Skyworks Solutions, Inc. — FY2013 Form 10-K Summary
Reporting period: Fiscal year ended September 27, 2013 (52 weeks); the filing also reports fourth-quarter results. Dollar amounts are in millions except per-share data.
Business context
Skyworks designs, manufactures and sells high-performance analog semiconductors for wireless communications and other markets, including smartphones, tablets, networking, automotive, industrial, medical and energy management. It reports one operating segment. Sales are concentrated in Asia-Pacific and among a small number of customers.
Financial results and liquidity
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $1,792.0 | $1,568.6 | +14.2% |
| Gross profit / margin | $766.6 / 42.8% | $667.1 / 42.5% | +14.9%; +0.3 percentage points |
| Operating income / margin | $345.1 / 19.3% | $255.6 / 16.3% | +35.0% |
| Net income | $278.1 | $202.0 | +37.7% |
| Diluted EPS | $1.45 | $1.05 | +38.1% |
| Cash from operations | $499.7 | $285.2 | +75.2% |
| Capital expenditures | $123.8 | $94.1 | +31.6% |
At year-end, cash and cash equivalents were $511.1, total current assets $1,073.3, current liabilities $179.7 and working capital $893.6. The company reported no debt. Operating cash flow less capital expenditures was $375.9, calculated from the disclosed figures. Total assets were $2,333.1 and stockholders’ equity was $2,101.1.
FY2013 fourth-quarter revenue was $477.0, gross profit $209.1 and net income $84.2; diluted EPS was $0.44. In FY2012’s fourth quarter, the corresponding figures were $421.1, $177.7, $61.6 and $0.32.
Material changes versus the prior year
- Revenue growth reflected stronger demand for 3G, switching, wireless LAN and GPS products, partly offset by lower GSM/GPRS revenue as the 2G market contracted.
- Gross margin rose to 42.8% from 42.5%. Higher unit volumes and lower per-unit material and manufacturing costs added $152.1 to gross profit; pricing erosion and unfavorable product mix reduced it by $52.6.
- Operating expenses increased to $421.5 from $411.5, but fell as a share of revenue to 23.5% from 26.2%. R&D spending rose 6.5% to $226.3.
- Cash from operations increased substantially, supported by higher earnings and working-capital movements. Investing cash outflow declined from FY2012, which included the AATI acquisition; FY2013 capital spending increased to expand manufacturing capacity.
Outlook, risks and unusual items
- Management said available cash and expected operating cash flow should fund R&D, capital spending, working capital and other needs for at least 12 months. The filing provides no specific revenue or earnings guidance.
- The company expects established-product average selling prices to decline at a normalized annual rate of 5%–10%; it seeks to offset this through volume growth, cost reductions, manufacturing efficiencies and new products. Handset demand is seasonal, generally strongest in the December quarter and weakest in the March quarter.
- Key risks include semiconductor cyclicality, competitive pricing and technology changes, customer concentration, order cancellations, manufacturing yield or supply disruptions, and dependence on foundries and other suppliers. Two customers each represented more than 10% of FY2013 revenue; the largest customer category represented 36% and the second 15%. The three largest receivables balances were 51% of gross receivables.
- Asia-Pacific generated $1,671.7, or about 93% of revenue, based on customer destination. China alone accounted for $979.3. Geographic sales may not reflect the location of end demand.
- Cash included $243.2 held by foreign subsidiaries, of which $178.1 was considered indefinitely reinvested and could incur material tax effects if repatriated. The filing also reports approximately $591.0 of undistributed foreign earnings intended to be permanently reinvested.
- The effective tax rate declined to 19.3% from 20.7%, mainly due to the mix of foreign earnings taxed at lower rates. Singapore’s tax holiday runs through September 2020, subject to conditions.
- FY2013 included $6.4 of restructuring charges, primarily severance; plans were largely complete and management did not expect further material charges. The AATI-related shareholder litigation was dismissed and closed in September 2013; no accrual was recorded for legal contingencies.
- The board authorized a new $250.0 share-repurchase program in July 2013, expiring in July 2015. The company repurchased $184.9 of shares during FY2013 and did not anticipate cash dividends in the foreseeable future.
Important facts for investors to verify
- Customer concentration: identify the customers behind the disclosed 36% and 15% revenue shares and assess changes in their purchasing or receivable exposure.
- Whether growth in newer product categories and non-handset markets is reducing exposure to smartphones, 2G declines and seasonal demand.
- Manufacturing expansion, yield trends and the ability to offset annual price erosion while sustaining gross margins.
- Cash generation and planned uses of capital, including repurchases, capacity investment and the tax implications of foreign cash and earnings.
- Potential changes to the Singapore tax holiday, tax reserves and valuation allowances; gross unrecognized tax benefits were $63.2 at year-end.