Skyworks Solutions (SWKS) reports second-quarter fiscal 2016 results after the close, and although there is some risk to the quarter from Apple's recent decline, I don't think it will be enough to knock Skyworks out of the sky. In fact, I believe it has bottomed and the stock should move skyward. Apple is a key customer of Skyworks.
Skyworks investors are understandably nervous, considering the poor results Apple announced on Tuesday. Apple said it had shipped 51.19 million iPhones in the March quarter, down 16%.
Most analysts lowered Skyworks estimates as a precaution, due to persistent rumors of excess inventory in the Apple supply channel. Other semiconductor makers who supply Apple, such as NXP Semiconductors (NXPI) topped earnings only to guide the next quarter down. Cirrus Logic (CRUS) rose almost 10% after posting better earnings, but revenue was down 9%. CRUS guidance implied about 36 million iPhones in the June quarter.
Back in December, the consensus thought SWKS would have a difficult second quarter. In fact, most estimates were looking for 2Q revenue to decline 8% to 12% sequentially, which works out to $30 million to $40 million less than originally expected.
Apple's guidance on Tuesday implies 36 million to 40 million iPhone shipments for the June quarter, versus the former estimate of 44 million phones.
For the second quarter, analysts think Skyworks will post revenue of $775.6 million and $1.24 in earnings per share, up a respective 2% and 8% for the year.
Although the soft shipment estimates for the June quarter may seem like bad news, SWKS is already down 35% from its 52-week high. The bad news is baked in.
In fact, if revenue is only down between 8% and 12%, as many think, the stock could actually bounce, since investors will begin to look forward to the September release of the iPhone 7. In other words, this quarter could be the trough quarter and the second half could be up substantially.
The third quarter and fourth quarter may climb as much as 6% and 13% sequentially, respectively. Which means fiscal 2016 will end the year with revenue of $3.5 billion, up 10%, and the company will probably earn north of $6. With a strong second half, operating margins will rebound strongly. The company ended fiscal 2015 with a 36% operating margin. This year, Skyworks could end the year with an operating margin closer to 40% and next year over 40%.
Because of the jump in operating margins, earnings could take off. Earnings could grow 14% to 15% this year, and over 16% next year. That should be enough to jump-start the stock and get it going skyward after a long, painful decline. If I'm right, tonight will be the bottom and the stock will now head skyward.