Skyworks Reported Revenue of $587m, up 22% on $481m Last Quarter

For fiscal third-quarter 2014 (ended 27 June), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $587m, up 22% on $481m last quarter and 34.6% on $436.1m a year ago, and better than the guidance, which had been raised on 3 June from $535m (up 11% sequentially and 23% year-on-year) to $570m (up 19% sequentially and 31% year-on-year).

Of total revenue, power amplifiers represented 41%, integrated mobile systems 33%, and broad markets 26% - roughly in line with fiscal first-half 2014.

On a non-GAAP basis, gross margin has risen further, from 44% a year ago and 44.7% last quarter to 45.4%, driven by the better-than-expected revenue plus strength in the integrated systems solutions portfolio.

Operating expenses have risen further, from $84.8m last quarter to $87.5m, due mainly to selling, general & administrative (SG&A) expenses rising from $31.7m to $33.7, with research & development (R&D) expenses rising slightly from $53.1m to $53.8m.

Operating income has risen further, from $111.9m a year ago and $130.4m last quarter to $179.1m, as Skyworks leveraged operating expenses, reaped the benefits of recent capital investments, and continued to expand margin-enhancing custom integrated solutions and precision analog products. Operating margin has continued to rise, from 25.7% a year ago and 27.1% last quarter to 30.5%.

Net income has leapt from $103.8m ($0.54 per diluted share) a year ago and $118.6m ($0.62 per diluted share) last quarter to $160.8m ($0.83 per diluted share), up on guidance of $0.80 (which had been raised from $0.73 on 3 June) and the fifth consecutive quarter of above-20% year-on-year earnings growth.

Cash flow from operations was $199m. Capital expenditure has risen again, from $41.8m last quarter to $68m, in support of upcoming demand forecast (deployed mostly to expand assembly & test capabilities). Depreciation was $24m. During the quarter, cash and cash equivalents rose from $798m to $893.3m. Skyworks repurchased 1 million shares of common stock (representing a $41m investment). The board of directors also declared a cash dividend of $0.11 per share, payable on 21 August to stockholders of record at the close of business on 7 August.

“Skyworks is entering a new and exciting growth phase driven by global wireless proliferation and the Internet of Things,” says chairman & CEO David J. Aldrich. “We are capitalizing on the macro trend to connect virtually everyone and everything, all the time,” he adds. “Our high-performance analog solutions and system-level integration capabilities - coupled with our operational agility and scalability - are enabling us to connect the previously unconnected. Accordingly, Skyworks is setting the pace for analog semiconductor industry growth in terms of both revenue and value creation.”

Highlights during the quarter include:

enabling Sonos high-fidelity wireless audio streaming music platforms; gaining analog control IC content with Xiaomi for smart TVs and set-top boxes; powering Novero's on-board, in-vehicle communication systems; capturing design wins with Harris Corp for joint tactical radios; supporting Itron’s ramp of smart gas meters targeting launches across Europe; ramping MIPI-compliant voltage regulators, LED backlight and flash drivers across a growing set of tier-one smartphone OEMs; introducing ultra-low-noise amplifiers for 4G cellular infrastructure and broadcast communication applications; launching six products supporting MediaTek’s first 4G chipset targeting the broader China market; and securing sockets on Broadcom’s 5G wireless networking chipset reference design.

“Skyworks is executing to our strategy to grow substantially faster than the broader analog semiconductor industry while delivering best-in-class financial returns,” says executive VP & chief financial officer Donald W. Palette. “Given our broad customer demand and expanding product pipeline, we are forecasting sustainable, above-market growth for the foreseeable future.”

For fiscal fourth-quarter 2014 (to end September), Skyworks expects revenue to grow 16% quarter-on-quarter and 43% year-on-year to $680m, reflecting broad-based strength driven by new product ramps, content gains, growth across emerging markets, ongoing 802.11ac deployments, and the expanding set of opportunities within the Internet of Things. Gross margin should grow to 45.5-46%, despite operating expenses rising to about $92m. Diluted earnings per share should is expected to leap to $1.00, up 56% year-on-year. The sixth consecutive quarter of above-20% year-on-year earnings growth reflects “sustained strength and demand for our products, our differentiation in the marketplace, and the consistency of our execution,” comments Palette.

Skyworks remains on track to close its joint venture with Japan’s Panasonic Corp (announced in late April) by the end of fiscal 2014. Post-close, Skyworks will own a controlling interest in what is reckoned to be the performance leader in temperature-compensated surface acoustic wave (TC SAW) filters, with cumulative shipments approaching 0.25 billion units. “We expect the venture to broaden our technology portfolio, further enrich our systems capabilities, and enhance our financial returns,” says Palette. “We anticipate the transaction will provide at least 100 basis points of gross margin accretion in fiscal 2015,” he adds.

“We expect the combination of above-market top line growth, gross margin expansion and earnings leverage to fuel continued outperformance in our financials, putting us on a path of $5 in annualized EPS over the next couple of years [requiring annual growth of about 20-25%],” concludes Palette.