What Drove Skyworks’ Profits amid Slowing Revenues?
How Have Apple's Semiconductor Suppliers Been Faring?
Skyworks posts strong profits in fiscal 2Q16
In the previous part of this series, we saw that Skyworks’ (SWKS) revenue growth slowed significantly in fiscal 2Q16 owing to inventory adjustments made by its largest customer, Apple (AAPL). While the company reported a slowdown in revenue, it posted strong profit margin. Also, Qorvo (QRVO) managed to maintain its margin.
Profitability
Skyworks’ non-GAAP (generally accepted accounting principles) gross margin rose from 46.7% in fiscal 2Q15 to 50.8% in fiscal 2Q16. The margin was driven by new product launches and improvement in operational efficiencies.
The new products led to a 6% YoY (year-over-year) increase in R&D (research and development) expense. In such a scenario, the company controlled its operating expenses by reducing its SG&A (selling, general, and administrative) expense by 7% YoY. This improved the operating margin from 34% in fiscal 2Q15 to 36.8% in fiscal 2Q16.
The non-GAAP EPS (earnings per share) rose by 9% YoY to $1.25, topping the analysts’ estimate of $1.24.
Cash position
In fiscal 2Q16, Skyworks earned $154.5 million in cash from operating activities and spent $37 million in capital expenditure. The company announced a dividend of $0.26 per share due for payment on June 2, 2016, and repurchased 2 million shares.
As of April 1, 2016, the company’s cash reserves stood at $1.17 billion against no long-term debt. This indicates that the company has sufficient cash to invest in long-term growth.
In 2015, Skyworks (SWKS)entered into a bidding war with Microsemi (MSCC) to acquire PMC-Sierra (PMCS) to broaden its communications semiconductor portfolio. However, Skyworks later backed out after PMCS refused to accept its last offer of $2.2 billion. Skyworks might look for other acquisition targets to boost its exposure in the IoT (Internet of Things) space.
Meanwhile, Skyworks’ revenue growth continues to be pressed in the short term as Apple posted weaker guidance for the June 2016 quarter. We will look at Skyworks’ fiscal 3Q16 guidance in the next part of this series and understand what factors could play in favor and against the company in the near term.
You can get exposure in the technology sector by investing in the PowerShares QQQ ETF (QQQ). QQQ has holdings in 108 tech stocks, of which 8.36% holdings are in semiconductor stocks, including 0.26% holding in SWKS and ~10.4% in AAPL.
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