Skyworks Solutions' (NASDAQ:SWKS) fourth-quarter results crushed Wall Street expectations thanks to the rapidly growing adoption of its connectivity chips across a wide range of consumer categories, including smartphones, smartwatches, and smart homes, among others. Investors, however, weren't impressed with the company's guidance for the current quarter.
Skyworks' guidance indicates a year-over-year jump of 19% in earnings on 15% growth in revenue for the current quarter. But it looks like the market was expecting something more from the company given its strong positioning in Apple's latest iPhones. However, a closer look at the chipmaker's latest report shows that it has become more than just an Apple play.
China is becoming an important market for Skyworks
Skyworks gets 64% of its revenue by supplying radio frequency (RF) chips for mobile devices. This business has gained terrific momentum over the past year thanks to the chipmaker's aggressive focus on diversifying its clientele. In fact, Skyworks' revenue from the mobile business jumped more than 25% year over year as it landed design wins at key smartphone OEMs (original equipment manufacturers) in China.
Skyworks' chip platforms are now being used by the three biggest smartphone makers in China -- Huawei, Oppo, and Vivo. Huawei is now its second-largest customer, with 10% of the total revenue, which is a good thing as it is fast increasing its clout in the global smartphone space.
Huawei's smartphone sales recently surpassed Apple's, putting it behind only Samsung in a monthly ranking. The company has ambitions of permanently displacing Apple in the global smartphone rankings by the end of next year. Not surprisingly, it has started manufacturing high-end phones targeted at the global market.
In fact, Huawei already gets over half of its smartphone revenue from outside China, thanks to the improving traction of its devices in Italy, Germany, and Spain. It is now looking at more markets such as South Africa and the U.S. to augment sales, with carrier giant AT&T expected to launch a Huawei smartphone stateside in the first quarter of 2018.
Huawei's global push means that its smartphones will carry more frequency bands, thereby increasing Skyworks' addressable market and boosting its sales. Moreover, Oppo, Vivo, and Xiaomi are copying Huawei and using Skyworks' chips, which is a good thing for the chipmaker as these Chinese players command almost half of the world's smartphone sales.
Skyworks' non-mobile revenue is fast increasing
Skyworks classifies the revenue it generates from non-smartphone applications under the broad markets category. This segment supplied 26% of the chipmaker's top line last quarter, pulling in an estimated $256 million in revenue, representing a year-over-year increase of over 22%.
The terrific growth can be attributed to the growing traction of Skyworks' chips across fast-growing markets such as smart homes, smart speakers, and smartwatches. For instance, Skyworks is now supplying connectivity modules to Bosch and Cisco (NASDAQ:CSCO) for home security and smart-home lighting systems, respectively.
These partnerships could be a big deal for Skyworks in the long run as the smart-home market (including both security and lighting) could be worth $138 billion in 2023, as per Markets and Markets. Bosch and Cisco are among the top vendors in these two markets, so Skyworks has tied up with the right companies to take advantage of these opportunities.
The chipmaker has also started volume shipments of automotive solutions for Hyundai;. It scored design wins at drone market leader DJI Innovations and is supplying chips for Amazon Alexa-enabled smart-home speakers from Sonos.
Skyworks is making the right moves to diversify its business and the stock's latest drop could be an opportunity for savvy investors to buy shares.