Skyworks Solutions (SWKS) is a semiconductor manufacturer. From its website: "If you believe that connectivity is the future, then investors should start here. With technology experts predicting there will be 75 billion connected devices operating worldwide by 2025, Skyworks is uniquely positioned to capitalize on emerging 5G and Internet of Things opportunities. In every way the world is connected, Skyworks is there. Whether reaching for a smartphone or tablet, setting a smart thermostat, or communicating wirelessly with your medical provider." 

We are still in the very early innings for the multi-year opportunities associated with the 5G smartphone upgrade cycle and Internet of Things (IoT). In the smartphone business, Skyworks supplies Apple, Samsung, HTC and other mobile device manufacturers. The upgrade cycle will particularly benefit Skyworks because each new G adds additional frequency bands needed per smartphone, which drives greater demand for the chips that Skyworks makes. This is not a new concept as Skyworks's RF dollar content has steadily risen from $3 per 2G device, to $8 per 3G device, to $18 per 4G device, and $25 per 5G device. As the smartphone industry in America moves from 4G and 5G, and from 3G to 4G across the globe, that drives a powerful revenue opportunity for Skyworks. The company recently acquired the Infrastructure & Automotive business of Silicon Laboratories (SLAB), a move that tell us the company is looking to leverage its RF chip expertise as those market become increasingly connected. 

We'd also note the company has a solid balance sheet and is currently paying a quarterly dividend of $0.56 per share, and we like the company's policy on returning capital to shareholders via increasing dividends.

Skyworks Recently Reported Earnings

The company refers to the calendar quarter ending in September as the 4th quarter of their fiscal 2021. For their Q4 2021, non-GAAP earnings of $2.62 per share, beating the Zacks Consensus Estimate by 3.2% and surging 42% year over year. Revenues of $1.311 billion surpassed the Zacks Consensus Estimate by 0.7% and soared 37% on a year-over-year basis. For the first quarter of their fiscal 2022 (September-December 2021), Skyworks expects revenues between $1.475 billion and $1.525 billion. Non-GAAP earnings are expected to be $3.10 per share for the fiscal first quarter. 

The current weakness in the stock (below the 200-day Moving Average) can be attributed to its miss on 2022 guidance. While some may have been disappointed in the company's outlook for 2022, the company called for sequential improvement in both revenue and EPS as compared to competitor  Qorvo (QRVO). When Qorvo reported its September quarter results, it too bested September quarter expectations but guided its revenue for the current quarter down sequentially from $1.26 billion in the September quarter to $1.09-$1.12 billion in the current one, with EPS of $2.75 at that revenue midpoint, well below the expected $3.26.

This along with the favorable outlook issued by Qualcomm (QCOM) last week tells us that Skyworks isn't feeling as much of the supply chain pinch as others. Moreover, the increasing RF semiconductor content per device remains intact, and should drive considerable revenue growth as the smartphone industry mix shifts increasingly toward the 5G product. In addition, there are other opportunities to be had in the IoT and connected auto market as Skyworks integrates its Silicon Labs (SLAB) business unit into its existing efforts.

As the total addressable market for mobile connectivity grows by leaps and bounds in the coming years, SWKS is one of the places we want to be. Our long-term price target is $210 for 2022.

A Technical Outlook

After pulling back sharply from recent highs in July, Skyworks has been finding some support in the low $150's area. This seems a zone where the big buyers are picking up the stock, and we like this for a purchase. Positive volume trends are starting to occur, and the RSI has broken the downtrend line. We could see this stock make a near term run towards the 200-day MA around $176 or so, which would be a ~10% move up from current prices. We'll tip toe into the stock for now, and will consider adding more after the 200-day MA. Data going back 10 years indicate the winning rate for SWKS in November and December are poor (~40%), so it's very likely that we'll hold this position well into winter of 2022 (win rates get to ~70% for the first 3 months of a year).