Skyworks Solutions (Nasdaq: SWKS), a leading semiconductor company headquartered in California, had a disappointing 2023 in the market, with the chip sector facing several headwinds. Now, Skyworks stock is finally poised to rally and the demand environment continues to improve, as evidenced by the company’s Q1-2024 earnings released on January 30. I am bullish on Skyworks, as I believe the company is attractively valued. A time when its prospects are getting better.
Demand improving outlook
For the first quarter of fiscal 2024, Skyworks reported revenue of $1.2 billion and earnings per share of $1.97. The company generated record operating cash flow of $775 million and record free cash flow of $753 million for the quarter. These achievements came despite a nearly 10% year-on-year decline in revenues, highlighting the significant efficiency improvements the company has made to start the new financial year on the right track.
Skyworks is reporting efficiency gains at a time when the semiconductor sector is beginning to slow down. This is encouraging news for investors.
According to Gartner (NYSE:IT), global semiconductor revenue declined 11% in 2023 due to inventory overhang due to lack of demand for high-performance chips. However, inventory levels are expected to normalize this year, paving the way for chipmakers to convert rising demand for chips into financial profits. Gartner estimates global semiconductor revenues will grow 17% this year to $624 billion.
During the Q1 earnings call, Skyworks CEO Liam Griffin confirmed the ongoing improvement in demand and highlighted the stable demand environment in the Android ecosystem. The CEO claimed that the excess supply situation is reducing and inventory levels at the OEM level are normalizing. These comments suggest that Skyworks will be a beneficiary of the chip sector’s improved prospects this year.
Leading Android smartphone makers including Samsung and Oppo have adopted a bullish outlook for 2024, which is good news for Skyworks. Global smartphone shipments are projected to decline in both 2022 and 2023, but IDC estimates unit shipments will grow modestly by 4% this year, marking the beginning of a new cycle in which smartphone shipments will continue to grow through 2027.
This improved approach to the smartphone sector should enable Skyworks to grow in the near future. Skyworks is one of the leading component suppliers to Android smartphone manufacturers and is also a major supplier of chips to Apple (Nasdaq: AAPL, The mobile segment accounted for 71% of revenue in Q1, with the broad market segment accounting for the remainder.
Apple is Skyworks’ largest customer and typically accounts for more than half of its revenue. This high concentration on one customer increases business risk for the company, but so far, Skyworks has managed this risk admirably by emerging as an indispensable partner of Apple in the production of advanced chips with high radio frequency content. Does. In the 5G era, smartphone makers are trying to partner with chip companies with proven experience in delivering high-quality components, and Skyworks is one of them.
Investments, new partnerships and diversification efforts
Skyworks Solutions is investing in its future by focusing on strategic investments in product development to position the company to achieve more design wins in key market segments. The company also continues to seek value-adding partnerships. Examples of recent deals include expanding its WiFi design pipeline with key partners such as Cisco Systems.NASDAQ: CSCO), Linksys, and TP-Link.
Skyworks is also investing in next-generation wireless standards like WiFi 6e and 7, which should enable the company to play a significant role in the ongoing upgrade cycle.
In an effort to diversify revenue sources, Skyworks is actively expanding into new market segments, which is another promising sign. In Q1, the company achieved several design wins in the infrastructure development sector, including optical transport products for a leading, unnamed operator in India. The company also reported some design wins in the automotive sector, including telematics, infotainment systems and onboard chargers with some OEMs.
Is Skyworks Solutions Stock Worth Buying According to Analysts?
Skyworks could face some pressure if Apple iPhone sales decline slightly in 2024 amid inflationary pressures. Also, Wall Street analysts seem divided on the company’s prospects.
For example, on January 10, BMO Capital Markets recognized Skyworks as a best-in-class growth company trading at a fair valuation, ahead of 24 other technology companies. According to BMO (NYSE:BMO), these 25 companies could outperform the broader market this year, even if the momentum behind tech stocks loses some strength.
However, KeyBanc Capital Markets has taken a cautious approach to Apple’s key suppliers, as the research firm believes demand for Apple devices will not be impressive in 2024.
Overall, based on ratings from 23 Wall Street analysts, SWKS stock comes in as a Moderate Buy. The average price target for Skyworks stock is $111.68, which is 8.5% above the current market price.
Despite limited upside potential based on Wall Street rankings, Skyworks stock is well-positioned to turn a corner this year due to the improving demand environment for the semiconductor sector.
cheaply priced
Skyworks Solutions, at a Forward P/E of 14.8, looks cheaply valued at a time when the chip sector is gearing up for a breakout after two consecutive years of disappointing performance. For context, during previous up-cycles in 2019 and 2020, Skyworks traded at average P/E multiples near 20. With the changes in the chip sector today, it seems reasonable to expect Skyworks to enjoy expansion at this valuation multiple. Year.
The quarterly dividend of 68 cents per share, combined with stock buybacks, further improves Skyworks’ investment appeal.
Takeaway: Skyworks is cheap and attractive
Skyworks Solutions is nearing a turning point, with the semiconductor industry projected to register positive growth this year after a disappointing 2023. Skyworks is strategically investing in new products and partnerships to drive earnings growth, and the company appears to be trading at an attractive valuation. Continued demand stabilization in the chip sector.
exposure
Source: finance.yahoo.com
