Skyworks Solutions (NASDAQ: SWKS) is an undercover and underrated asset working in the semiconductor industry. The company does not manufacture or market semiconductors, but manufactures a wide range of semiconductor-based components for business and industry across all verticals. In this regard, it is well positioned as an intermediary between the semiconductor industry and the rest of the manufacturing world and the results prove it. Not only is the company growing, but it is steering strongly and increasing its dividend, which should help support prices over the long term.
Skyworks leverages a diverse business model
Skyworks delivered a very strong third quarter, driven by the company’s diversified approach and demand in end markets. The company reported net revenue of $1.23 billion, a 10.8% gain from a year ago, in line with analyst consensus. Gains were driven by notable gains in Wi-Fi and 5G and were also compounded by strength in the electric vehicle market.
“Importantly, our growing reach of content in automotive, data center, infrastructure and other diverse sectors is generating strong momentum for the second half of the 2022 calendar. of premium products, our engagements with the industry’s most influential customers result in unparalleled connectivity spanning an ever-expanding set of applications and markets,” said Liam K. Griffin, President and Chief direction.
Moving down to margin, the company reported a margin contraction that was compounded by increased R&D and SG&A spending that left GAAP and adjusted earnings down on a year-over-year basis. The conclusion, however, is that the margin was stronger than expected and generated $2.44 in GAAP earnings, which is $0.09 better than expected. Although the decline in margin is a concern, cash flow remains strong and the outlook is favourable, so there is no concern over the dividend. Looking ahead, the company expects a sequential double-digit increase in revenue and earnings that would take Adjusted EPS above $2.90 or up 12% year-over-year.
Skyworks Solutions offers deep discount for income investors
Income investors seeking exposure to technology and semiconductors could do much worse than Skyworks Solutions. While there are stocks in the semiconductor app universe that trade at similar discounts like Micron Technologies (NASDAQ:MU)or those who pay dividends like Marvell (NASDAQ:MRVL), cheap stocks don’t have the yield (if any) and yielding ones don’t offer the same value (and often have lower yields). Skyworks Solutions trades at around 10x earnings which is high compared to Micron Technologies, but Micron is paying less than 1% and although high yielding Broadcom (NASDAQ:AVGO) pays a yield of nearly 3.0%, it trades at a premium of 50% and the payout is much less certain. The takeaway is that Skyworks is one of the best performance suits in the semiconductor industry.
The technical outlook: Skyworks solutions hit rock bottom
Price action in Skyworks Solutions bottomed out before the Q3 release and has since rebounded. The price action is up almost 30% during this time and could easily rise if the market follows the signal. The next hurdle for the price will be near $117.50 and the 150-day moving average. If this level can be broken above, a move towards the $140-$150 range is expected. Otherwise, this stock could be limited to current levels until there is more clarity on economic activity in 2023.