Skyworks Solutions, Inc. (NASDAQ:SWKS) Q4 2023 Earnings Call Transcript
Skyworks Solutions, Inc. (NASDAQ:SWKS) Q4 2023 Earnings Call Transcript November 2, 2023
Skyworks Solutions, Inc. beats earnings expectations. Reported EPS is $2.2, expectations were $2.1.
Operator: Good afternoon, and welcome to the Skyworks Solutions Fourth Quarter Fiscal Year 2023 Earnings Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President, Investor Relations for Skyworks. Mr. Gill, please go ahead.
Raji Gill: Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' fourth fiscal quarter 2023 conference call. With me today are Liam Griffin, our Chairman, Chief Executive Officer, and President; and Kris Sennesael, Chief Financial Officer for Skyworks. This call is being broadcast live over the web and can be accessed from the Investor Relation section of the company website at @skyworksinc.com. In addition, the company's prepared remarks will be made available on our website promptly after the conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements.
Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call to Liam.
Liam Griffin: Thanks, Raji, and welcome everyone. Despite macroeconomic headwinds and volatility, Skyworks executed well during the fourth fiscal quarter. We delivered revenue of $1,219 million, posted earnings per share of $2.20, and generated $366 million of operating cash flow. During fiscal 2023, free cash flow was well above $1.6 billion, which reflects our efficient business model despite a challenging macroenvironment. While excess supply conditions are modestly improving in the Android market, we continue to under ship to natural demand as the industry rebalances. Within broad markets, we see softer demand extending from consumer to certain durable sectors as customers adjust to normalize lead times and reduce excess inventory.
After two years of unprecedented events due to COVID and historical supply chain shortages, the semiconductor industry is returning to a normal supply and demand balance. We are responding to these dynamics by actively managing our inventory levels, making strategic investments in growth areas, and diversifying the reach of our business. We are well positioned to capitalize when demand inflects from a technology and roadmap, manufacturing capacity and financial perspective. Over the medium to long term, we remain bullish on several sectors and trends. In our mobile business and our broad markets businesses, in mobile we see opportunities to expand RF content over the coming years. On the path to 6G, we anticipate RF content increases will be driven by additional bands, enabling satellite connectivity, growing usage of uplink carrier aggregation, further adoption of 4x4 MIMO, and other innovations in RF.
Switching gears to broad markets, which accounted for approximately 37% of our total revenue in fiscal 2023. We expect to benefit from three long-term secular trends. First, the proliferation of intelligent IoT connected devices on the edge. Second, the rapid transition towards electrification and advanced safety in vehicles. And third, high speed connectivity for AI enabled data intensive infrastructure in cloud applications. Within IoT, we are excited about the upgrade cycle with Wi-Fi 6E and 7. Driving additional content as incremental higher frequency bands drive more stringent filter requirements, including the need for BAW. Wi-Fi 7 has several use cases, including 8K video screaming, immersive AR and VR, cloud gaming, industrial IoT and telemedicine.
Shifting to automotive, Skyworks is well positioned to benefit from the electrification and adoption of advanced safety in vehicles. According to internal analysis and third party estimates, we expect RF automotive semiconductor TAM to reach $1 billion. Within automotive, we are focused on high growth segments and content opportunities, including power isolation chips for onboard chargers, powertrains, and battery management systems in EVs. Connectivity, such as cellular engines, Wi-Fi, Bluetooth, and GPS, in-vehicle infotainment systems, driven by digital radios, and lastly, ADAS solutions for autonomous driving. We have the experience and ability to execute at scale with some of the leading brands in the world. In addition, we believe AI can be a catalyst for more efficient wireless communication and could fuel the need for more complex and higher performance wireless solutions.
Over time, we expect high performance smartphones will be a critical platform for advanced AI capabilities, and in turn could spark a major upgrade cycle. Furthermore, over the past two years, we've made significant investments in BAW technology and scale, which has led us to competitive differentiation. We've expanded our reach within the smartphone market, and today, nearly 50% of our mobile revenue is tied to BAW. That's more than double from last two years. Our BAW investment has also resulted in key design wins in our broad markets business, which represents more than 10% of our business. Wi-Fi 7 is a perfect example of BAW technology being a critical requirement for the new standard. Now, turning to our quarterly business highlights, we secured 5G design wins for premium Android smartphones, including Google, Samsung, and several models in the VOX ecosystem.
