Skyworks and IoT Opportunity

Investment Analysis Clubs Saul’s Investing Discussions
#1

I’m puzzled that people still think IoT is still a long way off for Skyworks when the CEO said in an investor conference that he would bet he could walk into your home and find 25 Skyworks products.

I pulled this form my notes on last December’s earnings report in January 2015.

Q1 Business Highlights
• New design wins in Cisco’s latest home gateway for cable operators
• Secured multiple analog devices in a platform for GM vehicles
• Delivered modules for Samsung and other LTE smartphones
• Introduced Zigbee® solutions for smart lighting products at LG and Philips
• Expanded wearable designs with multiple devices in Timex Ironman smartwatch
• Delivered switching and connectivity modules for Xiaomi Mi4 platform
• Supported Thales avionics platforms with hi-rel switching products
• Captured over ten dollars of analog content in set top box application for DirecTV

Now this was a whole year ago!

Here’s what they announced new in the last quarter:

Q4 Business Highlights

Captured Wi-Fi, Bluetooth and ZigBee® content in the Google OnHub Connected Home Gateway with a suite of 20 devices
Launched tuning and connectivity ICs in Huawei’s Nexus 6P smartphone platform
Extended momentum in the connected home with ZigBee® front-end modules in Samsung’s SmartThingsTM suite of products
Expanded presence in a leading small-cell BTS platform with $25 of content
Unveiled SkyOne® and diversity receive modules in ZTE’s Axon smartphone
Secured display backlight and power management functionality in LG infotainment centers for upcoming Hyundai models
Powered Arris DOCSIS 3.0 cable modem for Time Warner deployments
Supported Moto X smartphone with five devices including TrueFlash™ dual LED camera flash IC
Introduced ZigBee® solutions for Philips’ latest smart lighting hub

Does that sound as if their business is all smart phones? Really?

This is from the CEO in the last Conference Call. Take the time to read it all, not just what I bolded!

All in all, this was an outstanding year for Skyworks. And we continue to see numerous opportunities to capitalize on the powerful technology trends that are fueling the long-term growth in our served markets. These include exploding data consumption across the consumer and enterprise landscape; these include soaring adoption of cloud services from the likes of Amazon, Google and others; the proliferation of connectivity throughout the emerging markets; and the rise of the Internet of Things. These global trends are all in the early innings and all rely on seamless connectivity to efficiently and reliably move massive amounts of data anytime and anywhere.

The end result is a boom in connected devices and worldwide data consumption fueling tremendous opportunity, but also creating major technical hurdles within the industry. By virtually every measure, consumer appetite for streaming services is growing dramatically, as traditional broadcasters and new content service providers, like Netflix, Amazon and Hulu, race to gain a foothold in the new online world of content distribution.

In fact, analysts estimate that mobile data usage will increase at nearly 60% compounded through 2019. This places significant strains on network infrastructure and on devices. As an example, consider that an hour of streaming high-definition video consumes roughly one to two gigabytes of network bandwidth, 4K streaming devices consume two times to three times this amount. And further exacerbating the industry’s challenges is the limited amount of spectrum and network capability available to address this pending surge in data.

Market forecasts estimate that only around one-third of the spectrum needed to meet bandwidth requirements over the next few years is in service today. And to solve this imbalance, carriers are either deploying new spectrum or finding ways to increase the throughput of existing frequency bands. Finally, this rising data trend directly impacts the battery life of today’s devices, and they demand higher and higher power levels. This comes at a time when our customers are already wrestling with power budgets to implement more capable processors, higher definition screens and other power consuming features.

As customers struggle to adapt to these market realities, we are increasingly being brought into the architectural discussions much earlier in the design cycle. This is the primary reason we are shaping next-generation solutions to implement higher band counts and the use of unlicensed bands, increasing carrier aggregation combinations, tighter and tighter filtering requirements, more complex receive architectures, advanced Wi-Fi configurations and more sophisticated techniques to manage power and increase efficiency.

As customers implement this next level of functionality, they are increasingly demanding more system-level solutions and higher levels of integration and these are playing directly into Skyworks’ strengths.

We see all of these dynamics increasing our addressable content across the breadth of our service markets for years to come. As I mentioned earlier, this backdrop provides us with a high confidence level in our business trajectory, [and we are raising our Outlook…]

Looks good to me.

Saul

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#2

This does, indeed, sound incredibly positive.
I recall listening to that conference call and being incredibly impressed both with the content and with Aldrich himself.

In fact, if the stream of the conference call is still available, I highly recommend listening to it.

I significantly increased my stake in SWKS after this call.

Thanks for reporting this Saul.

Take care,
AJ

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#3

Looks good to me.
Sounds good to me too!
Yes IoT is happening and SWKS is well positioned to take advantage of it.
I’ll buy SWKS first thing on Monday Morning.

