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Why 5G Stock Skyworks Solutions Remains a Buy Even Amidst the Coronavirus Crisis

By Nicholas Rossolillo – May 6, 2020 at 11:30AM

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The numbers don’t look great, but underlying fundamentals make this chip designer best-in-breed.

So much for a return to growth. Between after-effects from the U.S.-China trade war in 2019 and now delays due to coronavirus, Skyworks Solutions (SWKS 0.60%) wasn't able to buck stubborn year-over-year revenue decline during its last quarter. There was supply chain disruption due to temporary closure of its Mexicali, Mexico plant, and the pace of rollout of new 5G mobile networks is easing in 2020 as well. Thus, the outlook for the current quarter (ending in June) is for another decline. 

Nevertheless, Skyworks is in an enviable position -- within the semiconductor industry and business world at large. Strong profit margins and zero debt continue to keep me interested in acquiring more shares even in the midst of the COVID-19 crisis.

A woman opening a refrigerator with a digital screen on the door and illustration showing internet connectivity.

Image source: Skyworks Solutions.

A quick recap

In Q2 of fiscal 2020 (the three months ending March 27, 2020) Skyworks revenue declined 5% year-over-year to $766 million. Excluding Huawei revenue from a year ago -- since sales have since been restricted to the Chinese tech infrastructure giant -- revenue was up 4% in Q2.  

Things aren't shaping up to improve in the current quarter either, deepening the declines Skyworks suffered already in 2019.



YOY Change

Fiscal 2018

$3.87 billion


Fiscal 2019

$3.38 billion


Q1 2020

$896 million


Q2 2020

$766 million


Forecast Q3 2020

$670 million to $710 million

(13%) to (7%)

Data source: Skyworks Solutions.

Not pretty, huh? Such is life when investing in the highly cyclical semiconductor industry. Best efforts at figuring a sales rebound can prove frustrating at best. In spite of ongoing weakness, though, gross margin on product sold has remained near 50%, and the company has been disciplined in its operating expenses. This has therefore remained a highly profitable outfit, one that will get even more profitable once the myriad of headwinds begin to subside -- eventually.

SWKS Gross Profit Margin Chart

Data by YCharts.

Looking beyond the headline for real strength

And rebound back to growth remains my expectation for Skyworks -- eventually. The company's research and development of new chips powering 5G connectivity for phones, 5G network infrastructure hardware, WiFi 6 technology for consumer devices and business use, as well as further expansion of non-mobile business (think industrial equipment and smart devices, which was approximately 30% of sales in Q2) is just too powerful to make me a doubter.  

In the meantime, shareholders continue to get rewarded. The current annual dividend yield is 1.8%, and because of Skyworks' high rate of profitability, share repurchases will remain in force -- in stark contrast with the share repurchase suspensions many companies had to put in place when the coronavirus crisis hit. In fact, over the last year, Skyworks has returned 92% of its free cash flow (what's left after cash operating and capital expenses are paid) to shareholders via dividends and share buybacks.

All the while, the company's balance sheet has continued to improve. Debt remains at zero, and cash and short-term investments have increased to $1.11 billion at the end of March (up from $1.08 billion at the end of September 2019). With a powerful combination of efficient connectivity innovation and steady cash payout to investors, Skyworks remains near the top of my semiconductor stock buy list.

Nicholas Rossolillo and his clients own shares of Skyworks Solutions. The Motley Fool owns shares of and recommends Skyworks Solutions. The Motley Fool has a disclosure policy.

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