Q3 2024 Earnings Summary
- Skyworks is seeing strong demand acceleration, particularly in their mobile business, expecting revenue of $1.0 billion to $1.04 billion for Q4 2024, with the mobile business up approximately 20% sequentially as demand and supply patterns normalize. ,
- The company is well-positioned to benefit from the proliferation of AI into smartphones and IoT devices, which will drive higher RF complexity and increased content per device; they are leveraging their unique technologies and deep customer relationships, especially in AI-enabled smartphones, with great partnerships with leading Android OEMs like Samsung and Google. , , , ,
- Skyworks continues to generate robust cash flow, with $1.3 billion of free cash flow year-to-date (a 40% free cash flow margin), and has a strong balance sheet with $1.3 billion in cash and only $1.0 billion in debt; they are returning cash to shareholders through dividends, including a recent 3% dividend increase to $0.70 per share (a 2.4% dividend yield), and share repurchases. ,
- High Customer Concentration Risk: Skyworks' largest customer accounted for approximately 65% of total revenue in the June quarter and is expected to be slightly above 65% in September. This heavy reliance poses a significant risk if the customer reduces orders or switches to internal solutions.
- Persistent Excess Inventory in Key Markets: Excess inventory remains a challenge in certain segments, particularly in automotive, industrial, infrastructure, networking, and data center markets, which is prolonging the recovery as Skyworks continues to under-ship natural demand.
- Limited Current Exposure to AI Opportunities Beyond Smartphones: While Skyworks acknowledges the potential of AI in IoT and other markets, the company "just hasn't gotten there yet" and is still making investments to capitalize on these opportunities.
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Gross Margin Improvement
Q: What's the outlook for gross margins?
A: Kris Sennesael indicated that March was the bottom at 45% gross margin. They observed 100 basis points improvement in the June quarter and guided another 50 basis points improvement for the September quarter. Further improvements are expected in the December quarter and beyond, driven by cost reductions, better factory utilization, higher-value products, and favorable mix as broad markets grow. -
Impact of AI on Revenue Growth
Q: How will AI affect future revenue and content opportunities?
A: Liam Griffin emphasized that they are beginning to engage in AI, seeing it as a major catalyst for smartphones. They are dealing with challenges like higher MIMO levels, carrier aggregation, and new frequency bands, which align with their technological strengths. Griffin believes this will lead to a significant and long-term cycle in mobile, similar to the first 5G cycle, with opportunities for customized solutions and substantial content gains. -
Largest Customer Revenue Trend
Q: How is revenue from your largest customer trending?
A: Kris Sennesael reported that the largest customer accounted for approximately 65% of total revenue in the June quarter, down sequentially due to inventory buildup. For September, they expect the largest customer to be slightly above 65% of total revenue, with revenue up around 20% sequentially as they support new product ramps. -
Inventory Correction and Broad Markets Outlook
Q: What's the status of inventory correction in broad markets?
A: Kris Sennesael mentioned that broad markets hit the bottom in the December quarter and have seen two consecutive quarters of sequential growth, with further growth expected in September. Inventory correction is mostly over in consumer enterprise, while automotive and industrial markets still experience ongoing correction. They have strong design win momentum and expect to return to year-over-year growth in broad markets. -
Use of Cash and Capital Allocation
Q: How do you plan to use cash and capital?
A: Kris Sennesael highlighted that they generated $1.3 billion of cash in the first nine months, with a 40% free cash flow margin, and have a strong balance sheet with $1.3 billion in cash and $1 billion in debt. They will continue investing in the business and return excess cash to shareholders through dividends and share buybacks. They announced a 3% dividend increase to $0.70 per share and restarted the buyback program in the June quarter. -
Android Market Opportunities
Q: What's your outlook for the Android market?
A: Liam Griffin stated they are actively engaged with Android, specifically with Samsung and Google, noting that the Pixel phone is an amazing product. They see significant opportunities at the higher end of Android and believe there's more they can do, focusing less on the low-end market in China.