Skyworks Solutions (NASDAQ: SWKS) has emerged as a compelling investment opportunity, poised to outperform its peers in 2024. Despite concerns over gross margin expectations for the second half of 2023, the stock has demonstrated resilience and delivered solid returns. With growth prospects driven by content expansion with Apple, volume growth at MediaTek, and the anticipated recovery of Android smartphone demand, Skyworks Solutions is well-positioned for success. Let’s explore the data and delve into the company’s outlook.

1. Fiscal Q2 2023 Performance:
Skyworks Solutions reported revenue of $1.153 billion for fiscal Q2 2023, in line with consensus estimates, while Non-GAAP EPS came in slightly below expectations at $2.02. The stock experienced a minor dip following the earnings release, primarily due to concerns over weaker-than-expected gross margin guidance for the second half of 2023. However, we believe the lower revenue and gross margin projections are a result of fab underloading as the company adjusts inventory levels to match industry demand.

2. Outperformance and Growth Drivers:
Despite the temporary dip, Skyworks Solutions stock has gained approximately 15% since our upgrade in November, outperforming the S&P 500 by 5%. The company’s growth prospects are underpinned by content growth with Apple, volume growth at MediaTek, and the anticipated recovery of Android smartphone demand in 2024. Notably, Apple accounted for a significant 64% of total sales in the second quarter, and we expect this partnership to remain robust. Furthermore, as Android markets recover from inventory correction cycles, Skyworks Solutions is well-positioned to benefit from increased demand, leading to sequential growth.

3. Near-Term Headwinds and Resilience:
We acknowledge the near-term headwinds affecting Skyworks Solutions, including weaker-than-expected gross margins and a contraction in the smartphone market. The company’s exposure to the smartphone market may impact financials in the short term, given the projected 2.5% contraction in the smartphone total addressable market (TAM) for 2023. However, we remain optimistic about the company’s ability to offset this through content growth with Apple, which boasts a superior installed base and a rising market share.

4. Valuation and Investment Opportunity:
Skyworks Solutions stock currently trades at an attractive valuation, trading well below the peer group average. With a P/E ratio of 11.6x C2023 EPS and an EV/C2023 Sales ratio of 3.5x, the stock presents upside potential for investors. We recommend exploring entry points into Skyworks Solutions stock at current levels, as we expect the company to outperform in 2024.

Despite short-term challenges, Skyworks Solutions demonstrates resilience and a promising outlook. The company’s strategic partnerships, content expansion with Apple, and the recovery of Android smartphone demand position it for future growth. While near-term macroeconomic factors and inventory correction cycles may introduce volatility, we anticipate significant opportunities for investors in 2024. Stay tuned for further updates from our Tech Contrarians Investing Group, launching on June 1st, where we provide in-depth analysis and valuable insights into software, hardware, and semiconductor sectors.