Skyworks Exceeds Q3 FY16 Expectations

Investment Analysis Clubs Saul’s Investing Discussions
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Skyworks Solutions, Inc. (SWKS) an innovator of high performance analog semiconductors connecting people, places and things, today reported third fiscal quarter results for the period ending July 1, 2016. Revenue for the third fiscal quarter was $751.7 million, exceeding the Company’s guidance and First Call consensus estimates.

On a GAAP basis, operating income for the third fiscal quarter of 2016 was $238.6 million with diluted earnings per share of $0.97. On a non-GAAP basis, operating income for the third fiscal quarter of 2016 was $274.7 million with non-GAAP diluted earnings per share of $1.24, $0.03 better than guidance and First Call consensus estimates.

“Skyworks exceeded expectations in the third fiscal quarter of 2016 driven by increasing global demand for high-speed connectivity coupled with strong operational execution,” said Liam K. Griffin, president and chief executive officer of Skyworks. “Our highly integrated solutions are enabling a broad array of applications ranging from streaming media to e-commerce to cloud-based services. Specifically, we are capturing performance-driven content gains within the world’s premium mobile platforms while expanding our customer and end-market reach across the Internet of Things. Accordingly, we are planning for sustained market outperformance with operating leverage.”

Third Fiscal Quarter Business Highlights

Supported Huawei’s P9 platform incorporating 10 unique devices including SkyOne® systems across low, mid and high bands
Launched advanced carrier aggregation capabilities at multiple smartphone OEMs
Ramped SkyBlue™ technology enabling enhanced power management and LED flash drivers
Commenced volume production of proprietary diversity receive solutions
Expanded antenna tuning portfolio enabling higher data rates and smaller footprints
Secured telematics design wins at Continental for 4G LTE automotive systems
Released Bluetooth® Low Energy long range modules for industrial applications
Enabled connectivity within leading always-listening virtual assistant platforms
Supported world’s first head cam with LTE connectivity and 4K streaming video
Powered enterprise radios for the Google 3.5 GHz band ecosystem
Captured digital attenuator and multimode repeater design wins at Audi
Exceeded two billion cumulative shipments of filters from Panasonic joint venture
Repurchased 3 million shares of common stock

Fourth Fiscal Quarter 2016 Outlook

We provide earnings guidance solely on a non-GAAP basis because certain information necessary to reconcile such guidance to GAAP is difficult to estimate and dependent on future events outside of our control. Please refer to the attached Discussion Regarding the Use of Non-GAAP Financial Measures in this press release for a further discussion of our use of non-GAAP measures, including quantification of known expected adjustment items.

“Based on our broad market traction and new program ramps as well as analog and mixed signal content gains, we expect a strong second half of 2016 with further operational improvements,” said Donald W. Palette, executive vice president and chief financial officer of Skyworks. “In particular, for the fourth fiscal quarter of 2016, we anticipate revenue to be up 10 to 11 percent sequentially to $831 million at the midpoint with gross and operating margin expansion driving non-GAAP diluted earnings per share of $1.43. Further, given the confidence in our business model and plans to enhance cash returns to our shareholders, today we are separately announcing that our Board of Directors has authorized a dividend increase and a new stock repurchase program.”

http://finance.yahoo.com/news/skyworks-exceeds-q3-fy16-expec…

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Down around 5% in immediate after-hours trading.

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For the love of all things bananas, can we please refrain from posting what non-thinking robotic algorithms do nano-seconds after a report is released? All it does is make Monkey start screeching in anxiety and out of ignorance. This kind of post is full of sound and fury signifies nothing. Sometimes a huge drop after hours is followed by a gain the next day. Or is reversed, inversed, or spiraled out of control due to conference call info. Noise.

So please, kind humans, let’s keep this board quiet enough so that all the jungle animals can get a little rest. Let the hyenas over there in the desert make all the noise while we focus on what was said about the business itself more clearly. Please and thank you.

Monkey

(long SWKS)

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I thought is was interesting in an obfuscating, misleading and contemptful way that Skyworks compared their numbers against expectations in their release but made not one single comparison vs year on year quarters in their commentary. The after hours market let them know what they thought. FWIW year on year they are down 7.2% on revenues and ~10% on EPS.
Ant

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Here are the numbers as I have them:


Revenues (millions)		Q1		Q2		Q3		Q4			
2013				453.7		425.2		436.1		477.0		
2014				505.2		481.0		587.0		718.2		
2015				805.5		762.1		810.0		880.8
2016				926.8		775.1		751.7

EPS (non-GAAP)		        Q1		Q2		Q3		Q4			
2013				0.55		0.48		0.54		0.64		
2014				0.67		0.62		0.83		1.12	
2015				1.26		1.15		1.34		1.52
2016				1.60		1.25		1.24

Current (2016 Q3 Earnings):

Revenue Growth (millions)
2015 Q3 TTM Revenue = 3095.8
2016 Q3 TTM Revenue = 3334.4
Year Over Year Revenue Growth =7.7%, previous quarter 18.1%

EPS Growth (non-GAAP)
2015 Q3 TTM Earnings = 4.87
2016 Q3 TTM Earnings = 5.61
Year Over Year EPS Growth = 15.2%, previous quarter 31%

P/E (Check Current Price) = 70.92/5.61 = 12.64

1YPEG = 12.64/15.2 = 0.83

Matt
Long SWKS
MasterCard (MA), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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For the love of all things bananas, can we please refrain from posting what non-thinking robotic algorithms do nano-seconds after a report is released?

