Skyworks Solutions, Inc. (SWKS) in Woburn, Mass., and Seattle, Wash.-based Impinj, Inc. (PI) are gaining popularity in the Internet of Things (IoT) space. SWKS is a wireless semiconductor company that designs and manufactures semiconductor products for radiofrequency and mobile communications applications. PI provides RAIN radio-frequency identification solutions for identifying, locating, and authenticating wirelessly connected items, and offers radio chips, gateways, readers and antennas, and software through its platform.
The demand for IoT-powered devices is on the rise across several industries. The continuing developments regarding keeping the data secure and enabling the devices to be monitored and controlled remotely and efficiently should fuel the IoT industry’s growth. Investor optimism about this industry’s growth prospects is evident in the Global X Internet of Things Thematic ETF’s (SNSR) 35.4% returns over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 32.1% gains. The global IoT market is expected to grow at a 10.5% CAGR to $1.39 trillion by 2026. By contributing significantly to the IoT devices market, both SWKS and PI should benefit from the industry tailwinds.
While PI’s price declined 19.6% over the past month, SWKS surged 11.2%. In terms of their past six months’ performance, SWKS is again a clear winner with 16% gains versus PI’s negative returns. But, which of these stocks is a better pick now? Let’s find out.
Click here to checkout our Semiconductor Industry Report for 2021
Latest Movements
In an announcement dated June 23, 2021, SWKS and Xilinx, Inc. (XLNX), a supplier of programmable logic devices, reported compliance with 3GPP linearity and bandwidth requirements for C-band signals. Using XLNX’s Zynq RFSoC Gen 3 and SWKS’ SKY66523-11 high-efficiency power amplifier (PA), the 280 MHz instantaneous bandwidth (IBW) solution has an operational frequency range of 3550 to 4200 MHz. At nearly $81 billion, the recent U.S. Federal Communication Commission (FCC) auction of 280 MHz C-band spectrum was the highest-value spectrum sale in history. Both companies hope to capitalize on the emergence of 5G technology.
On April 22, 2021, SWKS inked a definitive agreement with Silicon Laboratories Inc. (SLAB), a leading silicon, software, and solutions provider, to acquire SLAB’s Infrastructure & Automotive business in an all-cash asset transaction valued at $2.75 billion. The acquisition encompasses the technology portfolios and related assets of SLAB’s power/isolation, timing, and broadcast product lines, accelerating SWKS’ capabilities in the automotive, communications, and industrial markets.
On June 15, 2021, PI introduced three next-generation E710, E510, and E310 RAIN RFID reader chips that address the increasing demand for item connectivity in retail, supply chain and logistics, consumer electronics, and many other markets. With industry-leading system integration and easy-to-use development tools, this high-performance, low-power systems-on-chips (SoCs) enables the development of quick-to-market IoT devices that reliably identify, locate, and authenticate connected things. The company is likely to witness rising demand from IoT device makers in the coming months.
As of February 10, 2021, PI had shipped more than 50 billion endpoint integrated circuits (ICs) and three million connectivity ICs and devices across diverse markets, including retail, supply chain and logistics, healthcare, automotive, and air transportation. The company achieved this milestone in just over two years, highlighting the opportunity available for RAIN RFID and IoT expansion. By helping businesses transform digitally, PI is looking forward to achieving expanded market reach for RAIN RFID and ICs.
Recent Financial Results
SWKS’ net revenue for its fiscal second quarter, ended April 2, 2021, came in at $1.17 billion, representing a 53% year-over-year improvement. The company’s non-GAAP gross profit increased 54.8% year-over-year to $594.80 million. Its non-GAAP operating income is reported at $440.10 million for the quarter, up 77% from the prior-year period. While its non-GAAP net income increased 72.2% year-over-year to $395.20 million, its non-GAAP EPS increased 76.9% year-over-year to $2.37. As of April 2, 2021, the company had $1.06 billion in cash and cash equivalents.
