Apple (AAPL 1.94%) supplier Skyworks Solutions (SWKS 0.22%) looked set for a terrific 2014 back in January. The company has not disappointed as Skyworks shares have gained close to 45% so far this year. Also, there are no signs of Skyworks stopping any time soon as it reported terrific second-quarter results back in April, accompanied by superior guidance. In addition, Skyworks also initiated a quarterly dividend payment of $0.11 per share, yielding 1.1%.
Along with solid fundamentals, Skyworks' end-market prospects suggest that its growth can accelerate further going forward. Let's take a look at three reasons why Skyworks can continue outperforming in the future.
The Internet of Things
Skyworks has already started benefiting from the Internet of Things, or IoT. The company's 802.11ac chips are being shipped for Internet of Things applications and it expects them to gain more momentum going forward. This doesn't come as a big surprise since the opportunity for a company such as Skyworks, which makes connectivity chips, is huge considering the expected size of the IoT.
The IoT is all about machine-to-machine, or rather object-to-object connectivity. According to Cisco, the number of connected devices around the world will reach 50 billion by 2020 as IoT gains pace. This would give rise to need for more connectivity chips that Skyworks provides. Since the Internet of Things is expected to be a massive $19 trillion opportunity going forward, this will be a big opportunity for Skyworks.
In addition, Skyworks also has key clients such as Nest, the maker of smart home products that was acquired by Google earlier this year. According to management, the company has an "extremely strong relationship and high content" at Nest. With Google's backing, Nest might ramp up production going forward and also churn out more innovative products. Thus, as far as the nascent and highly promising market of Internet of Things is concerned, Skyworks seems to be in a promising position to make the most of it.
Smartphones
Samsung (NASDAQOTH: SSNLF) and Apple have been the cornerstone of Skyworks' success so far as the two smartphone giants accounted for around half of its total revenue in fiscal 2013. Looking ahead, Skyworks investors can expect both these accounts to continue growing on the back of their latest flagships.
Samsung has already launched the Galaxy S5 and it has got off to a terrific start. It has been reported that the Galaxy S5 is not only outpacing its predecessor in terms of sales, but has also trumped the iPhone 5s. According to iQmetrix, the Galaxy S5 accounted for 25% of total phones sold in the U.S. and Canada during its launch weekend, which is a terrific performance considering that the iPhone 5s' share was just 18%.
However, Apple is looking to make a solid comeback with its rumored iPhone 6. The next Apple flagship could come in two variants -- a 4.7-inch version and a 5.6-inch version, as reported by Reuters. Also, because Apple is expected to produce a massive 80 million units of the device, Skyworks might see a bump in its addressable market going forward.
Hence, Skyworks is well-positioned in both smartphone camps and benefits from the two major device launches that the industry sees every year. At present, Samsung's new device is driving sales, and shortly, Apple will be playing a similar role.
Valuation
Skyworks' valuation is quite attractive. The stock trades at 24.6 times last year's earnings, but the multiple comes down to just 13 on a forward P/E basis. In addition, Skyworks' PEG ratio is also under 1 at 0.87, signifying a solid growth rate and undervaluation going forward.
Another impressive thing about Skyworks is that the company has no debt and a lot of cash (almost $800 million). So, Skyworks can continue innovating new products and even make acquisitions to expand its business going forward.
Final words
Skyworks Solutions looks like a robust company from all angles. It is benefiting from smartphones and tablets at present, and is also positioning itself to profit from the Internet of Things going forward. Additionally, the company has strong fundamentals. So, all in all, Skyworks looks like a solid investment even after solid gains this year.
