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The world of semiconductors took a hit a few weeks ago when SanDisk, the big maker of flash memory chips, made an extremely negative declaration ahead of earnings and caused its stock to plummet.
Thanks to SanDisk, there has been a looming shadow over the whole semiconductor space. If you were there to hear what SanDisk had to say, Jim Cramer thinks you would be pretty bearish on the whole group, too.
But then Skyworks Solutions managed to blow out numbers, and it keeps setting all-time highs.
What the heck is going on with semiconductors, and why is SanDisk not worth owning while Skyworks a buy?
SanDisk has had a fabulous run over the past few years, however Cramer thinks it has now hit a wall and will keep going down. That's because it is a commodity producer, and there is no proprietary element to its business.
But the real problem, according to Cramer, is that the analysts are living in la la land and refuse to acknowledge reality. Not only did the stock tank after the horrible pre-announcement, but the analysts defended the stock and claimed the headwinds were temporary. Meanwhile, SanDisk reported disappointing results last week.
Yet, somehow SanDisk still has 26 buy ratings, 10 holds and one little lonely underperform rating.
"I think Wall Street is whistling past the graveyard on this one, although I have to give massive props to the analysts at Needham and Nomura who boldly and correctly downgraded SanDisk ahead of the quarter, " said Cramer
These are just a few of the problems with SanDisk's bleak future, especially when compared to the proprietary nature of Skyworks Solutions.
Skyworks makes high-performance radio frequency and analog semiconductors for smartphones, tablets, cars, GPS, broadband, industrial, medical, military and wireless networking applications.
To boot, it also has a lot of content inside of the Apple iPhones. Hence the stock also rallied after Apple's fabulous results were released this week.
Skyworks has had its revenues rise for the third quarter in a row, and it speculated that handset sales will triple in China. Additionally, many Chinese companies are expected to push into 4G this year, which would require radio frequency from Skyworks.
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Essentially SanDisk is losing market share, and Skyworks is picking it up with rapid revenues and margins.
"I see SanDisk going lower; after all, the average memory stock trades at just 7.5 times earnings—half its current valuation. Whereas Skyworks, even at new all-time high today, has a lot more room to run," said Cramer.
The analysts might not have figured it out yet, but Cramer anticipates that SanDisk will keep disappointing in the future. Skyworks, on the other hand, is a buy buy buy next time it is down.