For its fiscal first quarter, ended March 31, 2021, PI’s revenue decreased 5.4% year-over-year to $45.25 million. The company’s non-GAAP gross profit came in at $22.76 million, up 3.3% from the prior-year period. Its non-GAAP income from operations has been reported at $880,000 for the quarter, representing a 70.6% year-over-year decline. PI’s non-GAAP net income decreased 88.5% year-over-year to $336,000. Its non-GAAP EPS decreased 92.3% year-over-year to $0.01. The company had $49.80 million in cash and cash equivalents as of March 31, 2021.
Past and Expected Financial Performance
SWKS’ revenue and total assets have grown at CAGRs of 4.4% and 6.5%, respectively, over the past three years. The company’s tangible book value has increased at a CAGR of 3.7% over the past three years.
Analysts expect SWKS’ revenue to increase 27.6% year-over-year in the current quarter (ending September 30, 2021), 49.3% in the current year, and 5% next year. Its EPS is expected to increase 33.3% in the current quarter, 68.7% in the current year, and 5.5% next year. The stock’s EPS is expected to grow at a rate of 16.9% per annum over the next five years.
In comparison, PI’s revenue and total assets have grown at CAGRs of 4.8% and 11.9%, respectively, over the past year. The company’s tangible book value declined at a 7.6% CAGR over the past three years.
Analysts expect PI’s revenue to increase 51.4% year-over-year in the current quarter (ending September 30, 2021), 25.5% in the current year, and 19.3% next year. However, its EPS is expected to remain negative in the current year but increase 308.3% next year. Analysts expect the stock’s EPS to grow at a 10% rate per annum over the next five years.
Profitability
SWKS’ trailing-12-month revenue is 32.1 times PI’s. SWKS is also more profitable, with a 31.9% EBIT margin versus PI’s negative value.
Also, SWKS’ ROE, ROA, and ROTC values of 27.4%, 16.3%, and 19%, respectively, compare favorably with PI’s negative values.
Valuation
In terms of non-GAAP forward P/E, SWKS is currently trading at 18.10x, compared to PI’s negative 330.31x. PI’s 7.25x trailing-12-month EV/Sales is 6.5% higher than SWKS’ 6.81x.
Also, in terms of trailing-12-month Price-to-Book, PI’s 11.63x is 76.5% higher than SWKS’ 6.59x.
POWR Ratings
While PI has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, SWKS has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
SWKS has a C grade for Value, which is consistent with its slightly higher-than-industry valuation ratios. SWKS’ 6.22x forward Price-to-Book value is 6.6% higher than the 5.84x industry average. However, PI’s D grade for Value reflects its overvaluation. The company has a 12.10x forward Price-to-Book value, which is 107.3% higher than the 5.84x industry average.
In terms of Quality, SWKS has been graded a B, which is consistent with its higher-than-industry profitability ratios. SWKS’ 31.9% trailing-12-month EBIT margin is 302.5% higher than the 7.9% industry average. In comparison, PI has a C grade for Quality, which is in sync with its negative EBIT margin.
Of 99 stocks in the B-rated Semiconductor & Wireless Chip industry, PI is ranked #87, while SWKS is ranked #26.
Beyond what we’ve stated above, our POWR Ratings system has also rated PI and SWKS for Growth, Sentiment, Momentum, and Stability.
Get all PI ratings here. Also, click here to see the additional POWR Ratings for SWKS.
Click here to checkout our Semiconductor Industry Report for 2021
The Winner
To meet domestic needs amid a global chip supply shortage, the U.S, Senate passed a bill to allocate $52 billion to boost domestic semiconductor production. This, combined with the rising demand for IoT devices from almost all sectors, should enable both SWKS and PI to grow. However, better financials, higher profitability, and lower valuation make SWKS a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.
SWKS shares were trading at $189.64 per share on Tuesday afternoon, up $2.49 (+1.33%). Year-to-date, SWKS has gained 24.75%, versus a 16.20% 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…
