Skyworks Solutions could get a significant boost from 5G roll out around the world

There has been a lot of discussion going on about the next-generation wireless network 5G. Leading U.S. telecom companies have been competing with each other to roll out 5G services across the country.

5G technology has much broader applications that will bring a revolution not just in homes but in industries such as education, healthcare, and automobile.

People are also willing to switch to the next-generation network to enjoy ultra-fast download speeds. Many companies are set to capitalize on the tremendous opportunities in the 5G space. For instance, Apple Inc. (AAPL) has rolled its latest iPhone-12 models that support 5G network to become one of the very few smartphone makers with 5G enabled devices in the market.

Mobile carriers are also heavily spending to promote 5G smartphones to bring more people to the network.

A wide range of companies are poised to benefit from the growing adoption of the 5G network in the coming quarter. For instance, semiconductor manufacturers such as Qualcomm (QCOM), Advanced Micro Devices Inc. (AMD), and Skyworks Solutions Inc. (SWKS), equipment testing manufacturers like Nokia Corp. (NOK) and Ericsson (ERIC), as well as wireless carriers will be among the top beneficiaries of the 5G evolution.

Skyworks specializes in developing analog chips such as power amplifiers and radio frequency products that are used in mobile, wireless devices, and wireless infrastructure equipment. The company’s growth in the recent years has mainly been attributed to its biggest customer Apple.

The Irvine, California-based company generates more than 50 percent of its revenue by selling mobile chips to the iPhone maker, which is why its growth is directly linked to the success of iPhones.

Skyworks announced strong financial results for the fourth quarter, mainly helped by increasing demand for 5G-enabled iPhones.

Fourth-quarter Highlights

Skyworks reported better-than-expected financial results for three months ended October 2. The company reported a profit of $246.9 million, or $1.46 per share for the quarter, up from $210.6 million, or $1.22 per share in the comparable period last year.

On an adjusted basis, earnings increased to $956.8 million, versus $827.4 million in the same period of 2019. On the other hand, analysts surveyed by FactSet were expecting Skyworks to report earnings of $1.52 per share

Revenue for the quarter came in at $956.8 million, versus $827.4 million in the comparable period of 2019, and above analysts’ average estimate of $842.4 million.

Speaking on the results, the company’s CEO Liam K. Griffin said in a statement “Skyworks significantly exceeded September quarter expectations in revenue and earnings per share, capping off a fiscal year that both tested and demonstrated the resilience of our business model.

First-quarter Outlook

Skyworks also projected its earnings and revenue for fiscal first quarter. It expects to report adjusted profit of around $2.06 per share, as compared to the consensus forecast of $1.81 per share.

Revenue for the current quarter is expected to come in the range of $1.04 billion to $1.07 billion, better than the consensus forecast of $934.4 million.

The company earlier said in a statement that it is anticipating double-digit earnings and revenue on a sequential basis in the first quarter amid increased demand fueled by multiple 5G-enabled mobile platforms.

Skyworks also said that it is benefitting from 5G technology expansion, which has boosted demand for its product portfolio. Rising demand for ultra-fast and reliable wireless connections in homes, businesses, educational institutions, and medical facilities is driving momentum for the company’s products, it added.

Growth prospects

Skyworks tremendous growth in the latest quarter is clearly linked with the 5G evolution. It has just started to benefit from a new smartphone upgrade phase fueled by 5G. The smartphone industry still accounts for nearly 70 percent of its overall sales.

However, the company faced slow growth over the past couple of years amid weak demand for smartphones globally. But smartphone sales seem to be picking up with the recently launched 5G devices. Skyworks believes that 5G-enabled phone shipments will account for 15 percent of the total shipments this year, as compared to just 1 percent last year.

The percentage is expected to rise further in the future with the expansion of the 5G network around the world. As a result, more customers will buy new phones that will ultimately drive growth for smartphone companies and their suppliers such as Skyworks.

The company’s future seems bright as it is expected to get a significant boost from the expansion of 5G technology in the coming quarters.

Research and Development

Semiconductor manufacturers such as Skyworks are continuously working on new technologies to better compete in the market against rivals. Moreover, the market is vulnerable to changing consumer preferences and new technology upgrades.

Skyworks constantly needs to roll out new chips to address the continuously changing demands of its customers, as well as to stay relevant to the industry.

It’s a fact that hardware technology loses value with time, and eventually gets replaced with more powerful and more efficient computing equipment. Skyworks was a big beneficiary of the evolution that took place in the mobile phone market 10 years ago.

The same thing is happening in the smartphone market right now, a transition from existing 4G network to the next generation 5G network. Skyworks not only manufactures chips used in the 5G-enabled phones, but also offers hardware for infrastructure required for establishing the network.

Skyworks and its shareholders will finally be able to see a sharp increase in the growth of the company as 5G technology makes its way to more cities and countries around the world. Besides the smartphone market, the company is also poised to take advantage of its wide range of products including WiFi 6 chips, healthcare devices, and defense-grade chips among many more.

Skyworks stock performance

Skyworks shares touched a low of around $68 in March after the start of pandemic. However, the stock managed to recover its lost value in the subsequent months. The stock surpassed pre-pandemic price levels and touched a high price of nearly $158 in October when Apple announced its iPhone 12 models. Overall, the stock has surged nearly 13 percent on a year-to-date basis.