EUR 850.00 For Business Accounts Only

Morningstar | Business Remains Steady for Narrow-Moat Skyworks and We Like the Firm's Gross Margin Expansion

Skyworks Solutions reported solid fiscal third-quarter results and provided investors with a fourth-quarter forecast (and even some hints for the December quarter) that were relatively in line with our prior expectations. The firm remains one of the industry leaders in a variety of radio frequency, or RF, parts used in wireless communications and continues to prosper from both the smartphone market and Internet of Things applications. We will maintain our $106 fair value estimate for narrow-moat Skyworks, and with shares up about 3% after hours, the stock appears fairly valued to us today.

Revenue in the June quarter was $894 million, down 2% sequentially and down 1% year over year, but toward the high end of the firm's previously forecast range of $875 million-$900 million as discussed in May. Broad market sales, including Internet of Things and non-smartphone applications, fared well, making up 30% of revenue and growing at a low- to mid-teens pace year over year, per management. Mobile RF chip sales were down both quarter over quarter and year over year, but we're not alarmed as RF suppliers typically face a lull in the summer months in preparation for Apple's next iPhone launch in the autumn, and the company fully expects to sell a healthy amount of RF content into Apple's next generation device. Despite the lower sales levels, we were pleased to see adjusted gross margins expand 20 basis points to 50.9%.

For the September quarter, Skyworks foresees 11%-13% revenue growth, along with 10 to 60 basis points of adjusted gross margin expansion to the 51.0%-51.5% range. In turn, Skyworks should earn mid-single-digit revenue growth for all of fiscal 2018 despite some lost sales at ZTE and a sluggish smartphone market. Nonetheless, the firm again appears well positioned at Apple and other leading smartphone vendors in the near-term.