Skyworks Earnings: Disappointing Guidance Doesn’t Deter Our Long-Term View; Keeping $155 Fair Value

Narrow-moat Skyworks Solutions SWKS reported decent fiscal second-quarter results but provided investors with a forecast for the June quarter that fell short of our expectations. Still, the weak guidance does not deter us from our long-term view that the company will remain a winner in the radio frequency chip space. We maintain our $155 fair value estimate and see an attractive margin of safety for investors willing to ride out the latest cyclical downturn in the RF industry. We’re encouraged by commentary around Skyworks’ secure position as a leading supplier into Apple’s next wave of iPhones. Meanwhile, we view the company’s gloomy near-term outlook as cyclical, rather than structural, due to macroeconomic headwinds and a horrific inventory correction at Android-based smartphone makers.

Revenue in the March quarter was $1.153 billion, down 13% sequentially and 14% year over year, but just above the midpoint of guidance of $1.150 billion. Apple made up 64% of revenue and was flattish year over year, as Skyworks still saw nice demand for chips going into iPhones and other Apple devices. Adjusted gross margin was 50%, down 150 basis points sequentially and at the low end of guidance because of factory underutilization.

Skyworks expects revenue in the June quarter in the range of $1.05 billion-$1.09 billion, as compared with FactSet consensus estimates of $1.15 billion. At the midpoint, revenue would be down 7% sequentially and 13% year over year. Skyworks again expects dismal demand from Android customers, while demand from Apple and broad markets will encounter a bit of a slowdown, mostly attributable to macroeconomic concerns. Adjusted gross margin guidance was disappointing at 47%-48%, as the company expects to encounter additional factory underutilization charges because supply (including inventory on hand) is well ahead of near-term demand.