Yahoo Finance Skyworks Solutions, Inc. (NASDAQ:SWKS) Q1 2024 Earnings Call Transcript
Skyworks Solutions, Inc. (NASDAQ:SWKS) Q1 2024 Earnings Call Transcript January 30, 2024
Skyworks Solutions, Inc. beats earnings expectations. Reported EPS is $1.97, expectations were $1.95. Skyworks Solutions, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to Skyworks Solutions First Quarter Fiscal Year 2024 Earnings Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President, Investor Relations for Skyworks. Mr. Gill, please go ahead.
Raji Gill: Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' first fiscal quarter 2024 conference call. With me today is Liam Griffin, our Chairman, Chief Executive Officer, and President; and Kris Sennesael, Chief Financial Officer for Skyworks. This call is being broadcast live over the web and can be accessed from the Investor Relation section of the company website at skyworksinc.com. In addition, the company's prepared remarks will be made available on our website promptly after the conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements.
Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call to Liam.
Liam Griffin: Thanks, Raji, and welcome everyone. Skyworks continued to execute well during the first fiscal quarter of 2024 despite a volatile macroeconomic environment. We delivered revenue of $1.202 billion. We posted earnings per share of a $1.97, and generated $775 million of operating cash flow. Free cash flow was also a record at $753 million or a 63% free cash flow margin, which reflects strong working capital management and moderating CapEx intensity. Let's review both near and long-term secular trends in our end markets. After two challenging years across Android ecosystems, we see signs that the industry is stabilizing. Excess supply conditions are abating and inventory levels in the distribution channel and at the OEM level are normalizing.
Customers are starting to restock inventory, albeit gradually as supply and demand dynamics improve and new phones are introduced into the market. Moreover, we've made strategic investments in product development, positioning us to compete for design wins and share gains focusing on highly integrated platforms for the leading mobile OEMs. We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover. Within broad markets, we see crosscurrents, but many factors are moving in the right direction. In consumer IoT, we believe that we are past the bottom, as inventory levels in the channel have normalized and demand signals are improving. Furthermore, we are executing on the upgrade cycle to WiFi 6E and 7.
We see significant design win momentum across our retail, carrier, and enterprise channels. These systems carry substantially higher dollar content, because of the addition of the new 6 gigahertz band and the inclusion of BAW filtering technology. We expect wireless infrastructure and traditional data center will remain a headwind throughout 2024, as OEMs continue to digest excess inventory. Despite this, we remain bullish on several new product cycles, including major design wins in ethernet for high bandwidth networks and 400-gig and 800-gig optical module upgrades. Lastly, automotive and industrial markets are experiencing a near-term inventory correction. However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle, along with growing EV penetration, driving demand for our power isolation products.
Taken together, we anticipate December quarter represents the bottom in the broad markets business. There are several long-term secular growth dynamics that leverage our differentiated technology, including the proliferation of intelligent edge connected IoT devices, automotive, electrification and advanced safety systems, and AI enabled workloads, driving cloud and data center upgrades. Each of these trends require intricate connectivity engines underlying the need for speed, ultra reliable low latency performance. In addition, 5G technology is expanding beyond the smartphone into more use cases in broad markets, including private cellular networks in factories and stadiums, customer premise equipment supporting Verizon and T-Mobile and multi-band, automotive, telematics, and wearables to name a few.
We also remain bullish on the long-term RF content story in smartphones, coupled with growing 5G penetration, we see increasing levels of complexity and content with each new generation. For example, 5G Advanced is driving higher RF content, including the addition of satellite bands 4x4 MIMO on the downlink and uplink, higher bandwidth, more carrier aggregation, upgrades to WiFi and GPS and other innovations. Lastly, we are energized about the prospect of generative AI migrating to the smartphone, sparking a potential major upgrade cycle, as the performance bar rises every year to support AI enabled phones, the complexity requirements of RF will continue to increase driving the need for more integration, lower power consumption, smaller footprint, and spectral efficiency.
