Thanks to guidance from mobile chipmakers in recent months, it was no surprise that Apple (AAPL -0.35%) reported sluggish iPhone sales for its quarter ended June 2023. The tech titan's phone revenue declined 2% year over year or notched a slight increase when excluding the effects of foreign currency exchange rates.

To this day, the iPhone still represents more than half of all of Apple's revenue ($157 billion of the $294 billion total through the first nine months of Apple's current fiscal year). More robust, profitable iPhone growth will be a must for Apple stock to justify its high premium of 30 times trailing-12-month earnings (or 28 times free cash flow). Top mobile chip supplier Skyworks Solutions (SWKS 1.31%) provides some hints on what could lay ahead.  

Betting on something other than iPhone

Skyworks Solutions is a top designer and manufacturer of mobile chips -- the stuff that enables devices like smartphones to connect to a wireless network or Wi-Fi. This makes it especially reliant on consumer electronics sales, an area of the semiconductor industry that has been beaten up badly after massive household spending during the first two years of the pandemic. 

Apple is responsible for much of this consumer electronics exposure, with 64% of Skyworks' total revenue of $1.07 billion in its own June 2023 quarter tied to Apple (so, about $685 million in sales from Apple). Of that total, about 85% comes from the iPhone specifically, with devices like the iPad, Mac, and Apple Watch making up the rest.  

Suffice it to say the iPhone is an important product for Skyworks. This is a reliance Skyworks has been working hard to diversify for many years but to limited success thus far. 

Apple has said it expects some sequential increases in iPhone sales for the next quarter, which will end in September, and Skyworks seems to confirm this. However, this is largely a seasonal effect from new iPhone model launches as well as device manufacturing ramping up through the year in support of the holiday shopping frenzy every late autumn and early winter. Skyworks said its September revenue is expected to be $1.215 billion at the midpoint of guidance, up about 13% to 14% from last quarter, but importantly, down about 14% from the same period in 2022.

In a further hint that Skyworks' diversification efforts, and not the Apple iPhone, are what's driving the sequential increase (but annual decline), Skyworks' CEO, Liam Griffin, rattled off a number of new chip product launches. Wi-Fi 6E and early Wi-Fi 7 modems are rolling out. 5G network infrastructure buildout is ongoing. And chips for smart home devices like Samsung soundbars and wearable tech like earbuds are growing markets for Skyworks. 

Most notable, perhaps, is Skyworks' steady ramp into automotive, which it jump-started with the purchase of designs from peer Silicon Labs two years ago. Griffin said sales to automakers are now well over a $200 million-per-year run rate.

Is iPhone growth done for?

When adding up the sum of all commentary, it's safe to assume that Apple's marquee iPhone business shouldn't be relied upon as a key growth driver anymore -- at least, not anytime soon. Smartphones have matured into a more stable, though highly profitable, source of income for Apple and its suppliers like Skyworks. 

New devices will propel growth going forward. For Apple, maybe it will be Vision Pro, which Skyworks undoubtedly will supply connectivity chips for. And for Skyworks, it still has work to do to diversify its business. But early work in automotive continues to look promising. Late in 2022, Skyworks' management had commented that auto sales were at about $200 million per year, so Griffin's recent dialogue indicates smart cars are a modest growth outlet. 

For myself and my ownership of both Apple and Skyworks shares, I rank both as a hold. Apple has a high premium it will need to prove with a return to growth in 2024. Until then, I believe the Apple stock run-up is mostly over. 

As for Skyworks, it has a far cheaper valuation at less than 17 times trailing-12-month earnings and just 12 times free cash flow. However, overall it isn't a growth business anymore -- at least, not until it can scale up its non-smartphone and non-Apple business to a more significant level. For now, Skyworks needs an iPhone rebound, and that doesn't exactly look like a promising bet for 2023.