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Skyworks (SWKS) Q2 Earnings Top, Revenues Lag Estimates

Premier semiconductor manufacturer Skyworks Solutions Inc SWKS reported strong second-quarter fiscal 2016 results, driven by superior execution of operational plans and healthy demand patterns. GAAP net income in the reported quarter significantly improved to $208.1 million or $1.08 per share from $166.5 million or 85 cents per share in the year-earlier quarter. The rise was primarily driven by higher revenues and lower costs of goods sold.

Excluding non-recurring items, non-GAAP earnings were $242.3 million or $1.25 per share compared with the prior-year figure of $224.6 million or $1.15 per share. Recurring earnings (with stock-based compensation adjustments) of $1.16 per share marginally beat the Zacks Consensus Estimate by a penny.

Quarter Details

Skyworks reported fiscal second quarter revenues of $775.1 million, up 1.7% from the year-ago quarter and in line with its prior guidance. Reported revenues lagged the Zacks Consensus Estimate of $777 million. Going by the product mix, power amplifiers represented 17% of revenue, integrated mobile systems and broad markets accounted for 58% and 25%, respectively.

Skyworks continues to capitalize on global mobile connectivity and demand for high-performance solutions across a diverse set of verticals and the Internet of Things market. As customers implement the next level of functionality for higher bandwidth, system-level solutions and higher levels of integration are increasing in demand. These in turn are playing directly into Skyworks' strengths and generating huge demand for its products.

Non-GAAP gross profit in the reported quarter was $393.6 million compared with $356.0 million in the year-ago quarter. Non-GAAP gross margin improved 410 basis points year over year to 50.8%, driven by new product launches, enhancements in the filter business and superior operational efficiencies. Non-GAAP operating income increased 10.1% year over year to $285.0 million, leading to non-GAAP operating margin of 36.8% compared with the respective tallies of $258.9 million and 34.0% in the year-earlier quarter.

Balance Sheet & Cash Flow

The company ended the quarter with cash and cash equivalents of $1,177.5 million and a zero debt balance. Skyworks generated $154.5 million of cash from operations during the quarter.

The company repurchased 2 million shares during the quarter at an average price of $67.50 per share. Capital expenditures for the quarter were $37 million. Skyworks announced a cash dividend of 26 cents per share, payable on Jun 2, 2016, to shareholders of record on May 12.

Outlook
    
Going forward, Skyworks is well positioned to capitalize on the Internet of Things with healthy demand for high-performance wireless solutions in new markets. The company continues with its strategy of providing custom integrated solutions and diversifying its business into high-margin verticals. Leveraging on product innovation and broad-based customer demand, the company appears poised for sustainable above-market growth in the near term. We are impressed with the company’s robust quarterly results, its deep customer engagements, clear visibility into future generation architectures, and internal margin enhancement initiatives.

The company expects third-quarter fiscal 2016 revenues to be $750 million, with non-GAAP earnings of $1.21 per share.

Skyworks currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include Advanced Micro Devices, Inc. AMD, Broadcom Limited AVGO and GigPeak, Inc. GIG, each carrying a Zacks Rank #2 (Buy).

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