Skyworks Solutions (SWKS) reported solid fiscal fourth-quarter results in line with our expectations. Although the near-term revenue growth picture appears weak as the company anticipates a decline in Apple iPhone unit sales and soft smartphone demand in China, we continue to like Skyworks’ long-term competitive position in radio frequency chips. The very pleasant surprise, in our view, was the company's disclosure that it is sampling bulk acoustic wave filters for use in its upcoming integrated 5G products, Sky5. The company's lack of in-house BAW expertise has been a longtime risk, in our view, as BAW filters are best suited for higher wireless frequencies (generally 2 gigahertz or above) and newer 5G bands will probably be in these higher frequencies. Although Skyworks may be up to 18 months away from delivering in-house BAW filters, we're incrementally more positive about its 5G position. We are maintaining our $113 fair value estimate and view the shares as meaningfully undervalued.
Revenue in the September quarter was $1.01 billion, up 13% sequentially and 2% year over year. Sales were ahead of Street estimates and at the high end of the company's prior guidance. For the December quarter, Skyworks expects flattish revenue, which would represent a 4% year-over-year decline, again attributed to soft unit demand for the iPhone and smartphones sold in China. The company hinted at another year-over-year decline in the March quarter with typical seasonal weakness, but it anticipates a return to year-over-year growth in the second half of fiscal 2019, delivering full-year growth despite a slow start. Although these fiscal 2019 expectations are below our prior estimates, we remain bullish on Skyworks' content gains and pricing power on 5G RF content in the years ahead.
Brian Colello, CPA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.