Apple and Skyworks: big numbers!

Apple and Skyworks are good business buddies, correct?

Apple just announced that it sold 74,779,000 phones. And 16,122,000 iPads.

Monkey don’t do no math. But roughly that translates into “a lot” right?

So. Ummm. Skyworks has done fallen 41% because of fears that Apple ain’t selling no phones no more. But that number above is a lot of phones, no?

Can someone help Monkey understand Human-think?

What reasons remain not to buy more SWKS while the going’s cheap?

Humbly Yours,

Monkey
Long AAPL and SWKS (Top two positions)

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But, it isn’t quite as many as they were forecast and seems to show flattening of sales and a lower forecast.
http://techcrunch.com/2016/01/26/apple-beats-earnings-expect…

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So let me understand, Tamhas:

So bros in suits sitting on wall street cranked out a theoretical number they’d like to see for the short term. That number was 75,000,000.

Apple actually, in real-life and all its complexities and varying economies and currency flip-flops and earthquakes sold 200,000 fewer phones. That’s about a 1.3% difference from perceived to actual on a staggering global scale.

Due to these fears of a massive slowdown, Skyworks’s stock is off about 41%. Not 4.1% but 41%!

So please explain the 40% difference in perception. That’s assuming, of course, that Apple was all of Skyworks’s business, which of course it’s not. So the actual impact of missing the forecast will be even less than 1.3%, right?

Help a fellow primate make sense of these things, please, and someone make a case for why SWKS is not a good place for gobs and gobs of new bananas,

Monkey

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I just finished the Apple call, and it wasn’t upbeat. The low point was definitely when a bearish analyst claimed his figures showed negative iPhone growth this year, and, rather than refuting it, Cook just gave a boilerplate line about how Apple doesn’t try to predict markets but focuses on making great products.

Apple is getting hurt by the strong dollar in a couple of ways. First, foreign-exchange itself knocks 15% off every international dollar Apple earns. Second, it would be worse except Apple has been raising its prices internationally to protect its margins and ASP’s. But with many international economies hit by low oil and commodity prices (Canada, Australia, Brazil, Russia, etc.), those higher prices are resulting in lower sales. So fewer sales, and less profit per sale, than on a currency-neutral basis. 2/3 of Apple’s sales are international these days.

Overall, I think the company is healthy and doing fine. They’ll sell a lot of devices. But the international situation looks likely to take its toll this year unless something changes.

And looking long term (and beyond the present oil/commodity bust), there are certainly huge opportunities out there as middle classes rapidly rise in developing countries and more people become entrenched in the ecosystem. For what its worth, Apple saw around 23% growth YoY in services, and Cook hinted that services will become an increasingly powerful profit engine over time.

All just my personal opinion, of course.

Neil
Long AAPL, SWKS

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Yes, Neil, I concur with your observations. But those are all Apple specific, right? The only number that should matter to Skyworks investors is how many gizmos they sold, right?

And that number was 74.8 Million phones. Skyworks gets revenue for each and every unit, right?

So despite a temporary economic global quagmire, does selling 74.8 million phones sound like it’s reason for SWKS to drop 41%? That’s the question I keep coming back to.

  1. Theory: Huge slowdown in sales. Therefore revenue will plummet.
  2. Reality: only a temporary slowdown, most likely followed by huge uptick as new markets come online.
  3. Plus not to mention all the other new markets with IoT

Conclusion: was the panic selling in Skyworks overdone?

I can’t see how the answer to that any way but in the affirmative right now, meaning that on Thursday we’ll get really good earnings numbers. What is Monkey not seeing?

How can the 41% decline be justified knowing what we know now?

Monkey

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Hi Monkey,

I personally think Skyworks represents a better opportunity than Apple (and it’s a larger allocation in my portfolio as well). So I agree with you.

does selling 74.8 million phones sound like it’s reason for SWKS to drop 41%? That’s the question I keep coming back to.

If you have access to MF Pro, I’d read this post from Jeff Fischer. http://discussion.fool.com/1228/qcom-news-for-swks-32070328.aspx…

How can the 41% decline be justified knowing what we know now?

That’s just not how I look at investing. I don’t believe the market is smarter than we are, and that we have to somehow justify its movements to ourselves. What matters most to me is whether a company looks like a compelling long-term value moving forward. Personally, I think that Skyworks looks like a compelling value. I could be wrong, of course.

