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Skyworks' (SWKS) Q3 Earnings and Revenues Beat Estimates

Zacks Equity Research
·5 mins read

Skyworks Solutions SWKS reported third-quarter fiscal 2020 non-GAAP earnings of $1.25 per share that beat the Zacks Consensus Estimate by 10.6%. However, the figure declined 7.4% year over year.

Revenues of $736.8 million surpassed the Zacks Consensus Estimate by 6.8%. However, the top line declined 3.9% year over year.

Per management, export restrictions on Huawei had a negative impact on revenues. Notably, after excluding Huawei-related revenues in both the fiscal third quarter and the year-ago quarter, revenues rose 2.5% year over year.

Broad markets accounted for 31% of revenues, flat sequentially.

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, Motorola, VIVO, Xiaomi and OPPO as well as other Tier-1 players for 5G mobile platforms.

Skyworks stated that 5G subscriptions, globally, are continuing to grow with estimates set to hit $3 billion over the next five years.

The company is benefiting from accelerating demand for 5G handset. Markedly, in China (23% of Skyworks' revenues), during the month of June, approximately 60% of all smartphones sold were 5G-enabled.

Moreover, Skyworks has shipped more than 150 million BAW-enabled modules. The company is witnessing strong momentum for this technology in both mobile and broad markets.

In the fiscal third quarter, the company’s Wi-Fi 6 solutions were adopted by AT&T T to power its tri-band home gateways.

Moreover, Skyworks is supporting home security solutions at Amazon’s AMZN Ring Security Systems by delivering highly integrated connectivity. Additionally, it is ramping indoor and outdoor access points at Juniper JNPR, Linksys and Aruba.

The company also rolled out mesh router and voice assistant solutions to Google in the third-quarter fiscal 2020.

In the industrial space, Skyworks is powering IoT platforms at Gemalto and Bosch, while the company’s GPS, circulator and advanced filter solutions witnessed design wins at leading aerospace and defense companies.

Moreover, the Sky5 platform was adopted by leading automobile manufacturers like Ford and BMW in the fiscal third quarter.

Notably, the company is also diversifying in the infrastructure space based on deals with Ericsson, Nokia and Fujitsu.

Operating Details

Non-GAAP gross margin contracted 30 basis points (bps) on a year-over-year basis to 50.1%. However, this beat management’s expectation by 10 bps.

Research & development expenses, as percentage of revenues, expanded 280 bps on a year-over-year basis to 15.9%. Moreover, selling, general & administrative expenses, as percentage of revenues, expanded 140 bps from the year-ago quarter’s tally to 7.5%.

Non-GAAP operating margin contracted 160 bps on a year-over-year basis to 31.3% in the reported quarter.

Balance Sheet & Cash Flow

As of Jun 26, 2020, cash & cash equivalents were $1.162 billion, up from $1.108 billion as of Mar 27, 2020.

Cash generated by operating activities was $258.7 million compared with $280.4 million in the prior quarter.

The company reported free cash flow of $187 million and free cash flow margin of 32% compared with $220 million and 29% in the previous quarter, respectively.

Capital expenditure came in at $72 million in the reported quarter compared with $60 million in the prior quarter.

Skyworks repurchased 670K shares for a total of $59 million and paid out $73 million as dividends.

On Jul 23, the company declared a quarterly dividend of 50 cents per share, up 14% from the prior quarter’s dividend of 44 cents and payable on Sep 1, to shareholders as on Aug 11.

Guidance

For fourth-quarter fiscal 2020, revenues are expected in the range of $830-$850 million. The Zacks Consensus Estimate for revenues is pegged at $786.2 million.

The company expects broad markets to increase at a double-digit rate sequentially in fourth-quarter.

Skyworks expects expect gross margin in the range of 50-50.5% and operating expenses of roughly $142.5 million. Favorable product mix due to more 5G products is expected to aid gross margin growth.

Non-GAAP earnings are anticipated to be $1.51 per share at the mid-point of the revenue range. The Zacks Consensus Estimate for earnings is pegged at $1.41.

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, this Zacks Rank #2 (Buy) company continues to win content at mobile and OEMs like Samsung, OPPO, VIVO, Motorola and Xiaomi, which is a tailwind. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, supply chain disruptions as well macroeconomic uncertainties stemming from the coronavirus pandemic are headwinds.

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