Activist investor Starboard Value believes Skyworks Solutions (NASDAQ:SWKS) could benefit from cost reductions and improved operating margins following its merger with Qorvo, according to a Bloomberg News report published on Monday.
Citing people familiar with the matter, Bloomberg reported that Starboard considers the wireless semiconductor manufacturer’s shares undervalued following the completion of its acquisition of Qorvo earlier this month.
The investment firm’s assessment is based on the potential financial and operational benefits of combining the two businesses, including planned cost savings and opportunities arising from their complementary product portfolios.
Merger Targets at Least $500 Million in Annual Cost Savings
The combination of Skyworks and Qorvo includes a target of at least $500 million in annual cost savings within three years.
Management has also outlined plans to achieve operating margins of between 30% and 35% over the next two to three years.
These targets form part of the financial objectives established for the merged semiconductor business.
According to Bloomberg, Starboard believes achieving the projected savings and profitability targets could support a higher valuation for Skyworks.
However, the anticipated benefits remain dependent on the company’s ability to integrate operations, implement cost reductions and meet its financial objectives.
Starboard Identifies Opportunities in Combined Product Portfolio
Starboard sees potential growth opportunities arising from the complementary semiconductor technologies and product portfolios of Skyworks and Qorvo, Bloomberg reported.
Both companies supply wireless communications components used in smartphones and other connected devices.
The merger brings together their respective product lines and technical capabilities, creating opportunities to coordinate product development, manufacturing and customer relationships.
According to the report, Starboard believes the market has not yet fully reflected the potential benefits of the transaction in Skyworks’ share price.
The assessment represents the activist investor’s view of the company’s valuation rather than a confirmed indication of future share price performance.
Skyworks and Qorvo Combine Amid Changes in Apple Supply Chain
Skyworks agreed to acquire Qorvo last year in a transaction that valued the combined company at approximately $22 billion.
The agreement followed a period of slowing growth for both semiconductor suppliers as Apple increased its use of internally developed chips.
Skyworks has been a supplier of wireless semiconductor components to Apple, making changes in the technology company’s sourcing strategy relevant to its business outlook.
The combination with Qorvo represents a response to changing conditions in the wireless semiconductor market, bringing together two suppliers with overlapping and complementary operations.
The merged company’s future performance will depend partly on its ability to manage customer demand, execute integration plans and achieve the financial targets established for the transaction.
Investors Assess Integration and Margin Targets
Starboard’s reported position places particular emphasis on the financial performance of the combined company following completion of the merger.
The planned annual cost savings of at least $500 million and operating margin target of 30% to 35% provide measurable objectives against which investors can assess management’s execution.
Bloomberg’s report did not specify additional financial projections from Starboard or provide details of any new demands made by the activist investor.
The company’s progress towards its integration milestones, cost reduction targets and operating margin objectives will be relevant to assessing whether the anticipated benefits of the merger are realised.