Skyworks Solutions, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 30, 2022 (13 weeks); comparative period ended December 31, 2021. Amounts are in millions of dollars except per-share data. Skyworks designs and sells analog and mixed-signal semiconductors for wireless and other markets.
Financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net revenue | $1,329.3 | $1,510.4 | Down 12.0% |
| Gross profit / margin | $637.7 / 48.0% | $714.7 / 47.3% | Profit down 10.8%; margin up 0.7 points |
| Operating income / margin | $367.0 / 27.6% | $445.9 / 29.5% | Down 17.7% |
| Net income / margin | $309.4 / 23.3% | $399.9 / 26.5% | Down 22.6% |
| Diluted EPS | $1.93 | $2.40 | Down 19.6% |
| Operating cash flow | $773.4 | $581.7 | Up $191.7 |
Liquidity, debt and capital allocation
- Cash and cash equivalents were $819.9 at quarter end; marketable securities were $172.7, for total cash, cash equivalents and securities of $992.6.
- Current assets were $3,414.3 and current liabilities $1,225.5. Inventory rose to $1,273.3 from $1,212.1 at September 30, 2022; receivables declined to $764.1 from $1,094.0.
- Balance-sheet debt was $2,189.8, comprising $499.5 current and $1,690.3 long-term. The company reported $700.0 outstanding under its term credit agreement and no revolver borrowings. $499.5 of 0.90% senior notes is due in 2023.
- Operating cash flow funded investment and shareholder returns: capital expenditures were $63.5, share repurchases under the program were $166.2, and dividends paid were $99.4. Cash increased $253.9 during the quarter.
Material changes and management commentary
- Management attributed the revenue decline primarily to weaker mobile-product demand from smartphone customers in Asia-Pacific. Revenue from China fell to $106.3 from $234.3 and from South Korea to $35.8 from $94.9; U.S. revenue increased to $1,028.3 from $993.8.
- Lower unit volumes reduced gross profit by $147.7, partly offset by favorable product mix contributing $83.6. Gross margin nevertheless improved year over year to 48.0% from 47.3%.
- Research and development expense rose 8.5% to $163.9, mainly due to headcount-related costs and investment in new technologies and products. Interest expense rose 53.6% to $16.9, primarily because of higher variable rates on term loans.
- Operating cash flow improved mainly from a $330.6 favorable working-capital change, principally lower receivables. Investing cash use increased with net purchases of marketable securities.
- Management said available liquidity, expected operating cash generation and revolver capacity should meet short- and long-term needs, while noting that future funding availability is not assured. The filing provides no specific revenue or earnings guidance.
Outlook, risks and unusual items
- The filing describes typical seasonal strength in the fourth and first fiscal quarters, but gives no quantified outlook. It says COVID-related supply constraints and their duration remain uncertain.
- Management identifies risks including semiconductor supply-chain disruption, geopolitical and economic uncertainty, customer demand, interest rates, foreign exchange movements, and the risks discussed in the company’s 2022 Form 10-K.
- The board authorized a new $2.0 billion share-repurchase program on January 31, 2023, through February 1, 2025, succeeding the prior program. On February 6, 2023, it declared a $0.62-per-share dividend payable March 21, 2023.
- The company reported no impairment indicators in the quarter and did not believe pending legal proceedings were reasonably likely to result in a material loss. It disclosed routine litigation and customer intellectual-property indemnities, for which no liability was recorded.
Key facts for investors to verify
- Whether smartphone demand, especially in Asia-Pacific, stabilizes and how it affects subsequent revenue and margins.
- Inventory levels and customer demand, given the quarter-end inventory increase alongside lower sales.
- Repayment or refinancing plans for the $499.5 million notes due in 2023, and the terms and interest-rate exposure of term loans.
- Whether operating cash generation continues after the quarter’s favorable working-capital movement, and how cash is allocated among investment, dividends and repurchases.
- The execution and funding of the new repurchase authorization and declared dividend; the filing does not quantify future buyback timing or amounts.