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Skyworks Solutions Steps Over a Lowered Bar but Shares a Bleak Outlook

By Brian Feroldi – Updated Apr 24, 2019 at 11:15AM

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First-quarter results came in ahead of management's revised guidance, but the company warns that the operating environment still remains challenging.

Skyworks Solutions (SWKS 0.23%), a semiconductor company focused on specialty products used in the communications industry, reported its fiscal first-quarter results on Tuesday, which came in slightly better than the updated guidance. However, it was still a poor performance in absolute terms.

Management had previously warned investors that its first-quarter results were going to come in below its established guidance range. The majority of the shortfall was blamed on lower sales of Apple's iPhone, which is still a significant product line for Skyworks.

Skyworks Solutions' fiscal Q1: The raw numbers

 Metric Q1 2019 Q1 2018 Year-Over-Year Change
Revenue $972 million $1,052 million


GAAP operating income $321 million $384 million (16%)
GAAP net income $285 million $70 million 305%
GAAP EPS $1.61 $0.38 323%

Data source: Skyworks Solutions. GAAP = generally accepted accounting principles. EPS = earnings per share.

Woman in grey shirt with a smartphone in her hands, and various icons jumping out from phone.

Image source: Getty Images.

What happened with Skyworks this quarter?

  • The strong growth in GAAP net income is mostly attributable to a significant one-time charge in the year-ago period due to the changes in the U.S. tax code. 
  • Adjusted net income fell 13%, to $325 million.
  • Adjusted earnings per share (EPS) declined 9%, to $1.83. This was at the high end of management's revised guidance range.
  • Non-GAAP gross margin slipped 40 basis points, to 51%.
  • Non-GAAP operating margin fell 240 basis points, to 36.7%.
  • Management bought back a record 4 million shares of stock during the quarter. A new $2 billion stock-repurchase program was also authorized.
  • Stock buybacks reduce the diluted share count by 4.2% year over year.
  • Cash balance at quarter end was $1.1 billion. 

What management had to say

CEO Liam Griffin acknowledged that it was a challenging quarter but remained happy with the company's performance:

Despite macro weakness across our global mobile business, Skyworks delivered solid financial results driven by content gains, an expanding footprint in broad markets and our strong business model. During the quarter, we generated more than $500 million in cash flow from operations and exited the quarter with over $1 billion in cash.

On the conference call with investors, CFO Kris Sennesael stated that the business is performing well outside of its core mobile business:

Momentum in our high-growth broad markets business allowed us to partially offset unit declines across our mobile business that was mostly driven by weak end customer demand in China. In fact, revenue from broad markets continue to outperform in the first fiscal quarter with double-digit revenue growth compared to the first quarter of last year, demonstrating continued diversification across multiple end markets, customers and applications.

Looking forward

Management shared guidance for the upcoming quarter that suggests that the challenges facing its mobile products are still going be a major headwind for the company:

Metric Fiscal 2019 Q2 Guidance Fiscal 2018 Q2 Actual Implied Change (at Midpoint for Revenue)
Revenue $800 million to $820 million $913 million (11%)
Non-GAAP EPS $1.43 $1.64 (13%)

Data source: Skyworks Solutions.

CEO Griffin knew that this guidance wasn't going to sit well with investors, so he ended his prepared remarks on the call by reminding Wall Street that the company remains "committed to creating shareholder value" and that the upcoming transition to 5G wireless technology remains a bright spot for the business:

At a higher level, 5G will be transformational, requiring step function increases in analog performance, advanced filtering and power efficiency. With decades of experience spanning successive technology generations, Skyworks is well-positioned to capitalize. 

Check out the latest Skyworks earnings call transcript.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Skyworks Solutions. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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