Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue down 11.9% year on year to $1.32 billion. However, guidance for the next quarter was less impressive, coming in at $1.15 billion at the midpoint, being 3.81% below analyst estimates. Skyworks Solutions made a GAAP profit of $309.4 million, down on its profit of $399.9 million, in the same quarter last year.
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Skyworks Solutions (SWKS) Q1 FY2023 Highlights:
- Revenue: $1.32 billion vs analyst estimates of $1.32 billion (small beat)
- EPS (non-GAAP): $2.59 vs analyst expectations of $2.60 (small miss)
- Revenue guidance for Q2 2023 is $1.15 billion at the midpoint, below analyst estimates of $1.19 billion
- Free cash flow of $709.9 million, up from $94.6 million in previous quarter
- Inventory Days Outstanding: 168, up from 149 previous quarter
- Gross Margin (GAAP): 47.9%, up from 47.3% same quarter last year
Result of a merger of Alpha Industries and the wireless communications division of Conexant, Skyworks Solutions (NASDAQ: SWKS) is a designer and manufacturer of chips used in smartphones, autos, and industrial applications to amplify, filter, and process wireless signals.
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales Growth
Skyworks Solutions's revenue growth over the last three years has been solid, averaging 19.6% annually. Last year the quarterly revenue declined from $1.51 billion to $1.32 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Despite Skyworks Solutions revenues beating analyst estimates, this was still a slow quarter with a 11.9% revenue decline. Skyworks Solutions's revenue is continuing to decline, signal that the current downcycle is deepening.
Revenue growth went from positive to negative this quarter, and Skyworks Solutions expects it to stay negative next quarter with an estimated decline of 13.8% YoY and analysts think the declines will continue, with next twelve months estimated at 1.69% declines.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.
This quarter, Skyworks Solutions’s inventory days came in at 168, 43 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.
Key Takeaways from Skyworks Solutions's Q1 Results
With a market capitalization of $18 billion, more than $992.6 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
We struggled to find many strong positives in these results. On the other hand, it was less good to see that the revenue has declined and the sales guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Skyworks Solutions. The company is up 3.79% on the results and currently trades at $113.5 per share.
Skyworks Solutions may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.