Why You Should Buy This Apple Supplier

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Jan 26, 2015

Skyworks Solutions (SWKS, Financial) has been the paragon of consistency for over 2 years and the company has beaten the analysts’ estimates on earnings and revenue for the past nine quarters. Not only that, the company has also recorded double-digit revenue growth, and earnings growth in that period. The chipmaker released its fourth-quarter earnings a few days ago and reported revenues of $805.5 million, denoting a gigantic year-over-year growth of 59%, and beating the Street estimate of $773 million. On the earnings front, Skyworks reported non-GAAP EPS of $1.26, again surpassing the estimates of $1.19 and up 88% from the $0.67 reported in the relating quarter of past financial year.

The iPhone 6 and iPhone 6 Plus have helped Apple (AAPL, Financial) snatch market shares from rivals like Samsung in a few important markets, and it doesn’t look like this trend will change anytime soon. As a result, Skyworks has benefited. The tear down of the new iPhones revealed that Skyworks had gained over 20% more dollar-content as compared to the iPhone 5S and as a result, the company managed to ease past the analysts’ estimates.

However, I don’t think it’s time for investors to start booking profits as I think Skyworks still has a lot of room to grow and is all set to repeat the heroics of 2014. The company is nicely positioned to benefit from the increased adaptation of the 4G market. Almost half of the world's handsets are still 2G and contain short of what $1 worth of RF content. The worldwide LTE market is relied upon to develop at a CAGR of 79% from 2013 to 2019, arriving at an estimation of $610.7 billion. A huge portion of this addition is going to originate from China, where the 4G cell phone penetration was reported to be 55% in 2014. As per IDC, sales of 4G-empowered cell phones is relied upon to increment to 330 million units in 2015, expanding the compass to 71.7%.

Skyworks is also well positioned to benefit from the Internet of Things market, which is estimated to be worth over $19 trillion and Skyworks’ initiatives look nice. As mentioned in this article:

“The company has a competitive edge over the likes of RF Micro Devices and TriQuint, and should continue to get better.

To start with, Skyworks is leaving no stone unturned in tapping IoT. The organization has a solid item portfolio, and it is greatly improving the situation by putting resources into cutting edge switch architectures and sensors. Skyworks is concentrating on IoT network guidelines, for example, 802.11 Wi-Fi and Zigbee.”

Conclusion

Looking at the factors mentioned above, a lot seems to be going in favor of Skyworks Solutions. Although the company has appreciated close to 200% since the start of 2013, it still has more room to run. Also, the company has over a billion dollars in cash and is trading at a reasonable valuation. Hence, I think investors should buy Skyworks Solutions.