30 July 2020
Skyworks’ June-quarter revenue falls less than expected 4% to $736.8m, aided by 5G launch in China
For fiscal third-quarter 2020 (ended 26 June), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $736.8m, down about 4% on $766.1m last quarter and $767m a year ago.
However, despite the negative impact from the COVID-19 pandemic, revenue was up 2.5% year-on-year if you exclude revenue from China-based smartphone and telecom network infrastructure maker Huawei Technologies Co Ltd, which on 15 May 2019 was added to the ‘Entity List’ of the US Department of Commerce’s Bureau of Industry and Securities (BIS), prohibiting the sale to Huawei of products covered by the Export Administration Regulations (EAR) without obtaining an appropriate license. (Huawei was previously Skyworks’ second largest customer, contributing 12% of total revenue in fiscal first-half 2019.)
Also, the revenue of $736.8m was $46.8m above the midpoint of the $670-710m guidance given on 4 May, boosted by a number of opportunities that Skyworks was able to execute on, largely the initial launch of 5G products in China with partners including Samsung, Oppo and Vivo.
China comprised 23% of total revenue. “Most of that is Oppo, Vivo, Xiaomi. There’s very little Huawei left. And then, of course, some other smaller Chinese customers,” says senior VP & chief financial officer Kris Sennesael. “5G is really kicking off in China… There is a big step-up in content in those 5G phones compared to the 4G phones. And, as a result of that, our revenues with the Chinese players is up on a year-over-year basis,” he adds.
“We also had some nice penetration in our Wi-Fi portfolio,” says president & CEO Liam K. Griffin. “Our Wi-Fi 6 launches, they were beneficial to us. But there was still a great opportunity in core mobile to grow.”
By market sector, Mobile (Integrated Mobile Systems and Power Amplifiers) comprised 69% of total revenue and Broad Markets comprised 31%, roughly equal to last quarter.
On a non-GAAP basis, gross margin has fallen further, from 50.4% a year ago and 50.2% last quarter then slightly again to 50.1%, hampered by COVID-19-related disruption in the supply chain as well as logistic costs in Skyworks’ own factories. However, the 50.1% gross margin was slightly above the 50% guidance, driven partly by a richer mix with more 5G products.
Operating expenses have risen from $135m (17.6% of revenue) last quarter to $139m (18.9% of revenue), above the forecasted $135.5m, as the firm makes the necessary investments in R&D to accelerate future growth.
Net income has fallen further, from $233.6m ($1.35 per diluted share) a year ago and $229.5m ($1.34 per diluted share) to $210.8m ($1.25 per diluted share), but this exceeded the guidance of $1.13 per diluted share.
Operating cash flow was $259m (down from $280.4m last quarter). Capital expenditure (CapEx) was $71.6m (almost 10% of revenue), up from $60.7m (just 7.9% of revenue) last quarter. Free cash flow has hence fallen further, from $220m (free cash flow margin of 29% of revenue) to $187m (25.4% margin). Nevertheless, on a trailing 12-month basis, free cash flow margin is 32%.
During the quarter, Skyworks paid $73m in dividends and repurchased about 670,000 shares of common stock at an average price of $87.42 for a total of $59m. (During the first three quarters of fiscal 2020, the firm repurchased 4.6 million shares. During the last 12 months, it has returned 84% of free cash flow back to shareholders via dividends and share buybacks.) Cash and investments still rose during the quarter from $1108m to $1162m. The firm has no debt.
“Skyworks delivered results well above expectations in the June quarter, as our Sky5 platform gains traction, powering innovation in 5G applications at the leading mobile phone OEMs worldwide, and increasingly across our IoT customers,” says Griffin.
During the quarter, Skyworks secured key design wins across numerous applications from the mobile phone to industrial, IoT, automotive, cognitive audio, aerospace and defense.
“Specifically, in mobile, we are expanding our Sky5 platform across multiple flagship 5G models at Samsung, Motorola, Oppo, Vivo and Xiaomi,” notes Griffin. “In addition, we are populating some of the highest-performing 5G platforms that we’ll be launching later this year. In IoT, we’re enabling AT&T’s tri-band home gateways with our Wi-Fi 6 solutions; ramping indoor and outdoor access points at Aruba, Juniper and Linksys; powering integrated connectivity in Amazon and Ring security systems; launching voice assistant solutions and mesh routers at Google; and we’re leveraging our 4x4 MIMO and Wi-Fi engines and premium sound bars at Sonos. In addition, we delivered new cognitive wireless audio solutions powering the leading gaming headsets,” he adds.
“In the industrial space, we are supporting IoT platforms at Bosch and Gemalto and leveraging our GPS, circulator and advanced filter solutions at leading aerospace & defense companies. And in automotive, we’re capturing new designs with Sky5 at BMW, Ford and other leading manufacturers,” says Griffin. “These wins demonstrate our market leadership, underpinned by a diverse and growing set of critical technologies, resolving increasingly complex architectures and preparing our customers for the performance gains demanded in 5G.”
“With 5G gaining traction, we are now at the cusp of a multi-year upgrade cycle, one in which Skyworks is uniquely positioned to outperform,” reckons Griffin. “Our Sky5 platform provides tremendous flexibility to our customers, purpose-built to be baseband agnostic, while powering the most innovative 5G handsets,” he adds. “In addition, these same 5G solutions are now expanding across industrial and automotive applications. And, as complexity intensifies, we are aggressively adding to our enabling technologies, with ongoing investments in both TC-SAW and bulk acoustic wave (BAW) filtering.” Skyworks has just surpassed 150 million shipments of BAW-enabled modules. “We see strong momentum for this technology in both Mobile and Broad Markets,” notes Griffin. “Our proven ability to advance key connectivity protocols, delivering higher speeds and lower latency, across 3G, 4G and now 5G, positions us well to capitalize on rapidly evolving market opportunities,” he reckons.
For fiscal-quarter fourth 2020 (to end-September), Skyworks expects double-digit sequential revenue growth to $830-850m, with Broad Markets up double-digits as business accelerates, and revenue with Chinese 5G players accelerating strongly in Mobile. Gross margin should be 50-50.5% (the longer-term target is still 53%). Despite operating expenses growing to $142.5m, diluted earnings per share should rise to $1.51.
“We expect further strong sequential growth into the December quarter,” says Sennesael. “We have been loading our factories in order to drive maximum usage of our capital equipment and then trying to minimize our capital expenditures, and so most of the inventory that we have [which has more than doubled year-on-year, from $22.8m a year ago to $46.4m in the March quarter] is based on backlog and firm orders that we have on the books. So, there is very little risk for E&O [excess and obsolete],” he adds.
“Given our confidence in Skyworks’ strategic outlook and strong cash flow generation, we are announcing another substantial raise to our quarterly dividend,” says Sennesael. The board of directors has declared a cash dividend of $0.50 per share of common stock (a 14% increase on the prior quarterly dividend of $0.44 per share), payable on 1 September, to stockholders of record at the close of business on 11 August.
“Our efforts are underpinned by years of investment in next-generation technologies, uniquely positioning Skyworks to deliver long-term profitable growth,” says Griffin.