Back Again At Comparing Skyworks Vs. Qorvo (NASDAQ:SWKS)

With RF suppliers still lying deeply underneath basement values at P/Es less than 10 at least for Skyworks Solutions (NASDAQ:SWKS) and Qorvo (QRVO), investors might find it worthwhile to compare these two. Under current valuations, focusing on future growth opportunities is the critical gauge. In our view, both opportunity clarity and possible worth of the growth drivers are needed in defining differences. Clarity includes management’s willingness in sharing the technology and its marketplace value. At the their conference reports, the two companies reported opposite results, Skyworks stellar, and Qorvo, scary low. We first focus on each company individually including most recent results, followed by a comparison with risks.

Skyworks

Let’s begin with the last quarter report. Skyworks reported:

• Record fourth quarter revenue of $1.407 billion, up 14% sequentially and 7% and year over year.
• Record quarterly earnings at $3.00 non-GAAP.
• Gross margins held up at 51%.
• For FY-22, a record of $5.5 billion a 7% increase year over year.
• Again for FY-22, $2 billion in its broad markets 37% year over year increase.
• Record yearly earnings of $11.24.
• Generated almost $250 million in cash for the quarter.
• Apple (AAPL) equaled 63% of the total business.

A Belief View into Skyworks’ Future

In a conference with Blaine Curtis from Barclay’s, Liam Griffin, Skyworks CEO, answered several questions about growth. In summary:

• The I&A business that we acquired has been running incredibly well. The company plans to scale opportunity.
• Bulk Acoustic Wave (BAW) technologies are growing and capturing more and more design-ins with larger customers.
• Samsung portfolios are going to be extremely important with management believing it can gain more content.
• With Google, Skyworks now provides $15 with at least one device.
• With OBX, OPPO, Vivo, and Xiaomi, China’s Android market place, Skyworks opportunities equal $2, $3, $4 of incremental ASP increases.
• $200 to $250 million in automotive revenue within the next 12 months. (IoT opportunities broadly speaking will be within the auto segment.)
• WiFi6/7 offer significant opportunities going forward.
• The company believes it has ASP growth opportunities with Apple without offering any details.
• The company now sells an advantageous power solution that is “doing incredible things.”

Investors should notice that Griffin’s comments are mostly qualitative. When asked about the competitive environment, Griffin danced. Curtis asked about content issues with Samsung after listening to reports from Qorvo and Qualcomm (QCOM) gaining share. Griffin offered only this, “the content opportunity for us continues to grow. . . . When we go back to things like Samsung, I think there’s a lot of opportunity there.” A better answer would admit losses, than emphasize opportunities and reasons behind the opportunities. From the Qorvo quarterly conference, it was clear that Skyworks lost key low power sockets to Qorvo in the flagship Samsung phones.

Continuing our comparisons for Skyworks, it does face competition. Qualcomm entered the RF market a few ago. When asked by Curtis, Griffin simply answered “there’ll be three or four companies that are really going to drive this business for good reason.” He didn’t downplay or displace the completion for Qualcomm nor admit what loses might be incurred.

In general, Skyworks discussed several growth opportunities, but never laid out sizes, timing nor how. It is possible that management can’t for reasons that protect its customers, but the lack of depth certainly leaves investors a little cold. They must now rely on past growth patterns for confidence.

Qorvo

We begin with the last quarter report and the scary guidance. The figure from its last 10-Q summarizes the results for its three businesses. We provided this summary from our last article, Qorvo’s Scary December Guidance Analyzed. In a nut shell, Qorvo’s less presence with Apple coupled with its significant reliance on the OBX business in China created a nightmare scenario for its December guidance. At a revenue guidance of $700 million, cash flow is dangerously close to negative. Similar with Skyworks, Qorvo management stated its belief that the December quarter would be the bottom for the OBX China business. But, the December guidance sits at just above cash neutral.

With all the bad news out, Qorvo’s management has laid out plans and targets for a very bright future. The path includes:

• A new agreement with MediaTek.
• Significant growth with Samsung. (Recently won a very valuable low band design for the high-end phones.)
• Ramping with Honor.
• Google offers significant opportunities.
• Return to growth with China’s OBX.

