01—Abstract
Summary
Summary of the 10-K filed November 27, 2007. Cited figures are marked; the original filing is the authoritative source.
Skyworks Solutions, Inc. reported fiscal 2007 (year ended September 28, 2007) net revenues of $741.7 milliona, down $32.0 million, or 4.1%, from fiscal 2006, as the company exited its baseband product area at the end of fiscal 2006.
Revenues from its Core Products (mobile platforms and linear products) remained relatively unchanged, with a more favorable product mix offset by declines in average selling prices of 8.1% and units sold of 1.5%. Profitability improved sharply: operating income was $58.5 millionb versus an operating loss of $66.3 million in fiscal 2006, and net income was $57.7 million, or $0.36 per diluted share, compared with a net loss of $88.2 million in the prior year. Gross margin rose to 38.7% from 33.9%, driven by mix, the absence of fiscal 2006 baseband inventory charges, and higher factory utilization.
Cash flow and the balance sheet also improved. Cash provided by operations was $84.8 millionc versus $27.2 million in fiscal 2006, and cash and cash equivalents rose to $241.6 million. Total indebtedness was approximately $299.3 million, about 30.3% of total capitalization.
The company issued $200.0 milliond of 2007 Convertible Notes in March 2007 and used proceeds to retire $130.0 million of 4.75% Junior Notes, with the remaining $49.3 million due November 15, 2007. The company also recorded a valuation allowance of $151.3 million against U.S. deferred tax assets, and it repurchased about 4.3 million shares for approximately $30.1 million.
Risks highlighted in the filing include cyclicality in the semiconductor industry, customer concentration (three largest OEM customers, Sony Ericsson, Motorola and Samsung, represented approximately 50% of fiscal 2007 net revenues), reliance on sole-source epitaxial wafer supply, and pending FASB proposed FSP APB 14-a, which could increase non-cash interest expense on the 2007 Convertible Notes. In October 2007, the company paid $32.4 million to acquire raw materials, die bank, finished goods, GaAs PA/FEM designs and related intellectual property from two companies.
02—Key points
Key Highlights
- Net revenues were $741.7 million in fiscal 2007, down 4.1% from $773.8 million in fiscal 2006, reflecting the exit of the baseband product area.
- Operating income of $58.5 million compared with an operating loss of $66.3 million in fiscal 2006; net income was $57.7 million, or $0.36 per diluted share, versus a net loss of $88.2 million.
- Gross margin improved to 38.7% from 33.9%, attributed to higher-margin Core Products, absence of fiscal 2006 baseband inventory charges, improved factory utilization and IP licensing contributions.
- Cash provided by operations was $84.8 million, up from $27.2 million; cash and cash equivalents ended the year at $241.6 million.
- Total indebtedness of approximately $299.3 million, about 30.3% of total capitalization; $200.0 million of 1.25%/1.50% 2007 Convertible Notes issued in March 2007 used to retire $130.0 million of Junior Notes.
- Customer concentration remains high: the three largest OEM customers (Sony Ericsson, Motorola and Samsung) represented approximately 50% of fiscal 2007 net revenues.
- Research and development expense fell to $126.1 million from $164.1 million, and a $151.3 million valuation allowance remains against U.S. deferred tax assets.
03—Questions
Frequently Asked Questions
Why did revenue decline in fiscal 2007 while profitability improved?
Revenue fell $32.0 million, or 4.1%, because of the exit of the baseband product area at the end of fiscal 2006. Core Products revenue was relatively unchanged. Profitability improved because the lower-margin baseband business was eliminated, product mix shifted toward Core Products, fiscal 2006 inventory charges did not recur, and R&D and SG&A spending declined.
How is the company managing its debt maturities?
In March 2007 the company issued $200.0 million of convertible subordinated notes, $100.0 million due March 2010 at 1.25% and $100.0 million due March 2012 at 1.50%, and used proceeds to retire $130.0 million of 4.75% Junior Notes. The remaining $49.3 million of Junior Notes was due and retired on November 15, 2007. The company expects interest expense savings of approximately $6.8 million annually. Its $50.0 million Facility Agreement with Wachovia Bank was fully drawn at year end.
What are the main risks to the business?
The filing cites semiconductor industry cyclicality, intense competition with price pressure, dependence on a few large OEM customers (about 50% of fiscal 2007 revenue from three customers), reliance on third-party foundries and a sole-source epitaxial wafer supplier, and rapid technological change. It also notes that a proposed FASB change (FSP APB 14-a) could significantly increase non-cash interest expense on the 2007 Convertible Notes.
What drove the change in tax expense and what is the outlook for tax benefits?
Fiscal 2007 recorded an income tax benefit of $0.9 million, compared with a $15.4 million expense in fiscal 2006. The company maintains a valuation allowance of $151.3 million on U.S. deferred tax assets. Future reversals are expected to be recognized as approximately $128.8 million of income tax benefit, $18.6 million as a reduction to goodwill and $3.9 million as an increase to shareholders' equity. The company will need $216.7 million of future U.S. federal taxable income to use all of its net operating loss carryforwards.
What did the company do with its capital and share repurchases in fiscal 2007?
Capital expenditures were $42.6 million, mainly for fabrication equipment to support assembly and test capacity. The company repurchased approximately 4.3 million common shares for $30.1 million in March 2007. In October 2007, it paid $32.4 million to acquire raw materials, die bank, finished goods, proprietary GaAs PA/FEM designs and related intellectual property, along with sixteen fundamental HBT and RF MEMs patents.
04—Continue