No Surprises In Skyworks Solutions's (NASDAQ:SWKS) Q4 Sales Numbers But Quarterly Guidance Underwhelms

Kayode Omotosho /
2022/11/03 4:39 pm EDT

Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 7.33% year on year to $1.4 billion. However, guidance for the next quarter was less impressive, coming in at $1.32 billion at the midpoint, being 12% below analyst estimates. Skyworks Solutions made a GAAP profit of $302.2 million, down on its profit of $326.3 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) Q4 FY2022 Highlights:

  • Revenue: $1.4 billion vs analyst estimates of $1.39 billion (small beat)
  • EPS (non-GAAP): $3.02 vs analyst estimates of $2.90 (4.13% beat)
  • Revenue guidance for Q1 2023 is $1.32 billion at the midpoint, below analyst estimates of $1.5 billion
  • Free cash flow of $94.5 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 149, down from 154 previous quarter
  • Gross Margin (GAAP): 47.5%, up from 46.8% 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 strong, averaging 20% annually. But as you can see below, last year has not been especially strong, with quarterly revenue growing from $1.31 billion to $1.4 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

While Skyworks Solutions beat analysts' revenue estimates, this was a very slow quarter with just 7.33% revenue growth. This marks 9 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

Skyworks Solutions's revenue growth is expected to go negative next quarter, with the company guiding to decline of 12.2% YoY next quarter, but analyst consensus sees growth of 2.58% over the next twelve months.

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 149, 29 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Skyworks Solutions's Q4 Results

Sporting a market capitalization of $13.3 billion, more than $586.8 million 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 liked to see that Skyworks Solutions beat analysts’ earnings expectations pretty strongly this quarter. And we were also glad to see the inventory levels go down. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Skyworks Solutions. The company is down 1.48% on the results and currently trades at $81.04 per share.

Should you invest in Skyworks Solutions 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.