SWKS moat full of alligators?

Investment Analysis Clubs Saul’s Investing Discussions
#26

I also took AP Economics so I’m starting to get some idea especially in debt/equity/other things like that, but I definitely need to look more into what the statistics mean.
(I think you mean factors here and not statistics)

Hi Brennan,you are certainly on the right path. Having a passion for investing and having fun while doing it will certainly lead you to good result. You are young (but from you writing pretty mature) and you have all the time to take calculated risks.
About starting to involve statistics with investment one should take into account that this is a sure path to losses in the long tun.
There are several books on that matter By Nassim Nicholas Taleb:

  1. Fooled By Randomness
  2. The Black Swan
  3. Antifragile.
    I think reading “The Black Swan” first will be the way to go.
    You can get it from the library and in some case as an audio book.
    After reading this book you’ll realize that applying statistics methods (like normal or Gausian distributions) are not only futile but dangerous.
    Sticking with Great companies who have great products is a much better path.
    In any case I wish you good luck!
1 Like
#27

Congratulations on your very sensible approach - and well done on NKE and UA!

Nike is a long-held holding and has come through my screens often but I was too slow and then never managed UA owing to price.

#28

I think I would change that line to, you make serious money from running a business or investing in good businesses, not from working for someone else’s business.

My version of the concept is that almost nobody gets really wealthy through being paid for their own work. The main path to wealth is to get paid for the work of others. That could mean buying shares, or running your business; no sure things in either case(!), but being an owner gives the best odds.

2 Likes
#29

I will share one of my favorite blogs in case it is of interest. Joshua started investing at a young age too, and he has a lot of opinions about building wealth. Smart guy. There are many ways to invest, and comparing / contrasting Saul and Joshua, and taking it all in to see what resonates with you might be interesting. I enjoy both places very much.

Best wishes!
Karen

#30

Hi Folks, I talked to an Electrical Engineer who is an expert in CellPhone hardware. He has been in this field for about 15 years and he is extremely smart. He works for the one of the high tech companies.
He meets with SWKS AVGO and QRVO people on a daily basis.
They are all potential suppliers of a chipset for the product he is working on.
He says that SWKS Avago and QRVO are the leaders in chip sets for Cell Phones. When I asked him to pick a winner he more or less said they are all equal.
He did sya that the SWKS solution works period.
About 5G, he said that this technology is a small cell technology. What this means is that due to physical limitation it is limited in range and could not be deployed only by cellular towers only.
He thinks (probably more knows that thinks)_that the deployment of this technology will require adding some components to the home.
So this is not so encouraging.
On the other hand he thinks (This is even more knows than thinks) that the LTE growth has some years ahead of it.
For me the conclusion is that SWKS has probably 3-5 years of rapid growth in the LTE CELLPHONE. This means it is investable but should be watched carefully. This what we are doing anyway.
As for other futuristic markets like the internet of things…
Well he thinks that this more of a slogan than a vision. No one knows exactly what it is.
I will currently watch their Cell Phone execution and ignore the “Internet of Things” theme unless we’ll see a concrete vision that we can understand what it is and we’ll know it is useful.

In Short: SWKS has some guaranteed growth ahead of it of several years. We can take advantage of it and be profitable. We should be aware that this growth may come to an end and sell when this happens.

16 Likes
#31

shukisasson,

Thanks for the inside info, interesting stuff.

About 5G, he said that this technology is a small cell technology. What this means is that due to physical limitation it is limited in range and could not be deployed only by cellular towers only.
He thinks (probably more knows that thinks)_that the deployment of this technology will require adding some components to the home. So this is not so encouraging

I’m curious why you think this is not encouraging? Skyworks makes components that are used for connectivity of lots of things not just phones. More components, more solution, more sales. On the Raymond James investor conference that Saul so kindly posted, Aldrich specifically talks about 5G as an opportunity for them. It’s a great listen and I highly recommend it.

Brian

2 Likes
#32

Just FYI,

David Kretzmann, TMFPencils, started posting on Fool boards around age 12. Most readers of his posts, including me, were very surprised when we found out how young he was.

After graduating from college, he accepted a position at the Fool.

