Each of these companies makes components that go into electronic devices such as mobile phones, tablets, and personal computers. INVN has shown that they can’t make consistently growing profits. They have been squeezed by companies like Apple. I have been wondering whether companies like SYNA and SWKS are also subject to declining margins as a result of pricing pressures from their customers. SWKS has a growing and accelerating history of EPS. SYNA has seen their revenues increase but their EPS hasn’t kept pace. SYNA management claims that last’s quarter’s margins were lower due to unfavorable product revenue mix (relatively more notebooks and fewer mobile devices). So my question is whether SWKS and SYNA (maybe AMBA too) are vulnerable to declining margins in the future. Anyone have thoughts?
This is just my thoughts. I haven’t looked into SWKS or AMBA but as far as Syna goes, they have the fingerprint technology now so that should help them boost their margins in the short term until the other competitors catch up, but Syna is out in front for now. The problem I see is that they keep buying other competitors to keep ahead of the pack, this causes their earnings to be very choppy and while they explode to the downside they also explode to the upside. I like that they have been around in this space for a long time and that they hold a lot of patents.
I think this keeps them a fairly stabile company, meaning I think they will be in business for a long time to come. They seem to be able to adapt to their market fairly well and I think if we watch them we could find a way to trade them around a core position to make more money on their swings in the market.
I sold SYNA and INVN, as we have seen chip companies commoditized over and over again. If you can find the Intel or Qualcomm of the bunch you will make a boatload of money, but otherwise margin compression is never more than 3-5 years away.