Skyworks Rides on Solid Demand, Stiff Competition a Concern – August 25, 2017

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On Aug 25, we issued an updated research report on MA-based Skyworks Solutions Inc. (SWKS Free Report) . The company designs, manufactures and markets a broad range of high performance analog and mixed signal semiconductors that enable wireless connectivity.

Notably, the company has beaten the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 3.06%.

The company reported better-than-expected fiscal third-quarter 2017 results. The top- as well as the bottom line surpassed the respective Zacks Consensus Estimate and improved significantly year over year. Management also provided an optimistic guidance for the third quarter.

However, delay in the launch of Apple’s (AAPL Free Report) iPhone 8 is disrupting the company’s supply chain. Additionally, the weakness in China market demand due to unsold inventory is another headwind for the company.

Skyworks stock has gained 38.5% year to date, outperforming the 32.6% rally of the industry it belongs to.

Key Factors

Strong demand for Wi-Fi, Zigbee and LTE solutions have helped the company to gain traction. During the third quarter, the company delivered ZigBee and Wi-Fi devices for Amazon’s (AMZN Free Report) virtual assistants and ramped up LTE MIMO solutions for leading infrastructure OEMs.

With a customer base comprising the likes of Cisco (CSCO Free Report) in MIMO gateways, Nintendo in its Switch Gaming console; Fitbit, Garmin and LG, the company is on a strong growth trajectory. Notably, the upcoming 5G upgrade cycle is also a major positive for the company.

However, customer concentration remains a risk as a significant portion of Skyworks’ revenues comes from a handful of customers, particularly Apple.

Moreover, slow growth rate of the smartphone market and piled up inventories with Chinese smartphone providers are headwinds.

Skyworks also has to watch out for intense competition and pricing pressure in the market. Its competitors in the mobile platforms market include Broadcom and Qorvo, while in the linear products market it faces competition from Analog Devices, Hittite Microwave, Linear Technology and Maxim Integrated Products.

Zacks Rank & Other Stocks to Consider

Skyworks currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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