Skyworks Reports 2018 Q2 Results

Investment Analysis Clubs Saul’s Investing Discussions
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Shares are almost exactly flat in AH trading. From the press release:

Delivers Revenue of $913.4 Million, up 7% Y-o-Y
GAAP Operating Margin 31.7%; Non-GAAP Operating Margin 36.3%
GAAP Diluted EPS $1.50, up 25% Y-o-Y; Non-GAAP Diluted EPS $1.64, up 13% Y-o-Y
Generates $434.2 Million in Cash Flow from Operations

…

“Skyworks delivered record top and bottom line results for the March quarter driven by global demand for our high performance connectivity engines,” said Liam K. Griffin, president and chief executive officer of Skyworks. “We demonstrated continued strength in our financial fundamentals as improvements in profitability directly translated into cash flow growth. At the same time, our solutions are enabling an expanding and diversified set of end markets spanning the Internet of Things, automotive, home security and factory automation. With the launch of Sky5™, Skyworks is well positioned to capitalize on the transformational applications ahead - powering 5G networks and facilitating instantaneous, reliable and secure wireless connectivity.”

And what the company said on guidance:

“Strong growth in our broad market portfolio is mitigating the near term softness at leading smartphone customers and the trade restrictions imposed by the U.S. government on a Chinese OEM,” said Kris Sennesael, senior vice president and chief financial officer of Skyworks. “Specifically, for the third fiscal quarter we expect revenue in the range of $875 to $900 million, with non-GAAP diluted earnings per share of $1.59. Further, based on new program ramps heading into the second half of the calendar year, we anticipate a resumption of sequential revenue growth in the September quarter with sustained momentum into the December period.”

Read the entire release at http://investors.skyworksinc.com/news-releases/news-release-…

Guidance for next quarter is essentially flat YOY, but then growth is expected to resume. Still, for its P/E ratio, I find it quite a value and expect it to be a very nice long term story. But, individual quarters can still be quite lumpy.

Here’s a look at the numbers:


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		835.4
2017				914.3		851.7		900.8		984.6
2018				1,051.9		913.4

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		1.47
2017				1.61		1.45		1.57		1.82
2018				2.00		1.64

Operating Margin (non-GAAP)	Q1		Q2		Q3		Q4
2016						36.8		36.5		38.1
2017				38.8		36.7		37.0		38.5
2018				39.4		36.3

2018 Q2 Earnings (Current):

Revenue Growth (millions)
2017 Q2 TTM Revenue = 3,353.1
2018 Q2 TTM Revenue = 3,850.7
YOY TTM Revenue Growth = 14.8%, previous quarter 15.6%

EPS Growth (non-GAAP)
2017 Q2 TTM Earnings = 5.77
2018 Q2 TTM Earnings = 7.03
YOY TTM EPS Growth = 21.8%, previous quarter 22.8%

Non-GAAP P/E (Check Current Price) = 92.25/7.03 = 13.12

Trailing 1Y PEG = 13.12/21.8 = 0.60

Matt
Long SWKS
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx

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Skyworks took a hit somewhat earlier, in reaction to lower than expected iPhone X sales, which I think gives us an opportunity to buy some shares now at a better price.

The problem for me is that this is happening right when my current holdings have become long-term capital gains, and I’d been thinking about cutting back from a 6% stake.

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I listened to the call driving back to Chattanooga from Oak Ridge. Main takeaways I took from the call:

Skyworks will definitely be buying back in the low $90's and from the answer it sounded like they think that is a great price.

Once 5G is rolling out, they seemed to imply that returning to double-digit revenue growth is almost a no-brainer inevitability. They mentioned multiple times that 5G will simply be addictive, as new handsets that are equipped with 5G will also include 3G and 4G equipment.

They talked a bit about infrastructure (cell tower radios, mostly, I guess). Not sure how much of that they already do, but it sounded like with 5G they may be doing more.
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Not sure how the formatting on that last reply ended up with the table formatting, but here it is again.

I listened to the call driving back to Chattanooga from Oak Ridge. Main takeaways I took from the call:

Skyworks will definitely be buying back in the low $90’s and from the answer it sounded like they think that is a great price.

Once 5G is rolling out, they seemed to imply that returning to double-digit revenue growth is almost a no-brainer inevitability. They mentioned multiple times that 5G will simply be addictive, as new handsets that are equipped with 5G will also include 3G and 4G equipment.

