What happened
Shares of 5G chip designer Skyworks Solutions (SWKS 10.64%) soared 13% in June, according to data from S&P Global Market Intelligence. After the company reported strong financial results for the first few months of calendar year 2021, its stock got caught up in a high-growth stock sell-off in May. But with consumers upgrading to new 5G-ready devices in droves, there is plenty of optimism that the company's resurgent growth will last through this year and beyond.
So what
There was no specific news from Skyworks in June that prompted the 13% run higher. However, tech researcher Canalys said it expects global smartphone shipments to rebound 11% this year to 1.4 billion units. Of the total, it expects roughly 610 million of those devices (or about 43% of them) to be 5G network-ready.
Image source: Getty Images.
Skyworks provides the radio-frequency chips that enable a phone to connect to a 5G network, so there are a lot of new chips that will need to be sold this year and next as the 5G device upgrade cycle gets under way in earnest. Canalys's report is confirmation of Skyworks' own outlook for its spring 2021 quarter in which it called for sales and adjusted earnings per share to increase 49% and 70%, respectively, year over year.
Now what
Besides its work on smartphones, Skyworks is also in the process of acquiring the automotive and network infrastructure business of Silicon Labs (SLAB 0.79%). This will help the radio-frequency chip leader diversify its connectivity business in new areas, especially in the auto industry. Technology is redefining the way vehicles function, and new features (like advanced driver-assistance systems to aid in safety and increase vehicle autonomy) are becoming available.
There's also plenty of progress to be made on 5G infrastructure too. Networks employing 5G infrastructure are still new and will take many years to construct, and the technology behind the next-gen mobile service will continue to improve. Along with Xilinx (XLNX +0.00%), which is being acquired by AMD (AMD +18.37%), Skyworks recently announced that some new 5G network infrastructure equipment for use on C-band is available for purchase for network service providers. (C-band is an airwave frequency used for 5G signal deployment.)
Skyworks Solutions stock trades for a modest 28 times trailing 12-month free cash flow given its expected growth for the rest of 2021.
