Image source: Skyworks Solutions.
Skyworks Solutions (SWKS 0.08%) released its fiscal-first-quarter 2016 earnings results Thursday evening and the market cheered. Shares jumped more than 5% in after-hours trading and the rally continued into Friday's trading session.
Let's dig through Skyworks results to see how they stacked up in the four areas that I suggested investors pay attention to.
The raw numbers
On its last earnings call, Skyworks management predicted that its Q1 revenue would land between $925 million and $930 million and that its non-GAAP diluted earnings per share would come in at $1.60.
Here's how the actual results shook out:
| Q1 2016 | Q1 2015 | Change % | |
|---|---|---|---|
| Revenue | $926.8 million | $805.5 million |
15% |
| Non-GAAP Operating Income | $366.6 million | $282.0 million | 30% |
| Non-GAAP Net Income | $311.2 | $244.8 | 27% |
| Non-GAAP EPS | $1.60 | $1.26 | 27% |
DATA SOURCE: SKYWORKS SOLUTIONS.
Management proved once again that its forecasts can be relied upon as the company's results met expectations.
Margins checkup
Investors in the semiconductor space know that, over long periods of time, margins tend to contract. That's not been the case with Skyworks, though, as its margins have been on the rise recently. Management expected that trend to continue into this quarter -- it had forecast that its non-GAAP gross margin would increase to 51%.
Here's a look at how the company's non-GAAP margins looked for the quarter:
| Q1 2016 | Q1 2015 | |
|---|---|---|
| Gross Margin | 51.4% | 46.7% |
| Operating Margin | 39.6% | 35% |
| Net Income Margin | 33.6% | 30.4% |
Data source: Skyworks Solutions and author's calculation.
It looks like Skyworks had no problems delivering on its promises here, either.
Did it return cash to shareholders?
Last quarter, the board of directors authorized a new $400 million share repurchase program, hinting that it was looking to take advantage of a falling share price. Unfortunately, that didn't happen in the just-reported quarter, as the company didn't buy back a single share during the period. In fact, its diluted weighted average share count actually rose during the quarter to 194.7 million, up from 194.2 million it reported a year ago. That move seems a bit puzzling. With more than $1.2 billion in cash on its books and no debt, it's not like the company couldn't afford it.
Here's how CFO Donald Palette responded when asked about its share repurchase program on the earnings call:
We have that 40% target of free cash flow that we want to distribute to the shareholders through dividends buybacks. We didn't do any buyback this quarter, I mean, we also balance ... what's going on in potential M&A activity, what we're looking at, and those things. And bottom line is that 40%, we'll continue to do. So stay tuned.
That quote makes it seem like the company is perhaps eyeing a potential acquisition at the moment and thus building up its cash reserve in preparation.
Future growth opportunities?
For Skyworks to continue to grow at above-average rates, it needs to continually expand into new product categories, and its management team looks like it delivered yet again. During the quarter, it made progress on several fronts as it called out wins in areas like automotive, smart TVs, security cameras, the connected home, and even drones.
This shows that Skyworks continues to actively plant new growth seeds that could help it continue its strong growth down the road.
Looking ahead
As usual, Skyworks' management provided investors with its forecast for the coming quarter. Despite the company's long-term bullishness on its business prospects, CEO David Aldrich thinks that the coming quarter is going to be a bit lighter than usual on the growth front, saying:
Now despite these positive long-term drivers, this year the March quarter, which is normally a seasonally soft period, has been affected by above-normal forecast reductions and inventory adjustments at one of our top customers. This dynamic has been well-documented across the supply chain over the last few weeks.
It's highly likely that the customer he is calling out is Foxconn, the contract manufacturer for Apple (AAPL +0.65%) products. The iDevice maker is forecasting that its sales will decline in the coming quarter, which is a tough hurdle for Skyworks to overcome as Foxconn made up 44% of its total revenue last year.
Despite having that headwind, Skyworks is still projecting that it will grow, albeit at a more modest rate than investors have seen recently. In total, it expects that revenue will grow to $775 million for the coming quarter and its non-GAAP diluted earnings per share will land at $1.24. In the year-ago period its revenue was $762 million and its earnings were $1.15, so the company is forecasting modest earnings growth of roughly 8% per share. It also believes that its margins will continue to hold up well as they are calling for gross margins in the range of 50.5% to 51%.
Skyworks isn't the only Apple supplier that's feeling the pinch, as motion-chip specialist InvenSense is also forecasting a difficult quarter up ahead. It's times like these when investors should cheer the fact that Skyworks continues to look for ways to diversify away from its revenue dependence on smartphone sales.
