With Skyworks, at times it seems the sky's the limit

Posted Feb 11th 2008 6:13PM by Joseph Lazzaro
Filed under: Smartphones, Stocks to Buy

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. But every once in while an exception is made for a non-conforming but innovative/promising company, and along this line Skyworks looks attractive. (Note: Skyworks is only for investors who can tolerate high-risk.)

Skyworks Solutions, Inc. (Nasdaq: SWKS) is a leading supplier to major mobile phone/PDA manufacturers.

Analysts really like Skyworks' radio frequency and manufacturing expertise, which enables the company to secure design wins with existing and new customers.

Skyworks, which began as a defense contractor, makes its integrated circuits out of gallium arsenide, a material that performs at higher speeds and with less energy consumption than the sector standard, silicon.

Analysts also like the fact that SWKS's integrated solutions strategy is enabling the company to increase market share with lead OEMs. Further, the secular trend toward wireless handsets with increased functions favors SWKS' business model.

Meanwhile, a higher dollar amount per handset is offsetting price pressure. The Reuters FY 2008/FY 2009 EPS consensus estimates for SWKS are $0.66 to $0.88.

The risks? Analysts are keeping an eye on technological change in the sector that could result in more competition for Skyworks, as well as the company's ability to retain large customers.

The First Call mean rating for SWKS is: Buy [17 firms]. Mean 2008 target: $10.50 [high: $13, low: $8].

Stock Analysis: Skyworks is a high-risk stock not suitable for moderate-risk or low-risk investors. Investors with an investment horizon longer than 3 years should be rewarded from SWKS' shares. Sell/Stop Loss if you were to purchase shares in this company: $2.50.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: cell phones, gallium arsenide, integrated circuits, mobile phones, PDAs, rfid, Skyworks, SWKS