Followers of wireless chip specialist Skyworks Solutions (NASDAQ:SWKS) probably know that the company depends heavily on sales of chips into mobile devices (principally smartphones), with such products making up 73% of its revenue last quarter. The company has been trying to bring its core wireless technology into new markets like connected cars and various Internet of Things (IoT) devices in a bid to reduce its reliance on the slowing smartphone market and to boost its overall revenue and profitability. 

Skyworks is set to announce its earnings results for the second quarter of fiscal 2019 on May 2. Here are three things to watch when the company reports.

A Skyworks chip with the company's logo superimposed upon it.

Image source: Skyworks.

1. Expectations vs. reality

Ahead of any company earnings report, investors should be well versed in what analysts expect the company to report for the most recent quarter and, more importantly, what their expectations are for the subsequent quarter. Oftentimes, when a company issues a forward outlook that exceeds analyst estimates, the stock will enjoy a boost. If a company falls short, then that could be a recipe for a decline.

To that end, for Skyworks' second fiscal quarter, analyst consensus calls for revenue of $810.03 million, a figure down about 11.3% from the same period a year ago, and essentially the midpoint of the guidance range that management gave in its February earnings call. 

The decline is to be expected considering that sales to Apple -- which is currently suffering from significant iPhone unit declines -- made up 47% of its revenue during its fiscal 2018. The overall smartphone market in general isn't in great shape, either, with market researchers at IDC saying that industrywide smartphone volumes fell 4.1% in 2018. 

For the subsequent quarter, analysts expect those declines to moderate a bit, with consensus calling for $827.85 million in net revenue. For the full year, analysts are forecasting a revenue drop of 7.9%. On the earnings per share (EPS) side, analysts expect the company to have generated $1.43 in the second quarter of its fiscal 2019 (down 12.8% year over year) and are calling for EPS of $1.50 for the third quarter of fiscal 2019 (down about 8.5% year over year). 

2. Progress outside of mobile

A key part of the Skyworks investment thesis is that the company is tapping markets outside of mobile for revenue and profit growth. One thing that investors should watch, then, is the progress that the company makes in its nonmobile markets. On Skyworks' earnings calls, management usually provides a breakdown of the company's revenue into both mobile and nonmobile (referred to as "broad market") figures. 

What investors need to watch is what those percentages look like when the company reports. Is the company's broad market revenue growing as a percentage of the total? It's also not enough, however, to only look at the percentages -- we need to keep track of the actual dollar value. If mobile revenue drops, say, 15% and broad market revenue falls 5%, then the latter will become a larger part of Skyworks' overall revenue, but neither would be growing. 

So when Skyworks releases that breakdown, investors need to be sure to do the math to figure out just how large the broad market revenue is and how rapidly it grew on a year-over-year basis. The faster the growth that Skyworks is enjoying here, the better for its long-term business diversification efforts. 

3. Mobile trajectory

While the company's efforts to diversify outside of mobile are important, the reality is that mobile still makes up the lion's share of Skyworks' business today and will likely continue to account for the bulk of its sales for the foreseeable future. It's critical that investors pay close attention to management's view of the mobile trajectory for the remainder of the fiscal year and beyond. 

On the company's most recent earnings call, CEO Liam Griffin talked about some of the longer-term opportunities for growth in wireless, such as the imminent proliferation of 5G wireless. Products based on its 5G technology, Griffin conceded, will begin making their way to the marketplace in 2020 "and more readily in 2021." The executive referred to it as a "real catalyst for this industry and we'll be at the forefront."

Intuitively, then, it would make sense for fiscal 2019 to represent a near-term low for the company's revenue, followed by solid growth in its fiscal year 2020 and beyond. Not so coincidentally, analysts currently model 6.8% revenue growth for the chip specialist in its fiscal 2020 after a 7.9% decline in fiscal 2019.

Investor takeaway

The long-term investment thesis for Skyworks still makes sense: As wireless standards become more complex and as more devices become equipped with wireless capabilities, Skyworks stands to sell more and more complex (read: expensive) chips. This should translate into revenue and, almost certainly, profit growth. When the company reports its earnings numbers on May 2, investors will get the latest snapshot of how the company is working to translate opportunity into results.