Skyworks Solutions should benefit as smartphone sales rebound

Smartphone sales have struggled in recent months, with the most recent quarter seeing an 18% year-over-year decline to just over 300M units sold worldwide.

But, with the global economy continuing on a growing albeit shaky path, and new smartphone models launching later this year, investment firm KeyBanc Capital Markets believes that Skyworks Solutions (NASDAQ:SWKS) should have a "strong" second-half recovery.

Analyst John Vinh, who has an outperform rating and $120-a-share price target on Skyworks Solutions (SWKS), pointed to the continuation of working down excess inventory for Android (GOOG) (GOOGL) smartphones, the recovery of sales in China and potential content gains in Apple's (AAPL) upcoming iPhone 15 as positives for Irvine, California-based Skyworks.

"With excess inventories being worked down, we anticipate [Skyworks] is on a trajectory to get back to normalized quarterly run rates of $150M to $200M in China Android, $100M in Samsung revenues, and $500M in Broad Markets revenues," Vinh wrote in an investor note, while adding that the company could see roughly 10% content gains in the iPhone 15.

If that scenario comes to fruition, it's likely Skyworks (SWKS) could generate a revenue run-rate of roughly $1.5B in the September quarter, well above KeyBanc's $1.25B estimate, and alsoabove Wall Street's bullish estimate of $1.36B.

Of course, much of that scenario is built on expectations of a continued recovery in China and the hope the global economy does not go into a deep recession. However, recent data out of China are "encouraging," Vinh added, citing January sell-through figures and the fact that the company's Android business in the country has "likely bottomed."

Last month, Counterpoint Research said sales at the start of the year increased week-over-week to reach more than 7M units the week before the Chinese New Year. In four of five weeks, smartphone sales were above 6M each week, a level "seldom" reached in 2022 as the country dealt with the COVID-19 pandemic.

January monthly sales were flat compared to the year-ago period, but grew more than 40% sequentially. Perhaps most importantly for Skyworks (SWKS), Apple (AAPL) saw a 6% year-over-year increase in Chinese iPhone sales around the start of the year.

Some research firms have estimated Skyworks (SWKS) receives as much as 60% of its revenue from Apple (AAPL).

While the iPhone 15 may not see a notable redesign from the iPhone 14, it's possible the next iPhone could adopt Wi-Fi 6E, which expands on the existing Wi-Fi 6 technology. If it does, Vinh estimated that Skyworks (SWKS) should benefit. If Apple (AAPL) chooses to skip Wi-Fi 6E and go straight to Wi-Fi 7 in its devices, Vinh believes that Skyworks (SWKS) should benefit regardless, thanks to additional 5G spectrum and the "growing complexity" in radio frequency requirements.

Outside of smartphones, Skyworks (SWKS) has exposure to other areas of electronics, including the internet-of-things, thanks to its recent acquisition of Silicon Laboratories (SLAB) Infrastructure & Auto franchises, which should see revenue growth in the "mid-teens" over the long-term.

Skyworks (SWKS) recently announced a $2B buyback program, signaling optimism in its own stock.