A Great Opportunity to Benefit from the iPhone 5…and More

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

After what happened to shares of Skyworks Solutions (NASDAQ: SWKS) on September 20, I just can’t stop being amazed at how funny the Street can be at times.

The radio frequency chips maker and the supplier of power amplifier modules for Apple’s (NASDAQ: AAPL) iPhones and iPads said that it anticipates revenue of $420 million in the fourth quarter, which is at the high end of its previous guidance and also ahead of consensus estimates. What’s more, the company expects to earn 52 cents a share in the quarter, which is again ahead of analyst estimates and its own guidance.

So what went wrong? Were investors too greedy and expected Skyworks to issue an updated guidance that matched the likes of Cirrus Logic (NASDAQ: CRUS)? Well, if that’s the case behind panic selling of Skyworks’ shares, I suggest you should grab this opportunity with both hands and buy some more of it. Why? Read on.

It’s in the iPhone 5

Yes! Skyworks Solutions has two power amplifier modules inside the iPhone 5, up from the one it had in the 4S last year. The folks at iFixit have already done what they do best; tearing apart the latest iPhone and they have found Skyworks’ chips inside it (check step 14 of iFixit’s teardown).

If Skyworks investors had already known this, they wouldn’t have treated the stock with so much disdain. Apple’s latest iteration of the iPhone is already on a hot streak, selling 2 million units in a single day with many analysts expecting it sales to hit 10 million this month itself. With the holiday season still sometime away, it will probably sell faster than Usain Bolt sprints (OK! That was too much).

Hence, Skyworks is poised to make more money from every unit of the iPhone sold as it has increased its component count this time. This is one great reason why I believe the massive, irrational drop in Skyworks stock price should be construed as an opportunity rather than speculating about what’s wrong with the company.

And it is Diversified

If Skyworks’ investors were thinking why the company didn’t issue an astronomical guidance like Cirrus Logic, they are again at fault. Cirrus supplies audio codecs for iDevices and derives around two-thirds of its revenue from Cupertino, and the company expects a sequential revenue increase of around 80% in the current quarter at the mid-point of its guidance. As iPhone sales have risen astronomically over the years, Cirrus’s stock price has followed suit. However, dependence on just one customer for so much revenue is indeed a risk.

This is where Skyworks is better. Foxconn (read as Apple) accounted for 27% of its top line last fiscal, which is less than what Cirrus makes from Apple and hence, Skyworks is more diversified. We have always learnt that diversification is usually good, but Skyworks’ diversification has an icing on the cake.

Skyworks also supplies its chips to Apple’s nemesis, Samsung, which is among its bigger customers after Foxconn. The Samsung Galaxy S III carried a power amplifier (check step 10) by Skyworks Solutions. Thus, Skyworks commands a presence inside the flagships of both Samsung and Apple, which is another reason why you should capitalize on this opportunity presented by the steep drop in the stock price.

The Bottom Line

Apart from the compelling reasons mentioned above, I had elaborated some more points why Skyworks Solutions is a stock which you should consider buying in my previous post. The company stands to gain immensely from growth in mobile broadband and wireless connectivity, and counts the biggest smartphone makers on its client list.

Maybe, investors were expecting more from the company and Skyworks chose to play it safe and didn’t jump the gun. Whatever the reason is behind the sudden and massive drop in Skyworks’ stock, I believe it is a great window of opportunity for anyone looking to gain from smartphone growth in general and the iPhone 5 in particular.

Know What You Own

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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.

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