Quesion on SWKS

This board has pretty good knowledge on SWKS products and business. I would like to understand the impact of Apple on SWKS, specifically if Android phones continue to pick up market share from Apple, how does it impact SWKS revenues, margins?

Thanks in advance.

Hi CM001,

Rather than reinventing the wheel, I would just point you to this recent piece on Seeking Alpha. Here is a brief excerpt:

Because in the short term, Skyworks quarter to quarter revenue and earnings do rely on Apple revenues. However, Skyworks’ earnings from Apple have provided a stepping stone for the company to secure a foothold in the radio frequency market at large.

In Q2, Skyworks reported exciting design wins with major smartphone manufacturers and other companies. Some of the highlights were multiple solutions for Huawei’s P9 smartphone, an increase in solutions provided for the Samsung Galaxy S7, and many more. The full list can be seen by taking a look at the Q2 earnings report.

…

Skyworks currently supplies RF solutions for Samsung, Apple, Huawei, Lenovo, Xiaomi (the top 5 smartphone manufacturers in the world) and more. Some place more supply orders than others, and some provide more revenue than others, but Skyworks is by no means a one-trick pony. The market has yet to realize it, but Guilty by Apple Association is a flawed argument that will prevent some investors from succeeding with SWKS.

I would highly recommend you read the whole thing at http://seekingalpha.com/article/3970229-skyworks-supplying-s…

Matt
Long SWKS
MasterCard (MA) and PayPal (PYPL) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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Android is not picking up market share from the iPhone. If anything, there is a slow tectonic shift away from Android and into the Apple ecosystem.

Also, be careful with all those “exciting design wins”. INFN was also advertising its customer wins all the way to the poor house. They never brag about the business they lose.

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“I would highly recommend you read the whole thing”

I read the whole thing Matt…never heard of Kumquat Research
But I liked what was written. The conclusion sounds about right to me

Frank

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Careful…

Kumquat Research is a college student and fund manager who has been investing for 4 years. He writes mostly about the technology sector and about event-driven and momentum opportunities across various industries and sectors. He is currently studying for degrees in both finance and computer science at the University of Maryland. Some of his interests include technology, software engineering, drumming, video games (developing and playing) and astronomy.

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Some of his interests include technology, software engineering, drumming, video games (developing and playing) and astronomy.

Ha!
Are we looking to go out on a date with him or follow his advice?

A.J.

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SWKS has around $1.2 Billion in cash, and 0 debt. They have 190 Million shares outstanding, so they have enough cash on hand to buyback all of the shares 6 times over, in theory !

I am not sure how you came to this conclusion. The market cap for SWKS is $11.5 billion (~190 million shares x $60.75 a share). I don’t think they have enough cash on hand to buyback all of the shares.

Wiseguy

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This board has pretty good knowledge on SWKS products and business. I would like to understand the impact of Apple on SWKS, specifically if Android phones continue to pick up market share from Apple, how does it impact SWKS revenues, margins?

Hi CM001,
Very simply, the management has often stated that they sell to EVERY smart phone manufacturer, and are in almost EVERY phone produced by EVERY smartphone manufacturer. I think the issue is not Apple losing market share to android, but what happens when everyone has a smartphone and the replacement cycle slows down. Of course people are also replacing to get higher bandwidth capacity, even if they already have a smartphone. And to have the latest and bestest. And SWKS is in a lot of things besides smartphones, as a brief perusal of their last press release and conference call will reassure you.

Best,

Saul

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“I am not sure how you came to this conclusion. The market cap for SWKS is $11.5 billion (~190 million shares x $60.75 a share). I don’t think they have enough cash on hand to buyback all of the shares.”

You’re right, of course, shouldn’t post before I am fully awake, that was a real gaffe on my part !

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thanks.

Very simply, the management has often stated that they sell to EVERY smart phone manufacturer, and are in almost EVERY phone produced by EVERY smartphone manufacturer. I think the issue is not Apple losing market share to android, but what happens when everyone has a smartphone and the replacement cycle slows down

Saul - I know we disagree on the risk and threat levels on Skyworks but I honestly think this is an over simplification. Skyworks has dramatically less content and almost no complete integrated systems in the American Qualcomm version of the Samsung S7. Some chipset companies ally themselves with certain design suppliers. Qualcomm are with Quorvo etc and NOT Skyworks and as some of the technical contributors on this board have said their expertise may not be replicatable by their clients but supplier systems offer similar competing capabilities.

