20 January 2014

Skyworks quarterly revenue grows more-than-expected 6% to $505m

For fiscal first-quarter 2014 (to end 27 December 2013), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $505.2m, up 11% on $453.7m a year ago and 6% on $477m last quarter (above the forecast of 4.8% growth to $500m). The 10%-customers were Foxconn and Samsung.

As well as ramping SkyOne at HTC and Samsung, launching envelope tracking solutions within multiple 4G platforms, and unveiling a suite of antenna switch modules with dual-mode MIPI capability, highlights of the quarter listed by Skyworks include: capturing navigational-assist content with Volkswagen across next-year models; supporting the energy-efficient, intelligent thermostats and smoke detectors of Nest (recently acquired by Google); commencing volume production of wireless home lighting platforms at Belkin; enabling wearable technologies at Philips for emerging medical applications; securing key sockets within FitBits smart scale and connected wristband systems; leveraging 802.11ac solutions in gaming consoles, set-top boxes, BluRay players and LED/4K TVs for enhanced video streaming applications; introducing 4G-LTE base-station RF subsystems at Ericsson; and shipping LED backlight drivers to a leading smartphone and tablet OEM.

“Fueling our success is the proliferation of connectivity in all of its forms across a broad array of end markets and applications,” says CEO & president David J. Aldrich. “This powerful underlying global trend - combined with our growing analog portfolio, expanding broad market opportunities and consistent execution - all translate into superior ongoing financial results,” he adds.

On a non-GAAP basis, gross margin has risen further, from 43% a year ago and 44.4% last quarter to 44.5%.
Operating expenses rose from $81.5m last quarter to $82.9m. “All of that increase was in R&D [up from $49.2m to $50.8m]… reflective of some critical investments that we're making in R&D teams to support our continued focus and ability to grow in some of these new vertical markets,” says chief financial officer Donald W. Palette.

Despite this, operating income has risen further, from $114.8m (operating margin of 25.3% of revenue) a year ago and $130.3m (operating margin of 27.3%) last quarter to $141.8m (operating margin of 28.1%, slightly above the expected 28%). Net income has correspondingly risen further, from $106.6m ($0.55 per diluted share) a year ago and $121.2m ($0.64 per share) last quarter to $127.7m ($0.67 per diluted share, $0.01 better than guidance).

Skyworks generated $159m in cash flow from operations. Capital expenditure was $16m (down from $38m last quarter). Depreciation was $21m. During the quarter, cash reserves hence rose from $511m to $648.6m.

During the quarter, Skyworks repurchased about 670,000 shares of common stock (representing a $17m investment). Over the last five quarters, the firm has spent about $190m on share buybacks. “We still have over $200m approved by the board of share buybacks. You balance that with maintaining the financial flexibility for strategic growth initiatives,” says Palette. “Given our confidence in our business outlook, we continue to believe that repurchasing shares of common stock represents a highly attractive use of our cash,” he adds.

“We exceeded guidance and delivered strong performance across all key financial and operational metrics,” says Aldrich. “We are capitalizing on unprecedented demand for wireless ubiquity and the Internet of Things. Specifically, Skyworks is empowering connectivity across a number of strategic applications including medical devices, wearable technologies, home automation and hybrid vehicles as well as smartphones and tablets, linking people, places and things to improve the way the world communicates,” he adds.

“Skyworks is substantially outpacing the analog semiconductor industry, driven by our broadening market footprint and new product launches,” says Palette.

For fiscal second-quarter 2014, Skyworks expects revenue to be up 11% year-on-year at about $470m (“significantly better than normal seasonality”). Gross margin should be 44-44.5%. With operating expenses rising further to $83.5m, diluted earnings per share should be $0.59 (up 23% year-on-year, the fourth consecutive quarter of over 20% year-over-year earnings growth). “EPS for the first half of 2014, as measured by our first-quarter reported results and second-quarter guidance, is 2.5x the EPS we reported for the first half of 2010, representing a 25% compounded growth rate over that 4-year period,” notes Aldrich.

“While March is normally a slower seasonal quarter for the industry, our increasing market diversification and new product ramps are enabling Skyworks to largely offset normal mobile seasonality,” notes Aldrich. “We are seeing strength from our expanding portfolio for the networked home, connectivity solutions in the emerging markets, key vertical market opportunities and our ramp of integrated systems solutions like SkyOne,” he adds. “These drivers are helping to mute seasonal trends at some of our OEM customers. This is a clear testament to our diversification.”

Capital expenditure should be “something slightly above our depreciation level for now for the last three quarters of the fiscal year,” says Palette. “We continue to see opportunities for sustainable margin expansion, as we leverage our capital investments and benefit from growing demand for our margin-enhancing integrated custom solutions and precision analog products,” he adds. “We are within striking distance of achieving our mid-term business model of 30% operating margin [requiring about $550m in quarterly revenue], which generates around $3 in annualized earnings per share.”

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