SWKS: Good News, Bad News

Investment Analysis Clubs Saul’s Investing Discussions
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Bad news first. SWKS was downgraded today by analysts at Pacific Crest over concerns about the upcoming iPhone 7 shipments. From Foolish contributor Rich Smith:

Sales of Apple’s (NASDAQ:AAPL) iPhone are in trouble – and that could spell bigger trouble for Apple’s suppliers.

That’s the upshot of a new report out of tech analysts at Pacific Crest this morning, as they take a shotgun to the iPhone supply stream, downgrading stocks and slashing price targets across the board. As reported on StreetInsider.com Monday, Pacific Crest’s “quarterly Asia supply chain findings left us incrementally more positive on” only a handful of smartphone component suppliers – and very negative on the supply chain at large.

…

Suffering the brunt of Pacific Crest’s criticism this morning are Cirrus Logic and Skyworks Solutions. Cirrus supplies audio integrated circuits on the iPhone 6S. Skyworks supplies at least two power amplifiers for the device. Both stocks got their ratings cut from overweight to sector weight – the equivalent of a cut from buy to hold.

Smith does note that Skyworks is better positioned from a P/E standpoint than Cirrus:

Skyworks Solutions, on the other hand, costs only 12.2 times earnings, and is pegged for 17% growth. That suggests that even if Pacific Crest is right about iPhone sales turning down, Skyworks stock is more defensively priced. (There is, however, some concern to be found on the stock’s cash flow statement. According to data from S&P Global Market Intelligence, Skyworks Solutions generated less than $0.58 in real free cash flow for every $1 in claimed “net earnings” over the past 12 months. Cheap as the stock may appear on the surface, it may not be quite as cheap as it looks.)

Read the whole thing at http://www.fool.com/investing/2016/07/05/cirrus-logic-and-sk…

On a much more positive note, Huawei’s newest flagship phone is loaded with Skyworks products:

Huawei’s newest flagship P9 and P9 Plus smartphones are being enabled by a broad suite of devices from Skyworks. The devices include highly integrated modules to industry-leading analog control ICs. Specifically, Huawei’s latest mobile platforms are utilizing the low, mid, and high band architectures of the SkyOne Ultra 2.0 featuring integrated filters and SkyBlue technology, antenna tuners, power management devices and multi-throw switches. Their products address LTE advanced carrier aggregation standards and support up to nine global combinations, including the two most challenging mid-band/mid-band cases.

Read the entire article at http://www.everythingrf.com/News/details/2680-huawei%E2%80%9…

Click on the link and see the diagram pointing out all of the Skyworks components in the phone to get a true idea of how much Skyworks is represented.

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

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This is what Monkey was talking about upstream:

On the one tail, you have analysts looking at supply chains at Apple––which Tim Cook swears are almost always misleading and don’t show the full story––and making inferences and consequently downgrading Skyworks stock.

On the other prehensile appendage, you have the Suits at Skyworks repeatedly saying that they work with their partners years in advance and that the second half looks very strong. That’s information from the inside.

So who do we believe?

Is management being deceptive? Outright dishonest? Or have the winds turned so negative in such a short period of time that they, too, are being caught by surprise?

Because either SKWS is now a stupendous value, or management has mislead its investors––knowingly or unknowingly––about what’s happening on the innards of the company.

Of course, this downgrade could also be another instance of Wall St. worrying about the short term at the cost of everything else, while Skyworks continues to do what it does, both in the short term and in setting the growth stage long-term.

This seems like a basic issue of who do you believe more–

And why would we believe an outside analyst looking in over the people who are on the inside and have more information than anyone else, including the analysts?

I hope that balance sheet is being used to scoop up as many shares as possible at these prices…

Also, can anyone comment on this: “There is, however, some concern to be found on the stock’s cash flow statement. According to data from S&P Global Market Intelligence, Skyworks Solutions generated less than $0.58 in real free cash flow for every $1 in claimed “net earnings” over the past 12 months. Cheap as the stock may appear on the surface, it may not be quite as cheap as it looks.)”

Humbly Yours,

Monkey

Long SWKS

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I would like to hear what people gauge this tie that Skyworks has with Apple and how they could somehow diversify away from Apple in a significant way that their revenue and stock is not as tied to the fate of Apple as it is right now.

A good example of how diversifying away Apple was done by Avago now Broadcom. In the past few years Avago’s revenue was strongly coupled with the iphone cycle but today it is much less and their growth is not dependent on the iphone.

What is Skyworks doing in that regard?

tj

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I read today that for SWKS:

3rd quarter 2016, analysts estimate $1.21 EPS (non-GAAP), a decrease of 9.43% over prior yr 3rd quarter.

Revenue down 7.38% over prior yr 3rd quarter.

Earnings will be reported July 20th after close.
I hope this doesn’t turn out to be another INFN type disappointment.

They are down 42% over the last 12 months!
Today I actually added some shares at $58.31.
Am I crazy ? Tonight I feel doubts about this investment.
Buyers remorse or my instincts telling me something.
I have a 7% position.

Frank

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http://iphone.appleinsider.com/articles/16/07/03/actually-th…

I don’t know, will Apple disappoint? This article lays it out very well. Apple dominates and the 7 won’t be a dud. Nevertheless, as Alexanser said, or similarly, there are only so many worlds that I can conquer.

I’m actually downgrading from the 6s to the SE. So much more an actual phone that I can use as a computer when called for.

Giving my 6s to my office manager. I’ll get it back some day.

So that is an Apple problem. Doubt it will affect the iPhone 8, and the 7 will probably out perform.

This is of course quite good for SWKS long term. 7 outperforms and the 8 redefines again. But we shall see.

I don’t own SWKS but am fascinated
By all things Apple.

Tinker

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Hi Monkey.

“Skyworks Solutions generated less than $0.58 in real free cash flow for every $1 in claimed “net earnings” over the past 12 months.”

As a reminder, “Free Cash Flow” is “Cash Flow From Operations” minus “Capital Expenditures”. By “real” free cash flow, I assume the author wants to strip away the $88.5 million break-up fee that Skyworks received when PMC-Sierra decided it wanted to merge with Microsemi instead of Skyworks.

Yes, the break-up fee was an outlier event. But so was first (fiscal) quarter CapEx. Skyworks has been investing in their filter capabilities, leasing a facility in Japan (OpEx) and buying equipment (CapEx) for it to produce filters (SAW, TC-SAW, and, presumably, BAW). Skyworks currently uses internally all the filters that it can produce, so it makes sense to invest in increasing filter capacity.

Current depreciation is around $50 million per quarter. Current CapEx should reasonably expect to mirror that, plus allow for growth. 1Q16 CapEx was over $150 million. 2Q16 CapEx was $37 million. The CFO has said we should expect some quarters closer to the depreciation level before growth-related CapEx resumes.

To my mind, the author is cherry-picking the data to prove the point he wants to make. I’ll grant that Capex associated with outfitting a new factory is closer to “ongoing business expenses” than a “merger termination fee”. But the 1Q16 elevated CapEx levels are not routine either, and certainly make the “real free cash flow for every $1 in claimed “net earnings” over the past 12 months” look bad. I trust the management team to make an investment in manufacturing capacity for a product with proven demand even if it hurts free cash flow metrics.

Skyworks isn’t particularly cash-constrained. As of fiscal 2Q16, they had over $1 billion in cash and equivalents and zero long-term debt.

I hope this helps.

Fool on!
Thanks and best wishes,
TMFDatabaseBob (long: SWKS)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

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