Skyworks Solutions, Inc. — Q3 FY2014 Form 10-Q
Reporting period: Third quarter ended June 27, 2014 (13 weeks); nine-month results are also compared with the periods ended June 28, 2013. Skyworks makes analog semiconductors for wireless and other markets.
Financial performance
| Metric | Q3 FY2014 | Q3 FY2013 | Nine months FY2014 | Nine months FY2013 |
|---|---|---|---|---|
| Revenue | $587.0 million | $436.1 million | $1,573.2 million | $1,315.0 million |
| Gross profit / margin | $264.2 million / 45.0% | $188.2 million / 43.2% | $698.6 million / 44.4% | $557.5 million / 42.4% |
| Operating income / margin | $148.5 million / 25.3% | $84.3 million / 19.4% | $367.1 million / 23.3% | $239.6 million / 18.2% |
| Net income | $111.4 million | $65.7 million | $282.8 million | $193.9 million |
| Diluted EPS | $0.58 | $0.34 | $1.47 | $1.01 |
- Quarterly revenue rose 34.6% year over year; nine-month revenue rose 19.6%. Management attributed growth to increased RF and analog content in smartphones, 3G/4G adoption in emerging markets, tablets, and expansion into other markets.
- Operating margin increased about 595 basis points for the quarter and 510 basis points year to date, reflecting higher revenue and operating leverage, partly offset by increased employee compensation.
- Quarterly and nine-month effective tax rates were 25.0% and 22.9%, respectively. The nine-month rate included a $4.5 million tax benefit from Mexico tax-law changes; the federal R&D tax credit had expired and was not reflected.
Cash, liquidity and capital allocation
- Cash and cash equivalents were $893.3 million at June 27, 2014, versus $511.1 million at September 27, 2013. Current assets were $1,387.3 million and current liabilities $234.8 million. The filing reports no debt balance; total liabilities were $299.9 million.
- Nine-month operating cash flow was $572.0 million, compared with $342.2 million a year earlier. Capital expenditures were $125.7 million; operating cash flow less capital expenditures was $446.3 million (calculated from reported amounts).
- Financing cash outflows included $119.9 million of share repurchases and $20.9 million of dividends. The company paid a quarterly dividend of $0.11 per share and had $109.7 million remaining under its repurchase authorization.
- Of cash held by foreign subsidiaries, $325.0 million was considered indefinitely reinvested and would incur material tax effects if repatriated.
Outlook, material developments and risks
- Management said cash on hand and expected operating cash flow should fund operations, capital expenditures, the pending acquisition, and other requirements for at least 12 months, while cautioning that future cash needs and strategic investments could require additional resources.
- Capital spending supported manufacturing capacity in anticipation of accelerating demand from key customers. Management expects established-product average selling prices to decline 5%–10% annually, offset through volume growth, cost reductions, manufacturing efficiencies, and new products.
- On July 7, 2014, after quarter-end, Skyworks agreed to pay $148.5 million, subject to adjustments, for a 66% interest in a Panasonic SAW filter joint venture. Closing was expected before fiscal Q4 ended, subject to conditions. After two years, Skyworks may acquire, and Panasonic may sell, the remaining 34% for $76.5 million, subject to adjustments.
- Management cited typical second-half calendar-year seasonality from consumer-electronics production. No specific revenue or earnings guidance is provided in the filing text.
- Risks include intellectual-property disputes, including potential injunctive relief; uncertainty over future dividends; foreign-exchange exposure; and tax audits. The company reported no material pending legal loss expected and no material off-balance-sheet arrangements. Its 2011 federal tax return was under IRS examination, with no adverse tax-expense impact expected.
Key facts for investors to verify
- Whether the Panasonic transaction closed on expected terms and how its results, purchase accounting, and funding affect subsequent periods.
- Whether demand, manufacturing-capacity additions, and product mix sustain revenue growth and margin improvement amid expected selling-price erosion.
- Cash-flow quality and working-capital movements, as well as the availability and tax cost of foreign cash.
- Future dividend and buyback decisions, and any material developments in tax audits or intellectual-property litigation.