Skyworks Solutions Inc (SWKS) is doing some pretty interesting things in wireless communications. Skyworks Solutions makes everything from various wireless amplifiers and RF switches to attenuators, switches, conversion mixers and more.
Skyworks Solutions creates components that are inside smartphones, video game consoles, home automation devices, broadband modules, global positioning systems, LED drivers and a host of other devices that you use every day. There’s a good chance your iPhone or Android handset has a Skyworks power amplifier module or integrated radio frequency chip inside.
Skyworks Solutions originated as a result of a merger between Alpha Industries and the wireless communications division of Conexant Systems in 2002. SWKS is a $13.1 billion that has manufacturing and service facilities located throughout North America, Europe and Asia. Skyworks Solutions is headed by chief executive David Aldrich, who’s been in place since the formation of SWKS. Prior to the creation of Skyworks, David Aldrich was chief executive of Alpha Industries.
Skyworks Solutions is at the heart of a concept I’ve mentioned before: the “Internet of Things” (IOT), which is how the industry describes the interconnection of devices and objects that communicate with each other over the Internet infrastructure. An example is the ability to log into your home’s thermostat from your laptop while traveling to adjust the temperature. Or your doctor receiving real-time health updates on his computer screen from the smartwatch you are wearing while jogging. Or when you walk into a department store and Bluetooth “beacons” inside the store start peppering your smart phone with offers that are specific to your own sales history at the store and current promotions.
ABI Research analysts estimate that more than 40 billion individual devices will be wirelessly connected to the IOT by 2020, up from the current 16 billion. To put it in terms of dollars, the worldwide market for IOT solutions will grow from about $2 trillion to over $7 trillion during that same time frame, according to forecasts from research firm IDC. With growth projections like this, it’s easy to see why IOT has become one of the buzziest phrases of 2014.
Skyworks has positioned itself right in this space. The SWKS motto is “Connect Everyone and Everything, All of the Time.” And Skyworks Solutions has just the type of product breadth and diversification to do so; its chips and modules traversing nearly every sector, including industrial, medical, military, consumer, automotive, cellular and energy.
SWKS stock generates about a quarter of its revenues from its Broad Markets division, which encompasses IOT devices such as networking, alarm systems, wireless lighting and automotive collision avoidance systems. The other 75% is split evenly between its Integrated Mobile Systems and Power Amplifiers divisions.
Apple Inc. (AAPL) remains one of Skyworks Solutions’ biggest customers, and SWKS stock benefited greatly from the successful launch of the latest line of iPhones. Analysts at Morningstar estimate that Foxconn, which manufactures most iPhones and iPads, represents about 36% of Skyworks Solutions’ revenues. Analysts point out that, while that relationship continues to strengthen and growth remains strong, what’s most exciting is Skyworks Solutions’ continued diversification efforts into more IOT devices. The opportunities are endless, and SWKS has established itself as a key components provider to nearly every new Internet-connected technology on the horizon.
This most recent quarter saw SWKS stock revenues climb 51% from a year ago, to $718 million, all while improving operating margins by nearly 200 basis points. Skyworks Solutions is guiding to a 50% jump in revenues next quarter, and with SWKS shares trading at just 15.7 times 2015 earnings, it’s still quite a bargain. SWKS shares are up 145% so far this year, which drives home the point that you don’t often see growth like this in a company that’s been around for so long.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.
