Analyst anticipates good times for Skyworks
New business from Nokia will see GaAs chip maker Skyworks Solutions deliver better-than-expected profit in 2008.
That s according to Aaron Husock, an analyst at Morgan Stanley who covers the wireless and power amplifier (PA) technology sectors.
In a recent research note, Husock said that most commentators are already underestimating the strength of power amplifier growth trends - driven by global broadband wireless uptake - as well as Skyworks ability to exploit those trends.
Husock has analyzed the Woburn, Massachusetts, company s recent design win with leading handset vendor Nokia, and believes that the ensuing ramp will have a major positive impact on Skyworks financials in 2008.
"Skyworks began shipping wideband-CDMA power amplifiers to Nokia towards the end of the second [calendar] quarter of 2007, and is currently ramping up its Nokia sales with the potential for the business to become meaningful by the first calendar quarter of 2008," wrote Husock.
"We estimate Nokia could potentially reach 9 percent of Skyworks total sales in 2008 if the ramp goes well."
Husock s analysis suggests that for that target to be reached, Skyworks would have to eventually reach a 40 percent wideband-CDMA allocation with the Finnish firm by the end of 2008.
He is expecting Nokia, which has always had very close ties with RF Micro Devices, to spend a total of $275 million on around 97 million PAs for wideband-CDMA handsets during calendar 2008.
If Skyworks grabs an average 25 percent of that business over the year as it ramps up supply, it would represent some $69 million in sales.
Increased sales of the high-value components should allow Skyworks to post an improved profit, with Husock suggesting an increase in earnings per share of between 30 and 45 percent in each of the next two years.
Although the growing relationship between Skyworks and Nokia might be viewed as bad news for RFMD, Husock believes that the widespread strength of the wireless handset business will continue to drive strong sales at the North Carolina company too.
"We continue to recommend investors own RFMD near-term, and expect [RFMD] to continue to grow [its] Nokia business rapidly in calendar 2008, despite Skyworks' share gains," the analyst reported.
Currently trading at just over $9 on the Nasdaq exchange, Husock has slapped a price target of $11 on Skyworks, saying that the current valuation of the company does not reflect the potential earnings growth likely over the next couple of years.
The one major risk appears to be more intense price pressure in the power amplifier market, as companies launch more products to meet the growing demand for wideband-CDMA handsets.