Actually this was my point about Skyworks valuation being stretched - I didn’t mean on a P/E basis I meant on a total market cap basis and revenue basis. They are reaching a point of such high valuation they are becoming their own worst enemy as it will provide the rationale for Apple to do something about it themselves due to the amount being forked out in every unit and the total value (or cost) to the business.
Ant, I don’t want to minimize the risk of Skyworks losing Apple. It would definitely hurt in the short term. But the company is about a lot more than Apple. It’s about a lot more than mobile (even though that is providing very nice tailwinds, and the company has wins in a lot of phones from a lot of manufacturers). Long-term, this is about the Internet of Things, which is going to be such a huge industry that there will be a lot of winners. Skyworks is already benefiting from it, and that is likely to continue. As CEO Aldrich said:
We’ve spent the last decade investing significant resources and leveraging our technology to expand our presence in traditional analog markets like automotive, medical and industrial. We have established significant traction in these higher-margin growth avenues, and we see tremendous opportunity ahead…
We take a very long-term strategic view of our business, and we think we’re positioned extremely well. I don’t think we’ve ever been positioned as well as we are today for the long term.
So hopefully Apple continues to be a customer with future devices, but they’re just one part of the story IMHO. And as Saul pointed out, it seems very unlikely Apple would ditch them overnight – and meanwhile, SWKS continues to diversify its business every quarter, continues to build momentum with IoT every quarter, and that Apple revenue becomes less important every quarter (though it’s still nice!). Just look at the latest quarterly release and the design wins: there are a couple mobile ones in there (Galaxy S6, Nexus) but most are IoT related.
I personally don’t see SWKS as a one trick pony. And they’ve already successfully navigated the transition from basic “chip company” to custom solutions provider. Aldrich again:
We are reaping the benefits of our dual strategy of providing leadership and custom integrated solutions, while continuing to diversify into high-margin verticals. And as a measure of our progress, in 2011, around 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, which are our fastest growth areas, driving improved financial returns, and putting us on a clear path towards 50% gross margins and above. And 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, providing more value in the overall supply chain. This is creating a fundamental shift in our business model; simply put, more complex systems drive increased profitability.
So while I hear you about folks not seeming overly concerned about losing Apple, I personally don’t think it’s so much about minimizing that risk as it is looking at that single customer within the larger context of where Skyworks is headed as a business. That’s not to say it can’t all go horribly wrong – it certainly can (and even though Saul owns a lot, 80% of his portfolio is not in SWKS). But I personally think that Skyworks has positioned itself to benefit from very large macro trends over the forseeable future that go beyond any single customer.
Just my 2 cents.