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Skyworks' Q2 Earnings Zoom Past Estimates

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Leading analog semiconductor manufacturer Skyworks Solutions, Inc. (SWKS) reported strong second quarter fiscal 2014 results, exceeding its guidance across all key metrics on superior execution of operational plans. The company recorded net income of $76.9 million or 40 cents per share in the reported quarter, up from $61.7 million or 32 cents per share in the year-earlier quarter. The year-over-year increase in earnings was primarily driven by higher revenues.
Excluding non-recurring items, adjusted earnings for the reported quarter came in at 62 cents per share compared with 48 cents in the year-ago quarter. Adjusted earnings for the reported quarter comfortably beat the Zacks Consensus Estimate of 51 cents.
Skyworks reported revenues of $481.0 million, up 13.1% year over year and ahead of the Zacks Consensus Estimate of $470 million. Skyworks continues to capitalize on global mobile connectivity and demand for high-performance solutions across a diverse set of vertical markets.  The company is empowering connectivity across a number of strategic applications including medical devices, wearable technologies, home automation and hybrid vehicles as well as smartphones and tablets to facilitate better communication.

Gross profit was $212.4 million in the reported quarter compared with $176.7 million in the year-ago comparable period. Operating income improved to $102.6 million from $68.7 million in the prior year. During the reported quarter, the company leveraged its 802.11ac solutions for use in gaming consoles, set-top boxes, BluRay players and TVs for enhanced video streaming applications.

The company generated $214 million cash from operations and ended the quarter with cash and cash equivalents of $797.8 million. Skyworks repurchased approximately 2 million shares during the reported quarter. The company decided to initiate a quarterly dividend payout to provide attractive risk-adjusted returns to its stockholders. The cash dividend of 11 cents per share will be paid on May 22, 2014 to shareholders of record at the close of business on May 13.

Moving forward, Skyworks is well-positioned to capitalize on the Internet of Things with a healthy demand for high-performance wireless solutions in new markets. Revenues for the third quarter of fiscal 2014 are expected to be approximately $535 million, up 23% year over year. Skyworks also expects adjusted earnings per share to increase 35% year over year to 73 cents in the third quarter of fiscal 2014

The company believes that its strategy of diversifying its business and expanding into new verticals will drive growth in the long term. Product innovation and proprietary solutions have positioned the company well for sustainable above-market growth in the near term.

In order to fuel its growth engine, Skyworks aims to capitalize on three business segments − mobile Internet, vertical markets and analog components. Demand for mobile Internet applications is exploding with the broad proliferation of smartphones, net books, note books, caplets and other forms of embedded wireless devices. Skyworks also continues to consolidate its share across the mobile Internet spectrum. This covers everything from net books and data cards to smartphones, and even entry-level handsets.

The market is estimated to have 50 billion connections by 2020. Some of the fastest-growing segments include medical, industrial, automotive and smart energy where connectivity is being adopted for the very first time. Good quality, environmentally friendly products and sustainable business practices are key differentiators for this company in a very competitive environment. Consequently, we expect Skyworks to continue posting solid operating results in the near future as well.

Skyworks currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the same sector include Freescale Semiconductor, Ltd. (FSL) carrying a Zacks Rank #1 (Strong Buy), and Advanced Micro Devices, Inc. (AMD) and Rubicon Technology, Inc. (RBCN), both carrying a Zacks Rank #2 (Buy).

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