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Skyworks Solutions Inc. Delivers on Its Promises

Skyworks Solutions (NASDAQ: SWKS) reported better-than-expected fiscal third-quarter results on Thursday, July 20. The specialty semiconductor manufacturer credited its strong performance to the high demand that it is seeing for its ultra-efficient connectivity solutions.  

Let's take a closer look at what happened this quarter and learn what Skyworks' investors should expect from the company moving forward.

Image source: Getty Images

Skyworks Solutions' fiscal Q3: The raw numbers

 Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$901 million

$752 million

20%

Non-GAAP operating income

$333 million

$275 million

21%

Non-GAAP net income

$293 million

$238 million

23%

Non-GAAP EPS

$1.57

$1.24

27%

Data source: Skyworks Solutions.

What happened with Skyworks this quarter?

  • Revenue grew 20% year-over-year to $901 million. This figure easily surpassed management's guidance of $890 million and also topped Wall Street's expectation.
  • Non-GAAP margin performance was mixed but remained strong in absolute terms. Gross margins fell by 20 basis points to 50.7% while operating margin expanded by 50 basis points to 37%. 
  • Cash flow from operations surged 33% to $246 million. 
  • Non-GAAP earnings per share of $1.57 were a nickel ahead of management's forecast and Wall Street's consensus estimate.
  • Skyworks announced a 14% increase to its dividend. The new quarterly payout is $0.32 per share.
  • Management spent $129 million to repurchase 1.3 million shares during the quarter. When combined with previous buybacks, Skyworks' diluted share count has fallen by more than 2% over the past year.
  • Despite returning 60% of its free cash flow to shareholders, Skyworks' balance sheet remains very healthy with more than $1.4 billion in cash and no debt. Management stated that roughly half of its cash balance is held offshore.

What management had to say

CEO Liam Griffin said that the company's results were strong across the board and that it is experiencing growth in a broad range of product categories. In particular, he noted the company is seeing increasing demand for its products in end markets such as smartphones, virtual assistants, vehicle-to-vehicle communicators, healthcare, security systems, and home networking equipment.

As to why Skyworks, in particular, is able to take advantage of these growth opportunities, Griffin offered the following commentary:

Our outperformance is being driven by global demand for Skyworks' highly integrated and ultra-efficient connectivity engines. As system-level complexity and performance requirements intensify across mobile and Internet of Things ecosystems, we are extending our product reach and capturing more content per platform.

Griffin doesn't believe that the company's growth is going to come to a stop anytime soon, either. In fact, he remains a steadfast believer that Skyworks remains in the "very early innings" in a number of potential growth categories:

Further, we are well positioned to capitalize on the rapidly approaching 5G technology wave-enabling new markets from autonomous vehicles to emerging segments in artificial intelligence, robotics, and virtual reality.

Looking forward

Kris Sennesael, Skyworks' CFO, feels confident that the good times will continue into the third quarter. Specifically, he is projecting that revenue will grow 17% to $980 million. What's more, gross and operating margins are expected to expand. When combined, the company believes that non-GAAP diluted earnings will grow 19% to $1.75. This guidance compares favorably to what analysts are currently expecting.

While Skyworks' results clearly show that the company continues to win, it is worth highlighting that nearly 40% of the company's sales are still directly tied to its largest customer, Apple. That's not terrible news since another upgrade super-cycle could be in the works with the launch of the iPhone 8 expected later this year. However, investors need to be aware that the company's results could once again decelerate down the road if the Mac maker's products fail to live up to expectations. 

Nonetheless, Skyworks' results and forecast once again show that it remains the go-to partner for connectivity solutions. With billions of devices set to come online in the coming years, Skyworks continues to prove that it has the wind at its back.

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Brian Feroldi owns shares of AAPL. The Motley Fool owns shares of and recommends AAPL and SWKS. The Motley Fool has the following options: short November 2017 $95 calls on SWKS and short November 2017 $92 puts on SWKS. The Motley Fool has a disclosure policy.