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Will Skyworks Guidance Quell Fears Around Apple's iPhone Build Slowdown?

SWKS, AAPL | January 20, 2017

Cowen said Skyworks Solutions Inc (NASDAQ: SWKS) once again delivered a solid quarter and guidance that, at face value, put to rest fears of an iPhone build slowdown.

Quarter In Review

Skyworks reported first-quarter 2017 revenue at $914.3 million, ahead of the Street estimate of $902.6 million, and pro forma EPS at $1.61, versus the Street estimate of $1.58. The Apple Inc. (NASDAQ: AAPL) supplier guided to second-quarter revenue and pro forma of $840 million and $1.40, ahead of the Street estimates of $816.8 million and $1.39, respectively.

“Beyond CQ1, the model seems fairly de-risked as SWKS's base case is clearly not an iPhone "super-cycle" this year (or next), broad markets is fertile opportunity, and Street estimates imply very little iPhone content growth,” analyst Timothy Arcuri wrote in a note.

Rating, Justification

But, Arcuri is Market Perform-rated on the shares, saying BAW filter sourcing remains a big question mark, particularly for carrier aggregation scenarios where combining high and low bands in a tightly integrated module is key.

“Without internal BAW capacity, the company will have to source them (likely from Taiyo Yuden) or maybe has a captive strategy they just aren't ready to discuss or commit capex,” Arcuri highlighted.

Arcuri suggests another alternative would be to acquire Broadcom Ltd (NASDAQ: AVGO)'s FBAR business if it were for sale, as Broadcom potentially focuses more on datacenter. Obviously, this would not come cheap, but would be transformational for Skyworks as it would have the best filters.

“While we believe SWKS will definitely ride the iPhone super-cycle, when push comes to shove, we prefer QRVO,” Arcuri added.

However, Arcuri raised the price target to $85.00 from $80.00, while the stock set a new 52-week high of $88.90 following strong quarterly numbers and outlook. At last check, shares of Skyworks climbed 11.96 percent to $87.84.