What to Expect From Skyworks Solutions' Q2 Earnings

By Harsh Chauhan Markets Fool.com

Skyworks Solutions (NASDAQ: SWKS) will look to extend its momentum when it releases its second-quarter fiscal 2017 results on April 27. Shares of the semiconductor specialist have risen over 30% this year, thanks to a terrific first-quarter performance back in January and a bright outlook driven by potential gains at its largest customer, Apple (NASDAQ: AAPL).

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Here's what investors should expect from Skyworks' upcoming earnings.

Image source: Getty Images.

The headline numbers

Wall Street expects Skyworks' second-quarter revenue to increase 8.4% from the prior-year period to $840 million, in line with the company's guidance. As it turns out, analysts were originally expecting lower revenue of $818 million, but contract wins at Chinese smartphone companies and Apple-related tailwinds led to a stronger outlook.

Skyworks should be able to meet its guidance, as Apple -- which accounts for 40% of the chipmaker's revenue -- hasn't slashed its iPhone builds as severely as it did last year. Nikkei reports that Cupertino's iPhone production dropped 30% in the first quarter of 2016, which led to a marginal 2% increase in Skyworks' revenue. But the decline was relatively softer at 10% in the recently concluded quarter, explaining the stronger growth expected this time around.

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Meanwhile, Skyworks' stronger revenue growth is expected to boost its earnings to $1.40 per share, mitigating the negative impact of a 1-percentage-point decline in the gross margin from first-quarter levels. Wall Street was originally forecasting $1.24 per share in earnings, but Apple's relatively stronger iPhone production will play a key role in boosting its bottom line.

Image source: Skyworks Solutions.

The way ahead

Skyworks' guidance will largely depend on Apple's production timeline for the next iPhone. Late last month, Economic Daily News reported that the iPhone supply chain is already in motion, as key supplier Taiwan Semiconductor Manufacturing will start mass-producing the A11 chip in April. The report also stated that TSMC could manufacture 50 million A11 chips by July, with another 50 million expected in the remainder of the year.

Such a scenario means that Skyworks' guidance could top expectations once again, though analysts should take the report with a grain of salt, as rumors have begun of iPhone production bottlenecks. Cowen and Company analyst Timothy Arcuri believes Apple is struggling with low yields for the fingerprint sensor that's supposed to be integrated into the display itself. This problem could force Apple to push its production timeline back, negatively affecting Skyworks' guidance.

It can't be denied that Apple will play a big part in deciding Skyworks' outlook, but there's another catalyst that investors shouldn't ignore. The chipmaker has been gaining content at Chinese smartphone companies such as Vivo, OPPO, and Huawei by launching specific products targeted at this market.

For instance, the SkyOne Ultra 2.5 front-end LTE solution that was launched earlier this year will help the chipmaker target the growing demand for LTE chipsets in the Chinese market. China is the biggest market for LTE smartphones globally, and Chinese vendors such as OPPO, Vivo, and Huawei are now dominating the global marketplace.

This is good news for Skyworks investors, as sales of the top 10 Chinese original equipment manufacturers for smartphones could rise 39% this year, with Vivo, OPPO, and Huawei expected to cross the 500 million-unit mark.

Skyworks' focus on diversifying its business elsewhere should help it do well during lean iPhone manufacturing periods. For instance, OPPO recently launched its new flagship phone, the F3 Plus, which should help Skyworks boost its sales during the June quarter as it supplies radio frequency chips to the smartphone maker.

Skyworks Solutions investors, therefore, can expect an optimistic outlook from the company once again, thanks to its gains outside Apple, while an early production ramp-up of the next iPhone could be another tailwind.

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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Skyworks Solutions. The Motley Fool has the following options: short August 2017 $87 calls on Skyworks Solutions and short August 2017 $85 puts on Skyworks Solutions. The Motley Fool has a disclosure policy.