Skyworks Solutions (SWKS)

Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 8.9% year on year to $953.2 million. The company expects next quarter’s revenue to be around $940 million, coming in 2.8% above analysts’ estimates. Its non-GAAP profit of $1.24 per share was 3.1% above analysts’ consensus estimates.

Company Overview

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.

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Skyworks Solutions grew its sales at a sluggish 3.9% compounded annual growth rate. This fell short of our benchmark for the semiconductor sector and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Skyworks Solutions’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 12.2% annually.

This quarter, Skyworks Solutions reported a rather uninspiring 8.9% year-on-year revenue decline to $953.2 million of revenue, in line with Wall Street’s estimates. Despite meeting estimates, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 3.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 9.1% over the next 12 months. While this projection is better than its two-year trend, it's hard to get excited about a company that is struggling with demand.

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.

This quarter, Skyworks Solutions’s DIO came in at 110, which is 23 days below its five-year average. These numbers show that despite the recent increase, there’s no indication of an excessive inventory buildup.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Skyworks Solutions’s gross margin is slightly below the average semiconductor company, indicating its products aren’t as mission-critical as its competitors. As you can see below, it averaged a 41.2% gross margin over the last two years. That means Skyworks Solutions paid its suppliers a lot of money ($58.82 for every $100 in revenue) to run its business.

Skyworks Solutions produced a 41.1% gross profit margin in Q1, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Skyworks Solutions has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 16.5%, higher than the broader semiconductor sector.

Looking at the trend in its profitability, Skyworks Solutions’s operating margin decreased by 19.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Skyworks Solutions generated an operating profit margin of 10.2%, down 7.9 percentage points year on year. Since Skyworks Solutions’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Skyworks Solutions, its EPS declined by 1% annually over the last five years while its revenue grew by 3.9%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Skyworks Solutions’s earnings to better understand the drivers of its performance. As we mentioned earlier, Skyworks Solutions’s operating margin declined by 19.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Skyworks Solutions reported EPS at $1.24, down from $1.55 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.1%. Over the next 12 months, Wall Street expects Skyworks Solutions’s full-year EPS of $5.60 to shrink by 29.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Skyworks Solutions has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 34.7% over the last two years.

Taking a step back, we can see that Skyworks Solutions’s margin expanded by 7.9 percentage points over the last five years. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Skyworks Solutions’s free cash flow clocked in at $371 million in Q1, equivalent to a 38.9% margin. This result was good as its margin was 12.9 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Skyworks Solutions hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 19.4%, higher than most semiconductor businesses.

Companies with more cash than debt have lower bankruptcy risk.

Skyworks Solutions is a profitable, well-capitalized company with $1.53 billion of cash and $995.1 million of debt on its balance sheet. This $532.6 million net cash position is 5.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Skyworks Solutions beat analysts’ adjusted operating income expectations this quarter. We were also glad its revenue guidance for next quarter exceeded Wall Street’s estimates. On the other hand, its inventory levels materially increased. Overall, this print had some key positives. The stock traded up 2.4% to $68.50 immediately after reporting.

Updated: June 14, 2025 at 10:17 PM EDT

Before making an investment decision, investors should account for Skyworks Solutions’s business fundamentals and valuation in addition to what happened in the latest quarter.

We cheer for all companies solving complex technology issues, but in the case of Skyworks Solutions, we’ll be cheering from the sidelines. To kick things off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its declining operating margin shows the business has become less efficient. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Skyworks Solutions’s P/E ratio based on the next 12 months is 18.1x. This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $69.51 on the company (compared to the current share price of $71.50), implying they don’t see much short-term potential in Skyworks Solutions.