Shares of radio chip maker Skyworks Solutions (Nasdaq: SWKS) jumped as much as 11.2% Tuesday and trading was brisk. The pop reversed a weeklong slide in share prices, which was accelerated by an analyst downgrade last Friday. Fittingly, the recovery rested on both reaffirmed management guidance and a fresh "buy" rating on the stock from Wall Street.
The fateful downgrade pointed to stronger competition from rivals RF Micro Devices (Nasdaq: RFMD) and Avago (Nasdaq: AVGO). In particular, Sterne Agee analyst Vijay Rakesh noted that Skyworks' traditional stronghold position next to Qualcomm (Nasdaq: QCOM) chipsets could be eroding. On top of that, Skyworks gets plenty of business from a struggling Nokia (NYSE: NOK), which keeps lowering expectations.
Returning fire, Skyworks CFO Don Palette underscored his earlier guidance numbers with this stern admonition: "Skyworks' core business continues to outperform our addressed markets and we believe this will be clearly reflected in our performance and guidance. To be clear, our revenue and non-GAAP earnings outlook for both the June and September quarters is before we add the accretive SiGe and Advanced Analogic Technologies acquisitions." In other words, the actual results should be even better when you add in the contributions from two recent acquisitions.
Cantor Fitzgerald's brand-new buy recommendation on the stock is an opportunistic move, designed to take advantage of a suddenly cheap stock with solid growth prospects. "We suggest that investors aggressively accumulate shares at current levels," said Cantor analyst Dale Pfau. Concerns over Skyworks' market share are "overdone," in his opinion.
At the same time, Pfau opened a can of "buy this" on RF Micro and TriQuint Semiconductor (Nasdaq: TQNT), both with significantly more headroom in his fair-price estimates than the roughly 30% opportunity he sees in Skyworks. That adds up to more of a thumbs-up rating on the wireless communications industry as a whole than a single-stock recommendation.
Both TriQuint and Skyworks say they're taking market share from each other these days, so it's not surprising to see analysts jumping to wildly different conclusions. My view is that RF Micro Devices is worth more than its bargain-basement P/E ratio would indicate, and that the company isn't given enough credit for how it removed itself from a toxic Nokia dependency. Skyworks and TriQuint are fine stocks in their own right, but neither one can hold a candle to RF Micro's value right now.
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