Smartphone weakness hits chip stocks
In 2019, there has been a revival in semiconductor stocks. The stocks bottomed out in 2018 when the US-China trade war slowed the demand in China, especially for smartphones. Companies with the highest exposure to the smartphone market were hit the most. For the first time, Apple’s (AAPL) iPhone revenues fell 15% YoY (year-over-year) in the fourth quarter due to weak sales from China. Chip companies with large exposure to Apple reported declines.
Morgan Stanley analyst Craig Hettenbach said that Skyworks (SWKS) and Qorvo (QRVO) earn 45% and 35% of their revenues from Apple. Both companies supply RF (radio frequency) chips, including RF filter, switches, and PA (power amplifiers), for iPhones. The companies’ stock prices move in tandem with Apple stock.
In 2018, Skyworks and Qorvo stock fell 28% and 8.8%, respectively, while Apple stock fell 7.7%. The stocks have improved in 2019 even though all of the companies’ fourth-quarter earnings and first-quarter guidances were weak. These stocks rose due to the anticipation that the demand will improve in the second half of 2019. Skyworks and Qorvo stocks have risen 22.5% and 17.2% YTD (year-to-date), while Apple stock has risen 18.4%.
Skyworks and Qorvo are looking to diversify their revenue streams beyond smartphones to the IoT (Internet of Things), automotive, networking equipment, and infrastructure markets. These companies are developing an integrated 5G portfolio that will address the growing need for higher bandwidth.
Investors who missed investing in the AI revolution in 2016 could invest in the 5G revolution. Some of the biggest beneficiaries of the 5G revolution will likely be Xilinx, Qualcomm, Skyworks, Qorvo, and Integrated Device Technology (IDTI). Integrated Device Technology’s mixed-signal solutions are used in 4G infrastructure, network communications, cloud data centers, and mobile devices. The small-cap stock made a new 52-week high of $48.99 on March 26.
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