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Reasons Why You Should Get Rid of Skyworks (SWKS) Stock Now

Zacks Equity Research

If you are still holding on to shares of Skyworks Solutions Inc. SWKS in your portfolio, it is time you dump them as chances of favorable returns in the near term appear bleak.

Notably, the stock has reported a negative return of 5.5% in the last three months, compared with the industry’s decline of 4.4%. Further, the company’s Zacks Rank #5 (Strong Sell) only reflects its innate weakness.

Why Skyworks Should be Avoided

Skyworks recently lowered third-quarter fiscal 2019 outlook. The company now anticipates third-quarter fiscal 2019 revenues to be in the band of $755 million to $775 million (mid-point of $765 million), down from its prior range of $815-$835 million (mid-point of $825 million). It suggests a decline of 7.3% considering the mid-point.

Non-GAAP earnings per share have been forecast to be $1.34 per share at the mid-point, down from the previous guidance of $1.50 per share.

On May 16, 2019, the Bureau of Industry and Security (BIS) added Huawei Technologies Co., Ltd. and 68 of its affiliates to the “Entity List” maintained by U.S. Department of Commerce.

This decision bars Skyworks from supplying products to Huawei and its affiliates, which compelled the company to trim revenue guidance.

Notably, Huawei is one of the most prominent customers of Skyworks’s mobile and wireless infrastructure solutions. In the first six months of fiscal 2019, the company notes that Huawei and its affiliates contributed approximately 15% of total revenues.

This dependence on Huawei is anticipated to weigh on the company’s performance in the days ahead.

Further, Skyworks reported mixed second-quarter results, where in the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. The near-term softness in Chinese market remains a headwind. Moreover, unit decline across mobile business impacted the second-quarter results.

A saturated consumer electronic market, particularly the smartphone market that is sluggish, is likely to hinder growth prospects of the industry which Skyworks belongs to. Additionally, volatility in foreign exchange, primarily owing to current macro-economic scenario and headwinds in the emerging markets, does not bode well for the industry participants.

Further, the ongoing trade war between the United States and China has created a volatile environment that is not conducive for investments. Notably, the industry participants generate a significant portion of their revenues from China. As the direct revenue sources are now under the radar of plausible tariffs, concern regarding the prospects of the industry has increased in recent times.

These factors are likely to be major concerns for Skyworks, going forward.

Consequently, the company has been witnessing downward revisions of late. The Zacks Consensus Estimate for the company’s earnings in 2019 has declined by 43 cents to $6.19 per share in the past 30 days.

Further, the company faces stiff competition from the likes of Broadcom AVGO and Qorvo QRVO, which exposes it to significant pricing pressures. This is likely to hamper the second-quarter results.

Overdependence on Apple for revenue generation remains a woe.

So, it may not be a good decision to retain this stock in your portfolio anymore, at least if you don’t intend to wait for a long time.

Key Pick

Match Group, Inc. MTCH, sporting a Zacks Rank #1 (Strong Buy), is a stock worth considering in the broader technology sector. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Match Group is currently pegged at 15.2%.

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