Skyworks Presentation_Haley Large-Cap Fund

STOCK RECOMMENDATION FOR HAYLEY LARGE CAP FUND

P R E PA R E D BY T H AO P H U O N G L E , V I L L A N OVA M S F ’ 1 6

SKYWORKS SOLUTIONS, INC.Company Overview

Stock Analysis

Target Price

Summary

2

BUSINESS DESCRIPTION3

Company Overview• Founded in 1962

• Provide analog & mixed signal semiconductors

• Include a portfolio of a wide range of products

• Over 1,800 worldwide patents

• One of the world’s largest RF suppliers to the smartphone industry

• Went public in 1990 as NASDAQ:SWKS

• IWF Score of 49

4

10/22/10

1/28/115/6/11

8/12/11

11/18/11

2/24/126/1/12

9/7/12

12/14/12

3/22/13

6/28/13

10/4/13

1/10/14

4/18/14

7/25/14

10/31/142/6/15

5/15/15

8/21/150

20

40

60

80

100

120

Historical Price of SWKS

Price

Year

Pric

e

http://www.skyworksinc.com/Application.aspx

Customers

5

Foxconn34%

Samsung10%

Other56%

Revenue by Customers in 2014

Foxconn Samsung Other

• Key customers: Foxconn, Samsung, Cisco,

Dell, Fujitsu, GE, Google, HTC, Huawei, Lenovo,

LG, Microsoft, etc.

• Through Foxconn: main RF supplier for Apple

Apple & Skyworks

10/15/10

12/31/10

3/18/116/3/11

8/19/11

11/4/11

1/20/124/6/12

6/22/129/7/12

11/23/122/8/13

4/26/13

7/12/13

9/27/13

12/13/13

2/28/14

5/16/148/1/14

10/17/141/2/15

3/20/156/5/15

8/21/150

20

40

60

80

100

120

140

5y Price Comparison between AAPL & SWKS

Skyworks Apple

6

Stock AnalysisQuality

Growth

Momentum

Valuation

7

Business Quality• Strategic relationship with both Samsung & Apple

• Quality of products

• Diversified portfolio

• Sustainable energy plans

8

Quality Growth Momentum Valuation

Management Quality• Award winning management

• CEO: David Aldrich-12 years:• 1,245% stock growth• One of America’s best managed companies in 2014

• CTO: Dr. Peter L. Gammel• 20 years experience in new product & funding development• About 50 patents filings & more than 200 publications

9


Industry Analysis: Porter’s Five ForcesForce Strength Analysis

Threat of New Entrants High • High capital requirement• High economies of scale

Power of Suppliers Low • Lots of suppliers• Low switching costs

Power of Buyers Low • Threat of backward integration• Dominated by small large players

Availability of Substitutes Medium • Intellectual property rights• “Copy cat”

Rivalry Medium • Pressure to develop new technology• High exit barriers• Few major players

10


Industry Analysis: Demand Drivers

Gaming20hrs-1.2GB

Music Streaming

10hrs-1.7GB

Std. Def Video

10hrs-2.6GB

High Def Video

10hrs-10GB4k Video

10hrs-30GB

11


Cloud computing: Significant & Growing contributor to data demand

Souce: U.S Cellulars, 4G Americas

Mean usage in North America per month

Industry Analysis: Demand Drivers

• Early stage of mobile payments

• Increasing growth for e-commerce

• Higher demand for businesses to connect with customers through mobile

• New market opportunities: Connected Home & Automotive Apps

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Financial Quality: Profitability

13


2005 2006 2007 2008 2009 2010 2011 2012 201 2014

-7.74

17.19

-11.59

19.76

SWKS’s ROA & ROE from 2005-2014

Return on Assets Return on Equity

2005 2006 2007 2008 2009 2010 2011 2012 201 201436.00

37.00

38.00

39.00

40.00

41.00

42.00

43.00

44.00

38.54

41.14

43.50

Gross Margin

Financial Quality: Profitability <cont’>

14

Skyworks Analog Devices Avago Technologies Linear Technology Corp.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

24.21%

20.03%

5.93%

34.71%

Comparable ROIC in FY2014

Skyworks Analog Devices Avago Technologies Linear Technology Corp.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

120.93%

84.06%

45.10%

98.64%

Comparable Sales/IC in FY2014


Historical Growth

Sep'10 Sep'11 Sep'12 Sep'13 Sep'140

0.5

1

1.5

2

2.5

3

0.75

1.2 1.12

1.47

2.4

EPS

EPS Exponential (EPS)

15


2010 2011 2012 2013 20140.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

33.55%

10.55%

27.87%

20.92%

Sales Growth for the past 5 years

Sales Growth Average

Future Growth

2010 2011 2012 2013 2014 2015 2016 20170.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

