They worry that if Skyworks lost Apple, they’d get hammered. But what they fail to realize is that Skyworks is more important to Apple than vice versa. iPhone accounts for the overwhelming majority of Apple’s profits. The solution that Skyworks provides is absolutely critical to the performance of the iPhone, yet it is an absolutely tiny portion of the bill of materials. So why in the world would Apple take the risk with an alternate supplier…who would have a significant risk of not being reliable to provide a quarter of a billion units over the next year? Certainly not to save $1. So unless someone comes along able to offer a dramatically better offering (which is extraordinarily unlikely), this won’t happen. Moreover, it’s not happening in the next two years, period? How do I know? Because Apple is already done designing the iPhone 7 and 7S, and if Skyworks wasn’t in that, Skyworks would not be upping all of their earnings estimates for the next two years. Indeed, I suspect that they are already collaborating with Apple on iPhone 8…as well as Apple Watch with cellular (go back and read last conference call questions, where CEO discussed “wearables”.)
Well what about the threat that Qualcomm will take over by integrating all the Skyworks functionality with their cellular chip? Could happen, but I think very unlikely. First of all, Skyworks has been building expertise for this over many years; why should we think all of a sudden Qualcomm can do better? Maybe more importantly, I think Apple understands that it would absolutely not be in Apple’s interest to have Qualcomm develop even more market power than they currently have. Indeed, there are credible rumors that Apple is working on designing their own cellular chips, which would make them even less likely to choose Qualcomm over Skyworks.
Bottom line, this panic over Skyworks is presenting an outrageously attractive price for an outrageously attractive business. I’m right there with Saul in making this my #1 position, and a large portion of my portfolio. When you get a pitch this fat, if you don’t load up, you won’t profit much. For someone buying in the mid-60’s and holding for a long time, this will likely end up being one of the best investments of your life. And the realistic worst-case scenario? Likely just dead money for a prolonged period. The thing I fear the most is that someone will come and acquire them for a 50% premium over this crazy-low price.
Unprompted by me, Aldrich offered that “with what’s going on this week, with our stock down, what always helps us is that we are not just in any one vendor’s product, we are in all the OEMs,” meaning the company’s RF “front end module,” which includes the power amplifier but increasingly things such as power management chips that make up as much as a third of what Skyworks gets from some products.
“And also, and I will commit to investors, and to your readers, with each new generation of these things, we will get a higher share of the content in them”
Unbridled optimism like this just doesn’t make sense for a CEO who knows he is going to have to present poor earnings in a couple weeks…if that were the case, you would expect him to try to gently prepare investors for that.
Between the November investor presentation, and the November earnings conference call (when they upped the forecast from $7 to $8 within two years), to this interview…this sure seems like a man who is enormously confident in the future of his business. And as he repeatedly says, a large part of this confidence is that given that Skyworks is being engaged very early in the product development of its customers, he has great visibility into that future…this isn’t just wishful thinking or unfounded optimism.
Wow, Commoncents, You really expressed that beautifully. I agree 100%!