Perhaps some of you have met him or seen him in some Fool videos.

http://my.fool.com/profile/TMFPencils/activity.aspx

Fool on,

mazske

Check my profile to see all I hold

1 Like
#33

I’m curious why you think this is not encouraging? Skyworks makes components that are used for connectivity of lots of things not just phones. More components, more solution, more sales. On the Raymond James investor conference that Saul so kindly posted, Aldrich specifically talks about 5G as an opportunity for them. It’s a great listen and I highly recommend it.

This all means that moving from 4G to 5G involves with major infrastructure changes on the carriers themselves. It may never happen…
Also if it does happen it is not an evolution but revolution, that of course is where other start ups with different technology may come and capture the market.
So in short SkyWorks dominance after 4G is not guaranteed.
By the way I did listen to the presentation and I did see that the CEO puts 5G there as his vision. It doesn’t mean that he already has a winning solution for it. Remember this is an investor conference. 5G may be an opportunity but as much as it is an opportunity it is also a significant challenge. For 4G I believe they have a winning solution.

4 Likes
#34

Well, this thread wandered completely OT. So I’ll interject a thought about the SWKS moat. Note that SWKS is not just a design shop, they also manufacture their chips/systems.

Don’t trivialize this, especially when it comes to complex analog systems operating in close proximity to digital systems. There are precious few environments more prone to interference problems than the analog systems in smart phone. In order to eliminate interference in this environment SWKS must master many technologies, especially filters with is one of their core competencies. And building the system so that it works and always works requires a lot of attention to component placement. This goes way beyond a schematic design, this involves physical lay-out. The length of traces, shielding, etc, etc.

Much of this is learned by trial and error. This becomes part of their IP, some of it protected by patent, and some of it held as trade secret. While SWKS has competent competitors, SWKS solutions are just that “solutions.” They have a reputation for building stuff that always meets or exceeds specs.

7 Likes
#35

Well, this thread wandered completely OT. So I’ll interject a thought about the SWKS moat. Note that SWKS is not just a design shop, they also manufacture their chips/systems.

Don’t trivialize this, especially when it comes to complex analog systems operating in close proximity to digital systems. There are precious few environments more prone to interference problems than the analog systems in smart phone. In order to eliminate interference in this environment SWKS must master many technologies, especially filters with is one of their core competencies. And building the system so that it works and always works requires a lot of attention to component placement. This goes way beyond a schematic design, this involves physical lay-out. The length of traces, shielding, etc, etc.

Much of this is learned by trial and error. This becomes part of their IP, some of it protected by patent, and some of it held as trade secret. While SWKS has competent competitors, SWKS solutions are just that “solutions.” They have a reputation for building stuff that always meets or exceeds specs.
Avago and QRVO have the same expertise and same capabilities. What is going for SWKS is the ongoing relationships with customers like AAPL and others.

3 Likes
#36

shukisasson,
I wasn’t trying to imply that SWKS had no competitors, I was only trying to highlight one of the barriers to entry (an alligator). Even with designers walking the streets, the ability to actually build these systems is far from trivial. It takes extraordinary fabrication capabilities.

#37

Can’t they just be designed out of the next model in a few weeks if someone else comes along with a cheaper chip?

You’ve got to be kidding! Did you read the paragraph above?

I think a critical part of understanding Skywork’s moat is the fact that the price of their solution, which is critical to the success of the OEM product, is how tiny a fraction of the bill of goods it is.

If Skyworks solution was costing Apple, for example, a fifth of the cost of producing an iPhone, the pricing dynamics would be quite different.

As Michael Porter has pointed out, everyone in the value chain is competing for their share of the value in the product/service. What Skyworks provides is a screaming bargain relative to what it contributes. So everyone is content to give them $6 toward the cost of the iPhone–which is fairly trivial–yet Skyworks gets a phenomenal ROIC from that $6. That’s a win-win if ever I’ve seen one.

It’s kind of like Coca-Cola. For things you spend thousands of dollars on, you’re extremely concerned about price. But if you’re spending 60c cents on a drink, you’re not too concerned that someone else may sell you a possibly-inferior drink for 56 cents.

2 Likes
#38

They can be commoditized if all the smart phones are going to be commoditized.

This is not logical.

The Wintel OEM are selling commodities. No one makes a worthwhile profit.

Yet Windows and Intel still make a killing.

It’s all about where competitive advantage lies. And it lies with Skyworks (and not with any Android OEM to any substantial extent).

#39

They can be commoditized if all the smart phones are going to be commoditized.

