Skyworks Solutions (SWKS 0.15%) released its fiscal second-quarter 2016 earnings results on Thursday after the market closed. Investors had been bracing themselves for a muted quarter, as the much-publicized slowdown in smartphone sales was expected to weigh heavily on the semiconductor company's results.

On its last earnings call, Skyworks' management team projected that its Q2 revenue would land around $775 million, and that non-GAAP diluted earnings per share would come in at $1.24. While that forecast represented modest year-over-year growth, it was a far cry from the torrid growth rate that investors had seen in recent years, and represented a significant deceleration.

Let's parse the company's results to see if the component manufacturer was able to eke out some growth this quarter, despite the tough environment.

The raw numbers

 MetricQ2 2016Q2 2015Change %
Revenue $775.1 million $762.1 million


Non-GAAP Operating Income $285 million $258.9 million 10%
Non-GAAP Net Income $242.3 million $224.6 8%
Non-GAAP EPS $1.25 $1.15 9%


What happened this quarter?
Once again, management's forecast proved to be spot-on; the actual results came in a hair better than the company was guiding for. CEO David Aldrich had this to say:

We delivered another solid financial performance for the second fiscal quarter of 2016, posting year-over-year growth in revenue profitability and earnings, even as we navigated through a combination of inventory adjustments and forecast reductions at one of our major customers.

It's highly likely that the major customer in question is Foxconn, the China-based contract manufacturer for Apple (AAPL -1.10%). To describe it as merely "major" might be understating reality, as sales to Foxconn comprised more than 44% of Skyworks' total revenue last year. Thus, when Apple experiences weak demand for its products, Skyworks results are heavily affected.

Beyond the impacts of Apple's troubles, the company highlighted a number of key developments that it achieved during the quarter that should position it for continued growth. In particular, Skyworks continues to see success in entering new markets as it announced design wins with an industrial GPS tracking device, a connected home hub, a new smartwatch platform, and others.

In addition, the company continues to deepen its relationships with several key smartphone providers. As an example, the company increased its component presence in the Samsung Galaxy S7 smartphone by 20%.


Margin checkup
Skyworks continues to prove that its products are so highly valued by its customers that it can flex its muscles a bit on pricing. That's an impressive feat for any company, let alone one that operates in the semiconductor space.

During the quarter, non-GAAP gross margins jumped 410 basis points year-over-year to 50.8%. That allowed the company to produce a non-GAAP operating margin of 36.8%, up 280 basis points from the same quarter last year.

Taking care of shareholders
After taking a quarter off from share repurchases, Skyworks decided to take advantage of its weak stock price, buying back 2 million shares during its fiscal Q2 at an average price of $67.50.

It's clear that management sees value in the stock right now. Don Palette, Skywork's CFO, had this to say on the conference call: "Given our confidence in our long-term business trends, we expect to continue to be very active with our share repurchase activity at current levels."

It's worth pointing out that the company's balance sheet can easily support more repurchases, as it ended the quarter with $1.2 billion in cash and no debt.

What's next for Skyworks?
The company gave investors a preview of what to expect from next quarter's report. Here's what management is guiding for in the quarter ahead:

 MetricQ3 2016Q3 2015Change %
Revenue $750 million $810 million (7.4%)
Non-GAAP EPS $1.21 $1.34 (9.7%)


As you can see, the company is projecting that revenue and earnings are both going to decline next quarter, which is not something that Skyworks' investors are used to seeing.

Skyworks is blaming its weak forecast on Apple, which makes sense given that during the iDevice maker's most recent quarterly report, it stated that it was reducing its channel inventory by $2 billion this quarter. Considering how much of Skyworks' top line is dependent on iPhone sales, it shouldn't be surprising to investors that the company is projecting a decline.

On the positive side, the company believes it will continue to grow in other areas of its business, and it's also forecasting that gross margins will continue to improve. In fact, absent the struggles of Apple, Skyworks believes its total revenue would have actually increased by 10% during the quarter.

Despite the downbeat guidance, CEO Aldrich did his best to remind investors that the company growth story is still on track: "Looking ahead, we are well positioned to continue capitalizing on the powerful connectivity and Internet of Things trends as we deliver higher value solutions with superior performance and functionality across new markets, applications and customers."