Skyworks Solutions (SWKS) upbeat on growth prospects, thanks to 5G adoption

Skyworks Solutions Inc. (NASDAQ: SWKS) this week brought cheer to the market with bullish outlook on demand conditions, after reporting mixed results for the second quarter. The semiconductor firm has generated solid shareholder value in the past, and experts believe the trend would continue despite the pandemic-related headwinds.

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The Irvine, California-based tech firm owes its growth mainly to the smartphone boom. So, the ongoing slump in mobile phone sales could be a concern for the company and its peers. Another factor that affected Skyworks in recent years is the trade war and loss of major clients like Huawei. With business conditions deteriorating after the virus outbreak, there have been concerns about Skyworks’ near-term prospects.

Beating the Odds

Interestingly, the company has remained somewhat resilient to the Covid-19 crisis so far, except for the temporary suspension of manufacturing activity at the Mexico facility. The management expects the overall impact to be modest, because the technology being provided by the company is highly relevant in these times – solutions for advanced wireless technologies like 5G that facilitate faster communication.

New Deals

The March-quarter was particularly important for the company as it clinched several new deals during that period, including those involving mobile service providers like Apple (AAPL), Oppo and Xiaomi. Most of the China-based customers had a faster recovery than their American counterparts, which in turn benefited Skyworks whose clientele also includes telecom majors like Verizon (VZ) and AT&T (T).

“China business remains on or about 20% of total revenue and we definitely see strength with Oppo, Vivo, Xiaomi as they ramp their 5G phones with strong Skyworks content in it. Unfortunately, the business with Huawei remains at a much lower level than it was historically although we are able to continue to ship under the ban, which is still effective right now.”

Kris Sennesael, chief financial officer of Skyworks

In the second quarter, adjusted earnings dropped 9% annually to $1.34 per share, mainly hurt by a 5.5% decrease in revenues to $766 million. However, the market’s response to the outcome was positive as analysts were looking for lower numbers. Meanwhile, the management issued third-quarter outlook that is below the market’s expectations, reflecting the low visibility and the pandemic-induced disruptions.

Innovation Pays

That said, the company managed to maintain steady revenue growth in recent years, thanks to the constant focus on innovation and product pipeline. The portfolio has expanded far beyond wireless devices to areas like healthcare technology, automotive and industrial equipment. But, the most prominent growth driver will be the ongoing 5G deployment.

The 5G penetration is expected to gather pace in the coming months –  though at a slower pace than initially estimated – as the shutdown has resulted in a spike in the demand for high-speed internet connectivity. The transition to the new system from the older 4G and 3G networks is a complex process that requires the kind of cutting-edge solutions that Skyworks offers.

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“By enabling always-on, high-speed connectivity, Skyworks’ wireless technologies are essential for adapting to today’s rapidly changing business conditions and are playing a critical role in virus containment efforts worldwide. Skyworks’ trusted solutions are connecting people throughout the world enabling telemedicine and emergency response applications, as well as supporting shelter-in-place efforts through remote work and online education,” stated CEO Liam Griffin in the earnings report.

Stock Performance

After outperforming the market consistently over the years, Skyworks’ stock entered 2020 on an upbeat note and hit an all-time high in the early weeks of the year. However, it took a beating during the market turmoil and pared most of last year’s gains. Making a strong recovery from the lows, the stock once again crossed the $100-mark last week.