to keep a supplier progressing well. Dialog management is aware that they need, more than ever, to deliver a chip that is competitive on features, price and timing."