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2 November 2007


Skyworks double earnings, driven by multi-mode FEMs and linear products

RFIC maker Skyworks Solutions Inc of Woburn, MA, USA has reported fiscal fourth-quarter 2007 (to end September) revenue of $190.5m. This is at the higher end of the 6-10% guidance, and up 9% from last quarter’s $175.1m (though down slightly from $193 a year ago).

On a non-GAAP basis, gross margin has risen to 39.4%. VP and chief financial officer Donald W. Palette attributes this was to delivering on yield improvement initiatives, higher equipment efficiency and factory utilization, and enhanced product mix from multi-mode front-end modules (FEMs) and linear products becoming an increasing part of business.

Net income was $22.0m, up from $11.4m last quarter and compared to a net loss of $96.4m a year ago (associated with the firm’s exit of the baseband business in October 2006). Diluted earnings per share were a record $0.14, compared to a loss of $0.60 per share a year ago.

During the quarter, Skyworks generated a record $30m in cash flow from operations, despite investing $12m in capital expenditure (mainly for wafer fab and assembly & test capacity).

“As we outlined a year ago when we exited the baseband product area, we set out to intensify our focus on areas of competitive differentiation [in analog and RF domain], diversify into [non-handset] linear products markets with higher gross margins and longer product lifecycles, capitalize on content growth in 3G multimode applications, and generate superior financial returns,” says president and CEO David J. Aldrich. “Today’s results reflect progress along each of these strategic fronts, with strong top line and gross margin performance driving both record earnings per share and quarterly cash flow generation.”

Aldrich adds that Skyworks is now partnering with leading chipset providers, which it was unable to accomplish when it was competing with them in the baseband arena. The firm has captured several reference designs with top base-band providers, which will translate into meaningful revenues in fiscal 2008, he says.

Also, over the last year, Skyworks has introduced over 100 new analog products as it continues to round out its catalog. Linear products now represent nearly 25% of Skyworks’ total revenues. The addressable market is nearly four times that of the wireless handset industry, reckons Aldrich.

During the quarter, Skyworks ramped first-generation solutions enabling cost-effective remote metering/monitoring for utility and industrial applications (with a potential market of 2.5bn premises worldwide currently still using manual meter reading).

The firm also reached volume production levels with multiple, high-performance receivers in support of several top-tier base-station suppliers (resulting in higher RF dollar content for Skyworks, lower bill-of-materials cost for the customer, and smaller base-station size).

The firm says that it also enhanced its multimode front-end module (FEM) market position by increasing EDGE and WCDMA shipments across all industry-leading handset OEMs. As well as strengthening its position with existing handset customers, Skyworks has secured important new customers, says Aldrich, including beginning shipments to another tier-1 handset OEM. “We now have business with all five leading handset OEMs with multi-mode designs,” he adds. Compared to $1-2 per phone for 2G (CDMA and GSM), the average selling prices (ASPs) for front-end content in multi-mode handsets is three times bigger (nearly $6). “This presents an incremental market opportunity of billions of dollars.”

In addition, Research In Motion (RIM) of Waterloo, Ontario, Canada (which has shown strong growth in enterprise users) and MediaTek Inc of Hsinchu, Taiwan (which focuses on low-cost platforms for emerging markets) have become two of Skyworks fastest-growing customers. During the quarter, Skyworks launched power amplifier modules for RIM’s 8830 world phone, and xtended partnership with MediaTek beyond EDGE to now encompass low-cost GPRS solutions.

“Further, with our implementation of a hybrid internal manufacturing and outsourcing strategy [for both foundry and assembly services], we are well positioned to profitably capture the increasing demand for highly integrated linear products and front-end solutions,” reckons Aldrich, who believes that Skyworks can outpace the growth in its addressable market. Last week Skyworks announced the conversion of its gallium arsenide fabrication facility in Newbury Park, CA, USA from 4-inch to 6-inch wafers. “Our operating model enables us to maintain high operating capacity utilization by creating second sources for high fixed-cost services like foundry and assembly,” says Aldrich. This gives supply chain flexibility, lowers capital investment, and provides the ability to meet upside demand, which should improve gross margin and lower capital expenditure he adds.

Indeed, regarding the transition from 4-inch to 6-inch wafers, Palette adds that, over the last few years, Skyworks has done a lot of work to provide copy exact capability for critical processes (e.g. pHEMTs and HBTs) at foundry partners, and has already acquired much of the required 6-inch equipment for its internal manufacturing transition. The firm is still buying some new equipment and qualifying new processes. However, this fits comfortably into the capital expenditure profile that Skyworks has had for the last several quarters, Palette adds.

Also during the quarter, Skyworks acquired 16 fundamental heterojunction bipolar transistor (HBT) and RF MEMS patents developed by Rockwell Science Center, and also acquired the proprietary GaAs power amplifier (PA)/front-end module (FEM) intellectual property, patents and rights to designs and reference designs of Freescale Semiconductor Inc of Austin, TX (which has decided to exit the PA business to focus on its core strengths). Freescale is now a reference design partner for Skyworks. Through 2008, Skyworks will have the vast majority of Motorola share (for PAs), reckons Aldrich.

“Given strong order visibility and the ramp of our newest analog and front-end module designs, we once again anticipate revenue growth approaching 10% on a sequential basis [to $207m for fiscal first-quarter 2008, to end-December],” says Palette. “Operationally, we plan to continue to leverage our diversified business model, further expand our gross margin to between 39.5 and 40.0% and, in turn, deliver earnings per share of $0.15-$0.17, on a non-GAAP basis.”

See related items:

Skyworks converting GaAs HBT fab to 6-inches and partnering with Taiwanese foundries

RFMD, Skyworks and Triquint grew GaAs device market share to 55% in 2006

Skyworks grows profit, driven by linear product launches and 3G ramps

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