In my previous two articles, I recommended investors to sell two high-flying Apple (AAPL, Financial) suppliers, namely RF Micro Devices (RFMD, Financial) and TriQuint (TQNT). However, there’s another chip making company that has been on a great run in 2014 and still has more upside. That company is Skyworks Solutions (SWKS, Financial). Skyworks Solutions is up over 100% in 2014 and it doesn’t look like its growth will stop anytime soon. The company has been consistently surpassing the analysts’ estimates on revenue as well as earnings. Let’s take a look at the reasons why Skyworks should continue growing.
Apple will drive growth
Unlike other peers, Skyworks has a more diversified revenue streams and this works to the benefit of the company. Cirrus Logic investors know that depending on a single customer can prove to be a very dicey situation. Since Skyworks isn’t overly dependent on Apple, the company isn’t under any pressure to reduce its margins and expects strong growth from Apple’s new iPhone 6.
Skyworks recently revised its guidance upwards due to the success of the iPhone 6. The company currently forecasts fourth quarter revenues to grow by 51% y-o-y and 22% sequentially to $718 million. The bottom line for the quarter is expected to be $1.08 per share, affirming a 69% year-over-year increase and 30% sequential growth.
Much of this growth can be attributed to the success of the iPhone 6. Rick Schafer of Oppenheimer & Co. likes the prospects for both Skyworks and stated:
“AAPL revenue guidance of $65B (+63% Q/Q) exceeded consensus $63.7B. For suppliers, we believe the focus turns to company-specific content and associated production ramps for holiday builds and product refreshes. We have a directionally positive bias on SWKS (PAD, analog, WiFi), BRCM (802.11ac WiFi, Touch IC) and AVGO (PAD, FBAR filter) content and a directionally negative bias on CRUS. We believe QRVO (RFMD/TQNT) lost content in iPhone 6/6+ refreshes [...] C3Q iPhone units of 39.3M were above consensus 37.4M. Our two favorite RF vendors AVGO/SWKS both saw increased content in iPhone 6, and each likely benefits from strong demand moving into C4Q.”
Internet of Things
The Internet of Things, or IoT, is anticipated to grow to $19 trillion in the coming years and Skyworks foray into the market is expected to yield benefits. The company has an 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. Additionally, it is interested in entering into organizations to benefit as much as possible from this business sector.
For instance, Skyworks recently entered into a project with Panasonic to create elite channels that discover application in electronic gadgets for sign preparing and evacuating impedance. Panasonic has about 412 channel licenses, separated from other patent applications, which ought to profit Skyworks. Also, Skyworks administration anticipates that the joint project will add about 1% to its gross margin in the following fiscal year.
Skyworks, in the interim, has likewise entered into organizations with any semblance of GE Medical, Boston Scientific, and Medtronic in the health care industry to tap IoT applications. The General Electric association may be the most imperative one of the parcel, as the combination is applying the Internet of Things to modern applications, calling it the Industrial Internet. GE arrangements to coordinate machine-to-machine integration over its modern portfolio, including locomotives, medicinal gadgets, plane motors, turbines, and so on.
Conclusion
As seen from the points mentioned above, Skyworks undoubtedly has a competitive advantage over RF Micro Devices and TriQuint Semiconductor. The company’s foray into the IoT market and its diverse revenue stream is a plus for investors. Moreover, with a forward P/E of 13, Skyworks is reasonably priced. So, with the company’s earnings due on Nov. 5, I think the stock is a good buy.
