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Will Dismal iPhone Sales Impact Skyworks (SWKS) Q2 Earnings?

Skyworks Solutions Inc. SWKS is scheduled to report second-quarter fiscal 2018 results on May 3, after the market closes. The question lingering in investors’ minds is whether or not this semiconductor company will be able to post a positive earnings surprise in the quarter.

Notably, the company has an impressive earnings surprise history. In the trailing four quarters, its results surpassed the Zacks Consensus Estimate, coming up with an average positive earnings surprise of 4.1%.

Let’s see how things are shaping up prior to this announcement.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Skyworks Solution is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

It should be noted that stocks with a Zacks Rank #4 or 5 (Sell rated) are best avoided, especially when the company is seeing negative estimate revisions.

Skyworks Solutions carries a Zacks Rank of 3 and has an Earnings ESP of -0.01%, which makes surprise prediction difficult. Furthermore, the Zacks Consensus Estimate for fiscal second-quarter earnings remained unchanged over the past 30 days.

In addition, on a year-over-year basis, earnings and revenue growth rates are likely to have slowed down. The Zacks Consensus Estimate for the fiscal second-quarter revenues and earnings is pegged at $910.4 million and $1.60, marking year-over-year growth of 6.9% and 10.3%, respectively. Notably, growth rates for the to-be-reported quarter are much lower than what the company witnessed in the previous quarter. In the fiscal first quarter, Skyworks Solutions’ revenues and earnings grew 15% and 24%, respectively.

Skyworks Solutions, Inc. Price and EPS Surprise

Skyworks Solutions, Inc. Price and EPS Surprise | Skyworks Solutions, Inc. Quote

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What’s Behind the Disappointing Projections?

Overdependence on Apple AAPL for revenue generation continues to be a major headwind for the company. The company generates around 40% of its revenues by selling radio frequency chips, which are used in iPhone devices.

It should be noted that Apple’s sales of iPhones have been below expectations, particularly the latest one — iPhone X. Owing to the troubles, this January, Apple slashed its production target by half from almost 40 million projected during the iPhone X release, per Nikkei.

Moreover, Apple reported a dreary iPhone unit sales performance in the fiscal first quarter, thanks to the lower-than-expected holiday season sales of its premium device iPhone X.  For the quarter ending Dec 31, 2017, iPhone unit sales edged down 1% year over year.

Goldman Sachs’ latest prediction regarding iPhone sales has put further shadow on the growth prospects of Apple’s component suppliers. The investment firm, in its Mar 27 note, announced trimming iPhone sales expectations by a whopping 1.7 million units to 53 million, for the March quarter. Also, for the quarter ending June, the firm forecasts sales of 40.3 million units, a decline of 3.2 million from the previous projection.

Lower production implies lesser component requirement, which, in turn, will have a substantial impact on suppliers.

Nonetheless, loss of business from Apple is expected to have been offset by elevated demand for Wi-Fi, Zigbee and LTE solutions. The demand for highly-integrated solutions is increasing as customers implement the next level of functionality for higher bandwidth. We believe Skyworks’ expanding product portfolio has the potential to address this rapidly growing need.

Additionally, the company’s expanding customer base, which comprises the likes of Cisco Systems Inc. CSCO in MIMO gateways, Nintendo NTDOY in its Switch Gaming console, Fitbit, Garmin and LG, positions it well for growth.

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