Earnings Preview: Skyworks Solutions

Skyworks Solutions Inc. (SWKS) is scheduled to report results for the first quarter of fiscal 2011 on January 20, 2011.

Although earnings estimates for the first quarter have been static in the last 30 days, earnings estimates for fiscal 2011 have increased by 3 cents. Two out of the five analysts covering the stock have increased their estimates for fiscal 2011 in the last thirty days.

Skyworks has constantly reported in-line results or exceeded expectations. On an average, Skyworks has come ahead of the Zacks Consensus Estimate by 5.16% in the last four quarters.

Skyworks Solutions is well positioned to benefit from recent trends in the handset market, which are favorable for increasing dollar content for RF components. The company has partnerships with major OEMs that underscore the company’s success in gaining market share.

The mobile market is being fueled by multiple devices per subscriber, with a growing demand for new devices beyond traditional cellular handsets and smartphones that encompass high resolution tablets, USB modems, home networks and yet-to-be-introduced Internet connective devices. The 4G networks upgrade represents a significant market expansion opportunity for Skyworks.

Skyworks continues to gain traction on the network infrastructure side of the mobile Internet connection as operators install new base stations, new routers, and back-haul equipment to expand coverage of data services and prepare for next generation LTE deployments.

Infrastructure expenditure by mobile operators are expected to grow more than 40% in the coming years, propelled by demand in the emerging markets like China and India, the latter gearing up for a nationwide 3G roll out.

Outside the handset market, wireless technologies and the opportunity for applications of analog semiconductor products is growing at a rapid pace. Skyworks Solutions has a broad portfolio of over 250 analog products. This business increasingly provides the company with high margins and a diversified customer base along with annuity product life cycles.

We remain encouraged by the company’s recent performance and guidance. However, we believe that the stock is already trading at a premium given the current levels and see limited upside going forward. Therefore, we recently downgraded our recommendation to Neutral from Outperform.

SKYWORKS SOLUTN (SWKS): Free Stock Analysis Report

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