There was no doubt that chipmaker Skyworks Solutions Inc (NASDAQ:SWKS) would spring back to life in the second half of the year, and the company’s latest quarterly report and outlook indicate the same. Skyworks Solutions Inc (NASDAQ:SWKS) beat estimates in the third quarter and its outlook for the ongoing quarter was also ahead of Wall Street estimates.
So, it is no surprise that the stock, which has been under pressure so far this year, is trading up around 7% as of this writing. The latest earnings results confirm the strength of the company’s business and those who have been critical of the company as just an Apple Inc. (NASDAQ:AAPL) supplier should now take note.
Strong as ever
Skyworks is landing more contracts and is well-positioned to benefit from the mobile boom, given the fact that its chips enable connectivity in mobile devices and other applications. Smartphone growth in China and some of the choicest clients in the industry make Skyworks a good bet to ride the growth in connectivity, be it mobile devices or other connectivity applications.
The company is pushing for diversification across various markets, is highly-focused on innovation, and has a diversified customer base. Considering these factors, it doesn’t come as a surprise that Skyworks Solutions Inc (NASDAQ:SWKS)’ revenue came in better than analyst estimates. It posted revenue of $436 million, up 12% from last year and marginally ahead of consensus expectations. But, more importantly, it expects revenue of $475 million for the ongoing quarter, which is again ahead of expectations.
As far as earnings are concerned, Skyworks Solutions Inc (NASDAQ:SWKS) earned $0.54 a share on an adjusted basis, a penny ahead of estimates, and its expectation of $0.62 a share for the ongoing quarter is again better than the Street estimate of $0.60. To prop up earnings further, Skyworks’ management will be buying back $250 million worth of shares over the next couple of years, which is a prudent move as the company has ample cash and no debt, and at the same time, is investing in research and development as well.
Going forward, one can expect even better performance from the company. As mentioned earlier, Skyworks is looking to expand into more markets and its product innovation is driving margins. Its investments in more efficient and better performing analog solutions has led to margin expansion, as evidenced by a 200-basis-point improvement in gross margin from last year to 44% in the quarter.
So, as these high margin products gain more traction, Skyworks Solutions Inc (NASDAQ:SWKS) should see further gross margin expansion, and the same is expected to happen in the current quarter where it is expecting gross margin of 44.25%.
Big, big opportunities
As far as opportunity to sell its products is concerned, there is no dearth of it. The booming market for smartphones in China, where users are now moving to 3G devices, is one big opportunity for Skyworks. So, Skyworks will find more takers for its higher-margin 3G chips as a result of Chinese smartphone growth. In addition, the company is of the opinion is that the growing complexity of connectivity solutions will lead to a bump in its addressable market.
So, once the migration to 4G devices in China begins, Skyworks will have an even bigger playing field at its disposal. Presently, telecom major China Mobile Ltd. (ADR) (NYSE:CHL) is the one looking to roll out LTE in the nation. It began testing its TD-LTE network earlier this year in Guangzhou and Shenzen and is expected to officially roll out its network for public use next month. Once China Mobile Ltd. (ADR) (NYSE:CHL)’s LTE network is deployed, we should see more devices supporting the technology and Skyworks Solutions Inc (NASDAQ:SWKS)’ addressable market should increase further; and probably at higher margins.