Skyworks Solutions Inc.'s Revenue and Profit Fall, but Management Is Optimistic

By Markets Fool.com

It's been an up-and-down year for shareholders ofSkyworks Solutions(NASDAQ: SWKS). The company's financialresults have been kept in check largely because of the decline in sales and channel inventory of the iPhone. In response, the company has been pushing hard to enter new markets in an effort to diversify its business away from the Mac maker.

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Image source: Getty Images.

Although sales and profits fell during the company'sfiscal third quarter, which was reported in July, investors saw signs that the worst of the smartphone slowdown might be over.Let's take a closer look at Skyworks' fiscal fourth-quarter results to see how things are going. Results were reported Nov. 3.

Skyworks Solutions' fiscal Q4: The raw numbers

Metric Q4 2016 Q4 2015 Change
Revenue $835.4 million $880.8 million

(5.2%)

Non-GAAP operating income $318.4 million $335.2 million (5%)
Non-GAAP net income $277.6 million $296.1 million (6.2%)
Non-GAAP EPS $1.47 $1.52 (3.3%)

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DATA SOURCE: SKYWORKS SOLUTIONS.

Shareholders had to endure another quarter of seeing the company's headline number moving in the wrong direction. But a closer look at the results provide reasons for optimism. Total revenue of $835 million came in $4 million above the midpoint of management'sguidance and also represented sequential growth of 11%. The year-over-year declines were also smaller on a percentage basis than what we observed last quarter. That suggests that management's push to enter new markets is beginning to pay off.

Skyworks also continues to do a great job at maintaining its profitability in the face of declining revenue. Non-GAAP gross margin came in a 51% during the quarter, which was up 100 basis points over the year-ago period. Non-GAAP operating margin also held steady at 38.1%. When combined with the 3 million shares that were repurchased during the quarter, non-GAAP EPS declined by only 3%.

Beyond the numbers, Skyworks once again listed an impressive list of devices that its products power behind the scenes. The list included Alphabet'snew Pixel smartphone, Amazon.com's Echo,Netgear's Orbi router, andGoPro'snew drones. The company also made progress with its push into the automotive sector, noting that it delivered products used in vehicle-to-vehicle communication as well as for4G LTE connectivity.

Skyworks CEO Liam K. Griffin remains excited about all the opportunities that are opening up for the company as the technology landscape continues to evolve, saying in the company press release:

We are in the midst of a dramatic sea change in the usage case for wireless technologies and the way they are transforming how we live, work, and play. As a virtual hub for e-commerce, enterprise to the cloud, social media, gaming, and entertainment, mobile devices are rapidly evolving to address the massive demand for data and speed across an increasingly crowded spectrum.Skyworksis resolving this daunting complexity with customized system-level solutions to ultimately improve the user experience with higher levels of efficiency, enhanced streaming capabilities, and expanded network coverage. As a result, we are well positioned to continue delivering above-market growth, profitability, and shareholder value.

Looking ahead

Turning to the fiscal first quarter, management is guiding for sequential revenue growth of 7% to 9%, which comes out to roughly $894 million to $910 million. If the company hits the midpoint of that range, it would once again show a decline in year-over-year sales, but only by about 2.6%.

Management also expects that margins will continue to improve during the period, which should allow the company to producenon-GAAP diluted earnings per share of$1.58. That would also be a relatively minor decline from the $1.60 that was produced in the year-ago quarter.

Looking even further out, the company reminded investors of all of thetrends that are working in its favor. Management noted that 2 billion people are not yet connected to the internet through any device. In addition, the upcoming rollout of5G communication technology and the growing Internet of Things should drive more demand for connectivity chips. In total, current estimates call for20 billion new devices to be brought to market over the next five years.

Griffin reminded investors that Skyworks remains-well positioned to capitalize on those trends:

Skyworks' systems-level expertise and scale advantages are positioning us to capitalize on the rapidly expanding mobile and IoT ecosystems, particularly with 5G on the Horizon. Our profitability and strong cash generation capabilities allow us to fund growth and deliver increasingly higher returns to our shareholders. Clearly, we remain well positioned to realize our vision of connecting everyone and everything all the time.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fools board of directors. Brian Feroldi owns shares of GOOG, GOOGL, AMZN, and AAPL. The Motley Fool owns shares of and recommends GOOG, GOOGL, AMZN, GPRO, and SWKS. The Motley Fool has the following options: long January 2018 $90 calls on AAPL, short January 2018 $95 calls on AAPL, short January 2019 $12 calls on GPRO, long January 2019 $12 puts on GPRO, and short January 2017 $75 calls on SWKS. The Motley Fool recommends NTGR. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.