There’s been a lot of concern about China, the economy, Apple sales, performance from its suppliers, and what all that mean for Skyworks. It’s all very short-term. But even so, here’s an article about data out from China’s carriers that looks very promising with regard to growth in 4G handsets (which SWKS management has been talking about for a while now). The article is mostly about the implications for Apple and iPhone sales, but it should have even broader implications for Skyworks as they are likely to benefit regardless of the handsets purchased given that they are in so many.
Here are a few quotes:
Unlike iPhone supply chain rumors, China’s three major mobile phone carriers provide hard numbers on subscribers and subscriber growth on a monthly basis. Subscriber growth for 3G/4G services continues to be strong, indicating continuing y/y growth in the Greater China market for Apple’s iPhone.
China Mobile’s data shows that 3G customers are declining in number, while 4G customers are rising. Clearly 3G and older phones are being taken out of service and replaced with 4G phones.
Quarterly 4G customer additions have been running at an enormous rate of 50 million or better at China mobile for most of the year since 2014 Q4… Most importantly, except for some slowdown in 2015 Q2, when there was so much concern about the Chinese economy, that customer growth has continued to accelerate through calendar 2015 Q4… Despite the fact that China Mobile’s 4G customers grew by 49 million in 2014 Q4, it still grew by nearly 32% more than that in 2015 Q4, or 64.6 million customers.
We won’t know what’s really going on until we hear the facts from Skyworks itself on Thursday (and who knows what the market will choose to believe regardless of any facts presented). But I just don’t see the doomsday scenario being very plausible.
Long SWKS, AAPL
Thanks for posting this. This confirms what many of us have been saying and what CEO Aldrich has been saying. Let’s do some math assuming that the numbers in the SA article are correct (I have not fact checked them).
* Total China handsets at end of Q4 2015: ~805M
Note that this number is still growing as it was about 200M lower a year earlier. Given that China’s population is about 1380M, about 58% of the people have a mobile phone (assuming people don’t have more than 1 each). Still room for more growth.
* Total China 4G at end of Q4 2015: 312M (or ~38% of total)
Note, as specified below, both 3G and older generations are declining. There is still a lot of upgrading left to go; specifically, even without further increase in mobile user (at 58% of the population currently) there are 493M who can still upgrade in China. Let me say that again: four-hundred-ninety-three miiiiiiilion!!! That is an enormous number!!!
* China Mobile added 64.6M 4G customers in Q4 2015
This is a huge number. SWKS “is in everything” as Aldrich said. I think SWKS probably makes $3-4 in revenue per 4G handset. Check this number (it’s what I remember). If SWKS components are really in all the 4G phones, we are looking at $226M in revenue just from China sold 4G handsets. Midpoint of guidance is $927.5M so this would be 24% of total revenue at midpoint of guidance. On the Cramer interview last quarter, Aldrich said that China revenue for SWKS is 20-25% of the total. But SWKS mobile is only about 52% of total revenue (according to slide #6 on the latest investor presentation (Dec 2015). Now, I don’t know if SWKS sells significant amounts of other products or solutions into China. Even if SWKS sold no non-mobile products into China, 24% is already pushing the upper limit of what SWKS sells into China. Could this mean that SWKS may do very well when then report revenue on Thursday?
The information from the Chinese mobile carrier is very useful and valuable to us. It hints that SWKS may well report a great quarter and that the fears about a China slowdown and a China decline in mobile phone sales may be unfounded and flat out wrong just as Tim Cook and Dave Aldrich have been saying for months.
Just my opinion.
Reading Howard Marks newsletter and board comments and had a thought. Have been in INFN and BIP for some time and now recently SWKS and now buying more but wondering about Marks comments on “selective perception and skewed interpretation”. I agree with many on this board that some of these companies are being unreasonably discounted and have, hopefully, taken advantage of this but ask - Is this confirmation bias? So how does one guard against this?