Skyworks Solutions (NASDAQ:SWKS) Reports Q1 Sales Numbers In Line But Quarterly Guidance Underwhelms

Radek Strnad /
2023/02/06 4:17 pm EST
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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.

Is now the time to buy Skyworks Solutions? Access our full analysis of the earnings results here, it's free.

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).

Skyworks Solutions Total Revenue

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.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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.

Skyworks Solutions Inventory Days Outstanding

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.