Skyworks Solutions, Inc. — Q2 FY2018 Form 10-Q
Reporting period: Second quarter and first six months of fiscal 2018, ended March 30, 2018. The quarter comprised 13 weeks. Skyworks designs analog semiconductors for wireless and connected-device markets.
Financial results
| Metric | Q2 FY2018 | Q2 FY2017 | Six months FY2018 | Six months FY2017 |
|---|---|---|---|---|
| Revenue | $913.4 million | $851.7 million | $1,965.3 million | $1,766.0 million |
| Gross profit / margin | $458.7 million / 50.2% | $425.4 million / 49.9% | $995.5 million / 50.7% | $889.3 million / 50.4% |
| Operating income / margin | $289.4 million / 31.7% | $281.2 million / 33.0% | $672.9 million / 34.3% | $603.1 million / 34.2% |
| Net income | $276.0 million | $224.9 million | $346.4 million | $482.7 million |
| Diluted EPS | $1.50 | $1.20 | $1.87 | $2.58 |
| Operating cash flow | Not presented by quarter | $795.0 million | $724.6 million |
Q2 revenue rose 7.2% and six-month revenue rose 11.3% year over year. Growth reflected increased demand from a key smartphone customer and greater RF and analog content per device, IoT applications, and broader product offerings. Management also cited favorable product mix, lower unit costs, and higher volumes; these more than offset lower average selling prices. Gross margin improved, while Q2 operating margin fell as R&D and SG&A grew faster than revenue.
Balance sheet, cash flow and capital returns
- Cash and cash equivalents were $1,881.3 million at March 30, 2018, up from $1,616.8 million at September 29, 2017; $561.9 million was held overseas.
- Current assets were $2,810.9 million and current liabilities $318.5 million. Total liabilities were $674.9 million, including $321.2 million of long-term tax liabilities. The balance sheet lists no borrowings or debt line item.
- Six-month investing cash outflow was $124.5 million, including $118.5 million of capital expenditures, primarily to expand manufacturing capacity. Financing outflow was $406.0 million, including $284.2 million of share repurchases and $117.5 million of dividends.
- The company repurchased 2.7 million shares during the six months. A new authorization allows up to $1.0 billion of repurchases through January 31, 2020; $888.2 million remained available at quarter-end. The quarterly dividend was $0.32 per share.
Material changes, outlook and risks
- Six-month net income declined despite higher revenue and operating income, primarily because of tax-reform charges: a provisional $240.9 million deemed-repatriation tax and an $18.5 million deferred-tax revaluation charge. The six-month effective tax rate was 48.9%, versus 19.9% a year earlier; Q2’s rate was 5.6%, including a $16.9 million adjustment reducing the estimated repatriation-tax charge.
- The tax-reform amounts were provisional under SAB 118; management expected to refine and finalize related estimates by September 28, 2018. The $240.9 million repatriation tax is payable over eight years.
- No specific revenue or earnings guidance is provided. Management expected available cash and operating cash generation to meet liquidity needs for at least 12 months, while noting future acquisitions or investments could require additional resources. The company cited typical seasonal strength in the second half of the calendar year.
- Management did not anticipate further significant restructuring charges. The company expects to adopt the new revenue standard in FY2019 and preliminarily does not expect a material effect on revenue recognition; its assessment was ongoing.
- Customer demand from a key smartphone customer and ongoing average-selling-price erosion are important business considerations. The filing describes ordinary-course litigation, including intellectual-property disputes, but says no pending matter was reasonably expected to result in a material loss. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of revenue growth depends on the key smartphone customer, and whether that demand persists.
- Whether volume, product mix, and manufacturing-cost savings continue to offset average-selling-price declines and higher operating expenses.
- Final tax-reform calculations and payment timing, including changes to the provisional repatriation-tax estimate.
- Manufacturing-capacity investment returns, cash needs, and the pace of repurchases and dividends.
- Management’s continuing assessment of the new revenue standard and any material developments in legal or intellectual-property matters.