Skyworks Gives Chip Stocks a Boost With Its Upbeat Demand Commentary

Echoing top customer Apple, Skyworks indicated that demand improved in April following a rough March. The company was also optimistic about second-half sales.
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Skyworks’  (SWKS) - Get Report upbeat commentary about demand trends is overshadowing a subdued June quarter outlook and helping chip stocks outperform.

The RF chipmaker’s shares are up about 6% in Tuesday trading despite releasing March quarter results that were in line with the company’s April 14 pre-announcement and issuing below-consensus June quarter guidance. Revenue guidance of $670 million to $710 million was below a $720 million FactSet consensus and implies a 7% to 13% annual decline, while EPS guidance of $1.13 (based on the midpoint of Skyworks’ revenue range) was below a $1.24 consensus and implies a 16% decline.

Skyworks initially slipped in after-hours trading thanks to its guidance, but erased its losses after CEO Liam Griffin indicated that demand improved “quite a bit” in April, following a difficult March.

“[There are] some visibility issues out there, but we feel very confident about the range we put out on the June quarter, and we feel very good about the bottom end of that range,” Griffin said. “And we certainly feel like there's a potential for us to go much higher.”

Those remarks fit with what top customer Apple  (AAPL) - Get Report shared on its earnings call last Thursday. Then, Tim Cook said that Apple has seen “an uptick” in demand “really across the board” during the second half of April, after witnessing “a sharp decline in demand” in March as COVID-19 lockdowns took hold.

Cook attributed the demand pickup to three factors: New product launches -- in prior weeks, Apple had refreshed the iPhone SE, iPad Pro and MacBook Air, and this week it refreshed the 13-inch MacBook Pro -- stimulus payments and purchases made to support remote work and learning activities.

Separately, though macro uncertainty makes gauging second-half demand far from easy, Griffin expressed optimism about Skyworks’ calendar Q3 and Q4 sales, citing strong design win activity for upcoming products and an improving supply chain situation following early-2020 issues.

That’s undoubtedly a reference -- at least in part -- to Apple’s next-gen iPhones, which are widely expected to pack 5G modems and (in spite of some reported production delays) still expected to ship this fall. With 5G phones requiring significantly more RF content than 4G counterparts, there’s a good chance that the per-device dollar value of the content that Skyworks provides for Apple’s fall 2020 iPhones is above what it’s providing for the iPhone 11/11 Pro line.

Strong Chinese 5G phone demand is also a near-term tailwind for Skyworks. The company has landed 5G RF design wins with Chinese OEMs Oppo, Vivo and Xiaomi, as well as with Samsung, and Griffin asserts Skyworks is seeing “very meaningful [RF] content improvement” with Chinese 5G phones relative to Chinese 4G phones.

Skyworks’ commentary arrives less than week after Qualcomm  (QCOM) - Get Report, which has long argued that 5G gives it a major opportunity to gain RF chip share, reported that its RF front-end chip sales rose over 50% sequentially and annually during its March quarter. Contributing to the growth: Qualcomm currently has a dominant position in the market for antenna modules needed to support the high-frequency, millimeter-wave (mmWave), 5G networks that are rolling out in the U.S., Japan and South Korea (though not yet in China and Europe).

RF chipmaker Qorvo  (QRVO) - Get Report, whose March quarter report arrives on Thursday afternoon, is up 4.6% following Skyworks’ report and call. Broadcom  (AVGO) - Get Report, which earlier this year ended its attempt to explore a sale for its RF chip business after inking new supply deals with Apple, is up 2.1%.

With a number of chip developers and chip equipment makers outperforming, The Philadelphia Semiconductor Index is up 2.9%, outpacing a 2% gain for the Nasdaq.

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