Skyworks Solutions, Inc. — Q2 FY2020 Form 10-Q
Reporting period: Second quarter and first six months of fiscal 2020 ended March 27, 2020; comparisons are with the corresponding 2019 periods. Unless noted, amounts are U.S. dollars.
Business context and results
Skyworks makes analog semiconductors for wireless and other applications, including smartphones, automotive, broadband, industrial and connected-home markets. Management attributed lower demand to Huawei remaining on the U.S. Entity List and to the COVID-19 pandemic.
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $766.1 million, down 5.5% | $1,662.2 million, down 6.7% |
| Gross profit / margin | $375.6 million / 49.0% (49.4% prior year) | $819.9 million / 49.3% (49.7% prior year) |
| Operating income / margin | $199.5 million / 25.9% (29.3% prior year) | $476.8 million / 28.6% (31.3% prior year) |
| Net income | $181.1 million (versus $214.0 million) | $438.1 million (versus $498.8 million) |
| Diluted EPS | $1.06 (versus $1.23) | $2.56 (versus $2.83) |
| Operating cash flow | Not separately reported for the quarter | $678.8 million (versus $741.1 million) |
Financial position, cash flow and capital returns
- Cash, cash equivalents and marketable securities totaled $1.108 billion at March 27, up $25.8 million from September 27, 2019. Current assets were $2.221 billion and current liabilities $362.2 million.
- Six-month investing cash outflow was $136.5 million, including $171.9 million of capital expenditures. Financing cash outflow was $481.2 million, including $358.0 million of share repurchases and $150.0 million of dividends.
- The balance sheet reports $172.6 million of operating lease liabilities, including $20.7 million current and $151.9 million long-term. The filing does not identify conventional borrowings in the presented balance sheet.
- Skyworks declared and paid dividends of $0.44 per share in each quarter. The board authorized up to $2.0 billion of repurchases through January 30, 2021; $1.27 billion remained authorized at quarter-end.
Changes, outlook and risks
- Revenue and earnings declined year over year. Management cited lower average selling prices, lower unit volumes and unfavorable product mix as factors behind the quarterly gross-profit decline. Operating expenses rose as a share of revenue, in part due to higher performance-based share compensation and continued technology investment.
- Management said cash on hand and expected operating cash generation should fund operating needs, R&D, capital expenditures, dividends if declared, and other requirements for at least the next 12 months. No quantified revenue or earnings guidance is provided.
- COVID-19 reduced demand and created uncertainty around customer orders, supply chains, production, transportation and employee availability. Mexicali operations were suspended for about two weeks in April and resumed April 27; management did not expect that interruption to have a significant impact, but warned an extended renewed suspension could affect supply and results.
- Sales are concentrated among a limited number of customers; the three largest receivable balances represented 57% of gross receivables at quarter-end. The filing warns that a major customer reducing orders could materially harm results.
- Other risks include Huawei-related demand impacts, possible recession and delayed 5G deployment, and intellectual-property disputes. Management said it did not believe pending legal proceedings were reasonably likely to result in a material loss. No impairment indicators were identified.
- Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting.
Investor verification priorities
- Track subsequent demand, customer orders and the effects of COVID-19 and Huawei-related restrictions.
- Check for renewed Mexicali or other facility disruptions and any supply-chain or customer concentration impacts.
- Monitor gross margin, operating expenses and cash conversion, including working-capital movements and capital spending.
- Verify the pace of buybacks, dividend payments and remaining authorization against liquidity needs and lease obligations.