re: TASR
Taser international is now making body cameras for the Police.
http://finance.yahoo.com/news/cost-cleveland-police-body-cam…
http://www.cnet.com/news/unrest-in-baltimore-means-big-busin…
Bought TASR at $22.84 market order at the open on 3/15/15. Will still ride it since the 5 ema is still over the 20ema. As of Friday, TASR closed at 31.94.
Quillnpenn -
Hi Saul. I have so many pages of your post to work through… One day I’ll get through them. There’s so much good info. Thank you.
I do have a question about SWKS. You state the PE is 22.4. My numbers are way off. Ive been working up data on SWKS. I get a EPS TTM of $3.34 and a current price of $97.71 and a PE of 29.16. Can you tell me what I have wrong? Thanks, Rob
Rob, I get a TTM EPS of $4.36. Are you sure you’re using adjusted/non-GAAP EPS as reported by the company?
Here is my data, for what it’s worth:
2Q15 1.15
1Q15 1.26
4Q14 1.12
3Q14 0.83
2Q14 0.62
1Q14 0.67
4Q13 0.64
3Q13 0.54
2Q13 0.48
1Q13 0.55
4Q12 0.53
3Q12 0.45
2Q12 0.42
1Q12 0.51
TTM EPS: 4.36
TTM Growth Rate: 76.5%
TTM Growth Rate History:
76.5%
64.4%
46.6%
31.4%
22.9%
TTM Growth Rate Acceleration:
18.8%
38.2%
48.4%
37.1%
Latest Price: $97.71
P/E: 22.4
TTM PEG: 0.29
I hope that helps!
Neil
Long SWKS
Looks like that’s it Neil. I’m pulling the numbers from the 10Q&K. I looked for the Non-GAAP EPS on the company Investor Relations website, but didn’t find them. Can you point me to the location of the Non-GAAP numbers? Does every company provide Non-GAAP, or do we calculate them ourselves? Thanks, Rob.
Hi Rob,
Can you point me to the location of the Non-GAAP numbers
Probably the easiest place to get them is just from the company’s financial press releases. For example, their latest one on Q2 earnings has as the third bullet point under the title:
Posts $1.15 of Non-GAAP Diluted EPS ($0.85 GAAP), up 85% Year-over-Year
I highly recommend reading through Saul’s FAQ – it covers this and a lot more besides.
Neil
Got it. Thanks Neil. I’ll look those up.
I do have a question about SWKS. You state the PE is 22.4. My numbers are way off. Ive been working up data on SWKS. I get a EPS TTM of $3.34 and a current price of $97.71 and a PE of 29.16. Can you tell me what I have wrong? Thanks, Rob
Hi Rob, You are probably using GAAP earnings instead of cash earnings (also known as non-GAAP or Adjusted earnings). Adjusted earnings are $4.36. They are given in each earnings press release.
Saul
Furthermore, I think that keeping the P/E at 22 given such explosive growth is also conservative.
My guess is that the “low” P/E ratio comes from the fact that they sell mostly commodity type products.
Hi Denny, if you were really talking about SWKS I think you wrote that without thinking. SWKS is as far from commodity products as you can get. As Chris wrote:
Their gross margins last quarter were 46.2% but they said on the last conference call that we should expect 48% next quarter and 55% gross margins on their new business going forward. This means that their intermediate term (next 1.5 to 2 years) gross margins should approach 55%
They produce complex systems that are designed in at the earliest stages of planning and can’t be replaced by other manufacturers.
My suspicion is that their PE is so low because they are up over 100% in price already over the past 12 months and people are price-anchoring, thinking they must be overpriced and due for a fall if they were at half the price a year ago. That’s my guess.
Saul
They produce complex systems that are designed in at the earliest stages of planning and can’t be replaced by other manufacturers.
Yahoo says they make:
Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets analog and mixed signal semiconductors worldwide. Its product portfolio includes amplifiers, attenuators, battery chargers, circulators, DC/DC converters, demodulators, detectors, diodes, directional couplers, filters, front-end modules, hybrids, infrastructure radio frequency subsystems, isolators, LED drivers, mixers, modulators, optocouplers, optoisolators, phase shifters, phase locked loops/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches, technical ceramics, and voltage regulators. The company also offers MIS silicon chip capacitors and transceivers. It provides its products for supporting automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, networking, smartphone, and tablet applications.
http://finance.yahoo.com/q/pr?s=SWKS+Profile
Sounds like commodities to me. 
Denny Schlesinger
Sounds like commodities to me.