1.071.42 1.57

1.79

2.29

2.93

3.75

4.68

Forecasted Sales

• 26.9% average sales growth for the next 3 years

• Consistent with management’s expectation & Bloomberg & FactSet forecasts

16


Price Momentum: Relative to IT Industry

10/31/05

1/30/065/1/06

7/31/06

10/30/06

1/29/07

4/30/07

7/30/07

10/29/07

1/28/08

4/28/08

7/28/08

10/27/08

1/26/09

4/27/09

7/27/09

10/26/09

1/25/10

4/26/10

7/26/10

10/25/10

1/24/11

4/25/11

7/25/11

10/24/11

1/23/12

4/23/12

7/23/12

10/22/12

1/21/13

4/22/13

7/22/13

10/21/13

1/20/14

4/21/14

7/21/14

10/20/14

1/19/15

4/20/15

7/20/150

500

1000

1500

2000

2500

(INDEX) Skyworks (INDEX) SP5IT

17


Price Mometum: Relative to Competitors

18


10/18/13

11/5/13

11/23/13

12/11/13

12/29/13

1/16/142/3/14

2/21/14

3/11/14

3/29/14

4/16/145/4/14

5/22/146/9/14

6/27/14

7/15/148/2/14

8/20/149/7/14

9/25/14

10/13/14

10/31/14

11/18/14

12/6/14

12/24/14

1/11/15

1/29/15

2/16/153/6/15

3/24/15

4/11/15

4/29/15

5/17/156/4/15

6/22/15

7/10/15

7/28/15

8/15/159/2/15

9/20/15

10/8/150

50

100

150

200

250

300

350

400

450

500

SWKS ADI AVGO

Earnings Momentum

19


Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Actual Mean

Valuation: DCF Model

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FCF

Audited Audited Audited Audited Audited Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast

FY 2010 FY 2011 FY 2012 FY 2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024

Free Cash Flow 98.6 172.2 270.2 208.6 200.5 244.3 267.6 539.7 786.2 950.1 1,082.1 1,672.5 1,772.8 1,861.5

Terminal Value 37,043.3

PV of FCFF 2,747.5

PV of Terminal Value 16,881.2

Inputs Share PriceTerminal Growth Rate 3.00% Terminal Growth RateWACC 8.18%

WACC

102.36 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75%6.68% $131.91 $139.02 $147.04 $156.15 $166.59 $178.67 $192.82

Enterprise Vaue 7.18% $115.34 $120.81 $126.90 $133.72 $141.41 $150.14 $160.15 Operating Value 19,628.74 7.68% $101.99 $106.29 $111.03 $116.28 $122.12 $128.66 $136.03 Plus: Non-operating Assets 771.87 8.18% $91.02 $94.47 $98.23 $102.36 $106.91 $111.94 $117.54 Enterprise Value 20,400.61 8.68% $81.88 $84.69 $87.73 $91.03 $94.64 $98.60 $102.96 Less: Debt & Equivalents (143.6) 9.18% $74.17 $76.48 $78.97 $81.66 $84.57 $87.74 $91.21 Equity Value 20,256.97 9.68% $67.59 $69.51 $71.57 $73.79 $76.18 $78.76 $81.55 Basic Shares Outstanding 197.90 Share Price $102.36

Valuation: PEG

SWKS AVGO LLTC ADI MXIM0

0.5

1

1.5

2

2.5

3

3.5

0.6 0.6

2.9

1.82

PEG

PEG

21


Valuation: Relative Multiple

22


Comparable Company Multiple Analysis Enterprise Value EBIT EV/EBIT

Analog Devices 16,653 829.6 20.07 Avago Technologies 33,945 635.0 53.46 Linear Technology Corp. 9,554 682.7 13.99

Mean 29.17 Median 20.07

FCF Audited Audited Audited Audited Audited Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast

FY 2010 FY 2011 FY 2012 FY 2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024Free Cash Flow 98.6 172.2) 270.2 208.6 200.5 244.3 267.6 539.7 786.2 950.1 1,082.1 1,672.5 1,772.8 1,861.5 Terminal Value 45,335.15 PV of FCFF 5,361.69 PV of Terminal Value 20,659.96

Inputs Share PriceTerminal Growth Rate 3.00% Terminal Growth RateWACC 8.1759099%

WACC

$134.66 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75%6.68% $152.18 $152.47 $152.77 $153.06 $153.35 $153.64 $153.93

Enterprise Vaue 7.18% $145.78 $146.06 $146.34 $146.62 $146.90 $147.17 $147.45 Operating Value 26,021.65 7.68% $139.70 $139.96 $140.23 $140.49 $140.76 $141.02 $141.29 Plus: Non-operating Assets 771.87 8.18% $133.90 $134.16 $134.41 $134.66 $134.92 $135.17 $135.42 Enterprise Value 26,793.52 8.68% $128.39 $128.63 $128.87 $129.11 $129.36 $129.60 $129.84 Less: Debt & Equivalents (143.6) 9.18% $123.14 $123.37 $123.60 $123.83 $124.06 $124.29 $124.52 Equity Value 26,649.88 9.68% $118.14 $118.36 $118.58 $118.80 $119.02 $119.24 $119.46 Basic Shares Outstanding 197.90 Share Price $134.66

Target Price: $102.36 vs. Current price: $78.29Consensus Rating 4.54Buys 83.3% 20Holds 12.5% 3Sells 4.2% 112M Target Price $116.40

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Source: Bloomberg

Source: FactSet

Summary• Rising RF content

• Good financial quality with robust revenue growth, growing ROE, expanding profit margin & strategic plan to diversify products

• Recommendation: BUY with target price: $102.35

Investment Risks:

• Operational risk• Dependent on Apple

• Economic risk• Another recession

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Thank you!STOCK RECOMMENDATION FOR HAYLEY LARGE CAP FUND

P R E PA R E D BY T H AO P H U O N G L E , V I L L A N OVA M S F ’ 1 6

Q&A