For fiscal second-quarter 2014 (ending 28 March), Skyworks Solutions Inc of Woburn, MA, USA (which manufactures analog and mixed-signal semiconductors) has reported revenue of $481m, down 4.8% on $505.2m last quarter but up 13% on $425.2m a year ago (better than the guidance of 11% growth to $470m), outpacing normal seasonality. The 10%-customers were again Foxconn and Samsung.
Fiscal Q2/2013 Q3/2013 Q4/2013 Q1/2014 Q2/2014 Revenue $425.2m $436.1m $477m $505.2m $481m
Highlights during the quarter include:
enabling NetGear's newest 802.11ac MU-MIMO routers and residential gateways; supporting Audi's Homelink programmable car system; capturing high-reliability sockets with several aerospace & defense suppliers (including Cobham, EADS, Herley and Teledyne); securing power management design wins with Samsung; ramping connected home solutions supporting security sensors, motion detectors, lighting controls and meters at Centralite and Landis+Gyr; leveraging the firm's infrastructure portfolio for macro base-station and remote and multi-standard radio applications across Alcatel-Lucent, Ericsson, Nokia Solutions and Networks, and ZTE; delivering analog control ICs to Medtronics for implantable heart monitors; developing a dual flash driver utilizing proprietary TrueFlash capability (enabling LED flash management features); powering Microsoft, Nintendo and Sony gaming platforms with analog and connectivity solutions; expanding the firm's footprint in multiple 4G TD-LTE architectures at leading smartphone OEMs including Coolpad, HTC, Lenovo and ZTE; launching next-generation SkyOne platforms with carrier aggregation, additional frequency bands and MIPI baseband interfaces; and enabling the Moto G smartphone with five front-end devices.
"Skyworks is executing to our strategy of gaining semiconductor content through system-level integration, diversifying into adjacent vertical applications and relentlessly pursuing operational excellence," says VP & chief financial officer Donald W. Palette.
On a non-GAAP basis, gross margin has risen further, from 42.2% a year ago and 44.5% last quarter to 44.7% (better than the guidance of 44-44.5%), driven by strong adoption of the firm's integrated system solutions, margin-accretive new-product introductions, and strength in key vertical markets.
Operating expenses rose further, from $82.9m last quarter to $84.8m, but this is due to R&D expense rising from $50.8m to $53.1m (to support organic growth initiatives) counteracting selling, general & administrative (SG&A) expense falling slightly from $32.1m to $31.7m.
Operating income was $130.4m, up from $99.7m a year ago but down on $141.8m last quarter. Nevertheless, operating margin has continued to rise, from 23.4% of revenue a year ago and 25.3% last quarter to 27.1%, "highlighting the continued strength of our business model in our execution," says Palette.
Although down on $127.7m ($0.67 per diluted share) last quarter, net income was $118.6m ($0.62 per diluted share, above the guidance of $0.59), up on $91.9m ($0.48 per diluted share) a year ago (the fourth consecutive quarter of above-20% year-on-year earnings growth).
Cash flow from operations rose from $159m last quarter to a record $214m. After falling from $38m the prior quarter to $16m last quarter, capital expenditure jumped to $41.8m, invested in support of upcoming program ramps. Depreciation was steady at $21.7m. Cash reserves hence rose from $648.6m to $798m.
During the quarter, Skyworks repurchased 2 million shares of common stock (representing a $61.5m investment). "With the confidence we have in our business outlook, we continue to believe that repurchasing common stock represent a highly accretive use of our cash," says Palette.
Also, the board of directors has declared its first cash dividend of $0.11 per share (implying roughly a 1.2% dividend yield), payable on 22 May to stockholders of record at the close of business on 13 May.
"With the combination of the newly initiated dividend and our ongoing share repurchase activity, we are returning roughly 40% of free cash flow to shareholders, a pace which we believe strikes the appropriate balance between internal investment for growth initiatives and shareholders returns," says Palette.
"Skyworks exceeded guidance across all key metrics last quarter and is set to substantially outpace the broader semiconductor industry as we capitalize on increasing analog system complexity driven by the Internet of Things," says president & CEO David J. Aldrich. "By providing custom solutions that help our customers solve increasingly complex design challenges, we are enabling connectivity across a number of new and previously unimagined end-markets and applications," he adds. "Our expanding market footprint, customer relationships and design-win pipeline are translating into accelerating growth and improving financial returns."
"Looking forward, we are on track to deliver strong, sustainable top-line growth with continued operating leverage," reckons Palette. For fiscal third-quarter 2014 (to end-June), Skyworks expects revenue of $535m, up 11% sequentially and 23% year-on-year, driven by strength in the emerging markets, content gains in key programs, and 802.11ac deployments in an expanding set of opportunities within the Internet of Things. Gross margin should be in the 45% range despite operating expenses rising slightly to about $86m. Diluted earnings per share should be $0.73, up 18% sequentially and 35% year-on-year (representing the fifth consecutive quarter of year-on-year earnings growth of about 20%), "reflecting the strength of demand for our products, our differentiation in the market place, and the consistency of our execution," says Palette. This is also close to the firm's $0.75 long-term target.
For fiscal first-half 2014, power amplifiers represented 40% of revenue, integrated mobile systems 33%, and broad markets 27%. Skyworks expects these percentages to stay relatively consistent throughout the remainder of the fiscal year. "In fiscal 2015 and beyond, we see integrated mobile systems and broad markets revenue continuing to grow as an overall percentage of our mix, which should support improved returns based on the high differentiation and better margins associated with these products," notes Palette.