Denny,
Based on that comment, I would have to guess that you have not spent much time learning about SWKS. While it could be true that the components that SWKS uses could be considered to have commodity-like attributes, where SWKS adds value is designing these components into complex systems that are used by wireless devices to communicate with other wireless devices. This process of putting these commodity-like components together is extremely complex and difficult and getting exponentially more difficult with each generation of new wirelessly communicating device because the bandwidth frequency space is getting more and more crowded as higher and higher speeds are required to keep pace with the rapidly rising thirst for accessing data from wireless devices. This is why SWKS is saying that they are gaining marketshare because their competitors simply can keep up. This is why SWKS is saying that gross margins are rising from 48% toward 55%. By definition a commodity is a product that has a very low margin (in the single digits). Therefore, if SWKS were in the commodities business you would see single digit margins…not 55%!
Chris
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?
Saul
Based on that comment, I would have to guess that you have not spent much time learning about SWKS.
You are spot on. I have not studied Skyworks Solutions in any detail. I’ve looked at and invested in similar companies in the past with very mixed results. Some had fantastic runs before they crashed.
While I don’t believe in efficient markets I do believe that markets reflect the collective wisdom of crowds (which sometimes fly off the handle). The low P/E ratio, which certainly is a protection for the longs, is also an indiction that the market is not comfortable with giving the stock a higher valuation. I don’t know what worries the market about Skyworks but I know that the business they are in worries me on several fronts.
I’m not predicting doom and gloom for Skyworks, I’m just talking about some of my concerns. With several thousand stocks to pick from, I don’t have to like all the ones this board likes. And I’m happy to hear rebuttals to my points of view, that’s what makes conversations interesting and useful.
Therefore, if SWKS were in the commodities business you would see single digit margins…not 55%!
When commodities are in short supply their price shoots up but that doesn’t change the commodity nature of the commodity. May I remind you of the price of gas during the Arab oil embargo? The commodity nature of oil didn’t change, only it’s availability. Recently oil prices collapsed when Saudi Arabia didn’t follow the expected script and kept pumping oil. Again, the commodity nature of oil didn’t change, only it’s availability. In investing one has to be careful not to put the cart before the horse. For example, the stock price is not proof of the company’s merits as can be clearly seen from the crash of the various 3DP stocks.
Denny Schlesinger
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!
I prefer to keep the conversation impersonal. For a reply to the issues, please see my reply to Chris, post 8317.
Denny Schlesinger
When commodities are in short supply their price shoots up but that doesn’t change the commodity nature of the commodity.
I am now wondering if you are misunderstanding what a commodity is. I can tell that you are smart and very well read so maybe I’m mistaken. But the above comment has me scratching my head.
With a commodity a supplier can gain more and more marketshare by lowering price. A commodity is completely undifferentiated meaning that if a customer has a choice between supplier A and supplier B there would be zero difference in the product. Also, price can be lower instantly for a commodity and the customer could switch suppliers instantly with relatively little impact to the customer’s business. If you look at SWKS customers, a switch away from SWKS would be a very, very big deal. The iPhone 6 and the Samsung GS6 have been designed so they can simply switch out the SWKS parts and swap in a QRVO part. The whole phone would need to be redesigned. Now, we should also remember what SWKS management said not heir last conference call: they have visibility out several years and they are currently working with customers on next generation devices. SWKS is now an integral part of the design of new devices because put all these “commodity-like” components together in a nice package that works with all the other stuff in the phone is so complex. The field of companies that can do this is shrinking which is why SWKS is gaining market share. Now, if SWKS was offering a commodity, none of this would be true and the customer would be able to easily switch to QRVO or AVGO with very little impact. The business is sticky…certainly for SWKS components in existing products and certainly for products that are midstream in the design phase. Comparing a product/solution like this to oil seems meaningly to me.
Chris
Another question Neil (Anyone). Found the press releases on the SWKS website. Thank you.
Got everything I need except Free Cash Flow. Can’t find the info on this on their press release. Looks like I need to continue to pull this from the 10Q/K. Sound right?
If I have this right I’m looking for (on the 10Q/K) Net cash provided by operation activities - Capital expenditures. Sound right? thanks,Rob.
I am confused Chris, did you mean to say Apple CAN simply slip out the SKWS and slip in the QRVO, or they CAN’T? I know Apple does use both companies, so isn’t that at least a little pressure on pricing? Not the best place for info, but that is one reason Morningstar gives as a risk to SKWS, that is the fact that Apple can switch suppliers. If I read most of your post correctly, you feel that is not true. Could you clarify for me?
