5G And AI Will Drive Connected Device Revolution

Key Takeaways

• Acceleration in mobile and IoT RF content, plus design wins in diverse markets, is expected to drive stronger and more stable earnings and margin expansion.
  
• Strategic technology investments and manufacturing shifts are unlocking operational leverage, positioning Skyworks for resilient long-term growth across key connected device and automotive sectors.
  
• Heavy dependence on one major customer, slowing smartphone growth, and limited diversification threaten long-term revenue stability and margin expansion amid intense market competition.

Catalysts

Designs, develops, manufactures, and markets semiconductor products in the United States, China, South Korea, Taiwan, Europe, the Middle East, Africa, and the rest of Asia-Pacific.

• Analyst consensus focuses on RF content growth from 5G and AI adoption, but recent commentary on internal modem shifts and emerging AI-centric upgrade cycles suggests an even faster acceleration in both per-device content and total smartphone RF dollar volume, which could drive outsized upside in mobile segment revenue and gross margin as replacement cycles shorten.
  
• Analysts broadly agree that design wins in Broad Markets (IoT, automotive, cloud) provide diversification, yet management's visibility into sustained double-digit long-term growth, supported by accelerating design pipeline and gross margins above corporate average, implies this segment may deliver a larger and more reliable portion of earnings and long-term margin expansion than currently expected.
  
• Skyworks' early investment in WiFi 8, AI-driven infrastructure, and precision timing for next-gen data centers positions the company to capture disproportionate share from the multi-year surge in connected devices, industrial automation, and high-speed networking, supporting robust top-line growth across diverse verticals.
  
• The shift toward onshoring and consolidation of domestic manufacturing, highlighted by the closure of Woburn and expansion at Newbury Park, is likely to unlock persistent operational leverage, reduce long-term CapEx, and expand gross margins-providing a structural boost to free cash flow and net earnings resilience across cycles.
  
• Automotive revenue is scaling rapidly, with management now tracking $60 million per quarter and winning new programs at multiple global OEMs; as connectivity and software-defined features proliferate, automotive could double as a revenue stream in the coming years, providing both durable, high-visibility growth and margin uplift relative to the more cyclical mobile business.

Skyworks Solutions Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Skyworks Solutions compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Skyworks Solutions's revenue will grow by 2.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 9.9% today to 17.7% in 3 years time.
• The bullish analysts expect earnings to reach $757.5 million (and earnings per share of $5.11) by about August 2028, up from $396.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.5x on those 2028 earnings, down from 28.2x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.4x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.57%, as per the Simply Wall St company report.

Skyworks Solutions Future Earnings Per Share Growth

Risks

• The company remains heavily reliant on a single customer, with its largest customer accounting for about 63 percent of revenue this quarter; any loss, reduction, or insourcing by this customer could materially reduce Skyworks' revenue and earnings.
  
• Long smartphone replacement cycles, which now average over four years, along with overall slowing global smartphone growth and maturing handset markets, may limit the long-term demand for Skyworks' RF chips and stagnate revenue growth.
  
• Skyworks operates in a highly competitive market, facing strong pricing pressure from established players like Qualcomm and Broadcom; ongoing pricing competition threatens to compress net margins over time.
  
• Exposure to broader technology shifts, such as the integration of RF functionality directly on system-on-chips by device manufacturers, could reduce the demand for discrete RF components, undermining long-term revenue streams.
  
• Despite efforts to diversify, only a modest portion of revenue currently comes from higher-growth markets like automotive and IoT, which may prevent Skyworks from capturing the full margin and earnings expansion seen by more diversified semiconductor peers.

Valuation

• The assumed bullish price target for Skyworks Solutions is $91.67, which represents two standard deviations above the consensus price target of $72.47. This valuation is based on what can be assumed as the expectations of Skyworks Solutions's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $106.0, and the most bearish reporting a price target of just $58.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.3 billion, earnings will come to $757.5 million, and it would be trading on a PE ratio of 19.5x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of $75.36, the bullish analyst price target of $91.67 is 17.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.