Skyworks Top Line Beats - Analyst Blog

Skyworks Solutions, Inc. (SWKS) posted a net income of $46.8 million or 25 cents in the fourth quarter of fiscal 2010, down 20% year over year due to tax adjustment related charges. Excluding one-time items, but including stock-based compensation expenses, net income per share came in at 35 cents, in line with the Zacks Consensus Estimate.

Revenues of $313.3 million were up 37% from the year-ago quarter and up 14% sequentially. The reported figure beat management's updated guidance of $310 million, driven by a strong growth in mobile Internet and analog markets.

Skyworks continues to capitalize on three business segments − mobile Internet, vertical markets and analog components. The market for smartphones is growing by leaps and bounds – four times the growth rate of the traditional cellular handset. Skyworks continues to benefit from the rising tide of increasing radio frequency (RF) content associated with 3G and 4G platforms.

The mobile market is being fueled by multiple devices per subscriber, with a growing demand for new devices beyond traditional cellular handsets and smartphones that encompass high resolution tablets, USB modems, home networks and yet-to-be-introduced Internet connective devices. The upgrade to 4G networks represents a significant market expansion opportunity for Skyworks.

Skyworks continues to gain traction on the network infrastructure side of the mobile Internet connection as operators install new base stations, new routers, and back-haul equipment to expand coverage of data services and prepare for next generation LTE deployments. Infrastructure expenditures by mobile operators are expected to grow more than 40% in the coming years, propelled by demand in emerging markets like China and India, the latter gearing up for a nationwide 3G roll-out.

Skyworks increased its share at HUAWEI and ZTE with innovative products and captured design wins in support of Cisco's (CSCO) fiber-to-the-curve and fiber-to-the-home applications.

Margins

Gross margin (excluding stock-based compensation expenses) improved to 43.8%, up from 43.3% in the previous quarter and 40.9% in the year-ago quarter. The improvement in gross margin was driven by improved product mix (comprising a larger percentage of higher-margin vertical markets and 3G solutions), a volume ramp of new products, improved manufacturing efficiencies, yield improvements and significant material cost reductions.

Operating margin came in at 26.1%, up from 18.6% in the year-ago quarter and 23.1% in the previous quarter.

Skyworks exited the fourth quarter with cash and cash equivalents of $459.4 million, up from $390 million at the end of the previous quarter.

For fiscal 2010, revenues came in at $1.072 billion, up 34% from fiscal 2009. Gross margin improved to 43.0% from 40.5% in fiscal 2009. Operating margin improved to 23.0%, up from 15.1% in the year-ago quarter. Excluding one-time items but including stock-based compensation expenses, EPS came in at $1.04.

Guidance

Going forward, Skyworks projects revenues of $330 million to $335 million in the first quarter of fiscal 2011, up 35% – 37% year over year. Gross margin is expected around 44.5%. Operating margin is projected around 27% – 28%. Excluding stock-based compensation expenses and restructuring charges, EPS is expected at 44 cents per share.

Skyworks aims to diversify its focus on new vertical markets and an expanded customer base. We remain encouraged by the company's recent solid performance and upbeat guidance. Skyworks, which competes with RF Micro Devices (RFMD), Anadigics, Inc. (ANAD) and TriQuint Semiconductor, Inc. (TQNT), continues to outpace analog semiconductor market growth driven by momentum across mobile Internet, smart energy and diversified linear products applications.

We currently have an Outperform recommendation on Skyworks supported by Zacks Rank #1.