Skyworks Solutions, Inc. (SWKS) and Qualcomm Incorporated (QCOM) are two prominent players in the semiconductor industry. SWKS in Irvine, Calif., designs and manufactures semiconductor products for radiofrequency and mobile communications applications. It serves the aerospace, automotive, broadband, entertainment, and gaming, medical, military, smartphone, and wearable markets. It sells its products through a direct sales force, electronic component distributors, and independent sales representatives. In comparison, San Diego, Calif-based QCOM is a multinational semiconductor and telecommunications equipment company that delivers products and services based on code-division multiple access (CDMA) technology used in digital wireless communications equipment and satellite ground stations. It operates through three segments–Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).

Despite the continuing semiconductor chip shortage, surging demand for semiconductor chips across industries with the increasing adoption of advanced technologies has driven a 23% rise in global semiconductor sales in the 2022 first quarter versus the prior-year period. Furthermore, increasing corporate and government investments to ramp up chip production bode well for the industry. The global semiconductor market is expected to grow at a 9.2% CAGR to reach $893.10 billion by 2029. So, both SWKS and QCOM should benefit. 

While SWKS’ stock has declined 16% in price over the past month, QCOM has gained marginally. QCOM is a winner with 6.1% gains over the past year versus SWKS’ 38.1% loss. But which of these stocks is a better pick now? Let’s find out.

Note that QCOM is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.

Latest Developments

On July 26, 2021, SWKS acquired the Infrastructure & Automotive business of fabless semiconductor manufacturer Silicon Laboratories Inc. (SLAB) for $2.75 billion. The acquisition should further accelerate SWKS’ profitable growth in key industry segments, including electric and hybrid vehicles, industrial and motor control, power supply, 5G wireless infrastructure, optical data communications, and data center.

On May 10, 2022, QCOM and Vietnamese telecommunications company Viettel Group collaborated to develop a next-generation 5G Radio Unit (RU) with massive MIMO capabilities and distributed units (DUs). Using QCOM’s Qualcomm X100 5G RAN Accelerator Card and Massive MIMO Qualcomm QRU100 5G RAN Platform with Viettel High Technology’s advanced hardware and software systems will help Viettel accelerate the development and commercialization of high-performance Open RAN massive MIMO solutions, simplify network deployment and lower total cost of ownership (TCO). This should help companies fast track the development and roll-out of 5G network infrastructure and services in Vietnam and globally.

Recent Financial Results

SWKS’ revenue for its fiscal 2022 second quarter, ended April 1, 2022, increased 14% year-over-year to $1.34 billion. The company’s non-GAAP gross profit came in at $683.30 million, up 14.9% from the year-ago period. Its non-GAAP operating income was $490.90 million for the quarter, indicating an 11.5% rise from the prior-year period. While its non-GAAP net income increased 9.4% year-over-year to $432.30 million, its non-GAAP EPS grew 11% to $2.63. The company had cash and cash equivalents of $656.40 million as of April 1, 2022.

For its fiscal 2022 second quarter, ended March 27, 2022, QCOM’s non-GAAP revenues increased 40.8% year-over-year to $11.16 billion. The company’s non-GAAP operating income came in at $4.37 billion, up 63.7% from the year-ago period. QCOM’s non-GAAP net income came in at $3.66 billion, representing a 67.6% rise from the prior-year period. Its non-GAAP EPS came in at $3.21, indicating a 69% year-over-year improvement. As of March 27, 2022, the company had $7.17 billion in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, SWKS’ revenue, EBIT, and EPS have increased at CAGRs of 12.7%, 8.8%, and 11.2%, respectively.

SWKS’ EPS is expected to increase 7.1% year-over-year in its fiscal year 2022, ending Sept. 30, 2022, and 10.5% in its fiscal year 2023. Its revenue is expected to grow 8.6% in its fiscal year 2022 and 7.5% in its fiscal year 2023. Analysts expect the company’s EPS to grow at an 11.9% rate per annum over the next five years.

QCOM’s revenue, EBIT, and EPS have increased at CAGRs of 22.8%, 51.3%, and 75.1%, respectively, over the past three years.

Analysts expect QCOM’s EPS to grow 47.4% year-over-year in its fiscal 2022, ending Sept. 30, 2022, and 4.8% in its fiscal year 2023. Its revenue is expected to rise 33.5% year-over-year in fiscal 2022 and 8.2% in fiscal 2023. Analysts expect the company’s EPS to grow at a 14.5% rate per annum over the next five years.

Valuation

In terms of non-GAAP P/E, QCOM is currently trading at 10.87x, which is 17.9% higher than SWKS’ 9.22x. And in terms of forward EV/Sales, SWKS’ 3.26x compares with QCOM’s 3.48x.

Profitability

QCOM’s trailing-12-month revenue is almost 7.5 times SWKS’. QCOM is also profitable, with a 58.5% gross profit margin versus SWKS’ 47.9%.

Furthermore, QCOM’s ROE, ROA, and ROTC of 107.6%, 19.7%, and 30.7% compare with SWKS’ 27.7%, 13.5% and 15.4%, respectively.

POWR Ratings

While QCOM has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, SWKS has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

In terms of Growth, QCOM has been graded a B, which is in sync with its higher-than-industry growth rates over the past year. QCOM’s EBIT has grown 43.7% over the past year, which is 50.6% above its industry’s 29% average. SWKS’ C grade for Growth reflects its lower-than-industry growth rates. SWKS’s EBIT has grown 12% over the past year, which is 58.6% lower than the 29% industry average.

QCOM has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. QCOM’s 58.5% trailing-12-month gross profit margin is 15.7% higher than the 50.6% industry average. SWKS’ C grade for Quality is in sync with its lower-than-industry profit margins. Also, SWKS has a 47.9% trailing-12-month gross profit margin, which is 5.3% lower than the 50.6% industry average.

Among the 95 stocks in the B-rated Semiconductor & Wireless Chip industry, QCOM is ranked #6, while SWKS is ranked #63.

Beyond what we have stated above, our POWR Ratings system has also graded QCOM and SWKS for Sentiment, Stability, Value, and Momentum. Get all QCOM ratings here. Also, click here to see the additional POWR Ratings for SWKS.

The Winner

Strong demand and increasing investments to ramp up chip production should benefit fundamentally sound chip stocks SWKS and QCOM. However, we think its higher profitability makes QCOM a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.

SWKS shares were trading at $100.53 per share on Wednesday afternoon, down $2.23 (-2.17%). Year-to-date, SWKS has declined -34.93%, versus a -16.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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