Chip companies with exposure to 5G stand out
This earnings season, semiconductor companies have reported YoY (year-over-year) earnings declines as the US-China trade war has slowed end demand, especially in China. Companies with high exposure to the data center, smartphone, automotive, and industrial sectors have reported earnings misses due to greater-than-expected demand weakness.
Amid this slowdown, one area that has reported growth has been the wireless communications infrastructure market, as telecommunications carriers have started 5G deployment.
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Texas Instruments and Xilinx have reported impressive growth in the communications infrastructure market. Some of the biggest beneficiaries of the 5G revolution will be Xilinx, Qualcomm, Skyworks (SWKS), and Qorvo (QRVO). Skyworks offers RF (radio frequency) solutions that support wireless transmissions, such as power amplifiers, filters, switches, and RF front-end modules. Qorvo offers similar RF products as well as solutions for wireless base stations, infrastructure and military applications, and cable TV and networking.
Skyworks stock’s performance
Skyworks and Qorvo have large exposures to the smartphone market and Apple in particular. In 2018, the two chip stocks fell 28% and 8.8%, respectively, but they’ve revived 29% and 23% year-to-date, respectively, in 2019 on anticipation of growth resulting from the 5G revolution.
On May 2, Skyworks reported its fiscal 2019 second-quarter earnings results. The stock fell 3.5% on May 3 after its fiscal 2019 second-quarter revenue and its fiscal 2019 third-quarter revenue guidance missed analysts’ estimates. Skyworks’s earnings also pulled Qorvo stock down 2%.
Skyworks’s future growth opportunity
Skyworks and Qorvo have strong growth potential as the 5G rollout gathers momentum. They will benefit from increased RF content per phone and increasing connectivity chip content in connected cars, industrial machines, home appliances, surveillance cameras, drones, and other Internet-of-Things devices.
On Skyworks’s fiscal 2019 second-quarter earnings call, Liam Griffin, its president and CEO, stated that the company had secured more content in Samsung’s (SSNLF) Galaxy S10 5G smartphone. He stated that in the non-smartphone market, Skyworks had secured design wins from Ericsson and Nokia for 5G infrastructure. He also stated that the company had expanded its c-band filtering solutions to aerospace and defense and had expanded its automotive connectivity solutions.
Skyworks’s broader portfolio should help boost its revenue in the long term.