Skyworks Solutions (SWKS)

The methods disagree: one places the value today above the price ($75) and the other below.

Today — fairly valued: at $75 trades ~6.5% below its value discounted to today (~$80); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($100) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$50.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($75) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (14.5%/year) above our base case (10.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$0.5 bn of owner earnings in year 5 (vs ~$0.4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on EV/NOPAT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM ended 3-Jul-2026 (US$4,014.1M of revenue), rolling grid through +5y. Year 1 starts from the current guidance in the 8-K of 28-Jul-2026 (Item 2.02), not from the historical trajectory: the guided quarter (Sep-2026) implies revenue of US$1,010-1,060M, -5.9% year over year against the implied Q4 FY2025 (US$1,100.2M = total FY2025 less the nine months already reported), even with Broad Markets (automotive + data center) guided at +5% year over year and ~39% of sales. -2.0% is taken as the year-1 anchor (softer than the guided quarter in isolation, because that -5.9% largely reflects the seasonal calendar of Mobile with the largest customer, not a structural deterioration) and the deceleration/recovery is declared as non-monotonic (a trough in years 1-2, recovery afterward) on the diversification toward Broad Markets. The GAAP TTM operating margin (7.6%) is depressed by expenses of the pending merger with Qorvo (US$97.2M in nine months of FY2026, against US$3.4M a year earlier), elevated SBC and restructuring charges from the closure of the Woburn plant; a gradual recovery toward ~16.5% in year 5 is projected, well below the FY2022 peak (27.8%), recognizing the structural competitive pressure the company itself declares as a risk. Stock-based compensation is material against the flow (5.8% of revenue but 53.5% of real FCF) — the metric (EV/NOPAT) expenses it automatically by starting from reported EBIT, with no additional adjustment. The quarterly dividend was explicitly suspended on 28-Jul-2026 (Item 8.01 of the 8-K); it is projected at zero going forward. Buybacks were practically nil over the last nine months (US$7.5M, paused during the merger review) against a new US$2,000M program only just authorized with no commitment on pace; it is modeled with `accumulateCash: true` and no share path, given that neither the TTM nor the authorization provides a material and sustained execution base from which to project a net buyback (§6, when in doubt, less buyback). The merger with Qorvo (announced 27-Oct-2025, combined valuation ~US$22,000M, closing expected within the calendar year per the CEO's release of 28-Jul-2026) is declared as pending risk/dilution but is not incorporated into the model: Skyworks is valued standalone, without the acquisition debt (~US$2,000-3,050M) or the shares to be issued to Qorvo shareholders.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (EV falls as cash increases). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $100 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $75, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $100 in 5 years and a required return of 4.5% annually, the maximum to pay today is $80. Against the current market price ($75), the margin of safety is 6.5% (trades below the maximum → there is margin) and the total return at that price would be 5.9% annually.

• Entry multiple on TTM NOPAT. Above 35x given depressed NOPAT from non-recurring costs; compresses materially as margin normalizes in the model.
• Exit multiple vs. archetype band. 40× in the base case, within the semis band [18x,25x] but at its low end, due to the narrow moat and current return quality below the bar.
• Estimated annual return (base case). +6% with no dividend contribution (suspended), entirely dependent on the projected margin recovery.
• Margin of safety today. It trades close to intrinsic value, far from the required margin of safety.
• Sensitivity to the exit multiple. The base case uses 18.5x on year-5 NOPAT; the adverse scenario compresses to 15x in addition to a weaker revenue and margin path.
• Price movement. No collapse in the stock that demands an explanation.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (136%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Current ROIC vs. the 10% bar. ~5.1% on invested capital of US$5,436M, below the bar, though depressed by non-recurring Qorvo merger costs.
• Historical operating margin. Reached 27.8% in FY2022, suggesting structural profitability higher than the current TTM shows.
• Cash conversion. Real TTM FCF (US$434.2M) is depressed by a working-capital build (~US$194M, mainly inventory) and elevated capex from plant consolidation.
• Stock-based compensation. SBC of 5.8% of revenue but 53.5% of real FCF; the valuation metric (EV/NOPAT) expenses it via reported EBIT.
• Effective tax rate. 9.4% TTM, notably below the statutory rate, per the filing itself.
• Balance sheet. Positive net cash (US$302.3M) before considering the pending acquisition debt for the Qorvo merger.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The R&D, capex, and SBC series cover FY2023-FY2025 (the three years provided by the 10-K's income statement/cash flow statement). R&D grew steadily (from 15.3% to 21.1% of TTM revenue) funding the diversification toward Broad Markets, while capex was volatile due to plant-consolidation costs (Woburn closure, Newbury Park expansion). The patent portfolio, the customer base, and Broad Markets' weight are point-in-time snapshots from the filing and guidance, not historical series.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (03-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• TTM revenue. US$4,014.1M, essentially flat year over year after three consecutive years of decline.
• Current-quarter guidance. Guided Q4 FY2026 implies -5.9% year over year, though partly explained by Mobile's seasonal calendar.
• Broad Markets growth. +5% year over year guided, with the design-win set expanding in automotive and AI data centers.
• R&D investment. Grew from US$606.8M (FY2023) to US$785.5M (FY2025), sustaining product diversification.
• 5-year projected path. The base case projects a gradual recovery from -2% in year 1 toward +4.5% in year 5 as Broad Markets gains weight.

