Apple supplier Skyworks reports mixed Q2 results amid inventory challenges

Skyworks Solutions, Inc. (Nasdaq: SWKS), a leading innovator in high-performance analog and mixed-signal semiconductors, recently announced its second fiscal quarter results for the period ending March 29, 2024.

1. Financial Performance:
   • Revenue: Skyworks reported Q2 revenue of $1.046 billion.
   • Earnings Per Share (EPS):
     • GAAP Diluted EPS: $1.14
     • Non-GAAP Diluted EPS: $1.55
   • Operating Cash Flow: The company generated quarterly operating cash flow of $300 million and quarterly free cash flow of $273 million.
   • Dividend: Skyworks’ board of directors declared a cash dividend of $0.68 per share of common stock, payable on June 11, 2024.
2. Challenges in the Mobile Sector:
   • Skyworks faced excess inventory challenges in the mobile business during Q2. This impacted demand, resulting in below-normal seasonal trends.
   • Despite these challenges, the company remains optimistic about its long-term prospects.
3. Strategic Initiatives:
   • 5G Smartphone Integration: Skyworks delivered integrated platforms to leading 5G smartphone original equipment manufacturers (OEMs), including flagship and mid-tier launches at Apple, Samsung, Google, and Oppo.
   • Automotive Market Expansion: The company initiated new programs in the automotive sector, including infotainment systems, traction inverters, cloud-enhanced driver-assist, and CV2X on-board units.
   • Audio SoC Design Wins: Skyworks secured several audio system-on-chip (SoC) design wins for wireless gaming and soundbars with PlayStation® and Samsung.
4. Outlook for Q3 FY24:
   • Skyworks expects Q3 revenue to be approximately $900 million, with non-GAAP diluted EPS projected at $1.21.
   • The mobile business is anticipated to decline sequentially due to excess inventory clearance, while broad markets may experience modest growth.

Skyworks Solutions continues to navigate challenges in the mobile sector while strategically expanding into automotive applications and capitalizing on 5G opportunities.

What are Skyworks main products?

1. RF Front-End Modules (FEMs):
   • Skyworks is a leader in RF front-end solutions. Their FEMs integrate power amplifiers, low-noise amplifiers, switches, filters, and other components into a single module. These modules enhance wireless communication performance in mobile devices, IoT devices, and automotive applications.
2. Power Amplifiers (PAs):
   • Skyworks produces high-performance PAs for cellular, Wi-Fi, Bluetooth, and other wireless standards. These PAs amplify signals to improve transmission range and data rates.
3. Filters and Duplexers:
   • The company designs and manufactures filters and duplexers used in mobile phones, base stations, and other wireless communication systems. These components help manage signal frequencies and prevent interference.
4. Connectivity Solutions:
   • Skyworks offers connectivity solutions for Wi-Fi, Bluetooth, Zigbee, and other wireless protocols. Their chips enable seamless wireless communication between devices.
5. Discrete Components:
   • Skyworks produces individual components such as diodes, transistors, and capacitors. These are essential building blocks for various electronic circuits.
6. Automotive Solutions:
   • Skyworks has expanded into the automotive market, providing solutions for infotainment systems, telematics, and advanced driver assistance systems (ADAS).
7. IoT and Smart Home Devices:
   • The company’s chips are used in smart home devices, wearables, and other IoT applications. These include sensors, controllers, and communication modules.
8. Industrial and Infrastructure Applications:
   • Skyworks serves industrial and infrastructure sectors by providing reliable and efficient semiconductor solutions for applications like industrial automation, smart meters, and base stations.

How does Iphone decline sales impacting its revenue?

Iphone is one of the main customer of Skyworks. As Iphone sales decline its directly impacting the revenue of this company.

1. Q2 2024 Results:
   • Services Revenue: Apple’s services business, which includes Apple TV+, Apple Music, and iCloud, grew by 14.2% to reach a new record of $23.87 billion in the quarter ending March 30, 2024.
   • iPhone Sales Decline: However, the core iPhone business faced challenges. iPhone sales dropped by 10.5%, resulting in $45.96 billion in revenue for the same period.
   • China Market: Sales in Apple’s Greater China region (including Hong Kong and Taiwan) declined by 8%, reaching $16.4 billion.
2. Overall Impact:
   • The decline in iPhone sales is the primary reason for Apple’s 4% decrease in revenue compared to the previous year. This marks the fifth consecutive quarter of revenue decline for the tech giant.
   • Despite this, Apple’s net income remained strong at $23.6 billion for the quarter, with earnings per share of $1.53.
3. Future Outlook:
   • Apple expects double-digit growth in services revenue for the June quarter, similar to the rates seen in the two most recent quarters.
   • The company continues to innovate, launching products like the Apple Vision Pro headset, which enterprises are adopting for various applications.

What is the future outlook for Skyworks?

As of the end of fiscal year 2023, Skyworks Solutions has demonstrated resilience and operational excellence despite macroeconomic headwinds. Let’s take a closer look at their recent performance and future outlook:

1. Recent Performance (Q4 FY23):
   • Revenue: In the fourth fiscal quarter of 2023, Skyworks reported revenue of $1.219 billion¹.
   • Earnings Per Share (EPS):
     • GAAP Diluted EPS: $1.52
     • Non-GAAP Diluted EPS: $2.20
   • Free Cash Flow: The company generated record free cash flow well above $1.6 billion for fiscal 2023, representing a 76% year-over-year increase.
   • Business Highlights:
     • Secured 5G content for premium Android smartphones, including Google Pixel 8 and Samsung Galaxy S23 FE.
     • Accelerated design wins in Wi-Fi technology.
     • Enabled next-generation smart meters and environmental monitors.
2. First Fiscal Quarter 2024 Outlook:
   • Skyworks expects Q1 FY24 revenue to be in the range of $1.175 billion to $1.225 billion.
   • Non-GAAP diluted earnings per share are anticipated to be approximately $1.95 at the mid-point of the revenue range.
   • Mobile business momentum is expected, while broad markets may continue to digest excess inventory in select segments.
3. Analyst Forecasts:
   • Analysts have varying opinions on Skyworks’ future stock price. The average 12-month price target is $115.39, with a low estimate of $87 and a high estimate of $140.

Financial Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Please consult a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any losses incurred as a result of using the information provided herein