Skyworks Solutions, Inc. — Q1 FY2014 Form 10-Q
Reporting period: 13 weeks ended December 27, 2013; comparison is the 13 weeks ended December 28, 2012. Skyworks makes analog semiconductors for communications and other markets. Unless noted, amounts are in millions.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Revenue | $505.2 | $453.7 | +11.4% |
| Gross profit / margin | $222.0 / 43.9% | $192.6 / 42.4% | +15.3%; +1.5 percentage points |
| Operating income / margin | $116.0 / 22.9% | $86.6 / 19.0% | +34.0%; +3.9 percentage points |
| Net income | $94.5 | $66.5 | +42.1% |
| Diluted EPS | $0.49 | $0.34 | +44.1% |
| Operating cash flow | $158.8 | $147.6 | +$11.2 |
| Capital expenditures | $16.3 | $26.4 | −$10.1 |
Cash and cash equivalents were $648.6 at quarter-end, up $137.5 from September 27, 2013. Total liabilities were $223.2, including $165.8 of current liabilities; the balance sheet reports no debt. Working capital was approximately $1,014.3. Total stockholders’ equity was $2,212.2.
Changes and drivers
- Revenue growth reflected higher RF and analog content per device as smartphones displaced traditional phones, tablet demand, and product expansion into markets including medical, automotive, military, and industrial.
- Gross profit benefited by approximately $30.1 from higher volumes and lower per-unit materials and manufacturing costs; lower average selling prices and product mix reduced gross profit by approximately $0.7.
- Operating margin improved with higher revenue and gross margin, partly offset by higher employee compensation. R&D was $58.4, up 0.5%; SG&A was $41.1, up 7.9%. No restructuring charge was recorded, compared with $1.6 in the prior-year quarter.
- The effective tax rate fell to 18.5% from 23.4%. A $4.5 tax benefit from Mexico’s tax-law change contributed to the lower rate; other factors included foreign earnings taxed at lower rates and the domestic production activities deduction, partly offset by higher uncertain-tax-position expense.
- Cash from operations increased with higher net income and working-capital movements. Cash used in financing was $5.0, versus $50.8 in the prior-year quarter; current-quarter activity included $17.1 of program repurchases and $18.0 of withholding-related share repurchases, partly offset by option proceeds and tax benefits.
Outlook, risks, and notable items
- The filing gives no specific revenue, earnings, or margin guidance. Management expects cash on hand and operating cash generation to fund requirements for at least 12 months, while noting future acquisitions or strategic investments could require additional resources.
- Management says established-product average selling prices typically decline 5%–10% annually; it seeks to offset this through volume growth, cost reductions, manufacturing efficiencies, and new products. The company also notes seasonal consumer-electronics demand patterns.
- $221.4 of the $284.2 in cash held by foreign subsidiaries was considered indefinitely reinvested and could incur material tax effects if repatriated. The remaining $62.8 could be repatriated without tax consequences.
- The $250.0 share-repurchase authorization had $212.5 remaining at quarter-end and expires July 16, 2015. The company repurchased approximately 0.7 million shares under the program during the quarter.
- Management reported no material change to previously disclosed risk factors and no material off-balance-sheet arrangements. It described potential intellectual-property and other legal claims; no legal-loss accrual was recorded because losses were not considered probable, and management did not believe pending matters were reasonably likely to result in a material loss.
- Investments included a $2.3 auction-rate security with $3.2 par value, classified as Level 3 and scheduled to mature in 2017. Management reported no impairment indicators for goodwill or other long-lived assets during the quarter.
Important facts for investors to verify
- Whether revenue growth and margin gains persist as product mix shifts and established-product prices decline.
- How much of the quarter’s earnings growth reflects recurring operations versus the $4.5 Mexico-related tax benefit and intellectual-property licensing or sales contributions.
- Cash generation and working-capital trends, along with the location and potential repatriation tax effects of foreign cash.
- Execution and remaining capacity of the repurchase program, and future capital-spending needs.
- Developments in intellectual-property litigation, uncertain tax positions, and the auction-rate security valuation.