Had Qualcomm with its 820 Snapdragon won all S7 worldwide and took the Android world by storm Skyworks would not be dead in the water, they would out of the game on the main system level market. I think design win decisions like that represents a constant risk. We are lucky Samsung insourced the S7 for the majority of the world but it could have been a very easy decision for them to go Snapdragon universally.

It’s like saying ARM are in almost all computers. They may have a content in HDD/SSD and controllers in computer componentry subsystems and peripheral attachments like disk drives etc but they are not in core computer processors.

Cheers
Ant

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The other risk on smartphones is that they have matured enough by now that the new features being added in each generation, other than the generational leaps, are often not as compelling for replacement. Even the generational speed changes are important to a limited number of users once one gets to 4G. For me, for example, I am a casual, rather than heavy user of browsing from my phone and never watch video there. So, for me, 4G is ducky, especially since those relatively rare times when I use the phone as a hotspot for my laptop, the speeds are comparable to what I am used to in my office.

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Thanks Ant, an interesting point of view. You certainly see it differently than SWKS management, but they may be wearing “rose-colored glasses.”

Saul

Had Qualcomm with its 820 Snapdragon won all S7 worldwide and took the Android world by storm Skyworks would not be dead in the water, they would out of the game on the main system level market. I think design win decisions like that represents a constant risk. We are lucky Samsung insourced the S7 for the majority of the world but it could have been a very easy decision for them to go Snapdragon universally.

Ant, Help me with this. How does what you say jibe with quotes like this from Skyworks?

As an example, our overall content on Samsung’s flagship Galaxy S7 platform is up 20% versus prior models. We’ve also secured more than $9 of content within Huawei’s new flagship smartphone platforms, helping to drive over 40% year over year growth with this customer.

and with this:

In general these analog architectures are getting much more complex and that’s across our entire customer base in mobile and non-mobile. 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. So we have very good visibility in terms of how the architectures are going. And so I guess I would say our clearly stated goal has been for a long time is to gain content with each model and as an incumbent we have been very successful in maintaining and in fact growing our footprint and that’s aided of course by complexity that all of our customers need help in solving particularly on the analog side and that’s our strength.

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 for a competitor who is marginally cheaper would be very expensive and questionable. They see margins gradually rising instead of falling.

And how about this?

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’re 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.

And especially this? (which they repeat in each conference call)

We are increasingly being brought into the architectural discussions much earlier in the design cycle…

…Well I think in general, the visibility we have continues to improve because we’re being invited into the design cycle much, much, earlier because we have a bigger footprint, we have a bigger piece of the overall system, and the system requirements are increasingly dependent upon strong analog performance, which is our sweet spot.

Do you think that they are just deluded about all this?

Best,

Saul

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Disclosure: What I know about this, I “learned” in the last 15 minutes.

The important question is why Samsung used Qualcomm for the U.S. version of the S7. A sub-question is why Qualcomm uses Quorvo (sp?) instead of SWKS.

Samsung partnered (partners) with Qualcomm because in the U.S., Verizon and Sprint have CDMA technology. This, I understand, is outdated. It was the best when Verizon went digital in… the 90’s? These are the phones that lock you into a Verizon plan. This a legacy thing. Europe and the rest of doesn’t use CDMA. Samsung apparently did not see the need to develop its own chip to incorporate CDMA just for the U.S. I don’t know why the world version isn’t available to At&T and other mobile phone service providers.

Why did Qualcomm use Quorvo? I don’t know. An existing partnership/relationship is suppose. How big of a problem is the for SWKS going forward? Don’t know. The Qualcomm version of the S7 is inferior to the world version in terms of speed and battery life. Some times superior technology loses out to marketing factors.

So I think both sides of this have a truth on its side. SKWS can be designed out of an important phone. SKWS is winning more and has a better product. The utility of the U.S. S7 version seems limited, so in that part of the picture, SKWS is in the better position, no?

KC

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Android is not picking up market share from the iPhone. If anything, there is a slow tectonic shift away from Android and into the Apple ecosystem.
Huh? This certainly isn’t true worldwide & isn’t even true in thh US anymore. http://www.cnet.com/news/android-trounces-apple-across-the-w…

There are many more articles along a similar vein that have been posted over the last few days.

