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Skyworks Solutions (NASDAQ: SWKS) has been sucked into the whirlwind of the general weakness of the semiconductor industry. The chip maker's shares are now trading near their 52-week low, after underperforming the market for most of the year.
Pessimism, however, may disappear once Skyworks publishes its fourth quarter results on November 8th. Skyworks has strong short- and long-term catalysts that can boost investor morale. supported bull run from there. Let's see why.
Source of the image: Getty Images.
The key catalyst
Apple (NASDAQ: AAPL) Skyworks has been a major contributor to Skyworks' sales growth over the years, but Cupertino's goal of increasing average sales prices for its iPhone range, while unit sales growth has flattened turnover of the manufacturer. Indeed, Skyworks still achieves between 35% and 40% of its turnover from Apple and a decline in the number of iPhone units manufactured is certainly not good news for the company.
But the status quo could change as Skyworks has gained a lot of space in the new iPhones. For example, the iPhone XS Max, a flagship product, contains eight Skyworks chips. according to a disassembly of the device. In comparison, the flagship iPhone X last year had five Skyworks chips, according to a device disassembly by iFixit.
The iPhone XS would contain five of the Skyworks chips. Although there is still no news of the iPhone XR, I expect Skyworks to keep its power amplifier modules and RF switches in the future. Device, as they had indicated for the models of the iPhone 8 last year.
It seems that the chip maker holds a prominent place in the entire Apple iPhone ecosystem, which opens the way for Skyworks to exploit a potential cycle of upgrading the iPhone. A recent study indicates that nearly half of Apple's US customers plan to switch to a new iPhone over the next year. In comparison, only 25% of consumers surveyed expressed their willingness to upgrade in June 2017.
A large cycle of upgrades would help the company to grow faster than anticipated by Wall Street. The chip maker's business figure is expected to grow only 1.8% from the fourth fiscal quarter, closed in September, followed by a slower increase of only 1.6% in the following quarter.
This is far from the strong growth recorded by Skyworks last year, as its revenue for the quarter ended in September had increased by 18% per year, while those for the quarter ending in December had increased by 15% . There is a good chance that the chip maker will exceed market expectations this time thanks to a closer relationship with Apple, although this is not the only catalyst that benefits the company.
Another great opportunity
Skyworks has gradually strengthened its presence in the Internet of Things (IoT) space. It now generates about 30% of its revenue from non-mobile sources through its partnerships with Sierra Wireless, BMW, General Motors, and whitefish, among others. These customers are working on different IoT niches, cars connected to smart homes, which puts Skyworks in a prime position to generate substantial gains from this technology trend.
For example, Skyworks wireless chips are used by Philips to power its connected streetlights. It is highly likely that Skyworks' IoT business will experience another period of strong growth in the fourth quarter.
But the most important point to note here is that IoT is not a quarterly catalyst for Skyworks. Ericsson estimates that there will be 18 billion IoT devices online by 2022, compared with less than 6 billion just two years ago. This would create the need for more connectivity chips sold by Skyworks.
It's time to go long
Overall, the next quarterly report could spark a turnaround and help Skyworks get out of the rut it was in this year. It would be wise to buy Skyworks Solutions now because the stock is currently cheap, with a price / earnings (P / E) ratio of 17. This is lower than the industry average P / E ratio of around 22.
Harsh Chauhan has no position in the mentioned actions. Motley Fool owns shares and recommends Apple, Sierra Wireless and Skyworks Solutions. The Motley Fool offers the following options: Long calls from $ 150 to January 2020 for Apple and short calls from $ 155 to January 2020 on Apple. The Motley Fool recommends BMW. Motley Fool has a disclosure policy.
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