5G is the ideal standard for on-device AI applications as it takes advantage of lower latency, faster transmission speeds and higher frequency ranges. In addition, AI enabled workloads are driving demand for high speed connectivity for data intensive infrastructure and cloud upgrades, accelerating the demand for our high precision timing products. Turning to our quarterly business highlights, we secured several design wins in infrastructure, including optical transport products with a major operator in India, and timing devices for 5G small cells for private networks. We expanded the WiFi design pipeline with Cisco's enterprise access points, Linksys tri-band mesh router, and TP-link’s tri-band gaming router. We increased design win momentum in automotive, including telematics, infotainment systems, and onboard chargers across the leading OEMs. Lastly, in emerging IoT, we delivered next-generation smart energy solutions with Google's Nest temperature sensors and introns residential gas meters.
In summary, Skyworks delivered solid financial results despite a challenging macro environment. Our strong balance sheet, record cash flow and profitability reflect our resilient business model, diverse customer base, and technology scale. With that, I will turn the call over to Kris for discussion of last quarter's performance and our outlook for Q2 of fiscal 2024.
Kris Sennesael : Thanks, Liam. Skyworks’ revenue for the first fiscal quarter of 2024 was $1.202 billion, slightly above the midpoint of our outlook. Mobile was approximately 71% of total revenue, an increase of 7% sequentially, as we supported the ramp of new high-performance solutions at our largest customer. Android-related revenue with Google, Samsung and the Chinese OEMs grew modestly sequentially. Broad markets were approximately 29% of total revenue, down 18% sequentially, mostly driven by some specific inventory corrections in wireless infrastructure, automotive and industrial. Gross profit was $557 million, with gross margin at 46.4%, in line with expectations. Gross margin was down 70 basis points sequentially, driven by an unfavorable mix shift, resulting from lower broad markets revenue.
Also, during Q1, we reduced our internal inventory by $193 million to $927 million, well below our target of $1 billion. Operating expenses were $191 million, below the low end of the guidance range, given our ongoing focus on managing discretionary expenses, while continuing to invest in our technology and product roadmaps. We generated $366 million of operating income, translating into an operating margin of 30.4%. We incurred $7 million of other expense, and our effective tax rate was 11.7%, driving net income of $317 million and diluted earnings per share of $1.97, which is $0.02 above the guidance that we provided during the last earnings call. Skyworks’ business model continues to generate very strong cash flow. First fiscal quarter cash flow from operations increased to an all-time record of $775 million.
Capital expenditures were reduced to $22 million or less than 2% of revenue, resulting in an all-time record free cash flow of $753 million or 63% free cash flow margin. Strong profitability, combined with great working capital management and lowering the CapEx intensity of the business, drove the record cash flow numbers. Also, during fiscal Q1, we paid $109 million in dividends, and repaid the remaining $300 million on our term loan. We ended the quarter with over $1 billion in cash and investments, and $1 billion in debt, creating a net positive cash position, and an optimal capital structure, providing us with superior flexibility and optionality. Now, let’s move on to our outlook for Q2 of fiscal 2024. We anticipate revenue between $1.020 billion to $1.070 billion.
We expect our mobile business to be seasonally down, consistent with historical patterns, while in broad markets, we anticipate modest growth off the December bottom, as inventory levels are normalizing in certain end markets. Gross margin is projected to be in the range of 45% to 46%, reflecting our seasonally weakest period of the year. We anticipate margin expansion during the remainder of 2024, benefiting from our disciplined management of our manufacturing and operational cost structure, both internal and external, along with higher factory utilization rates. We will also benefit from a favorable mix shift as our broad markets business recovers and accelerates. We expect operating expenses in the range of $193 million to $197 million as we continue to make strategic investments in mobile and broad markets to drive share gains and increased diversification.
Below the line, we anticipate roughly $4 million in other expense and an effective tax rate of 11.5% and a diluted share count of approximately 161 million shares. Accordingly, at the midpoint of the revenue range of $1.045 billion, we intend to deliver diluted earnings per share of $1.52. Operator, let's open the line for questions.
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