6 February 2018
Skyworks’ quarterly revenue up 7% sequentially to a record $1.052bn
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For its fiscal first-quarter 2018 (ending 29 December 2017), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported record revenue of $1.052bn, up 7% on $984.6m last quarter and up 15% on $914.3m a year ago (and exceeding guidance of $1.05bn), driven by strong global demand for the firm’s wireless communications engines.
“The December quarter was a strong mobile quarter, especially driven by some new platform ramps with our largest customer [Foxconn],” notes senior VP & chief financial officer Kris Sennesael. Mobile (Integrated Mobile Systems and Power Amplifiers) hence comprised slightly above the usual 75% of revenue and Broad Markets slightly below 25%.
“As connectivity performance requirements intensify, Skyworks is leveraging our mixed-signal expertise, scale and customer relationships to power the mobile economy and capitalize on several strategic growth catalysts,” says president & CEO Liam K. Griffin. “Our system solutions are enabling everything from industrial robotics to drones, autonomous vehicles, wireless infrastructure, home security systems and virtual assistants,” he adds.
Highlights during the quarter include:
- ramping ZigBee and Bluetooth devices for Nest’s portfolio of residential alarms;
- delivering connectivity solutions for Google Home Max wireless speakers;
- shipping AEC-Q100-grade modules to leading European auto manufacturers;
- being designed into Sylvania’s smart light bulbs for the connected home;
- launching LTE-Cat 1 engines across Amazon’s Kindle Oasis e-readers;
- supporting NetGear’s Orbi Wi-Fi system for outdoor mesh networks;
- enabling Comcast’s DOCSIS 3.1 broadband routers;
- deploying LTE-A telematics modems for next-generation OnStar applications;
- unveiling the SkyOne WiFi portfolio of highly integrated wireless networking engines;
- leveraging SkyOne and SkyBlue across ZTE and HTC mobile phones;
- securing massive MIMO design wins with leading infrastructure provider for China;
- powering Motorola, Oppo, Vivo and Xiaomi flagship smartphone launches with a suite of SkyLiTE, Wi-Fi and switching solutions; and
- partnering with XY Findables to enable innovative tracking devices.
On a non-GAAP basis, gross margin has risen from 51% last quarter to a record 51.4% (towards the top end of the 51-51.5% guidance).
Operating expenses (OpEx) were $127m, up from $123m last quarter but cut from 12.5% of revenue to 12%.
Operating income was $414m (operating margin of 39.4% of sales), up from $379.2m last quarter and $354.3m (38.8% margin) a year ago.
Net income has risen further, from $301.6m ($1.61 per diluted share) a year ago and $338.8m ($1.82 per diluted share) last quarter to a record $371.5m ($2.00 per diluted share, exceeding the $1.91 guidance by $0.09).
Cash flow from operations was $360.8m (down from $425.4m last quarter). However, capital expenditure (CapEx) has dropped from $85m last quarter to $28.2m. Free cash flow $332.6m (free cash flow margin of 31.6% of revenue, exceeded the 30% target). During the quarter, Skyworks paid dividends of $59.1m and spent $172.5m to repurchase 1.7 million shares of common stock. Overall, cash balance rose by $64.7m, from $1.617bn to $1.682bn.
“Given our broad-based design-win momentum, we expect to outperform our addressable markets in the March quarter,” says Sennesael.
Despite this, for fiscal second-quarter 2018, Skyworks expects revenue growth to slow to 6-8% year-on-year, with fewer unit shipments for mobile customers’ premium flagship models offsetting the steady growth in broad markets plus a slight turnaround in China (flat to up a bit) and Skyworks’ Korean customer up year-on-year. Gross margin should hence fall to 50.5-51%. OpEx is expected to rise to $131m. At the midpoint of $910m in revenue, diluted earnings per share should fall to $1.60 (up 10% year-on-year).
In second-half 2018, Skyworks expects to see accelerating gains in Mobile (with unit shipments catching up). “We have some really powerful design wins that have been cemented, and it is just a matter of time for those to actually make it into our profit & loss,” says Griffin. “With the recent launch of our breakthrough Sky5 platform, Skyworks is well positioned to accelerate 5G deployments,” he adds.
“We are going to increase CapEx in the March quarter and June quarter, as we get ready for the ramp up in the second half in the calendar year [taking full-year CapEx to at least 10% of revenue]. This is both related to capacity extensions as well as technology investments,” says Sennesael. “In terms of insourcing our filter operation, we continue to make good progress there toward a 75% insource [to be reached in a couple quarters],” he adds. “We’re still working on a number of BAW [bulk acoustic wave] technologies and solutions to drive higher frequencies and to address 5G... that’s what our Sky5 platform is going to do,” says Griffin. “We have the opportunity to pursue just about of every type of filter that we would need. Some of those will be in-house; some would be through partnerships,” he adds.
“Based on our expanding reach within flagship platforms, and with design-win momentum across broad markets, we expect accelerated top-line growth and further margin improvements throughout the balance of the fiscal and calendar year [towards the targets of 53% gross margin and 40% operating margin],” says Sennesael.
“Skyworks enters 2018 with strong momentum,” notes Griffin. “Our outperformance is being driven by a vibrant, dynamic mobile ecosystem; one that rewards companies who can resolve architectural complexity with simplified integrated solutions,” he adds. “Over the past five years, our revenues have more than doubled, EPS has more than tripled, and our operating cash flow is up five times. Our strong cash generation is allowing us the flexibility to continue to invest to win, while substantially increasing our targeted cash return to shareholders.”
Reflecting confidence in its business model and outlook, Skyworks’ board of directors has approved a new $1bn stock repurchase program. This has been triggered by the fact that, of the firm’s $1.682bn cash reserves, about $1bn is offshore and can now be repatriated without any further tax consequences (due to recent changes to tax legislation in the USA).
Skyworks’ board has also declared a cash dividend of $0.32 per share of common stock, payable on 15 March, to stockholders of record at the close of business on 22 February.
“Coupled with the added flexibility of the recently passed tax legislation, our strong free cash flow generation allows us to leverage stock repurchases, dividends and capital expenditures to drive higher shareholder returns and investment for future growth,” says Sennesael. “As a result, we are increasing our targeted cash return rate to shareholders from the 40-50% range historically to a level of 60-75% of free cash flow going forward.” The targeted full-year free cash flow margin is 30% of revenue.
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