Apple Inc. (NASDAQ: AAPL) suppliers Qorvo Inc (NASDAQ: QRVO) and Skyworks Solutions Inc (NASDAQ: SWKS) are positioned to grow revenues despite the flatlining mobile device market, according an analyst at Wells Fargo.
Gary Mobley initiated coverage of shares of Qorvo and Skyworks with Overweight ratings, with a $135 price target for Qorvo and a $142 price target for Skyworks.
Companies such as Qorvo and Skyworks that specialize in radio frequency front end, or RFFE, components are poised to benefit from increased RF complexities of cellular, Wi-Fi, and other IoT radio technologies, Mobley said.
"RFFE has emerged as one of the key areas of differentiation in smartphones and one of only a few areas with an increasing bill of materials," the analyst wrote in a note.
The RFE has increased from about 3.5% of the bill of materials, or BoM, for an entry-level 3G phone to 14.6% for a premium 5G phone with mmWave, Mobley noted.
Mobley expects BoM for RFFE components in premium smartphones to increase by 30% by 2021. This, according to the analyst, will lead to higher dollar content per design win, notwithstanding the flat mobile device market.
These companies are also likely to benefit from fewer competitors, given only the strongest RFFE vendors can cater to the integration and volume requirements of leading smartphone and IoT device OEMs.
The resultant consolidation in favor of bigger players such as Qorvo and Skyworks should arm them with additional pricing power and better long-term margin potential, the analyst said.