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Chipmakers Skyworks Solutions (NASDAQ: SWKS ) and TriQuint Semiconductor (NASDAQ: TQNT ) have a few things in common. Both of them manufacture connectivity chips and radio-frequency components, and both supply their components to smartphone behemoths Apple (NASDAQ: AAPL ) and Samsung.
More importantly, an investment in one share of each of these three companies at the beginning of 2013 would have appreciated 38% by the end of the year -- assuming no brokerage fee -- beating the S&P 500. But, can these stocks deliver a repeat performance this year? Quite possibly.
The turnaround story
TriQuint Semiconductor was the best performer of the two last year with a gain of 63%. TriQuint's renaissance started after the company pledged that it will deliver a profit in the just-concluded fiscal year, and it's been going strong since then. However, TriQuint crashed badly in October on a weak outlook due to lower orders from BlackBerry.
But one quarter's failures shouldn't overshadow the company's terrific growth and strong prospects. TriQuint can easily bounce back. With a substantial portion of revenue coming from Apple contractor Foxconn -- 35% in the previous quarter -- TriQuint is well-positioned to benefit from the current slate of iDevices, as well as the refreshed versions later this year.
Apple CEO Tim Cook has some "big plans" in store for 2014. Apart from the usual iOS update and new devices, it is rumored that Apple might increase the screen size of the iPhone and introduce a bigger iPad Pro with a 12-inch screen, according to CNET. In addition, the recent China Mobile deal opens up a bigger market for Apple. The deal gives Apple access to more than 700 million China Mobile customers, which means that parts suppliers should see a bump in demand from Cupertino going forward.
On the other hand, the ramp-up of Samsung's upcoming Galaxy flagship should prove to be yet another tailwind for TriQuint. Additionally, TriQuint had a strong order backlog at the end of the third quarter. Its book-to-bill ratio was an impressive 1.11, and this should translate into better revenue numbers going forward.
A slew of catalysts for Skyworks
Skyworks is also a Samsung and Apple supplier, so it can be expected to benefit from the same catalysts that would be driving TriQuint. In fact, Canaccord Genuity analyst Michael Walkley is of the opinion that Skyworks, along with RF Micro, now has more content at Apple. Both companies are reported to have taken market share from Peregrine Semiconductor, which could lead to higher revenue going forward.
But Skyworks has two more big catalysts in store. First, the company is making good progress in the Chinese smartphone market, where 80% of cell phone users have 2G phones. Skyworks sees a huge opportunity as customers upgrade to smartphones. It has already entered into partnerships with Chinese chipmakers Spreadtrum and MediaTek, and this should help Skyworks gain traction in this market.
Next, Skyworks is also looking well-positioned to benefit from the "Industrial Internet," or the "Internet of things" for industrial applications. Skyworks management is looking to benefit from the 50 billion connected devices that are expected to be out there by 2020. The company has made some progress on this front by landing design wins in the health-care industry. Skyworks is already in partnership with GE Medical, Boston Scientific, and Medtronic and is especially excited about the General Electric (NYSE: GE ) opportunity.
GE is planning to integrate machine-to-machine connectivity across its complete industrial portfolio. As such, Skyworks can expect stronger demand for its connectivity chips in the future, considering the strong prospects in its end markets.
The bottom line
TriQuint's management has almost delivered on its promise of turning profitable by the end of the year, while Skyworks has been steadily growing its business by diversifying into different areas. Looking forward, both these companies seem to have bright prospects and strong clients. As such, it won't be surprising to see both of them beat the market once again in 2014 and beyond.
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