What's Wrong With This Chip Stock Today?

Mr. Market doesn't always make sense. I think he's off his meds again.

Here's why: Radio-chip designer Skyworks Solutions (Nasdaq: SWKS  ) just updated its fourth-quarter guidance, and it was all good news. Sales should land at $420 million, at the top end of management guidance and right in line with Wall Street estimates. Earnings will come in at $0.52 per share, above both original guidance and analyst targets.

You might expect an update like that to boost the stock significantly. In Skyworks' case, the stock has underperformed the market in recent months. There weren't any hyper-inflated expectations to match.

But Skyworks crashed hard on the news. Shares plunged as much ass 17.7% by lunch.

Did Skyworks investors expect bigger sales on the back of Apple's (Nasdaq: AAPL  ) iPhone 5 launch? After all, the device is off to yet another record-breaking start. Apple has included Skyworks radio processors in iPhones and iPads for a couple of years now. If Cupertino is selling tons of new iPhones, then Skyworks should reap direct benefits, right?

But that theory doesn't explain today's price action. If Skyworks was losing iPhone sales to rival chip makers, the market should reward those stocks as Skyworks falls. But RF Micro Devices (Nasdaq: RFMD  ) is down 4.7%, TriQuint Semiconductor (Nasdaq: TQNT  ) lost 4.5%, and Avago Technologies (Nasdaq: AVGO  ) dropped 4.1%. In short, the whole radio-chip industry is suffering on the back of Skyworks' seemingly positive news.

Here's how I see this melodrama playing out over the next couple of weeks. First, iPhones ship out to consumers and tech analysts tomorrow. A few units get ripped apart and analyzed, finding the usual mix of Skyworks radios and competing chips inside. The company formally reports earnings at the end of October, and guidance for the coming period shows that Apple just didn't stockpile massive component supplies ahead of the iPhone launch. There's plenty of room for strong sales at the end of this calendar year.

And when it's all said and done, Skyworks has bounced back from this irrational drop. Nothing remains of today's panic, save for a black mark on the stock chart. This wouldn't be a bad time to invest in Skyworks if you've been thinking about it and just waited for the right moment.

Plenty of smaller companies live and die by Apple's sword. That's why Skyworks investors need to know the company's most important customer better than their own pocket lint. In our latest premium research report, our analysts have dissected the tech giant from every angle, detailing the opportunities and pitfalls that Apple will face. For less than a week's worth of coffee beans, you, too, can gain an investing edge. Click here to claim your premium report.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of TriQuint Semiconductor and Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2025793, ~/Articles/ArticleHandler.aspx, 9/23/2014 12:44:57 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement