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Skyworks (SWKS) Q4 Earnings in Sync on Solid Revenues

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Premier semiconductor manufacturer Skyworks Solutions Inc. (SWKS - Free Report) reported strong fourth-quarter fiscal 2015 results, driven by superior execution of operational plans and healthy demand pull. GAAP net income for the reported quarter significantly improved to $229.2 million or $1.18 per share from $174.9 million or 90 cents per share in the year-earlier quarter. The healthy year-over-year increase in earnings was primarily driven by higher revenues.

Excluding non-recurring items, non-GAAP earnings for the reported quarter came in ahead of the prior guidance at $296.1 million or $1.52 per share versus $216.1 million or $1.12 per share in the year-ago quarter. The recurring earnings (with stock-based compensation adjustments) of $1.39 per share matched exactly with the Zacks Consensus Estimate.

Skyworks Solutions Inc. (SWKS - Free Report) - Earnings Surprise | FindTheCompany


For fiscal 2015, Skyworks reported GAAP net income of $798.3 million or $4.10 per share compared with $457.7 million or $2.38 per share in fiscal 2014. The nearly two-fold jump in GAAP earnings marked a stupendous year of achievement for the company as it continually outpaced growth of the broader semiconductor market. Non-GAAP earnings for the reported fiscal were $1,027.9 million or $5.27 per share versus $623.2 million or $3.24 per share in the year-ago period.

Quarter Details

Skyworks reported revenues of $880.8 million in the reported quarter, up 23% from the year-ago quarter and ahead of the prior guidance of $875 million. The reported revenues were also ahead of the Zacks Consensus Estimate of $878 million. For fiscal 2015, the company reported revenues of $3,258.4 million compared with $2,291.5 million in fiscal 2014.

Skyworks continues to capitalize on the global mobile connectivity and demand for high-performance solutions across a diverse set of vertical markets and Internet of Things. As customers implement the next level of functionality for higher bandwidth, system-level solutions and higher levels of integration are increasingly in demand. These in turn are playing directly into Skyworks' strengths and generating a huge demand for its products.

Non-GAAP gross profit in the reported quarter was $440.1 million compared with $329.6 million in the year-ago quarter. Non-GAAP gross margin improved 400 basis points year over year to 50.0%, driven by new product launches, enhancements in filter business and superior operational efficiencies.  Non-GAAP operating income increased 42% year over year to $335.2 million, leading to non-GAAP operating margin of 38.1% compared with the respective tallies of $235.7 million and 32.8% in the year-earlier quarter.

In terms of product mix, power amplifiers represented 20% of total revenue, while integrated mobile systems represented 59% and broad markets comprised 21% in the reported quarter. Integrated mobile system business was up 84% year over year, and marked a strategic shift to higher margin products across the customer base.

Acquisition

Subsequent to the end of the quarter, Skyworks inked a definitive agreement to acquire rival PMC-Sierra Inc. for $10.50 per share as part of its corporate strategy to diversify into new vertical markets to fuel its growth engine. The agreement was later amended on Oct 30, and the restated merger agreement intends to acquire PMC for $11.60 per share. The all-cash transaction is expected to close in the first half of the calendar 2016.

Santa Clara, CA-based PMC-Sierra is a leading provider of high-speed broadband communications and storage semiconductors. With PMC-Sierra on board, Skyworks will gain a competitive advantage to tap the data center market that is currently witnessing a phenomenal demand for “high performance solutions that seamlessly connect, transport and store Big Data”. The acquisition is likely to reap synergistic benefits to the tune of $75 million, resulting in accretive non-GAAP earnings of 75 cents per share on an annual basis.

The acquisition will expand Skyworks’ product portfolio to better serve some of the fastest growing segments in the technology market, including cloud storage and optical networking. PMC-Sierra’s state-of-the-art storage systems, flash controllers, optical switches and network infrastructure solutions are further likely to cement Skyworks’ position as a premier diversified analog, RF and mixed-signal semiconductor manufacturer.

Balance Sheet & Cash Flow

The company ended fiscal 2015 with cash and cash equivalents of $1,043.6 million and zero debt balance. Capital expenditures for the quarter aggregated $151 million. Skyworks generated $233 million cash from operations during the quarter.

Skyworks distributed $160 million to shareholders through dividend and stock repurchases during the quarter. For fiscal 2015, the company returned approximately 64% of free cash flow to shareholders. This is higher than the set goal to return approximately 40% of free cash flow to shareholders – a level deemed fit by management and considered to strike an optimum balance between shareholder returns and business investments.

Outlook
    
Moving forward, Skyworks is well positioned to capitalize on the Internet of Things with a healthy demand for high-performance wireless solutions in new markets. The company continues with its strategy of providing leadership and custom integrated solutions and at the same time diversifying its business into high-margin verticals. Leveraging on product innovation and broad-based customer demand, the company appears poised for sustainable above-market growth in the near term. We remain impressed with the robust quarterly results of the company, its deep customer engagements, clear visibility into future generation architectures, and internal margin enhancement initiatives.

The company expects first-quarter fiscal 2016 revenues to be in the range of $925 million to $930 million – up 15% year over year, with non-GAAP gross margin of 51% – up 430 basis points year over year. Non-GAAP earnings are expected to be approximately $1.60 per share.

Skyworks currently has a Zacks Rank #3 (Hold). A couple of stocks that look promising in the sector and are worth a look now include AXT Inc. (AXTI - Free Report) and Ambarella, Inc. (AMBA - Free Report) , both carrying a Zacks Rank #2 (Buy).

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