Why? The robots will be trading tomorrow as well when markets open. More often than not, AH trading is a statistically significant indicator of what the stock will do tomorrow. It is an interesting nugget of information.

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Down 10% this morning. Somebody didn’t like something.

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SWKS inventories up 35% quarter over quarter.

Rob

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SWKS inventories up 35% quarter over quarter.

Rob

There are going to be hiccups from quarter to quarter. I bought some (more) SWKS today (and I’m happy to buy more if it keeps going down), because I’m playing the long game. I believe that SWKS will be a significant player/leader in telecom/IoT semiconductors for many years, and it’s bargain-priced right now. Could it become more bargain priced? I’m okay if it does, because as I said, I’ll buy more in that case. I’m comfortable that buying at today’s price will look pretty good 3-5 years from now.

iPhone 7 adoption will likely surprise people to the upside, IMO. Expectations seem to be down because AAPL stock is down from its high (makes little sense, but that’s Mr. Market sometimes). I generally prefer value index funds, but when GARP stocks like SKX, SWKS, and GILD go on deep discount, I can’t help myself. LGIH is the only GARP stock that I have that hasn’t gone on sale (started in 2016, thanks to Saul), but I’m ready if it does. Or doesn’t.

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Honestly, I’m not too happy with the new SWKS management. Yes, SWKS has the top of the game supply chain and therefore high margin, but other than that they’re not doing much in terms of staying competitive in this tough industry.

The whole game is changing (i.e. IoT) and SWKS is seeing shift in its revenue mix, (i.e. broad market) and this will likely continue in the near future. Their competitors are doing bunch of M&A and spending more on R&D, but SWKS is sitting there happy with zero debt, bunch of cash, raising dividends, share purchase program, etc. It’s acting like a big giant blue chip company!

SWKS is not a blue chip company (yet). SWKS is a growth play in a tech industry. I’m not buying that ‘SWKS is providing complex solutions to client and that’s how they stay competitive’ argument any more. The game is changing. RF market is in maturity part of the cycle but IoT is coming big time. They should be looking around for M&A targets to be prepared for the new game. If Liam just sits there pretending everything is fine, I should be looking around for other investment options.

Hex

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SWKS inventories up 35% quarter over quarter. - Rob

I saw elsewhere earlier that the inventories might be the main reason for the drop. Apparently a lot of questions were coming in about that and it seems possible that algorithms might seize on that. Sell first, ask questions later?

However, I thought they answered questions about that pretty well on the conference call. I believe they said it was mostly materials to be used to manufacture components for which they have orders over the next two quarters. That being the case, it seems like that would be a good indicator rather than a problem.

Steve

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Here’s a good discussion from SA. I actually don’t think the inventory point is an issue of concern. I do think the technology lag in BAW is though as well as the painfully slow pace of diversification. The article also focuses on Hex’ point about blue chip behavior.
Ant

http://seekingalpha.com/article/3990687-can-someone-tell-sky…

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Hex,

While their quarter was disappointing after delivering such strong growth over the past few years, I can’t say I am disappointed with their capital allocation.

Your post seems to indicate that they should be doing more active on the M&A front. My response would be be careful what you wish for. There are many studies out there on M&A and the general conclusion seems to be that the majority are failures. For example, a Harvard Business Review article from last year pegged the failure rate between 70%-93%. A KPMG study suggests that 83% fail to boost shareholder returns. Therefore, I am actually a fan of a disciplined approach to M&A.

You also mention that their competitors are spending more on R&D. How are you measuring that? Total dollars? As a % of revenue? SWKS is actually increasing its investment in R&D overall and as a % of revenue.

As for your comment that “SWKS is sitting there happy with zero debt, bunch of cash, raising dividends, share purchase program, etc. It’s acting like a big giant blue chip company.” So they are generating enough cash that they don’t have to take on debt, are investing in R&D, and being responsible by returning excess cash that they don’t think they can get an adequate return on to their shareholders. That actually sounds pretty good to me as a shareholder. (I guess they could always use the excess cash on $6,000 shower curtains and multi million dollar parties for their wives a la Dennis Kozlwoski of TYCO fame but I would prefer the current course of action.)

I would also question whether those things are also characteristic of “a giant big blue chip company” Most big blue chips actually have a significant debt load. Many of the most successful tech companies didn’t use much debt early on. A lot of them also had / have a ton of cash (Google, Apple, etc). I think use of share repurchases is all over the map although use in smaller high tech companies is probably less prevalent than overall.

Regarding the new CEO, he has only been CEO for 2.5 months so even if you are looking for more M&A and investment in R&D I would think you would give him a few quarters at a minimum.

Regards,
Greg

Long Skyworks

Community Fool

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