But it’s no longer the case that when Apple runs a marathon, Skyworks gets a t-shirt.
In 2020 Apple has achieved lift-off, rising 82% to more than $2.2 trillion. Skyworks has done OK, too, but is up just 27%. It opened for trade Sept. 3 at about $153 per share. That’s a price-to-earnings ratio of 33.5, a market cap of $25.6 billion. It should have $3.2 billion of sales when the fiscal year ends this month.
Why the Decoupling?
There are two reasons for the decoupling.
One is that Apple is moving to produce its own semiconductors. There may be some who believe that could include the kind of RF chips Skyworks produces. Losing Apple as a customer would mean losing half the company’s sales, which may be impossible to get back.
The other is that Apple has become overvalued. The Federal Reserve’s funny money has turned momentum investing into a rage. Money piles into what obviously works, sometimes ignoring what merely works. Skyworks merely works. Its sales are still close to their 2016 level, with profits a little lower.
In contrast to Apple, you buy Skyworks stock for yield. The dividend has nearly doubled over the last five years. The annual capital gain is under 10%. But if you bought in 2015 you are getting a respectable 2.2% yield on that $78 investment, from the $2 per share annual dividend.
Cash in the Chips
Skyworks is an RF (radio frequency) chip company. Its chips handle radio waves at cell towers, in user devices and in WiFi systems. They come in a variety of price points. It’s most often compared with Qorvo (NASDAQ:QRVO) although Broadcom (NASDAQ:AVGO) and Qualcomm (NASDAQ:QCOM) are big, too. Without Apple, Skyworks might be in a world of hurt. With it, it’s in a comfortable place.
Skyworks would like to diversify its customer list. There’s always talk about automobiles and what I call the Machine Internet. These markets are like the Dallas Cowboys, a lot of potential but not a lot of championships. Still, it’s one more reason to buy the stock.
Buy SWKS Stock?
Analysts like Skyworks right now because of 5G. Apple’s ramp-up to supply the new communications technology in all its products should benefit the Irvine, California company, the thinking goes.
But there’s another speculation no one is making. As Apple continues its moves into controlling its own silicon, it might buy Skyworks. A price of $30 billion would be nothing next to Apple’s market capitalization, and if you’re making your microprocessors, modems, and graphics chips why not? Skyworks might also help Apple explore those Machine Internet markets.
It’s important to note that this is unfounded speculation. There is no indication Apple is interested in buying Skyworks. But the interdependency, and Apple’s own move into chip design, could make it inevitable down the road.
Bottom Line on Skyworks Stock
Based on its fundamentals, I wouldn’t buy Skyworks stock here. The dividend yield at its current price is just 1.3%. There’s no apparent growth. Apple is a better stock.
But the current market fever will break at some point. All recent analyst reports on Skyworks scream buy. This despite an average price target that’s lower than the current price. To me that’s a sign of an overheated market.
Let Skyworks come to you. When the yield looks good, buy and hold. Don’t chase it.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and QCOM.