They talked a bit about infrastructure (cell tower radios, mostly, I guess). Not sure how much of that they already do, but it sounded like with 5G they may be doing more.

And now that the transcript is out:
Here’s a link to the transcript:
Skyworks Solutions (SWKS) Q2 2018 Results - Earnings Call Transcript https://seekingalpha.com/article/4169623?source=ansh $SWKS

And pasting a few of the parts relating to my other main points that I recalled:

And so the opportunities to be in the double digits top line are absolutely there. When you look at 5G, a couple of basics here that we want to make sure we understand. 5G is additive to current 4G and 3G phones. So when you have a device today that you’re carrying around today, it doesn’t have any 5G technology.

It has a lot of great technology a lot of content opportunity, but it’s not 5G. So 5G is incremental adds to what you see today. It’s new frequencies, the last question that we had from the last call talked about what do you see 3 gig and above? We see new technology, new waveforms, new opportunities to filter to transmit to receive, very complex, and you have to do that in a device that carries 4G and 3G as well.

And then the other thing that 5G will do is create network capacity expansion that will allow more and more independent IoT devices to join the network. So there’s a lot there, we’re excited about it, it’s going to require some incredible technology investments and scale, and some of the smartest people in our company to work on this. So we’re looking forward to it, it will be incremental, and it will be one of the key catalysts to getting to that double-digit growth.

And to make all those really interesting things happen in 5G, you do need that network upgrade. So we’re working on that in parallel with the great stuff that we’re doing inside the handset and inside the IoT devices. And I think the infrastructure market has been somewhat stagnant for a while, the 5G step-up is a way to really light the fire again in that space, and we’ll be there.

When you get to 5G, you’ve got a lot of new technology. It’s higher frequency. There’s more challenges, there’s more issues, and there hasn’t been – the solutions are not laid out yet. So everybody’s going to go at it somewhat differently. You will need filtering, of course. The filtering could be Bulk Acoustic Wave, or BAW. It could be Tc-SAW, Temperature Compensated SAW. But it will be high-end, it will be high-performance. So I think there’ll be some differentiation there of the companies that can provide not just the filter, but the complete solution to navigate the challenges within 5G. And it’s going to be a great opportunity for us. (Volfan84 note/interpretation from the audio: this is our wheelhouse/where we excel)

So we’ll see more and more of that, industrial IoT, a lot of really creative interesting markets that need a 5G connection to really work. So we’re going to see it – in IoT we’re going to see it in autonomous vehicles, we’re going to certainly see it in smartphones. And all of that together will hopefully support and really and bring some tailwinds behind our double-digit growth rate.
…
Definitely at the current stock price level of somewhat in the low 90s, it’s a great buying opportunity and we definitely will continue to step up our share buyback program in this quarter.

On margin:
I’m comfortable that we will steady progress towards that 53%.

-volfan84
long Skyworks…thinking the buyback alone might almost be enough to aid in getting this back to $100 in relatively short order; once 5G starts rolling out, should be a nice uptick, with 15+% year over year revenue growth to go with the >51% gross margin

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I see two issues. One is relevant to all suppliers to the 5G universe: when? I see that the first six antennas in Europe are operational for test purposes in Berlin, with 70 more by summer of 2019. AT&T will have testing in 12 locations by the end of 2018, including Dallas, Waco and Atlanta. Can we assume that the infrastructure suppliers will begin to see 5G income this year with some scaling in 2019? But as far as chip manufacturers supplying devices to users in such items as 5G phones or smart refrigerators, we are a year or two away(?).

Second issue specific to Skyworks is whether they have already lost the cell phone war to Qualcomm. I am not saying that they have. This is a question. I note that Samsung, LG, Sony, HTC and 14 others already announced 5G devices in 2019 using Qualcomm Snapdraggon chips. 5G is more than cell phones, but they are a major portion, no? Or maybe I misunderstand the Skyworks/Qualcomm relationship.

