Skyworks Solutions Inc: Dividend Growth Stock of the Week

2015-11-06

Introduction

My dividend growth stock selection of the week is Skyworks Solutions Inc (SWKS).  Unfortunately, I thought it would be prudent to wait for earnings to be reported before I present it to subscribers.  The good news is the company reported a stellar quarter and provided strong forward guidance.  The bad news is the stock is up more than 7% as I post this.  Nevertheless, I believe Skyworks Solutions remains an attractively-valued dividend growth opportunity based on expectations for continued high future growth of earnings and dividends.

For those of you not familiar with this company, they are a leader in connecting the growing world of mobile devices and the Internet of things.  The following promo is taken directly from the investor relations section of the company’s website:

“If you believe that connectivity is the future, then investors should start here. With technology experts predicting there will be 70 billion connected devices operating worldwide by 2020, Skyworks is uniquely positioned to capitalize on emerging opportunities with the Internet of Things. In every way the world is connected, Skyworks is there. Whether reaching for a smartphone or tablet, setting a smart thermostat, or communicating wirelessly with your medical provider, Skyworks is connecting people to vital information.”

For a more detailed explanation of what the company does, I offer the following long business description courtesy of S&P Capital IQ:

“Skyworks Solutions, Inc., together with its subsidiaries, provides analog and mixed signal semiconductors. The company supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, networking, smartphones, and tablet applications.

Product Portfolio

The company’s product portfolio consists of the following:

Amplifiers: The modules that strengthen the signal so that it has sufficient energy to reach a base station;

Attenuators: Circuits that allow a known source of power to be reduced by a predetermined factor (expressed as decibels);

Battery Chargers: Device used to replenish the energy stored in a rechargeable battery by forcing an electric current through it;

Circulators/Isolators: Ferrite-based components commonly found on the output of high-power amplifiers used to protect receivers in wireless transmission systems;

DC/DC Converters: An electronic circuit, which converts a source of direct current from one voltage level to another;

Demodulators: A device or a radio frequency (RF) block used in receivers to extract the information that has been modulated onto a carrier or from the carrier itself;

Detectors: Devices used to measure and control RF power in wireless systems;

Diodes: Semiconductor devices that pass current in one direction only;

Directional Couplers: Transmission coupling devices for separately sampling the forward or backward wave in a transmission line;

Filters: Devices for recovering and separating mixed and modulated data in RF stages;

Front-End Modules: Power amplifiers that are integrated with switches, duplexers, filters, and other components to create a single package front-end solution;

Hybrid: A type of directional coupler used in radio and telecommunications;

Infrastructure RF Subsystems: Highly integrated transceivers and power amplifiers for wireless base station applications;

LED Drivers: Devices, which regulate the current through a light emitting diode or string of diodes for the purpose of creating light;

MIS Silicon Chip Capacitors: Used in applications requiring DC blocking and RF bypassing, or as a fixed capacitance tuning element in filters, oscillators, and matching networks;

Mixers: Devices that enable signals to be converted to a higher or lower frequency signal and thereby allowing the signals to be processed;

Modulators: Devices that take a baseband input signal and output a RF modulated signal;

Optocouplers/Optoisolators: Semiconductor devices that allow signals to be transferred between circuits or systems while ensuring that the circuits or systems are electrically isolated from each other;

Phase Locked Loops: Closed-loop feedback control system that maintains a generated signal in a fixed phase relationship to a reference signal;

Phase Shifters: Designed for use in power amplifier distortion compensation circuits in base station applications;

Power Dividers/Combiners: Utilized to equally split signals into in-phase signals as found in balanced signal chains and local oscillator distribution networks;

Receivers: Electronic devices that change a radio signal from a transmitter into useful information;

Switches: Components that perform the change between the transmit and receive function, as well as the band function for cellular handsets;

Synthesizers: Devices that provide ultra-fine frequency resolution, fast switching speed, and low phase-noise performance;

Technical Ceramics: Polycrystalline oxide materials used for various electrical, mechanical, thermal, and magnetic applications;

Transceivers: Devices that have both a transmitter and a receiver, which are combined and share common circuitry or a single housing;

Voltage Regulators: Generate a fixed level, which remains constant over varying input voltage or load conditions; and

VCOs/Synthesizers: Fully integrated, high performance signal source for high dynamic range transceivers.

Marketing and Distribution

The company’s products are primarily sold through a direct global Skyworks sales force deployed across all of its major market regions. In some markets, the company supplements its direct sales effort with independent manufacturers’ representatives and distribution partners, some of which are franchised worldwide with others focused in specific regional markets.

Customers

In the year ended October 3, 2014, two customers, such as Foxconn Technology Group (together with its affiliates and other suppliers to an original equipment manufacturer for use in multiple applications, including smartphones, tablets, routers, desktop, and notebook computers) and Samsung Electronics, each constituted approximately 10 percent of the company’s net revenue.

The company’s major customers include Arris, Bose, Cisco, Dell, Ericsson, Fujitsu, General Electric, Google, Honeywell, HTC, Huawei, Landis & Gyr, Lenovo, LG Electronics, Microsoft, Nest, Netgear, Northrop Grumman, Rockwell Collins, Sonos, and ZTE.
Joint Ventures

In August 2014, the company entered into a joint venture with Panasonic Corporation, through its Automotive & Industrial Systems Company (Panasonic) for the design, manufacture, and sale of Panasonic’s surface acoustic wave (SAW) and temperature-compensated SAW filter products. The company owns a controlling 66% interest in the joint venture and has the option to acquire the remaining 34% within two years.

Strategy

The company’s overall strategy is to enable all forms of connectivity through semiconductor innovation. Major elements in its strategy include diversification; industry-leading technology; customer relationships; delivering operational excellence; and maintaining a performance driven culture.

Research and Development

The company invested $252.2 million in research and development activities during the year ended October 3, 2014. The company’s research and development activities include new product development and innovations in integrated circuit design, investment in advanced semiconductor manufacturing processes, developing new packaging and test capabilities, and researching next generation technologies and product opportunities.

Seasonality

Sales of the company’s products are subject to seasonal fluctuation and periods of increased demand in end-user consumer applications, such as smartphones and tablet computing devices. The highest demand for the company’s products occurs in its first fiscal quarter ending in December and the lowest demand for its handset products occurs in the company’s second fiscal quarter ending in March.

Competition

The company’s competitors include Analog Devices, Avago Technologies, Linear Technology, Maxim Integrated Products, Murata Manufacturing, QUALCOMM, RF Micro Devices, and Triquint Semiconductor.

History

Skyworks Solutions, Inc., a Delaware corporation, was founded in 1962.”

The analyze-out-loud video associated with this article will illustrate my reasoning for recommending Skyworks Solutions as an exciting research candidate for those who are interested in above-average long-term total returns with a modest dividend kicker.

Regards,

Chuck Carnevale a.k.a. MisterValuation

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