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Why You Should Buy This Apple Supplier

August 13, 2014 | About:
JuhiKulkarni

JuhiKulkarni

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Skyworks Solutions (SWKS), along with RF Micro Devices (RFMD), has been one of the best performing chip suppliers in 2014. Both the stocks have appreciated more than 90% YTD; however, with the impending launch of Apple’s (AAPL) iPhone 6, the stock is ready to go higher. Let’s take a deeper look at the company’s prospects.

Upbeat results

Skyworks Solutions reported an upbeat second quarter, delivering revenues of $481 million, more than the estimate of $470 million and up 13% year-over-year. The net operating income came in at $130 million, which is up over 30% from a year ago while the EPS was $0.62; that’s up 29% year-over-year. The gross profit was $215.2 million, more than the estimate and up 250 basis points from a year ago quarter. The operating expenses were $84.8 million while the operating income stood at a $130.4 million mark.

Skyworks recently raised its third-quarter guidance. The company now expects earnings of $0.80 per share, exceeding previous estimates of $0.73 per share, which is a 48% year-over-year increase in EPS. The company also expects revenues of $570 million which were previously projected to be $535 million, up 31% year-over-year.

Bright future

Skyworks is entering the market with a lot of analog products, and it is expected to benefit the company during the latter half of the year. The company’s leading 802.11ac chipset provider recently announced the industry’s first six-stream MIMO router solution, which provides data speeds of up to 3.2 gigabits per second which is 50% faster than current generation ac products and provides its users with the availability to stream simultaneous high definition content wirelessly on several devices at once.

During this quarter, the company bagged many new design wins across a number of diverse applications. These include analog control ICs at Medtronic monitors, a suite of five front-end devices for the Moto G smartphone, home automation solutions with security sensors, motion detectors, lighting and meters. The company also secured its fourth production customer for SkyOne, which includes a full suite of Skyworks products including its generation 2.0s SkyOne module, Sky Hi LTE power amplifiers, power management, antenna switching and diversity switch modules.

According to the company’s revenue split, it highlighted three new subgroups, namely power amplifiers, integrated mobile systems and broad markets. For the first half of fiscal 2014, power amplifiers generated 40%, integrated mobile systems comprised 33% and broad markets made up for 27% of total revenue.

To accelerate its growth, Skyworks aims to capitalize on three business segments – mobile Internet, vertical markets and analog components. With the rapidly growing number of smartphones, net books, note books, caplets and other embedded wireless devices, the demand for mobile Internet applications is also increasing. The company’s strategy of diversifying its business and expanding into new verticals is expected to drive growth in the long term. Product innovation and proprietary solutions have already been playing a key role in the company’s success.

Skyworks also made a joint venture with Panasonic to aim on design and development of high-performance wireless-signal filters, making another gateway into the mobile connectivity and Internet of Things markets. Skyworks will contribute $148.5 million for a 66% stake in the joint venture while Panasonic retains the other third of the company.

Skyworks, in the quarter, also introduced other products such as antenna switch solutions for high-speed wireless connectivity and a dual-LED flash driver for smartphone cameras, called TrueFlash, to sustain its position in smartphones. According to an estimate, 90% of smartphones worldwide will sport cameras by the end of next year, which gives Skyworks an opportunity to grow its market in Wi-Fi connectivity and camera control.

Skyworks is also capitalizing on the growing opportunity within the Internet of Things. Skyworks supports Audi's HomeLink, a programmable system which allows its users to control various electronic appliances such as garage door, gates and the lights using three simple buttons in their car. Also, Skyworks supports HondaLink, a similar technology, which is now available in one of the top-selling cars in America and the top seller in Canada, the Honda Civic. And to go on, Skyworks supplies components for General Electric's appliances, lighting systems and security systems.

Apple’s deal with the Chinese market for distribution of its products is more good news for Skyworks. Skyworks is positioned to capitalize on the growth of the Chinese smartphone market, not only because it supplies key components of the iPhone but also because Skyworks supplies three of the four companies –  Samsung, Lenovo and Huawei – with a larger market share in China than Apple.

The future of Skyworks seems to be bright enough, as it is well-positioned to capitalize on the growth of the smartphone market in China and on the growth of the "Internet of Things," which are sure to deliver future growth.


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