Handset business depicts strength at SWKS

Skyworks Solutions, Inc. ( ) which designs, manufactures and markets wireless semiconductor solutions for the mobile communications industry, is expected to report third quarter results on July 22, 2009.

Management expects revenues in the third quarter to increase 5% sequentially to $182 million. Gross margin is anticipated around 40.0%. Non-GAAP EPS (excluding extra ordinary items) is estimated around $0.14.

The global economic showdown has hit the top-line in the past two quarters as demand for certain products has been sluggish, but was partially offset by market share gains in the handset business.

Skyworks Solutions faces strong competition both inside and outside the United States, including Agere Systems, RF Micro Devices ( ), TriQuint ( ) and Texas Instruments ( ). The rapid pace of technological change means that the company must anticipate new product trends in order to survive.

It continues to benefit from diversified exposure across both handsets (smart phones) and analog markets (China-based stations, energy management), which have made up for broader handset inventory adjustment. The launch of 3G in China is expected to provide a significant opportunity for growth.

Further, the company has tie-ups with major OEMs that underscore the company’s success in gaining market share. Almost 80% of the handset market is now controlled by five OEMs. Skyworks has, therefore, forged important relationships with OEMs, such as Samsung, Motorola ( ), Nokia ( ), Siemens (SI), Sony-Ericsson ( )-(ERIC) and LG.

Skyworks’ strategy of providing integrated solutions is helping it gain market share at leading OEMs. The increasing dollar content per handset is offsetting price pressure. The trend towards wireless handsets with greater functionality favors the company’s business model. Handsets now account for 75% - 80% of total quarterly revenues.

We maintain our Buy on the stock ahead of the third quarter results.