Skyworks Comments Echo Our View on Major Catalyst for Apple

As part of our ongoing plan to keep our thinking fresh as we move through the ongoing September quarter earnings season, let’s look at what RF semiconductor company Skyworks SWKS had to say last night when discussing September quarter results and its outlook for the current quarter.

When it comes to Skyworks, there are two things we pay attention to. First, the end market we pay attention to most is smartphone, which accounts for roughly two-thirds of its revenue. Second, is its “largest customer,” which is generally believed to be Apple AAPL. That largest customer accounted for 69% of revenue in Skyworks’ September quarter, and that business was up 21% sequentially.

Our thinking has been the expected AI-led upgrade cycle for the iPhone, Apple’s largest product offering, would start to accelerate once more robust Apple Intelligence features are released. During its earnings call on Tuesday night, management at Skyworks echoed that view, but it also guided revenue for its largest customer to be up 5% to 10% sequentially in the December quarter.

That is a tad better than the implied guidance Apple issued when it reported its December quarter, but it also doesn’t imply a jolt to the upgrade cycle. We continue to think that the upgrade cycle will start to pick up once Apple publicly releases iOS 18.2, which is now speculated to be around December 9. As more Apple Intelligence features are brought to market in future iOS releases, that upgrade cycle could accelerate.

Outside of Apple, Skyworks serves other smartphone companies, including Samsung, and in full it sees its overall December quarter smartphone business up mid-single digits sequentially. That matches the guidance issued by Qualcomm QCOM last week and also adds support for the business at Universal Display OLED. As we discussed yesterday, the next known potential catalyst for QCOM shares will be the company’s November 19 Investor Day presentation.

3Q 2024 AI-PC Shipments Accelerate

Ahead of that, early on Wednesday morning, research firm Canalys shared its findings that AI-capable PC shipments hit 13.3 million units in 3Q 2024, up 49% sequentially and representing 20% of all PC shipments during the quarter. Beneath those figures, Canalys found the shares of Windows devices within total AI-capable shipments increased to 53% during the September quarter, up from 41% in the June quarter.

Parsing the figures, total Windows AI-capable PC shipments grew 93% compared to the June quarter. This makes sense, given the announced product launches from HP HPQ, Dell DELL and others, and it sets the stage for Qualcomm’s diversification-heavy presentation next week.

Why We’re Interested in Cisco’s Earnings Tonight

We’ll continue to follow AI device adoption as well as AI uptake in the enterprise and track the implications for enterprise networking and carrier infrastructure capacity capital spending. As part of that homework, we’ll be interested in Cisco’s CSCO comments about AI adoption and network implications.

October Inflation Data and Our Shopping List

As it relates specifically to QCOM and OLED shares, which have traded off recently, we’ll at least want to digest this morning’s October CPI report and most likely tomorrow’s October PPI report and comments from Fed Chair Powell before making any next moves. As we discussed in Monday’s video, recent core CPI and PPI data trended in the wrong direction (meaning higher), pointing to inflation being sticky. The consensus view for the October core CPI is for it to rise 0.3% sequentially and be up 3.3% year over year, matching the respective figures for September.

If that trend continues in the October data, it could call into question the potential for a December rate cut by the Fed. A warmer-than-expected core CPI print this morning could also bring an excuse for traders and other short-term focused investors to take profits following the post-election pop we’ve seen in the stock market.

Should that come to pass, once the dust settles it could bring an opportunity to put some capital to work for our shopping list. In addition to QCOM and OLED shares, that list also includes the shares of Meta META, United Rentals URI, Eaton ETN, Waste Management WM and Builders First Source BLDR. Whether or not we act on that list will hinge on whether a favorable risk-to-reward entry point presents itself.

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At the time of publication, TheStreet Pro Portfolio was long AAPL, QCOM, OLED, META, URI, ETN, WM and BLDR.