Skyworks Solutions (NASDAQ:SWKS) Reports Q1 In Line With Expectations, Inventory Levels Improve

Kayode Omotosho 2022/02/03 4:10 pm EST

Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analyst expectations in Q1 FY2022 quarter, with revenue flat year on year at $1.51 billion. The company expects that next quarter's revenue would be around $1.33 billion, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Skyworks Solutions made a GAAP profit of $399.9 million, down on its profit of $509.3 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) Q1 FY2022 Highlights:

  • Revenue: $1.51 billion vs analyst estimates of $1.5 billion (small beat)
  • EPS (non-GAAP): $3.14 vs analyst estimates of $3.11 (1.08% beat)
  • Revenue guidance for Q2 2022 is $1.33 billion at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $485.9 million, up from $135.3 million in previous quarter
  • Inventory Days Outstanding: 96, down from 116 previous quarter
  • Gross Margin (GAAP): 47.3%, down from 50.4% same quarter last year

“Skyworks delivered strong first quarter results, with double-digit sequential growth in both revenue and earnings per share,” said Liam K. Griffin, chairman, CEO 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. The biggest secular growth drivers currently are the adoption of electric vehicles, 5G networks and Internet of Things connectivity, and demand for chips that reduce power consumption. 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 moderate, averaging 13.7% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $1.51 billion to $1.51 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 0.02% revenue growth. This marks 6 straight quarters of revenue growth, implying we are mid-cycle for Skyworks Solutions, as a typical upcycle tends to last 8-10 quarters.

Skyworks Solutions believes the growth is set to accelerate, and is guiding for revenue to grow 13.5% YoY next quarter, and Wall St analysts are estimating growth 15.1% over the next twelve months.

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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.

Skyworks Solutions Inventory Days Outstanding

This quarter, Skyworks Solutions’s inventory days came in at 96, 17 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from Skyworks Solutions's Q1 Results

Sporting a market capitalization of $24.5 billion, more than $1.01 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 were very impressed by the strong improvements in Skyworks Solutions’s inventory levels. And we were also happy to see that earnings topped expectations. On the other hand, it was less good to see that the revenue growth was quite weak and gross margin deteriorated. Overall, this quarter's results were not the best we've seen from Skyworks Solutions. The company is down 4.08% on the results and currently trades at $132.88 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.

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