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    Skyworks Solutions Inc (SWKS)

    Q1 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$97.58October 3, 2023
    Final Price$105.21January 3, 2024
    Price Change$7.63
    % Change+7.82%

    What went well

    • Recovery and anticipated growth in the Android market, signaling increasing revenue opportunities for Skyworks. Liam Griffin stated, "We see green shoots here popping up...you should expect more growth in the Android ecosystem as we go forward."
    • Broad Markets segment expected to recover and grow, providing additional revenue streams and diversification. Liam Griffin mentioned, "We definitely believe there's going to be more acceleration in revenue in the broad markets...we do think there's a turn." He also emphasized the significant room to grow within their broad markets accounts.
    • Strong cash flow generation enables strategic investments, including potential M&A to accelerate diversification and growth in Broad Markets. Kris Sennesael highlighted, "We will continue to drive a very strong free cash flow...we have optionality. We can switch on the buybacks or we can be active from an M&A point of view."

    What went wrong

    • Heavy Reliance on a Single Customer: Skyworks' largest customer accounted for approximately 73% of total revenue in the December quarter, which is considered high. This concentration exposes the company to significant risk if there are any reductions in orders or loss of content from this customer.
    • Declining Gross Margins Due to Underutilization: The company is experiencing declining gross margins due to lower factory utilization and underutilization charges resulting from reduced production to manage inventory levels. Gross margin guidance for the March quarter is down slightly, and recovery may take time.
    • Uncertain Recovery in the Android Market: Revenue from Android-related mobile customers has declined from approximately $800 million in fiscal year '22 to about $400 million annualized. While management expects growth, it's uncertain if the segment will bounce back to previous levels amid intense competition and potential margin pressures.

    Q&A Summary

    1. Largest Customer Confidence
      Q: Are you losing content at your largest customer in H2?
      A: They have a great position with their largest customer, with no concerns about content loss, and will continue to drive success together [0].

    2. Gross Margin Recovery
      Q: When will gross margins return to 50%?
      A: Gross margins are expected to improve after March, aiming to reach 50% as soon as possible and ultimately targeting 53% long-term. This will come from revenue growth, better factory utilization, and continued cost efficiencies [0].

    3. Android Market Growth
      Q: Can we expect growth in the Android market this year?
      A: Seeing green shoots in Android, they anticipate more growth as new phones with advanced technology emerge, expecting continuing strength through 2024 and 2025 [0].

    4. Broad Markets Recovery Pace
      Q: How quickly will broad markets recover from inventory correction?
      A: Believing December marked the bottom, they expect sequential growth starting in March, with varying recovery rates across IoT, infrastructure, and automotive segments [0].

    5. Android Revenue Rebound
      Q: Will Android revenues bounce back to previous levels?
      A: Confident in opportunities within Android, they expect to return to previous revenue levels, leveraging their technology and manufacturing scale to grow this segment [0].

    6. Gross Margin Drivers
      Q: What will drive gross margin improvement?
      A: Improvements will come from higher factory utilization as inventory reduction ends, a favorable mix from faster broad markets growth, and cost reductions both internally and externally [0].

    7. Operating Expense Outlook
      Q: How will OpEx trend this year?
      A: Operating expenses were $191 million in Q1 and are projected to rise to $195 million in March due to calendar resets and ongoing investments, with gradual increases expected throughout the year [0].

    8. AI in Smartphones
      Q: How will AI in smartphones impact growth?
      A: AI in smartphones is seen as a secular opportunity, leading to increased RF content due to demands for higher performance and lower latency, which they are well-positioned to address [0].

    9. Cash Flow and M&A
      Q: Any plans for M&A to boost broad markets?
      A: With strong cash flow and a net positive cash position, they are considering M&A to accelerate diversification, focusing on opportunities that align with their strategy to become a more diverse company [0].

    10. China Competitive Landscape
      Q: Are you seeing changes in China RF competition?
      A: While acknowledging competition in the low-end market, they focus on mid and high-end segments in China, which are more profitable, and remain committed to their current strategy [0].

    11. Data Center Opportunities
      Q: How does AI workload impact data center growth?
      A: AI-driven workloads increase demand for high-speed connectivity in data centers, where their timing solutions and infrastructure products offer significant growth potential [0].

    12. Revenue from Largest Customer
      Q: What was the revenue mix from your largest customer?
      A: The largest customer accounted for approximately 73% of total revenue in the December quarter, a seasonal peak, and this percentage is expected to decrease in subsequent quarters [0].

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