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What's in the Cards for Skyworks (SWKS) in Q1 Earnings?

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Skyworks Solutions Inc. (SWKS - Free Report) is set to release first-quarter fiscal 2019 results on Feb 5. The company beat the Zacks Consensus Estimate in the trailing four quarters, recording average positive surprise of 2.98%.

The company delivered fourth-quarter fiscal 2018 non-GAAP earnings of $1.94 per share, which beat the Zacks Consensus Estimate of $1.91 per share. The figure improved 6.6% from the year-ago quarter.

Revenues of $1.008 billion were up 2.3 % year over year and 13% sequentially, primarily due to robust design wins in mobile business and Internet of Things (IoT). Further, the top line marginally surpassed the Zacks Consensus Estimate of $1.001 billion.

Mobile contributed almost 72% of revenues, while the rest came from broad markets. Notably, the company unveiled various high performance mobile solutions which in turn offset unit declines in premium smartphones and weakness in China. This was another positive during the reported quarter.

Notably, Skyworks is benefiting from its portfolio strength, particularly in the 5G applications and IoT market.

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise

 

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise | Skyworks Solutions, Inc. Quote

Guidance & Estimates

Skyworks trimmed guidance for first-quarter fiscal 2019. For the first quarter, the company expects revenues to be approximately $970 million, down from the prior estimate of $1 billion to $1.020 billion. The Zacks Consensus Estimate is pegged at $975.1 million, representing a year-over-year decline of 7.3%.

Further, non-GAAP earnings are anticipated to be in the range of $1.81 to $1.84 per share, compared with prior expectation of $1.91 per share at mid-point. The Zacks Consensus Estimate is pegged at $1.84 per share, representing a year-over-year decline of 8%.

This trimmed guidance can be attributed to Apple (AAPL - Free Report) , a key customer of Skyworks, announcing a cut in its first-quarter fiscal 2019 guidance on account of declining iPhone sales. Notably, according to Skyworks’ CEO Liam Griffin "unit weakness across out largest smartphone customers" was the primary reason for the lower outlook.

We note that dampened smartphone demand and an increased reliance on Apple do not bode well Skyworks’s near-term performance.

Let's see how things are shaping up prior to this announcement.

Factors to Influence Q1 Results

Skyworks is benefiting from strong demand of its wireless communications engines. The company’s expanding product portfolio, growing clout in the connectivity solutions and 5G markets are key catalysts.

Recently, the company launched SkyOne Ultra 3.0 suite to facilitate emerging automotive applications, in particular. The new SkyOne Ultra 3.0 suite is anticipated to strengthen the company’s foothold in the automotive market. Further, the emergence of connected homes, 5G, artificial intelligence (AI), augmented reality (AR), ADAS, wearables and network infrastructure bode well.

Skyworks also unveiled solutions from its Sky5 platform that has been authorized to support wireless 5G networks. This product delivers bandwidth coverage ranging from 60 megahertz to 6 gigahertz. Moreover, accelerating timeline for 5G deployment is a positive.

Additionally, the company powered Samsung’s Galaxy smartphones and clout smart audio solutions at Microsoft, Nintendo and Sony gaming platforms.

Moreover, Skyworks enabled telematics at BMW, Hyundai, Tesla, Toyota and General Motors. The company has also augmented presence across Nest thermostats, fire detectors and video doorbells by using 802.11ac and ax, LoRa, Bluetooth Low Energy, Zigbee, Thread and Wi-Fi protocols.

In fact, the company recently concluded the acquisition of Avnera Corporation. The buyout gives Skyworks access to robust analog/mixed signal voice, audio and speech processing engines. Avnera acquisition is expected to extend its reach across high-growth markets, comprising IoT, AI, Automotive, Smart Home and Enterprise, which is a positive.

However, Skyworks faces stiff competition from industry peers including Broadcom, Qorvo, among others, which exposes it to significant pricing pressures.

Further, the near-term softness witnessed across leading smart-phone customers remains a headwind. Overdependence on Apple for revenue generation continues to add to the woes.

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.

The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Skyworks has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.92%, which makes surprise prediction difficult.

Stocks That Warrant a Look

Here are some stocks that you may want to consider as our model shows these have the right combination of elements to deliver an earnings beat in its upcoming release.

Cigna Corporation (CI - Free Report) has an Earnings ESP of +0.28% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Merck & Co., Inc. (MRK - Free Report) has an Earnings ESP of +0.97% and a Zacks Rank #3.

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