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Skyworks Solutions: Will Exposure to China Hurt Returns?

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Skyworks Solutions likely to be affected by exposure to China’s volatile market

Analysts at Goldman Sachs believe that given the recent economic slowdown in the Chinese markets, investors need to stay away from stocks that have significant exposure to China. Analyst David Kostin of Goldman Sachs said, “Shares of China-exposed U.S. companies have trailed S&P 500 by 750 basis points (-8% vs. -1%) since MSCI China Index peaked. We prefer stocks with high domestic sales.”

The analyst also noted that even though S&P 500 companies generate $168 billion in revenues from China—approximately 2% of overall revenues—firms Skyworks Solutions (SWKS), Wynn Resorts (WYNN), and Qualcomm (QCOM) have significant respective exposures of 83%, 70%, and 61% to Chinese markets.

The earnings per share of firms with exposure to China are expected to decline by 15%, while the S&P 500 is expected to decline by 8%.

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Skyworks reports 2Q15 results, beats estimates

On July 23, 2015, Skyworks Solutions declared its 3Q15 results and reported $810 million in revenues compared to $587 million in 2Q14. Gross margin increased as well, from 45.01% in 3Q14 to 48.53% in 3Q15. Operating margin increased from 25.3% to 31.95% on a year-over-year basis. Analysts had estimated 3Q15 revenue would come in at $801.57 million.

The firm’s EPS (earnings per share) for 3Q15 was $1.34, higher than the analyst-estimated $1.29. And in 4Q15, SWKS expects to report EPS of $1.51 as opposed to the analyst-estimated $1.42 as well as revenues of $875 million versus estimates of $863 million.

Skyworks Solutions constitutes 0.09% of the SPDR S&P 500 ETF Trust (SPY) and 0.41% of the Technology Select Sector SPDR Fund (XLK).

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