Skyworks Solutions, Inc. — Q1 FY2019 Form 10-Q
Reporting period: 13 weeks ended December 28, 2018; comparative quarter ended December 29, 2017. Skyworks designs, develops, manufactures, and markets analog semiconductors for wireless and other connected applications.
Financial performance
| Metric | Q1 FY2019 | Q1 FY2018 | Change |
|---|---|---|---|
| Revenue | $972.0 million | $1,051.9 million | Down 7.6% |
| Gross profit / margin | $485.1 million / 49.9% | $536.8 million / 51.0% | Down 9.6%; margin down 1.1 points |
| Operating income / margin | $320.9 million / 33.0% | $383.5 million / 36.4% | Down 16.3% |
| Net income | $284.9 million | $70.4 million | Up from prior-year tax-affected base |
| Diluted EPS | $1.60 | $0.38 | Up from prior-year tax-affected base |
| Operating cash flow | $549.0 million | $360.8 million | Up $188.2 million |
The effective tax rate was 12.0%, versus 81.7% a year earlier. The prior-year quarter included substantial one-time U.S. tax reform charges, including a deemed repatriation tax charge, so the net income and EPS comparison is not representative of operating growth. Q1 FY2019 gross profit was pressured by lower average selling prices and unit volumes, partly offset by favorable product mix.
Cash, liquidity, and capital allocation
- Cash and cash equivalents were $1,085.7 million at December 28, 2018; marketable securities totaled $16.1 million. Combined cash, equivalents, and securities were $1,101.8 million, up from $1,050.2 million at September 28, 2018.
- Current assets were $2,208.5 million and current liabilities $357.3 million. Total liabilities were $700.6 million. The balance sheet reports no debt balance.
- Investing cash flow was positive $171.5 million, including $303.2 million of securities sales and maturities, partly offset by $129.5 million of capital expenditures. Capital spending supported manufacturing capacity and operations.
- Financing cash outflow was $368.1 million, including $284.0 million to repurchase 4.0 million shares and $67.1 million of dividends. The quarterly dividend was $0.38 per share.
- After quarter-end, the board authorized a new $2.0 billion repurchase program through January 30, 2021, replacing the prior program. Management expects available cash and operating cash generation to cover requirements for at least the next 12 months.
Business trends, outlook, and risks
- Management attributed the revenue decline primarily to weaker smartphone demand, partly offset by increased RF content per smartphone. One customer represented 58% of revenue, versus 56% a year earlier.
- Management noted typical seasonal peaks in fiscal fourth and first quarters, with the second and third quarters generally lower. It expects average selling prices for established products to continue declining over time and cited efforts to offset this through volume, cost, efficiency, and higher-value products.
- No specific revenue or earnings guidance was provided in the filing. Management said cash and expected operating cash flow should fund operations and planned needs for at least 12 months, while noting future acquisitions or investments could require additional resources.
- Intellectual-property disputes, including the possibility of injunctive relief, are a stated risk. The company said it did not believe pending legal proceedings were reasonably likely to result in a material loss. No material changes to previously disclosed risk factors were reported.
- Revenue standard adoption had no material overall impact, except for a $32.8 million increase in accounts receivable and other current liabilities reflecting customer credits. No impairment indicators were identified for goodwill or other long-lived assets during the quarter.
Key facts for investors to verify
- Whether smartphone demand and the concentration of revenue in one customer continued to affect subsequent-quarter sales.
- Whether gross margin stabilized as lower pricing and volume pressures interact with product mix and manufacturing investments.
- How the new $2.0 billion repurchase authorization and dividend payments affect cash levels and share count.
- The sustainability of cash generation, capital expenditure requirements, and the stated 12-month liquidity outlook.
- How tax items, including uncertain tax positions and ongoing payments of deemed repatriation tax, affect future effective tax rates and cash taxes.