Forget trying to time your purchase of Apple (NASDAQ:AAPL) and Google in the handset space, and give up on trying to predict whether or not the Microsoft Surface Pro is going to be the next great thing in the tablet arena. There are two companies you can buy, right now, that are an integral part of the growing mobile revolution and, best of all, you can find their products spread across nearly every large brand-name.
Qualcomm's CDMA/LTE technology, as well as Skyworks' power amplifying modules, is to today's mobile devices what Ford and Chevy were to the U.S. drivers in the 1970s!
Qualcomm is Apple's sole supplier for cellular baseband processors in the iPhone 5, and also supplies the primary camera module and an RF transceiver. But I'm not anywhere close to done. You can also find many of these same components in the iPad, in older models of the Samsung Galaxy S III (Samsung is modeling its own in-house CDMA technology in the latest S III out in South Korea), and absolutely littered throughout the new Nokia Lumia smartphones. Based on iSuppli's teardown of the Lumia 900, which debuted last April, Qualcomm boasted about half of all manufacturing components, including the baseband and apps processor, the camera module, and various power management components.
For Skyworks, the story is very similar. It boasts two power amplifying module, or PAM, spots in the iPhone 5 and had managed, in the iPhone 4S, to completely boot TriQuint Semiconductor (UNKNOWN:TQNT.DL) from the version produced for Verizon. With TriQuint back in the fold in the iPhone 5 and RF Micro Devices (UNKNOWN:RFMD.DL) wiggling its way into the mix as well with an RF switch, the question's been raised whether Skyworks is losing its grip on power amplifiers and RF devices. To the naysayers, I'd point out that RF Micro's reliance on supplying components to older model 2G and 3G devices from Nokia places it at a distinct disadvantage to Skyworks, which is busy supplying components to LTE-capable HTC and Samsung devices, as well as to Apple. TriQuint simply doesn't have the capacity to compete with Skyworks on a global scale, and I would suspect that's the primary reason it wasn't included in the Verizon version of the iPhone 4S.
Not inconsequentially, both Qualcomm and Skyworks reported earnings after the bell last night and -- surprise, surprise -- both companies delivered strong results.
In Qualcomm's first quarter, it produced revenue of $6.02 billion, 29% higher than the year-ago period, and turned in an adjusted profit of $1.26, easily cruising past Wall Street's forecast for $1.13. Qualcomm attributed its gains to increasing smartphone and LTE adoption and boosted its full-year sales and EPS forecast for 2013.
Skyworks reported a 15% increase in revenue as net income advanced 16% to $66.5 million. While both figures were more or less in line with expectations, Skyworks' second-quarter guidance calling for $420 million in revenue was ahead of the current consensus and painted an optimistic picture for what's usually Skyworks' slowest quarter of the year.
Simply put, no one really has the technology to supplant Qualcomm's LTE technology at the moment, and Skyworks is best positioned to take advantage of its growing market share in PAMs across all brands. Even after their moves higher, I project both could still double from the current levels, and, if I don't already have a CAPScall of outperform on these two, I will certainly be entering one.