Skyworks Solutions Inc. Continues to Ride the Connectivity Boom

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Skyworks Solutions (NASDAQ: SWKS), a manufacturer of specialty semiconductor chips, reported its fiscal fourth-quarter results on Monday, Nov. 6. The company saw double-digit growth in revenue and profits, both of which easily surpassed management's guidance.

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Let's dig into the details to get a better sense of what's driving these record results.

Skyworks Solutions results: The raw numbers

 Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$985 million

$835 million

18%

Non-GAAP operating income

$379 million

$318 million

19%

Non-GAAP net income

$339 million

$278 million

22%

Non-GAAP earnings per share

$1.82

$1.47

24%

What happened with Skyworks this quarter?

  • Revenue grew 18% to $985 million. That result came in $5 million ahead of management's guidance. 
  • The strong top-line growth allowed Skyworks' non-GAAP margins to either hold steady or expand slightly.
  • Non-GAAP earnings per share grew 24% to $1.82. That was $0.07 higher than management had projected. EPS growth outpaced overall revenue growth thanks to improving margins and the effectiveness of stock buybacks.
  • Cash flow from operations during the quarter was $425 million. 
  • The company spent $102 million buying back 1 million shares during the period.
  • Cash balance at quarter's end was $1.6 billion. The company remains debt-free.

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Examining fiscal 2017, here's a quick review of the key financial numbers for the year:

  • Revenue grew 11% to $3.7 billion.
  • Non-GAAP EPS grew 16% to $6.45.
  • Cash flow from operations grew 34% to $1.5 billion. 
  • The company spent $432 million buying back 4.6 million shares during the year. This helped reduce the company's diluted share count by 3%. 

What management had to say

CEO Liam Griffin credited the company's strong growth to connectivity megatrends like mobile and the Internet of Things. Griffin also pointed out that this huge demand is also creating challenges for the industry:

The connected economy is gaining significant momentum and enhancing the way we live, work, play and educate. At the same time, the broad range of usage cases and expanding scope of newly connected platforms are crowding radio spectrum and stressing network capacity. These dynamics portend a digital traffic jam while creating a tremendous opportunity.

On the call with analysts, Griffin was happy to point out that Skyworks continues to make progress in diversifying its customer base. Executives listed several products that were launched during the period that were powered by Skyworks' chips. This includes smartphones by Oppo, Xiaomi, and Motorola; home security systems made by Bosch; smart-lighting systems made by Cisco Systems; smartwatches made by Fitbit; and hi-fi speakers made by Sonos.

Finally, Griffin stated that the company's business prospects remain very bright given the upcoming transition to 5G. He reaffirmed that the company remains committed to investing heavily in its capabilities in order to capitalize on the opportunity ahead: "Skyworks is well positioned to empower revolutionary 5G applications, enabling up to 100x increases in speed and near-zero latency with expanding network capacity. Our ambitious vision of 'connecting everyone and everything, all the time' has never been more relevant and exciting."

Looking forward

Skyworks is starting fiscal 2018 with a lot of momentum. As a result, CFO Kris Sennesael provided investors with the following upbeat guidance for the first quarter of the fiscal year 2018:

Metric Fiscal 2018 Q1 Guidance Fiscal 2017 Q1 Actual Implied Growth
Revenue $1.05 billion $914.3 million 15%
Non-GAAP EPS $1.91 $1.61 19%

And yet, despite posting record quarterly results and sharing a bullish outlook, Skyworks' shares were down about 6% as of 2:30 p.m. Tuesday. Short-term price movements aside, Skyworks' results clearly show that the company is successfully capitalizing on the megatrends that are unfolding in its industry.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit and Skyworks Solutions. The Motley Fool has the following options: short November 2017 $92 puts on Skyworks Solutions and short January 2018 $105 calls on Skyworks Solutions. The Motley Fool recommends Cisco Systems. The Motley Fool has a disclosure policy.