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Why Broadcom's Rumored RF Exit Is Good News For Skyworks, Qorvo

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Why Broadcom's Rumored RF Exit Is Good News For Skyworks, Qorvo

With reports of Broadcom Inc (NASDAQ: AVGO) engaging in discussions regarding a potential sale of its RF chip unit for $10 billion, an analyst at Bank of America Securities singled out RF chipmakers Qorvo Inc (NASDAQ: QRVO) and Skyworks Solutions Inc (NASDAQ: SWKS) as potential beneficiaries.

The Analyst

Vivek Arya has Buy ratings on Broadcom ($360 price target), Qorvo ($130) and Skyworks ($122).

The Thesis

Overall, a wireless RF sale by Broadcom could be a net positive for the company, although it could turn out to be dilutive to earnings by 4% in some scenarios, Arya said in a Thursday note. (See his track record here.) 

A potential purchase of the business by Qorvo or Skyworks could be accretive to the tune of 35% under some scenarios and promote better industry pricing ahead of a multiyear 5G cycle, the analyst said. 

Skyworks, being a dominant player in low-band PADs, has just moved into in-house development of mid/high band or BAW-based products, where the incumbents are Broadcom and Qorvo, Arya said. 

If Skyworks chooses to buy Broadcom's RF unit, it gains access to a premium asset without having to invest further into R&D/capex, which will meaningfully add to EPS and provide meaningful market share at lead customers such as Apple Inc. (NASDAQ: AAPL) and Samsung, according to BofA. 

The analyst said he believes Qorvo is a less likely buyer, as it already has a strong footing in BAW filters. Also, the purchase could push its leverage to 5 times, he said. 

"Under SWKS hypothetical control of this asset, QRVO could see increased competition in mid/high band sockets, especially in China where AVGO has largely not participated thus far."  

The analyst projects some risks such as an increase in the debt burden, increased Apple exposure and onerous regulatory approvals, including in China.

If QUALCOMM, Inc. (NASDAQ: QCOM), which has recently launched its own RF portfolio, were to join the fray, BofA said competitive risk for Qorvo and Skyworks will increase, given its expectations that Qualcomm could provide a more comprehensive solution of RF and 5G processors.

Overall, BofA said it maintains its bullish views on the RF industry.

Related Links:

5G Stocks Are Heating Up Ahead Of Tariff Deadline

Analysts Discuss Broadcom's New Supply Agreement With Apple

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Latest Ratings for AVGO

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