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Buy Pitch for Skyworks Solutions: Boston College Investment Club
- 1. Skyworks Solutions(SWKS) Kyle Waters | Jacob Zurita | Campbell Blue February 29, 2016 Boston College Investment Club Buy Pitch 1September 30, 2016
- 3. Company Overview Company Overview Investment Thesis Valuation Risks Summary Questions Company Information • Semi-Conductor Industry • Tech • Chip Making/Analog Semiconductor/ Radio Frequency Control/ Power Amp. Modules • Wireless Communications Tech. • Competitors: Intel, Linear Technologies, Analog Devices • Woburn, MA • North America, Japan, Asia, Europe Stock Information • Stock Price: 64.90 • MKT Cap: 12.44 Billion USD • Dividend in 2015= $0.66/share • P/E: 13.20 • P/B: 3.57 • EV/EBITDA: 8.50 • Beta: 1.28 • Industry Averages • P/E: 24.7 • P/B: 3.15 • EV/EBITDA: 19.62 3September 30, 2016
- 4. Investment Thesis Company Overview Investment Thesis Valuation Risks Summary Questions Efficiency and Innovation leading to diversified revenue base Proliferation of the Internet of Things (IoT) Growing LTE Market, especially in Asian and North American economies 4September 30, 2016
- 5. Applying Innovative Solutions to New Markets • Flexible and innovative products for solutions to growing demand for powerful components • Major shifts in way individuals view and consume media, music streaming, video streaming. • Perhaps best play on Netflix that is not Netflix • Adoption of technologies to previously untapped markets • Automotive • Medical • Clean Energy • Wearables Company Overview Investment Thesis Valuation Risks Summary Questions 5September 30, 2016
- 6. Appeared Dependency on Apple Inc. • Estimated SWKS receives 30-40% of revenues from Apple • True number remains opaque • High Correlation with AAPL performance (.702) Company Overview Investment Thesis Valuation Risks Summary Questions 6September 30, 2016
- 7. Appeared Dependency on Apple Inc. • Skyworks increasingly reducing dependence on Apple • Agnostic to brand, scalable on any cellular OEM platform • Supports all top-tier manufacturers • Non-cellular revenues surpassed 25% of total revenues in 2015 • Skyworks well-positioned to remain a major supplier for Apple • Stalwart of consumer technology, provides stability for Skyworks • Recently hinted that Skyworks’ products may have a larger dollar value of total components in upcoming iPhone 7 Company Overview Investment Thesis Valuation Risks Summary Questions 7September 30, 2016
- 8. September 30, 2016 8
- 9. IoT: Wireless Connectivity of people, places and things • Connecting everyday devices requires reliable, powerful and innovative communication technology • Skyworks’ highly innovative systems are scalable on virtually any platform • SWKS best positioned to innovate and capture this growing market • Connected home, connected car, major customers include: NEST, Honeywell, Bose, GM, FCAU • Major Innovations to capitalize on IoT: • Industry-leading RF switches with analog control ICs for IoT applications such as connected home and smart lighting in homes Company Overview Investment Thesis Valuation Risks Summary Questions 9September 30, 2016
- 10. IoT: Wireless Connectivity of people, places and things Company Overview Investment Thesis Valuation Risks Summary Questions 10September 30, 2016
- 11. LTE Market Poised to Expand Worldwide • Growth of smart phone market worldwide, especially in Asia • Over 80% of the Chinese population are on 2G or 3G, expansion to 4G LTE will explode in next few years • Growth of LTE will require innovations in data capacity, Skyworks is leader in this technology • Released world’s first solution optimized for LTE category M Applications • Next Gen diversity receive modules, maximize LTE data throughput, help mobile communications deliver increasing amounts of data • Chinese consumer appears to still be on track to upgrade to 4G • OEM share shifts do not matter to Skyworks, relationships with all suppliers • LTE dropping in price faster vs. 3G Company Overview Investment Thesis Valuation Risks Summary Questions 11September 30, 2016
- 12. LTE Market Poised to Expand Worldwide September 30, 2016 12
- 13. Valuation • Price Target from Barclays Equity Research – $88 • Looks cheap vs. Major Comps • Market severely discounting SWKS for appeared reliance on Chinese economy, Apple products • YoY revenue growth guidance from management: “high single digits in next five years” Company Overview Investment Thesis Valuation Risks Summary Questions 13September 30, 2016
- 14. DCF Company Overview Investment Thesis Valuation Risks Summary Questions 14September 30, 2016
- 15. Comparison with Industry Leaders Company Overview Investment Thesis Valuation Risks Summary Questions 15September 30, 2016
- 16. Risks – Skyworks Specific • Relatively low R&D spending could impair Skyworks’ Competitive Edge vs. Peers • Increased competition could lead to a failure to secure deals from major customers • E.g. Intel gets deal with Apple on iPhone 7 September 30, 2016 16 Company Overview Investment Thesis Valuation Risks Summary Questions
- 17. Risks – Macro • Lower than expected rate of phone replacement in developed economies • Consumers could be content with current generation smart phones • Slowdown in emerging markets could sap demand for consumer electronics and smart phones which utilize SWKS components • Worries centered on recent troubles in Chinese economy • 20-25% of revenues from China • Crowded Trade? • 25 analysts following SWKS: 24 “BUY rating,” 1 “Hold rating,” 0 “Sell” • Wall Street Darling September 30, 2016 17 Company Overview Investment Thesis Valuation Risks Summary Questions
- 18. Summary Company Overview Investment Thesis Valuation Risks Summary Questions 18September 30, 2016 Efficiency and innovation leading to diversified revenue base Proliferation of the Internet of Things Growing LTE market: especially in Asian and North American economies
- 19. Questions? Company Overview Investment Thesis Valuation Risks Summary Questions 19September 30, 2016
Editor's Notes
- David Aldrich emphasized that these 4 markets they did not attacj directly. Their flexible products positioned skworks for success in these new markets4 Streaming requires more data usage and expanded bandwidth, the products skyworks builds are working to address the excess demand on the
- -IoT market estimated to reach $1.7 trillion by 2020 They are best positioned because they are innovating the most as evidenced by the last bullet point
- -IoT market estimated to reach 1.7 trillion by 2020 Last week Skyworks delivered the world’s first solution optimized for LTE category M Applications 50 billion* DEVICES
- -high WACC estimate (12%) Using conservative growth estimates from guidance from management in latest earnings conference
- - Skyworks last June opened a new chip designing center in San Diego. Also, Skyworks is opening a new 405,000 square foot manufacturing facility in Osaka, Japan in order to meet high demand