- Apple remains one of Skyworks Solutions' biggest customers.
- Skyworks has, however, been recording significant smartphone design wins elsewhere.
- This has helped the investing world to stop de-link its share performance with that of Apple shares as has frequently been the case in the past.
Leading RF chip manufacturers Skyworks Solutions (NASDAQ:SWKS) and Avago Technologies (NASDAQ:AVGO) have long been accused of being overly dependent on Apple (NASDAQ:AAPL) for their revenue for far too long. In the case of Avago, the accusations lessened when it emerged that the company was in the process of a huge $37 billion-merger with Broadcom (NASDAQ:BRCM) to create a $77 billion behemoth-the world’s largest diversified communications semiconductor company. Skyworks has had a harder time escaping Apple’s shadow--34% of the company’s revenue in fiscal 2014 came from Apple.
De-Linking from Apple
Skyworks Solutions is one of the world’s largest suppliers of radio frequency, or RF chips to the smartphone industry. Skyworks builds custom solutions for many smartphone manufacturers and is fully capable of delivering single chips that perform different functions for rival smartphone manufacturers. Although Skyworks has lately been facing intense competition from the likes of Avago and Qorvo (NASDAQ:QRVO), its state-of-the art chips have helped it to not only continue being one of Apple’s principal RF chip suppliers, but also nab new customers such as Samsung. Skyworks’ SkyOne Ultra front-end module powers Samsung’s Galaxy S6. Meanwhile, Skyworks’ One Mini 2G/3G/4G front end module has proven to be popular with low-and mid-level smartphone manufactures in China and Asia.
In the recent past, the huge dependency of Skyworks on Apple led to its share performance closely mimicking that of Apple shares. But the fact that the company has demonstrated the ability to net new customers has encouraged the investing world to take a different view of the company and de-link its shares from Apple’s. As a result, Skyworks’ shares are up 14.3% YTD compared to Apple’s lackluster -1% YTD share return.
New Design Wins
Skyworks no longer has to catch a cold every time Apple sneezes. On the contrary, Skyworks can continue doing well whenever Apple is doing well, and hedge its bets using its other large customers whenever Apple flounders. Currently, Skyworks stands to benefit from the success of Apple’s newest iPhone models: 6S and 6S Plus.
Apple recently revealed that its new iPhone models were flying off the shelves--more than 13 million handsets sold just three days after their launch. New novel features such as Live Photos and 3D touch are encouraging users of older models to upgrade in a hurry. This is good news for Skyworks Solutions, whose RF chips, together with those by Avago, Qorvo, Broadcom, and Texas Instruments (NASDAQ:TXN), are responsible for powering the new iPhones.
Recent teardowns of iPhone 6/6+ by iFixit and Chipworks revealed the that iPhone 6S sports two Skyworks power amplifier modules just like it did with iPhone 6, as well as filters, switches, and Wi-Fi power amplifiers from Skyworks, Qorvo, and Avago. The iPhone 6S+ turned up, in addition to the components in iPhone 6S, a filter module and a cellular/GPS receive low noise amplifier from Skyworks. Although Apple has mixed up similar components from Qorvo and Avago, B. Riley analyst Craig Ellis points out that the baseband-like size of Skyworks Solutions’ power amplifier module, which is significantly larger than that by either Qorvo or Avago, suggests dollar content improvements compared to iPhone 6. The analyst believes Skyworks could be getting $6.75 per 6S handset, up from $6.50 with the iPhone 6. That’s a clear indication that Skyworks Solutions has managed to hold its own even as competition from other RF chip manufacturers intensifies.
Skyworks Solutions has remained hugely relevant even as the smartphone industry continues to mature. Although Apple still remains one of the company’s largest customers, the investing world has come to appreciate that Skyworks’ is one of the market leaders in smartphone RF chips which has helped it to remain competitive in the face of growing competition. Moreover, the performance of Skyworks’ shares is no longer strongly coupled to those by Apple, which minimizes the risk associated with investors having too high expectations for Apple.