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Skyworks' (SWKS) Q2 Earnings Meet Estimates, Revenues Beat

Zacks Equity Research
·5 mins read

Skyworks Solutions, Inc. SWKS reported second-quarter fiscal 2020 non-GAAP earnings of $1.34 per share, which is in line with the Zacks Consensus Estimate. However, the figure declined 8.8% from the year-ago quarter’s reported figure.

Revenues of $766.1 million marginally surpassed the Zacks Consensus Estimate of $765.7 million. However, the top line declined 5.5% from the year-ago quarter’s level.

Per management, sluggish performance stemming from COVID-19 related global supply chain disruptions have had a negative impact on demand.

Mobile contributed 70% to revenues, while the balance came from broad markets.

Notably, the company’s shares have returned 15.1% in the past year compared with the industry’s rise of 8.5%.

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise

 

Skyworks Solutions, Inc. Price, Consensus and EPS Surprise
Skyworks Solutions, Inc. Price, Consensus and EPS Surprise

Skyworks Solutions, Inc. price-consensus-eps-surprise-chart | Skyworks Solutions, Inc. Quote

 

Deal Wins: Key Growth Factor

During the reported quarter, Skyworks’ Sky5 product portfolio facilitated several 5G launches. The company’s offerings were selected by Samsung, VIVO, Xiaomi and OPPO as well as other Tier-1 players for 5G mobile platforms.

In the fiscal second quarter, the company’s Wi-Fi 6 solutions were adopted by Cisco.

Moreover, Skyworks is supporting home security solutions at Honeywell and expanding remote patient monitoring systems at GE.

The company also rolled out asset tracking and fleet management solutions to Juniper and Blackberry.

Skyworks is benefiting from growing work-from-home trends, thanks to the coronavirus pandemic. Notably, the company is powering 5G hotspots with Verizon and AT&T.

Further, the company is enabling 5G Massive MIMO and small cell base station deployments across the United States, Europe and Japan. It is also accelerating connectivity solutions with major automotive players like Renault, Hyundai, Nissan and Volkswagen.

Operating Details

Non-GAAP gross margin contracted 50 basis points (bps) on a year-over-year basis to 50.2%.

Research & development expenses, as percentage of revenues, expanded 150 bps on a year-over-year basis to 14.8%. Moreover, selling, general & administrative expenses, as percentage of revenues, expanded 170 bps from the year-ago quarter’s tally to 7.6%.

Non-GAAP operating margin contracted 160 bps on a year-over-year basis to 32.5% in the reported quarter.

Balance Sheet & Cash Flow

As of Mar 27, 2020, cash & cash equivalents were $1.108 billion, down from $1.23 billion as of Dec 27, 2019.

Cash generated by operating activities was $280.4 million compared with $398.4 million in the prior quarter.

The company reported free cash flow of $220 million and free cash flow margin of 29% compared with $287 million and 32% in the previous quarter, respectively.

Capital expenditure came in at $60 million in the reported quarter compared with $111.2 million in the prior quarter.

Skyworks repurchased 3.2 million shares for a total of $284 million and paid out $75 million as dividends.

On May 4, the company declared a quarterly dividend of 44 cents per share payable on Jun 11, to shareholders as on May 21.

Guidance

Uncertainty pertaining to the coronavirus pandemic compelled the company to widen guidance range compared with previous quarters. For third-quarter fiscal 2020, revenues are expected in the range of $670-$710 million. The Zacks Consensus Estimate is pegged at $706.7 million, which indicates a decline of 7.9% from the year-ago quarter’s reported figure.

Non-GAAP earnings are anticipated to be $1.13 per share at the mid-point. The Zacks Consensus Estimate is pegged at $1.21, which suggests a decline of 10.4% from the year-ago quarter’s level.

Conclusion

Skyworks is banking on portfolio strength to capitalize on the rapid changes in the industry due to COVID-19. Notably, its solutions are supporting telemedicine and emergency response applications as well as remote work, e-learning and video streaming, among others.

Further, Skyworks continues to win content at mobile and OEMs like Samsung, OPPO, VIVO and Xiaomi, which is a tailwind.

However, demand and supply chain disruptions caused by the pandemic are headwinds.

Zacks Rank & Stocks to Consider

Currently, Skyworks carries a Zacks Rank #3 (Hold).

Netlist, Inc. NLST, Pixelworks, Inc. PXLW and InterDigital, Inc. IDCC are some better-ranked stocks worth considering in the broader computer and technology sector, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Netlist and InterDigital is pegged at 15% each, while Pixelworks is pegged at 20%.

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Skyworks Solutions, Inc. (SWKS) : Free Stock Analysis Report
 
InterDigital, Inc. (IDCC) : Free Stock Analysis Report
 
Pixelworks, Inc. (PXLW) : Free Stock Analysis Report
 
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