Skyworks Solutions (SWKS): Navigating Customer Concentration Amid Growth Challenges

Investment Thesis

Skyworks Solutions (NASDAQ: SWKS) is a leading supplier of RF semiconductors, especially for smartphones, automotive, and IoT devices. However, a major near-term headwind emerged in early 2025 when Apple announced it would reduce its reliance on Skyworks for the upcoming iPhone 17, moving to a dual-sourcing model with Broadcom. This change is expected to cut Skyworks’ iPhone-related revenue by 20% to 25% starting in late 2025, a significant impact given Apple accounts for roughly 72% of Skyworks’ revenue.

The market reacted swiftly, with Skyworks’ stock dropping nearly 25% following the announcement, suggesting much of this risk is already priced in. Still, the company is actively pursuing design wins for future iPhones and expanding its presence in automotive connectivity, Wi-Fi 7, and other segments to offset the Apple-related revenue loss. Our DCF valuation suggests a fair value range of $132 to $148, indicating upside if Skyworks can successfully navigate these customer concentration risks and capitalize on emerging opportunities. 

Source: TradingKey

Financials — Quarterly Highlights (Q2 FY2025)

· Revenue: $953 million, slightly above expectations but down 8.9% YoY, reflecting softness in mobile.

· Earnings per Share (EPS): $1.24 (non-GAAP), beating estimates of $1.20.

· Gross Margin: 46.7%, showing strong operational efficiency despite market pressures.

· Operating Income: $222 million (non-GAAP), with GAAP operating income at $97 million.

· Free Cash Flow: $371 million, representing 39% of revenue, highlighting excellent cash generation.

· Shareholder Returns: Returned a record $600 million to shareholders through dividends and share repurchases.

Company overview

Founded in 2002 and headquartered in Irvine, California, Skyworks Solutions designs and manufactures analog and mixed-signal semiconductors, specializing in RF chips that enable wireless connectivity. Its products are embedded in smartphones, automotive infotainment systems, Wi-Fi routers, and IoT devices.

Like many smaller-cap tech companies, Skyworks depends heavily on a few large customers and a focused product portfolio to generate most of its revenue. This business model can drive strong profitability but also carries significant risk, as any shift in customer demand or supplier relationships can materially impact the company’s financials. Currently, Apple accounts for roughly 72% of Skyworks’ revenue, making customer concentration a critical concern as Apple has already decided to add another supplier. The company has been actively diversifying through growth in its Broad Markets segment, which includes automotive connectivity, Wi-Fi 7, and consumer audio devices, but the improvement is slow.

Competitor analysis

Skyworks Solutions is one of the leading companies in the global RF semiconductor market, which includes key components like power amplifiers, filters, and switches used in wireless devices such as smartphones, cars, and Wi-Fi routers. Its focused technology and customer relationships give it an edge, but it competes with larger, more diversified companies like Qualcomm and Broadcom.

Source: KHAVEEN Investments

Skyworks’ competitive advantage lies in its focused expertise on analog RF semiconductors, particularly power amplifiers and filters made from advanced materials like Gallium Arsenide (GaAs) and Gallium Nitride (GaN). These materials allow Skyworks to produce high-performance, energy-efficient chips essential for fast and reliable wireless signals. The company has strong design wins with Apple, Samsung, Google, and other premium smartphone makers, and is expanding into automotive connectivity and Wi-Fi 7 markets to reduce reliance on mobile phones alone.

In contrast, Qualcomm and Broadcom also have strong positions. Qualcomm offers a broader portfolio including mobile processors and integrated RF solutions, giving it a vertical integration edge. Broadcom has a wide range of semiconductor products beyond RF, including networking and storage chips, which provide scale and revenue diversity.

Revenue breakdown

In Q2 FY2025, Skyworks Solutions reported $953 million in revenue, down about 8.9% YoY, mainly due to softness in its Mobile segment and broader market challenges. The Mobile segment, which makes up around 67% of revenue, is heavily reliant on Apple. Mobile revenue grew 6% sequentially thanks to new product launches but is expected to decline seasonally in Q3 as smartphone demand softens and inventory normalizes. The mobile market’s growth is slowing as 5G adoption matures.

The Broad Markets segment, about 33% of revenue, showed steady improvement with five consecutive quarters of growth and returned to positive YoY gains. This segment benefits from rising demand in automotive connectivity, Wi-Fi 7, wireless gaming, and IoT devices, supported by strong design wins with automotive OEMs and Wi-Fi product makers.

Revenue from direct customers (large OEMs like Apple and Samsung) accounts for roughly 12.6% of total revenue and has remained relatively stable, while distributors make up about 87.4%, though distributor revenue declined due to inventory adjustments and softer end-market demand.

Source: Skyworks, TradingKey

Geographically, most of Skyworks’ revenue comes from US, about 75%, and Asia, driven primarily by smartphone and automotive manufacturers. However, revenues in these regions have been declining recently due to market softness and inventory adjustments. In contrast, the EMEA region, while smaller at around 5% of total revenue, has shown impressive growth with a 61% YoY increase. This strong performance in EMEA is largely fueled by expanding opportunities in automotive connectivity and enterprise networking, suggesting that while North America and Asia face near-term challenges, EMEA’s growth could help partially offset those declines if the company continues to capitalize on these emerging markets.

Source: Skyworks, TradingKey

Looking ahead, Skyworks expects a modest seasonal decline in Mobile revenue in Q3 but continued growth in Broad Markets. Skyworks is balancing challenges in a mature mobile market with growth opportunities in automotive, Wi-Fi, and IoT to diversify and sustain its business.

Growth potential

In the latest quarter, Skyworks secured multiple 5G design wins across premium Android smartphones, including flagship models from Samsung Galaxy S series, Google Pixel, and Oppo’s high-end devices. The automotive segment is also gaining traction, with key design wins for in-vehicle infotainment systems from major Japanese and European OEMs, reflecting the increasing demand for wireless connectivity in modern, software-defined vehicles. Additionally, Skyworks is capitalizing on the accelerating adoption of Wi-Fi 7, winning more business in routers, mesh networks, and enterprise access points, while early work on Wi-Fi 8 underscores its commitment to staying at the forefront of next-generation wireless technologies. These design wins are expected to convert into meaningful revenue over the next several quarters to years as customers ramp production and new products reach broader market adoption.

Valuation

Based on a discounted cash flow (DCF) analysis, the fair value range for Skyworks Solutions is $132.48 to $147.77 per share. This valuation reflects a careful projection of the company’s future free cash flows, discounted at a rate that accounts for both market risks and Skyworks’ business profile. The model incorporates expected revenue growth driven by expanding design wins in automotive connectivity, Wi-Fi 7 adoption, and premium 5G smartphones, balanced against the mature and seasonal nature of the mobile segment.

Risks

Skyworks faces risks from its heavy reliance on Apple, making it vulnerable to shifts in Apple’s demand. The company’s declining return on capital employed suggests challenges in efficiently converting investments into earnings growth. Additionally, supply chain disruptions, inventory overhang in some markets, and the cyclical nature of the semiconductor industry could pressure near-term performance. Finally, Skyworks must continue innovating to stay ahead amid intense competition and evolving technology standards.