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    Skyworks Solutions Inc (SWKS)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$106.59Last close (Apr 30, 2024)
    Post-Earnings Price$91.07Open (May 1, 2024)
    Price Change
    $-15.52(-14.56%)

    What went well

    • Strong Growth Expected in Broad Markets Business: Skyworks anticipates an acceleration of sequential growth in its broad markets segment, aiming for double-digit year-over-year growth in upcoming quarters.
    • Android Business Stabilizing with Growth Potential: The Android business is approaching $100 million per quarter, with ambitions to reach $125 million to $150 million, driven by strong relationships with Samsung and Google.
    • Positive Outlook in Automotive and Industrial Segments: Despite near-term headwinds, Skyworks sees opportunities for long-term growth in automotive, especially with the ramp of connectivity in cars and power isolation products for EVs.

    What went wrong

    • High Customer Concentration Risk: Skyworks' largest customer accounted for 68% of total revenue in the March quarter, down 19% sequentially and 3% year-over-year, indicating vulnerability due to reliance on a single customer.
    • Challenges in Android Market Growth: The Android business, previously peaking at around $200 million per quarter, is now stabilizing at approximately $100 million, with management noting it will be difficult to return to prior peak levels.
    • Inventory and Demand Headwinds in Key Markets: Excess inventory and softer demand in sectors like infrastructure, networking, data center, automotive, and industrial markets may take several quarters to recover, potentially impacting near-term growth.

    Q&A Summary

    1. Socket Loss with Largest Customer
      Q: Was the content loss with your largest customer significant?
      A: Yes, we were unable to secure an expected award with our largest customer, leading to content headwinds in the upcoming cycle. We partially offset this socket loss with additional content gains, including new sockets not in the current phone. Overall, we expect content to be down a little more than 10% compared to the current model, impacting revenue starting in the September quarter.

    2. Mobile Inventory Clearance
      Q: When will mobile inventory headwinds be cleared?
      A: We experienced excess inventory due to lower-than-expected demand in March and April. We expect to clear this excess inventory during the June quarter.

    3. Impact on Second Half Outlook
      Q: Will inventory issues affect the second half of the year?
      A: We believe most inventory clearance will be completed in the June quarter. From a demand perspective, this is a short-term issue, and we do not anticipate inventory headwinds persisting into the second half.

    4. Gross Margin Improvement
      Q: How will gross margins trend in upcoming quarters?
      A: Gross margins improved by 100 basis points sequentially in June guidance, and we expect further improvements throughout 2024 and beyond. This will be driven by cost reductions, a favorable mix shift to broad markets, and improved factory utilization as revenues grow.

    5. Broad Markets Growth Outlook
      Q: What is the outlook for the broad markets segment?
      A: Broad markets showed modest sequential growth in March and June. We expect acceleration in sequential growth in coming quarters, leading to strong double-digit year-over-year growth as inventory levels normalize and demand increases across automotive, industrial, and IoT segments.

    6. Android Business Stability
      Q: How is the Android business performing?
      A: Our Android business has been stabilizing, approaching $100 million per quarter. While June is seasonally weaker, we anticipate meaningful year-over-year growth over the next 4 to 8 quarters, supported by design wins and improving end-customer demand.

    7. Engagement with Huawei
      Q: Are you engaging with Huawei given their market success?
      A: We are still not engaged with Huawei. The product quality does not meet our standards, and the environment remains challenging.

    8. AI Impact on Future Products
      Q: How will AI in smartphones impact your business?
      A: The integration of AI into smartphones will increase compute power and data demands, requiring advanced RF solutions. This presents opportunities for us to create new, power-efficient technologies, potentially driving revenue growth as the smartphone market upgrades.

    9. CapEx and Capacity Outlook
      Q: How does lower CapEx affect future growth opportunities?
      A: After significant investments in prior years, we're focusing on operational efficiencies to create additional capacity without substantial CapEx. With current underutilized factories, we can substantially grow revenue, supporting strong free cash flow.

    10. China Mobile Revenue
      Q: What is the outlook for China mobile revenue?
      A: China mobile revenue remains minimal but is improving each quarter. We have strong relationships with major players and expect meaningful year-over-year growth in fiscal 2025 as design wins accumulate and end-customer demand strengthens.

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