Please ensure Javascript is enabled for purposes of website accessibility

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

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Period

Revenue

YOY Change

Fiscal 2018

$3.87 billion

6%

Fiscal 2019

$3.38 billion

(13%)

Q1 2020

$896 million

(8%)

Q2 2020

$766 million

(5%)

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Skyworks Solutions, Inc. Stock Quote
Skyworks Solutions, Inc.
SWKS
$93.43 (0.60%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.