15 May 2023
Skyworks maintains strong cash flow generation
For fiscal second-quarter 2023 (to end-March), Skyworks Solutions Inc of Irvine, CA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $1153.1m, down 13.2% on $1329m last quarter and 13.7% on $1335.6m a year ago.
Skyworks’ largest customer comprised about 64% of total revenue (down from 68% last quarter).
Mobile products comprised about 60% of total revenue (down from 65% last quarter). Mobile revenue from Skyworks’ largest customer grew year-on-year, reflecting content gains across their product portfolio. However, this was offset by weakness in demand from the Android smartphone ecosystem as it continues to destock inventory.
Broad Markets products reached 40% of total revenue for the first time, with a strong contribution from automotive, infrastructure and industrial markets.
On a non-GAAP basis, gross margin was 50%, down from 51.5% last quarter (and at the bottom end of the 50–50.5% guidance range) due to the inventory destocking leading to factory under-utilization charges.
Operating expenses were $190m (16.5% of revenue), cut from $193m last quarter, given the focus on managing discretionary expense.
Net income has fallen further, from $432.3m ($2.63 per diluted share) a year ago and $415m ($2.59 per diluted share) last quarter to $323.1m ($2.02 per diluted share).
“Despite a challenging macro backdrop, the fundamentals of our business remained strong in the second quarter with solid profitability and robust cash generation,” says chairman, CEO & president Liam K. Griffin.
Operating cash flow was $411.7m. Capital expenditure has been cut further, from $126.7m a year ago and $64m last quarter to just $45.3m. Free cash flow was hence $366m (cash flow margin of 32% of revenue). Through fiscal first-half 2023, Skyworks has now generated record free cash flow of $1.1bn (exceeding the whole of fiscal 2022), representing free cash flow margin of 43%.
During the quarter, Skyworks paid $98.7m in dividends, repurchased $9.1m of stock, and repaid $200m of variable-rate term loans.
Overall, cash, cash equivalents and marketable securities hence rose from $992.6m to $1061.4m, providing sufficient liquidity to repay $500m of bonds that will reach maturity during fiscal Q3/2023.
Also, following quarter-end, Skyworks’ board of directors declared a cash dividend of $0.62 per share of common stock (payable on 20 June, to stockholders of record at the close of business on 30 May).
“We are driving operational efficiency while leveraging our leading-edge technologies and world-class manufacturing capabilities to capture new opportunities across an expanding set of customers,” says Griffin. “We expanded our design-win pipeline, reflecting our success in diversifying our customer base and product portfolio.”
Across mobile and IoT applications, Skyworks:
- delivered Sky5 platforms for Samsung’s newly released premium and mass-tier smartphones;
- launched tri-band WiFi 6E and WiFi 7 gateways for CommScope and ASUS; and
- secured 5G content in platforms with market leader in mobile computing.
Across infrastructure and industrial applications, Skyworks:
- enable small-cell infrastructure deployments with a Japanese telecoms company;
- provided enhanced Power-over-Ethernet functionality to Cisco for their enterprise networks;
- shipped programmable timing solutions to the top US satellite provider; and
- leveraged its expanding industrial product suite with the leading firm in smart meter technology.
In automotive applications, Skyworks:
- captured electric vehicle (EV) onboard charging (OBC) content with a top European automotive supplier; and
- ramped key digital radio products with a leading Korean automotive OEM.
Taking into account the ongoing challenging macroeconomic environment and a slower-than-expected recovery and inventory destocking (especially in the Android ecosystem), for fiscal third-quarter 2023 (to end-June) Skyworks expects revenue to fall to $1.05–1.09bn, with Broad Markets revenue down slightly.
“Initially, we were anticipating a stronger second half of the fiscal year and calendar year… We do see some signs of recovery, although I would say later and slower than initially anticipated,” notes senior VP & chief financial officer Kris Sennesael. “As a result of that, we are adjusting our factory utilizations across all our factories. We have been operating our business at a slightly elevated level of inventory [$1257m, up from $928m a year ago], in anticipation of a stronger recovery in the back half. Now that the recovery is going to be slower than expected, we are also going to adjust our internal inventory levels and right-size that.”
While the firm is reducing its internal inventory levels, fiscal Q3 gross margin should be 47–48%, reflecting a 400–500 basis-point impact from factory under-utilization charges, partially offset by ongoing cost reductions and operational efficiencies that should cut operating expenses to $183–187m. Diluted earnings per share is expected to fall to $1.67.
“Given our consistent level of profitability and lower CapEx spending, we expect free cash flow margin to remain well above our target of 30% for the fiscal year,” says Sennesael.