Why You Should Buy This Beaten-Down Apple Supplier

Apple suppliers have taken a beating over the last few weeks. The reports about tepid iPhone sales and Apple slashing its production have had a huge negative impact on the stocks of Apple suppliers. While there’s a chance that Apple will witness its first year-over-year decline in iPhone sales this year, it doesn’t justify the pullback in Skyworks Solutions stock (SWKS).

Skyworks is my favorite Apple supplier primarily because of the fact that the chipmaker only derives about 20% of its revenue from the Cupertino giant.

Skyworks has been making headway in many other markets and a decline in iPhone sales will not have a huge negative impact on the company.

In addition, Skyworks’ dollar-content in the iPhone 6S was reported to be more than in the iPhone 6. The increasing dollar-content will likely make up for any loss in iPhone sales. However, the market doesn’t seem to realize that as shares of Skyworks have plummeted over 20% in the last few weeks.

Investors should use this weakness to buy Skyworks as the stock is currently overvalued and a better-than-expected earnings report will drive the share price a lot higher. Skyworks has beaten analysts’ estimates and raised guidance for each of the last six quarters and I expect this trend to continue. A strong earnings report will make investors realize that Skyworks is not tied to Apple and that the company can continue growing even if iPhone sales fall.

Another factor that put downward pressure on Skyworks’ was the news regarding competition from Qualcomm. It was recently reported that Qualcomm is forming a major RF filter and front-end module JV with Japanese filter maker TDK.

While Qualcomm can pose a threat, investors shouldn’t worry about it right now. Qualcomm’s products will take years before hitting the market and I strongly believe that Skyworks would have fortified its market position by then.

MKM’s analyst Ian Ing said: “For RF incumbents, the silver linings are: (1) TDK Epcos has less filter design iterations and manufacturing experience, likely resulting in good but not great products; (2) barring superior products, big OEM customers will likely be reluctant to decrease supplier diversity and concentrate more content with QCOM; and (3) using QRVO as a proxy, the RF360 JV likely won’t be producing integrated, jointly developed products until 18-24 months from now."

So, the recent pullback looks irrational and has pushed Skyworks’ stock into deep value territory.


Skyworks is trading at 15x trailing earnings and given the company’s growth prospects, the valuation is dirt cheap. The market has tied Skyworks’ potential with Apple, however the company has a diversified business model and can sustain growth even if Apple’s sales slowdown. In addition, the threat from Qualcomm will have no negative impact on Skyworks for at least two years and investors shouldn’t worry about that now. All things considered, I think Skyworks is really undervalued and is a buy.

Published on Jan 14, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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