Skyworks Reports Record Cash Flow, Despite Quarterly Revenue Falling 9.6% Year-on-year To $1.2bn

6 February 2024

For its fiscal first-quarter 2024 (to 29 December 2023) Skyworks Solutions Inc of Irvine, CA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $1201.5m, down 1.4% on $1218.8m last quarter and 9.6% on $1329.3m a year ago, but slightly above the midpoint of the $1175-1225m guidance.

Mobile products comprised 71% of total revenue (up from 65% last quarter), as Skyworks supported the ramp of new high-performance solutions at its largest customer. Android-related revenue with Google, Samsung and the Chinese OEMs grew modestly sequentially.

“After two challenging years across Android ecosystems [involving several quarters of inventory correction], we see signs that the industry is stabilizing,” says chairman, CEO & president Liam K. Griffin. “Excess supply conditions are abating and inventory levels in the distribution channel and at the OEM level are normalizing,” he adds. “Customers are starting to re-stock inventory, albeit gradually as supply and demand dynamics improve and new phones are introduced into the market.”
Broad Markets products comprised 29% of total revenue (down from 35% last quarter), with revenue declining 18% sequentially, due mostly to some specific near-term inventory corrections in wireless infrastructure, automotive and industrial.

“We see cross-currents, but many factors are moving in the right direction,” says Griffin. “In consumer IoT, we believe that we are past the bottom, as inventory levels in the channel have normalized and demand signals are improving. Furthermore, we are executing on the upgrade cycle to WiFi 6E and 7,” he adds. “Taken together, we anticipate December quarter represents the bottom in the Broad Markets business.”

Driven by an unfavorable shift in product mix resulting from the lower Broad Markets revenue, gross margin (on a non-GAAP basis) has fallen further, from 51.5% a year ago and 47.1% last quarter to 46.4%. This was also impacted by Skyworks reducing its internal inventory further during the quarter, by $193m from $1120m to $927m (beyond the targeted $1bn).

Operating expenses were $191m (15.9% of revenue), cut from $193m a year ago and below the $193–197m guidance range, given Skyworks’ ongoing focus on managing discretionary expenses, while continuing to invest in technology and product roadmaps.

Net income has fallen further, from $414.6m ($2.59 per diluted share) a year ago and $352.8m ($2.20 per diluted share) last quarter to $317m ($1.97 per diluted share, although this exceeds the $1.95 guidance).

“Skyworks continues to execute well and generate robust profitability in light of ongoing macroeconomic volatility,” says Griffin.

Operating cash flow was a record $774.9m, up from $365.7m last quarter and surpassing the $773.4m a year ago.

Driven by the strong profitability, working capital management and moderating CapEx intensity – cutting capital expenditure from $70.1m last quarter to just $22.2m (less than 2% of revenue) – free cash flow was a record $752.7m (free cash flow margin of 62.6%), up on just $295.6m (24.3% margin) last quarter and exceeding the $709.9m (59.1% margin) a year ago.

During fiscal Q1, Skyworks repurchased $32.7m of common stock, paid out $108.9m in dividends, and repaid the remaining $300m on its term loan, which had a variable interest rate and “was getting a little expensive” – this has reduced debt to $993m.

Overall, cash and cash equivalents hence rose by $310.9m, from $718.8m to $1029.7m. The net cash position is therefore positive, yielding an “optimal capital structure, providing us with superior flexibility and optionality”.

Since the quarter-end, Skyworks’ board of directors has declared a further cash dividend of $0.68 per share of common stock, payable on 12 March to stockholders of record at the close of business on 20 February.

“We’ve made strategic investments in product development, positioning us to compete for design wins and share gains, focusing on highly integrated platforms for the leading mobile OEMs,” says Griffin.

