News: Microelectronics
5 August 2024
Skyworks’ margins rebound despite a more-than-seasonal decline in revenue from largest customer
For its fiscal third-quarter 2024 (to 28 June), Skyworks Solutions Inc of Irvine, CA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $905.5m, above the $900m guidance but down 13.4% on $1046m last quarter (normally Skyworks’ seasonally weakest quarter) and 15.5% on $1071.2m a year ago.
Revenue from Skyworks’ largest customer has fallen sequentially by “a little bit more than normal seasonality” (shrinking from 68% of total revenue last quarter to 65%) after some build-up of inventory in March–April. “So, we pushed the brakes in June,” says senior VP & chief financial officer Kris Sennesael.
Mobile product revenue hence declined further, by 21% sequentially (below the normal seasonal weakness), falling from 66% to 61% of total revenue while Skyworks cleared out the excess inventory.
Broad Markets product revenue rose by a modest 1% sequentially for a second consecutive quarter since bottoming in the December quarter, rising further from 34% to 39% of total revenue. Skyworks under-shipped natural demand while allowing the distribution channel and customers to consume excess inventory and normalize in certain end-markets including near-term inventory corrections in the wireless infrastructure, automotive and industrial sectors.
On a non-GAAP basis, gross margin was 46%, down on 47.5% a year ago but rebounding from last quarter’s low of 45%. This reflects: ongoing cost-reduction actions internally as well as externally with suppliers (including yield improvements and test time reductions); a favorable shift in product mix (from Mobile to higher-margin Broad Markets, as the latter recovers); and higher factory utilization rates (after a sixth consecutive quarter of reducing internal inventory, from $835.5m to $822.8m).
Operating expenses have risen further, from $192m (18.4% of revenue) last quarter to $197m (21.8% of revenue). This was towards the top end of the targeted $192–198m range, reflecting strategic investments in technology and product roadmaps.
Net income has fallen further, from $276.3m ($1.73 per diluted share) a year ago and $250.7m ($1.55 per diluted share) last quarter to $195m ($1.21 per diluted share).
“Skyworks generated solid results and strong profitability consistent with our guidance,” says chairman, CEO & president Liam K. Griffin.
Operating cash flow was $273.5m (operating cash flow margin of 30.2%), down from $305.7m a year ago.
Capital expenditure has been reduced further from $31.3m a year ago and $27.6m last quarter to $24m (less than 3% of revenue), as Skyworks has got past the years of spending 10–12% of revenue to build out its manufacturing assets (especially its filter operation, as well as its back-end operation involving complex integration, assembly & test). The firm is now focusing more on creating additional capacity through operational improvements (including driving efficiency, yield improvements, test time reductions, and die shrinks) rather than adding more CapEx.
Free cash flow was hence $249.1m, down on $274.4m a year ago, although free cash flow margin rose from 25.6% to 27.5%. “We continue to drive robust cash flow through consistent levels of profitability, careful working capital management and moderating CapEx intensity,” says Sennesael.
During fiscal Q3/2024, Skyworks paid $109m ($0.68 per share of common stock) in dividends. Also, the firm restarted its share buyback program, repurchasing 764,000 shares of common stock for a total of $77m.
Despite this, cash and investments grew further during the quarter, from $1205.4m to $1283.9bn. Debt remains about $994m (down from $1292.3m a year ago).
Dividend increase and payment
“We remain committed to delivering shareholder value through a disciplined approach to capital allocation,” says Sennesael. “Given our conviction in Skyworks' long-term strategic outlook and consistent strong cash generation, we announced a 3% increase to our quarterly dividend [from $0.68 per share last quarter] to $0.70 per share [a 2.4% dividend yield].” This is payable on 10 September, to stockholders of record at the close of business on 20 August.
June-quarter business highlights
Business highlights during fiscal Q3 included:
- securing 5G content for premium Android smartphones including Google Pixel 8a, Samsung Galaxy M, Oppo Reno12 and several others;
- supporting the launches of Wi-Fi 7 tri-band routers and access points with NETGEAR, TP-Link and Cambium Networks; and
- accelerating the design-win pipeline in automotive, including telematics, infotainment and CV2X.
