Skyworks Solutions (NASDAQ:SWKS) Reports Q3 In Line With Expectations But Quarterly Guidance Underwhelms

Jabin Bastian /
2022/08/04 4:35 pm EDT

Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 10.4% year on year to $1.23 billion. However, guidance for the next quarter was less impressive, coming in at $1.4 billion at the midpoint, being 1.3% below analyst estimates. Skyworks Solutions made a GAAP profit of $267.3 million, down on its profit of $337.8 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) Q3 FY2022 Highlights:

  • Revenue: $1.23 billion vs analyst estimates of $1.22 billion (small beat)
  • EPS (non-GAAP): $2.44 vs analyst estimates of $2.35 (3.7% beat)
  • Revenue guidance for Q4 2022 is $1.4 billion at the midpoint, below analyst estimates of $1.41 billion
  • Free cash flow of $88.8 million, down 66.6% from previous quarter
  • Inventory Days Outstanding: 154, up from 121 previous quarter
  • Gross Margin (GAAP): 47.3%, down from 50% 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 mediocre, averaging 17.9% annually. And as you can see below, last year has been even less strong, with quarterly revenue growing from $1.11 billion to $1.23 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 10.4% revenue growth. This marks 8 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 6.79% YoY next quarter, and Wall St analysts are estimating growth 5.71% 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 154, 37 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 Q3 Results

Sporting a market capitalization of $18 billion, more than $662.2 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.

It was good to see Skyworks Solutions outperform Wall St’s earnings expectations this quarter. That feature of these results really stood out as a positive. 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, it seems to us that this was a complicated quarter for Skyworks Solutions. The company is down 0.63% on the results and currently trades at $112.9 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.