Skyworks Solutions, Inc. — Q2 FY2013 Form 10-Q
Reporting period: The 13-week second quarter ended March 29, 2013; comparisons are with the quarter ended March 30, 2012. The filing also reports six-month results. Skyworks develops analog semiconductors for communications and other markets, including smartphones, tablets, automotive, industrial and medical applications.
Financial performance
| Metric | Q2 FY2013 | Q2 FY2012 | Six months FY2013 | Six months FY2012 |
|---|---|---|---|---|
| Revenue | $425.2 million | $364.7 million | $878.9 million | $758.4 million |
| Gross profit / margin | $176.7 million / 41.6% | $152.3 million / 41.8% | $369.3 million / 42.0% | $324.1 million / 42.7% |
| Operating income / margin | $68.7 million / 16.3% | $43.8 million / 12.1% | $155.3 million / 17.7% | $118.8 million / 15.6% |
| Net income | $61.7 million | $34.0 million | $128.2 million | $91.2 million |
| Diluted EPS | $0.32 | $0.18 | $0.66 | $0.48 |
Quarterly revenue rose 16.6% year over year and six-month revenue rose 15.9%. Net income increased 81.5% in the quarter and 40.6% for the six-month period. Gross margin edged down 0.2 percentage point for the quarter and 0.7 point for six months. Management attributed higher gross profit primarily to increased unit volumes and lower per-unit materials and manufacturing costs, partly offset by average selling-price erosion and product mix.
- Cash flow and liquidity: Six-month operating cash flow was $277.9 million, versus $194.2 million; capital expenditures were $52.0 million. Cash and cash equivalents increased to $458.8 million from $307.1 million at September 28, 2012. Current assets were $963.7 million and current liabilities $162.6 million at quarter-end.
- Debt and capital allocation: No debt balance is reported on the March 29 balance sheet; interest expense was nil in both current-period comparisons. The company repurchased $72.5 million of stock (3.3 million shares) during the first six months, with $127.5 million remaining under its $200 million authorization.
- Balance sheet: Total assets were $2.217 billion and total liabilities $216.9 million at March 29, 2013. Cash included $192.3 million held by foreign subsidiaries; $122.4 million was considered indefinitely reinvested and would incur material tax effects if repatriated.
Changes, outlook and notable items
- Management cited demand growth in 3G, switching and WLAN solutions, smartphone replacement of traditional cellular phones, tablet adoption and broader product content. Lower GSM/GPRS revenue reflected contraction in the 2G market. Six-month growth also included incremental AATI acquisition revenue compared with the prior-year period.
- Management said seasonal peaks generally occur in the first and fourth fiscal quarters. Established-product selling prices typically decline 5%–10% annually; the company seeks to offset this through volume, cost reductions and higher-value products.
- Cash on hand and expected operating cash generation were considered sufficient to fund operating and capital needs for at least the next 12 months, although management cautioned that future operating cash and funding availability cannot be assured. Capital spending supported manufacturing capacity in Massachusetts and Mexico in anticipation of increased demand from key customers.
- The American Taxpayer Relief Act reduced income tax expense by approximately $9.1 million in the quarter and six-month period. Effective tax rates were 8.3% for the quarter and 16.9% for six months, versus 21.7% and 22.8% a year earlier.
- FY2013 restructuring charges were $6.4 million for six months, primarily employee severance under two new plans. Management expected the actions and substantially all related cash payments to be completed in fiscal 2013, with no further material charges anticipated.
- AATI-related shareholder litigation remained pending: plaintiffs filed a second amended complaint, defendants sought dismissal, and a hearing was scheduled for July 26, 2013. The company reported no accrual, assessed losses as remote, and said it did not believe any proceeding was reasonably possible to result in a material loss.
- Other risks include intellectual-property disputes and possible injunctive relief, price erosion and product-mix pressure, and exposure to market and foreign-exchange movements. A remaining auction-rate security had a $2.3 million carrying value and $3.2 million par value; a permanent impairment could affect pretax income by approximately $3.2 million. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether demand growth in 3G, switching and WLAN products continues and offsets the declining 2G market.
- Whether volume and manufacturing-cost improvements can counter ongoing selling-price erosion and margin pressure.
- Cash generation, planned manufacturing investment, foreign cash and the status of the share-repurchase authorization.
- The effects of the tax-law benefit and uncertain-tax-position changes on future effective tax rates.
- Developments in the AATI shareholder litigation and any change in the company’s loss assessment.