Skyworks Solutions is a Solid Investment but Warrents Caution
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Skyworks Solutions (NASDAQ: SWKS) was formed through the merger of the wireless business of Conexant Systems, Inc. and Alpha Industries, Inc back in 2002 and now the company designs, manufactures, and markets wireless semiconductor solutions for the mobile communications industry. While the smartphone industry has been a great boon for the stock, it may plateau for a while and caution might be in order.
Deutsche Bank made mention of this as it lowered the company’s price target from $30 to $29. Not only are they lowering the price target, but also made mention of lowering our June and September quarter estimates on Skyworks slightly. Is anything wrong with the stock? Not really. They make mention of the ongoing 28nm constraints for Qualcomm and Skyworks, but consider them minor yet real headwind this year. So for them caution is in store.
We know Qualcomm (NASDAQ: QCOM) can’t get enough 28nm capacity to meet its customer demand. It has increased costs to pay for tape-outs at other foundries and this is causing a limit on potential revenue upside this quarter for both Qualcomm and Skyworks. It appears the only one profiting from this shortage is United Microelectronics Corp (NYSE: UMC) as it takes the lead entering production in the first quarter of 2012. The inadequate volume to meet demand at TSMC has prompted comments from some of its customers and others, including Qualcomm, have said they are seeking capacity elsewhere.
While I would not counsel an investor to migrate away from investing in Skyworks presently, I would caution to take a deeper look at the industry and stock before putting money anywhere.
The semiconductor industry has shifted from one focused on personal computers to one dominated by Smartphones. The smartphone market is expected to generate an estimated $219 billion in 2012 while forecasted global smartphone shipments are expected to total 655 million in 2012, more than double 2010's total of 299 million. In comparison, over the same period the PC market grew only 5 percent to 368 million units. Skyworks has done a great job with well known handset customers like Samsung, HTC, and LG Electronics.
Some sales are up and some are down. HTC Corp reported a sharp annualized drop in April sales that was off 19.87 % the same month last year. For the first four months of this year it was down 30.84% from a year earlier. But that is one company! Looking at the global industry as a whole, mobile phone sales reached 419.1 million units in Q1 2012, a 2% decrease compared to the same period last year. But the market Skyworks is in was up! Smartphone sales, was up 44.7 % year-over-year.
So as I look at the company, I still believe it is a good candidate for long term investing but—I still caution to take a larger look at the market as a whole and decide when a good entry point will be.
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