Skyworks Solutions, Inc. — Q2 FY2024 Form 10-Q
Reporting period: The quarter ended March 29, 2024 (13 weeks); six-month comparisons are for the period ended March 29, 2024. Comparisons are year over year unless noted. Skyworks makes analog and mixed-signal semiconductors for wireless and other end markets.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $1,046.0 million | $1,153.1 million | $2,247.5 million | $2,482.4 million |
| Gross profit / margin | $420.3 million / 40.2% | $527.4 million / 45.7% | $926.8 million / 41.2% | $1,165.0 million / 46.9% |
| Operating income / margin | $189.2 million / 18.1% | $273.3 million / 23.7% | $447.6 million / 19.9% | $640.3 million / 25.8% |
| Net income | $183.3 million | $232.8 million | $414.6 million | $542.2 million |
| Diluted EPS | $1.14 | $1.46 | $2.57 | $3.39 |
| Operating cash flow | Not separately stated for the quarter | $1,075.2 million | $1,185.1 million |
Balance sheet, cash flow, and capital allocation
- Cash, cash equivalents, and marketable securities were $1,221.3 million at March 29, 2024, up $482.8 million from September 29, 2023. Current assets were $3,145.5 million and current liabilities $606.4 million.
- Total debt was $993.6 million, consisting of senior notes due 2026 and 2031. The company repaid $300 million of term loans during the six months; no term-loan or revolver borrowings remained at quarter-end. The $750 million revolver expires July 2026.
- Six-month investing cash use was $56.5 million, including $49.8 million of capital expenditures. Financing cash use was $532.1 million, including $300 million of debt repayment and $218 million of dividends. No shares were repurchased under the company’s public repurchase program.
- Inventory declined to $835.5 million from $1,119.7 million at fiscal year-end; receivables declined to $615.3 million from $864.3 million.
Changes and management commentary
- Quarterly revenue decreased 9.3%; six-month revenue fell 9.5%. Management attributed the declines primarily to weaker demand for non-mobile analog and mixed-signal products.
- Gross profit fell 20.3% in the quarter and 20.4% for the six-month period. Management cited unfavorable product mix, lower unit volumes, and lower average selling prices. Gross margin contracted 5.5 percentage points in Q2 and 5.7 points for the six-month period.
- Quarterly net income decreased 21.3%; six-month net income decreased 23.5%. Lower interest expense, following repayment of term loans, and lower income-tax expense partly offset operating deterioration.
- Management says revenue is typically seasonally stronger in the fourth and first fiscal quarters. It expects average selling prices for established products to continue declining, and cites volume growth, manufacturing efficiencies, cost reductions, and new products as ways to support gross profit.
- No quantified revenue, earnings, or margin guidance is provided in the supplied filing text. Management expects cash on hand, operating cash generation, and revolver availability to be sufficient for anticipated liquidity needs, while noting that future acquisitions or other needs could require additional capital.
Unusual items, risks, and contingencies
- A change in estimated useful lives for certain machinery and equipment reduced depreciation expense by $18.9 million in Q2 and $37.7 million for the six months. Management reported that this increased net income by $4.3 million and $6.7 million, respectively; it also reduced ending inventory by $31.0 million. This estimate change affects comparability of reported results.
- The company recorded a $16.1 million impairment charge in the six-month period after abandoning a previously capitalized in-process research and development project. No impairment indicators were identified in Q2.
- The effective tax rate was 5.0% in Q2 and 6.7% for the six months; management attributed the difference from the 21% U.S. federal statutory rate primarily to foreign earnings taxed at lower rates and tax deductions and credits, partly offset by other tax items. The corporate alternative minimum tax had no reported impact for the periods.
- The company reports ordinary-course legal matters, including intellectual-property disputes, but says it does not believe any pending proceedings are reasonably possible to result in a material loss. It also provides certain customer intellectual-property indemnities and has supplier capacity-reservation commitments; remaining deposits and prepayments were disclosed, but the filing text does not provide a clear total for all purchase commitments.
- Risks include demand and product-mix changes, pricing pressure, manufacturing costs, foreign-exchange exposure, and the possibility that liquidity sources may not meet future needs. Management reported effective disclosure controls and no material second-quarter change in internal control over financial reporting.
Investor facts to verify
- Whether demand for non-mobile products stabilizes and revenue trends improve, taking account of the company’s stated seasonality.
- Whether gross margins recover amid lower volumes, product-mix shifts, and ongoing price erosion; assess results with the depreciation-life estimate change in view.
- Whether inventory reduction and working-capital movements translate into sustainable operating cash flow.
- Debt maturities, capacity-reservation and other supplier commitments, and the company’s ability to fund dividends, investment, and any future strategic transactions.
- Developments in intellectual-property litigation and any material changes to the risk factors referenced in the company’s 2023 Form 10-K.