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An Apple Derivatives Play: Skyworks Solutions

Wednesday, 11 May 2011 02:14 PM

As I mentioned in an article that I wrote on May 4, my research indicates that now is a good time to establish a watch list of stocks in which possibly to invest once the investment environment shows signs of improvement.

One stock that’s near the top of my personal watch list is Skyworks Solutions (SWKS).

Skyworks Solutions designs and manufactures integrated circuits for wireless phones and various other applications. The company’s phone products include customized power amplifiers and front-end applications that are used in many of today’s cellular devices, from entry level products to multimedia platforms and smartphones. The company uses gallium arsenide (GaAs), a material that’s faster and uses less energy than industry-standard silicon, in many of its devices. The company’s customers include Nokia (NOK), Sony Ericsson (SNE), Samsung Electronics (SSNLF), and Apple Computer (AAPL).

Although Charter Equity Research analyst Edward Snyder recently said that he expects Skyworks to get “a lot” less revenue from Apple’s soon-to-be released iPhone 5 than it did from the iPhone 4, Deutsche Bank reported on April 7 that, according to its research, Skyworks remains well-positioned and that the company has continued to gain market share in the wireless phone industry.

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In regard to the company’s recent operating results, Skyworks announced on April 28 that its earnings per diluted share rose 69 percent during the quarter ended April 1, 2011, compared to the same period a year ago, on a 37 percent increase in revenues.

In addition to generating higher revenues and earnings than Wall Street analysts had expected for that quarter, the company projected that its revenues and earnings will also be higher than the average estimate provided by Wall Street analysts for the quarter ending July 1, 2011.

Specifically, Skyworks Solutions stated in its latest earnings release, dated April 28, that after adjusting for share-based compensation expenses and the amortization of intangible assets, the company expects to earn 46 cents per diluted share for the quarter ending July 1 on a 25 percent year-over-year increase in its revenues.

In comparison, Wall Street analysts were expecting, on average, for the company to earn 43 cents per diluted share on a 21 percent increase in revenues.

The company also reported that it improved its financial condition during the quarter ended April 1, with its cash position rising to 2.5 times the company’s total financial obligations as of April 1, 2011, from 2.2 times its total liabilities on Dec. 31, 2010.

Meanwhile, the company generated $92 million in cash flow from operations during the quarter ended April 1, 2011, up from $64.8 million during the quarter ended Dec. 31, 2010.

Another Apple play to come

Yet Skyworks stock appears to be trading at a fair price, with SWKS at a P/E to growth ratio (PEG Ratio) of 1.1 as of May 10, 2011. In comparison, the S&P 500 Index had a PEG ratio of approximately 2.0 as of May 10.

Although SWKS rallied sharply from April 18 to April 29, it has pulled back on light trading volume since running into a price-resistance level of around $32 on April 29.

In an article that I plan to write later this week, I’ll discuss another derivatives play on Apple, Nuance Communications (NUAN).

NUAN rallied sharply on May 9 after TechCrunch, an online technology media company, reported that its research indicates that Apple is considering using Nuance’s devices in its smartphone products, such as the iPhone.

About the Author: David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.

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As I mentioned in an article that I wrote on May 4, my research indicates that now is a good time to establish a watch list of stocks in which possibly to invest once the investment environment shows signs of improvement. One stock that s near the top of my personal watch...
david,frazier,Apple,Derivatives,Skyworks,Solutions
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2011-14-11
Wednesday, 11 May 2011 02:14 PM
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