5 February 2020
Skyworks’ quarterly revenue grows a more-than-expected 8% sequentially to $896m
For fiscal first-quarter 2020 (ended 27 December 2019), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $896.1m. This is down 7.8% on $972m a year ago. However, this is impacted by the US Department of Commerce’s Bureau of Industry and Securities (BIS) on 15 May adding China-based smartphone and telecom network infrastructure maker Huawei Technologies Co Ltd to its ‘Entity List’ prohibiting the sale to Huawei of products covered by the Export Administration Regulations (EAR) without obtaining an appropriate license. (Huawei had been Skyworks’ second largest customer, contributing 12% of total revenue in fiscal first-half 2019, but was just $10m last quarter.)
Despite this, fiscal first-quarter 2020 revenue is up 8% on $827.4m last quarter, driven by the launch of flagship phones and the early success of the Sky5 product portfolio as new 5G phones start ramping globally.
“Skyworks exceeded December-quarter expectations [of $870–890m] driven by global demand for our high-performance connectivity engines,” notes president & CEO Liam K. Griffin. Although revenue from Huawei was “a little bit better than we expected… we are de-risking exposure to Huawei,” he adds.
By market sector, Mobile (Integrated Mobile Systems and Power Amplifiers) rebounded further, from 67% of total revenue last quarter to 73% (although the December quarter is typically a very strong quarter for Mobile, with a lot of business with Skyworks’ large customer plus the ramp of 5G phones). Broad Markets was down further, from 33% of total revenue last quarter to 27%. Broad Markets revenue was up by mid-single digits on a percentage basis, both sequentially and (if you exclude Huawei) year-on-year. “We have some Huawei infrastructure business that was part of Broad Markets,” notes senior VP & chief financial officer Kris Sennesael. “Due to the ban we lost most or almost all of that,” he adds.
“Leveraging decades of experience, manufacturing scale and vertical integration capabilities, our highly advanced Sky5 platform is fueling market adoption of 5G across a broadening set of end markets and customers,” says Griffin. “With an expansive suite of applications − from smartphones to wireless infrastructure, industrial robotics, autonomous vehicles, smart homes and virtual assistants − our solutions provide the critical connection, ensuring peak performance for 5G and IoT usage cases,” he adds.
On a non-GAAP basis, gross margin has fallen further, from 51% a year ago and 50.3% last quarter to 50.1%, but this is slightly above the expected 50%.
Operating expenses have been cut further, from $135m (16.3% of revenue) last quarter to $134m (15% of revenue), down 4% from $139m a year ago as the firm continued to manage OpEx while making the necessary investments to accelerate future growth of the business.
Net income was $288.8m ($1.68 per diluted share), down from $324.6m ($1.83 per diluted share) a year ago but up from $261.9m ($1.52 per diluted share) last quarter (and better than the $1.65 guidance).
Operating cash flow was $398m. Capital expenditure (CapEx) was $111m. Free cash flow was therefore $287m (margin of 32%). Skyworks paid $75m in dividends and repurchased 742,000 shares of common stock for a total of $74m. (During the last 12 months, Skyworks has returned 87% of free cash flow back to shareholders through a combination of dividends and its share-buyback program.) During the quarter, cash and investments hence rose from $1.082bn to $1.229bn. The firm has no debt.
“Through crisp operational execution and a strong business model, we are translating these results into long-term shareholder value,” says Griffin.
Skyworks’ board of directors has declared a cash dividend of $0.44 per share of common stock, payable on 3 March, to stockholders of record at the close of business on 11 February.
“The expanding product pipeline at Skyworks is clearly generating strong design-win momentum across both Mobile and Broad Market segments,” notes Griffin.
“In our Mobile business, traction in 5G is gaining strength with our Sky5 platform powering launches at Oppo, Vivo, Xiaomi and Samsung. Our baseband-agnostic solutions offer interoperability and are being deployed across leading chipset suppliers, including MediaTek, Samsung and Qualcomm,” he adds. “With our expanding filter capabilities in TC-SAW [thermally compensated surface acoustic wave] and BAW [bulk acoustic wave], we help our customers navigate complex challenges while extending our reach across a broader spectrum of 4G and 5G bands.”
In Broad Markets, at January’s Consumer Electronics Show (CES 2020) in Las Vegas, Skyworks announced a unique set of 5G-enabled solutions, including Massive MIMO IoT, a suite of connected home devices and high-fidelity smart audio products. Specifically, it is powering rapidly emerging IoT applications with cellular-based platforms certified by KDDI, NTT DoCoMo, SoftBank and Verizon. “We’re driving growth with the launch of our Wi-Fi 6 platforms, expanding our customer reach with industry leaders including AT&T, Cisco, Netgear, ARRIS and Aruba,” notes Griffin.
In infrastructure, Skyworks is leveraging its capabilities in silicon germanium (SiGe), silicon-on-insulator (SOI), gallium arsenide (GaAs), bulk acoustic wave and ceramic filters while powering 5G Massive MIMO and small-cell base-station design wins. “In addition, we are gaining momentum in automotive, enabling new wins with leaders like Continental, Nissan and Renault along with industrial players including Honeywell, Bosch and GE… These were not customers two or three years ago,” notes Griffin.
Specifically, during the quarter, Skyworks:
- advanced automotive content with the SkyOne, Wi-Fi 6 and V2X portfolio;
- extended its position in high-speed 802.11ax access points with advanced 2.4GHz and 5GHz front-end modules (FEMs);
- introduced Bluetooth Low Energy modules for Proctor & Gamble’s infant monitoring system;
- leveraged Zigbee, Thread and Bluetooth Low Energy architectures for extended-range smart gas meter applications;
- began volume production of Wi-Fi 6 connectivity engines for ZTE and Belkin/Linksys;
- supported GoPro’s next-generation wearable, waterproof action camera with GPS technology; and
- shipped LoRa devices powering premium home security platforms.
“Early momentum from the initial launch of 5G [Sky5 solutions] as we ramp design wins in our Mobile business, matched with solid traction in Broad Markets, are driving better-than-seasonal performance in the March quarter [which is typically a stronger quarter for Broad Markets],” says Sennesael.
For fiscal second-quarter of 2020 (to end March), Skyworks expects revenue of $800-820m, flat year-on-year (although, excluding Huawei, this would be up mid-teens as a percentage, with mid-single-digit growth in Broad Markets including infrastructure). Despite the normal seasonal decline in revenue, gross margin should be up to 50-50.5%. With operating expenses of about $135m, diluted earnings per share should fall to $1.46.
For fiscal second-half 2020, Skyworks expects further stronger growth in Broad Markets (including infrastructure) both sequentially and year-on-year (again, excluding Huawei). Driven by infrastructure, Skyworks’ gross margin should improve.
“We are driving operational efficiencies and bringing high-added-value products to the market that will drive the gross margins towards our long-term target of 53% and our operating margins approaching 40%,” reckons Sennesael. “OpEx is running on or about 15% [of revenue]… We can do a little bit better there so you get to an operating margin that approaches 40%. At the same time, we're very much focused on driving free cash flow [margin] at 30% or slightly above 30%,” he adds.
“We will continue to invest in the business. One of our strengths is our operational footprint with our gallium arsenide fabs, our filter operation as well as our back-end operation. We continue to expand the capacity in those fabs and we continue to develop new technology, package technologies and filter technologies,” says Sennesael. “That of course requires sufficient CapEx support. CapEx is running on or about 10% of revenue.”