Morgan Stanley Says Worst Of Smartphone Weakness Is Behind Skyworks

Apple Inc. AAPL supplier Skyworks Solutions Inc SWKS on Thursday reported above-consensus fiscal second-quarter earnings. The guidance for the third quarter was in line.

The Analyst

Morgan Stanley analyst Craig Hettenbach maintained an Equal-weight rating on Skyworks and increased the price target from $76 to $80.

The Thesis

Skyworks' results were right in line with expectations but inventories climbed despite a revenue decline, Hettenbach said in a Friday note. The analyst said most semiconductor companies are bogged down by inventory climb due to end market weakness,

While commending the company for its success with its top customer Apple, which accounted for 45 percent of its revenues in 2018, the analyst would prefer more diversification.

Hettenbach expects the ongoing momentum in the broad markets to help. The consistent margin performance despite the recent pressure on smartphones is commendable.

The $1 billion net cash and the $2 billion worth buyback program, according to the analyst, provides a nice backstop. Even as Morgan Stanley sees lingering risks, it said the sentiment has already swung to very bearish on the stock.

"We could get more constructive on the stock if the company's broad markets business continues to perform well and 5G serves as a catalyst for increased 5G content," the analyst wrote in the note.