Skyworks Solutions Inc.’s latest design wins with Shenzhen-based ZTE Corp. will boost its position in the world’s largest market for connected vehicles and elsewhere amid a diversification effort welcomed on Wall Street.
The chipmaker, which is run from Irvine but designates its headquarters in Woburn, Mass., is supplying the Chinese manufacturing giant with integrated chips embedded in after-market products that essentially turn nonconnected vehicles into roaming hot spots.
Some of the first products available, carried by T-Mobile and AT&T, were released for the U.S. and Canadian markets, but China presents the largest growth potential.
“China is the largest opportunity for automotive in the world,” said John O’Neill, Skyworks’ director of product marketing for Internet of Things. “They consume the most and manufacture the most.”
ZTE, China’s second-largest telecommunications equipment maker, is aggressively targeting the connected car market with two new offerings carrying Skyworks components that enable vehicle tracking, diagnostics, and safety and security features, among others. Users access the information through an app.
The SyncUp Drive by T-Mobile costs about $120 and requires a two-year, two-gigabyte data plan for $2 per month. The ZTE Mobley carried by AT&T costs $100 for a no-contract term, plus $25 per month for five gigabytes of data. The device is free with a two-year service contract and a $45 activation fee.
“Ninety million cars and light trucks are shipped every year, but the vast majority of those do not have any cellular or network connectivity,” O’Neill said.
Market Trends
The developments come as wireless carriers across the globe try to wring more revenue from existing and potential customers through new subscription services and products, ranging from smart lighting to home security systems.
The trend is also playing out locally, evident in last year’s sale of Aliso Viejo-based logistics software maker Telogis Inc. to Verizon Communications Inc. for about $900 million. The buy added a significant player to a newer stand-alone division formed by the telecom giant to make headway in telematics, IoT, digital media, smart cities and other emerging segments.
Skyworks has supplied integrated chips and other components for ZTE since it was established in 2002 after Alpha Industries Inc. in Woburn, Mass., merged with the wireless communications business of Newport Beach-based chipmaker Conexant Systems in Irvine.
The combined company was renamed Skyworks Solutions. Its shares trade on the NASDAQ under the ticker symbol SWKS.
The wireless unit was one of four spinouts that included Mindspeed Technologies Inc. in Newport Beach as Conexant began to unravel after the tech bubble burst, steadily losing ground to competitors, such as Broadcom.
Mindspeed was acquired in 2013 in a $272 million cash deal by Lowell, Mass.-based competitor M/A-COM Technology Solutions Holdings Inc.
ZTE was a longtime customer of Alpha Industries and Conexant before their merger.
Woburn serves as Skyworks’ official headquarters, though corporate influence has swung to Orange County in recent years following Liam Griffin’s ascension to the top post. Griffin runs the company from its 127,000-square-foot office and design center at University Research Park.
He was groomed as David Aldrich’s successor and took the president title in May 2014 while serving as a key architect of the company’s strategy to build a leadership position in mobile communications and in its ongoing diversification efforts into IoT, Skyworks’ best growth market today, that includes automotive applications.
Skyworks’ communication chips are used in smartphones, tablets, routers, PCs and notebook computers, among other devices, including the Nest thermostat by Google Inc. and smart locks by Lake Forest-based Kwikset, the top-selling U.S. residential lock maker.
Though still an emerging application, Skywork’s integrated chips targeting the growing connected vehicle segment should command a higher premium than its chip sets for smartphone connectivity, which typically cost more than $10 per unit.
Diversification
Skyworks has quietly targeted the auto sector for about four years and doesn’t expect significant revenue gains for a few more years, according to O’Neill,
“That market moves very slowly,” he said, but “Skyworks is one of only a few suppliers that really possess system-level expertise to deliver these products.”
Components and devices in the global connected car market are projected to generate sales of more than $46.1 billion next year, up from about $15.3 billion in 2012, according to auto market researcher SBD and the GSMA trade group.
Wall Street has applauded the company’s diversification efforts beyond smartphones under Griffin.
“Skyworks is rapidly transforming into a diversified analog semiconductor company enabling global connectivity and the Internet of Things,” Rick Shafer, an analyst in the Denver office of New York-based Oppenheimer & Co. Inc., wrote in a recent note following Skyworks’ September release of its fiscal 2017 earnings report. “The diversification of SWKS’ top line away from mobile should limit volatility.”
Skyworks has more than 2,500 customers and produces about 2,500 analog components.
It posted sales of $3.7 billion in the 12 months through September, up 11% from the prior year. Net income for the Apple Inc. supplier topped $1 billion for the first time, compared to a profit of $995 million a year earlier—an enviable 28% profit margin.
The gains were driven by higher market share in radio frequency and analog components in smartphones, as well as increased business in emerging markets and IoT applications, and expansion into new market segments, such as automotive, industrial, medical and military, the company stated in its annual report.
“We see double digit growth sustaining into 2018,” Srini Pajjuri, an analyst in the San Francisco office of Australia-based Macquarie Group Ltd., wrote in a recent investor note.
Skyworks enters 2018 as OC’s third-largest chipmaker, with 376 local employees. Its Irvine operation has steadily grown in recent years, adding engineers and corporate personnel and department heads in finance, sales, marketing and legal.
