Morningstar | Skyworks Solutions Is One of Our Best Ideas in the Tech Sector; Maintain $113 Fair Value Estimate
We continue to see an attractive margin of safety for investors in narrow-moat Skyworks Solutions, as we have added the stock to our Best Ideas list as the firm trades at a substantial discount to our $113 fair value estimate. We believe the company has sold off in recent weeks due to concerns about Apple's iPhone sales in late 2018, as Skyworks earned 47% of its revenue from Apple (mostly within the iPhone) in fiscal 2018. Various industry reports and near-term forecast cuts by Apple suppliers suggest that iPhone unit sales will be down year over year, which likely bodes poorly for any iPhone unit growth earned by Apple (and, in turn, iPhone suppliers) until the next iPhone refresh in September 2019. Yet by our calculations, Skyworks' stock is priced as if the firm will lose the majority of its iPhone revenue in the years ahead. We don't foresee iPhone unit sales falling off of such a cliff, although lengthening replacement cycles may provide some modest headwinds over time.We think Skyworks' radio frequency chip content within the iPhone is safe, as Skyworks is one of a small handful of RF suppliers that have the capacity and expertise in RF chip design, manufacturing, and packaging needed to supply billions of parts worldwide. For similar reasons, we also don't foresee Skyworks taking a massive haircut on RF chip pricing in the years ahead, as wireless radio signals continue to only increase in complexity. Certainly, customers like Apple and Samsung wield significant buying power, but these customers also have few RF alternatives. Skyworks has fought off such pricing pressure for the bulk of this decade, and we think it'll continue to do so as 5G networks arrive. All the while, Skyworks is one of the few firms with enough RF expertise to satisfy its customers' challenges in 4G network expansion and the oncoming shift to 5G. Skyworks should continue to fare well not only at Apple but also at other Android device makers and non-smartphone devices.
For further insight into the 5G RF landscape, please refer to our October 2018 special report, "Filtering the 5G Radio Frequency Landscape."
Skyworks Solutions is a provider of analog semiconductors that connect people, places, and things, spanning a number of applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. The company's product portfolio consists of various solutions, including: amplifiers, antenna tuners, attenuators, circulators/isolators, wireless analog system on chip, direct current (DC)/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrid, light emitting diode drivers, low noise amplifiers, mixers, and modulators.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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