Business context and reporting period
Skyworks Solutions, Inc. designs, manufactures and sells analog and radio-frequency semiconductors for wireless connectivity across smartphones, 5G infrastructure, IoT and other markets. This 10-K covers fiscal 2020, ended October 2, 2020; the year comprised 53 weeks versus 52 weeks in fiscal 2019. The filing also reports fourth-quarter results.
Financial performance and liquidity
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Revenue | $3,355.7 million | $3,376.8 million |
| Gross profit / margin | $1,612.9 million / 48.1% | $1,603.8 million / 47.5% |
| Operating income / margin | $891.8 million / 26.6% | $952.0 million / 28.2% |
| Net income | $814.8 million | $853.6 million |
| Diluted EPS | $4.80 | $4.89 |
| Cash from operations | $1,204.5 million | $1,367.4 million |
Fiscal 2020 fourth-quarter revenue was $956.8 million, gross profit $458.9 million and net income $246.9 million, compared with $827.4 million, $406.0 million and $210.6 million, respectively, in the prior-year quarter. Diluted EPS was $1.46 versus $1.22.
At year-end, cash and cash equivalents were $566.7 million and marketable securities totaled $413.3 million; combined liquidity was $980.0 million, down $102.3 million year over year. Working capital was $1,869.2 million. Capital expenditures were $389.4 million; dividends paid were $307.0 million; and the company repurchased $647.5 million of stock. The balance sheet reports $942.5 million of total liabilities, including tax and lease liabilities; it does not list interest-bearing borrowings as a separate balance-sheet item. Management said existing liquidity and expected operating cash generation should fund needs for at least 12 months.
Material changes versus the prior comparable period
- Annual revenue declined 0.6%, primarily due to reduced demand associated with Huawei’s continued placement on the U.S. Entity List and COVID-19 impacts; increased demand for new 5G solutions partly offset the decline.
- Operating income fell 6.3% and net income fell 4.5%. Gross margin improved to 48.1% from 47.5%, reflecting favorable product mix and a lower one-time utilization charge, partly offset by lower volume and selling prices.
- Operating cash flow decreased $162.9 million, primarily due to unfavorable working-capital changes. Inventory increased to $806.0 million from $609.7 million.
- Research and development expense rose to $464.1 million from $424.1 million; selling, general and administrative expense increased to $231.4 million from $198.3 million.
- Apple accounted for 56% of fiscal 2020 revenue, versus 51% in fiscal 2019. The three largest receivables represented 70% of gross receivables at year-end.
Outlook, risks, contingencies and unusual items
- The filing provides no numerical revenue or earnings guidance. Management cites 5G adoption and broader wireless connectivity demand as growth opportunities, while noting uncertainty around COVID-19, demand, supply chains and production capacity.
- The Mexicali facility was suspended for about two weeks in April 2020, resulting in a $23.4 million production-utilization charge. Protective measures, absenteeism and supply-chain disruption could continue to affect operations and costs.
- Huawei-related export restrictions adversely affected fiscal 2020 results; future sales to Huawei and other listed entities may require export licenses. The company also faces risks from U.S.-China trade tensions, customer concentration, competition, price erosion, manufacturing yields and supplier constraints.
- Restructuring, impairment and other charges were $13.8 million, primarily reflecting abandonment of a previously capitalized research-and-development project, including a $9.8 million impairment charge. Fiscal 2019 included a $66.1 million inventory-related charge tied to expected lower Huawei demand.
- The company reported no pending legal proceeding it believed reasonably possible to result in a material loss. The auditor issued unqualified opinions on the financial statements and internal control; the audit identified unrecognized tax benefits of $117.6 million as a critical audit matter. The company adopted lease accounting in fiscal 2020, recording a $141.4 million right-of-use asset and $143.1 million lease liability at adoption.
- A $0.50-per-share dividend was declared after year-end, payable December 10, 2020; future dividends remain subject to Board approval.
Important facts for investors to verify
- Whether 5G-related demand can offset ongoing customer, Huawei-related and pandemic-driven pressures.
- Apple concentration (56% of revenue) and the 70% share of receivables attributable to the three largest accounts.
- Inventory growth, working-capital requirements and the sustainability of operating cash flow and margins.
- Exposure to export controls, supply interruptions and potential production restrictions in Mexicali.
- Tax exposures, including $117.6 million of gross unrecognized tax benefits and ongoing tax examinations.