Neil
Long AAPL, SWKS

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So bros in suits sitting on wall street cranked out a theoretical number they’d like to see for the short term. That number was 75,000,000. Apple actually, in real-life and all its complexities and varying economies and currency flip-flops and earthquakes sold 200,000 fewer phones. That’s about a 1.3% difference from perceived to actual on a staggering global scale.

Hi Monkey, that huge miss wasn’t really by 1.3%.

It was actually less than 0.3%…Certainly a miss of a quarter of one percent warranted a 40% decline in price.

Oh well

Saul

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Second, it would be worse except Apple has been raising its prices internationally to protect its margins and ASP’s.

Higher prices usually mean fewer sales which means we might conclude a few things:

  1. Apple still sold almost 75 million iPhones that were forecast.

  2. Some people likely bought a different phone (not iPhone) because the iPhone international price was raised. If these people bought a different phone then some phones shifted from Apple to another manufacturer. SWKS is manufacturer agnostic since its solutions are in almost every phone.

Chris

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If you forget about forecasts and analyst expectations etc and concentrate on the facts, then to me we see:

  1. Apple

Bull points

  • Services rising
  • Record sales/profits
  • Increasing margins

Bear points

  • Actual declining units sold (phones, tablets, Macs)
  • Declines forecast to accelerate going forwards
  • FX rates affecting financial reporting
  • International price points getting ahead of affordability

Summary - a growth company appearing to be going ex-growth. There’s nothing in this that sounded temporary - even if they arrest declines in iPhones it sounded like iPhone growth days are done.

  1. Skyworks implications

If we are looking at the Skyworks story for growth then I don’t think this sounded like anything other than bad news.

Bull points

  • 4G not saturated
  • Not tied to one supplier
  • Is diversified into other areas such as IOT etc

Bear points

  • Apple its biggest client is seeing declining volumes (Skyworks as I understand it gets paid for content by unit volume of sales not % of value)
  • The broader smart phone growth rates are stagnating so not limited to just an Apple speed bump but across the board stalling of growth.
  • Skyworks does not benefit from a shift in emphasis in Apple towards service revenues (iTunes/app store/Apple Wallet etc).

I would think Skyworks is maybe lagging this market stagnation story by a few quarters as it was still winning new design wins over the last year in smart phones and has been expanding its share of content but eventually it will catch up with a market wide situation.

I think we need to get real about Skyworks. We are in these kinds of stocks not for value reasons but for growth at reasonable price. If growth disappears then the reasonable price is meaningless.

Ant

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Or…we could wait and hear what Skyworks says when they report earnings on Thursday instead of inferring results from other companies.

Brian

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Monkey, I would be the last to suggest that it was sensible and proportionate reaction, but I think the point is that rumors were suggesting a slowdown, which precipitated the fall in stock price, and, instead of Apple blowing away numbers, they slightly missed and guided down, so that is hardly going to buoy SWKS unless SWKS has blow out numbers and can show how AAPL is not that key.

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So. Ummm. Skyworks has done fallen 41% because of fears that Apple ain’t selling no phones no more. But that number above is a lot of phones, no?

SWKS derives 70% of its revenue from smartphones. When 70% of your revenue is coming from a segment nearing saturation, the market will not give you a P/E much higher than 15.

The question to ask is not why did SWKS fall by 41% but why did they reach that nosebleed valuation in the first place.

SWKS where it is today is fairly valued.

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Hi, Monkey.

You do great work, and I appreciate it. Keep it up.

Like you, I am long AAPL and SWKS. On SWKS, I am confused why you keep talking about “the 41% decline” and “the 41% drop.” Respectfully, you are comparing today’s price to SWKS’ 52-week high. The 52-week high was about 7 months ago. Perhaps unintentionally, you seem to be suggesting that every penny of the decline in SWKS’ stock price is due to AAPL’s announcement today (or recent rumors about iPhone sales). A heck of a lot has happened since last summer, some of which is AAPL and SWKS specific and a heck of lot which isn’t at all specific to those companies.

Just my two bananas.

John

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AAPL has 1 billion connected iphones worldwide now. Most Chinese purchases were their first phone, and India has barely begun to scratch the surface. 4G/LTE service is in its infancy in those markets too.

I think both will be fine, but I also don’t plan to buy more yet, as I could see more decline happening in the short term, maybe 20-25% on each, but I’d aggressively add there if the results didn’t change.

