No Surprises In Skyworks Solutions's (NASDAQ:SWKS) Q4 Sales Numbers But Stock Drops

Petr Huřťák /
2023/11/02 4:13 pm EDT

Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analysts' expectations in Q4 FY2023, with revenue down 13.4% year on year to $1.22 billion. However, next quarter's revenue guidance of $1.2 billion was less impressive, coming in 6.89% below analysts' estimates. Turning to EPS, Skyworks Solutions made a non-GAAP profit of $2.20 per share, down from its profit of $3.02 per share in the same quarter last year.

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Skyworks Solutions (SWKS) Q4 FY2023 Highlights:

  • Revenue: $1.22 billion vs analyst estimates of $1.22 billion (small beat)
  • EPS (non-GAAP): $2.20 vs analyst estimates of $2.10 (4.71% beat)
  • Revenue Guidance for Q1 2024 is $1.2 billion at the midpoint, below analyst estimates of $1.29 billion
  • Free Cash Flow of $295.6 million, similar to the previous quarter
  • Inventory Days Outstanding: 138, down from 185 in the previous quarter
  • Gross Margin (GAAP): 39.2%, down from 47.5% in the same quarter last year

“Skyworks delivered solid results despite macroeconomic headwinds reflecting our resilient business model and operational excellence,” said Liam K. Griffin, chairman, chief executive officer and president of Skyworks. “We generated record free cash flow well above $1.6 billion for fiscal 2023, increasing 76% year-over-year. In light of the cycle volatility, we continue to make strategic investments in growth areas, expanding our customer base and diversifying the reach of our business.”

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.

Analog Semiconductors

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 mediocre, averaging 15.8% annually. But as you can see below, its revenue declined from $1.41 billion in the same quarter last year to $1.22 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 slow quarter for the company as its revenue dropped 13.4% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.

Skyworks Solutions's revenue growth has slowed over the last three quarters and its management team projects growth to turn negative next quarter. As such, the company is guiding for a 9.73% year-on-year revenue decline, but Wall Street thinks there will be a recovery next year. Analysts' estimates call for 4.71% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 138, which is 2 more days than its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are slightly above the long-term average.

Key Takeaways from Skyworks Solutions's Q4 Results

Sporting a market capitalization of $13.9 billion, more than $738.5 million in cash on hand, and positive free cash flow over the last 12 months, we believe that Skyworks Solutions is attractively positioned to invest in growth.

We were impressed by Skyworks Solutions's strong improvement in inventory levels. EPS outperformance vs. Wall Street's estimates was also a positive. On the other hand, its revenue guidance and EPS for next quarter underwhelmed and its gross margin shrunk. The guidance is likely what is driving weakness in the stock. Overall, the results could have been better. The company is down 7.04% on the results and currently trades at $83.2 per share.

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