We accelerated design wins in Wi-Fi, including NETGEAR’s Wi-Fi 7 mesh system, Linksys 6E tri-band mesh router and TP-Link’s quad-band Wi-Fi 7 router. We expanded our reach in automotive segments by winning several designs for onboard chargers, battery management systems, and digital broadcast products across the leading brands. And lastly, in emerging IoT, we enabled next-generation smart energy solutions with Trilliant and Samsara. In summary, Skyworks continues to deliver solid results despite a challenging macroenvironment. At the same time, our advanced technology and product roadmaps are aligned to long-term secular trends, further expanding and diversifying our customer base. Our strategic customer engagement, resilient business model, and experience will help us weather through this cycle's volatility.
With that, I will turn the call over to Chris for discussion of last quarter's performance and our outlook for Q1 of fiscal 24.
Kris Sennesael: Thanks, Liam. Skyworks revenue for the fourth fiscal quarter of 2023 was $1,219 million, up 14% sequentially and slightly above the midpoint of our outlook. Mobile was approximately 65% of total revenue, an increase of 25% sequentially, as we supported the ramp of new high-performance solutions at our largest customer. Broad markets were approximately 35% of total revenue, down 3% sequentially. We continue to see inventory digestion within broad markets, including consumer IoT, enterprise, and telecom infrastructure. Grosso profit was $575 million, resulting in a gross margin of 47.1%. Gross margin continued to be impacted by temporary factory underutilization as we right-sized our inventory levels. During Q4, we reduced our internal inventory by $116 million to $1,120 million.
And we are on track to further reduce it below $1 billion by the end of the December quarter. Operating expense of $177 million was down 3% sequentially and down 8% year-over-year, given our ongoing focus on managing discretionary expenses. We generated $398 million of operating income, translating into an operating margin of 32.6%. We incurred $7 million of other expense. And our effective tax rate was 9.7%, driving net income of $353 million and diluted earnings per share of $2.20. EPS was $0.10 above the guidance that we provided during the last earnings call. Now turning to cash flow, Skyworks business model continues to deliver robust cash generation. Fourth fiscal quarter cash flow from operations was $366 million and capital expenditures were $70 million, resulting in free cash flow of $296 million.
For the full fiscal year, we generated $1,856 million of cash flow from operations. Capital expenditures were $210 million or 4% of revenue. As a result, we delivered a record $1,646 million of free cash flow, an increase of 76% year-over-year, driving a record free cash flow margin of 34.5% and translating into approximately $10.30 of free cash flow per share and a free cash flow yield of approximately 12%. In fiscal 2023, we significantly reduced our capital expenditures in line with our business model. After major investments during prior years to expand our manufacturing footprint, including bar filtering, we expect our capital intensity to moderate. We focus on driving operational efficiencies through yield improvements, dice rings and test time reductions, creating additional available capacity.
We believe we are currently well positioned from an equipment and tooling standpoint to support a demand to recovery. Also, during fiscal Q4, we paid $108 million in dividends and repaid $200 million of our term loan. In early October, we repaid $150 million of outstanding borrowings under the term loan, and we intend to pay off the remaining $150 million by yearend. Entering calendar year 2024, we are comfortable with our capital structure and debt levels of $1 billion, which provide us with superior flexibility and optionality. Now, let's move on to our outlook for Q1 of fiscal 2024. We anticipate revenue between $1,175 million and $1,225 million. We expect our mobile business to demonstrate momentum, while in broad markets, we expect to continue digesting excess inventory affecting our revenue outlook.
Gross margin is projected to be in the range of 46% to 47%, reflecting the ongoing cyclical impact of lower factory utilization, reduction of internal inventory, and an unfavorable mix shift given the lower proportion of broad markets as a percentage of total revenue. We expect operating expenses in the range of $193 million to $197 million as we continue to make strategic investments in mobile and broad markets to drive share gains and increase decertification. Below the line, we anticipate roughly $6 million in other expense and an effective tax rate of 12% for Q1, as well as full fiscal year 2024. We expect our diluted share count to be approximately 161 million shares. Accordingly, at the midpoint of the revenue range of $1,200 million, we intend to deliver diluted earnings for share of $1.95.
Operator, let's open the line for questions.
See also 30 Most Stressful Jobs in the US and 12 Countries with Most Prisoners Per Capita.
To continue reading the Q&A session, please click here.
