If you’ve been following the tech sector, you’d know that the term “5G stocks” has been around for quite a few years. But we are still at an early stage of 5G adoption. Just take a look around; how many of the people you know are using 5G smartphones?
And that means even though the term “5G stocks” seems to be overused in financial media, the real growth should actually be yet to come for the 5G companies.
In fact, if you take a look at the latest earnings report from Skyworks Solutions Inc (NASDAQ:SWKS), you might not even realize that it has 5G as a huge catalyst.
Skyworks Solutions is an Irvine, CA-based semiconductor company. In the third quarter of its fiscal year 2020, which ended June 26, the company generated $736.8 million in revenue, representing a 3.9% decline year-over-year. (Source: “Skyworks Reports Q3 FY20 Results,” Skyworks Solutions Inc, July 23, 2020.)
One of the main reasons why investors like tech stocks is that they often provide high growth rates, so Skyworks Solutions’ number may seem a bit underwhelming. However, the company is still well-positioned to capitalize on the 5G boom.
You see, Skyworks’ semiconductors are found in a wide range of applications in the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, smartphone, tablet, and wearable markets. And 5G could lead to increasing demand from many of these markets.
The most notable sector, of course, is the smartphone market. In the June quarter, the company expanded its “Sky5” platform across major smartphone makers, including Samsung, Oppo, Vivo, Xiaomi, and Motorola.
Now, you are probably wondering just how big of a catalyst 5G could be for Skyworks Solutions Inc. Well, in the latest earnings conference call, the company’s president and chief executive officer, Liam Griffin, said “…you could be looking at platforms that in a 4G world may be offered $4 to $5 for us, in a 5G world it could be $8 to $10 or even $15.” (Source: “Skyworks Solutions, Inc. (SWKS) CEO Liam Griffin on Q3 2020 Results – Earnings Call Transcript,” Seeking Alpha, July 23, 2020.)
One thing that slowed 5G adoption this year was the COVID-19 pandemic. But in the long term, there will likely be a lot more 5G devices being connected. As Griffin puts it:
“When we think about how that growth profile looks, we cited a few stats that said, look over the next five years we could have three billion subscribers, carrying 5G technology. Today that number is really low. It’s in a couple of hundred million units.” (Source: Ibid.)
Considering the expected growth in the number of 5G devices and how much more money the company can make from its content per device, it becomes clear that major sales growth is likely on the way for Skyworks Solutions Inc.
Last but certainly not least, the company is already profitable—it earned adjusted net income of $1.25 per share in its third fiscal quarter.
Skyworks stock also has a regular dividend policy. Management recently raised the quarterly payout by 14% to $0.50 per share. With tech stocks being volatile, getting some cash dividends can provide investors with some peace of mind.
Skyworks Solutions Inc (NASDAQ:SWKS) Stock Chart
Chart courtesy of StockCharts.com
Like a lot of companies, Skyworks Solutions saw its shares tumbling in the market sell-off earlier this year. But, as you can see from the chart, SWKS stock not only managed to fully recover, but it has also climbed to new highs.
Does that mean Skyworks stock has already priced in the 5G catalyst? It’s hard to say. But I’m confident that, with increasing 5G adoption, the company will be able to generate higher sales and profits in the years ahead.