The second half of 2020 should turn out to be a good one for Skyworks Solutions (NASDAQ:SWKS). It is all set to take advantage of the upcoming smartphone revolution driven by the advent of 5G wireless networks, as is evident from its latest quarterly report and outlook.

The chipmaker delivered glowing fiscal third-quarter results on July 23, with revenue and earnings blowing past Wall Street's expectations. Skyworks' guidance for the fourth quarter of fiscal 2020 also turned out to be much stronger than what analysts were expecting.

Let's take a closer look at the catalysts driving Skyworks' growth and see if buying this semiconductor stock is a good idea right now.

Person holding a 5G smartphone.

Image source: Getty Images.

Skyworks is getting back on track

Skyworks Solutions' third-quarter performance wasn't great on a year-over-year basis thanks to seasonality. Its revenue of $736.8 million was down nearly 4% from the prior-year period, while adjusted earnings of $1.25 per share also fell from $1.35 a share last year. Wall Street was expecting worse -- $691.2 million in revenue and $1.14 per share in earnings.

Investors should note that Skyworks' June quarter is usually a slow one, because that's when its largest customer -- Apple (NASDAQ:AAPL) -- starts winding down production of its existing iPhone generation to prepare for a new one. Moreover, Apple's June-quarter shipments are expected to take a bigger tumble this time around thanks to the impact of the novel coronavirus. That is bound to negatively affect Skyworks, since the iPhone maker reportedly supplied 51% of the company's revenue last year.

Additionally, Skyworks was dependent on Huawei for a nice chunk of its revenue earlier. Restrictions on shipments to the Chinese smartphone giant have had a negative impact on the chipmaker to some extent, though it claims that Huawei now supplies a small portion of its total revenue. Without getting into actual numbers, Skyworks CEO Liam Griffin pointed out on the third-quarter earnings conference call that "the worst is behind us right now with respect to Huawei."

Instead, the company is focusing on the 5G opportunity that lies ahead of it. Griffin added, "With 5G gaining traction, we are now at the cusp of a multiyear upgrade cycle, one in which Skyworks is uniquely positioned to outperform."

This catalyst is visible in Skyworks' guidance. The company anticipates $840 million in revenue this quarter at the midpoint of its guidance range, up slightly from the prior-year period's top line of $827 million. Earnings are expected to remain nearly flat at $1.51 per share year over year. But don't be surprised to see Skyworks step on the gas in the forthcoming quarters as the 5G tailwind gains more momentum.

All set to zoom higher

The smartphone industry is witnessing a tumultuous period in 2020 on account of COVID-19. IDC estimates that smartphone shipments could decline nearly 12% this year to 1.2 billion units. However, the worst might already be behind us; IDC estimates that shipments were down 18.2% in the first half of the year. But 5G smartphones are expected to defy the broad market weakness and lead to recovery.

According to Strategy Analytics, 5G smartphone shipments in the first quarter of 2020 stood at 24 million units, eclipsing the 18.7 million units shipped through all of 2019. They reportedly accounted for just under 10% of global smartphone sales in the first quarter. More importantly, 5G smartphones are expected to hold on to a 10% to 11% share of the overall market this year as per third-party estimates, which means that more than 120 million units can be shipped in 2020 if we go by IDC's annual forecast.

Apple is one of the front-runners to take advantage of this spurt in 5G smartphone sales thanks to a huge installed base of users waiting for an upgrade to the latest wireless technology. In fact, iPhones are expected to dominate the 5G landscape, and that won't be surprising given that the company is reportedly trying some new tricks to lower pricing and make the device more accessible.

Global 5G smartphone shipments are expected to hit a billion units in 2025, which means that both Apple and Skyworks have huge room for growth ahead of them. Skyworks is already in the middle of the 5G revolution; it recently shipped its 150 millionth BAW (bulk acoustic wave) filter. These filters are expected to play an important role in 5G smartphones to improve cellular connectivity.

Not surprisingly, the BAW market is expected to record a compound annual growth rate of 19% over the coming years as per a third-party report. This should open up a huge addressable opportunity for Skyworks; the market was worth an estimated $3.5 billion last year.

Should you buy it?

The mobile business accounted for 69% of Skyworks' revenue last quarter, which is a good thing, since the smartphone industry is about to step into the 5G era. The chipmaker appears to be in a good position to take advantage of the 5G transition thanks to its relationship with the likes of Apple and a few other leading OEMs (original equipment manufacturers) that are making a mark in this space.

So investors looking for a top 5G stock should keep Skyworks Solutions on their radar, because it looks poised for a breakout and trades at a reasonable 19 times forward earnings.