Sounds like commodities to me.
Think of it as you wish Denny, but you are selling yourself short. You’re generally a smart guy. I’m really surprised, when confronted by a company in which experienced, and presumably smart, investors like Chris and I have invested 15% or more of our portfolios (as our largest positions by far), you would simply look up the boilerplate description on Yahoo and make a statement like “sounds like commodity to me” instead of actually investigating what the company does. Do you really think we are naïve fools, to pick a commodity company for our largest positions? You can do better than that!
Here are some comments from the last couple of conference calls to give you more of an idea what this unique and incredible company does:
In 2011, about 60% of our revenue came from single-function devices for mobile applications. Today, more than 2/3 of our revenue is comprised of integrated mobile systems and broad markets (home automation, connected cars, etc), which are our fastest growth areas, driving improved returns, and putting us on a clear path towards 50% gross margins and above.
Integrated mobile systems was our fastest-growing category, up 139% year-over-year, highlighting the ongoing shift towards higher-margin systems solutions, which is taking place across our customer base.
As the leader in complex RF and analog integration, we are the primary beneficiary of the ongoing industry shift towards systems solutions. And as the communications architectures continue to advance in complexity, we’re becoming an integral part of our customers’ development roadmaps. This is creating a fundamental shift in our business model; simply put, more complex systems drive increased profitability.
Turning to our June quarter, we expect revenue to be $800 million, up 36% year-over-year. At this revenue level, we anticipate gross margin to be 48%, representing a sequential increase from 46.7%, and that’s driven by a combination of growing adoption of our products, increasing global scale, and enhanced vertical integration and our ongoing operational initiatives. These factors have created new baseline for our business model, providing a path to continued margin improvement ahead. And all of this puts us on a firm path towards our target of at least 50% gross margin for the company.
This is crucial!!! The doom and gloomers say, “This is a chip company. Their fate is to be commoditized and have their margins squeezed to nothing.” Margin expansion means that that is clearly not happening!
Consumers are upgrading to more powerful devices, bigger data plans and faster connections. The end result is a race by OEMs to provide leading-edge performance, creating a market opportunity that is growing at a mid-teens pace for the foreseeable future. As an addressable market for Skyworks, it’s growing even faster. I’d like to highlight 3 key trends that fuel this:
First there’s an explosion in complexity, and it’s driving our robust growth in our served markets and a consolidation of market share. Across the board, we see more content opportunities in each successive generation of device, and integrated solutions displacing conventional discrete components. As this happens, a host of component providers, who lack our technology, our integration capabilities and system expertise, are simply unable to keep pace.
Second, we are rapidly expanding our footprint within existing customers and existing markets, increasing our serviceable opportunity. Our systems solutions enable us to sweep in an unprecedented amount of new Skyworks content, like filtering, like tuning and power management. And a prime example is our high-performance filter portfolio, where our unique technology edge is enabling higher levels of system performance through tighter band spacing, less interference and a more efficient signal path.
On top of this, we’re launching entirely new product categories like we serve – like we see diversity modules, which support enhance download speeds and represent a substantial expansion of our addressable opportunities.
Third and finally, we’re leveraging our decades of experience in mobile. We are enabling a growing array of devices in adjacent markets to become seamlessly interconnected, like wearable technologies, home automation and the connected car.
But in terms of our largest customers this provides a tailwind for us. We have consistently more addressable content with each successive design. And in fact we continue to look out two to three years as we become more of a system producer or engaging very early in architectural selection.
What that says to me is that once they get in with a customer, they are in for life, because they become an integral part of a very complex system, and replacing them for a competitor who is marginally cheaper would be very expensive and questionable. They see margins gradually rising instead of falling.
SWKS sells to every smartphone manufacturer, and almost every smartphone platform (some manufacturers have multiple platforms).
SWKS continues to grow its production capacity substantially, but customers are lined up to consume that capacity.
When they were first recommended by MF, less than a year ago they were growing sales at 35%. They are now growing sales at 58%.
When they were first recommended by MF, less than a year ago they were growing EPS at 54%. They are now growing EPS at 85%.
Does that sound like they are selling commodities?