In my last article on Avago Technologies, I described how the tech titan Apple (NASDAQ:AAPL) was one of the primary contributors to its business and the launch of much-anticipated iPhone 6 is going to provide more fuel to the growth. Well, Avago is not the only one that stands to benefit from the launch of iPhone 6 as another big beneficiary of this revolutionary launch would be Skyworks Solutions (NASDAQ:SWKS). The company has exhibited strong performance over the last few quarters with double-digit revenue and earnings growth and delivering a ROE of 16.7% as compared to an industry average of 10%.
Let me begin with a small introduction to the company. Skyworks Solutions is a creator of high performance analog semiconductors. By amalgamating core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS and many other applications across various industries. Headquartered in Woburn, Mass., Skyworks has a worldwide presence with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America. In the third quarter, Skyworks reported solid results which beat EPS expectations by $0.03 per share. Also, the company successfully beat its own guidance on revenue as it reported a 35% y-o-y increase to $587 million (the company had guided revenue at $570 million).
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- SWKS 15-Year Financial Data
- The intrinsic value of SWKS
- Peter Lynch Chart of SWKS
The Internet of Things opportunity
One of the most exciting things happening in the World of tech at present is the Internet of Things and like other big tech companies, Skyworks is also positioning itself to leverage from the related opportunities. This excerpt from the earnings report, as said by David J.Aldrich, Chairman and CEO of Skyworks, sufficiently explains the company’s outlook and positioning with respect to IoT.
“Skyworks is entering a new and exciting growth phase driven by global wireless proliferation and the Internet of Things. Quite simply, we are capitalizing on the macro trend to connect virtually everyone and everything, all the time. Our high performance analog solutions and system-level integration capabilities coupled with our operational agility and scalability are enabling us to connect the previously unconnected. Accordingly, Skyworks is setting the pace for analog semiconductor industry growth in terms of both revenue and value creation.”
According to Gartner, The Internet of Things (IoT), which excludes PCs, tablets and smartphones, will grow to 26 billion units installed in 2020 representing an almost 30-fold increase from 0.9 billion in 2009. It has also said that IoT product and service suppliers will generate incremental revenue exceeding $300 billion, mostly in services, in 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets. Thus, it is a huge opportunity, and Skyworks has already forayed into the market with a product portfolio. For instance, 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.
Second biggie: Apple’s iPhone 6
Now, as I mentioned at the beginning of this article that the release of iPhone 6 will have a reasonable positive implication for Skyworks since the chips supplied by the company are expected to be a key component in iPhone 6. Apple is expected to grow its market share in China even more with its new hardware line, which naturally has positive implications for SWKS. Additionally, Skyworks also supplies components to other tech giants that hold even larger market shares in China (such as Lenovo and Samsung). Increased mobile demand, regardless of mobile provider, could keep Skyworks flying high.
Let us take a few moments to talk about Skyworks’ expectations for the future. Skyworks anticipates, for the fourth fiscal quarter of 2014, revenue to be up 43 percent year-over-year to $680 million with non-GAAP diluted earnings per share up 56 percent year-over-year to $1.00. This astounding growth is partly a result of its relationship with Apple. As already discussed, Skyworks has been a long-time supplier of the main antenna switches and power amplifiers for the iPhone. Apple is preparing to produce about 70 million-80 million of its new iPhones 6, and that will benefit Skyworks.
In conclusion, I would like to point out that investing in Skyworks is equivalent to investing in major developments that are going to hit the tech world soon. While the Internet of Things is a long-term sustainable business trend, the launch of iPhone 6 will have considerable short term advantages for Skyworks, Therefore, this is a good time to assume a position in the stock.