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Apple Inc. (AAPL), Skyworks Solutions Inc (SWKS): Do Not Miss This Smart Way to Benefit From Growth in Connectivity

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Apple Inc. (NASDAQ:AAPL)After struggling so far this year, radio frequency (RF) solutions provider Skyworks Solutions Inc (NASDAQ:SWKS)’ second-quarter report and subsequent outlook might just provide the stock some much needed impetus. The company has been dogged by a plethora of negative news, ranging from Apple Inc. (NASDAQ:AAPL)’s order cuts and falling iPhone demand to QUALCOMM, Inc. (NASDAQ: QCOM)’s possible entry into the RF market.

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.

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