No Surprises In Skyworks Solutions's (NASDAQ:SWKS) Q2 Sales Numbers But Stock Drops

Adam Hejl /
2023/05/08 4:08 pm EDT
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Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analyst expectations in Q2 FY2023 quarter, with revenue down 13.7% year on year to $1.15 billion. However, guidance for the next quarter was less impressive, coming in at $1.07 billion at the midpoint, being 7.81% below analyst estimates. Skyworks Solutions made a GAAP profit of $232.8 million, down on its profit of $305.8 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) Q2 FY2023 Highlights:

  • Revenue: $1.15 billion vs analyst estimates of $1.15 billion (small miss)
  • EPS (non-GAAP): $2.02 vs analyst expectations of $2.03 (small miss)
  • Revenue guidance for Q3 2023 is $1.07 billion at the midpoint, below analyst estimates of $1.16 billion
  • Free cash flow of $366.4 million, down 48.4% from previous quarter
  • Inventory Days Outstanding: 183, up from 168 previous quarter
  • Gross Margin (GAAP): 45.7%, down from 47.7% same quarter last year

“Despite a challenging macro backdrop, the fundamentals of our business remained strong in the second quarter with solid profitability and robust cash generation,” said Liam K. Griffin, chairman, chief executive officer and president of Skyworks.

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% annually. But as you can see below, last year quarterly revenue declined from $1.34 billion to $1.15 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

This was a difficult quarter for Skyworks Solutions, with revenue declining 13.7%, missing analyst estimates by 0.05%.

Skyworks Solutions's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 13.2% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 3.45%.

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 183, 54 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 Q2 Results

Sporting a market capitalization of $16.6 billion, more than $1.06 billion in cash and with positive free cash flow over the last twelve months, we're confident that Skyworks Solutions has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. Revenue growth was weak and EPS missed slightly. Revenue and EPS guidance for the next quarter both missed analysts' expectations. The company is down 5.63% on the results and currently trades at $99.4 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.