Wireless chips maker Skyworks Solutions (NASDAQ: SWKS) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 9.3% year on year to $1.05 billion. On the other hand, next quarter's revenue guidance of $900 million was less impressive, coming in 12.1% below analysts' estimates. It made a non-GAAP profit of $1.55 per share, down from its profit of $2.02 per share in the same quarter last year.

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Skyworks Solutions (SWKS) Q1 CY2024 Highlights:

• Revenue: $1.05 billion vs analyst estimates of $1.05 billion (small miss)

• EPS (non-GAAP): $1.55 vs analyst estimates of $1.52 (1.7% beat)

• Revenue Guidance for Q2 CY2024 is $900 million at the midpoint, below analyst estimates of $1.02 billion

• Gross Margin (GAAP): 40.2%, down from 45.7% in the same quarter last year

• Inventory Days Outstanding: 122, in line with the previous quarter

• Free Cash Flow of $272.6 million, down 63.8% from the previous quarter

• Market Capitalization: $17.31 billion

“Skyworks delivered solid results and strong cash generation in a challenging macroeconomic environment,” said Liam K. Griffin, Chairman, Chief Executive Officer and President of Skyworks.

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 Semiconductors

Demand 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 Growth

Skyworks Solutions's revenue growth over the last three years has been unimpressive, averaging 4.1% annually. This quarter, its revenue declined from $1.15 billion in the same quarter last year to $1.05 billion. 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).

Skyworks Solutions had a difficult quarter as revenue dropped 9.3% year on year, missing analysts' estimates by 0%. This could mean that the current downcycle is deepening.

Skyworks Solutions may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 16% next quarter, analysts are expecting revenue to grow 0.5% over the next 12 months.

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Product Demand & Outstanding Inventory

Days 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 122, which is 15 days below 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 Q1 Results

It was good to see Skyworks Solutions beat analysts' EPS expectations this quarter. On the other hand, its free cash flow missed, and its revenue and EPS guidance for next quarter fell short of analysts' expectations. Management attributes the weaker outlook to an anticipated decline in its mobile business as it clears its excess inventory.

A silver lining was that the company announced a dividend of $0.68 per share, which will be paid on June 11, 2024 to stockholders of record on May 21, 2024.

Overall, this was a tough quarter for Skyworks Solutions. The company is down 6.7% on the results and currently trades at $99.49 per share.

Skyworks Solutions may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.