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Quick Summary

Skyworks Solutions sells analog semiconductor parts such as power amplifiers, filters, switches, and integrated modules to support wireless radio connectivity such as 4G/LTE and 5G. The bulk of sales go into smartphone products, but also increasingly to alternative applications such as automobiles, medical and industrial devices, and wireless routers.

Does The Company Have Rising and Recurring Revenues?

SOMEWHAT. In truth, Skyworks' ongoing growth potential is somewhat unclear. The firm operates in the highly cyclical semiconductor industry. Currently, the firm is coming off a weak 2019 and 2020 due to slowing iPhone demand and a ban on sales to Chinese giant Huawei, leading to a negative 3-year revenue growth rate of -3%. However, this seems to be turning in 2021, with sales expected to grow over 40%. Longer-term, Skyworks has plenty of growth potential. The 5G transition requires more advanced signal technology, giving the firm a chance to earn higher dollar content per phone. Automotive, medical, and other "internet-of-things" (IoT) applications provide additional growth paths. We believe the firm should be able to sustain average 10% sales growth going forward (although just barely so). On the downside, Skyworks' hardware sales are not recurring, with the risk of being designed out of new phone releases which come essentially every year.

Does The Company Have Durable Competitive Advantages?

NO. Analog components have historically been far more "sticky" between design changes than digital ones, due to the expertise required for their engineering and specialized materials. Skyworks' ability to deliver quality products, and the scale to meet large demand from customers like Apple and Samsung, give it traces of UNIQUE ASSET and ECONOMIES OF SCALE advantages. Two factors contribute to Skyworks "weak" moat, however. First, there is increasing competition in the RF chip space, and giants like Qorvo and Broadcom could decide to encroach on Skyworks' business. Second, and more concerning, is customer concentration. Apple accounts for 56% of sales alone, and the top 3 customers account for over 70% of sales. Should any of these customers decide to switch vendors - or create their own solutions - Skyworks could be dramatically impacted.

GreenDot Rating: 

Skyworks is a weak YELLOW (somewhat attractive) stock, based solely on the wide-ranging application potential for cellular radios in a variety of end product use cases, along with the historical "stickiness" of analog design wins. IoT remains a strong growth driver, as cellular connectivity is critical for devices to communicate outside of the limited scope of wireless networks. Revenue concentration is a major concern. However, it is much less likely that Samsung or Apple would design its own solutions in the analog space (as opposed to digital, where both have already done so). Skyworks has performed well and should continue to do so, although the business is not without its risks.