Analysts' Choice: Skyworks Does More Than Shine The Apple

10/5/2015


  Recent Price
$84
  Dividend
$1.04
  Yield
1.2%
  P/E Ratio
17
  Shares (millions)
195
  Long-Term Debt As % Of Capital
0%
  52-Week Price Range
$112.88 - $44.06

Much of Skyworks Solutions' ($84; SWKS) success stems from its position in Apple's ($110; AAPL) supply chain. Neither company provides details, but by one estimate, every iPhone 6 contains $4 of Skyworks components. Apple sold more than 180 million iPhones in the nine months ended June, which helps explain how Skyworks managed to grow sales 51% and more than double per-share profits over the last year.

We can't say how much Skyworks gear went into the new iPhone 6S models that launched Sept. 25, but Apple said it sold more than 13 million of the devices during their first weekend, topping an earlier record in 2014, when 10 million phones sold during the first three days of availability. That news alone suggests Skyworks is a good bet to top analyst expectations for 22% sales growth and 35% per-share-profit growth in the September quarter. Skyworks, yielding 1.2%, is a Buy and a Long-Term Buy.

Smartphones and more

While big sales of the iPhone 6S would undoubtedly benefit Skyworks, its partnership with Apple comes with risks. At least in the near term, investors should expect Skyworks stock to respond to the latest iPhone headlines, whether positive or negative. Skyworks doesn't break out its sales to Apple but generates roughly one-third of its revenue from Foxconn Technology, a key Chinese manufacturer of Apple devices.

So far, the Apple connection has been more help than hindrance for a stock that has returned 45% over the last year. However, Skyworks is much more than an Apple supplier.

The company offers more than 2,500 components, and demand is jumping as we move closer to the "internet of things," a world in which devices ranging from TVs to toasters to automobiles connect to both broad networks and to each other. Sounds like science fiction, but time is making it reality. Morgan Stanley ($32; MS) estimates 75 billion devices could be connected wirelessly by 2020. For example, General Electric ($25; GE) plans to engineer machine-to-machine communication across its massive industrial portfolio.

Skyworks says it's gaining share in both high-end and low-end smartphones, driven by the need for chips that can handle the demands of streaming media. Ten hours of high-definition streaming video requires nearly six times the bandwidth of 10 hours of streaming music, and a study by Cisco VNI Mobile projects annualized growth of 57% in mobile data consumption from 2014 through 2019.

Skyworks says we're still in the early stages of the 4G wireless movement. However, even if the company is overly optimistic about smartphones, its aggressive expansion into new markets creates new growth avenues. Products geared at nontechnology markets tend to command higher profit margins and face less competition.

Skyworks is selling more and more to medical, automotive, military, gaming, and industrial companies, a change in business mix that over time reduces the company's dependence on Apple, as well as its sensitivity to technology trends.

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 '15
1.34
vs.
0.83
38%
112.88
-
90.68
26 - 21
Mar '15
1.15
vs.
0.62
58%
102.77
-
68.71
27 - 18
Dec '14
1.26
vs.
0.67
59%
74.97
-
44.06
23 - 14
Sep '14
1.12
vs.
0.64
51%
59.25
-
45.50
21 - 16
           
Year
(Sept.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
2.29
3.24
0.22
59.25
-
23.27
18 - 7
2013
1.79
2.38
0.00
26.46
-
19.21
11 - 8
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
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
97
42
100
97
95
51

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


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