Earnings Scorecard: Skyworks

Nov.16.10 | About: Skyworks Solutions, (SWKS)

Following the solid fourth quarter results of Skyworks Solutions (SWKS), estimates have been on the rise reflecting a positive sentiment among analysts covering the stock. Skyworks also provided an upbeat guidance for the first quarter of fiscal 2011 triggering an increase in earnings estimates.

Fourth Quarter Flashback
Skyworks reported revenues of $313.3 million, up 37% from the year-ago quarter and up 14% sequentially. The reported figure beat management’s updated guidance of $310 million, driven by strong growth in mobile Internet and analog markets.

Net income came in at $46.8 million or 25 cents in the fourth quarter of fiscal 2010, down 20% year over year due to tax adjustment-related charges. Excluding one-time items, but including stock-based compensation expenses, net income per share came in at 35 cents, in line with the Zacks Consensus Estimate.

Earnings Estimate Revisions
The solid fourth quarter results and upbeat guidance had led to positive estimate revisions by analysts for the upcoming quarter and fiscal 2011.

Agreement of Estimate Revisions
Out of the five analysts covering the stock, four have increased their estimates for fiscal 2011 in the last thirty days signifying a strong bullish trend. There was no movement in the opposite direction.

Skyworks continues to capitalize on three business segments − mobile Internet, vertical markets and analog components. The market for smartphones is growing by leaps and bounds – four times the growth rate of the traditional cellular handset. Skyworks continues to benefit from the rising tide of increasing radio frequency (NYSE:RF) content associated with 3G and 4G platforms.

Skyworks also continues to gain traction on the network infrastructure side of the mobile Internet connection as operators install new base stations, new routers, and back-haul equipment to expand the coverage of data services and prepare for next generation LTE deployments. For fiscal 2012, one analyst out of three covering the stock increased his estimate. There was no movement in the opposite direction.

For the upcoming quarter, all the five analysts covering the stock have increased their estimates in the last thirty days, in accordance with the company’s guidance.

Magnitude of Estimate Revisions
Not only is there strong directional consensus among analysts covering the stock, but the magnitude of increase in estimates is also noteworthy.

The current Zacks Consensus Estimate for 2011 is $1.46, up by six cents in the last thirty days. The current Zacks Consensus Estimates for fiscal 2011 range from a low of $1.36 to a high of $1.55.

The current Zacks Consensus Estimate for the upcoming first quarter of fiscal 2011 has been up by two cents in the last thirty days at 39 cents.

The most significant increase in estimates was for fiscal 2012. The current Zacks Consensus Estimate for fiscal 2012 is $1.79, up by 14 cents in the last thirty days.

Our Take
The colossal demand for smartphones continues to drive momentum for Skyworks, particularly at Nokia Corporation (NOK). Skyworks has tie-ups with all leading smartphone vendors. Beyond smartphones, growth will be propelled by high resolution tablets, USB modems, home networks and yet-to-be-introduced internet connective devices. Skyworks stated that the tablet market can surpass 200 million units by the year 2014, creating an incremental billion dollar target market for the company.

Another area of focus for Skyworks, going forward, continues to be home networking and automation solutions, which extends several of the company’s smart energy solutions into the home and enables connectivity across a range of products including gaming consoles, set top boxes, printers, appliances, HDTVs, Blu-ray players and home security and monitoring systems.

Skyworks aims to diversify its focus on new vertical markets and an expanded customer base. We remain encouraged by the company’s recent solid performance and upbeat guidance. Skyworks, which competes with Anadigics, Inc. (ANAD) and TriQuint Semiconductor, Inc. (TQNT), continues to outpace semiconductor market growth driven by momentum across mobile Internet, smart energy and diversified analog products applications.

We currently have an Outperform recommendation on Skyworks supported by a Zacks #2 Rank.