Choose Skyworks Over Qorvo As Apple Transitions To 5G?

The stock price for Qorvo (NASDAQ:QRVO), a company best known for supplying radio frequency (RF) components to the smartphone players such as Apple, as well as to the infrastructure, and defense space, has doubled since early 2017. In comparison, the stock price of Skyworks (NASDAQ:SWKS) , another RF component maker that counts Apple as its largest customer, is up 65% over the same period. Qorvo’s outperformance has come despite the fact that its fundamentals look much weaker compared to Skyworks.  For instance, Skyworks’ net margins are 2.5x Qorovo’s (25% vs 10% in the most recent fiscal year), while its valuation is also more reasonable, trading at about 24x earnings, compared to 37x for Qorvo. Does that make sense? We don’t think it does and believe Skyworks is likely the better investment at the moment compared to Qorvo, as investors seek exposure to the new iPhones and broader upgrades to the next-gen 5G networks. Our dashboard Is Skyworks A Better Bet Than Qorvo? has the underlying numbers.

Skyworks Fundamentals Are Stronger And Its Near-term Outlook May Also Be Brighter

Let’s look at the core business prospects of both companies a little more closely. Qorvo sells RF solutions focused on cellular, Ultra-wide band, and Wi-Fi to manufacturers of mobile products such as smartphones, wearables, and tablets. The company also sells RF, System on Chips, and power management solutions to customers in the wireless infrastructure, defense, and automotive space. The mobile segment accounts for over 70% of the company’s total revenues.  Qorvo operates its own fabs and assembly facilities.

Skyworks, on the other hand, sells analog semiconductors that include power amplifiers, front-end modules, and RF products that go into mobile and wireless devices as well as wireless infrastructure equipment. While the company’s product portfolio appears more focused compared to Qorvo, it stands to benefit significantly from 5G upgrades, as 5G systems are more complex, with more challenging RF front-end and analog component designs.

Overall, we believe Skyworks looks quite attractive compared to Qorvo at current prices, given its lower valuation multiple and potentially higher upside early in the 5G cycle. Apple, which accounts for about half of Skyworks’ total revenues, is expected to go all-in on 5G technology launching multiple 5G handsets later this year and this could benefit Skyworks significantly. ^[1] In comparison, Qorvo generates roughly a third of its revenues from Apple. Moreover, Skyworks remains debt-free, compared to Qorvo which has over $1.5 billion in debt and this should be seen as a positive in the current recessionary environment.

Is Jabil – a manufacturer of device casings for Apple a better play on the upcoming 5G iPhone? View our dashboard Trefis Theme: Apple iPhone Component Suppliers which compares some of the key financial and valuation metrics for Apple and its key suppliers for more information.

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1. Chip stocks dive after Apple’s coronavirus warning, CNBC, February 2020 [↩]