8 May 2020
Skyworks’ March-quarter revenue falls 5% year-on-year to $766.1m
For fiscal second-quarter 2020 (to 27 March), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $766.1m, down by 14.5% on $896.1m last quarter and by 5% on $810.4m a year ago. This is below the initial guidance (given on 23 January) of $800-820m but in line with 4 March’s reduction in guidance by $45m to $760-770m due to the impact of the COVID-19 coronavirus pandemic.
Also, despite COVID-19, revenue is up 4% 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.) “Business with Huawei remains at a much lower level than it was historically, although we are able to continue to ship under the ban, which is still effective,” notes chief financial officer Kris Sennesael. Nevertheless, China overall still comprised about 20% of Skyworks’ total revenue in fiscal Q2/2020.
By market sector, Mobile (Integrated Mobile Systems and Power Amplifiers) revenue has fallen by mid-teens sequentially (from 73% to 70% of total revenue), in line with normal seasonality, and flat on year-on-year despite the reduction in revenue from Huawei. Excluding Huawei, Mobile revenue grew by more than 9% year-on-year, driven by content gains as well as an early 5G ramp with Chinese customers (e.g. Oppo, vivo, Xiaomi).
Broad Market revenue fell by mid-single-digits sequentially (while rising from 27% to 30% of total revenue).
On a non-GAAP basis, gross margin rebounded slightly from 50.1% last quarter to 50.2% (although it is still down on 50.7% a year ago).
Operating expenses were $135m (17.6% of revenue), up slightly from $134m last quarter but level year-on-year, as Skyworks “continues to prudently manage OpEx while making the necessary investments to accelerate future growth of the business,” says Sennesael.
Net income was $229.5m ($1.34 per diluted share, below the original guidance of $1.46), down from $288.8m ($1.68 per diluted share) last quarter and $256.6m ($1.47 per diluted share) a year ago.
Operating cash flow was $280.4m. Capital expenditure (CapEx) was $60.7m. Free cash flow was hence $220m (free cash flow margin of 29%). Skyworks again paid $75m in dividends. The firm also repurchased 3.2 million shares of common stock for a total of $283.8m. (In the last 12 months, Skyworks has returned 92% of free cash flow to shareholders through a combination of dividends and share buybacks.) During the quarter, cash and investments hence fell from $1229m to $1108m. The firm has no debt.
Since the end of the quarter, Skyworks’ board of directors has declared a cash dividend of $0.44 per share of common stock (payable on 11 June to stockholders of record at the close of business on 21 May). “We intend to continue with our share repurchase program,” notes Sennesael.
“During the March quarter, we expanded our engagement with leading customers, securing key design wins across numerous applications from the mobile phone to wireless infrastructure, IoT [Internet of Things], automotive, machine-to-machine and medical applications,” says president & CEO Liam Griffin.
“In Mobile, we are leveraging our Sky5 platform across multiple flagship 5G handset launches, including Samsung, Oppo, Vivo, Xiaomi and other tier-1 players,” he adds. Skyworks is expanding its technology reach across its customized Diversity Receive platforms with new 5G-centric solutions being deployed across a growing set of customers, driving sharp gains and design-win count.
In IoT, Skyworks is supporting high-performance 5G and Wi-Fi-enabled tablets specifically developed for health, safety and telemedicine applications. “Across mobile operators, we are powering 5G mobile hotspots with Verizon and AT&T, supporting the expanding work-from-home trend,” notes Griffin. “We are extending our market leadership in Wi-Fi 6 with home and enterprise gateways at Cisco. We’re enabling home security applications at Honeywell and ramping wireless remote patient monitoring systems with GE. We're also launching asset-tracking and fleet-management solutions with Juniper and Blackberry,” he adds.
“In the infrastructure space, we’re supporting 5G Massive MIMO and small-cell base-station deployments across the USA, Europe and Japan. In automotive, we’re accelerating connectivity content with leading brands including Volkswagen, Renault, Hyundai, and Nissan.”
“These highlights demonstrate our technology leadership underpinned by a diverse and growing set of critical product categories, resolving increasingly complex architectures and preparing our customers for the performance gains demanded in 5G,” says Griffin.
“Our design-win momentum reflects our execution across a rapidly evolving business environment, one in which our wireless technologies are playing an essential and critical role,” continues Griffin. “We are enabling markets from telemedicine to emergency response, remote work, online education, real-time security, streaming entertainment and safe store-to-door food delivery. Our mission of connecting everyone and everything all the time has never been more relevant,” he adds.
“From an inventory point of view, we are running slightly higher than normal,” says Sennesael. In the March quarter, Skyworks increased its inventory by $44.9m, boosting days of inventory to 165 days. “But, it is by design,” says Sennesael. “We have increased our buffer stocks, we have increased even finished goods inventory. We kept the loading in our factories. Again, it’s all in support of the ramp in the second half. We want to make sure we continue to deliver on time to our customers,” he adds. “We had a temporary suspension in our Mexican factory. We were able to continue to deliver products to our customers. That situation now has been resolved, while we are building this inventory that has very few or little risk from an E&O [excess and obsolete] point of view.
As announced on 14 April, following an order by the government of the state of Baja California, Mexico in an effort to reduce the spread of the COVID-19 coronavirus, Skyworks temporarily suspended its back-end assembly & test operations in Mexicali (out of which 70-75% of Skyworks’ revenue is normally generated). On 27 April, state and local officials permitted Skyworks to resume operations.
Otherwise, to date Skyworks says that it has not experienced any significant disruptions to ongoing operations or to its supply chain as a result of COVID-19. In response to the pandemic, Skyworks continues to implement multiple protocols in its facilities worldwide, including social distancing, daily pre-shift temperature screening, enhanced use of personal protective equipment, heightened sanitation standards and remote-work options wherever possible. In addition, it continues to implement rotating shifts with reduced staffing at its global manufacturing sites. Implementation of these protective measures allows Skyworks to better safeguard employee health while simultaneously maintaining business and manufacturing operations and continuing to provide products critical to sectors deemed ‘essential’ under the applicable laws, regulations and orders of the jurisdictions in which the company has facilities.
“During this time of social distancing and decreased travel, the technology Skyworks provides has become a primary means of connecting people all over the world,” says Griffin. “The rollout and adoption of 5G and other advanced wireless technologies, such as Wi-Fi 6 and Enhanced GPS have become the pillars in support of the vast connected economy,” he adds.
“Given the supply chain and demand disruptions associated with COVID-19, visibility is limited for the June quarter, resulting in a wider revenue range compared to prior quarters,” says Sennesael. For fiscal third-quarter 2020 (to end-June), Skyworks expects revenue to fall to $670-710m, despite Broad Market revenue rising, driven partly by the work-from-home, learn-from-home trends that results in strength in PC, tablets, wearables, Wi-Fi, hotspots, the adoption of Wi-Fi 6 and all the wireless protocols. Gross margin should fall only slightly to 50%. With operating expenses level at $135.5m, diluted earnings per share should be $1.13.
“Our target model [for gross margin] is 53%. If it wasn’t for the headwinds, we would have been there already,” says Sennesael. “In second-half 2020 and beyond, when those headwinds become tailwinds, we will see some nice further gross margin improvements.”