Semiconductor stocks have regained their mojo in 2023. The PHLX Semiconductor Sector index has gained close to 23% this year. And that has rubbed off positively on shares of Skyworks Solutions (SWKS 1.11%), whose chips are deployed in multiple markets ranging from smartphones to automotive to the Internet of Things (IoT).
Skyworks stock is up roughly 20% in 2023. This rally may seem a tad surprising, given the challenging smartphone market, which accounts for nearly two-thirds of its revenue. The chipmaker's revenue is expected to drop 9% in the current fiscal year to roughly $5 billion, while earnings could shrink to $9.37 per share from $11.24 per share in the year-ago period. Still, analysts expect solid gains from this semiconductor company, which got 58% of its revenue from selling chips to Apple last fiscal year.
Let's see why gains for Skyworks' stock may lie ahead.
Analysts expect Skyworks Solutions' stock to climb higher
Skyworks relies on Apple for a large chunk of its revenue. For example, the chipmaker reportedly supplies $13.40 worth of chips for each unit of the iPhone 14 Pro. That also explains why Skyworks' revenue in the first quarter of fiscal 2023 (for the three months ended Dec. 30, 2022) fell nearly 12% year over year to $1.33 billion.
Apple's iPhone revenue for the same quarter was down 8% year over year to $65.8 billion. IDC estimates that Apple's iPhone shipments declined by 4% in 2022 to 226.4 million units. The market research firm isn't anticipating much of a turnaround in 2023, either. In fact, IDC expects iPhone shipments to drop to 225 million units this year, so Skyworks may not get much of a boost from its largest customer during that time.
However, Wall Street sentiment remains positive around Skyworks stock. Needham analyst Rajvindra Gill raised his price target on Skyworks stock to $140 in April, citing a potential turnaround in its fortunes in the second half of the year. Rosenblatt's Kevin Cassidy has a $160 price target on Skyworks stock, believing the company can start outperforming once demand returns. Meanwhile, according to a consensus of 23 analysts covering the stock, Skyworks could soar as much as 70%, considering its Street-high price target of $188.
But can Skyworks deliver such gains, especially considering iPhone shipments are expected to remain flat this year? Let's find out.
These catalysts could give the stock a shot in the arm
Skyworks' close supplier relationship with Apple could turn out to be a boon in 2023 and beyond, as the latter is reportedly working to add a new consumer electronic device to its portfolio. Bloomberg's Mark Gurman reported earlier this month that Apple could launch its mixed-reality headset, which would support augmented reality (AR) and virtual reality (VR), at the Worldwide Developers Conference (popularly known as WWDC) on June 5, 2023.
Skyworks has prior experience in this niche. Its chips powered Facebook's (now Meta Platforms) Oculus Quest VR headset back in 2019. The company supplied front-end modules, power amplifiers, bulk acoustic wave (BAW) filters, and other chips for the device as a part of its fully integrated SkyOne system-on-a-chip (SoC) platform.
So if Apple uses Skyworks' connectivity chips in its headsets, the former's business could get a nice boost in 2023. Moreover, the long-term prospects of the headset market could open another area of growth for Apple and Skyworks. IDC expects AR/VR headsets sales to increase by 14% in 2023 to 10.1 million units, followed by an acceleration in subsequent years as this market is expected to clock a compound annual growth rate (CAGR) of 32% through 2027.
On the other hand, Skyworks is gaining impressive traction in the broad markets business segment, which includes revenue from non-mobile applications, such as automotive, industrial, infrastructure, and IoT. This business accounted for 35% of the chipmaker's total revenue in the last reported quarter, and it looks set for healthy long-term growth thanks to Skyworks' design wins.
Skyworks CEO Liam Griffin pointed out on the February earnings conference call that the company has expanded its "design win pipeline in several emerging high growth segments." Throw in a potential recovery in the smartphone market from 2024 -- when shipments are expected to grow almost 6% from 2023 levels -- and the prospects in the non-mobile business that's serving fast-growing niches, and it is easy to see why Skyworks' top-line growth is expected to pick up the pace in the next fiscal year.
SWKS Revenue Estimates for Current Fiscal Year data by YCharts.
Moreover, the company's earnings are expected to clock annual growth of 15% over the next five years. So Skyworks could ultimately be a solid long-term investment once its largest end market starts recovering and additional growth drivers come into play. These factors could help the stock deliver the impressive upside Wall Street anticipates.
As such, investors looking to add a semiconductor stock to their portfolios now can go long on Skyworks as it is trading at 15 times trailing earnings and 11.5 times forward earnings. Those multiples represent a discount to the Nasdaq-100's earnings multiple of 26, suggesting investors are getting a good deal on Skyworks right now.
