Chipmaker Skyworks to Profit From iPhone 8 and Growth of Internet of Things

It's going to be a big year for Apple. The Cupertino giant will celebrate the 10th anniversary of its blockbuster iPhone product this fall with the release of the newest generation of its popular cellphone family.

The iPhone 8, as the new phone is logically named, is expected to feature a number of differences from the last generation of Apple phones. This bodes well for Apple customers, and its investors.

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But there's another company poised to profit from the release of the iPhone 8. Skyworks Solutions is a chipmaker headquartered in Woburn, Mass., that makes radio frequency (RF) chips for Apple and other cellphone brands such as Samsung, as well as semiconductors for a variety of other markets, including military, automotive, industrial and medical. The company should also benefit from other consumer technology trends, as well. 

Skyworks shares rose 13% in Friday trading after the company beat expectations for its first-quarter results. That was the company's best day since 2014. 

(Apple chip supplier, Qorvo, received a nice piggyback ride as well.) 

Apple is Skyworks's biggest customer, accounting for nearly 40% of the company's revenue. So positive iPhone 8 sales would equal a big win for Skyworks's bottom line.

By 2015, cellphone sales had sent the company's stock soaring from $3.50 per share to an all-time high around $113 per share within only seven years.

But then, starting in 2015, demand for new cellphones slackened as markets from North America to China matured. During this period, Skyworks's stock began to slump as well, losing roughly 50% of its value by mid-February 2016.

However, Skyworks has been actively working to diversify its product portfolio, and today the company is decreasing its reliance on Apple and other cellphone makers. Skyworks's venture into the internet of things (IoT) looks particularly promising as homes, businesses and vehicles become connected. The number of IoT devices is expected to double by 2020.

There's a lot of room for Skyworks to grow in this space. Investors can expect long-term rewards even if the iPhone 8 is less exciting than anticipated.

For Skyworks' first quarter, non-GAAP operating income came in at $1.61 per share, 3 cents better than the consensus forecast. Revenue of $914 million beat analysts' predictions by nearly $12 million and represented a 9.4% improvement sequentially. Cash flow from operations was a robust $495.9 million. 

"Skyworks delivered exceptional financial results in the first fiscal quarter of 2017 fueled by global demand for ubiquitous mobile connectivity and the Internet of Things," said Liam K. Griffin, Skyworks's president and chief executive officer.

Investors looking for a way to gain from iPhone 8 sales, as well as profiting from a compelling play on the internet of things, would do well to look at Skyworks. This stock could shoot back up to levels around $100 per share by the end of the year, providing a nice upside. In the long term, the profit potential could be even greater.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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