When I googled “5g when”, at the top there were two ads regarding 5G, one by Qualcomm: A New Era of Connectivity; and Skyworks: Learn 5G in 5 minutes, which was a video. Hopes and fortunes of companies riding on the roll out of 5G. Which to invest in, and when…

KC

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One is relevant to all suppliers to the 5G universe: when? I see that the first six antennas in Europe are operational for test purposes in Berlin, with 70 more by summer of 2019. AT&T will have testing in 12 locations by the end of 2018, including Dallas, Waco and Atlanta. Can we assume that the infrastructure suppliers will begin to see 5G income this year with some scaling in 2019?

I think you mostly answered your own question, KC. In addition to what you listed, VZ will begin a build out of 5G networks in 3-5 locations this year, including Sacramento. If Sprint and T-Mobile merge, the combined entity will join the 5G build out race too. Once there are viable 5G networks, phones will start coming equipped for 5G, 4G, and 3G - that’s a lot of chip content for companies like SWKS! It might be in 2 years. But when will the market reward Skyworks with a higher multiple than with a P/E ratio of 13 because 5G is finally close enough? I believe it will be sooner rather than later but, if not, I still believe it will be worth the wait.

Second issue specific to Skyworks is whether they have already lost the cell phone war to Qualcomm. I am not saying that they have. This is a question. I note that Samsung, LG, Sony, HTC and 14 others already announced 5G devices in 2019 using Qualcomm Snapdraggon chips.

This was a big issue of discussion back in the day on this board (this was one of my favorite threads http://discussion.fool.com/well-speaking-of-the-devil-shortly-af… because everybody pitched in). There was a time a lot of us freaked out because there was a published breakdown of a Samsung phone and Skyworks wasn’t in it. Then we investigated and discovered Samsung made several different models (e.g. domestic, int’l, etc) and they all had different combinations of chips. As I understand it, Skyworks mostly competes with Qorvo and Broadcom, not Qualcomm which is in almost all smartphones.

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

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Thanks, Matt. That was the thread I recalled. It was the U.S. version that did not contain Skyworks and it may have had something to do with the preference or requested feature by one of the big guys… AT&T? Well, to be determined with regard to the 5G generation phones. Hope it wasn’t a backward compatibility issue 4G to 3G or some such which could hold over to 5G.

As you say, always the issue of when the market will start to price in the 5G. Each of us to decide if we should “set it and forget it” and thus be present when it happens, or move downstream to another hole in search of something being rewarded now.

KC

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Second issue specific to Skyworks is whether they have already lost the cell phone war to Qualcomm. I am not saying that they have. This is a question. I note that Samsung, LG, Sony, HTC and 14 others already announced 5G devices in 2019 using Qualcomm Snapdraggon chips. 5G is more than cell phones, but they are a major portion, no? Or maybe I misunderstand the Skyworks/Qualcomm relationship.

KC

I have an investment in a start up dealing with 5G who I went to see the other day. These people are off the charts smarter than me with degrees and Phd’s in electrical engineering and related subjects.

They told me the following :

5G is several orders of magnitude different from 4G and will have many layers to it . For calls and data
4g is good enough and if that is all we are going to do then there is basically no need to deploy 5g anywhere.

The problem is two fold ; 1. this really is rocket science and as different from 4g as a rotary phone is from a cell phone and 2. since it has cost and will cost a lot more to develop and put the infrastructure in, how do the phone companies charge in order that they get a return on their investment if they are the ones who put the infrastructure in ? In countries where the government funds the infrastructure it is obviously a different proposition.

So a rather long winded answer to your question of whether cell phones will be the major portion of 5g is above but the short answer, as far as I understand it from the coal face , is no. It will be a minor part of 5g and that is the problem at the moment since that is where the money is .

As to what the company do : they make solve a portion of the latency problem which if you think about autonomous cars is crucial to the system working. You simply cannot have cars getting information at different speeds. Messy and dangerous.

The one thing they did console me with is that this is a 20 -25 year investment cycle . The offshoots from a successful deployment of 5g will be numerous and involve all sorts of non phone related businesses but of course like all start ups they need more money.

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5g is differnet from 4g LTE, and not so different.

Once you move to an all IP network things get a lot simpler. 4g did this. 5g addresses multiple oppurtunities from high bandwidth virtual reality to very low bandwith Internet of Things.

The latency has two componenets, one the time delay in moving a packet through the switching systems and two the speed of light. The speed of light is addressed by pushing intelligence to the edge of the network.

I would say more but I must go protect the fiber.

