23 July 2018

Skyworks reports above-expected quarterly revenue of $894.3m, despite $25-30m hit from ZTE ban

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For fiscal third-quarter 2018 (ended 29 June), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $894.3m, down 20.9% on $913.4m last quarter and less than the $900.8m a year ago, but towards the upper end of the $875-900m guidance range. China comprised 25-30% of total revenue.

However, this follows the loss of $25-30m of revenue (mostly in mobile, but including some infrastructure) after the temporary ban imposed by the US government on US exports to China-based ZTE Corp. Without this loss, revenue would have grown sequentially.

By market sector, Mobile (Integrated Mobile Systems and Power Amplifiers) comprised under 70% of revenue (down from 73% last quarter) and Broad Markets just over 30% (up from 27%).

“Our confidence is underpinned by our product expansion and reach, expanding premier mobile and broad market accounts,” says president & CEO Liam Griffin. For example, during the quarter, Skyworks commenced production of access solution for Cisco’s enterprise systems, captured content in Linksys new dual-band mesh networks, ramped connectivity engines for Amazon’s 4K Fire TV voice-enabled streaming media platform, partnered with Sierra Wireless on LTE CAT-12 data cards for M2M (machine-to-machine) applications, deployed networking solutions supporting AT&T DirecTV gateway routers, extended Skyworks’ footprint across Nest home automation platforms (thermostats, fire detectors and video doorbells leveraging Bluetooth Low Energy, Zigbee, Thread and Wi-Fi protocols), enabled LTE telematics at General Motors and BMW, and introduced high-precision GPS functionality improving ride sharing, mobile payment and fleet management services. The firm also secured strategic flagship wins at Huawei, Samsung, Oppo, Vivo, LG and Nokia. In infrastructure markets, Skyworks deployed massive MIMO base-station architectures with a leading European infrastructure provider.

“In addition, last quarter we successfully demonstrated our proprietary fully integrated Sky5 sub-6GHz engines supporting new 5G and our radios across frequency bands 77, 78 and 79. Sky5 is enabling new 5G networks and facilitating ubiquitous wireless connectivity,” says Griffin. “We are gaining first-mover advantage across Internet of Things (IoT) and rapidly emerging 5G applications with our Sky5 platform.”

On a non-GAAP basis, gross margin was 50.9%, up from 50.7% both last quarter and a year ago (and towards the top end of the 50.7-51% guidance range).

Operating expenses were cut from $132m last quarter to $130m (remaining 14.5% of revenue).

Operating income was $324.8m, down from $331.1m last quarter (with operating margin falling from 37% of revenue a year ago to 36.3%).

Net income was $299.9m ($1.64 per diluted share, exceeding the $1.59 guidance), roughly on a par with the record $302.3m ($1.64 per diluted share) last quarter and up from $292.7m ($1.57 per diluted share) a year ago.

Cash flow from operations was $258m (down from $434.2m last quarter). Capital expenditure (CapEx) has more than doubled from $90.3m to $191.5m, supporting expected revenue growth in the second half of the calendar year as well as the necessary technology investments for emerging 5G opportunities in IoT markets. “Most of the CapEx is related to capacity expansion in preparation of the steep ramp that we have in front of us here in the September and December quarter, as well as some technology-related investment,” says senior VP & chief financial officer Kris Sennesael.

“We continue to deploy our cash to create shareholder value, returning nearly $300m during the quarter through share repurchases and dividends,” notes Griffin. Dividends paid were $57.7m. Skyworks repurchased 2.5 million shares of common stock for $240.3m, bringing total share repurchases so far during fiscal 2018 to about 5.2 million shares. “In fiscal 2018, Skyworks returned essentially all of our free cash flow back to the shareholders.”

During the quarter, cash and investment balance hence fell from $1.881bn to $1.649bn. Skyworks has no debt.

“Skyworks exceeded June-quarter expectations driven by our broadening market reach, solid execution and resilient business model,” says Griffin. “Leveraging our scale and decades of system-level expertise, we are positioned to capitalize on increasing demand for powerful and complex connectivity engines as the global data economy accelerates,” he reckons. “We are entering the seasonally strong second half while on track for another year of record financial performance,” says Griffin.

For fiscal fourth-quarter 2018, Skyworks expects revenue to grow 11-13% sequentially to $1bn as design-win momentum transitions to volume production. This is despite expecting just a few million dollars from ZTE, after the US export ban was lifted. “It will take time for ZTE to rebuild their supply chain, which could take multiple months, if not multiple quarters,” warns Griffin.

Gross margin should rise to 51-51.5%. “We continue to make really good progress towards our target model of 53%,” says Sennesael. Despite operating expenses rising to $135m, diluted earnings per share should increase to $1.91.

“Based on our Q4 outlook, we will end the fiscal year with mid-single-digit revenue growth, greater than a 10% EPS increase and record cash returns. This despite a choppy market backdrop and a government-imposed trade ban on a sizable Chinese customer,” says Griffin.

“We are growing in the low to mid-teens year-over-year, and so we are now at a $1.1bn annualized revenue run rate. So we see really good strength across the board, especially the IoT segment that’s including the connected home, the connected car, machine-to-machine industrial applications, some consumable applications,” notes Sennesael. “We also see some really good traction there on the infrastructure segment, so broad market is doing really well,” he adds.

Reflecting confidence in its business model and sustainable cash generation capabilities, Skyworks’ board of directors has declared a cash dividend of $0.38 per share (up 19% on fiscal Q3’s dividend of $0.32 per share), payable on 28 August to stockholders of record at the close of business on 7 August.

See related items:

Skyworks’ March-quarter revenue grows a more-than-expected 7% year-on-year

Skyworks’ quarterly revenue up 7% sequentially to a record $1.052bn

Skyworks’ quarterly revenue grows 9% to record $985m

Skyworks’ quarterly revenue grows by a more-than-expected 20% year-on-year to $900.8m

Tags: Skyworks

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