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Analyst Warns Skyworks On Sony Ericsson

PA maker's recent market share gains and improvement in profit margins may not continue, according to a stock research report.

The resurgent market valuation of Skyworks Solutions has suffered a knock-back from an investment analyst s report, after Sony Ericsson issued a profit warning for the first quarter of 2009.

The GaAs chipmaker s shares were worth $8.51 when the NASDAQ exchange closed on March 23, having recovered from a low of $3.51 on December 5.

However, when Todd Koffman of Raymond James downgraded his assessment of the Woburn, Massachussetts, company on March 24 its shares fell quickly, closing at $7.77.

Koffman points out that Sony Ericsson was Skyworks' second-largest customer in the three months ended December. Consequently his research note hinged on the implications of the handset maker s weak sales outlook (see related stories).

“Skyworks is the primary supplier across the majority of Sony Ericsson s handset designs," Koffman writes. “As Sony Ericsson s unit shipments decline as expected in 2009, Skyworks sales to this key customer will also decline."

As the cellphone industry looks set for shrinking sales volumes in 2009 for the first time since 2001, Koffman suggests that Skyworks recent strong financial performances will soften.

The company has consistently maintained impressive profit margins, potentially leaving management with few remaining cost-cutting options for further improvements.

Samsung is now Skyworks number-one customer, and Koffman is concerned that the Korean giant will also have to revise its own sales expectations. On top of this, he believes that Skyworks will in future find difficulty growing market share in the way it has at Samsung.

“The company s share gains at top-tier handset and smartphone [manufacturers] (primarily at the expense of a wounded Anadigics) may have run their course," he writes.

While Skyworks remains the only handset power amplifier (PA) manufacturer anticipating a profit in the current quarter, Koffman believes that this level of performance is already adequately reflected in its share price.

The stock market currently values Skyworks at $1.3 billion. This compares to $300 million for the leading PA maker in terms of revenues, RF Micro Devices. Consequently Koffman believes Skyworks s share price will now vary in line with the broader stock market.

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