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Jim Cramer: Skyworks, A Proxy To Both Apple & Samsung
Aspire, Thought Leaders | 14 April 2015
By: Raymond Leung
Articles (142) Profile

Flash memory chip maker, SanDisk (SNDK) took a hit in its share prices after cutting its first quarter revenue outlook. Its revenue outlook was cut from $1.4 billion to $1.3 billion due to lower than expected sales.

However, Wall Street continues to remain upbeat about the company while Cramer holds a vastly different view! This is what Cramer recommends investors to do: dump SNDK and buy Skyworks Solutions (SWKS).

SanDisk Not In Bed With Apple
To Cramer, SanDisk is a poor company to be invested in despite support from Wall Street. The company is a commodity producer of flash memory and data storage solutions which had three consecutive misses in financial results.

Source: Income Statement of SanDisk, Bloomberg

Cramer believes that analysts should stop recommending SNDK. The reason being that the flash memory maker is only one of many in the market with no proprietary technology.

When it comes to semiconductor companies, Cramer will always ask the same question, “Are you with Apple?” The answer is obviously no for SNDK and it is in a major loss because Apple is not buying flash chips from them. Ironically, they are purchasing from its own arch rival, Samsung.

Source: Analysts Recommendations for SNDK, FactSet Systems

Despite most recommendations from Wall Street being bullish about the company, Cramer recommends that investors dump SNDK. Nevertheless, with a 54 percent “Buy” calls among 37 ratings, SNDK has a potential upside of 22.1 percent according to bullish analysts.

Skyworks On Apple and Samsung’s Side
SWKS is a designer and producer of wireless semiconductors, which are widely used by cars and even mobile phones. We are surrounded by chips that are made from SWKS as we unknowingly use them in our daily lives.

Source: Income Statement of Skyworks, Bloomberg

Unlike its counterpart, SWKS performed well over the last year as its revenue, profit margin and net income grew tremendously. Evidently, this shows that the business is financially strong and viable.

SWKS also fits Cramer’s criteria of a good semiconductor company: it is involved in business with Apple! The company supplies power amplifiers for most smartphones, including the iPhone and Samsung’s range of phablets. Investors can buy into SWKS and enjoy the stability and reliability of the two smartphone giants; it is a bit like investing in both Apple and Samsung.

Source: Analysts Recommendations for SWKS, FactSet Systems

Cramer’s view towards SWKS is aligned with most of the Wall Street’s sentiments. SWKS has 81 percent “Buy” calls and 19 percent “Hold” calls with no “Sell” calls. SWKS was given an average target price of $100.44 based on 21 ratings.

Are You With Apple?

When it comes to semiconductor companies, Cramer reiterated his golden question: are you with Apple? SNDK faces heavy competition for flash memory with strong competitors such as Samsung. On the other hand, SWKS is in business with Apple and Samsung. It is a clear cut decision which company investors should invest in – forget about SNDK and buy SWKS.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

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