The stock has appreciated just 8% so far this year, but should have done better as the two quarterly reports that it has released so far this year have been pretty solid. Skyworks Solutions Inc (NASDAQ:SWKS) had reported a strong set of first-quarter numbers and issued a strong outlook back in January, and the recently-released second-quarter report wasn’t bad either.
Solid, almost!
Skyworks Solutions Inc (NASDAQ:SWKS) posted revenue of $425.2 million, up 17% from the prior-year period and better than the $420 million consensus estimate. Non-GAAP net income grew 15% from the prior year period to $92 million, or $0.48 per share, ahead of the consensus estimate of $0.47 a share. An estimate-toppling quarter was accompanied by a mixed outlook, as Skyworks expects to earn $0.53 a share in the ongoing quarter on revenue of $435 million.
In comparison, the Street expected Skyworks Solutions Inc (NASDAQ:SWKS) to earn $0.52 a share on revenue of $444 million. Thus, the outlook is a bit mixed and led to a mini sell-off as Skyworks’ shares dropped around 3% post earnings. However, it should be noted that the ongoing quarter is typically a slow one for chip-makers such as Skyworks, as no marquee mobile device is ideally released in this period.
Revving up
With Samsung’s latest flagship product already launched, Skyworks has already had a ride with Sammy by supplying a lot of content for the Galaxy S4. However, since Samsung is witnessing extraordinary demand for the handset, this might lead it to stretch production further, which means that Skyworks Solutions Inc (NASDAQ:SWKS) could witness further demand if such a thing happens.
Nevertheless, Skyworks is looking to utilize this transition period effectively by ramping up its high-margin solutions and winning more content. The effects of such moves will be seen in the next quarterly results as Skyworks expects its gross margins to expand 130 to 180 basis points on a sequential basis. And as far as revenue is concerned, I expect Skyworks Solutions Inc (NASDAQ:SWKS) to guide for a better September quarter when it releases its results three months down the line.
As Fool analyst Anders Bylund had pointed out earlier this year, Foxconn (a proxy for Apple Inc. (NASDAQ:AAPL)) accounted for 29% of Skyworks’ revenue in the previous fiscal year. Now, if the next version of iDevices arrives in September as rumored, Skyworks should post a better top line in the second half of the year. Also, as Apple Inc. (NASDAQ:AAPL) might look to the emerging markets to keep its growth momentum intact, it might introduce a low-cost iPhone to enter the field in these markets.
While such a move would expand the playing field for Apple Inc. (NASDAQ:AAPL), it would also mean that Skyworks will have another device to supply content to apart from gaining entry into a rapidly-growing market. However, it’s not just Apple Inc. (NASDAQ:AAPL) and Samsung from where Skyworks is expecting growth to come from.
A vast addressable market
The growth in the number of connected devices around the globe is a huge opportunity for Skyworks as they would require RF and analog solutions that the company provides. It is targeting various end-markets such as automotive, industrial, healthcare, etc. Skyworks is providing the lead reference design for different applications, such as street lighting, telematics, utility metering, etc., to Texas Instruments Incorporated (NASDAQ: TXN) apart from supplying switch modules to various car makers for infotainment consoles.
Moreover, massive growth is expected from the Chinese-smartphone market, where consumers are upgrading from 2G devices to budget smartphones. Skyworks Solutions Inc (NASDAQ:SWKS) has partnerships with well-known local phone makers such as Lenovo, ZTE, Huawei, etc.
As management pointed out on the earnings call, Credit Suisse forecasts that more than 450 million units of smartphones will be shipped by local Chinese vendors this year. Since most of them would probably be 3G devices, Skyworks should see better revenue going forward as 3G phones carry higher-margin content.
The bottom line
Skyworks is not just a smartphone play. Rather, the company is one of the best ways to profit from the growth in connectivity around us. Be it smartphones, cars, connected homes, LTE, GPS, NFC, etc., Skyworks is positioning itself well to derive the maximum benefit out of this boom. The company is aiming to put in $10 to $12 worth of addressable content in each high-end device in the future, and the growth in various connectivity options should aide it in its quest.
Also, with a forward P/E ratio of just 9, $459 million in cash, no debt, and a PEG ratio of just 0.71, I believe Skyworks is worth taking a look at.
The article Don’t Miss This Smart Way to Benefit From Growth in Connectivity originally appeared on Fool.com and is written by Harsh Chauhan.
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