SWKS Financial Analysis

Analysis Date: 2/6/2025

Business Model

Skyworks Solutions, Inc. is a leading developer, manufacturer and provider of analog and mixed-signal semiconductors and solutions for numerous applications including Mobile and Broad Markets. Revenue is generated through sales of these products to OEMs through distributors and direct customers.

Revenue Sources

• Mobile (67% of Q1 Fiscal 2025 revenue): Revenue from products sold for mobile applications.
• Broad Markets (33% of Q1 Fiscal 2025 revenue): Revenue from products sold for aerospace, automotive, broadband, cellular infrastructure, connected home, defense, entertainment and gaming, industrial, medical, smartphone, tablet, and wearables applications excluding mobile.

Revenue Distribution by Channel

• Distributors: $950.8 million in Q1 Fiscal 2025
• Direct Customers: $117.7 million in Q1 Fiscal 2025

Income Statement Analysis

• Net Revenue decreased by 11.1% year-over-year, indicating decreased demand, primarily in mobile products. (Con)
• Cost of Goods Sold decreased by 9.8% year-over-year, less than the decrease in revenue, indicating potential margin pressure. (Con)
• Gross Profit decreased by 12.8% year-over-year, reflecting the revenue decline and slight gross margin contraction. (Con)
• Research and Development expenses increased by 15.2% year-over-year, showing continued investment in future products and technologies. (Pro)
• Selling, General, and Administrative expenses increased by 4.8% year-over-year, indicating increased operational costs. (Con)
• Operating Income decreased significantly by 30.0% year-over-year, driven by lower revenue and increased operating expenses as a percentage of revenue. (Con)
• Interest Expense decreased by 32.0% year-over-year, likely due to debt repayment in prior periods. (Pro)
• Other Income, Net increased significantly due to higher interest income, benefiting from higher cash and investment balances and potentially higher interest rates. (Pro)
• Provision for Income Taxes increased by 39.2% year-over-year, leading to a higher effective tax rate of 14.9% compared to 8.1% in the previous year. (Con)
• Net Income decreased by 29.9% year-over-year, reflecting the overall decline in profitability. (Con)

Balance Sheet Analysis

• Cash and Cash Equivalents increased significantly by 17.1%, indicating strong cash generation in the quarter. (Pro)
• Marketable Securities - Current decreased by 29.6%, potentially indicating use of these securities for operational or investment purposes. (Neutral)
• Inventory decreased by 10.8%, which is a positive sign indicating better inventory management and potentially normalizing demand. (Pro)
• Property, Plant, and Equipment, Net slightly decreased, consistent with depreciation exceeding capital expenditures. (Neutral)
• Goodwill remained unchanged, indicating no new acquisitions or impairment in this quarter. (Neutral)
• Intangible Assets, Net slightly decreased due to amortization. (Neutral)
• Accounts Payable decreased by 14.3%, potentially reflecting improved payment terms or lower procurement activity. (Neutral to Con depending on reason)
• Accrued Compensation and Benefits decreased by 23.5%, possibly due to lower accruals for bonuses or other employee benefits. (Neutral to Con depending on reason)
• Long-Term Debt remained relatively stable. (Neutral)
• Total Stockholders' Equity slightly increased, primarily driven by net income. (Pro)

Capital Allocation

Skyworks is committed to returning value to stockholders through dividends and share repurchases. They declared a cash dividend of $0.70 per share, payable on March 17, 2025. They also authorized a new $2 billion stock repurchase program, succeeding the previous $2 billion program. The company intends to fund the repurchase program using working capital. Management is focused on strategic investments in technology and product roadmaps, as evidenced by consistent R&D spending and planned increases in operating expenses to support these investments.

Management Commentary

Skyworks started the new fiscal year with solid results, growing revenue 4% sequentially and surpassing the midpoint of our guidance.

We have observed consistent improvement in demand indicators within Broad Markets.

We posted another quarter of impressive free cash flow with margins exceeding 30%.

For the March quarter, we expect revenue between $935 million to $965 million, with non-GAAP diluted earnings per share of $1.20 at the mid-point of the revenue range.

We anticipate a mid-to-high teens sequential decline in mobile, consistent with historical seasonal patterns.

As it relates to the upcoming phone cycle expected to be launched in the fall of twenty twenty five... our content position is expected to be down 20% to 25%.

Overall Sentiment: Mixed. Management expresses confidence in broad markets and cash generation, but acknowledges challenges in mobile segment, particularly with content loss at a major customer. Outlook for next quarter indicates seasonal revenue decline. Overall sentiment leans towards cautious due to the announced content loss impacting future revenues, despite positive aspects in other areas.

Recommendation

Rating: Hold

Reason for Rating: Hold recommendation is appropriate due to mixed signals. Strong cash flow and diversification efforts in Broad Markets are positives. However, the significant revenue decline expected in FY2026 due to content loss at a major customer creates near-term headwinds. The market needs more clarity on the company's ability to mitigate this revenue loss through diversification and new product cycles before a more positive rating can be considered.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/6/2025, 9:59:37 AM