A Few Reasons to Buy Skyworks Solutions
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I knew it was coming. Skyworks Solutions (NASDAQ: SWKS) beat the Street in the second quarter and its shares gained 9%. Once Apple (NASDAQ: AAPL) trounced analysts’ estimates, I doubled down on the odds of Skyworks doing the same. The reason for this was pretty straightforward? Skyworks supplies radio frequency (RF) chips to Apple.
Apple sold some 11.8 million iPads and 35 million iPhones in the previous quarter. These astronomical numbers helped Skyworks post revenue of $365 million in the quarter, up 12% from last year and ahead of the consensus estimate of $361 million. In addition, the company posted adjusted earnings of $0.42, slightly ahead of $0.40 expected by the Street.
There’s more to it than Apple
Skyworks might be reliant on Cupertino for a significant portion of its top line, but there are other factors as well which should make investors take a closer look at the stock. Management attributed the jump in revenue to factors such as diversification and flexibility of the business model. The company supplies its products for use in other mobile devices such as tablets, LED TV’s, and e-readers apart from smartphones. It offers chips enabling wireless connectivity that can be used right from entry-level phones to high-end ones such as the iPhone, giving it a wider field to play in. Moreover, the world is increasingly going mobile, with analysts projecting 10 billion devices using mobile broadband. Hence, one can expect this space to grow in the long term and I believe Skyworks will follow suit.
I think that the next line will surely make a compelling case for Skyworks in your mind. The company has seen a number of its chips record designs wins on Samsung’s Galaxy S3 platform. The previous Galaxy S2 sold more than 20 million units in ten months and the expectations from the next installment are pretty high. Also, Skyworks saw some more design wins at Huawei and HTC. With so much said, I will give you one more reason which might help you decide on Skyworks if you are still unsure about it.
Going higher with the next iPhone
Recently, I told you how Cirrus Logic (NASDAQ: CRUS) is probably preparing for the next iPhone launch. Cirrus said that it expects its top line to jump sharply September onwards, a month which is pretty close to the iPhone release. Similarly, Skyworks also sees its top line “accelerating in the September quarter based on strong first half design win activity and a robust opportunity pipeline.” Now when both the component suppliers to the largest company on Earth speak on the same lines, I believe both have good reasons to back their claims.
The next iPhone will probably be released around the fall, and seems like Skyworks has factored this in its projections while making comments about its anticipation of a strong performance in the latter part of the year. Moreover, research firm Charter Equity, which covers Skyworks, upgraded the stock to a “Buy” from “Market Perform”. The firm says that Skyworks has managed to strengthen its chipset position for the next iPhone and could make around $3.60 for every unit sold, 125% more than what it makes on every unit of the 4S.
Skyworks is a stock which seems worthy enough to consider for investment. Its presence in the good books of both the smartphone bellwethers along with other positive factors mentioned in this piece give me enough reasons to have a bullish view on the stock. What do you think? Leave your comments below and then we can “DISQUS”.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, and Cirrus Logic. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.