Skyworks Solutions (SWKS, Financial) reported solid results for the first quarter with year over year growth in both revenue and profit. It was mainly driven by strong demand for Apple Inc’s (AAPL, Financial) iPhone 6 and iPhone 6 plus, along with Samsung C&T Corp’s (000830, Financial) GS5 and Note 4 smartphones. As a result of its strong performance, SWKS is currently at its 52-week high with the management citing even better prospects ahead. Let’s see in detail where the company is heading and what can we expect from this stock in the future.
A strong performance
SWKS's revenue during the fourth quarter increased to $805.5 million from last year's $505.2 million, while earnings--excluding special items--rose 88% to $1.26 a share from last year. The numbers also topped Wall Street's expectations and reflect its success in capitalizing on various powerful industry dynamics, even while expanding its opportunities. In today’s era of technological advancement, analog complexities have increased and Skyworks is well positioned to take advantage of this environment by providing integrated RF and analog solutions to its customer, which enable them to navigate more complex design.
The chipmaker will also benefit from its product diversification, since the upcoming few months may be slower in the mobile industry, which will be offset by its expanding portfolio of products. The downtime should only last temporarily, after which the demand will bounce back and since Skyworks has a strong presence in the mobile industry, the company should succeed.
Key design wins
During the quarter, it launched SkyLiTE, which is a highly integrated system supporting MediaTek Inc's (2454, Financial) latest SoC reference design, used across multiple Smartphone platforms. MediaTek is leveraging SkyLiTE solutions for its MT6752/32 and MT6735 LTE chipsets, which is built targeting China’s leading smartphone providers. According to a latest research from Strategy Analytics Inc, LTE will represent more than 60% of the total handsets in China by 2016. This will open up a huge window of opportunity, especially with the SkyLiTE platform. Skyworks is targeting the fastest growing segment of the TDD/FDD LTE market.
Apart from this, the company has ventured into various new products, but it is especially focused on wireless connectivity, which is evolving at a significant pace. In fact, the recent consume electronic show (CES) was a platform displaying groundbreaking new devices leveraging the power of wireless connectivity to enhance the daily living. It may not be as easy as it sounds since; such products will require high levels of integration and customized solutions, produced in massive scale and at attractive prices. Interestingly, Skyworks is ready for this challenge, which at the same time is a window that could boost its growth in the days to come.
In addition, Skyworks will venture into emerging markets such as India, Latin America, Eastern Europe and others were there are tremendous opportunities for 4G devices. The broadband penetration rates are low in these regions compared to their high population densities. Strategy analytics Inc anticipates that, Smartphone shipments into India alone will grow at 40% compounded rate through the year 2020. Hence, these markets will provide significantly increased content opportunities in the next few years, which will ultimately add to its growth in the long run.
Conclusion
Going forward, Skyworks will step on these growth verticals to bolster its performance. It has also strengthened its foot print in analog segments like automotive, medical, and industrial, which have longer product life cycles, fewer competitors, and higher margins. With such a vast array of diversified portfolio, the company seems to be on track to do even better in the future. Moreover, the company has an improving forward P/E of 15.23 compared to a trailing P/E of 28.93. With shares already at all-time highs and back by strong growth prospects, we could see more upside to this stock in the coming years.