Highlights during fiscal Q1 included:

securing several design wins in infrastructure, including optical transport products with a major operator in India and timing devices for 5G small cells for private networks;
expanding the Wi-Fi design-win pipeline with Cisco’s enterprise access point, Linksys tri-band mesh router, and TP-Link’s tri-band gaming router;
increasing design-win momentum in automotive including telematics, infotainment systems, and on-board chargers across the leading OEMs; and
in emerging IoT, delivering next-generation smart energy solutions with Google’s Nest temperature sensors and Itron’s residential gas meters.

“We see significant design-win momentum across our retail, carrier and enterprise channels. These systems carry substantially higher dollar content, because of the addition of the new 6GHz band and the inclusion of BAW filtering technology,” says Griffin.

“We expect wireless infrastructure and traditional data center will remain a headwind throughout 2024, as OEMs continue to digest excess inventory. Despite this, we remain bullish on several new product cycles, including major design wins in Ethernet for high-bandwidth networks and 400G and 800G optical module upgrades,” he adds.

“We see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle, along with growing EV penetration, driving demand for our power isolation products.”

Outlook

For its fiscal second-quarter 2024 (to end-March), Skyworks expects revenue of $1.02–1.07bn.

“We expect our Mobile business to be seasonally down, consistent with historical patterns, while in Broad Markets we anticipate modest growth off the December-quarter bottom [albeit still down year-over-year, by 20%], as inventory levels are normalizing in certain end-markets,” says senior VP & chief financial officer Kris Sennesael.

Gross margin is projected to fall to 45–46%, reflecting the firm’s seasonally weakest quarter, as well as the after-effect of having reduced factory utilization to drive down internal inventory.

Operating expenses should rise to $193–197m as Skyworks continues to make strategic investments in technology and product roadmaps in Mobile and Broad Markets to drive share gains and increased diversification.

At the $1.045bn midpoint of the revenue range, the targeted diluted earnings per share are $1.52.
“We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover,” says Griffin.

“We are seeing signs that the Android smartphone market is recovering,” notes Griffin. “In Broad Markets, there are several long-term secular growth dynamics that leverage our differentiated technology, including the proliferation of intelligent edge-connected IoT devices, automotive, electrification and advanced safety systems, and AI-enabled workloads, driving cloud and data-center upgrades. Each of these trends require intricate connectivity engines underlying the need for speed, ultra-reliable low-latency performance,” he reckons.

“In addition, 5G technology is expanding beyond the smartphone into more use cases in Broad Markets, including private cellular networks in factories and stadiums, customer premise equipment supporting Verizon and T-Mobile, and multi-band, automotive, telematics, and wearables,” adds Griffin.

“We also remain bullish on the long-term RF content story in smartphones. Coupled with growing 5G penetration, we see increasing levels of complexity and content with each new generation. For example, 5G Advanced is driving higher RF content, including the addition of satellite bands 4×4 MIMO on the downlink and uplink, higher bandwidth, more carrier aggregation, upgrades to WiFi and GPS and other innovations. Lastly, we are energized about the prospect of generative AI migrating to the smartphone, sparking a potential major upgrade cycle. As the performance bar rises every year to support AI-enabled phones, the complexity requirements of RF will continue to increase, driving the need for more integration, lower power consumption, smaller footprint, and spectral efficiency.”

“5G is the ideal standard for on-device AI applications, as it takes advantage of lower latency, faster transmission speeds and higher frequency ranges. In addition, AI-enabled workloads are driving demand for high-speed connectivity for data-intensive infrastructure and cloud upgrades, accelerating the demand for our high-precision timing products,” concludes Griffin.

“We anticipate margin expansion during the remainder of 2024, benefiting from our disciplined management of our manufacturing and operational cost structure, both internal and external, along with higher factory utilization rates [as Skyworks no longer has to focus on reducing inventory],” says Sennesael. “We will also benefit from a favorable mix shift as our Broad Markets business recovers and accelerates,” he adds. “Our long-term target model calls for 53% gross margin. There is no structural impairments in the business that will prevent that.”

See related items:

Skyworks maintains strong cash flow generation

Skyworks’ quarterly revenue falls during Android-related inventory consumption

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