But above & beyond that, for the smartphone market there is this …
http://ben-evans.com/benedictevans/2016/4/29/the-end-of-a-mo…
Almost everyone who is expected to have one in the near future does & replacement cycle lengths are likely to increase, leading to market growth stagnation.

Sorry, didn’t post any authority:

We’ve already seen that the Exynos-equipped Galaxy S7 is faster than the Snapdragon-equipped Galaxy S7, and now some new tests have shown that the Exynos-equipped Galaxy S7 edge has stronger battery life than the Snapdragon-equipped Galaxy S7 edge.
GSMArena has done some extensive testing on both versions of the Galaxy S7 edge and has found that the Exynos version delivers nearly two additional hours of talk time, over three additional hours of video playback, and nearly three-and-a-half additional hours of web browsing. This is a pretty stark difference and is almost certainly due to each chipset’s power efficiencies — after all, both devices come with identical 3,600mAh batteries, so there’s no other reason we should expect to see this much difference in performance between the two versions.
Of course, neither version of the Galaxy S7 edge delivers poor battery…

Samsung designed its latest Exynos processor to support LTE and GSM networks, but not CDMA networks like Verizon Wireless and Sprint. Instead, it partnered with Qualcomm to use the new Snapdragon 820 chipset in the U.S. versions of its new phones, because it supports CDMA networks as well as LTE and GSM. While it was believed that performance would be comparable between the different models, that hasn’t turned out to be the case.

KC

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Hi Saul - sorry been busy last few days but meaning to come back to you on this…

Help me with this. How does what you say jibe with quotes like this from Skyworks?
1)
As an example, our overall content on Samsung’s flagship Galaxy S7 platform is up 20% versus prior models. We’ve also secured more than $9 of content within Huawei’s new flagship smartphone platforms, helping to drive over 40% year over year growth with this customer.

Ok - well first these kinds of growth rates are not reflected in current quarter’s YOY as well as next quarter’s YOY growth rates so I think they are being selective about their win penetration.
However my point isn’t that they aren’t in the S7 my point is that they were designed out of the US S7 at a stroke since that model went to Qualcomm who are aligned with Quorvo and Avago. If all of S7 went to Qualcomm they would not be able to make that quote. We also know that Qualcomm not that they have resolved the licensing issue in China as well as the overheating of the 810 are seeing much greater traction with their 820 Snapdragon. This is going to hand more business to Quorvo/Avago than to Skyworks.

This is NOT a comment on the business performance but on the fact that a design out and loss of a key account can happen in an instance so that the moat claim is not as sustainable as we might think. Having said that their rhetoric on content increase does not fit with revenue growth which has all but vanished (and that is not seasonal as it is YoY comparisons) but that is less of my point.

We are increasingly being brought into the architectural discussions much earlier in the design cycle…

…Well I think in general, the visibility we have continues to improve because we’re being invited into the design cycle much, much, earlier because we have a bigger footprint, we have a bigger piece of the overall system, and the system requirements are increasingly dependent upon strong analog performance, which is our sweet spot.

That might be so but so I presume are all of the other analog players - Avago and Quorvo who have, as some have already mentioned on this board, fairly like for like offerings. The fact that they are being brought in earlier didn’t save them from a loss of content on the US S7.

Ant

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Android is not picking up market share from the iPhone. If anything,
there is a slow tectonic shift away from Android and into the Apple
ecosystem.

That statement couldn’t be any more false. Android is still gaining market share for smartphone OS, while Apple is declining. This trend has not abated for many, many quarters now. I am an AAPL shareholder, and a long-time Android user, so don’t really have anything against Apple – from a shareholder standpoint I WANT them to do well, but from my personal use perspective, I’ll never allow myself to be locked into an ecosystem like Apple’s…

Just a few articles and backing data, but feel free to use your favorite search engine to look for “Smartphone OS Market Share” or similar:

http://venturebeat.com/2016/05/11/android-is-eating-apples-i…

http://www.statista.com/statistics/271496/global-market-shar…

http://www.idc.com/prodserv/smartphone-os-market-share.jsp (unfortunately I can’t find newer public data, but maybe you can)

What IS true is that the Android market share is becoming more fragmented – and that was partially by design and natural in an open-ecosystem OS like Android. Samsung still dominates, but there are many and more players inside that bucket now than there were 2 years ago.

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