Skyworks (SWKS) Beats On Q4 Earnings, Connectivity Aid Growth

Skyworks Solutions Inc. (NASDAQ:SWKS) reported fourth-quarter fiscal 2017 non-GAAP earnings of $1.82 per share, which beat the Zacks Consensus Estimate by 7 cents. The figure improved 24.1% from the year-ago quarter and 25.1% on a sequential basis.

Revenues of $984.6 million were up 17.9% year over year and 9.3% sequentially. The figure was surpassed the Zacks Consensus Estimate of $981 million. Foxconn, Samsung (KS:005930) and Huawei were the top three largest customers.

The strong results reflected Skyworks’ growing clout in the connectivity solutions and 5G markets. The company’s solutions continue to capture strategic design wins across the broad markets.

Per management, global mobile data usage is expected to increase five times between 2017 and 2021. Moreover, the Internet of Things (IoT) space is booming, with 75 billion devices projected to be connected by 2025.

The emergence of connected homes, autonomous vehicles, artificial intelligence (AI), augmented reality, wearables and network infrastructure presents significant growth opportunity for Skyworks’ connectivity solutions.

In fiscal 2017, Skyworks reported non-GAAP earnings of $6.45 per share, up 16% year over year on revenues of $3.7 billion, which increased 11%.

Broad markets rose high-teens on a year-over-year basis in fiscal 2017. Management expects the segment to continue to grow mid-teens/mid to high teens. Mobile markets are anticipated to grow double-digit.

Skyworks’ shares have returned 48.1% on a year-to-date basis, substantially outperforming the industry’s rally of 42.6%.

Key Growth Drivers

Skyworks noted that broad markets represented 26% of total revenues, while the mobile market constituted 64%. Power Amplifiers accounted for 10% of the revenues.

Across the broad markets, the company delivered fully integrated Zigbee and ISM modules for Bosch home security and Cisco Systems Inc’s (NASDAQ:CSCO) smart lighting systems.

Skyworks also initiated volume production of in-vehicle telematics at Hyundai and launched wireless networking engines within DirecTV's 4K Genie receivers. The company also supported Sonos' latest hi-fi speaker featuring Amazon.com Inc.’s (NASDAQ:AMZN) virtual assistant Alexa.

Moreover, Skyworks launched next-generation 802.11ax Wi-Fi solutions, enabling a fourfold increase in speed and supporting up to 50 simultaneous users. The company also unveiled high-power solutions with leading base station customers for 5G MIMO deployments.

During the quarter, Skyworks’ won contract at DJI for virtual reality and drone applications. The company also supplied precision GPS and antenna tuning for Fitbit Inc.'s (NYSE:FIT) newest smart watches.

Skyworks’ supported most of the major mobile manufacturers in the quarter including Samsung, Huawei, Oppo, Vivo, Xiaomi and Motorola (NYSE:MSI).

Margin Details

Non-GAAP gross margin remained flat on a year-over-year basis but expanded 70 basis points (bps) sequentially to 51%.

Research & development (R&D) expenses, as percentage of revenues, increased 60 bps year on year but fell 90 bps sequentially. Selling, general & administrative (SG&A) expenses declined 70 bps from the year-ago quarter but increased 20 bps sequentially.

As a result, non-GAAP operating margin increased 40 bps on a year-over-year basis and 380 bps sequentially to 38.5% in the reported quarter.

Balance Sheet & Cash Flow

As of Sep 29, 2017, cash & cash equivalents were $1.62 billion compared with $1.44 billion in the previous quarter. Cash flow from operating activities was $425 million compared with $314.9 million in the year-ago quarter.

The company paid dividend worth $59 million and repurchased 1 million shares for a total of $102 million in the quarter.

In fiscal 2017, the company returned 55% of the free cash flow, or $1.2 billion, to shareholders, with $215 million of dividend payments and $432 million in share buybacks.

Guidance

For first-quarter fiscal 2018, revenues are expected to increase 15% year over year to $1.050 billion. The figure is anticipated surpass the Zacks Consensus Estimate of $980.6 million.

Non-GAAP earnings are anticipated to be $1.91 per share, up 19% on a year-over-year basis. The Zacks Consensus Estimate is currently pegged at $1.75.

Gross margin is expected in the range of 51-51.5%, while operating expenses are likely to be $127 million. Gross margins are anticipated to benefit from higher revenues and unit volumes, improving operating efficiency and filter in-sourcing.

Skyworks’ noted that roughly 50% of the filters are being produced in house, while the remaining 50% is purchased from third parties. The company plans to move toward a 75%/25% allocation, which will help it achieve long-term gross margin target of 53%.

Although management didn’t provide any specific guidance for fiscal 2018, operating expense is anticipated to be 13% of total revenues. Capital Expenditure, as percentage of revenues, is expected in the high-single digit range, similar to fiscal 2017.

Zacks Rank

Skyworks currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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