Skyworks Solutions, Inc. — Q2 FY2010 Form 10-Q
Business and period: Skyworks designs, manufactures and markets analog and mixed-signal semiconductors for wireless and other applications. The 13-week quarter ended April 2, 2010; six-month results cover the period from October 3, 2009 through April 2, 2010. Dollar figures below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 FY2010 | Q2 FY2009 | Six months FY2010 | Six months FY2009 |
|---|---|---|---|---|
| Revenue | $238.1 | $173.0 | $483.2 | $383.2 |
| Gross profit / margin | $99.9 / 41.9% | $64.9 / 37.5% | $202.4 / 41.9% | $148.7 / 38.8% |
| Operating income (loss) | $38.3 | $(3.7) | $80.8 | $17.2 |
| Net income (loss) | $27.7 | $(5.7) | $55.8 | $17.9 |
| Diluted EPS | $0.15 | $(0.03) | $0.31 | $0.11 |
- Revenue rose 37.6% for the quarter and 26.1% for the half year. Management attributed growth principally to market-share gains and higher demand in mobile internet, energy management and diversified analog applications.
- Gross margin improved in both comparisons, which management attributed to higher revenue, factory productivity and yield improvements, lower material costs, and contributions from IP licensing or sales.
- Quarterly operating expenses were $61.5 million, down from $68.6 million, reflecting the absence of the prior-year $16.0 million restructuring charge. R&D and SG&A rose in dollars but fell as a share of revenue.
- Effective tax rates were 24.7% for the quarter and 28.2% for the first half, versus 0.4% and 6.6% in the comparable 2009 periods. Management cited lower-taxed foreign earnings and changes in the assessment of U.S. deferred taxes.
Cash flow, liquidity and debt
- First-half operating cash flow was $113.2 million, compared with $99.7 million. Investing used $35.3 million, including $34.3 million of capital expenditures; financing used $36.7 million.
- Cash and cash equivalents were $405.4 million at April 2, 2010, versus $364.2 million at October 2, 2009. Including restricted cash, cash was $411.5 million. Management reported net cash of approximately $319.0 million after debt.
- Total debt was approximately $92.6 million: $50.0 million drawn under a receivables-backed facility and $42.6 million carrying value of convertible notes. The company repaid the remaining $32.6 million principal of its 1.25% notes during the half year; $15.1 million was paid to reacquire the related equity component. Remaining notes carry a 1.50% coupon and mature in March 2012.
- Current assets were $644.0 million and current liabilities $170.2 million. Inventory increased to $104.4 million from $86.1 million at fiscal year-end. Receivables were $107.7 million; days sales outstanding improved to 41 from 59 in the prior-year quarter.
Changes, outlook and risks
- Outlook: The filing gives no specific revenue or earnings guidance. Management expected existing liquidity and operating cash generation to fund R&D, capital expenditures, debt service, working capital and other needs for at least the next 12 months. It noted that future acquisitions or strategic investments could require additional capital.
- Unusual items and accounting: No restructuring charge was recorded in the current quarter or first half; the 2009 comparison included $16.0 million of restructuring charges and $3.5 million of inventory write-downs. The 2009 plan exited mobile transceivers and reduced headcount by about 150, with a remaining $2.2 million reserve expected to be substantially completed by fiscal year-end. The company retrospectively adopted convertible-debt accounting guidance (ASC 470-20), affecting presentation of debt, equity and interest expense in comparative periods.
- Risk exposures: A $3.2 million auction-rate security remained illiquid; its carrying value was $2.3 million after a previously recorded $0.9 million temporary impairment. The filing warns that impairment judgments and estimates could change. Other risks include intellectual-property disputes, foreign-exchange exposure and potential variability in tax rates; management said no pending litigation was expected to have a material adverse effect.
- Management stated disclosure controls were effective as of April 2, 2010, and reported no material change in internal control over financial reporting during the quarter. No significant changes to the prior Form 10-K risk factors were reported.
Important facts for investors to verify
- Whether revenue growth, market-share gains and gross-margin improvements persist beyond this quarter.
- Cash conversion and working-capital trends, particularly the increase in inventory and the sustainability of improved receivables collection.
- Debt terms and repayment requirements, including the remaining convertible notes and renewal or availability of the $50 million receivables facility.
- Tax-rate assumptions, the $25.0 million U.S. and $1.6 million foreign deferred-tax valuation allowances, and the taxable income needed to use U.S. deferred tax assets.
- The liquidity and valuation of the auction-rate security, and the status of the remaining restructuring reserve.