SWKS Skyworks Solutions Inc

We recently upgraded our recommendation on Skyworks Solutions Inc. (SWKS) to Outperform from Neutral.

Skyworks continues to weather the turbulent economic conditions well. The company has strategically positioned itself as a diversified company, and continues to capitalize on three business segments − mobile Internet, vertical markets and analog components. The global megatrends of mobile computing and ubiquitous connectivity continue to be growth engines for Skyworks.

The colossal demand for smartphones continues to drive momentum for Skyworks, particularly at Nokia Corporation (NOK) and Apple (AAPL). Skyworks has partnerships with all leading smartphone vendors, such as RIMM (RIMM), Motorola (MMI) and Samsung. With a diversified customer base, Skyworks is strongly placed in this market.

The market for smartphones is growing four times the growth rate of the traditional cellular handset. Management expects smartphone adoption to gain further traction in the developing countries in 2012.

Global adoption of smartphones continues to be robust and is being rapidly followed by a growing tablet adoption cycle.  Beyond smartphones, growth will be propelled by high resolution tablets, USB modems, home networks and yet-to-be-introduced Internet connective devices.

Skyworks continues to benefit from strong underlying demand in the mobile Internet market driven by market share gains and new product ramps. Skyworks continues to gain traction on the network infrastructure side of the mobile Internet connection as operators install new base stations, new routers, and back-haul equipment to expand coverage of data services and prepare for next generation LTE deployments. LTE shipments are expected to grow by leaps and bounds in 2012. 

Meanwhile, estimates have moved down marginally in the last thirty days even though the company reported in-line results for the second quarter of 2012, primarily due to the clouded economic environment.

Nevertheless, we believe the growth story remains intact in the long run and hence we upgrade our recommendation to Outperform from Neutral.

The stock carries a Zacks #3 Rank currently which translates into a short-term rating of Hold, owing to the near-term uncertain environment.

 
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