One Turnaround Opportunity That You Shouldn't Miss

Apple (AAPL) suppliers have taken a beating over the last few months due to the persistent reports highlighting the decline of the iPhone 6S sales. Unsurprisingly, shares of Apple suppliers have retracted on the news as well. Last month investors’ fears came to reality when Apple reported a weak quarter and guided for lower sales in for the upcoming.

While Apple suppliers have been understandably retracted, I think shares of Skyworks Solutions (SWKS) have been unfairly punished.
Despite Skyworks Solutions’ diverse business model, shares of the company have mirrored the downfall of Apple. I think Mr. Market has made a mistake in valuing Skyworks Solutions and believe that the stock has massive upside potential. Thus, I think investors should consider adding Skyworks Solutions to their portfolios on the pullback.

A new Concern

According to the market analyst estimate, over one third part of the company’s overall revenue comes from Apple’s orders for its RF components. This clearly indicates that if sales of Apple’s iPhone drop annually in 2016, which it most will, Skyworks Solution will also face the consequences of it. However, I think all the negative effects of the iPhone sales slowdown are already baked in Skyworks Solutions’ share price and the stock should continue moving higher from the current levels.

Skyworks Solutions manufactures RF chips for all types of smartphones. Skyworks’ SkyOne Ultra front end component is powered in high-end devices like Samsung’s Galaxy S6 and Apple’s iPhone 6S, whereas, its One Mini front end component can be seen in several low to mid-range devices.

Skyworks Solutions does not exactly reveal how much of its top line arises from Apple, but it proclaimed that one customer accounted for more than 10 percent of its overall top line, in its 10-K filing for FY15. If Apple accounts to be that customer and the real percentage is near to 10, then worries about the company’s dependence on Apple could be inflated.

Furthermore, this dearth of transparency on the subject of Apple’s orders can injure Skyworks stock. In previous quarter, the company’s Apple’s iPhone shipments ascended only 0.4 percent on a yearly basis and the company predicts overall top line to plunge in the range of 8.6 percent to 13.7 percent year over year in the second quarter.

Conclusion

Skyworks Solutions has consistently diversified its revenue stream and I believe that the stock is being unfairly punished by the market for being an Apple supplier. Although Apple’s declining iPhone sales will have a negative impact on Skyworks Solutions, I think the concerns are already baked in Skyworks Solutions’ share price. Hence, I think Skyworks Solutions is a stock that investors shouldn’t miss out on.
Published on Feb 25, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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