Skyworks Solutions (NASDAQ:SWKS) has appreciated nearly 29% since I first recommended buying it on 15th Jan. The chipmaker has performed brilliantly in 2014 and is currently trading at $36.55. However, I think it still has a lot of room to grow, which is why I think investors should consider buying it. In addition, the company's board recently announced that it has decided to initiate a quarterly dividend payout, making Skyworks an even more luring investment. The proposed dividend of $0.11 per share, which will be paid during the third quarter of FY2014, will offer impressive risk-adjusted returns to investors.
As I stated in my earlier article, Skyworks has a strong balance sheet. The company is debt-free and has cash and equivalents of nearly $650 million. In addition, the company reported a year-over-year increase of 44% and 11.4% in earnings and revenue, respectively, outperforming the growth in the S&P 500 index during the same period. Due to all these factors, the company is confident of maintaining sufficient liquidity to kick-start a quarterly dividend program.
Skyworks Solutions is targeting three segments - mobile Internet, analog components and vertical market - to fuel growth and it has a strong client base which includes the likes of Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF).
Canacorrd Genuity's analysts recently upgraded their Skyworks price target to $39 from $36. The analysts said, "China's buildout of 4G wireless data service will give analog chip maker Skyworks Solutions an opportunity to ramp up already large sales in that country."
To capitalize on this opportunity, the company recently launched three antenna switch solutions - the SKY13530 (dual-pole-ten-throw), SKY13532 (dual-pole-14-throw) and SKY13535 (dual-pole-21-throw) - supporting LTE, LTE-Advanced and next-generation carrier aggregation architectures. David Stasey, Vice President and general manager of analog solutions at Skyworks, noted: "With the addition of these high performance modules and analog control ICs, Skyworks now offers smartphone providers the broadest and most scalable solutions to meet demanding carrier aggregation requirements."
Carrier aggregation enables mobile service providers to merge spectrum and raise data transmission rates by utilizing two or more bands at the same time as an alternative of the single band method used presently.
Targeting The Emerging Market
In a recent press release, Skyworks unveiled numerous products targeting low-cost smartphones for emerging markets. Reza Kasnavi, vice president and general manager of open market platforms at Skyworks said: "Skyworks is excited to be capitalizing on the enormous LTE upgrade cycle and demand for low cost smartphones across emerging markets. Our high performance products provide customers with a complete system solution as well as a broad range of architectural implementation options."
Skyworks portfolio of scalable and flexible front-end solutions comprises of multiband power amplifiers, antenna switches and diversity modules for low to high end TD-LTE platforms. These greatly proficient solutions deliver improved functionality, support multiple modulation schemes and allow mobile phone manufacturers to trim down the number of discrete components.
LTE handsets are expected to double in terms of volume by the end of 2014 to 537 million and are projected to climb at a CAGR of 33% in the long-term. Skyworks Solutions has taken the right steps to make the most of this opportunity and should continue its climb as the volume of LTE handsets moves up.
iPhone 6 Can Provide A Massive Boost
Pre-orders for the Samsung Galaxy S5's are soaring as it has already surpassed its predecessor, the Galaxy S4, by a whopping 130%. The phone is expected to hit the market on 11th April and whether it will sustain this surge is yet to be seen. However, the lack of significant new features may not be enough to satisfy the tech enthusiasts who have been waiting for the device for quite some time now.
This set's up Apple's iPhone 6 for a grand slam start. People all around the world eagerly wait for Samsung's and Apple's flagship devices every year and given that Samsung has only marginally improved the Galaxy S5 as compared to the S4, the iPhone 6 can be off to a great start.
Buying Skyworks Solutions before the launch of the iPhone 6 can prove to be a lucrative investment. Tech enthusiasts are hoping that Apple will add many new features to the iPhone 6 and if rumors are to be believed, Apple is on track to fulfill these expectations. Apple is planning to launch devices with bigger screens as it is targeting markets where larger screen sizes are in vogue and the latest speculation suggests that Apple is preparing the iPhone 6 with a 4.7-inch screen this year. In addition, both Canacorrd and Forbes are confident that the iPhone 6 will come with a durable sapphire display with a bezel-free design. This will make the device stronger and thinner. Apart from this, rumors suggest that Apple will add many new features like a better processor, improved camera, upgraded display technology, etc.
Also, Apple is aggressively looking to improve its sales and CEO Tim Cook has announced that 50 more carriers will get the iPhone in the current quarter, globally, according to the Wall Street Journal. So, these initiatives should drive up the iPhone's sales and given that Skyworks has gained strong dollar content in the iPhone, it should benefit from it.
Skyworks Solutions looks set to benefit from the growing LTE and smartphone market. Even after the impressive uptick in 2014, Skyworks is still trading at 22 times trailing earnings. The company's cheap valuation, as compared to the other promising tech companies, along with the impending initiation of the dividend program, makes it a great buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.