Skyworks Solutions: the Cons of Being an Apple SupplierAAPL) supplier was a blessing. I was certain that Apple suppliers would have a great year before the launch on the iPhone 6, which is why I recommended buying the likes of Skyworks Solutions (SWKS), RF Micro Devices, TriQuint, Broadcom (AVGO), and NXP Semiconductors (NXPI).
Most of these stocks doubled in the next 12 months, and my favorite picks, Skyworks Solutions and RF Micro Devices witnessed terrific gains.
Success dependent on Apple
As mentioned above, despite Skyworks Solutions’ diversification efforts, Mr. Market has tied the company’s success to Apple. And since Apple has been struggling ever since the launch of the iPhone 6S, Skyworks Solutions has lost over 30% of its value from its all-time highs.
The smartphone market is in saturation and in Q1 2016, the overall market shrunk for the first time. Going forward, smartphone shipments will slow down drastically. This will have a negative impact on Apple, which in turn will push the shares of Apple suppliers like Skyworks Solutions lower. Although Skyworks Solutions has done well to diversify its revenue stream, it still generates over 20% of its sales from Apple.
Skyworks Solutions’ success is still tied to Apple, and since I expect Apple sales to stay weak for the foreseeable future, I think investors should expect Skyworks Solutions to stay under pressure.
Being strong armed
Another con of being an Apple supplier is that Apple can easily force the suppliers to sell their products at a lower price. In the past, pressure from Apple has resulted in the bankruptcy of GT Advanced Technologies, and also hurt the sales of Cirrus Logic. Since both these companies relied heavily on Apple for sales, the Cupertino giant used it as a bargaining chip to improve its margins.
That being said, since Skyworks Solutions has a diversified revenue stream, the chances of Apple putting pressure on the company are less. Nonetheless, it is a risk.
Being an Apple supplier is not a blessing anymore. With iPhone sales expected to stay weak, I think investors should sell Skyworks Solutions despite it being over 30% lower than its all-time highs.
Published on Jun 10, 2016By Ayush Singh