01—Abstract
Summary
Summary of the 10-K filed November 25, 2014. Cited figures are marked; the original filing is the authoritative source.
Skyworks Solutions, Inc. reported a strong fiscal 2014 for the year ended October 3, 2014, with net revenue of $2,291.5 milliona, up from $1,792.0 million in fiscal 2013, and operating income of $565.2 million, a 24.7% operating margin versus 19.3% a year earlier.
Net income rose to $457.7 millionb from $278.1 million, and diluted earnings per share were $2.38 compared with $1.45. Management attributes the growth to smartphones displacing traditional cellular phones, adoption of 3G and 4G technologies in emerging markets, growth in tablets, and expansion of the analog portfolio into medical, automotive, military and industrial markets. Gross margin improved to 44.6% of net revenue from 42.8%.
Cash flow and capital allocation were central to the year. Cash from operations was $772.4 millionc, against $208.6 million of capital expenditures. The company acquired a 66% controlling interest in a SAW and TC SAW filter joint venture with Panasonic for $148.5 million, repurchased 4.5 million shares for $165.7 million, and paid $41.4 million in dividends.
Cash and cash equivalents ended at $805.8 milliond. In March 2014 the company began a quarterly dividend program, and on November 6, 2014 the board declared a $0.13 per share quarterly dividend. A new $300.0 million share repurchase program was approved on November 11, 2014.
Investors should weigh concentration and cyclicality risks. Two customers, Foxconn Technology Group and Samsung Electronics, each exceeded ten percent of net revenue, and Company A and Company B accounted for 34% and 10% of fiscal 2014 net revenue, respectively. The filing also notes that average selling prices of established products are expected to decline five to ten percent per year, and that the FilterCo acquisition was excluded from management's internal control assessment.
02—Key points
Key Highlights
- Net revenue rose to $2,291.5 million in fiscal 2014 from $1,792.0 million, an increase of 27.9%.
- Operating margin expanded to 24.7% from 19.3%, and gross margin reached 44.6% of net revenue versus 42.8%.
- Net income was $457.7 million and diluted EPS was $2.38, compared with $278.1 million and $1.45 in fiscal 2013.
- Cash and cash equivalents increased to $805.8 million, supported by $772.4 million of operating cash flow.
- The Panasonic SAW and TC SAW filter joint venture gave Skyworks a 66% controlling interest for $148.5 million in cash, with an option to acquire the remaining 34% for $76.5 million.
- The company initiated a quarterly cash dividend in March 2014, declared $0.22 per share for fiscal 2014, and approved a new $300.0 million share repurchase program on November 11, 2014.
- Customer concentration is significant: Foxconn and Samsung each exceeded ten percent of net revenue, and the company's three largest receivable balances were 58% of gross accounts receivable at October 3, 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Skyworks Solutions kept $0.20.
- Revenue$2.29B100.0%
- Cost of revenue−$1.27B55.4%
- Gross profit$1.02B44.6%
- Operating costs−$457.5M20.0%
- Operating income$565.2M24.7%
- Interest, other & tax−$107.5M4.7%
- Net income$457.7M20.0%
Where FY2014 revenue went
$2.29B- Cost of revenue: $1.27B, 55% of revenue
- Net income: $457.7M, 20% of revenue
- R&D: $252.2M, 11% of revenue
- SG&A: $179.1M, 7.8% of revenue
- Other operating costs: $26.2M, 1.1% of revenue
- Interest, other & tax: $107.5M, 4.7% of revenue
Kept 20% as net incomeOther operating costs $26.2M · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed November 25, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $2.29B$1.79B | +27.9% |
| Cost of Revenue | $1.27B$1.03B | +23.7% |
| Gross Profit | $1.02B$766.60M | +33.4% |
| R&D Expenses | $252.20M$226.30M | +11.4% |
| SG&A Expenses | $179.10M$159.70M | +12.1% |
| Operating Expenses | $457.50M$421.50M | +8.5% |
| Operating Income | $565.20M$345.10M | +63.8% |
| Net Income | $457.70M$278.10M | +64.6% |
| EPS (Basic) | $2.44$1.48 | +64.9% |
| EPS (Diluted) | $2.38$1.45 | +64.1% |
| Shares Outstanding (Basic) | 187.20M187.50M | −0.2% |
| Shares Outstanding (Diluted) | 192.60M192.20M | +0.2% |
05—Questions
Frequently Asked Questions
What drove Skyworks' revenue growth in fiscal 2014?
Management attributed the $499.5 million revenue increase primarily to capturing a higher share of RF and analog content per device as smartphones displaced traditional cellular phones, growth in emerging markets from 3G and 4G adoption, rising tablet popularity, and expansion of the analog portfolio into medical, automotive, military and industrial markets.
How much cash did Skyworks generate and how did it deploy it?
Operating activities generated $772.4 million. The company spent $208.6 million on capital expenditures, $148.5 million on the Panasonic filter joint venture, $165.7 million repurchasing about 4.5 million shares, and $41.4 million on dividends. Cash and cash equivalents ended the year at $805.8 million.
What is the Panasonic joint venture and what is the remaining commitment?
On August 1, 2014 Skyworks acquired a 66% controlling interest in FilterCo, which designs, manufactures and sells Panasonic's SAW and TC SAW filter products, for $148.5 million in cash. After the second anniversary of closing, Skyworks has the right, and Panasonic the right, to transact the remaining 34% interest for a fixed $76.5 million, subject to foreign exchange adjustments.
What risks does the filing highlight for investors?
The filing highlights cyclicality of the semiconductor industry, dependence on a small number of customers, with Foxconn and Samsung each above ten percent of net revenue, reliance on third-party foundries and subcontractors, and continuing average selling price erosion of five to ten percent per year on established products. It also notes international operating risks, particularly in China, and the tax holiday in Singapore running through September 30, 2020.
What are Skyworks' capital return plans?
Skyworks began paying quarterly dividends in March 2014 and declared $0.11 per share in each of the third and fourth fiscal quarters. On November 6, 2014 the board declared a $0.13 per share dividend payable December 11, 2014. The board also approved a new $300.0 million share repurchase program on November 11, 2014, replacing the July 2013 program, which had $63.9 million remaining.
06—Continue