I’m sorry I’m late getting to this thread. I’m still working on my Infinera analysis, which needs to cover a lot of ground due to the impact of the earnings report.
Saul has cedrtainly posted a compelling argument for choosing one company over the other, and there are parts of the analysis that I completely agree with. I think other parts stand on shaky ground (sorry, Saul).
My areas of biggest concern are where the margin structures are suggested to be comparable. Ignoring the broad market business for now (although the dynamic is similar), Skyworks sells a few dollars of content into smart-phones which might sell to consumers for several hundred dollars. The pressure that Skyworks’ customers exert on it is not likely to be too high as long as Skyworks is delivering a high-quality product. Also, Skyworks has some manufacturing capacity, but I believe a fair amount of their manufacturing is outsourced.
On the other hand, Infinera is selling boxes at a price point that I estimate to be six or seven figures. Its gross margins are pretty good within its competitor group, but I’d imagine the pressure on prices is relentless. I remember a couple of years ago at Insight Infinera - an analyst day conference where Infinera typically presents their latest products - one of the customers in a customer roundtable asked Infinera for price concessions on stage! Infinera owns virtually all of its manufacturing capacity, which plays a role in elevating its Cost of Goods Sold.
I know you wouldn’t compare margins at, say, Skyworks and Casey’s. Yes, Infinera is certainly closer to Skyworks than Casey’s, but I think they’re different enough that a direct comparison of margins isn’t appropriate.
Also, I think it is appropriate for Skyworks to repurchase shares given their capital structure. I would not advise Infinera to repurchase shares until they pay off their (convertible) debt. I think it is more reasonable to favor Skyworks over Infinera because only the former is debt-free - less reasonable to favor the one repurchasing shares…
I respect the conclusion you draw. Personally, my holdings reflect the reverse bias - INFN is a larger holding of mine than SWKS.
Although I need to get back to my Infinera analysis, I wanted to post my thoughts on this thread because I felt strongly enough about some of the arguments being used as rationale. I’ll try to balance keeping an eye on this discussion with getting back to work on Infinera (and then, later, Skyworks).
Thanks and best wishes,
TMFDatabaseBob (long: INFN, SWKS)
Peace on Earth