September-quarter outlook
For fiscal fourth-quarter 2024 (to end-September), Skyworks expects revenue to rebound to $1–1.04bn.
“The largest customer will be slightly above 65% of total revenue, and it will be up on or about 20% sequentially, as we execute and support our large customer in ramping up new products that they are bringing to market,” says Sennesael.
Mobile product revenue should be up about 20% sequentially. “We are seeing encouraging signs that inventory levels and order patterns are normalizing,” notes Griffin.
“In Broad Markets, we expect modest improvement, representing three consecutive quarters of sequential growth,” Sennesael says.
“We’ve accelerated revenue growth. We will have better utilization in the factories and that will exponentially result in further gross margins improvements,” he adds. Gross margin is projected to rise by 50 basis points sequentially to 46–47%. “We anticipate gross margin expansion during the remainder of 2024 [in the December quarter], driven by our cost-reduction actions, favorable mix shift [to higher-value products, with growth for higher-margin Broad Markets products] and higher utilization rates.”
Operating expenses should increase further to $197–203m as Skyworks continues to make strategic investments in technology and product roadmaps in both Mobile and Broad Markets in order to drive share gains and increase diversification.
Diluted earnings per share are expected to rebound to $1.52.
“We do expect, beyond the September quarter, further sequential growth [going into the December quarter] and actually an acceleration of that sequential growth, returning back to year-over-year growth in our Broad Markets business,” says Sennesael.
“In Mobile, we are energized about the prospects of generative AI, catalyzing a meaningful smartphone replacement cycle and driving higher levels of RF complexity,” says Griffin. “We expect new AI features will only be available on the latest next-generation smartphones, potentially fueling a multi-year upgrade cycle. We are uniquely positioned, given our long-standing relationships with the leading smartphone OEMs, best-in-class RF technology and a global manufacturing footprint,” he adds.
“In Broad Markets, we anticipate modest growth for the balance of 2024. In edge IoT, where demand is improving, we have a strong design-win funnel for WiFi 7 systems and we expect a healthy multi-year upgrade cycle, given faster data transfer speeds and lower latency,” says Griffin. “In traditional data-center and wireless infrastructure, inventory levels remain elevated, which is prolonging the recovery as we continue to under-ship natural demand. However, once industry conditions stabilize, we expect end customers to replenish inventory back to normal levels. In automotive and industrial, we are working through excess inventory levels but seeing signs of stabilization. We remain bullish on our design-win pipeline across our power isolation, RF and digital broadcast solutions for the connected car and EV markets,” he adds.
“Over the medium to long term, we believe generative AI will migrate to the edge. Most significantly, we believe the rollout of compelling AI applications will drive a smartphone replacement cycle, one that is currently the longest in history, standing at over four years, and leading to higher levels of RF complexity,” says Griffin. “In edge IoT, AI-enabled devices increasingly incorporate machine learning to support language and computer vision models. Robust RF is critical to facilitate the continuous training to inference between device and cloud,” continues Griffin.
“Over time, automotive OEMs will train on big data in the cloud and screen software downloads through over-the-air updates, supporting higher levels of autonomy in vehicles. To facilitate these trends, OEMs need power and extremely fast RF connectivity. For next-generation data centers, complex workloads supporting large language models will propel upgrade cycles in switch, compute and optical networks. Over the medium to long term, Skyworks is well positioned with our high-performance timing solutions, targeting 800 gig and 1.6 terabit Ethernet switches and optical modules,” he believes.
“Ultimately, our view is there will be a hybrid approach to AI computing, a combination of on-device and cloud-based. Data can be trained in the cloud and deployed to the edge for inference on new inputs. More complex AI tasks will be processed in the cloud and less complex, on-device,” Griffin says.
“In addition to these new usage cases, AI-enabled smartphones will further elevate the technological burden, resulting in premium for on-board space, requiring higher levels of integration and advanced packaging, energy efficiency translating to lower power consumption, low latency, pushing the boundary of signal integrity and higher throughput and connectivity upgrades with 5G Advanced and 6G. These increased technological demands play to Skyworks' strengths, given our deep customer relationships, exceptional engineering talent and strong IP portfolio.”
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