Is Skyworks Solutions a Screaming Buy?

Skyworks Solutions (SWKS) announced second quarter ended April 01, 2016 net revenue of $775.1 million, up 2 percent year-over-year from $762.1 million during the same period last year.

Skyworks declared second quarter of 2016 adjusted operating income of $285.0 million or $1.25 per diluted share, up 10 percent year-over-year from $258.9 million or $1.15 per diluted share in second quarter of 2015.

The key semiconductor technology company reported continued year-over-year growths in both its top and bottom line primarily driven by a hugely differentiated products portfolio and rising diversification.

A closer look at the growth  

Importantly, Skyworks has illustrated notable earnings power with solid top line expansion, enhancing growth opportunities in key high development markets, impressively utilizing the major contributions from high-growth business model and significant financial returns including, ROIC, cash flow and earnings per share.
Further, Skyworks is continuing to deliver attractive sales expansion at 20% CAGR coupled with gross margin and operating margin growths of 480 bps and 1150 bps respectively. Moreover, Skyworks is consistently committed towards delivering significant returns to investors and it has uniquely returned approximately 41% of total free cash flows from fiscal years 2013 till 2015.

The innovative superior performance semiconductor provider recently expanded its products portfolio with advanced antenna tuning product offerings through strategic additions of many innovative high-performance solutions. These advanced antenna tuning solutions are believed to increasingly address the problem faced by several mobile device makers in product designing with smartphones increasingly becoming smarter, integrating higher cellular bands, utilize superior case material and smartphones becoming thinner. These sophisticated aperture tuners for mobile antennas allow for advanced data throughput with smaller footprints, lowering call drop incidences and enhancing overall consumer experience.

The attractive semiconductor products development capability of Skyworks coupled with a solid financial position is expected to drive sustainable long-term company growth while delivering impressive shareholder returns in form of planned share repurchases and outstanding dividends.

Factors to drive growth  

There’s significant demand for bandwidth as data usage and storage increases exponentially with a huge expansion in addressable content for supporting data driven by superior tuning growth, impressive diversity, MIMO and notable band spread. Customers are increasingly demanding advanced systems solutions which is believed to enhance the company’s footprint and deliver growing Skyworks content.

Also, the worldwide adoption of 4G data services is still in its early stages with over 2.5 billion new connections estimated through 2019. Going forward, Skyworks targets on significantly expanding SAM capabilities with about $7 billion of key investments expected for 2015 and over $10 billion worth of growth opportunities till 2018.

The latest communication devices being manufactured are much more than only hardware with the advanced communication devices considered to be the entry point for an array of services and software. Skyworks is focused on ensuring unified connectivity, increasing battery life and improving signal strength. Moving ahead, the cellular Internet of Things ("IoT") connections are estimated to grow at a CAGR of nearly 21% till 2020 starting in 2015, increasing growth opportunities to utilize its core competencies. The seamless internet connectivity is expected to be expanding significantly at 35% CAGR from 2014 till 2019 all through the well-diversified markets.

Skyworks seems extremely well-positioned for leading the global mobile technological advancement through its advanced set of key RF solutions that are ready to impressively implement 4G communication technology across the globe while uniquely making strategic technological investments to start developing 5G mobile communication infrastructure solutions.


Overall, the investors are advised to “Hold” their position in Skyworks Solutions Inc. considering the company’s satisfactory near-term and longer term growth prospects, represented by a PEG ratio of 0.70. The profit margin of 29.32% also seems attractive. However, Skyworks needs to optimize its debt-burdened balance sheet to avoid prospective growth restrictions.
Published on Jul 29, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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