Chief Executive Officer, President & Director, Skyworks Solutions
Skyworks Solutions CEO: Giving A Buy Signal? | Mad Money | CNBC
Skyworks has had a rough start to 2016, but could recent earnings signal it's time to buy? Jim Cramer finds out. » Subscribe to ...
About Philip Brace
In 2016 and 2017, Brace discussed Skyworks' role in the mobile internet ecosystem, describing the cellphone as the "heart beating and quarterback" of the industry while noting the company's expansion into IoT, connected homes, and automobiles. He stated that about 25% of revenue came from IoT and that the company had products in devices such as Nest thermostats, Google and Roku entertainment devices, and Whirlpool appliances. Brace said Skyworks was solving connectivity problems for new markets by deploying technology perfected in cell phones, and he described an automobile as a "rolling hub" where the company had become a significant player. Brace addressed the company's financial performance and market position, noting that revenue had grown from $700 million in 2005 to $3.3 billion and that the stock had risen from $8 to nearly $80 over the same period. He said the company had not missed a quarterly report since 2008 and was targeting $8 in earnings per share within one and a half to two years. Regarding the Galaxy Note 7 situation, Brace said Skyworks did not expect a direct financial impact from Samsung. He also discussed M&A, stating that the company was generating cash and was debt-free but would remain disciplined in pursuing acquisitions. Brace highlighted growth opportunities in China, India, Latin America, and the Middle East, citing two billion people without connectivity.
Transcript (15 segments)
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Jim Cramer0:07
Right now, the conventional wisdom says that the cell phone business has peaked. Hence the seemingly endless weakness at Apple and every one of their component suppliers. But as much as the market views these stocks with fear and loathing, I think we need to take a more considered approach. And not just because Apple's got a new iPhone coming out this fall, at the same time that a great many people will be eligible for upgrades from their wireless providers. Just look at a company like Skyworks Solutions, SWKS. It's the maker of high performance radio frequency and analog chips for smartphones, but also for tablets, for cars, GPS, broadband, wireless networking, not to mention various industrial, medical, military applications. But mainly, Skyworks is seen by the marketplace as a play on cell phone components, particularly for Apple. And the stock has been absolutely annihilated lately, down more than 25% year-to-date, up nearly 50%. That's right, 50% from its highs last summer. In fact, it hit a brand new 52-week low just today. Still, here's the thing. Skyworks just reported less than two weeks ago. Company delivered a nice two-cent earnings beat off a buck 58 basis, higher than expected revenues that increased by 15% year-over-year. Gross margins expanded by roughly 470 basis points. Those are good numbers. While management indicated the next quarter might be a bit light, at least lighter than usual thanks to weakness at a major customer. Wonder who that is. I have to wonder if this stock hasn't already been punished enough. And that's what you have to look at. Let's take a closer look with David Aldridge, old friend of the show, the chairman CEO of Skyworks Solutions. Get a better sense of how his company is doing and where it's headed. David, welcome back to Mad Money.
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Philip Brace1:33
Hi Jim, how are you? Thanks for having me.
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Jim Cramer1:34
Oh, good to see you. Okay, David, commence volume shipments of telematic solution at Volkswagen. First mass production vehicle-to-vehicle communication sockets. GM won multiple sockets. Flagship smartphone platform. Samsung launched IP security camera solution, Nest. I could go on and on. These are 2016 highlights. When will they mean more than one particular customer and that customer's window where it's not making new cell phones?
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Philip Brace2:01
Well, thanks. That's a great question. So, as you I think you know, we were an early mover in taking and deploying technology that we perfected in cell phones and in Wi-Fi and connectivity into a whole host of IoT applications and vertical markets. So, we're in the home, we're in Nest thermostats and smoke detectors. We're in Google and Roku entertainment devices. We're in light bulbs. We're continuing to round out our portfolio. And the value is the same, one and the same with our cellular customers. They're operating over multiple frequencies with lots of different communication bands. And we're able to simplify that with our scale and with our breadth of technology. Make it easy for the consumer and easy for our customers to integrate all the technology. It's about 25% of our revenue today and it's growing sequentially. It's growing year over year and it'll continue we think to outpace the market to become a larger and larger component of our business.
