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Wireless chips maker Skyworks Solutions (NASDAQ: NASDAQ:SWKS) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 15.5% year on year to $905.5 million. The company expects next quarter's revenue to be around $1.02 billion, coming in 1.3% above analysts' estimates. It made a non-GAAP profit of $1.21 per share, down from its profit of $1.73 per share in the same quarter last year.
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Skyworks Solutions (SWKS) Q2 CY2024 Highlights:
- Revenue: $905.5 million vs analyst estimates of $900.6 million (small beat)
- Adjusted Operating Income: $219 million vs analyst estimates of $218.8 million (small beat)
- EPS (non-GAAP): $1.21 vs analyst expectations of $1.21 (in line)
- Revenue Guidance for Q3 CY2024 is $1.02 billion at the midpoint, above analyst estimates of $1.01 billion
- Gross Margin (GAAP): 40.2%, down from 43.3% in the same quarter last year
- Inventory Days Outstanding: 138, up from 122 in the previous quarter
- Free Cash Flow of $297.9 million, similar to the previous quarter
- Market Capitalization: $18.84 billion
Result of a merger of Alpha Industries and the wireless communications division of Conexant, Skyworks Solutions (NASDAQ: SWKS) is a designer and manufacturer of chips used in smartphones, autos, and industrial applications to amplify, filter, and process wireless signals.
Analog SemiconductorsDemand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales GrowthSkyworks Solutions's revenue has been declining over the last three years, dropping by 1.5% on average per year. This quarter, its revenue declined from $1.07 billion in the same quarter last year to $905.5 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
This was a slow quarter for the company as its revenue dropped 15.5% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.
Skyworks Solutions looks like it's headed into the trough of the semiconductor cycle, as it's guiding for a year-on-year revenue decline of 16.3% next quarter. Analysts are also estimating a 6% decline over the next 12 months.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Skyworks Solutions's DIO came in at 138, which is one day above its five-year average. These numbers show that despite the recent increase, there's no indication of an excessive inventory buildup.
Key Takeaways from Skyworks Solutions's Q2 ResultsIt was encouraging to see Skyworks Solutions slightly beat analysts' revenue guidance expectations. On the other hand, its operating margin regrettably fell and its inventory levels increased. Overall, this was a mediocre quarter for Skyworks Solutions. The stock traded down 3.2% to $114 immediately following the results.
