Skyworks Solutions 1Q21 Earnings Analysis


Catalysts


  • Essential to 5G and IoT

  • $25 in revenues per 5G chip vs $18 per 4G chip

  • Diversifying away from mobile technology into EV and others


Financial Analysis


  • Record quarterly revenues of $1.51 billion up 58% sequentially and 69% YoY

  • EPS of $3.05 up 103% YoY

  • FCF of $367 million up 27% YoY

  • Share repurchase program of $2.0 billion expiring in January 2023

  • Still good balance sheet with $617 million in cash and cash equivalents and no long-term debts

Valuation


  • Assumptions

  • Use data from Qualcomm, American Tower, and Skyworks Solutions to estimate the growth of 5G technology

  • Qualcomm estimates 2.8 billion 5G connections by 2025

  • Annual growth of smartphone sales at 3%

  • Skyworks Solutions will have half of market share according to analysts

  • Take a margin of safety giving them only 20% of market share

  • FCF margin of 28%

  • Discount Rate of 9%

  • Terminal Growth Rate of 3%

  • Ignore non-mobile business (another margin of safety)

  • Exit Multiples analysis

  • based on 2025 FCF with current P/FCF of 34 ranging from 12 to 36 in the last 5 years

  • 20% higher/lower FCF in bull/bear cases

  • Number of shares outstanding 10% lower at 147 million


Conclusion

  • Annual expected returns of 13% with mostly focused on mobile business with huge margin of safety

  • Hold for the moment with record price but definite buy at any correction

Read the full analysis on my research partnership: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/30179215




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