Skyworks Solutions, Inc. — Q2 FY2017 Form 10-Q
Reporting period: Three and six months ended March 31, 2017; comparative periods ended April 1, 2016. Amounts are in millions, except per-share data. Skyworks designs analog semiconductors for wireless and other markets, including smartphones, automotive, industrial, medical, and connected-home applications.
Financial highlights
| Metric | Q2 FY2017 | Q2 FY2016 | Six months FY2017 | Six months FY2016 |
|---|---|---|---|---|
| Revenue | $851.7 | $775.1 | $1,766.0 | $1,701.9 |
| Gross profit / margin | $425.4 / 49.9% | $390.4 / 50.4% | $889.3 / 50.4% | $862.5 / 50.7% |
| Operating income / margin | $281.2 / 33.0% | $257.7 / 33.3% | $603.1 / 34.2% | $588.2 / 34.6% |
| Net income | $224.9 | $208.1 | $482.7 | $563.4 |
| Diluted EPS | $1.20 | $1.08 | $2.58 | $2.90 |
| Operating cash flow | Not presented separately | Not presented separately | $731.8 | $499.8 |
For the six months, investing cash flow was $(115.5), including $105.0 of capital expenditures and $13.7 net cash paid for an acquisition. Financing cash flow was $(293.2), including $201.7 of share repurchases and $104.1 of dividends. Cash increased by $323.1 to $1,406.9 at March 31, 2017. Current assets were $2,308.1 and current liabilities $266.9. The balance sheet lists no interest-bearing debt; total liabilities were $375.0.
Changes and management commentary
- Quarterly revenue increased 9.9% year over year; six-month revenue increased 3.8%. Management attributed growth to higher RF and analog content per device, emerging-market 3G/4G adoption, IoT applications, and product expansion into new verticals.
- Quarterly net income rose to $224.9 from $208.1. Six-month net income and diluted EPS declined year over year; the prior-year comparison included an $88.5 merger termination fee, while prior-year taxes also reflected significant audit-related benefits and tax credits.
- Gross margin declined 0.5 percentage point in both comparisons. Higher volumes and lower unit manufacturing/material costs were more than offset by average selling price erosion and product mix. Management expects established-product average selling prices to decline at a normalized 5%–10% annual rate.
- Operating expenses increased, primarily from product development, compensation, and share-based compensation. Six-month restructuring charges were $0.6; management did not expect significant further charges.
- The company acquired a business for $13.7 net cash consideration plus contingent payments; total consideration had a preliminary fair value of $24.8. Acquisition-related revenue and net income were not significant. Contingent payments depend on revenue objectives and may total up to $20.0.
Outlook, liquidity, and risks
No specific revenue or earnings guidance is provided in this filing. Management expects cash on hand and operating cash generation to fund operations, R&D, capital expenditures, potential acquisitions, dividends if declared, and other requirements for at least the next 12 months. Of cash and equivalents, $664.2 was held by foreign subsidiaries and considered indefinitely reinvested; repatriation would have material tax effects.
Management cites seasonal consumer-electronics demand, ongoing pricing pressure, and the possibility that actual results differ from forward-looking statements. Intellectual-property disputes could result in adverse outcomes or injunctive relief; the company reported no material pending legal loss considered reasonably possible and no accrual for legal loss contingencies. It reported no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls. Foreign-exchange exposure was described as limited, though currency movements could affect costs and competitiveness.
Most important facts for investors to verify
- Whether revenue growth and unit-cost savings can offset ongoing price erosion and margin pressure.
- The quality and sustainability of operating cash flow, including the effects of working-capital timing and customer demand on inventory.
- Use of the $500.0 share-repurchase authorization ($404.8 remained at March 31) and the sustainability of dividends and other capital returns.
- Performance of the acquired business and the eventual amount of contingent consideration.
- Tax implications of foreign-held cash and outcomes of intellectual-property or other legal matters.
- Potential effects and implementation costs of accounting standards under evaluation, especially revenue recognition and lease accounting.