Skyworks Posts A Strong Quarter, Guides To An Even Stronger One

| About: Skyworks Solutions, (SWKS)

Skyworks (NASDAQ:SWKS) bucked the weak macroeconomic environment, reporting June-quarter results that outperformed both expectations and the peer group. Revenues were $389 million and earnings-per-share 45 cents versus consensus of $383 million and 44 cents. Strong smart-phone and tablet sales are a major contributor: the company's circuits are used in the devices of both Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF).

Beyond this, however, is Skyworks' broadened product offering and addressed markets. Long known as a Power Amplifier (PAs) manufacturer, the company now offers the full range of analog, radio-frequency (i.e., RF), and power management circuits between the handset transceiver and antenna. And it is selling a similar range of circuits into the Wireless-LAN market as well. Indeed, the newer power management and analog products account for over a third of the business. Not so long ago, the cellular and linear breakout was consistently 80% and 20%.

New program ramps will add to this growth in the latter half of the year. In fact, the company guided for 10% sequential growth to $415 to $420 million in the September quarter and earnings-per-share of 50 to 51 cents. The company has been investing to support this growth. Capital expenditures in the June quarter were an elevated $31 million, well above depreciation of $17 million. The payback will be quick as all of it is on production tools for existing facilities. All in all, consensus earnings estimates are headed up and Skyworks stock is up nearly 10% today.

Having followed Skyworks since well before the Conexant acquisition of 2002, we are impressed with the company's metamorphosis. PAs were a tough business and a key competitor was a solid supplier to Nokia. Yet things have changed. Consistent strong execution and a sound strategy of diversification have allowed the company to increase market share and expand its addressed markets, both within the handset semiconductor market and into adjacent vertical markets.

With a notably high customer concentration (Foxconn, Nokia (NYSE:NOK) and Samsung contributed roughly half of fiscal 2011 revenues), the company is working hard to increase its diversification with additional customers, products and targeted markets. Given the company's strong performance, the stock has been one of our semiconductor favorites for some time. Having roughly doubled since its last-December trough; however, the stock may seem unapproachable to some at these levels.

That said, the company's fundamentals remain strong. We recommend investors look for a suitable entry point. This story is but young.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.