I think SWKS has become to AAPL what AMBA was to GPRO in the market’s eyes. Yes, not a fair coparison, but that is the market sentiment at the moment…
Also the semiconductor segment in general has been terrible over the past year, so rising tide/receding tide and the effect on boats and all that stuff

SWKS derives 70% of its revenue from smartphones. When 70% of your revenue is coming from a segment nearing saturation, the market will not give you a P/E much higher than 15.

Where did you get 70%. Slide #6 of their Dec 1, 2015 investor presentation shows Integrated Mobile Systems as 52% of their revenue. Some of the power amplifiers business unit may also go into mobile devices. Also, I think there are other products besides smartphones that SWKS classifies as mobile (I think tablets are included in mobile but check this fact).

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“I think SWKS has become to AAPL what AMBA was to GPRO in the market’s eyes. Yes, not a fair coparison, but that is the market sentiment at the moment…
Also the semiconductor segment in general has been terrible over the past year, so rising tide/receding tide and the effect on boats and all that stuff”

Yes GPRO made up about 30% of AMBA sales and yesterday DA Davidson estimated 40% of SWKS sales come from AAPL so your comparison seems apt.
China growth dropped to 14% versus 70-100+ % prior so a rapidly slowing rate of growth there also. Given the massive drumbeat of analysts slowing channel checks and it seems they knew what they were talking about.

Rob

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Here is how I am thinking about it, and have given up on trying to make any sense on how market reacts.

“Market” hit SWKS because of rumored slow down last quarter in iphone sales. Nobody knew until yesterday how true this rumor was. Turns out there was not much too the rumor, Apple delivered "about what it forecast, less than .3%. However, Apple also said current quarter outlook not as good for a couple reasons. Tough comps from quarter a year ago, sales are slowing, offset to ? extent by upgrades and emerging markets.

How does/will this affect SWKS actual results and market perception/price? Market “got it wrong” for last quarter, not much of a slowdown in phone sales. But ever forward looking, we won’t see a correction for analysts being wrong no matter how good SWKS performance turns out for last quarter. What will matter more is what is forecast tomorrow afternoon, not results. Recently, we have seen too many times companies getting “punished” for solid to outstanding results.

So my personal expectations is to see stellar results announced tomorrow, and I hope to see better than expected forecast. While I would love to see a price jump to go along with it, I am not counting on it given overall market jumpiness.

Just my thoughts.

Kevin

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Turns out there was not much too the rumor, Apple delivered "about what it forecast, less than .3%. However, Apple also said current quarter outlook not as good for a couple reasons. Tough comps from quarter a year ago, sales are slowing, offset to ? extent by upgrades and emerging markets.

One point that hasn’t been discussed is the following:

Yes, we will have a tough comp for AAPL in the March quarter. The comp is tough because AAPL has a supply problem in the Dec 2014 quarter. This means that the December 2014 quarter was artificially low and yesterday’s result of 0.3% below forecast was actually worse than has been discussed. However, to partly offset that we need to remember that AAPL introduced the iPhone6 at the end of 2014 so you would expect a strong result after a new model introduction.

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" growth company appearing to be going ex-growth."or at best slow growth. Apple knows this will get worse , future improvements in phones will be marginal. Even worse ,any improvements in the physical phone (not the network) are likely to outpace user needs. Like the 1 TB hard disc did for me, I never fill even 1/4 of that capacity.

So they will turn to BEV. And to auto drive .Which are a long way from being commodities. Present ICE cars are commodities, not so auto drive or electric. The commoditization of Apple type products may be happening faster than they thought, and apparently their BEV program is behind schedule. So AAPL does not deserve a high P/E ratio.

The analysts were mostly right about the slowdown. While the new things rumored for the next iPhone sound of minimal use to consumers, 4G is a huge step from 2G (what many Chinese have) or 3G.

I have always bought new computers when my old ones started acting up. I recently by -passed this by having new drives and some extra memory installed on a 6 and a 7 year old Mac. So Apple may be a victim of it’s own excellence, I would rather have these old Macs than a new Dell. They do almost everything s new computer would do and I don’t have to put up with Windows.

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Article talks about apple in India.

I wish to be optimistic as I am in both apple and Swks, but my gut feeling after spending a lot of time in India is I don’t see how a lot of people will be able to afford a $700 phone.

http://mobile.reuters.com/article/idUSKCN0V507D

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