Skyworks (SWKS) Q3 Earnings & Revenues Beat, View Tepid

Skyworks Solutions, Inc. (NASDAQ:SWKS) delivered third-quarter fiscal 2019 non-GAAP earnings of $1.35 per share, beating the Zacks Consensus Estimate by a penny. The reported bottom line figure compares favorably with management’s revised guidance of $1.34 per share at mid-point. However, the figure declined 17.7% from the year-ago quarter.

Revenues of $767 million surpassed the Zacks Consensus Estimate of $766 million. The figure came within management’s revised guidance of $755 million to $775 million. However, the figure decreased 14.2% from the year-ago quarter, primarily owing to decline across mobile business and uncertainty pertaining to Huawei blacklisting.

Mobile contributed almost 63% to revenues, while the rest came from broad markets. Notably, the largest customer contributed 40% to revenues.

Shares Down on Bleak Q4 Guidance

Shares of Skyworks are down 5.5% in the pre-market owing to bleak fourth-quarter guidance.

For fourth-quarter fiscal 2019, revenues are expected to be in the range of $815 million to $835 million. The Zacks Consensus Estimate is pegged at $839.4 million. Uncertainty pertaining to Huawei is keeping management cautious.

Non-GAAP earnings are anticipated to be $1.50 per share at the mid-point. The Zacks Consensus Estimate is pegged at $1.54 billion.



Notably, Skyworks stock has returned 20.4% year to date, outperforming the industry’s rally of 18.3%.

Product Roll Outs and Deal Wins Remain Noteworthy

During the reported quarter, Skyworks expanded Sky5 portfolio with ultra-high linearity enabled MIPI (or Mobile Industry Processor Interface) antenna tuners. Further, the company’s latest suite of mini circulators for 5G infrastructure, controllers and LNAs were adopted by notable infrastructure manufacturers based in Europe.

The company’s offerings were selected by Samsung (KS:005930) to power its 5G premium Galaxy S10 smartphone, DIRECTV for its high-definition (HD) 4K-enabled streaming set top boxes and Microsoft (NASDAQ:MSFT) in Xbox’s wireless earphones.

Notably, Skyworks rolled out thermal barrier coatings based on its proprietary low-k materials technology, with an aim to enhance aerospace applications.

Additionally, SkyOne and SkyLiTE are finding application in Oppo, Xiaomi and Vivo flagship smartphones. Further, SkyOne connectivity solutions are powering Facebook’s (NASDAQ:FB) VR gaming headset, Oculus, which is a noteworthy deal win.

Skyworks’ base station amplifier solutions with high-efficiency capabilities secured 5G massive MIMO win from a tier-one Korea-based customer.

Skyworks also introduced cognitive wireless devices and analog SoCs for Vizio wireless subwoofers and sound bars. In the third quarter, the company initiated volume production of Bulk Acoustic Wave or BAW enabled Sky5 products.

Moreover, Cisco (NASDAQ:CSCO) is leveraging Skyworks’ 802.11ax engines to bolster performance of its enterprise platforms.

The company is benefiting from strong demand of its wireless communications engines. Its expanding product portfolio, growing clout in the IoT solutions and 5G markets are key catalysts.

Operating Details

Non-GAAP gross margin contracted 50 bps on a year-over-year basis to 50.4%. Gross margin missed management’s guided range of 50.5-51%.

Huawei’s addition to entity list negatively impacted gross margin. The company had to incur $67 million in nonrecurring charge (GAAP), majorly comprising inventory write-downs related to Huawei.

Research & development (R&D) expenses as percentage of revenues expanded 230 bps on a year-over-year basis to 13.1%. Moreover, selling, general & administrative (SG&A) expenses expanded 110 bps from the year-ago quarter to 6.1%.

Consequently, non-GAAP operating margin contracted 340 bps on a year-over-year basis to 32.9% in the reported quarter.

Balance Sheet & Cash Flow

As of Jun 28, 2019, cash & cash equivalents were $970.1 million, down from $991.3 million reported in the previous quarter.

Cash flow from operating activities was $209.3 million, up from $192.1 million in the previous quarter. Capital expenditure was $87.8 million in the reported quarter.

Skyworks repurchased 1.2 million shares for a total of approximately $86 million and paid out $65.7 million as dividends.

The company declared a quarterly dividend of 44 cents per share, up 16% from prior dividend payments, payable on Sep 17, 2019, to shareholders as on Aug 27, 2019.

Conclusion

Although Skyworks delivered stellar third-quarter results, bleak fourth-quarter guidance remains a concern. Moreover, unit decline across mobile business and Huawei headwinds impacted the third-quarter results.

Further, stiff competition from peers including Qorvo (NASDAQ:QRVO) , is likely to lead to significant pricing pressure, which might impact profitability.

However, the company is banking on enhancing its portfolio strength, to capitalize on the broad-based utilization of 5G infrastructure solutions across automotive, industrial IoT and advanced medical applications, among others.

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

Zacks Rank

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

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

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