23 January 2017

Skyworks' quarterly revenue grows a more-than-expected 9.4% to $914.3m

For fiscal first-quarter 2017 (to 30 December 2016), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $914.3m, down 1.3% on $926.8m a year ago but up 9.4% (more than the expected 7-9%) on last quarter's $835.4m and exceeding the guidance of $925-930m. Growth is being fueled by "global demand for ubiquitous mobile connectivity and the Internet of Things (IoT)," says president & CEO Liam K. Griffin.

Consequently, integrated mobile systems (IMS) comprised slightly more than 60% of revenue, with broad markets about 25%, and the power amplifier (PA) sector just under 15%.

Skyworks' largest customer Foxconn contributed slightly more than 40% of revenue. China comprised about 25% of total revenue. As South Korea's Samsung fell to just below the 10%, China's Huawei in particular became Skyworks' second biggest customer. "They have really stepped up in terms of the content, the richness of content and the reach of technology, providing opportunity for us to deliver mid-band, high-band, low-band solutions, power management, diversity receive, addressed carrier aggregation uplink and downlink," comments Griffin. "They're going to continue to be one of our leaders," he reckons.

On a non-GAAP basis, gross margin was 51.2%, down from 51.4% a year ago but up from 51% last quarter.

Operating expenses were $113m, up from $107.5m last quarter and above the expected $112m, but falling back from 12.9% of revenue to 12.4% (although the target for the future is 13%, as Skyworks "continues to make the necessary investments to further diversify the business in the broader market in IoT").

Operating income was $354.3m (operating margin of 38.8%), down on $366.6m (operating margin of 39.6%) a year ago but up from $318.4m (operating margin of 38.1%) last quarter.

Net income was $301.6m (a record $1.61 per diluted share, $0.03 better than the $1.58 guidance), up from $277.6m ($1.47 per diluted share) last quarter and $1.60 per diluted share a year ago despite net income falling from $311.2m.

Cash flow generated from operations has risen further, from $345.3m a year ago and $455m last quarter to another record of $495.9m, driven by the higher profitability and ongoing improvements in working capital. In particular, days sales outstanding (DSO) declined further, from 45 days to 37 days, while days of inventory was cut further from 94 days to 86 days (down from 108 days in fiscal Q3/2016).

Capital expenditure has rebounded from just $15.7m last quarter to $50m (about 5% of revenue), mostly for the firm's back-end facility, where it continues to expand capacity.

During the quarter, Skyworks repurchased 1.4 million shares at an average price of about $76 (totaling $106m). "Historically, we have been returning 40-50% of our free cash flow to the shareholders, so that's something that we will continue to do," notes senior VP & chief financial officer Kris Sennesael.

Overall during the quarter the cash balance hence rose from $1.08bn to $1.35bn.

"I am especially pleased with our design-win execution, particularly at marquee customers," says Griffin. "We secured SkyOne platform wins with multiple tier-1 OEMs, extended our leadership position in diversity received systems, and secured a key win in our custom high-band PAD [power amplifier duplexer] portfolio," he adds.

"We ramped fully integrated low-, mid- and high-band solutions integrating SkyBlue technology for Huawei's Mate9 platform, their flagship smartphone. We launched multiple devices across Samsung's entire portfolio and gained momentum in China, with key wins [expanding LTE content] at market leaders Oppo, Vivo, Meizu and Xiaomi," says Griffin.

"All of these wins were captured resulting from the growing complexity and performance requirements inherent in today's advanced mobile architectures. Specifically, we are seeing the continued shift to highly integrated transmit solutions, leveraging our core capabilities in gallium arsenide (GaAs), temperature-compensated SAW filtering and enhanced power management."

"In addition, we are benefiting from the rapid move toward carrier aggregation, a major catalyst in driving higher data rates with expanding bandwidth in both uplink and downlink transmission. In parallel, we continue to expand our opportunity by growing our content reach with new revolutionary diversity receive systems, specifically targeted at the most complex carrier aggregation challenges, as well as a growing suite of analog solutions from Wi-Fi, GPS, antenna tuning, signal conditioning and more," Griffin continues.

Regarding its broad markets portfolio and IoT, Skyworks "expanded our design-win pipeline to include wins with Netgear home security system, ARRIS cable modems as well as Comcast and Rogers with carrier-grade broadband gateways," says Griffin. "In addition, we secured design-wins supporting the latest voice assistant technology from Amazon [Alexa], Google [Google Home] and Microsoft [Cortana]. We also capitalized on the newest trend towards home Wi-Fi mesh networking, with key wins at Linksys, Ubiquiti Networks and other leading OEMs," he adds.

"Finally, we broadened our footprint across the automotive sector, leveraging the diverse array of wireless protocols supporting connected car applications, vehicle-to-vehicle communication and 4G telematics [being designed into Alps' vehicle-to-vehicle intelligent transportation system]. In this past quarter, we were pleased to have consummated a strategic design win at a leading US electric car OEM," Griffin says. "Our Q1 results, strong outlook and design-win momentum reflect solid tracks in spanning out mobile, IoT and broad market portfolio," he adds.

"Given our expanding product pipeline and accelerating design-win momentum, we expect to outperform industry seasonality in the March quarter," says senior VP & chief financial officer Kris Sennesael. For fiscal second-quarter 2017, Skyworks expects revenue of $840m (returning to 8% year-on-year growth). Specifically, the broad markets sector in the IoT space should be up about 10-12%. So, despite being a soft quarter (with revenue down $74-75m from the prior quarter, due to mobile markets being seasonally down), gross margin should still be in the low 50% range, with operating expenses rising to about $115m as Skyworks continues to invest in growth initiatives (including its IoT business). Diluted earnings per share should fall to $1.40.

"We are very well positioned for further margin expansion in the second half of 2017 as we expect the next three quarters to see sequential revenue growth [double-digit year-on-year]," says Griffin. "We see a nice bounce back of the Samsung business already starting in Q2 and in the second half of 2017," he notes.

"With the proliferation of 4G/LTE and advent of 5G, system-level performance requirements are intensifying, driving the need for substantially higher data rates, improved efficiency and reduced latency across an exponentially growing scope of networked devices," says Griffin. "Leveraging our innovative portfolio, carrier aggregation leadership, operational scale and demonstrated ability to deliver highly integrated solutions, Skyworks is uniquely positioned to capitalize on this connectivity megatrend," he reckons.

Given the confidence in its business model and plans to enhance cash returns to shareholders, Skyworks' board of directors has authorized a new $500m stock repurchase program. The board has also declared a cash dividend of $0.28 per share, payable on 23 February to stockholders of record at the close of business on 2 February.

See related items:

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Skyworks' quarterly revenue grows a more-than-expected 11% to a record $835.4m

Skyworks' revenue falls less than expected, despite largest customer's inventory adjustment

Skyworks increases quarterly dividend and announces new $400m stock repurchase program

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Skyworks' quarterly revenue grows by 5% to new record of $926.8m

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