Skyworks Solutions, Inc. — Q1 FY2020 Form 10-Q
Reporting period: 13 weeks ended December 27, 2019; comparisons are with the 13 weeks ended December 28, 2018. Skyworks sells analog semiconductors for wireless and other connected applications.
Financial performance
| Metric | Q1 FY2020 | Prior year | Change |
|---|---|---|---|
| Revenue | $896.1 million | $972.0 million | Down 7.8% |
| Gross profit / margin | $444.3 million / 49.6% | $485.1 million / 49.9% | Profit down 8.4% |
| Operating income / margin | $277.3 million / 31.0% | $320.9 million / 33.0% | Down 13.6% |
| Net income / margin | $257.1 million / 28.8% | $284.9 million / 29.3% | Down 9.8% |
| Diluted EPS | $1.50 | $1.60 | Down 6.3% |
| Operating cash flow | $398.4 million | $549.0 million | Down $150.6 million |
Cash and cash equivalents were $928.2 million at quarter-end; cash, cash equivalents and marketable securities totaled $1,228.6 million, up 13.5% from September 27, 2019. Investing activities used $180.5 million, including $111.2 million of capital expenditures. Financing activities used $141.0 million, including $74.2 million for the stock repurchase program and $75.1 million in dividends. The filing’s balance sheet lists no interest-bearing borrowings; total liabilities were $824.5 million, including $150.9 million of long-term operating lease liabilities. Current assets were $2,346.5 million versus current liabilities of $333.2 million.
Material changes and drivers
- Management attributed lower revenue primarily to reduced demand following the May 2019 addition of Huawei and certain affiliates to the U.S. Commerce Department’s Entity List.
- Gross profit fell $40.8 million. Lower average selling prices and unfavorable product mix reduced gross profit by $86.4 million, partly offset by higher unit volumes contributing $45.6 million.
- SG&A rose 16.0% to $55.4 million, primarily due to higher employee-related share-based compensation. R&D declined 1.4% to $107.7 million; as a share of revenue, it increased to 12.0% from 11.2%.
- The effective tax rate declined to 7.8% from 12.0%; management cited lower-taxed foreign earnings and increased windfall tax deductions among the reasons for lower tax expense.
- Operating cash flow was lower year over year, primarily due to unfavorable working-capital changes. Net purchases of marketable securities contributed to the shift in investing cash flows versus the prior-year period.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided in the supplied filing text. Management expects available cash, securities and operating cash generation to cover operating needs and commitments for at least the next 12 months, while cautioning that future cash availability is not certain.
- Skyworks adopted the new lease accounting standard in Q1 FY2020, recording a $141.4 million right-of-use asset and $143.1 million lease liability. The company said adoption did not materially affect its income statement or cash flows.
- The company cited typical seasonal strength in its fourth and first fiscal quarters, associated with consumer-electronics production ahead of holiday sales.
- Risks discussed include export restrictions and demand exposure, semiconductor pricing and product mix, intellectual-property litigation (including potential injunctive relief), foreign-exchange and investment risks, and the possibility that future acquisitions or investments require additional capital. The company reported no pending legal matters it believed reasonably likely to result in a material loss and no material changes to previously disclosed risk factors.
- The board’s January 2019 authorization permits up to $2.0 billion of repurchases through January 30, 2021; $1.6 billion remained available at December 27, 2019. A $0.44-per-share dividend was declared and paid during the quarter; a subsequent dividend at the same rate was announced in January 2020.
Important facts for investors to verify
- How Huawei-related restrictions and any resulting customer or demand changes affect subsequent revenue and regional sales.
- Whether pricing, product mix and volumes improve or further pressure gross margin.
- Whether operating cash flow rebounds from the working-capital-driven decline and how much cash is allocated to capital spending, dividends and repurchases.
- Tax-rate sustainability, including the Singapore tax holiday through September 30, 2030, which is subject to employment and investment conditions.
- Potential developments in intellectual-property disputes and other contingencies, as well as lease obligations and future capital needs.