Apple Supplier Skyworks Slumps on Chip Diversification News
Introduction
Skyworks Solutions (SWKS), a supplier for Apple (AAPL), witnessed a significant decline in its stock value, dropping over 23% on Thursday. This follows the company's announcement that it is facing increased competition and losing market share to Broadcom (AVGO) for iPhone chip sales.
Skyworks' Dependence on Apple
Skyworks plays a crucial role in manufacturing chips used in Apple devices for wireless communication. The Cupertino giant accounted for approximately 72% of Skyworks' $1 billion revenue in the December quarter, with 85% of that stemming from iPhone component sales.
Apple's Diversification Strategy
However, Apple has recently adopted a dual-sourcing strategy for radio frequency components in the iPhone 17. This move is set to reduce its demand for Skyworks' products by 20-25%, according to CFO Kris Sennesael. Analysts at Stifel, Raymond James, and TD Cowen speculate that Broadcom is Apple's additional supplier.
Market Impact
Despite exceeding analyst expectations in its recent quarterly results, Skyworks' stock price has plunged due to the news of Apple's diversification. Stifel analyst Ruben Roy downgraded the stock to a Hold rating, citing concerns over lost market share. TD Cowen analyst Krish Sankar estimates that Apple's actions could potentially impact Skyworks' 2025 revenue by $600 million.
Management Changes
In addition to the chip diversification news, Skyworks announced a CEO transition, with former Intel executive Philip Brace replacing long-time CEO Liam Griffin. Analysts have expressed uncertainty regarding the timing of this change amidst current market dynamics.
Outlook
Analysts believe that Skyworks could regain market share if Apple transitions to in-house production of 5G modems for iPhones. However, this is not expected in the near future, leaving Skyworks' revenue stream susceptible to further competition.