Skyworks Solutions

Skyworks Solutions reported fiscal third-quarter revenue of $935 million, down 3% year over year but above the midpoint of guidance. Skyworks expects September-quarter revenue of $1.035 billion, down 6% year over year but ahead of FactSet consensus estimates.

Why it matters: Skyworks' revenue may face a tough road ahead as higher memory chip prices weigh on smartphone unit sales. Meanwhile, ahead of its merger with Qorvo, Skyworks will end its dividend payout to focus on stock buybacks, debt reduction, and future mergers. Shares sold off as much as 10% after hours, perhaps due to the dividend cut. We think Skyworks could have maintained its dividend payment with Qorvo, but is instead prioritizing returns to shareholders via buybacks and may be more aggressive in diversification.

The bottom line: We cut our fair value estimate for Skyworks to $68 from $83, as we reduce our revenue assumptions for the firm's mobile business in the near and medium term. We also reduce our Capital Allocation Rating to Standard from Exemplary. Our lower revenue estimates stem from high memory chip prices that will likely weigh on smartphone unit sales in the quarters ahead, and perhaps longer if the memory crunch extends into 2028 and beyond. Our reduced capital allocation rating is due to the dividend cut and the change in capital allocation policy. Skyworks boosted its stock buyback program to $2 billion, but the firm is moving toward a standard, balanced mix between distributions, debt, and M&A. We still like Skyworks' exposure to broad markets and its expertise in wireless chips. Shares still appear undervalued to us despite the risk of near-term weakness.

BLANK PAGEWe don't necessarily think that Skyworks' dividend cut is the wrong move. The firm should properly continue to seek diversification outside of mobile. We also suspect that Skyworks did not get full credit from prospective shareholders for its attractive dividend yield. Skyworks has high customer concentration with Apple and perpetually faced the risk of content losses (either in reality or in perception) in the next iPhone generation. Despite Skyworks' healthy free cash flow and RF chip expertise, we surmise that investors viewed its dividend as a bit shakier than the firm's financial stability would otherwise have suggested.

Our fair value estimate is $68 per share, implying fiscal 2026 price/adjusted earnings of 14 times on a stand-alone basis. Our fair value estimate of $68 for Skyworks is identical on both a stand-alone basis and assuming the high probability that the Qorvo-Skyworks merger will go through.

Looking at our assumptions for Skyworks on a stand-alone basis, Skyworks has faced a tough stretch in recent years, with headwinds from soft demand for Android-based smartphones, Apple iPhones, and broad market devices causing revenue to fall 13% in fiscal 2023, 12.5% in fiscal 2024, and 2% in fiscal 2025. We model a 3% revenue decline in fiscal 2026, as Skyworks indicated that it would have 20%-25% less RF content in Apple’s upcoming iPhone 17 series. This 3% assumption is ahead of our prior estimate of an 8% revenue decline, as management has indicated that Skyworks has seen a favorable shift in Apple’s iPhone mix, leading to a smaller content headwind than previously expected.

On the downside, however, as we look into fiscal 2027 and beyond, we see a memory chip crunch that is leading to far higher prices across the electronics supply chain. Higher DRAM and NAND memory prices will lead to higher smartphone prices in the years ahead and will presumably weigh on unit volumes. In turn, Skyworks may still sell decent RF chip content per smartphone but may ship fewer units. For fiscal 2027, Skyworks indicated that its content in the Apple iPhone 18 series will likely be flattish. Between this comment and the memory crunch, we now model only 2% revenue growth in fiscal 2027 and 3% growth in fiscal 2028. We model high-single-digit growth on a midcycle basis thereafter, assuming memory prices improve in a couple of years. Much of the growth should come from Skyworks’ broad market business across Wi-Fi, automotive, industrial, and infrastructure applications.

Skyworks’ adjusted gross margins hovered in the 50%-51% range for several years but slipped to 46% in fiscal 2024 and 47% in fiscal 2025. We model another dip to 45% in fiscal 2026. We model modest adjusted gross margin expansion in the long run to 47% in fiscal 2030, short of management’s long-term target of 53% (although this target assumed Skyworks would not lose Apple content).

