News: Microelectronics
17 May 2024
Skyworks’ quarterly revenue falls 12.9% to $1.046bn
For its fiscal second-quarter 2024 (to 29 March) Skyworks Solutions Inc of Irvine, CA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $1046m, down 12.9% on $1201.5m last quarter and 9.5% on $1153.1m a year ago.
Revenue from Skyworks’ largest customer was down seasonally by 19% sequentially and down 3% year-on-year, comprising about 68% of total revenue.
Mobile products revenue declined 19% sequentially (falling back from 71% to 66% of total revenue). “We saw below-normal seasonal trends, with lower-than-expected end-market demand [especially in the month of March],” notes chairman, CEO & president Liam K. Griffin. This resulted in some buildup of inventory in the channel.
Broad Markets product revenue was up 1% sequentially (rising from 29% to 34% of total revenue, after overcoming near-term inventory corrections in wireless infrastructure, automotive and industrial). “The December quarter represented the bottom and we delivered modest sequential growth in March, reflecting a turning point,” says Griffin.
On a non-GAAP basis, gross margin has fallen further, from 50% a year ago and 46.4% last quarter to 45% (at the bottom of the 45–46% guidance range). In addition to being the firm’s seasonally weakest quarter, this reflects the after-effect of having reduced factory utilization to drive down internal inventory for a fifth consecutive quarter (by $91.5m, from $927m to $835.5m).
Operating expenses have risen further, from $191m (15.9% of revenue) last quarter to $192m (18.4% of revenue). However, this is below the guidance range of $193–197m, reflecting Skyworks’ ongoing focus on managing discretionary expenses while continuing to make strategic investments in technology and product roadmaps in both Mobile and Broad Markets in order to drive share gains and increased diversification.
Net income has fallen further, from $323.1m ($2.02 per diluted share) a year ago and $317m ($1.97 per diluted share) last quarter to $250.7m ($1.55 per diluted share – although this was $0.03 above the $1.52 guidance).
Despite the challenging macroeconomic environment and quarterly volatility, Skyworks’ business model generated strong operating cash flow of $300.2m.
Capital expenditure was $27.6m (less than 3% of revenue), cut from $45.3m a year ago, 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). “We can substantially grow the revenue without having to add a lot more CapEx,” notes senior VP & chief financial officer Kris Sennesael. “It’s going to remain for many, many years here in the low single digits as a percent to revenue, and that will continue to fuel a very strong free cash flow.”
Free cash flow was hence $272.6m (26.1% of revenue). “We continue to drive robust cash flow through high levels of profitability, prudent working capital management and moderating CapEx,” says Sennesael.
During fiscal Q2, Skyworks paid $109.1m in dividends (up from $98.7m a year ago, and roughly level with $108.9m last quarter).
Cash and cash equivalents grew to $1205.4m, up by $175.7m from $1029.7m last quarter. Debt remained about $993m.
Since quarter-end, Skyworks’ board of directors has declared a cash dividend of $0.68 per share of common stock, payable on 11 June, to stockholders of record at the close of business on 21 May.
Business highlights during fiscal Q2 included:
- delivering integrated platforms to the leading 5G smartphone OEMs, including flagship and mid-tier model launches at Samsung, Google and Oppo;
- expanding the design-win pipeline and initiating new programs in automotive, including infotainment systems, traction inverters, cloud-enhanced driver-assist, and CV2X on-board units;
- securing several audio SoC design wins with Sony PlayStation and Samsung for wireless gaming and soundbars.
June quarter to see end of inventory correction
For fiscal third-quarter 2024 (to end-June), Skyworks expects revenue to fall to $900m.
Mobile product revenue is expected to be down 20–25% sequentially, which is well below the normal seasonal weakness, while the firm clears out the build up of excess inventory that occurred in March and continued through April. However, Skyworks’ Android-related business (Google, Samsung, and the China OEMs) has been stabilizing, and is approaching $100m per quarter. “The inventory correction is over,” says Sennesael.
Broad Markets product revenue should see further modest sequential growth of 2–3% as inventory levels appear to be normalizing in certain end-markets. However, the wireless infrastructure and traditional data-center markets will remain a headwind throughout 2024, as OEMs continue to digest excess inventory. “We are under-shipping natural demand right now as we allow the distribution channel and customers to consume excess inventory. It’s going to take a couple of quarters for that business to really bounce back,” notes Sennesael.
Gross margin should be 45–47%, growing by 100 basis points sequentially at the midpoint. Skyworks expects gross margin expansion during the remainder of 2024, driven by: cost-reduction actions internally as well as externally with all 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 the end of five consecutive quarters of drastically reducing internal inventory).
Operating expenses are targeted to be $192–198m as the firm continues to make strategic investments in both Mobile and Broad Markets to drive share gains and increase diversification.
At the mid-point of the revenue range, diluted earnings per share should fall to $1.21.
Longer-term outlook
In the September quarter, Skyworks will start to see the impact of “a unique situation with our largest customer where we were unable to consummate an award that we expected,” notes Griffin. “As a result, we expect content headwinds from the upcoming cycle,” he adds. “We were able to partially offset the socket loss with some additional content gains, including some new sockets that we don’t have in the current version of the phone,” says Sennesael. “On a net-net, we expect the content to be down a little more than 10% compared to the current phone model, and that will start having an impact in the September quarter,” he adds. “We are strategically aligned with our largest customer and we’re ready to engage in all of their strategic initiatives going forward,” stresses Griffin.
For Android smartphones more generally, Sennesael says: “We are making some good traction with design wins. As end-customer demand continues to improve over time and new design wins roll in, we do expect that business to contribute to some nice year-over-year growth in the next four to eight quarters.”
Regarding Broad Markets, Griffin expects the pace of the recovery to be measured throughout 2024, given the ongoing weakness in certain end-markets like infrastructure and automotive. “The next couple of quarters, we expect an acceleration of that sequential growth, getting back to initially modest year-over-year growth but then translating into strong double digit year-over-year growth in our Broad Markets business,” says Sennesael.
“Over the long-term, we intend to leverage our connectivity technology across edge-connected IoT devices, automotive electrification and advanced safety systems, and AI infrastructure [driving cloud and data-center upgrades],” says Griffin.
“In edge IoT, we have a solid Wi-Fi 6E and Wi-Fi 7 design-win pipeline. We are in the early innings of a multi-year upgrade cycle, with high-end access points now being offered. Over the coming quarters, we anticipate retailers to roll out mainstream models, followed by carriers and MSOs for their gateways and router products,” says Griffin.
“Despite near-term headwinds, we remain bullish on AI workloads, driving upgrades to Ethernet switches and optical modules, a positive long-term driver for our advanced precision timing solutions,” he adds.
“Lastly, automotive and industrial markets remain under pressure as they continue to undergo a steep inventory correction. However, we see opportunities for long-term growth in our automotive business. Automotive OEMs are increasingly focused on software-defined vehicles, the connected car and in-cabin user experience, all of which are generating higher levels of radio complexity,” Griffin continues. “Despite near-term headwinds, we remain positive on growing EV penetration, creating demand for our power isolation products.”
Skyworks reports record cash flow, despite quarterly revenue falling 9.6% year-on-year to $1.2bn
