I Was Wrong - Skyworks is a Raging Buy, Not Just a Promising One
Harsh 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), the radio frequency (RF) chips maker and the supplier of power amplifier modules for iDevices, upstaged both Mr. Market’s and its own expectations in the third quarter. What’s more, the solid performance, combined with expectations of an even stronger later half of the year, added as much as 12% to investors’ (including an 8% jump in after hours).
A solid performance…
The company posted revenue of $389 million in the quarter, up 9% from last year, with adjusted earnings of 45 cents a share. Although Skyworks is a pretty well known Apple derivative play, the company has gradually diversified into other markets and has won some other important customers as well. These factors not only enabled Skyworks to ring in a solid performance in the quarter, but they would also stand the company in good stead in the future as diversification, in any form, is a welcome move.
…and some solid catalysts
Going forward, Skyworks has a number of catalysts which are capable of pushing the stock even higher. And most of them are a result of Skyworks’ wide range of offerings. The company supplies chips that can be used right from a low-end phone to an iPhone, apart from supplying chips for tablets, e-readers and LED TV’s.
More importantly, with the rapid growth of wireless connectivity, Skyworks’ RF chips will gain more traction. The mobile broadband market is poised to grow at almost 40% annually for the next five years and then there’s the brisk growth of LTE. Skyworks sees its total addressable market (TAM) increase in the future as dollar content per device moves north. Also, its innovation is bearing fruit and Skyworks has managed to add an extra $2 to $3 to its revenue from every device, thereby increasing its addressable market further.
Skyworks’ stellar performance in the quarter is also a result of its innovative products and cutting-edge technology. As the number of cellular bands continues to increase, smartphone makers would need more RF products that would fit their phones ideally, without hindering battery life and also keeping costs down. And Skyworks’ broad chip portfolio, which includes multi-chip modules that can seat multiple integrated circuits on a single chip and hence save costs and space, is certainly ready to meet the needs of the OEMs.
Skyworks is looking to raise the bar further, this time in conjunction with another smartphone supplier, Broadcom (NASDAQ: BRCM). Broadcom has developed 5G Wi-Fi chips that are three times more speedy and six times more power efficient than normal Wi-Fi chips. Skyworks is using this Wi-Fi technology from Broadcom to produce various high-performance radio frequency products, which are again more efficient and faster than the present ones. Now, as smartphone and tablet shipments grow, and consumers consume more data, these Wi-Fi solutions will find more takers.
According to Gartner, we will see 3 billion Wi-Fi enabled devices in circulation by 2015, and most of these devices will be powered by the 5G standard on which Broadcom and Skyworks are working. This is another powerful catalyst through which Skyworks can deliver more value to investors.
The smartphone story
And finally, we come to the next, and the most highly anticipated, iPhone. With Apple slated to release the iPhone 5 (or whatever they choose to call it) in a few months, Skyworks investors are geared up to enjoy the goodies which Cupertino would bestow upon them. Also, what about the most-rumored tablet on the market nowadays, the iPad mini? Skyworks has two chips inside the latest iPad, and I won’t be surprised if it finds its way into the mini, if such a tablet is actually released.
Also, don’t forget Apple’s arch-nemesis, Samsung. Skyworks had two slots inside Samsung’s Galaxy S III and this is one more of the many reasons I have given you so far to consider Skyworks for your portfolio.
Hence, we see that Skyworks has a lot of things going for it. It has both Apple and Samsung as clients and is making strides in innovation. Also, the growth in wireless communication is another driver for the company. All these factors make Skyworks a worthy contender for a new addition to your portfolio.
With one Apple component supplier pick of mine scorching the Street with terrific results, I am eagerly looking forward to how the other one, Cirrus Logic (NASDAQ: CRUS) does when it reports on July 30. The day Skyworks released results, Cirrus zoomed 5.6% towards the sky (including 2% in extended trading).
Also, I expect the trend that Skyworks has started, that of forecasting a “strong back half of 2012” to continue in Cirrus’ case. With the next iPhone approaching fast, and Cirrus being one of the most definitive Apple derivative plays, I would have certainly latched on to it. In case you are still confused about Cirrus, hold on till it releases results later this month and see for yourself why I am so bullish on it.
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.If you have questions about this post or the Fool’s blog network, click here for information.