Adjusted operating margin reached as high as 37% in fiscal 2022 but fell to 24% in fiscal 2025. We model further deterioration to 21% in fiscal 2026 and 16% in fiscal 2027 and fiscal 2028. However, we anticipate that Skyworks will rightsize its business (again on a stand-alone basis) to achieve a recovery in adjusted operating margin to 20% in fiscal 2030. This margin is still shy of the company’s long-term target of 40% (which, again, did not factor in the loss of Apple content).

We rate Skyworks as having no economic moat. We still believe that Skyworks has accumulated valuable trade secrets that serve as intangible assets around the design, manufacturing, and packaging of a variety of radio frequency products. This expertise is difficult for silicon-based chipmakers to replicate and has prevented meaningful upstarts from entering the space. However, RF buying power is enormous (Apple has emerged as the buyer that matters most), and fewer smartphone providers in the Android ecosystem appear willing to pay for premium (and profitable) RF parts. Existing rivals like Broadcom, Qualcomm, and Qorvo are competing more aggressively with one another, making it more likely that we will see greater pricing pressure and even less stickiness for RF design wins in the future. Thus, we have less confidence in Skyworks’ ability to generate excess returns on capital to warrant a narrow moat rating.

Apple has emerged as by far the most lucrative customer in the RF space, and Skyworks has significant customer concentration, with 67% of fiscal 2025 revenue coming from Apple. Although RF supply to Apple was a stable oligopoly in years past, we now see RF players acting more desperately and are focused on stealing share from one another, all to Apple’s advantage. We now have less confidence that any Apple RF supplier will retain the same level of content they had just a couple of years ago. This dynamic led us to repeal our narrow-moat rating for Skyworks, to go along with our no-moat rating for Qorvo.

RF leaders like Skyworks have decades of RF expertise in design, chip manufacturing, packaging, and testing. Chip manufacturing and packaging are rarely sources of expertise for digital or analog chipmakers, since most chips are silicon-based, and a robust foundry ecosystem (led by TSMC) exists. However, most RF products are based on more specialized materials (for example, power amplifiers are based on gallium arsenide), rather than the traditional silicon used in most digital processors. Thus, Skyworks' ability to manufacture and integrate a variety of RF parts into a single package has been difficult for many others to replicate.

RF innovation focuses on smaller packages, greater efficiency, and improved signal filtering and amplification. Whereas adding innovations to digital processors (say, a neural processing unit to run artificial intelligence models) might allow for better and more profitable end products, RF innovation would require hefty investments on the manufacturing front, all to achieve modestly better data signals or battery life. Thus, like sleepier parts of the semiconductor market like analog chips or microcontrollers, RF chips don’t strike us as an area where companies will invest billions of dollars to try to build a better mousetrap. Therefore, we don’t believe that smartphone makers like Apple will make the necessary investments to develop RF chips in-house.

Despite the difficulty in building RF products, these chipmakers still face the threat of pricing pressure from very powerful buyers, such as Apple. RF chipmakers also do not prosper from high customer switching costs, as product lifecycles in the smartphone industry are exceptionally short, so hard-fought design wins one year might not translate to a steady revenue stream in the long term.

Outside of smartphones, we think that Skyworks’ broad market business, which makes up about 40% of revenue, has some relatively stickier design wins than in the RF market. It’s possible that this business might warrant a narrow moat rating on its own. However, we’ve seen volatility in this business, particularly in applications such as RF content used in Wi-Fi gateways and home routers; this doesn’t give us much confidence that Skyworks would generate outstanding returns on capital independently.

The need for greater data, reliable wireless connectivity, and energy efficiency bodes well for Skyworks’ product road map and the need for ongoing RF innovation.

More devices are seeking wireless, and even Wi-Fi, connectivity, which should provide Skyworks with market growth opportunities in the years ahead.

Skyworks has been a reliable supplier to Apple since the dawn of the iPhone, and it has room to recapture, if not gain, RF content in future iPhones.

Skyworks lost about 20%-25% of its RF content in the iPhone 17 lineup in late 2025 and 2026. It is questionable whether Skyworks can regain such content in the future.

The midrange of the Android-based smartphone market and the need for high-end 5G RF parts have not materialized as expected in recent years, leaving Skyworks with fewer lucrative RF opportunities in the smartphone market.

Skyworks' analog business focuses on underserved niche segments, such as electrical meters and keyless entry for automobiles. However, there are many larger competitors in the analog market.