SWKS upgrade

Citigroup’s Atif Malik is recommending SWKS, while comparing it to QRVO, which he does not recommend. See link and some quotes below:


Malik, initiating Skyworks with a Buy rating, and a $115 price target, and Qorvo with a Neutral rating, and a $49 price target, writes that recent weakness in the category is a consequence of growth slowing after 5 years of 18% growth on average, declining to a rate of just 11% from this year through 2017.

That slowing can be attributed to “slowing smartphone growth, especially in China – the biggest driver of units and $ content growth near to mid- term.”

And so, Malik concludes that “mobile RF growth is mature or in the 5-6th innings,” and that consequently, “broad market exposure is necessary to overcome decelerating smartphone demand and Chinese exposure risk.”

Not so sure I agree that smartphone growth is slowing in China. At least that’s not what AAPL and SWKS have said recently. We’ll find out more when they report earnings. Here’s more:

“We believe that Skyworks, which has higher exposure to the Internet of Things (IoT) market, will have a long-term growth advantage to Qorvo. Near term, we see risk to Street’s Dec and Mar sales and EPS estimates for QRVO on continued China weakness.”

Looking at the landscape, Malik likes opportunities in the Internet of Things, and thinks Skyworks is in a good position to capitalize on it:

New market opportunities in connectivity like IoT (connected home, M2M, wearables) and automotive (infotainment, in-cabin connectivity, vehicle control) are expected to drive strong +20% CAGR or $10B opportunity over the next 2-3 years. Specifically, Skyworks expects connected home and automotive markets to show strong or +60% and +35% CAGR respectively. Among the RF peers, we believe Skyworks is best positioned to take advantage of the IoT growth market. Citi expects IoT semi opportunity to grow at 29% CAGR from C14-17E.

Malik compares the two companies “head to head,” across five criteria: growth diversification, China concentration, stock valuation, free cash flow return, and gross profit margin. Skyworks wins on three out of the five, while neither has a gross margin advantage, and Qorvo wins the stock valuation comparison.