Skyworks Earnings: Cutting our Valuation to $133 From $155 Out of Sales and Gross Margin Concerns

Narrow-moat Skyworks Solutions SWKS reported solid fiscal fourth-quarter results but provided investors with a disappointing forecast for the December quarter, along with gloomy commentary for the start of calendar 2024. We cut our fair value estimate to $133 from $155 but continue to view the stock as materially undervalued in the mid-$80 range and think that the resiliency of the firm’s radio frequency chip business and earnings power is underappreciated.

Like many of its peers, Skyworks is facing a soft demand environment for broad market chips going into items like consumer Internet of Things, telecom, and industrial products. Meanwhile, we think Skyworks’ guidance implies that it lost a tiny amount of chip content in Apple’s latest iPhone 15 series—not enough for us to hit the panic button, but enough to stunt mobile revenue growth in fiscal 2024 (ending September).

Revenue in the September quarter was $1.218 billion, down 13% year over year but up 14% sequentially and above the midpoint of guidance of $1.215 billion. Mobile chip revenue was ahead of management’s expectations at $792 million, up 25% sequentially. Broad market revenue was a modest disappointment, however, at $427 million, down 3% sequentially. Adjusted gross margin of 47.1% fell short of guidance of 47.5%, due to factory underutilization.

In the seasonally strong December quarter, Skyworks expects revenue of only $1.2 billion at the midpoint, which would be down 10% year over year and down 1.5% sequentially, a far cry from the 14% average sequential growth the firm has seen over the past five years. Adjusted gross margin is expected to deteriorate further to 46.5%. Broad market revenue will be the weak spot, as we model it down 25% year over year and down 18% sequentially. Mobile revenue should still grow a few percentage points sequentially.