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The wireless-chip maker's own manufacturing operations haven't been disrupted, but it's still feeling the impact of broader supply-chain disruption.
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With supply chains heavily concentrated in China, many tech companies have been taking the economic brunt of the ongoing coronavirus outbreak. Apple (AAPL +0.01%) was among the first batch of companies to warn investors that it would miss its revenue guidance for Q1 because of the epidemic, with Microsoft following suit shortly thereafter. Prominent Apple supplier Skyworks Solutions (SWKS 0.01%) is now joining those companies in updating its own outlook.
Here's what investors need to know.
Apple represented over half of Skyworks' revenue last fiscal year. Image source: Apple.
Skyworks is slashing its revenue guidance for its fiscal second quarter (which ends in March) and now expects sales of $760 million to $770 million, down from the prior forecast issued in January that called for $800 million to $820 million. Adjusted earnings per share are now expected to be $1.34, down from $1.46 per share.
Management was previously optimistic about early momentum related to 5G product launches that was leading to "better-than-seasonal performance," but the coronavirus is now putting that momentum at risk. The company notes that its production capacity has not been impacted significantly.
"Although COVID-19 has caused no significant disruption within Skyworks' manufacturing operations to date, the current demand environment for our products has been negatively impacted by interruptions in global supply chains," CEO Liam Griffin said in a statement. "Despite this, we remain upbeat about our design win momentum and our ability to deliver strong profitability and cash flow."
The chipmaker has manufacturing facilities in Asia -- mostly in Japan and Singapore -- but its largest factories are within the U.S. The company has a 185,000-square-foot production plant in California and another 158,000-square-foot facility in Massachusetts.
With Apple's iPhone production facing supply constraints around critical components, Skyworks can't ship enough of its own products to the Mac maker even though Skyworks' own manufacturing capacity is largely intact. You can't make a product when other critical ingredients are constrained, and iPhone camera lens shipments are reportedly hard to come by currently. That bottleneck isn't expected to ease until May.
Apple accounted for a whopping 51% of revenue in fiscal 2019, according to Skyworks' annual report, and other smartphone vendors like South Korea's Samsung and China's Huawei are also prominent customers. The outbreak has already reached South Korea, and Samsung has confirmed that some employees have tested positive for the virus, causing the conglomerate to shut down a factory.
Approximately 21% of Skyworks' revenue comes from customers that are based in China; the company's geographic breakdown of revenue is based on where a customer's headquarters is located. However, that figure underrepresents the potential impact, as customers that are located in other countries around the world still rely on supply chains based in China.