Skyworks Solutions, Inc. — FY2018 Form 10-K
Business context and reporting period. Skyworks designs, manufactures and sells analog semiconductors for wireless connectivity across mobile, IoT, automotive, industrial and other markets. This 10-K covers the 52-week fiscal year ended September 28, 2018. Fiscal Q4 ended on that date. The company reports one operating segment.
Financial performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $3,868.0 million | $3,651.4 million |
| Gross profit / margin | $1,950.7 million / 50.4% | $1,841.8 million / 50.4% |
| Operating income / margin | $1,319.3 million / 34.1% | $1,253.8 million / 34.3% |
| Net income | $918.4 million | $1,010.2 million |
| Diluted EPS | $5.01 | $5.41 |
| Cash from operations | $1,260.6 million | $1,456.3 million |
Revenue increased 5.9%. Higher unit volumes, lower per-unit costs and favorable mix added $267.1 million to gross profit, partly offset by $158.2 million of average selling price erosion. Gross margin was unchanged. Operating income rose 5.2%, while net income declined 9.1%, mainly reflecting higher income tax expense.
Fiscal Q4 revenue was $1,008.4 million, versus $984.6 million a year earlier; gross profit was $503.6 million, versus $498.9 million; net income was $285.5 million, versus $281.3 million. Quarterly diluted EPS was $1.58 versus $1.51. Fiscal 2018 Q1 net income was $70.4 million, reflecting the tax-reform charge.
Cash, liquidity and capital allocation
Cash and cash equivalents were $733.3 million at year-end, down from $1,616.8 million; marketable securities totaled a further $316.9 million. Working capital was $1,872.5 million, compared with $2,245.8 million. Total liabilities were $731.9 million, including $310.5 million of long-term tax liabilities; the filing does not show borrowings or other financial debt. Operating cash flow fell 13%, primarily due to working-capital outflows, including receivables collection timing and capital-equipment/vendor payments.
Investing activities used $1,150.4 million, including $422.3 million of capital expenditures, $404.0 million paid net for Avnera, and net purchases of $315.5 million of marketable securities. Financing activities used $993.7 million. Skyworks repurchased 7.7 million shares for $759.5 million and paid $243.2 million in dividends. The company said available cash, securities and expected operating cash flow should fund anticipated requirements for at least 12 months.
Material changes, outlook and risks
- Tax reform: FY2018 income tax provision was $413.7 million, with a 31.1% effective tax rate. It included a $224.6 million deemed-repatriation tax and an $18.3 million deferred-tax revaluation charge. The repatriation tax is payable over eight years. The Singapore tax holiday, which reduced FY2018 taxes by $38.4 million, is scheduled to run through September 2020, subject to conditions.
- Avnera acquisition: Acquired August 17, 2018 for $404.0 million net cash consideration, plus contingent consideration valued at $3.1 million. Its contribution to FY2018 revenue and net income was not material. The acquisition added $306.8 million of goodwill, which is not tax deductible.
- Management commentary: Growth was attributed to increasing RF and analog content per device, IoT applications and expansion into new vertical markets. Management highlighted investment in product development and manufacturing capacity. No specific revenue or earnings guidance is provided in the supplied filing text.
- Key risks: Apple represented 47% of FY2018 revenue, up from 39% in FY2017; the three largest receivable balances were 66% of gross receivables. Other risks include semiconductor cyclicality, pricing pressure and declining selling prices, customer order cancellations, manufacturing-yield and supply-chain disruptions, intense competition, international and trade-policy exposure, and intellectual-property claims. The company reported no pending legal proceedings reasonably likely to cause a material loss.
- Controls and audit: Management and KPMG concluded that internal control over financial reporting was effective; the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- How FY2019 results develop given Apple’s 47% revenue concentration and the company’s seasonal handset demand.
- Whether operating cash flow recovers as working-capital uses normalize, and how capital spending compares with cash generation.
- Avnera integration, expected commercial contribution and realization of anticipated synergies.
- The effect of ongoing selling-price erosion, product mix and manufacturing yields on gross margin.
- Tax-reform payment schedule, uncertain tax positions and the Singapore tax-holiday conditions and expiration.