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Skyworks’ Quarterly Revenue Falls 12.9%

Financial Performance and Influencing Factors

Skyworks Solutions Inc, based in Irvine, CA, has reported revenue of $1.046 billion for its fiscal second quarter of 2024, down 12.9% from $1.2015 billion last quarter and 9.5% from $1.1531 billion a year ago. Revenue from Skyworks’ largest customer decreased 19% sequentially and 3% year-over-year, comprising about 68% of total revenue.

Chairman, CEO & President Liam K. Griffin noted that mobile products revenue declined 19% sequentially, falling from 71% to 66% of total revenue. “We saw below-normal seasonal trends, with lower-than-expected end-market demand, especially in March,” Griffin commented. This resulted in some inventory buildup in the channel.

On the other hand, Broad Markets product revenue was up 1% sequentially, rising from 29% to 34% of total revenue, after overcoming near-term inventory corrections in wireless infrastructure, automotive, and industrial sectors. “The December quarter represented the bottom and we delivered modest sequential growth in March, reflecting a turning point,” Griffin added.

Margins and Operating Expenses

On a non-GAAP basis, gross margin has fallen further from 50% a year ago and 46.4% last quarter to 45% this quarter, at the bottom of the 45-46% guidance range. In addition to being the firm’s seasonally weakest quarter, this reflects the after-effect of having reduced factory utilization to drive down internal inventory for a fifth consecutive quarter (by $91.5 million, from $927 million to $835.5 million).

Operating expenses have risen from $191 million (15.9% of revenue) last quarter to $192 million (18.4% of revenue). However, this is below the guidance range of $193-197 million, reflecting Skyworks’ ongoing focus on managing discretionary expenses while continuing to make strategic investments in technology and product roadmaps in both Mobile and Broad Markets to drive share gains and increased diversification.

Net income has fallen further, from $323.1 million ($2.02 per diluted share) a year ago and $317 million ($1.97 per diluted share) last quarter to $250.7 million ($1.55 per diluted share, although this was $0.03 above the $1.52 guidance).

Cash Flow and Capital Expenditures

Despite the challenging macroeconomic environment and quarterly volatility, Skyworks’ business model generated strong operating cash flow of $300.2 million. Capital expenditure was $27.6 million (less than 3% of revenue), cut from $45.3 million a year ago, as Skyworks has passed the years of spending 10-12% of revenue to build out its manufacturing assets. The firm is now focusing more on creating additional capacity through operational improvements, including driving efficiency, yield improvements, test time reductions, and die shrinks. “We can substantially grow the revenue without having to add a lot more CapEx,” noted Kris Sennesael, senior VP & chief financial officer. “It’s going to remain for many, many years here in the low single digits as a percent to revenue, and that will continue to fuel a very strong free cash flow.”

Free cash flow was $272.6 million (26.1% of revenue). “We continue to drive robust cash flow through high levels of profitability, prudent working capital management, and moderating CapEx,” said Sennesael. During fiscal Q2, Skyworks paid $109.1 million in dividends (up from $98.7 million a year ago and roughly level with $108.9 million last quarter). Cash and cash equivalents grew to $1205.4 million, up by $175.7 million from $1029.7 million last quarter. Debt remained about $993 million.

Since quarter-end, Skyworks’ board of directors has declared a cash dividend of $0.68 per share of common stock, payable on June 11, to stockholders of record at the close of business on May 21.

Outlook and Future Expectations

For fiscal third-quarter 2024 (to end-June), Skyworks expects revenue to fall to $900 million. Mobile product revenue is expected to be down 20-25% sequentially, well below normal seasonal weakness, while the firm clears out the buildup of excess inventory that occurred in March and continued through April. However, Skyworks’ Android-related business (Google, Samsung, and China OEMs) has been stabilizing and is approaching $100 million per quarter. “The inventory correction is over,” said Sennesael.

Broad Markets product revenue should see further modest sequential growth of 2-3% as inventory levels appear to be normalizing in certain end-markets. However, the wireless infrastructure and traditional data-center markets will remain a headwind throughout 2024, as OEMs continue to digest excess inventory. “We are under-shipping natural demand right now as we allow the distribution channel and customers to consume excess inventory. It’s going to take a couple of quarters for that business to really bounce back,” noted Sennesael.

Gross margin should be 45-47%, growing by 100 basis points sequentially at the midpoint. Skyworks expects gross margin expansion during the remainder of 2024, driven by cost-reduction actions internally as well as externally with all suppliers (including yield improvements and test time reductions), a favorable shift in product mix (from Mobile to higher-margin Broad Markets as the latter recovers), and higher factory utilization rates (after the end of five consecutive quarters of drastically reducing internal inventory).

Operating expenses are targeted to be $192-198 million as the firm continues to make strategic investments in both Mobile and Broad Markets to drive share gains and increase diversification.

At the mid-point of the revenue range, diluted earnings per share should fall to $1.21.

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