Skyworks (SWKS) Beats On Q3 Earnings, Revenues Miss

Premier semiconductor manufacturer Skyworks Solutions Inc. (NASDAQ:SWKS) reported relatively healthy third-quarter fiscal 2016 results, driven by superior execution of operational plans and healthy demand patterns. Non-GAAP earnings for the reported quarter were $238.1 million or $1.24 per share compared with $262.5 million or $1.34 per share in the year-earlier quarter. Recurring earnings (with stock-based compensation adjustments) of $1.12 per share exceeded the Zacks Consensus Estimate by 3 cents.

GAAP net income in the reported quarter declined to $185.0 million or 97 cents per share from $207.4 million or $1.06 per share in the year-ago quarter. The year-over-year decrease in GAAP earnings was primarily driven by lower revenues.

Quarter Details

Skyworks reported fiscal third-quarter revenues of $751.7 million, down 7.2% year over year but ahead of its guidance. Reported revenues missed the Zacks Consensus Estimate of $756 million. In terms of the product mix, power amplifiers represented 16% of revenues, while integrated mobile systems and broad markets accounted for 55% and 29%, respectively.

Skyworks continues to capitalize on global mobile connectivity and demand for high-performance solutions across a diverse set of verticals and the Internet of Things market. As customers implement the next level of functionality for higher bandwidth, demand for system-level solutions and higher levels of integration are also increasing. These in turn are playing directly into Skyworks' strengths and generating huge demand for its products.

Non-GAAP gross profit in the reported quarter was $382.3 million compared with $396.7 million in the year-ago quarter. Non-GAAP gross margin improved 190 basis points year over year to 50.9%, driven by new product launches, enhancements in the filter business and superior operational efficiencies. Non-GAAP operating income was $274.7 million, leading to non-GAAP operating margin of 36.5% compared with the respective tallies of $295.4 million and 36.5% in the year-earlier quarter.

SKYWORKS SOLUTN Price, Consensus and EPS Surprise

SKYWORKS SOLUTN Price, Consensus and EPS Surprise | SKYWORKS SOLUTN Quote

Significant Quarter Developments

Skyworks continued to gain broad market traction during the quarter. The company was chosen by Chinese multinational electronics goods manufacturer, Huawei, to install a broad suite of its products in the latter’s flagship P9 and P9 Plus smartphones. Skyworks also launched advanced carrier aggregation capabilities across a suite of premium mobile manufacturers, including Samsung (KS:005930), Motorola (NYSE:MSI), Oppo, Vivo and ZTE.

During the quarter, the company produced over two billion filters on a cumulative basis in its joint venture with Panasonic, improved proprietary SkyBlue technology for enhanced power management in LED flash drivers and commenced volume production of products that support the world’s first headcam with LTE connectivity in 4k video streaming. Skyworks also introduced a set of highly advanced amplifiers specifically addressing the rapidly growing small cell infrastructure market. Such developments signify the expanding customer and end market reach of the company across both mobile platforms and the Internet of Things.

Balance Sheet & Cash Flow

The company ended the quarter with cash and cash equivalents of $973.7 million and a zero debt balance. Skyworks generated $141 million of cash from operations during the quarter.

The company repurchased 3 million shares during the quarter and returned over $240 million to shareholders as dividends and share repurchases. Capital expenditures for the quarter were $57 million. Skyworks further increased its quarterly dividend by 8% year over year to 28 cents per share and authorized a new $400 million stock repurchase program that replaced the existing share repurchase program of the same value. These further underscored the confidence of the management in its business model and demonstrated its ability to deliver superior returns to shareholders.

Outlook

Going forward, Skyworks is well positioned to capitalize on the Internet of Things with healthy demand for high-performance wireless solutions in new markets. The company continues with its strategy of providing custom integrated solutions and diversifying its business into high-margin verticals. Leveraging on product innovation and broad-based customer demand, the company appears poised for sustainable above-market growth in the near term. We remain impressed with the quarterly results, its deep customer engagements, clear visibility into future generation architectures, and internal margin enhancement initiatives.

The company expects fourth-quarter fiscal 2016 revenues to be up 10–11% sequentially to $831 million at the midpoint, with non-GAAP earnings of $1.43 per share.

Skyworks currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Ambarella, Inc. (NASDAQ:AMBA) , Amkor Technology, Inc. (NASDAQ:AMKR) and AXT Inc. (NASDAQ:AXTI) , each carrying a Zacks Rank #2 (Buy).