Margin and cash-flow metrics for Skyworks Solutions, Inc. (NASDAQ:SWKS) remain among the best in the semiconductor group, according to one analyst
Capital Ideas Media | March 12, 2021 | SmallCapPower: Our readers continue to ask us for 5G-related investing ideas and we’re more than happy to oblige. Skyworks Solutions, Inc. (NASDAQ:SWKS) is a leader in the production of high radio frequency (RF) semiconductors, making wireless chips for mobile devices, home automation, automotive wireless infrastructure, and industrial markets.
(Originally published on Capital Ideas Media on January 26, 2021)
The Company, though, generates almost 70% of its revenue from selling mobile chips and 56% of its sales in Fiscal 2020 came from a single customer – Apple Inc. (NASDAQ:AAPL).
[Editor’s Note: Shares of Skyworks Solutions have gained more than 6% since Capital Ideas wrote about the company about six weeks ago.]
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As most people know, Apple has already begun selling its 5G iPhone 12, which Wedbush analyst Daniel Ives believes will mark Apple’s “most significant product cycle” since the iPhone 6 in 2014.
And, market research firm International Data Corporation (IDC) estimates that 5G smartphone shipments in the U.S. could increase at a compound annual growth rate (CAGR) of more than 150% through 2024.
Apple’s iPhone 12 contains eight Skyworks radio frequency modules and Skyworks estimates that each 5G device maker will need spend nearly 40% more on it semiconductors than were required in a 4G device.
Yet the Company’s success isn’t entirely tied to Apple. Skyworks saw its Q4 2020 revenue climb 16% to $957 million, driven by rising demand for its 5G chips from several smartphone original equipment manufacturers (OEMs), including Samsung, Xiaomi, Oppo, Vivo, and others.
Skyworks also expects its Q1 2021 revenue to rise 16% to 19% year over year, with about 23% growth in its adjusted earnings, as the Company also sees increased demand across its other end markets, including Wi-Fi and Bluetooth connectivity.
Amazon, for example, is utilizing the Skyworks 802.11ax Wi-Fi solution in its mesh Wi-Fi 6 router for use in smart homes.
In addition, automakers such as Daimler have contracted Skyworks to power their connected cars, with 73% of vehicles expected to have cellular connectivity by 2024 according to Skyworks.
Skyworks technology can even be found in Facebook’s Oculus Quest 2 virtual reality headset, making the wireless VR experience possible.
Benchmark analyst Ruben Roy wrote recently that Skyworks’ margin and cash-flow metrics remain among the best in the semiconductor group, while viewing the Company as a longer-term beneficiary of increasing RF content in mobile and broader end markets.
J.P. Morgan analysts, meanwhile, believes Skyworks is open to further M&A as it has employed a disciplined approach to making acquisitions in the past.
Finally, management’s confidence in the company’s future has been shown through a 14% quarterly dividend hike this past summer (current yield is 1.2%) as well as a 13% reduction its shares outstanding during the past five years as a result of ongoing stock buybacks.
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