This is not logical.

The Wintel OEM are selling commodities. No one makes a worthwhile profit.

Yet Windows and Intel still make a killing.

It’s all about where competitive advantage lies. And it lies with Skyworks (and not with any Android OEM to any substantial extent).

Great example, Intel is the De Facto standard CPU for all computers (even servers). It is tough to port software and system from one CPU vendor to another. Is SWKS in the same position? Not Yet

Microsoft Windows and Office have a huge switch moat, I wish SWKS had the same switch moat too.

1 Like
#40

I think it will be critical to see how Skyworks can grow beyond mobile. ARM have managed to establish that vision and make it happen. I would love to see Skyworks do the same. (IOT, Servers, embedded systems etc).
Ant

#41

I think it will be critical to see how Skyworks can grow beyond mobile. ARM have managed to establish that vision and make it happen. I would love to see Skyworks do the same. (IOT, Servers, embedded systems etc).
Ant

I agree, according to the presentation SWKS next engine of growth is the internet of things. However, nobody know exactly what it is.

#42

I’m not very smart so I try to keep things simple.

Isn’t IOT basically moving data across different devices?

Aren’t smartphones just devices that send and receive data?

Doesn’t Skyworks excel at creating solutions to enable devices to send and receive data?

What am I missing?

Brian

1 Like
#43

There are billions of smart phones in existence and the market is slowing as it reaches saturation point. The functionality and utility is high, bill of material is high and the device prices are $500-$1000.

Connected IOT devices are still getting started, with lower functionality/utility and bill of materials and prices are in the $1-100 range.

Yes it is an addressable market for SWKS but the size, growth and lifecyles are different.

Ant

2 Likes
#44

Great example, Intel is the De Facto standard CPU for all computers (even servers). It is tough to port software and system from one CPU vendor to another. Is SWKS in the same position? Not Yet

Microsoft Windows and Office have a huge switch moat, I wish SWKS had the same switch moat too.

Well, let’s unpack that a bit.

First of all, I was not suggesting that Skyworks’ moat is as deep as either Windows or Intel in PC’s. The point was that products with a very deep moat can exist inside of a commodity product. Therefore the implication that just if/because smartphones become commodities in no way necessitates that Skyworks’ solution there would be as well.

Secondly, I think they may be more secure in their position than many suppose. In particular, with Apple, who last year accounted for 44% of their business (see page 62 of 10-K), I think they have a very secure position. Looks at this from Apple’s perspcective: first of all, clearly Apple has already set-up Skyworks for the iPhone 7. Well, it would be simply stupid to switch to a competitor’s solution for 7S. So that puts us out to iPhone 8, which is already into the design and development stage. Apple has to assume they’ll produce about a quarter of a billion iPhone 8’s in a year. The solution that Skyworks is critical to a quality smartphone, and is a tiny fraction of the bill of materials. Maybe most importantly, Apple has to be able to count on it’s supplier to be completely trustworthy to supply a quarter of billion product in a year.

People seem scared because Apple accounts for 44% of Skyworks sales. Yet, iPhone accounts for nearly 75% of Apple’s sales. Apple simply cannot and would not risk the health of their goose that lays the golden eggs to save a buck or two by switching to a Skyworks competitior. The only reason they would even consider switching (assuming Skyworks continues to perform well) is for a dramatically superior solution (not for cost…it’s already tiny). Yet given the complexity of the solution being provided, it’s not like someone can simply invent a better widget. They would have to build many better widgets, and have a superior assembly package…and they would have to be able to provide with no doubt a quarter of a billion in a year. Good luck with that.

Now with other Skyworks customers, particularly smaller use cases, this entrenched position may not exist. Yet now that they have such scale (with more dollars going to R/D), their competitive position should steadily grow. And if you’re a business trying to break into an IoT field, or wearables, or self-driving cars, I suspect there will be an element of “no one ever got fired for hiring IBM” existent now, and likely growing in the future. Again, the percentage of the bill of material for Skyworks’ solution is low, so just going with the best and most proven provider makes sense in this cutthroat industry.

14 Likes
#45

I actually hate social media, such a toxic and time sucking environment.

You just earned my respect right there. That, coupled with your early and continuing education into finance and investing will prove very useful as you use otherwise-wasted time and effort toward future benefit – something soooo many young folks can’t grasp how to do (like my 14-yr old son).