Aug 27, 2010 10:04 AM PDT
Skyworks Solutions is a semiconductor producer for a variety of products which include; cell phones, broadband hardware, military and mobile handset applications. The company sells its semiconductor products to a variety of multinational corporations a few key customers include, Nokia (NOK), Motorola (MOT), Samsung , Siemens (SI) and Research in Motion (RIMM). The company is currently in an expansion mode in which it is moving into new and different markets in order to gain market share and diversify its operations, one of the very promising areas which it is looking at moving more heavily into is the energy management business, specifically the electronic metering and control systems. With companies and businesses able to allow the power and utilities companies to monitor every day usage of power and utilities, the overall system will ultimately become more efficient as issues are found and resolved, also energy can be conserved when it is not needed. The company was recently in the news because it released its second quarter 2009 result (the company runs on a 9/30 year end) which beat the streets expectations by $.02, coming in at $.12 per share for the quarter. Beating estimates does not seem to be unusual during the recent earnings release round, but one thing that was very unusual is Skyworks actually raised their guidance that they see for the next quarter up to $.14 from $.12 as well as saying that they think that their revenues will increase by 5 percent during the quarter. These are very bold statements during a time when most other companies are cutting their outlook or offering no upbeat expectations. Skyworks CEO attributed the expected growth to an increasing demand for 3G mobile phones and increasing demand for products which use Skyworks chips in the emerging markets specifically China.
From a technical analysis point of view the stock (SWKS) looks like a pretty typical technology company which is currently in an upward trend, except that the recent upward trend started more than a month before the rest of the major market indices turned up. SWKS is above all five of the various length moving averages which I look at, 10, 21, 50, 100 and 200 day averages. The volume on the stock was not as I expected it would be with an announcement such as the one they made yesterday, with only two times the daily 50 day moving average of volume. The relative strength index for SWKS is currently above 50 after having fallen from 72 over the last week. SWKS has also be gaining in relative strength when compared to the Semiconductor-Integrated Circuit sub industry, so they are for sure moving in the correct direction compared to their competitors.
From a fundamental analysis point of view the company has a pretty strong balance sheet and a good looking income statement. In looking at the balance sheet Skyworks has a current assets to current liabilities ratio of nearly 3.5 and a total assets to total debt ratio more than 8, in part because the company uses only very little in long term debt, which is a major plus given the current economic market conditions which companies are facing where most have a very hard time getting loans from the banking system. While revenues slipped by about 17 percent over the most recent quarter the company still is making money and has enough assets on hand to be able to continue operations as normal. Profitability margins remain strong with the company currently running a profit margin of 13.26 percent and maintaining an operating margin of 10.57 percent. Management is doing a good job as measured by ROA and ROE with ROA for the past 12 months being 4.75 percent and ROE for the same time being 12.77 percent. Where is the stock going? is the big question which should determine if an investment should be made. I think at the current level of the stock being over $9 the market has not fully priced in revenues increasing by 5 percent over the next quarter. In looking at the cash flows in the future based on where they are and the type of market cycle the company has made it through this stock should make it to the $15 to $17.50 range in the near future. I would however caution buy into the stock at the current time because I think that there will be a pull back in the general market, especially small caps and technology which will probably bring the stock price down. I would be looking at buying SWKS around $7.75, while at the same time if it begins to run over $10 it may be too late to get in, because my potential upside return percentage would be greatly diminished getting in above $10.
