Skyworks Solutions Stock Forecast: Enabling Networks - Financhill

Skyworks Solutions Stock Forecast: Enabling Networks

Skyworks Solutions Stock Forecast: When the iPhone launched in 2007, consumers were delighted. At last, a touchscreen smartphone with intuitive features that mirrored the extraordinarily popular line of iPods.

How Network Speed Changed The Game

Most consumers weren’t quite ready to invest hundreds of dollars to upgrade their flip-phones, but that all changed when Apple announced the iPhone 3G in 2008. Users were awed by the tasks they could accomplish with the faster connection.

Other smartphones followed in rapid succession from companies like South Korea’s Samsung, China’s Huawei, and Finland’s Nokia. While traditional flip-phones were still selling briskly, the global movement towards smartphones gathered steam. By 2010, all eyes were on emerging 4G technology, which offered mobile internet speeds up to 500 times faster than 3G.

When the faster speeds became widely available, smartphones saturated the market. Consumers were happy to pay for the new devices that offered easy web browsing and high-quality video calls.

With 4G, users can participate in real-time gaming, and wireless cloud-based offices are a reality. More importantly, 4G technology has transformed disaster alert procedures, and it gives first responders on-the-go connectivity.

The sleek designs and dazzling features of mobile devices are only window dressing. The true power comes from semiconductor chips that make 4G connectivity possible. Companies like Skyworks Solutions design and manufacture the chips, giving life to the digital revolution.

The next big advancement in wireless technology promises to be the rollout of 5G networks. Connected devices will deliver speeds up to 100 times faster than 4G, opening the door to the applications of the future.

The new 5G network will be capable of managing a massive number of connected devices, eliminating capacity challenges faced by current technology.

Skyworks [NASDAQ: SWKS] presents itself as a leader in the 5G revolution, but investors want to know, is it a buy?

Skyworks Solutions: The Basics 

Skyworks takes pride in its cutting edge solutions for wireless networking.

Already, Skyworks [NASDAQ: SWKS] technology does much more than power smartphones and tablets. The company’s tools are used in the aerospace and automotive industries, as well as smart home and wearable technologies.

Skyworks semiconductor chips are critical to the newest developments in industrial, medical, and military settings, and the company’s engineers are hard at work on perfecting a unifying platform to power 5G applications.

When the transition to 5G is complete and access to this technology is standard, consumers will enjoy more power, higher speeds, and reliable connectivity for an array of devices.

This is the technology that will make driverless cars possible, and smart home products will be the standard – not the exception. Consumers will gain mobile access to multi-person video calls, as well as virtual and augmented reality. Tactile internet will become a reality – not just the stuff of science fiction movies.

Being a leader in developing and powering the technology of the future should put Skyworks [NASDAQ: SWKS] in a position of strength when it comes to growth in revenues and profits. But has it? Analysts have watched Skyworks share prices slide down, and it isn’t clear when they will recover.

Skyworks Solutions: By the Numbers 

Skyworks chips provide the power behind mobile devices. While the company’s biggest customer is Apple, Skyworks gets a healthy amount of business from Chinese mobile device makers. Huawei, the largest of the Chinese mobile technology companies, is by no means the only player in China.

Xiaomi is the fourth largest smartphone company in the world with 8 percent of market share, and Oppo is a close fifth.

China’s Vivo takes sixth place, and Lenovo is number eight, with Tecno Mobile rounding out the Top Ten list in tenth place.

In other words, Chinese mobile manufacturers account for six of the top ten global companies in the industry.

Huawei alone accounted for 12 percent of Skyworks sales from January 1, 2019, to June 30, 2019. With this in mind, consider the impact of the current trade wars between China and the United States.

How The Trade War Has Affected Skyworks

In June 2019, the current administration blocked certain Chinese technology companies from doing business with US companies. Relationships like the one between Huawei and Skyworks were specifically prohibited. This had an immediate impact on Skyworks’ revenues and profits. Business leaders lowered third-quarter revenue guidance by 7 percent and earnings guidance by 11 percent within days of the government directive.

The actual third-quarter numbers were announced in early August, and they were even lower than expected. Revenues decreased by 14 percent year over year, coming in at $767 million, and earnings per share went down by a dramatic 47 percent. This prompted a drop in stock prices – roughly 11.7 percent in the weeks following the earnings release.

Smartphone Sales Are Slowing

Slowing smartphone sales are amplifying the issue, and overall, Skyworks’ 2019 looks to be one of the least impressive years in recent history.

A comparison of year over year revenues, profits, and earnings for the nine month period ending June 28, 2019, versus June 29, 2018, paints a grim picture. Revenues are down 11 percent, adjusted gross profit margin is down 0.3 percent, and adjusted earnings per share are down 12 percent. All of this has impacted stock prices.

Is Skyworks Solutions Stock A Buy?

With that said, most analysts still consider Skyworks Solutions a buy.

The company is an important player in a growing market, and analysts have faith that leadership can weather the current obstacles and return to previous levels of profit and growth.

The move to 5G promises significant opportunities in markets outside of China, and Skyworks [NASDAQ: SWKS] has already developed partnerships in Europe, Japan, and South Korea to develop and implement 5G infrastructure.

Skyworks Stock Forecast

The bottom line is that today’s stock prices give investors a chance to buy Skyworks [NASDAQ: SWKS] at a discounted rate.

When the projects in Skyworks’ pipeline come to fruition, they will fill the holes left by Chinese clients – and according to some analysts, the company may come out stronger on the other side.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.