Shares of Skyworks Solutions Inc (NASDAQ: SWKS) have fallen by 5% after the US chipmaker disappointed investors with its guidance for the current financial quarter. Additionally, BMO Capital Markets analyst Ambrish Srivastava has downgraded the stock to “market perform”, citing the company’s margins as a concern.
BMO downgrades Skyworks stock
Srivastava’s downgrade was based on his expectation that the company’s margins will remain under pressure for at least a few quarters, combined with the high inventory on its balance sheet. In a recent note, he said:
We can live with lower top-line in a choppy market. But it’s the multi-quarter headwind to [gross margins] that we’re uncomfortable with, combined with very high inventory on its balance sheet.
JP Morgan analyst Harlan Sur has also expressed a similar view on Skyworks stock in his report. The company’s Q2 earnings matched Street estimates, as per its press release last night. However, the stock is currently down by nearly 20% versus its year-to-date high. Srivastava has also lowered his price objective on the stock to $100, which is roughly in line with where it is currently trading.
Skyworks shares lack meaningful upside
Srivastava’s downgrade was also based on the slow recovery in China, which is contributing to the worsening of the inventory side of the equation. He said that this brings up the question of whether Skyworks is seeing something structurally different, whether it has to do with issues ranging from more competitive pricing, share shifts, or not having the right product mix.
The downgrade comes at a time when the US semiconductor industry is facing a global chip shortage, which has disrupted manufacturing and led to a surge in prices. The sector has also been hit by a temporary production halt at a major chipmaker due to the winter storm in Texas earlier this year.
Conclusion
The downgrade by BMO Capital Markets is likely to impact Skyworks Solutions Inc’s stock in the short term. However, the company’s long-term prospects are expected to remain strong, given the growing demand for semiconductors in the age of digital transformation. As the global chip shortage eases, the semiconductor industry is likely to see a rebound in demand, which could benefit Skyworks in the long run.