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Expect more GaAs consolidation, says Skyworks

After another increase in profits, the chip maker predicts that those with the biggest manufacturing capabilities are likely to carve up what's left of the handset power amplifier market between them.

For Skyworks Solutions size matters, and has played a key role as it beat its own revenue predictions in the opening three months of 2008.

The Woburn, Massachussetts, headquartered company surged to sales of $202 million and a profit of $18.6 million for the quarter, once again claiming market share gains. The company pointed to manufacturing scale as an important differentiator between the various GaAs power amplifier (PA) suppliers, and one that will continue to act in Skyworks favor, irrespective of wider economic factors.

“The overall trend is going to be for a smaller subset of suppliers capturing a lot more dollar content,” said David Aldrich, Skyworks CEO. “[This is] simply driven by the need for scale, for engineering capability "“ because these are complicated devices "“ and manufacturing cost structures that allow you to support those roadmaps.”

A prime example of this is the market for PAs used in low-cost phones targeted at developing countries. System-on-chip design approaches add complexity to these products, which sell for low prices in comparison to the latest 3G PAs. However, as Skyworks attains manufacturing yields over 90 percent for these lines and makes the chips in high volumes, their importance is close to that of the very latest technologies.

“These front-end modules for the very lowest-end phones have very attractive gross margins,” Aldrich said.

Even in its more sophisticated 3G products average yields remain around the 80 percent mark. This figure even includes the impact of the ongoing move to 6-inch GaAs wafers that the company expects to complete in 2009.

Customer base
Skyworks attributes part of its recent success to strategically developing its business with specific partners, like acquiring a supply deal with Blackberry manufacturer Research in Motion through its purchase of Freescale's GaAs handset PA business.

Although Sony-Ericsson, Motorola and Samsung each account for more than 10 percent of Skyworks business, the company is also in the middle of a major ramp for wideband-CDMA PAs for Nokia. It claims to be the only PA maker that sells products to each of the top five handset makers and is now working to further expand.

“We believe by the end of the calendar year we should have at least four of the five top OEMs as 10 percent accounts for Skyworks,” Aldrich said.

Thanks in part to the continued concentration of market share, Skyworks projects revenues of $210 million for the next quarter. This represents 20 percent year-over-year growth when, in contrast, overall handset shipments are predicted to grow by 10 percent this year.

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