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Skyworks Results Reveal Another Company Trying to Sidestep Apple’s Decline

May 2, 2016
Mirroring other companies that build wireless chips for mobile phones, Skyworks has preached diversifying into new markets

Mirroring other companies that build wireless chips for mobile phones, Skyworks Solutions has preached that diversifying into new markets will help replace falling smartphone revenues. The company underlined that point during its second-quarter earnings call, in which the company said that it was losing business with its “largest customer.”

Other mobile chipmakers have referred to similar downturns in the smartphone market over the last month. Skyworks, NXP Semiconductors, and Qualcomm all predicted lower revenues over the next quarter, in part because of slowing growth at major customers. For each company, analysts suspect that the customer is Apple, which recently said that over the last quarter its smartphone business had failed to grow for the first time in 13 years.

"Sixteen is a little bit of a unique year," said David Aldrich, chief executive of Skyworks in a conference call with financial analysts.  "With our top customer, there are overall unit sales decline in the second half of the year. And of course, they are aggressively ramping down the legacy models, which creates an inventory burn."

Skyworks supplies power amplifiers to the RF front-end modules inside the iPhone 6S and the newer iPhone SE, according to Chipworks, a reverse-engineering firm that has torn down both smartphones. The firm has found Skyworks’ SKY77357-8 power amplifier and other parts inside both models.

In spite of concerns with that customer, Skyworks reported $775.1 million in revenue, with earnings of $1.25 per share in the second quarter. The company reported income of $285.0 million, up $26.1 million from the second quarter last year. Power amplifiers accounted for nearly 70% of revenue, but the company said that percentage would fall as the market shifts toward more integrated products.

Donald Palette, chief financial officer at Skyworks, said that the impact from its largest customer would be offset with new markets. The part of the company that includes Internet of Things (IoT) products reported an 18% increase in revenues over the last year, making it the fastest-growing part of the company.

Palette said that new power amplifiers for connected cars, medical devices and wearables, and industrial equipment would drive further growth in place of smartphones. Skyworks has begun selling more Wi-Fi, ZigBee, Bluetooth, and low-power wireless chips for these markets, he said.

Earlier this year, the company developed an early front-end module for LTE Cat-M, a low-power standard for sending data between wireless sensors and other devices. The company also built analog chips for Cisco’s enterprise access point system and other devices for GPS industrial tracking devices from Iotera.

Skyworks has also struck new deals with several smartphone makers and original equipment manufacturers. The company is supplying power amplifiers for Samsung’s Galaxy S7 smartphones and 10 different products in Huawei’s P9 flagship. Skyworks also released SkyBlue technology earlier this year, which helps to improve uplink capacity and efficiency in RF front-ends.

These new deals are helping to recover losses with Apple, which has been recycling older chips into the latest iPhone SE. Several chips inside the iPhone SE were sitting in Apple’s inventory for eight to 11 months, according to Chipworks. The chips could have been excess inventory, since Apple shipped nearly 10 million fewer iPhones in the most recent quarter than it had a year ago. 

During the earnings call, Aldrich talked about the major customer as though every financial analyst knew he was referring to Apple. He said that the company would not be affected by the customer’s shift to an Intel or Qualcomm baseband. In recent months, rumors have said that Intel would supply up to 30% of the modem chips inside the iPhone 7, taking business away from Qualcomm, which supplied modem chips to earlier models.

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