Additional future opportunities include:

• Room to grow content with Apple.
• BAW filter growth across a broad range of applications.
• Connectivity and Sensing being its highest growth market in the long-term lead by ultra-wideband, Matter and Wi-Fi.
• WiFi 7 growth. Note: “There’s been a lot of cases in WiFi 6, where the PA that’s integrated in the SoC is sometimes good enough performance and they don’t need an external fab. That can’t occur with WiFi 7 which requires separate chips.”

With a general description offered by management, Gary Mobley of Wells Fargo asked about “The Big Kahuna question.”

Gary Mobley

Mobley asks, “I just want to ask one last question. On the cellular side. So, you just hinted on this. I think Qualcomm is already conceded the idea that, they might not be in iPhone 16 and subsequent versions to that. And so you hinted that maybe you can take back the Envelope Tracker, which they currently supply as part of their cellular solution.. But what about some of the millimeter wave opportunity there, as they’re designed out?”

Bob Bruggeworth, Qorvo CEO, answered, “we’ve got feedback from several customers that the process technology, the designs we have, the millimeter wave are the best out there. . . I feel very good.” Bruggeworth also noted that a lot of integration sill lay ahead for the millimeter wave approach. The amount of revenue from this business, Envelope Trackers and millimeter wave, might be in the billions, $2 to $10 per device depending on the wins.

Understanding the Differences

The two companies have pluses and minuses when compared against each other. Skyworks’ deep relationship with Apple brings a significant plus. But, with Apple’s manufacturing stress in China, not even Apple in the short-term is exempt. The negative side with Skyworks, in our view, resides with its soft answers relating to future growth. Questions such as: Can Google gain in the mobile phone market? What growth with Apple really means in content opportunities? What is the real future with Samsung and why a general statement used instead of something more concrete?

For Qorvo, business in China will rebound, but how much and when remains unanswered. Its three divisions will grow long-term, two double digits, one high single digits, but when? Winning back Apple tracking and the milliwave applications means millions and millions perhaps even more than a billion in new business. With Qorvo’s premium technology, the business seems posed for significant growth.

Wise investors at this price level might be smart in buying a level of each. With Skyworks, investment relies with more faith in past history and its strong relationship with Apple. With Qorvo, technology will drive growth back in China and Samsung. Again, for Qorvo, Apple is likely to become the surprise package.

Risk

Addressing risks becomes extra important in uncertain times. One, which never seems to die, is Apple’s practice in designing out some of its vendors. Two articles in 9TO5Mac, address this issue. After summarizing Apple’s plans to create and manufacture its own modems cutting off both Qualcomm and Broadcom (AVGO), the author quotes in part Bloomberg, “Apple also relies on Broadcom for other iPhone components, including radio-frequency chips and wireless charging components, but Apple “has been working on customizing those parts as well,” according to Bloomberg.” In a second article concerning Apple abandoning several screen vendor for its own design includes this comment, “Apple will still reply on an outside supplier to handle mass production of these displays, but it has “designed the new displays and devised their manufacturing process” entirely in-house.” The Cirrus Logic (CRUS) model Apple relationship adds understanding. Cirrus doesn’t have a single chip in any Apple device, yet gets most of its revenue there from. Apple designs the chip, labels it an Apple chip, but Cirrus provides both the technology and manufacturing. Wisely, Apple and Cirrus cooperate during the design process, allowing the vendor to include its thoughts. We expect Apple to continue this model for its RF technology including most likely Broadcom, Qorvo and Skyworks. ASPs may change either plus or minus, but we expect an inclusion to continue.

Continuing, we believe a recession is coming, one that might be stiff especially for companies aimed at discretionary spending. The bottom floor in price at $80 could be broken if a bad recession occurs. But, in our view, long-term, these stocks are at bargain basement prices and likely to return nicely over the next 5 years. Purchasing both might be a good strategy, but if Qorvo wins the Apple business from Qualcomm, it will be the better investment at least in the short-term.