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Will Apple's Weak Year Kill Skyworks Solutions in 2013?

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It's no secret that Skyworks Solutions (NASDAQ: SWKS  ) absolutely loves Apple (NASDAQ: AAPL  ) . The chip maker's wireless radio components have become part and parcel of every iGadget, including the latest iPhones and iPads.

This position as a major component provider ties Skyworks' shares tightly to Apple's. With very few exceptions to the rule, Skyworks shares tend to jump or plunge on the same days as Apple's, only further and faster:


SWKS daily price change data by YCharts.

This has generally been a fantastic deal for Skyworks investors as share prices have grown nearly fivefold in the last four years

Tonight, Apple reports holiday-quarter results, which will spell feast or famine for Apple investors and Skyworks owners alike. The two stocks will move in tandem tomorrow, whatever the direction.

But will a weak Apple in 2013 spell absolute doom for Skyworks? The answer is a short-term "yes," but with a long-term silver lining to the thundercloud.

The bad and the ugly
I've already shown how sensitive this stock is to Apple's short-term price swings. But the truth is, Skyworks is a pretty diverse company. Keep that in mind as the next few paragraphs start painting a dire picture.

Manufacturing contractor Foxconn stood for 29% of Skyworks' sales last year, with most of these going into Apple products. Samsung stood for another 17% of Skyworks' revenue. No other customer contributed more than 10% to the total revenue pie. Nokia (NYSE: NOK  ) was a 13% customer just one year earlier, but fell out of the elite customer echelon as the Finnish handset maker fell behind in the global smartphone race.

The downfall of a major customer like Nokia is never good news, and Skyworks did take a brutal 43% fall alongside Nokia in 2011. For another example of this kind of unfortunate coupling, you could look at Marvell Technology (NASDAQ: MRVL  ) , which has shipped central processors for Research In Motion 's BlackBerry phones for years. The decline of the BlackBerry platform has been thoroughly documented, and Marvell doesn't like that trend at all. Using 2011 as an example again, RIM shares plunged 76% while Marvell took a smaller 25% dive.

If Apple disappoints tonight and keeps falling all year long, there's no question that Skyworks investors will suffer, too.

The good
So what's that silver lining I was talking about earlier? Diversification breeds stability, and this stock should bounce back in years to come even if Apple goes entirely out of style. In the meantime, long-term investors get to build positions while Skyworks trades at Chicken Little discounts.

Why am I so sure that Skyworks would survive even without its largest customer?

The company has managed the spoils of its smartphone-era success wisely. Skyworks is now debt-free and cash-rich, and runs on profit margins investors could only dream of five years ago.


SWKS data by YCharts.

Remove the entire Apple contribution from the equation, and Skyworks's sales would fall by as much as 22%. Apply that doomsday scenario to last year's results, and they're still higher than the total revenue tally in 2010. That would be painful but hardly a killing blow.

Profit margins would shrink but not disappear. The rock-solid balance sheet can take several lean years while management looks for other markets to replace the presumably fallen Cupertino giant. And thanks to Skyworks' intimate co-marketing relationship with Qualcomm (NASDAQ: QCOM  ) , which is now the world's largest chip designer by market cap. The Qualcomm tie-up alone ensures that Skyworks will stay relevant in the mobile computing arena, no matter which major player ends up "winning the smartphone wars."

So even if Apple leaves Skyworks investors reaching for Band-Aids and a bottle of Scotch tonight, I think it would be counterproductive to sell on the terrible news. It makes far more sense to add to your Skyworks bet while it's cheap.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (3) | Recommend This Article (3)

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.

  • Report this Comment On January 21, 2013, at 4:58 PM, marv08 wrote:

    Check your facts...

    Apple is reporting nothing tonight, and, as the NYSE is closed, the effect of this non-report should be limited. Hint: Q4 results will be reported on the 23rd.

    So, in summary you provided a wrong date, a nonsensical assumption (where is your proof that Apple will have a weak 2013?) and vague conclusions based on that impressive collection of hot air.

    Geez. You should not take this site's name that serious.

  • Report this Comment On January 21, 2013, at 5:08 PM, deasystems wrote:

    How many other articles on Apple's results have you pre-written?

    (And I assume by "weak" you mean "stronger than any of its would-be rivals and stronger than any other blue chip large cap.")

  • Report this Comment On January 22, 2013, at 5:07 AM, TMFZahrim wrote:

    OK. I meant for this to publish on Wednesday, but fat-fingered the date. Bummer.

    There's no "proof" that Apple's quarter will be weak, but enough circumstantial evidence to make it a very real possibility. Reduced parts orders for both iPhone 5 and iPad screens would be exhibits A and B.

    Can Cupertino turn it around from there? Sure, maybe. But I wouldn't bet on it.


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