Cheers
Qazulight

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Qazulight,

I am sure you are more knowledgeable than I.

Good luck protecting the fibre.

J

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Can we assume that the infrastructure suppliers will begin to see 5G income this year with some scaling in 2019?

That’s exactly what MasTec MTZ, one of AT&T’S major installers said in their 1Q18. First Net (Internet to rural areas) will hit revenue streams in 2H18 followed by 5G work. They think the major ramp is 2019. They like the T-Mobile Sprint combo that will release major infrastructure capex. The combo’s investment is quoted to be $40B over 3 years. This according to MTZ conference call.

Joe

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Here’s a pretty decent analysis about Skyworks being good and cheap, from Seeking Alpha.

https://seekingalpha.com/article/4171388-skyworks-solutions-…

Just last night, as I was listening to one of the Motley Fool podcasts where they were discussing how much Warren Buffett loves Apple with their returning of capital to shareholders, I couldn’t help but have Skyworks and Ubiquiti both come to mind as 2 of my holdings that have been pretty aggressive with share buybacks, a la Apple.

Ironically enough, Skyworks is a major supplier to Apple and Ubiquiti was founded by a former Apple employee in Robert Pera.

volfan84
long UBNT; long SWKS

Ubiquiti announces their next quarter tomorrow morning before the market opens, as a heads up.

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Just last night, as I was listening to one of the Motley Fool podcasts where they were discussing how much Warren Buffett loves Apple with their returning of capital to shareholders, I couldn’t help but have Skyworks and Ubiquiti both come to mind as 2 of my holdings that have been pretty aggressive with share buybacks, a la Apple.

Are you sure the podcast wasn’t referring to Apple’s dividend as the means by which it’s returning capital to shareholders? Stock buybacks don’t directly return capital.

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Are you sure the podcast wasn’t referring to Apple’s dividend as the means by which it’s returning capital to shareholders? Stock buybacks don’t directly return capital.

The podcast was referring to both, as Apple has been doing tons of both. They definitely weren’t excluding share buybacks, as they mentioned that Buffett said that even if he doesn’t buy any more shares of Apple he knows that the 5% of the company he owns as of now will be 6% of the company a few years from now, due simply to the buybacks.

One could haggle over the directness of the return of capital via buybacks, but like Buffett, I am a fan of the indirect return via “reverse dilution”. It increases the earnings attributable to each remaining share that hasn’t been retired.

Robert Pera’s stake in Ubiquiti should grow from about 72% of the company after his sell of about a million shares last August up to maybe 77% of the company once the most recent $200 million buyback re-authorization has been expended. My guess for what we’ll find out tomorrow is that probably $65-90 million of that will have been spent already, leaving about $110-135 million…which they may re-up again, depending on their quarter’s results and cash generation.

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This doesn’t really fit nicely in a thread with Skyworks in the subject, but I am glad I finally found where I had posted this, as I definitely remembered posting it.

Guesstimate from 5/9/2018:
Robert Pera’s stake in Ubiquiti should grow from about 72% of the company after his sell of about a million shares last August up to maybe 77% of the company once the most recent $200 million buyback re-authorization has been expended. My guess for what we’ll find out tomorrow is that probably $65-90 million of that will have been spent already, leaving about $110-135 million…which they may re-up again, depending on their quarter’s results and cash generation.

Here is a link to the updated 8-K in .pdf form, which shows that:
On March 13, 2018, the Board approved a $200 million stock repurchase program (the “March Program”). As of May 7, 2018, the Company had $108,005,632.54 available under the March Program.
On May 8, 2018, the Board approved a new $200 million stock repurchase program (the “New Program”). Under the New Program, the Company mayrepurchase up to $200 million of its common stock.
The New Program expires on June 30, 2019.

http://otp.investis.com/clients/us/ubiquiti_networks_inc/SEC…

Thus, my range was only off by about $2 million ($110M vs $108M; so they re-purchased a bit more than I had guessed)…with no actual spreadsheet calculations, but simply observations of price and volume and my self-developed estimation abilities.

Re-upping the repurchase authority is nothing close to a surprise, so no chest thumping for that call.

-volfan84
long UBNT; long SWKS; long guesstimation (I have always enjoyed making approximations and following individual companies/stocks may turn out to be the far and away best use of that enjoyed activity)

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