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As far as technological innovations go, the iPhone has to go down as one of the most popular – and many would say one of the most significant – of all time. As a combination of the creative genius of the late Steve Jobs and the engineering prowess of Apple’s (AAPL - Free Report) formidable R&D team, the iPhone literally redefined what the world thought a cellular phone could do.
Apple sold just 11.6 million iPhones in 2008 – the first full year it was available - but sales quickly picked up speed and by 2015 they were selling more than 231 million a year. Though sales eased slightly to 218 million in 2018, newer versions of the iPhone sell for significantly higher prices than earlier models, keeping revenues up. The suppliers who make components for the iPhone (as well as Android-powered competitors) also enjoyed huge success over that decade.
Early in 2019, Apple cut its current revenue guidance, citing weakening iPhone demand in China. That didn’t come as a total surprise however, because Apple’s suppliers had already been offering their own reductions in guidance for months. While none of those suppliers mentioned Apple by name, analysts had already deduced that the only customer with the order volume to affect supplier results so significantly was Apple.
Skyworks Solutions (SWKS - Free Report) subsequently issued its own reduced guidance for fiscal Q1 revenues and earnings. Citing “unit weakness across our largest smartphone customers,” CEO Liam Griffin said revenues would be approximately $970M, down from previous guidance of $1-1.02B and net earnings would be in a range of $1.81-1.84/share, lower than the expected $1.91/share.
Skyworks does not publicly report sales by customer, but given the amount of the company’s hardware that is in each phone, analysts believe that sales to Apple amount to 35-40% of total revenues and that sales of iPhones in China alone represent more than 7%.
Skyworks shares fell to a 52-week low of $60.72/share after the Apple announcement, but have recovered significantly even after Skyworks own warnings. Presumably, the market was expecting even worse. Because the reduction in guidance was issued after close of business for the quarter in question, it’s fairly unlikely that we’ll see a surprise in either direction when audited results are issues on February 5th, and analyst consensus is slightly above Skyworks’ own guidance at $1.85/share on $975M in revs.
Full year estimates for Skyworks have seen ten analyst downward revisions in the past 30 days, reducing the consensus from $7.27/share to $6.92 and earning Skyworks a Zacks Rank #5 (Strong Sell).
If the US and China reach a trade agreement and the Chinese economy picks back up again, smartphone component manufacturers will likely see improved results and share prices will recover. Those are big “ifs” however.
It’s probably wiser to avoid companies with such big exposure to a single products and to China. A better pick in the electronics industry would be Jabil Inc (JBL - Free Report) , a Zacks rank #1 (Strong Buy).
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Bear of the Day: Skyworks Solutions (SWKS)
As far as technological innovations go, the iPhone has to go down as one of the most popular – and many would say one of the most significant – of all time. As a combination of the creative genius of the late Steve Jobs and the engineering prowess of Apple’s (AAPL - Free Report) formidable R&D team, the iPhone literally redefined what the world thought a cellular phone could do.
Apple sold just 11.6 million iPhones in 2008 – the first full year it was available - but sales quickly picked up speed and by 2015 they were selling more than 231 million a year. Though sales eased slightly to 218 million in 2018, newer versions of the iPhone sell for significantly higher prices than earlier models, keeping revenues up. The suppliers who make components for the iPhone (as well as Android-powered competitors) also enjoyed huge success over that decade.
Early in 2019, Apple cut its current revenue guidance, citing weakening iPhone demand in China. That didn’t come as a total surprise however, because Apple’s suppliers had already been offering their own reductions in guidance for months. While none of those suppliers mentioned Apple by name, analysts had already deduced that the only customer with the order volume to affect supplier results so significantly was Apple.
Skyworks Solutions (SWKS - Free Report) subsequently issued its own reduced guidance for fiscal Q1 revenues and earnings. Citing “unit weakness across our largest smartphone customers,” CEO Liam Griffin said revenues would be approximately $970M, down from previous guidance of $1-1.02B and net earnings would be in a range of $1.81-1.84/share, lower than the expected $1.91/share.
Skyworks does not publicly report sales by customer, but given the amount of the company’s hardware that is in each phone, analysts believe that sales to Apple amount to 35-40% of total revenues and that sales of iPhones in China alone represent more than 7%.
Skyworks shares fell to a 52-week low of $60.72/share after the Apple announcement, but have recovered significantly even after Skyworks own warnings. Presumably, the market was expecting even worse. Because the reduction in guidance was issued after close of business for the quarter in question, it’s fairly unlikely that we’ll see a surprise in either direction when audited results are issues on February 5th, and analyst consensus is slightly above Skyworks’ own guidance at $1.85/share on $975M in revs.
Full year estimates for Skyworks have seen ten analyst downward revisions in the past 30 days, reducing the consensus from $7.27/share to $6.92 and earning Skyworks a Zacks Rank #5 (Strong Sell).
If the US and China reach a trade agreement and the Chinese economy picks back up again, smartphone component manufacturers will likely see improved results and share prices will recover. Those are big “ifs” however.
It’s probably wiser to avoid companies with such big exposure to a single products and to China. A better pick in the electronics industry would be Jabil Inc (JBL - Free Report) , a Zacks rank #1 (Strong Buy).
Looking for Stocks with Skyrocketing Upside? Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>