• Recurrence of per-device content. Revenue depends on winning design wins that do not guarantee future volume; the customer can reduce or discontinue use of the product at any time.
• Product differentiation. Broad RF/analog portfolio (~4,900 products), but in a market the filing itself describes as intensely competitive and subject to constant technological change.
• Customer concentration. Three customers account for 82% of gross accounts receivable at the close of FY2025; Apple exceeded 10% of net revenue in each of the last three fiscal years.
• Sector cyclicality. The semiconductor industry is described by the company itself as highly cyclical and subject to significant downturns.
• Diversification toward Broad Markets. Automotive and AI data centers grow +5% year over year and already represent ~39% of guided sales, gradually reducing dependence on Mobile.
• Behavior during the recent downturn. Revenue fell a cumulative 25% between FY2022 and FY2025, with GAAP operating margin compressing more than 20 percentage points over the same period.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0.3 bn
• ✓Interest coverage (EBIT / interest)11.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 136% of ROIC
• ✕Value creation (ROIC − 10% bar)-5pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.6x — no over-investment
• !Float / working capitalConsumes cash $0.2 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 5.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash. US$799.2M of cash and short-term investments against US$496.9M of total debt.
• Pending acquisition debt. ~US$2,000-3,050M of additional committed financing for the Qorvo merger, not reflected in the current balance sheet nor in this standalone valuation.
• Current liquidity. Current assets of US$3,077.0M against current liabilities of US$1,323.2M at the close of FY2025.
• Interest coverage. TTM interest expense of only US$26.7M, amply covered by current EBIT.
• Working capital. Inventory build (~US$268M over nine months of FY2026) ahead of the demand cycle, a cyclical use of cash that compressed real TTM FCF.
• Dividend. Explicitly suspended on July 28, 2026; no longer commits cash going forward.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Leadership transition. New CEO (Phil Brace) at the point of greatest transactional complexity in the company's history.
• Skin in the game. Directors and executives as a group own less than 1% of the capital, with no founder or controlling shareholder.
• Capital allocation reset. Dividend suspension and redirection toward buybacks, deleveraging, and opportunistic M&A, in line with the Qorvo merger.
• Buyback discipline. The new US$2,000M program has no commitment on pace or minimum amount, and can be suspended at any time.

• Forced selling from the dividend suspension: funds and indices with income mandates (dividend payers / dividend aristocrats) are required to sell after the July 28, 2026 cut, a technical pressure disconnected from the business's value.
• Complexity and opacity of the pending Qorvo merger: until it closes (expected within the calendar year), the market discounts the uncertainty over final terms, leverage, and dilution instead of valuing the combined business with complete information.
• GAAP results depressed by non-recurring transaction costs (acquisition expenses, restructuring) that obscure underlying profitability and deter investors who look at the unadjusted GAAP multiple.

There are identifiable sources of discount — forced selling from the dividend cut and the opacity of a transformative merger still unclosed — that are compatible with missing buyers, not merely with the absence of a catalyst. That said, the business also faces real structural competitive compression, acknowledged by the company itself, so not all of the gap is perception: part is genuine risk that is priced into the required margin of safety.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -8%/year (-33% total): the margin of safety protects the downside. The bull (+16%/year, +114% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Customer concentration. Apple exceeded 10% of net revenue in each of the last three fiscal years; three customers account for 82% of gross accounts receivable.
• Pending Qorvo merger. Close expected within the calendar year per the July 28, 2026 press release, subject to regulatory and shareholder approvals from both parties; requires substantial additional debt.
• Sector cyclicality. The semiconductor industry is described by the company itself as highly cyclical and subject to significant downturns.
• Geopolitical exposure to China/Taiwan. Tariffs, export controls, and China-Taiwan tensions could impact manufacturing costs, availability of critical materials, and sales in China.
• Manufacturing disruptions. Relocation of the Singapore plant (before Jul-2030) and the closure/consolidation of the Woburn plant carry production-disruption risk.
• Competitive margin compression. The company acknowledges the risk of declining gross margins and loss of market share from increasing competition.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 10% at a multiple/growth of 4.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 5% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 14% vs our 10%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -8%/yr, bull-scenario ceiling +16%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: switching costs, efficient scale, intangibles → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 14% vs our 10%: coherent, but at the optimistic end of the range.