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Jim Cramer2:55
And how do we get the story other than in your unbelievably great and transparent deck that you're a play on gaming, 20 hours a month streaming music, standard def video, high video, think HBO, ESPN, and then 4K video, Netflix. You may be the best play on Netflix other than Netflix.
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Philip Brace3:17
Well, I think thanks for saying that. I mean, we are in Google devices in the home and we're in virtually every high-speed streaming entertainment device, a gateway inside of the home in the enterprise. And then all the devices that are knitted together. And the complexity of knitting all those different solutions together in the home, whether it's your speakers or your television or your security monitoring systems, is they're all operating over different frequencies and in different modes. And Skyworks better than we think anybody in the world is able to simplify that in concert with our customers. Make it affordable, make it small, make it consume less current, and I think equally important, drive high-speed, reliable high speed. And that's going to continue to be a big piece of our business.
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Jim Cramer3:59
Well, you mentioned something important to people at home. You extending battery life is something you guys are really pioneering, correct?
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Philip Brace4:08
That's correct. And the beauty of this is we didn't wake up one day and say we want to be an IoT player or we want to be in smart automobiles vehicle to vehicle or in the connected home or machine to machine. We're basically solving the problems that we've had to solve with our cellular and our smartphone customers for these new companies who are entering the space, entering markets that have never been connected. If you look at an automobile today, it is a rolling hub. All of the devices and the connectivity is something in which we could play a major part. So, we went from having very little relevance in an automobile to it being a very big piece of our growth story. That's one example and it'll continue.
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Jim Cramer4:44
Well, David, I mean, I sometimes I think, you know, we're sports fans, that it's almost like you're the Patriots, okay? The Patriots, we just presume they're going to win the Super Bowl. And then they don't win the Super Bowl. And you know what? Suddenly they're beatable. They're not that great. Von Miller can beat him. One player can beat him. I feel like something happened here where your stock went up a lot. You became the Patriots. And then when you didn't win the Super Bowl, they had to cut you in half. I mean, I don't know else how else to analogize this situation.
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Philip Brace5:11
Well, you know, clearly we're not immune, Jim, to some of the dynamics. We've got a large customer who's working off some inventory. And we're going to feel that in the March quarter. We felt it in December, but despite all the consternation in December, the worries with China and so on so forth, we delivered revenue that was up 17% year-over-year. Earnings that were up 30% year-over-year. We are now a 40% operating income company with growth that's far in excess of the market because we're playing in the right space. We're in mobility, we're in connectivity, and we're increasingly in vertical markets that are going connected for the first time ever. So I think that as we become more important to our end customers, we're seeing a great deal, we have more visibility now into the second half of 16. We're going to have a terrific second half of calendar 16. We're going to have to work through some inventory correction in March and investors will eventually see beyond that I think.
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Jim Cramer6:04
Well, one last question, Dave, because we've been around for a long time, both of us. When the company was in trouble, you came on and said the company was in trouble. This is certainly not the situation now.
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Philip Brace6:15
No, it's not. And you know, our midterm model was to pass through $6 of annual EPS. Our midterm model one and a half, maybe two years is to get to $8 in EPS. And so I think the numbers will speak for themselves. We'll grow faster than the market. We'll do it in a careful way. We're quite conservative in how we manage our operating expenses. We're now moving into the low to mid-50s gross margin. And there aren't many companies, Jim, that are growing 15 or 20% a year with 40% operating income. No, we haven't missed a quarter and we haven't missed a quarter since the meltdown of 2008. We're proud of that. We're conservative, but we're also very aggressively going after the right markets: mobility, connectivity, the IoT, the connected home, and the automobile.
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Jim Cramer6:57
Well, David, look, you keep delivering. I think the stock got too high. What can you do? That's certainly not your fault. Now the stock's gotten too low. David Aldridge, CEO and chairman of Skyworks Solution. Great to see you, sir.
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Philip Brace7:08
Great to see you. Thank you, Jim.
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Jim Cramer7:09
All right. Stock's come down a lot. I mean, look, somebody bought it at 120. Now you're buying at half that. I mean, give me a break. Boy, Mad Money's back into the Booyah. Jim Cramer here from Mad Money. Thanks for watching CNBC on YouTube. Click here to subscribe and get the jump on my exclusives with CEOs, plus market news, investing advice, and a whole lot more.