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Qualcomm vs. Skyworks Solutions: Which Semiconductor Stock Could Deliver Higher Returns In 2021?
Stock Analysis & Ideas

Qualcomm vs. Skyworks Solutions: Which Semiconductor Stock Could Deliver Higher Returns In 2021?

The semiconductor shortage is hitting companies across different sectors hard, as chip demand outstrips supply. Semiconductors are increasingly being used in different applications, including 5G, data centers, Internet of Things (IoT), mobiles and automotive applications.

The semiconductor market is expected to be worth $803.15 billion in 2028, a considerable rise from last year’s $425.96 billion, according to a report from Fortune Business Insights. That indicates a compounded annual growth rate (CAGR) of 8.6% between those two periods.

Using the TipRanks Stock Comparison tool, let us compare two semiconductor companies,  Qualcomm and Skyworks Solutions, and see how Wall Street analysts feel about these stocks.

Qualcomm (NASDAQ: QCOM)

Qualcomm reports its revenues under three business segments: Qualcomm CDMA technologies (QCT), Qualcomm technology licensing (QTL), and Qualcomm strategic initiatives (QSI).

QSI is involved in making strategic investments for the company, while the technology licensing business looks at the extensive intellectual property portfolio of the company. The QTL business grants either licenses or rights to use parts of this portfolio, especially in the use or sale of wireless products.

The QCT business develops and supplies integrated circuits (ICs) and system software that are based on technologies like 3G, 4G and 5G, which can be used in a wide array of applications. Those include mobile and Internet of Things (IoT) devices, wireless networks and automotive systems for infotainment and telematics.

Qualcomm is expected to report its fiscal Q3 earnings on July 28.

A couple of days back, Microsoft (MSFT) announced its first update to Windows in 6 years, Windows 11. The company also announced it will be partnering with Qualcomm for QCOM’s ARM-based processor for Windows 11.

Following the announcement from Microsoft, Rosenblatt Securities analyst Kevin Cassidy reiterated a Buy with a price target of $180 (30.76% upside) on QCOM stock. Cassidy viewed the MSFT announcement as positive for QCOM stock.

The analyst stated, “We see Windows 11 as the breakthrough Qualcomm has needed to make strategic inroads into the PC market.”

QCOM had said at its Q2 earnings call that it expects the handset and RF-front end market to be worth $10 billion, and the company is likely to benefit from this industry from the next fiscal year. The company’s $1.4 billion acquisition of NUVIA in the second quarter is expected to further bolster its growth when it comes to high-performance processors. (See Qualcomm stock chart on TipRanks)

Cassidy believes that over the long term, the company “should have samples of its first Nuvia custom ARM CPU- based SoCs [system-on-a-chip] in late 2022 with production in ~2H2023.”

“We see Qualcomm’s Snapdragon SoC with integrated camera control, WiFi, and BlueTooth while using only ~10W of power as compelling for all day PC battery life,” the analyst added.

Qualcomm’s Snapdragon SOC and Nuvia ARM SOCs could provide plenty of potential for performance upgrade over the long term, according to Cassidy. The analyst also said that since QCOM’s SOCs platforms provide full 5G connectivity, it could expand the PC’s capability to function as a communications device.

In the second quarter, QCOM posted revenues of $7.9 billion, up 52% year-on-year with diluted EPS of $1.53 per share, which is up a whopping 273% year-on-year.

QCOM has forecast revenues between $7.1 billion and $7.9 billion in the third quarter, while non-GAAP diluted EPS is expected to be in the $1.55 to $1.75 range. In Q3, the QCT business segment is expected to generate revenues between $5.8 billion and $6.3 billion, while the QTL segment is expected to post revenues of $1.35 billion to $1.55 billion.

Consensus among analysts is a Moderate Buy based on 9 Buys, 6 Holds, and 1 Sell. The average Qualcomm price target of $171.08 indicates upside potential of around 24.3% from current levels.

Skyworks Solutions (NASDAQ: SWKS)

Skyworks Solutions provides analog semiconductors. Its extensive product portfolio includes amplifiers, voltage regulators, voltage-controlled oscillators and wireless ASoC.

Last week, the company announced that along with Xilinx (XLNX), SWKS has enabled 5G across the C-Band spectrum. SWKS, in partnership with Xilinx, showed compliance with 3GPP linearity and bandwidth requirements for C-Band signals that are important for enabling 5G infrastructure.

According to Skyworks, C-Band spectrum in the United States refers to mid-band frequencies ranging between 3.7 Gigahertz (Ghz) to 3.98 Ghz that are “optimal for 5G because they provide the right balance of geographic coverage, capacity and speed.”

Yusuf Jamal, SVP and GM of diversified analog and AI solutions at Skyworks said, “Our demo with Xilinx highlights the readiness and maturity of this 5G solution and with the C-band auction concluded and winners announced, the next phase is for deployments as rapidly as possible.”

“The C-band is a unique and important piece of the 5G landscape, and Skyworks has long been investing in and preparing to deliver innovative technologies that address this new spectrum,” Jamal added.

5G is perceived by analysts as the next big revenue-generating stream for Skyworks. Late last month, analyst Edward Snyder from Charter Equity reiterated a Buy on the stock. With the rollout of 5G in the United States, the analyst stated that mid-tier phones using discrete radio frequency front-end equipment (RFFE) won’t work for 5G.

This is due to complex signal routing and “RF performance requirements too arduous to be realized by designs that pass RF signal in and out of dozens of individually packaged components,” Snyder added.

However, the analyst added that as original equipment manufacturers (OEMs) convert more of mid-tier phones to 5G using module RFFEs, companies like SWKS could benefit.

Snyder said, “So while 5G may not yield much of an ARPU [average revenue per user] increase for carriers or big orders for base station vendors, it should continue generating revenue growth for Qorvo and Skyworks, the only two RF component manufacturers capable of fielding high-performance modules to the mid-tier market.”

The company posted fiscal Q2 revenues of $1.172 billion, a jump of 53% year-on-year that came in ahead of analysts’ estimate of $1.15 billion. SWKS reported non-GAAP diluted EPS of $2.37 per share versus the consensus estimate of $2.35. (See Skyworks Solutions stock chart on TipRanks)

In Q3, SWKS anticipates revenues to grow 49% year-on-year to the midpoint of its range of $1.075 billion to $1.125 billion and as a result, expects non-GAAP diluted EPS of $2.13, a rise of 70% year-on-year.

Last month, Skyworks closed its $1.5 billion senior note offering and intends to use the net proceeds of the offering to finance the $2.75 billion acquisition of the infrastructure and automotive business of Silicon Labs.

Consensus among analysts is a Moderate Buy based on 11 Buys and 6 Holds. The average Skyworks price target of $213.60 indicates upside potential of around 19.5% from current levels.

Bottomline

It seems that both QCOM and SWKS are targeting the rollout of 5G in the U.S. with their products and equipment. MSFT’s partnership with QCOM for its ARM based processor for Windows 11 is a definite plus for the company.

While analysts are cautiously optimistic about both stocks, based on the upside potential over the next 12 months, QCOM seems to be a better Buy.

DisclaimerThe information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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