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6 February 2009


Skyworks generates $75m in cash flow despite 10% sales drop

For fiscal first-quarter 2009, Skyworks Solutions Inc of Woburn, MA, USA, which manufactures linear products, power amplifiers, front-end modules and radio solutions for handset and infrastructure equipment, has reported revenue of $210.2m. This is level with $210.5m a year ago and down a relatively modest 10% on last quarter’s $232.6m (though down on November’s original guidance of $240m).

At the beginning of December, Skyworks lowered its guidance to reflect weakness in the handset market and broader analog markets (driven by customer bookings levels pointing to a broad-based slowdown in several end markets). However, it added that its diversification, market share gains and balance-sheet strength were offsetting this, enabling it to maintain strong financial performance during the downturn.

President & CEO David J. Aldrich now adds that, despite significant market weakness, Skyworks has outperformed its rivals in fiscal first-quarter 2009, boosted by accelerating energy-management program ramps, new analog component product launches, and smart-phone demand (after Skyworks doubled its smart-phone front-end module shipments in fiscal 2008 to more than 40 million units).

During the quarter, Skyworks ramped energy-management semiconductor solutions in support of Itron, Sensus, Landis & Gyr and others (yielding more than 30% sequential growth for remote meter readers). It also gained traction with 3G base-station solutions at Nokia-Siemens, Huawei and ZTE, introduced the industry’s first 4G long-term evolution (LTE), multi-band, multi-mode FDD/TDD front-end modules, and launched a portfolio of SMT discretes for high-performance mixer and detector applications.

After rising for six consecutive quarters, gross margin fell slightly from 40.8% to 39.9% (though still up from 39.1% a year ago). “Our ability to maintain gross margins in the 39-40% range is driven by the flexibility of our fab-lite model, improved equipment efficiencies at all of our factories, progress on yield improvement initiatives, double-digit year-over-year material cost reductions, and the continued migration to a richer product mix,” says VP & chief financial officer Donald W. Palette.

After more than doubling to $54.8m last quarter, net income has fallen back to $22m ($0.13 per share), though still up from $19m ($0.12 per share) a year ago.

Nevertheless, during the quarter, Skyworks generated $75m of cash flow from operations (adding to $174m in fiscal 2008), retired $41m of its convertible debt (for $0.93 on the dollar, giving a $2m gain), and grew in cash and cash equivalents from $231m to $250m.

The ongoing inventory contraction (which began in December) is exacerbating Skyworks’ traditional seasonal March-quarter market decline of 15%, says Palette. “As a result, we believe the supply-chain sell-in will decline 20-30% sequentially in the March quarter.” Against this backdrop, Skyworks expects its fiscal Q2/2009 revenue to fall 20% sequentially.

“Looking forward, though the market environment remains uncertain, Skyworks is taking steps to further differentiate and position our business for the eventual market recovery,” says Aldrich. Specifically, after what it calls a ‘rigorous approach to portfolio management’, early in the quarter Skyworks ceased development programs for low-margin 3.5G and 4G cellular transceivers (which comprised about $30m of revenue last year, but just 1% of December-quarter revenue), and transitioned resources to increase R&D for higher-growth, higher-margin adjacent analog markets. Leveraging its analog and mixed-signal integration competences, Skyworks has enhanced its focus within the linear products business by creating two dedicated development and marketing teams (with a much lower R&D burn rate) directed at custom vertical markets or adjacent markets and standard analog component applications (complementing the firm’s front-end solutions).

Effective from January, the actions have reduced headcount by 4% (about 150 jobs, mainly in the transceiver development group). This leaves about 3150 staff (of which 1600 are in assembly & test in Mexico). Operating expenses should hence be reduced by more than $20m annually, from the December quarter’s $56.2m ($33m R&D) to a planned quarterly OpEx of $49-50m ($28m R&D). “These actions will enable us to capitalize on our expanding market opportunity and rich product pipeline while improving operating income,” Aldrich adds.

In addition, Skyworks has been executing process qualification for transitioning its fab in Newbury Park, CA from 4-inch to 6-inch GaAs wafers. However, while still a core part of Skyworks’ long-term strategy for growing margin, this has now been slowed, delaying 6-inch production going live from 2009 to early 2010. In the meantime, the firm has HBT foundry Kopin of Taunton, MA, USA as a partner to ramp 6-inch externally.

Coupled with the completion of its operating expense reduction initiative, Skyworks expects that its fab-lite, hybrid manufacturing strategy (whereby partnering with foundry suppliers such as Kopin and Taiwan’s WIN Semiconductor allows it to rapidly balance external capacity with market demands) will still yield non-GAAP diluted earnings per share of $0.10-0.11 in the March quarter.

See related items:

Skyworks lowers quarterly revenue guidance from $240m to $210-215m

Skyworks grows 22% year-on-year to record $233m revenue

Search: Skyworks GaAs pHEMT


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