Merry Christmas and Happy Holidays all!

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#4

I pulled this form my notes on last December’s earnings report in January 2015
In continuation to Saul response and to the following article that was posted earlier:
http://seekingalpha.com/article/3721816-the-brewing-iot-stan…
The Brewing IoT Standard Battle

A few observations here:

  1. There is still a standard battle going on here and it is still far from over.

  2. While this battle is happening companies are still implementing IoT using various standards.

  3. The 4 major standards are: Z-wave, ZigBee, Thread and BLE .

From the post from Saul we can clearly see that SWKS is offering ZigBee solutions. The also have some knowhow and experience with Bluetooth so I assume that they are well positioned to supply a solution also for BLE .
Thread is an upgrade for ZigBee so I assume that SWKS can come with a solution for that too.

What is left?
Z-wave - SWKS and other companies cannot develop a solution there since there is a Intellectual Property that prevents it from entering the space. I am not concerned since proprietary solutions never prevail.

Summary
A quick analysis of the major IoT standards reveals that SWKS has the capability and knowhow to provide a solution to three of the four major standards. With the fourth one Z-wave there is no much concern since it is proprietary.

Folks, let me know if my analysis make sense. I am encouraged to see how well SWKS is positioned in this field.

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#5

What is left?
Z-wave - SWKS and other companies cannot develop a solution there since there is a Intellectual Property that prevents it from entering the space. I am not concerned since proprietary solutions never prevail. – shukisasson (emphasis added)

Never is such a strong word. :slight_smile:

The entire patent system is predicated on novel proprietary solutions. Quite often, those solutions become industry standard, even short term monopolies. Let me mention a couple:

Intuitive Surgical: Lots of patents on surgical robotics. Pretty much owns the market.

Universal Display: Lots of patents on certain types of OLEDs. Pretty much owns the market.

There are others of course.

How about Apple? iOS, a proprietary system. True, they don’t control the market for operating systems, but they seem to be managing fairly well.

Coca Cola? Not patented. Often copied…. to a degree…. but they are doing pretty darn well with their proprietary product.

Sometimes those proprietary solutions are better than the competitive products….but they still lose out in the marketplace. Betamax comes to mind. https://en.wikipedia.org/wiki/Betamax

I’m not disagreeing with what I perceive to be your larger point, that proprietary solutions often don’t prevail. And Skyworks still has a strong position. Even though they don’t participate using Z-wave.

Currently. Who knows? They may license it at some point.

They have lots of options.

Rob

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#6

Never is such a strong word. :slight_smile:

The entire patent system is predicated on novel proprietary solutions. Quite often, those solutions become industry standard, even short term monopolies. Let me mention a couple:

You are right Rob, I should have said proprietary solution never prevail in the communication standard protocols.

All the protocols starting from IPv4 Ethernet, IPv6, DNS etc…
Are accessible to all implementors.
I know of no communication technology that was made world wide spread that is proprietary and implementors have to pay royalties.

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#7

Thanks for your clarification and insight, shukisasson!

I happen to have a significant position (for me) in SWKS and welcome all the info I can get.

Rob

#8

Thanks for your clarification and insight, shukisasson!

I happen to have a significant position (for me) in SWKS and welcome all the info I can get.

Rob

I am in it too now. I am still a little doubtful about the IoT story since it is in its early stages and the battle hasn’t won yet. However, SWKS has a foot print there and it is not only smartphone company like Saul has pointed out.
They executed very well and the CEO and management seems to be knowing what they are doing. On top of that there is a very reasonable valuation here.

Good luck to all of us!

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#9

The entire patent system is predicated on novel proprietary solutions. Quite often, those solutions become industry standard, even short term monopolies. Let me mention a couple:

But for communication protocols, proprietary solutions don’t win. You mentioned Apple - but Apple doesn’t have its own WiFi or Bluetooth, it supports the standards.

Now yeah, sometimes companies extend the standards so that their products have additional capabilities when working together, but they still support the standard.

Now, about the only proprietary protocol I can think of right now is HDMI. That’s pretty easily licensed for a fee, and makes sense to keep the content protections in place.

So the question is whether Z-wave will win out over the non-proprietary alternatives. That seems unlikely unless it has significantly better power requirements (lower), bandwidth (higher), range or security. I haven’t investigated this area enough to have my own opinion yet.

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#10

But for communication protocols, proprietary solutions don’t win. You mentioned Apple - but Apple doesn’t have its own WiFi or Bluetooth, it supports the standards. – Smorgasbord

The context in which I mentioned Apple had nothing to do with communications protocols, just the existence of their proprietary iOS and that they were a success with it.

Rob

#11

The context in which I mentioned Apple had nothing to do with communications protocols,

That’s my point. We’re talking communications protocols here. And there proprietary solutions rarely succeed.