Hip Chips Put Skyworks In Cars, Phones And Fitbits

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Skyworks Solutions expects to generate nearly a billion dollars in revenue during the first half of fiscal 2014 as the wireless-chip supplier capitalizes on explosive demand for connectivity and consumers' desire for anytime, anywhere access.

Woburn, Mass.-basedSkyworks ( SWKS ) develops and manufactures high-performance, increasingly complex analog semiconductor devices -- amplifiers, isolators, attentuators, diodes, mixers, modulators and switches, to name a few. It employs about 5,000 employees at facilities in the U.S., Mexico, Asia and Europe.

Skyworks' technology ends up in mobile phones, tablets and an increasing array of cutting-edge products -- from sensor-laden cars to smart thermostats, video game consoles, high-end televisions and even fitness-tracking wristbands.

The Innovator Crowd

David Aldrich, Skyworks' president and CEO since its birth in 2002, told IBD that his company embraces a three-pronged approach when providing solutions so its customers can better connect people, places and things, often in ways previously not imagined.

"We focus on markets that are exhibiting or have potential for growth, then look to be very focused on adding value to customers by understanding what matters most to them and bringing products that improve their system performance," he said.

"The third leg of the stool is having operations that are extraordinarily numbers- and metrics-driven. We have systems and measurements in place so we know exactly how products are performing on behalf of customers and can continuously improve them in terms of delivery, performance, quality, yields and cycle times."

New product launches and an aggressive push into new markets have helped drive recent revenue growth, said Donald Palette, Skyworks' chief financial officer.

Revenue rose 11% year-over-year to $505.2 million in fiscal 2014's first quarter (which ended in December), beating analysts' consensus estimate. Operating income increased 24% to $141.8 million. Earnings per share rose to 67 cents from 55 cents, topping guidance and outdoing analysts' estimates by a cent.

Skyworks anticipates another 11% year-over-year jump in revenue to approximately $470 million in Q2, with earnings per share increasing 23% to 59 cents, Palette said. Analysts polled by Thomson Reuters expect revenue of $470.24 million and EPS of 59 cents when Skyworks reports the quarter on Tuesday, April 22, after the stock market close.

Skyworks' financial performance comes amid increasing consolidation in the industry. Two of Skyworks' main competitors -- Hillsboro, Ore.-basedTriQuint Semiconductor ( TQNT ) and Greensboro, N.C.-basedRF Micro Devices ( RFMD ) -- announced a "merger of equals" in February. The merger is to be finalized this year, pending approval from regulators and both companies' shareholders.

Further consolidation in the semiconductor industry may create an environment in which there is less likelihood of aggressive pricing of products than in the past, said Craig Ellis, senior analyst at B. Riley & Co.

JMP Securities analyst Alex Gauna says that Skyworks' key driver now and for the foreseeable future is the smartphone market. This situation, he says, has concerned some investors as sales growth for high-end smartphones, specifically theApple ( AAPL ) iPhone and Samsung Galaxy F4 and F5, has slowed.

"That being said, some of (Skyworks') growth, some of their opportunity on top of that, is driven by fitness wearables that are wireless (and) by home automation," Gauna said. "They're in a lot of new automotive applications. The automobile is so sensor-intensive now, with a lot of RF (radio-frequency) and analog content that Skyworks can provide."

Connected Cars

In the first quarter, Skyworks reported that its technology will help enable navigation-assist capabilities in some of next year'sVolkswagen ( VLKAY ) models and will go intoEricsson 's (ERIC) 4G LTE mobile broadband base stations,Philips ' (PHG) wearable technologies and wellness applications, and enhanced video-streaming applications for TV set-top boxes, Blu-ray/DVD players and LED/4K television.

Nest, whichGoogle (GOOGL) recently bought for $3.2 billion, uses Skyworks technology in its intelligent thermostats and smoke detectors. Fitbit is employing Skyworks' products in wristband fitness systems.

Ascendiant Capital Markets senior research analyst Cody Acree says that Skyworks is "very well respected in the sense that they have a proven track record as having one of the broadest product portfolios that is fresh and delivered on time."

Skyworks has consistently reinvested in R&D -- $58.4 million in Q1. Analysts say that it has nearly 1,000 patents and supporting intellectual properties. "While they're investing more in the future than their peers, they're also showing the best operating profit of their peer group," analyst Gauna said.

Acree believes that Skyworks has positioned itself to provide a broader array of product solutions to more companies that are connecting devices to the Internet.

"Today there are roughly 10 billion devices connected to the Internet, whether that be handsets, smartphones or home appliances," Acree said. "By 2020, that's expected to be between 50 billion and 75 billion."

'Internet Of Things'

Aldrich said the billions of connected devices that make up the "Internet of Things" will be enabled by a combination of sensors, microcontrollers and, most importantly for Skyworks, power-management and connectivity solutions, which dramatically expand Skyworks' prospective markets.

Skyworks sees promising opportunities in medical devices, gaming platforms, military and aerospace, smart energy and industrial markets, some of which already are boosting the firm's bottom line.

In fiscal 2013, revenue grew 14% to $1.79 billion. Operating income grew 19% to $457 million, or 26% of sales. Skyworks generated half a billion dollars in cash flow from operations and repurchased more than 8 million shares of common stock.

Analysts' consensus EPS estimate for the fiscal year ending in September 2014 is $2.61, and $2.91 for fiscal 2015. Skyworks delivered $2.20 in fiscal 2012 and $1.90 in fiscal 2011.

For revenue, analysts expect about $2 billion for the fiscal year ended September 2014 and $2.193 billion for fiscal 2015.

Looking ahead, Ellis said that Skyworks could significantly benefit as telecom carriers in emerging countries upgrade from voice-only 2G phones to 3G smartphones.

In China, carriers are transitioning from 3G service to LTE services for customers.

"Skyworks is likely to have a very strong share position in what could be 70 to 100 million phones produced for sale into the Chinese market," Ellis said.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: SWKS , TQNT , RFMD , AAPL , VLKAY

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