Skyworks' (SWKS) Q4 Earnings Beat Estimates, Revenues Up Y/Y

Skyworks Solutions Inc. (NASDAQ:SWKS) delivered fourth-quarter fiscal 2018 non-GAAP earnings of $1.94 per share, which beat the Zacks Consensus Estimate of $1.91 per share. Earnings also came above management’s guidance of $1.91 per share. The figure improved 6.6% from the year-ago quarter.

Revenues of $1.008 billion were up 2.3 % year over year and 13% sequentially, primarily due to robust design wins in mobile business and Internet of Things (IoT).

Further, the revenue figure marginally surpassed the Zacks Consensus Estimate of $1.001 billion and exceeded management’s guidance of $1 billion.

Mobile contributed almost 72% of revenues, while the rest came from broad markets. Notably, the company unveiled various high performance mobile solutions which in turn offset unit declines in premium smartphones and weakness in China. This was another positive during the reported quarter.

The better-than-expected performance reflected Skyworks’ growing clout in the Internet-of-Things (IoT) solutions and 5G applications.

Quarter Details

During the fourth quarter, Skyworks unveiled solutions from its Sky5 platform that has been authorized to support wireless 5G networks. This product delivers bandwidth coverage ranging from 60 megahertz to 6 gigahertz. Moreover, accelerating timeline for 5G deployment is a positive.

Additionally, the company powered Samsung’s Galaxy smartphones and clout smart audio solutions at Microsoft (NASDAQ:MSFT), Nintendo and Sony gaming platforms.

Moreover, Skyworks enabled telematics at BMW, Hyundai, Tesla (NASDAQ:TSLA), Toyota and General Motors (NYSE:GM). The company has also increased presence across Nest thermostats, fire detectors and video doorbells by using 802.11ac and ax, LoRa, Bluetooth Low Energy, Zigbee, Thread and Wi-Fi protocols.

Additionally, the company leveraged LTE, DOCSIS 3.1 CAT-12 data cards for M2M applications, with 2.4 and 5 GHz front-ends.

Further, Skyworksrecently concluded the acquisition of Avnera Corporation. The buyout gives Skyworks access to robust analog/mixed signal voice, audio and speech processing engines. With this acquisition, Skyworks intents to leverage Avnera’s product portfolio and systems expertise in order to strengthen foothold in automotive, industrial, automation and high-end consumer markets.

Operating Details

Non-GAAP gross margin expanded 20 basis points (bps) on a year-over-year basis to 51.2%.

Research & development (R&D) expenses as percentage of revenues increased 90 bps on a year-over-year basis to 10.2%. However, selling, general & administrative (SG&A) expenses decreased 30 bps from the year-ago quarter to 5.4%.

As a result, non-GAAP operating margin contracted 90 bps on a year-over-year basis to 37.6% in the reported quarter.

Balance Sheet & Cash Flow

As of Sep 28, 2018, cash & cash equivalents were $1.05 billion, down from $1.65 billion reported in the previous quarter.

Cash flow from operating activities was $207.6 million, down from $258 million in the previous quarter. Capital expenditure was $112 million in the quarter.

The company paid a quarterly dividend of 38 cents per share. Skyworks repurchased 2.5 million shares for a total of $235 million.

Guidance

For first-quarter fiscal 2019, revenues are expected to be in the range of $1 billion to $1.020 billion. The Zacks Consensus Estimate is pegged at $1.07 billion.

Gross margin is expected in to be 51.2% (+/- 10 bps). Skyworks continues to target gross margin of 53% over the long term.

Operating expenses are projected to be $140 million.

Non-GAAP earnings are anticipated to be $1.91 per share, at mid-point. The Zacks Consensus Estimate is pegged at $2.06 billion.

Conclusion

Skyworks is benefiting from its portfolio strength, particularly in the 5G applications and IoT market. The lifting of ban on ZTE (HK:0763) by the United States is positive, although the contribution from the Chinese original equipment manufacturer (OEM) is expected to be minimal in the near term.

Further, Skyworks continues to win content at mobile and OEMs like Huawei, Samsung (KS:005930), Oppo, Vivo, LG and Nokia (HE:NOKIA).

In terms of competition, management believes that Qualcomm (NASDAQ:QCOM), despite pursuing programs that Skyworks is already part of, is not a major threat. Moreover, the trade war between the United States and China will not have much impact on the company’s top-line.

However, the near-term softness witnessed across leading smart-phone customers remains a headwind. Overdependence on Apple (NASDAQ:AAPL) for revenue generation continues to add to the woes.

Zacks Rank & Key Pick

Currently, Skyworks has a Zacks Rank #4 (Sell).

Castlight Health, inc. (NYSE:CSLT) , NetApp, Inc. (NASDAQ:NTAP) and CACI International, Inc. (NYSE:CACI) are stocks worth considering in the same sector. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Castlight, NetApp and CACI International have a long-term earnings growth rate of 22.5%, 14.1% and 10%, respectively.

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