Skyworks Solutions, Inc. — FY2019 Form 10-K
Business and period: Skyworks designs, manufactures and sells analog semiconductors for wireless communications and other markets, including smartphones, automotive, industrial, infrastructure and connected-home applications. This annual report covers the fiscal year ended September 27, 2019 (52 weeks); fiscal Q4 was the quarter ended that date.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $3,376.8 million | $3,868.0 million |
| Gross profit / margin | $1,603.8 million / 47.5% | $1,950.7 million / 50.4% |
| Operating income / margin | $952.0 million / 28.2% | $1,319.3 million / 34.1% |
| Net income | $853.6 million | $918.4 million |
| Diluted EPS | $4.89 | $5.01 |
| Cash from operations | $1,367.4 million | $1,260.6 million |
- FY2019 Q4: Revenue was $827.4 million, gross profit $406.0 million and net income $210.6 million, versus $1,008.4 million, $503.6 million and $285.5 million, respectively, in FY2018 Q4.
- Liquidity: Cash, cash equivalents and marketable securities totaled $1,082.2 million at year-end, including $851.3 million in cash and equivalents. Working capital was $1,860.6 million. Management expected available cash and operating cash generation to cover requirements for at least the next 12 months.
- Cash uses: Capital expenditures were $398.4 million; share repurchases were $657.6 million; and cash dividends were $273.9 million. The company declared $1.58 per share in dividends for FY2019.
- Debt: The balance sheet lists no borrowings; total liabilities were $717.3 million, including $312.4 million of long-term tax liabilities. The filing does not present a separate debt balance.
Changes and material items
- Revenue fell 12.7% year over year, primarily due to weaker smartphone demand and Huawei’s placement on the U.S. Entity List in May 2019, which led Skyworks to temporarily suspend shipments.
- Gross margin declined 2.9 percentage points. Lower unit volumes and average selling prices reduced gross profit by $546.5 million, and a $66.1 million inventory-related charge reflected lower expected Huawei demand; favorable product mix offset $265.7 million.
- Operating income fell to $952.0 million from $1,319.3 million. R&D expense rose 4.8% to $424.1 million, while amortization increased, principally reflecting the 2018 Avnera acquisition.
- Net income was affected by a lower tax provision: the effective tax rate was 11.2%, compared with 31.1% in FY2018, which included one-time Tax Reform Act charges. FY2019 included an $8.1 million adjustment related to the prior-year tax estimate.
- Operating cash flow increased 8.5%. Year-end cash and marketable securities rose 3.1% to $1,082.2 million. Inventory increased to $609.7 million from $490.2 million.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. Management highlighted 5G deployment, rising RF and analog content per device, IoT applications and expansion into additional end markets as opportunities.
- Key risks include semiconductor cyclicality, smartphone demand and pricing pressure, customer concentration, competition, product transitions and manufacturing yields, and reliance on certain suppliers and external manufacturing partners.
- Customer concentration is significant: Apple represented 51% of FY2019 revenue, up from 47% in FY2018. Huawei-related restrictions and broader U.S.-China trade measures could affect demand, supply and costs.
- At year-end, three customers represented 67% of gross accounts receivable. Order cancellations, distributor returns and excess or obsolete inventory could also affect results.
- Management reported no pending legal proceedings reasonably likely to result in a material loss. The auditor issued unqualified opinions on the financial statements and internal control; unrecognized tax benefits of $103.3 million were identified as a critical audit matter.
- FY2019 restructuring charges were $6.8 million; the company did not anticipate significant further charges from those activities. The planned FY2020 lease-accounting adoption was expected to add approximately $160–$180 million of right-of-use assets and lease liabilities, without significant income-statement or cash-flow effects.
Investor verification points
- Assess the duration and financial impact of Huawei restrictions and the extent of revenue dependence on Apple.
- Review the inventory balance and the assumptions behind the $66.1 million Huawei-related inventory charge.
- Check whether lower smartphone volumes and selling prices continue to pressure gross margins.
- Evaluate cash generation against capital spending, repurchases, dividends and the company’s stated liquidity needs.
- Monitor tax audits, the $103.3 million of unrecognized tax benefits, and deferred tax asset realizability.
- Track whether diversification, 5G adoption and IoT growth offset weakness in handset demand; the filing provides no quantified forecast.