2. Table of Contents:
I. Summary
II. Investment Thesis
III. Industry Trends
IV. Company Background
V. Macro Environment
VI. Catalysts
VII. Valuation
VIII. Risks
3. Summary:
● Skyworks Inc. (SWKS) is a semiconductor (subsector of the informational technology sector)
● Current trading price: 75.91
● Market Cap: 14.08B
● Enterprise Value: 13.02B
● EBITDA: 9.5
● Current P/E: 14.65
● Forward P/E: 10.80
● Historical share price range (1yr): 54.50 - 88.52
● Price ceiling/target: 103.00
● Price floor: 57.00
● Upside: 35.65%
● Downside: -24.91%
4. Investment Thesis:
Why is this company worth investing in?
1. Beating all of their last 4Q expectations, growing year over year, and a projected growth
rate of 21.49%.
2. Providing high quality and reliable solutions for tech companies including Apple and
Amazon translates to revenue and growth.
3. Their presence in “Internet of Things” products, and innovative medical and automotive
products, in tandem with their potential acquisitions of Microsemi puts them in a
good position for sustainable growth .
4. Their P/E, EV/EBITDA, and EV/EBIT multiples are significantly lower than the industry
average indicating that it is undervalued and a “cheap” stock.
5. Industry Trends:
1) The Internet of Things (IoT), means physical devices and objects becoming “smart,” with internet
capabilities. This links mobile devices, wearables, smart appliances, connected cars, and other gadgets
to the cloud and each other. This allows businesses and governments to lower operating costs,
increase productivity and expand to new markets or develop new product offerings. Experts predict
that there will be 34 billion connected devices by 2020, IoT accounting for 24 billion. An estimated $6
trillion will be spent on IoT over next five years.
2) Wireless infrastructure, mature markets are focused on wireless infrastructure, including 3G, 4G,
LTE and even 5G networks, to provide reliable power, and enhance security/privacy needs for mature
products such as iPhones, tablets, and laptops etc.
3) Future Technological Innovations, Although total earnings may actually decline on a
quarter-to-quarter basis, the number of sales will continue to be stable and offer the chance for future
revenue increases (year over year).Future innovations will also factor into this equation with inventions
not even thought about potentially affecting the industry in the next 5 years. The semiconductor
industry offers potential with a firm foundation of support and that’s not something every
industry can say.
6. Company Background:
How does Skyworks fit into all this?
SWKS, which is in the semiconductor industry (subsector of the informational
technology sector), supplies RF chips for the mobile, automotive, broadband,
wireless infrastructure, wearable, home automation, industrial, medical, and
military markets. These chips are essential for many machine-to-machine
communications that form the foundation of the Internet of Things,
technologically innovative products, and wireless infrastructure .
Moreover, they are a provider of chips for mature products specifically, they
are the main chip providers for Apple’s iPhones.
8. Macro Environment:
Interest Rate Hike and Election:
Cyclical sectors like the information technology have historically shown the strongest correlations to
interest rates. This makes sense given that inflationary pressures and higher interest rates often
come on the heels of strong economic growth. Therefore, the Fed’s indication that it plans on an
interest rate hike bodes well for IT stocks.
Moreover, the markets reached all time high after Trump was elected. (All political views aside) One
explanation is Trump’s pro-business stance, which brings expectations that he’ll roll back regulation
and cut corporate taxes; another is that investors are bullish about the increased infrastructure
spending that Trump promises. Being that governments and businesses are beginning to implement
technology into their everyday system and the growth of IoT indicates areas of potential growth for
SWKS.
9. Notable Past Catalysts:
Fourth Quarter Business Highlights:
1) Skyworks Exceeds Q4 Expectations
Revenue for fourth fiscal quarter→ $835.4 million (+11%), exceeding the Company's guidance
and consensus estimates.
2) Company Growth Rate
Over the next five years, the analysts expect it to grow earnings at an average annual rate of
21.49%
3) Powered Google's flagship Pixel 4G LTE smartphones
4) Supported Amazon's Echo and Tap virtual assistant devices
5) Delivered integrated 4G LTE modules for Jaguar and Land Rover automobiles
⇒ These catalysts reflect Skyworks’ profitability and diversity of customers that use
their solutions, from phone to home-devices to automobiles.
10. Notable Future Catalysts:
1) Innovative front-end solutions; Skyworks is addressing the increasing need for front-end
solutions that address high performance, cellular TDD-LTE applications.
2) Strong chances of acquisition of Microsemi, which offers a comprehensive portfolio of
semiconductor and system solutions for aerospace & defense, communications, data center
and industrial markets.
3) Collaborating with carriers and OEMs (provide components for another company’s products)
to develop highly-integrated devices that solve increasingly complex RF challenges, meet the
most demanding standards and provide unparalleled performance
4) Skyworks’ semiconductor solutions are powering LG Electronics’ latest Online
Connectivity Units (OCU), which offer drivers seamless access to features such as smart
home and location-based services from their vehicles.
⇒ These catalysts further indicate that Skyworks is at the forefront of
innovation and developing its product line.
11. Relative Valuation:
SWKS most immediate competitors based on Market Cap:
1. Linear Technology Corp. (LLTC)
2. Xilinix Inc. (XLNX)
3. Infineon Technology Inc. (IFFNY)
4. Microchip (MCHP)
Relative to its immediate competitors SWKS’s attractive multiples indicate that it is an undervalued
stock with high growth potential.
● They have a P/E ratio of 14.65 compared to their industry average of 22.7.
● Their EV/EBITDA is 9.8 compared to the industry average of 11.
● EV/EBIT is 12 compared to the industry average of 16.
⇒ Using SWKS’s current P/E and forward P/E (10.8) we estimated SWKS price target (1yr) as 102.97.
13. Risks:
1) SWKS’s heavy reliance on Apple: Part of Trump’s platform is immigration reform--bringing jobs
back to the US, and higher taxes on foreign income. This may put a strain on Apple’s
operations, which relies heavily on outsourcing jobs. Moreover, if Apple plans to expand its
operations outside of the US, they will have to pay higher taxes on the foreign income. Given
that a significant portion of SWKS’s sales comes from Apple iPhone sales, this could potentially
hurt SWKS.
Mitigation: Diversifying its business through potential acquisition of Microsemi, and expanding
its operations in IoT will decrease its reliance on Apple.
2) Slowing growth of mature products: In the U.S., iPhones, tablets, and laptops are not
experiencing as aggressive growth as they previously.
Mitigation: Emerging markets, such as India, are experiencing more aggressive growth in
mature products and therefore, SWKS will be able to tap into that arena.