Mike
did you mean to say Apple CAN simply slip out the SKWS and slip in the QRVO, or they CAN’T?
Sorry for the confusion. What I meant was that
for existing products like the iPhone 6 and Samsung GS6, it would be almost impossible to switch vendors. It would mean be a redesign of the phone.
for products like the iPhone 7 where SWKS is already involved in the design process, it would be a major pain for Apple to switch vendor. Sure, it can be done but it’s nothing like switching where an oil refinery buys their oil.
for products like the iPhone 8 where SWKS is not currently (I’m assuming Apple is not yet working on the iPhone 8 but I guess I could be wrong about this) involved in the design process, it would be relatively easy to switch away from SWKS. But the launch of the iPhone 8 is probably about 2-3 years away. My point was that switching an oil supplier does not take anywhere near 2 years!!
Chris
I am now wondering if you are misunderstanding what a commodity is. I can tell that you are smart and very well read so maybe I’m mistaken. But the above comment has me scratching my head.
Maybe I should have been more careful and said “commodity like” or “commoditized” but I thought it was self evident that oil and RF chips are not comparable. I used oil prices as an illustration to show that price is not the determinant of whether a product is or not a commodity in reply to your argument:
Therefore, if SWKS were in the commodities business you would see single digit margins…not 55%!
I was pointing out the fallacy in your line of reasoning.
Denny Schlesinger
PS: imuafool wrote an excellent analysis of the competitive tides in RF chips:
In order to compete and survive, QRVO, SWKS and AVGO must stay ahead of the technological curve by committing sufficient capital to fund their R & D. This, however, is where QCOM has a monster competitive edge and advantage over its smaller RF brethren, as clearly shown in the following table.
http://discussion.fool.com/qcom-disruptive-solution-in-the-rf-ar…
Earlier in my investing career I was quite happy to navigate the difficult waters of technology. Now I prefer simpler investing. One of the difficulties of RF chip makers is that they have a few very powerful customers. While they can keep them locked in life is wonderful. But when a large customer switches the hit is a big one. Apple sells to millions of individuals who have no pricing power. But look at what Walmart and Dell did to their suppliers!
I was pointing out the fallacy in your line of reasoning.
OK, I understand your point. But this has little to do with the original argument that SWKS has pricing power as shown by their increasing margin.
I consider it somewhat of a waste of time to focus on the fallacy of my reasoning when it’s unrelated to the point at hand: will SWKS’s margins get squeezed in the future?
I say they will not get squeezed for the foreseeable future (at least 2 years). You don’t really say much about the question at hand but focus on generalities that aren’t adding value (IMO) to people who care about the question relating to SWKS specifically. Please don’t take this as persona criticism. I already said that I think you’re smart and have a lot of knowledge from the many books that I gather that you have read. Why not apply that brainpower to SWKS by studying the company more and sharing your opinion with this group? Thanks.
Chris
OK, I understand your point. But this has little to do with the original argument that SWKS has pricing power as shown by their increasing margin.
I consider it somewhat of a waste of time to focus on the fallacy of my reasoning when it’s unrelated to the point at hand: will SWKS’s margins get squeezed in the future?
If the reasoning is faulty how can it support the argument and why should the other side give it a pass? You are making a circular argument, “Because margins are high they will not get squeezed.” You expect people to invest based on such reasoning?
I say they will not get squeezed for the foreseeable future (at least 2 years).
Probably an accurate guess. I don’t take issue with it.
You don’t really say much about the question at hand but focus on generalities that aren’t adding value (IMO) to people who care about the question relating to SWKS specifically. Please don’t take this as persona criticism. I already said that I think you’re smart and have a lot of knowledge from the many books that I gather that you have read. Why not apply that brainpower to SWKS by studying the company more and sharing your opinion with this group? Thanks.
I like it best when the discussion focuses on the issues, not on the debaters. The reason I won’t “apply that brainpower to SWKS by studying the company more” is because I know ahead of time that it’s not the kind of business I want to invest in at this stage of my investing game. This is not a refection on the company but on my choices. I spend quite a bit of time and energy investigating other companies but I don’t feel comfortable bringing them up on Saul’s board where I’m just a guest. I have looked in more detail at a couple of Saul’s picks including PFIE and XPO.
Why discuss generalities? A fair question. It has to do with missing the forest for the trees. I believe that understanding the ecosystem we invest in is helpful.
Denny Schlesinger