Skyworks Solutions, Inc. — Form 10-Q Summary
Business context and reporting period
Skyworks designs, develops, manufactures and markets analog semiconductors for wireless and other applications. This filing covers the 13-week third quarter and first nine months of fiscal 2019, ended June 28, 2019; comparisons are with the corresponding periods ended June 29, 2018. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Revenue | $767.0 million | $894.3 million | $2,549.4 million | $2,859.6 million |
| Gross profit / margin | $312.5 million / 40.7% | $451.6 million / 50.5% | $1,197.8 million / 47.0% | $1,447.1 million / 50.6% |
| Operating income / margin | $159.6 million / 20.8% | $306.3 million / 34.3% | $718.1 million / 28.2% | $979.2 million / 34.3% |
| Net income | $144.1 million | $286.5 million | $643.0 million | $632.9 million |
| Diluted EPS | $0.83 | $1.57 | $3.67 | $3.44 |
| Operating cash flow | — | — | $950.4 million | $1,053.0 million |
Q3 revenue fell 14.2% year over year and net income fell about 49.7%. For the nine months, revenue declined 10.8%, while net income rose modestly; the prior-year period included significant one-time tax charges. Nine-month capital expenditures were $314.0 million, implying operating cash flow less capital expenditures of approximately $636.4 million.
At June 28, 2019, cash and cash equivalents were $742.8 million and marketable securities totaled $227.3 million, for combined liquidity of $970.1 million. Total current assets were $2,206.3 million and current liabilities were $396.5 million. The balance sheet lists no borrowings; reported total liabilities were $742.4 million, including $315.5 million of long-term tax liabilities. Cash and cash equivalents increased $9.5 million from fiscal year-end, while cash and marketable securities together declined $80.1 million.
Material changes and capital allocation
- Management attributed lower revenue primarily to weaker smartphone demand and the effect of Huawei’s May 2019 addition to the U.S. Entity List. Growth in IoT applications, broader analog offerings and higher RF/analog content per device partly offset the decline.
- Q3 gross profit fell $139.1 million. The company cited lower selling prices and unit volumes, including a $66.6 million inventory-related charge tied to expected lower demand following the Huawei action; favorable product mix partly offset these pressures.
- Nine-month gross profit declined $249.3 million. Lower selling prices and volumes were a major headwind, partly offset by favorable mix. R&D rose 5.2% to $317.3 million as the company increased product and technology investment.
- Nine-month cash from operations decreased $102.6 million year over year, which management attributed primarily to higher working capital. The company spent $511.3 million on share repurchases and paid $198.8 million in dividends; nine-month capital expenditures supported manufacturing capacity and facilities.
- The board authorized a $2.0 billion repurchase program in January 2019, with $1.8 billion remaining at quarter-end. On August 7, 2019, it declared a $0.44-per-share dividend, payable September 17, 2019.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management expects cash, marketable securities and operating cash generation to be sufficient for operating and capital needs for at least the next 12 months, while noting that future strategic investments or acquisitions may require additional resources.
- Huawei-related shipment restrictions and expected demand effects create uncertainty, including risk of further inventory impacts. The filing also highlights exposure to U.S.–China trade tensions, tariffs, export controls, international operations and smartphone demand.
- The nine-month 2018 tax provision included one-time charges of $238.0 million for the mandatory deemed repatriation tax and $18.5 million related to tax-reform revaluation. The nine-month 2019 effective tax rate was 11.6%, versus 36.0% in 2018.
- Legal proceedings are described as arising in the ordinary course; the company said it did not believe pending proceedings were reasonably likely to result in a material loss. It cautioned that intellectual-property disputes could carry injunction risks.
- The company expects adoption of the lease accounting standard in fiscal Q1 2020 to add approximately $150–$170 million of right-of-use assets and lease liabilities; it does not expect a significant effect on operating results or cash flows.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether smartphone demand and Huawei-related restrictions continue to affect sales, inventory levels and gross margins.
- How much of the gross-margin decline reflects the $66.6 million inventory charge versus ongoing pricing, volume and product-mix trends.
- Whether working capital, capital spending and shareholder returns remain consistent with operating cash generation and the stated liquidity outlook.
- The sustainability of the unusually low effective tax rate and the status of tax liabilities, including the Singapore tax holiday extension, which remains subject to employment and investment thresholds.
- Potential legal, trade, export-control and international operating risks; the filing does not quantify a probable material loss from pending litigation.