Skyworks is a semiconductor company that manufactures chips to refine and process analog signals. In a sense, these chips take weak signals and refine them, passing along a stronger signal.
Though Skyworks boasts an impressive client list — Apple Inc. (NASDAQ:AAPL), Samsung, Cisco Systems, Inc. (NASDAQ:CSCO), and General Electric Company (NYSE:GE), to name a few — this doesn’t make up for the risks of being involved with an overcrowded market. Skyworks Solutions Inc (NASDAQ:SWKS)’s chip in the iPhone 5, for instance, competes with chips from TriQuint Semiconductor (NASDAQ:TQNT) and Avago Technologies Ltd (NASDAQ:AVGO). As fellow Fool Anders Bylund noted, “This company simply cannot afford to rest on its voluminous laurels, or its largest customers would easily be able to source their radio chips from other designers.”
On Feb. 22, QUALCOMM, Inc. (NASDAQ:QCOM) unveiled plans for its own radio frequency chip, adding to the already challenging market. This certainly isn’t good news for Skyworks. Analysts at Raymond James responded immediately with a downgrade on Skyworks Solutions Inc (NASDAQ:SWKS)’s stock.
At almost 19 times earnings, Skyworks is just too expensive. The uncertainty involved does not support such a premium.
Even America’s best companies are not always great investments. Although exemplary interactions with customers, employees, investors, and the world are factors that definitely play a role in valuation, they are no substitute for the basics. There are two major missing components here for a complete valuation: evidence of a company’s competitive advantage, and a justifiable price. Both Teradata and Skyworks fail these tests.
The article Are America’s Best Tech Companies Actually Good Investments? originally appeared on Fool.com and is written by Daniel Sparks.
Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple, Cisco Systems, Google, and Teradata. The Motley Fool owns shares of Apple, General Electric Company, Google, International Business (NYSE:IBM) Machines, Microsoft, Oracle, Qualcomm, and TriQuint Semiconductor.
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