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Huawei Ban Catches Skyworks by Surprise

The U.S. ban on Chinese company Huawei Technologies Co. spells trouble for semiconductor company Skyworks Solutions Inc. (Nasdaq: SWKS) in Irvine.

Skyworks earlier this month slashed its revenue outlook for the fiscal third-quarter ended June 28 to as low as $755 million from a previous floor of $815 million. It also cut its adjusted profit to $1.34 from a prior outlook of $1.50. Huawei represented 12% of its revenue in the first half of fiscal 2019, Skyworks said in its June 4 statement.

Skyworks said its prior outlook, given just a month earlier, “did not anticipate” Huawei being placed on a U.S. government banned list.

The company bluntly said it can’t predict “if and when shipments will resume’’ to Huawei and its affiliates.

With no end to the Trump administration’s ban in sight, some analysts were quick to jump in with cautions about the future of Skyworks’ sales of mobile and wireless infrastructure products to the Chinese.

Argus Research Council of Stamford, Conn., downgraded the stock from “buy” to “hold.”

Shares have tumbled about 11% since May 15, when President Donald Trump declared a national emergency because of “foreign adversaries” that increasingly create and exploit weaknesses in U.S. communications technology infrastructure and services.

The company was valued at about $12.5 billion as of last week, it is Orange County’s fourth-largest public company by market value. Skyworks’ “miss is the latest in a growing line of semiconductor company estimate cuts related to the U.S. government ban on Huawei,” Oppenheimer analyst Rick Schafer said in a note.

Somewhat ominously, Schafer added, “The Huawei ban and ongoing US-China trade dispute exacerbate an already challenged smartphone market backdrop this year. With outsized handset exposure, risk/reward appears balanced.”

He maintained the Skyworks stock at “perform.”

Skyworks still has a lot of fans as 18 analysts recommend buying it, while five rate it a hold and one said to sell it, according to Nasdaq.com. After the June statement, its shares dropped to $66.57 and last week rebounded to about $73.10. A year ago, its shares reached a 52-week high of $103.95.

The company is expected to report earnings on July 18.

While Skyworks’ registered headquarters are in Woburn, Mass., Chief Executive Liam Griffin runs the company from its Irvine office along with engineering support, sales, marketing, and other teams. Skyworks, which is Orange County’s third-largest chipmaker, has 400 local and 8,700 companywide employees.

The U.S.-Chinese standoff isn’t the only challenge for Skyworks.

The chipmaker had already missed Wall Street’s expectations for fiscal second-quarter revenue. Skyworks, whose biggest customer is Apple Inc., reported headwinds to its mobile business.

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Kevin Costelloe
Kevin Costelloe
Tech reporter at Orange County Business Journal
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