Skyworks Taps A World Of Growth

8/11/2014


  Recent Price
$52
  Dividend
$0.44
  Yield
0.8%
  P/E Ratio
19
  Shares (millions)
193
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$54.50 - $23.27

The chief financial officer of Skyworks Solutions ($52; SWKS) is talking big. After the semiconductor maker reported better-than-expected earnings for the June quarter, Donald Palette said, "Given our broad customer demand and expanding product pipeline, we are forecasting sustainable, above-market growth for the foreseeable future."

We expect Skyworks, a Buy and a Long-Term Buy, to back up the CFO's brag. The company stands to benefit from increased connectivity throughout the world. While more than 75% of U.S. households have internet access at home, only 35% of the world's population uses the internet, suggesting a worldwide long-term addressable market of more than 3 billion potential users.

While Skyworks is positioned to benefit from the rise in internet use, the company has fingers in a lot of other pies, with end markets including consumer electronics, automobiles, and industrial machines. Its products perform hundreds of functions, from amplifying power to transmitting data to converting information from one form into another.

Compelling growth story

Sales grew 18%, per-share profits 41%, and operating cash flow 86% over the last four quarters, with no signs of slowing down. The consensus projects profit growth of 42% in fiscal 2014 ending September and 25% in 2015, with sales growth of at least 20% both years. In the wake of an increase in profit guidance last month, analysts' 2014 profit target has jumped 6%, with the 2015 estimate rising 12%.

Skyworks credits much of its growth to worldwide trends with staying power, including:

➤ Billions of users accessing the internet for the first time in emerging markets. China is the world's biggest internet consumer, with more than 600 million users — not even half of its population. India is second with more than 240 million users, about 20% of its population.

➤ The proliferation of streaming music, on-demand media, and other online content. Such services place greater demands on computers and mobile devices, creating the need for more powerful and flexible semiconductors.

➤ The internet of things. This somewhat grandiose but increasingly accurate phrase describes a world in which a variety of consumer products — not just electronics — are connected 24 hours a day via wireless networks. According to a 2012 report by Scotiabank, 50 billion machines will be connected to the internet by 2020.

As wireless networks become more complex and wider-reaching, they require a larger number of power amplifiers (41% of Skyworks' revenue in the June quarter) and semiconductors that integrate mobile systems (33%). The rest of Skyworks' revenue comes from products geared toward the broad market.

Conclusion

Skyworks shares have jumped 82% so far this year but still trade at 19 times trailing earnings (14% below the industry median) and less than 17 times estimated earnings for the next fiscal year (16%).

You can obtain an annual report for Skyworks Solutions Inc. at 20 Sylvan Road, Woburn, MA 01801, (781) 376-3000, www.skyworksinc.com.

SKYWORKS SOLUTIONS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '14
0.83
vs.
0.54
35%
49.10
-
34.30
20 - 14
Mar '14
0.62
vs.
0.48
13%
39.33
-
27.20
17 - 12
Dec '13
0.67
vs.
0.55
11%
28.64
-
23.27
13 - 11
Sep '13
0.64
vs.
0.53
13%
26.46
-
20.95
13 - 10
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
1.79
2.20
0.00
26.46
-
19.21
12 - 9
2012
1.57
1.90
0.00
31.44
-
13.72
17 - 7
2011
1.42
1.89
0.00
37.82
-
17.94
20 - 9
2010
1.07
1.26
0.00
21.42
-
10.05
17 - 8
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
95
99
40
97
82
100
97

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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