Skyworks Solutions (NASDAQ:SWKS) Reports Q2 In Line With Expectations But Quarterly Guidance Underwhelms

Adam Hejl /
2022/05/03 4:44 pm EDT

Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 13.9% year on year to $1.33 billion. However, guidance for the next quarter was less impressive, coming in at $1.23 billion at the midpoint, being 5.43% below analyst estimates. Skyworks Solutions made a GAAP profit of $305.8 million, down on its profit of $325 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 FY2022 Highlights:

  • Revenue: $1.33 billion vs analyst estimates of $1.33 billion (small beat)
  • EPS (non-GAAP): $2.63 vs analyst estimates of $2.63 (small beat)
  • Revenue guidance for Q3 2022 is $1.23 billion at the midpoint, below analyst estimates of $1.3 billion
  • Free cash flow of $266.2 million, down 45.2% from previous quarter
  • Inventory Days Outstanding: 121, up from 96 previous quarter
  • Gross Margin (GAAP): 47.7%, down from 49.3% same quarter last year

“Skyworks delivered record second quarter results, with double-digit year-over-year growth in both revenue and non-GAAP earnings per share,” 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. 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 mediocre, averaging 15.8% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $1.17 billion to $1.33 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 slower quarter with just 13.9% revenue growth. This marks 7 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.

However, Skyworks Solutions believes the growth is set to continue, and is guiding for revenue to grow 10.1% YoY next quarter, and Wall St analysts are estimating growth 12% 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 121, 7 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 $19.1 billion, more than $778.2 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 struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and inventory levels increased. Overall, this quarter's results were not the best we've seen from Skyworks Solutions. The company is down 3.13% on the results and currently trades at $115.6 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.