Skyworks Solutions, Inc. — Q1 FY2015 10-Q
Reporting period: 13 weeks ended January 2, 2015; comparable quarter ended December 27, 2013. Amounts are in millions of dollars except per-share data. Skyworks makes analog semiconductors for wireless and other markets, including smartphones, tablets, automotive, industrial and medical.
Financial performance
| Metric | Q1 FY2015 | Prior comparable quarter | Change |
|---|---|---|---|
| Revenue | $805.5 | $505.2 | +59.4% |
| Gross profit / margin | $373.0 / 46.3% | $222.0 / 43.9% | +68.0%; margin +2.4 percentage points |
| Operating income / margin | $246.8 / 30.6% | $116.0 / 22.9% | Margin +7.7 percentage points |
| Net income | $195.2 | $94.5 | +106.6% |
| Diluted EPS | $1.01 | $0.49 | +106% |
| Operating cash flow | $383.2 | $158.8 | +$224.4 |
| Capital expenditures | $87.2 | $16.3 | Increased |
Gross margin improvement reflected higher volumes and lower per-unit material and manufacturing costs, partly offset by average selling-price erosion and product mix. Management attributed revenue growth to higher RF and analog content per device, smartphone adoption, emerging-market 3G/4G adoption, tablets and expansion into additional markets. Operating expenses rose in dollars, including R&D of $68.5 and SG&A of $47.9, but declined as a share of revenue. The effective tax rate was 21.1%, versus 18.5% a year earlier.
Financial position and liquidity
Cash and cash equivalents increased to $1,049.9 at January 2, 2015, from $805.8 at October 3, 2014. Total assets were $3,191.0, current assets $1,590.4, total liabilities $480.9 and stockholders’ equity $2,710.1. The balance sheet shows no separate borrowings or debt line; the filing text does not provide a debt total. Current liabilities were $332.9.
Operating cash flow benefited from higher earnings and working-capital movements, including $75.3 from receivables and $65.7 from other liabilities, primarily accrued taxes. Investing cash outflow was $87.2, all reported as capital expenditures. Financing cash outflow was $51.9, including $31.0 of program repurchases and $24.6 of dividends, partly offset by option exercise proceeds and excess tax benefits. Management said available cash and expected operating cash flow should fund expected needs for at least 12 months, while noting future acquisitions or investments could require additional resources.
Material changes, outlook and risks
- Revenue, earnings and margins rose substantially year over year. Cash increased, while capital spending rose to support the Mexicali facility expansion and FilterCo production capacity.
- Skyworks consolidated 100% of FilterCo, a Panasonic SAW-filter joint venture, after acquiring a controlling 66% interest in August 2014. The purchase-price allocation remained preliminary; a $17.8 working-capital adjustment was accrued. A purchase option for the remaining 34% is exercisable by either party after the second anniversary and has foreign-exchange exposure.
- No numerical revenue or earnings guidance is provided. Management noted the second fiscal quarter is typically seasonally lower and expects established-product average selling prices to decline 5%–10% annually, with volumes, cost reductions, manufacturing efficiencies and new products intended to offset the pressure.
- A $1.3 severance charge arose from an internal reorganization; management did not expect future material charges under that plan. The federal R&D tax credit had expired after December 31, 2014, and was not extended as of the reporting date; $7.0 of credits from FY2014 reduced current-quarter tax expense.
- Risks include intellectual-property disputes, including potential injunctive relief; uncertain tax positions and ongoing tax audits; foreign-exchange exposure; and possible impairment or loss on the $2.3 auction-rate security, which had $3.2 par value. The filing reported no material change to previously disclosed risk factors and no material off-balance-sheet arrangements.
- Of foreign-subsidiary cash of $281.2, $228.2 was considered indefinitely reinvested and could incur material tax effects if repatriated. The filing reported no legal-loss accruals, stating losses were not considered probable and no pending matter was believed reasonably likely to result in a material loss.
Important facts for investors to verify
- Whether revenue growth, margins and earnings remain sustainable, including the contribution from smartphone content, product mix and FilterCo.
- Capital-spending plans and the returns from expanded manufacturing capacity.
- The effects of expected selling-price declines, seasonal demand and the expired R&D tax credit on future margins and taxes.
- Cash availability, repatriation implications, and the settlement and foreign-exchange terms of the FilterCo purchase option.
- Developments in intellectual-property litigation, tax examinations and other contingencies.