SKYWORKS SOLUTIONS, INC. This report and other documents we have filed with theSEC contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the "safe harbor" created by those sections. Words such as "anticipates," "believes," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "seek," "should," "will," "would," and similar expressions or variations or negatives of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. Additionally, statements concerning future matters such as the expected impact of the COVID-19 pandemic, the development of new products, enhancements of technologies, sales levels, expense levels, and other statements regarding matters that are not historical are forward-looking statements. Although forward-looking statements in this report reflect the good faith judgment of our management as of the date the statement is first made, such statements can only be based on facts and factors then known by us. Consequently, forward-looking statements involve inherent risks and uncertainties, and actual results and outcomes may differ materially and adversely from the results and outcomes discussed in, or anticipated by, the forward-looking statements. A number of important factors could cause actual results to differ materially and adversely from those in the forward-looking statements. We urge you to consider the risks and uncertainties discussed in this Quarterly Report on Form 10-Q and the 2019 10-K, under the heading "Risk Factors" and in the other documents we have filed with theSEC in evaluating our forward-looking statements. We have no plans, and undertake no obligation, to revise or update our forward-looking statements to reflect any event or circumstance that may arise after the date of the initial filing of this Quarterly Report on Form 10-Q. We caution readers not to place undue reliance upon any such forward-looking statements. 14
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In this document, the words "we," "our," "ours," and "us" refer only toSkyworks Solutions, Inc. and its subsidiaries and not any other person or entity. IMPACT OF COVID-19 The COVID-19 pandemic and likely resulting recession are affecting general economic conditions as well as conditions in our industry. Overall demand for our products has decreased as a result of the pandemic, which impacted our operating results for the three and six months endedMarch 27, 2020 . The duration, severity, and future impact of the pandemic are highly uncertain and could result in significant disruptions to our business operations, including our supply chain, as well as negative impacts to our financial condition. We do not expect that the temporary suspension of our operations inMexicali, Mexico , for approximately two weeks inApril 2020 , will have a significant impact on our business operations. However, a renewed suspension of our operations inMexicali for an extended period of time would likely impact our ability to meet customer demand and would likely impact our operating results.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED
The following table sets forth the results of our operations expressed as a
percentage of net revenue:
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2020 2019 2020 2019
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 51.0 50.6 50.7 50.3
Gross profit 49.0 49.4 49.3 49.7
Operating expenses:
Research and development 14.8 13.3 13.3 12.2
Selling, general and administrative 7.7 5.9 6.9 5.4
Amortization of intangibles 0.4 0.7 0.4
0.7
Restructuring and other charges 0.2 0.2 0.1 0.1 Total operating expenses 23.1 20.1 20.7 18.4 Operating income 25.9 29.3 28.6 31.3 Other income, net 0.5 0.5 0.2 0.3 Income before income taxes 26.4 29.8 28.8 31.6 Provision for income taxes 2.9 3.4 2.6 3.7 Net income 23.5 % 26.4 % 26.2 % 27.9 % OVERVIEW We, together with our consolidated subsidiaries, are empowering the wireless networking revolution. Our analog semiconductors are connecting people, places, and things spanning a number of new applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets.
GENERAL
During the six months ended
• Net revenue decreased by 6.7% to
This decrease in revenue was driven primarily by reduced demand resulting
from the
Commerce continuing to keep
its affiliates (collectively, "Huawei") on the Bureau's Entity List (the
"Entity List"). Additionally, demand for our products was negatively
impacted by the recent COVID-19 pandemic.
• Our ending cash, cash equivalents and marketable securities balance
increased 2.4% to
million as of
and marketable securities
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during the six months endedMarch 27, 2020 , was primarily the result of cash generated from operations of$678.8 million , partially offset by the repurchase of 4.0 million shares of common stock for$358.0 million , capital expenditures of$171.9 million , and dividend payments of$150.0 million . NET REVENUE Three Months Ended Six Months Ended March 27, March 29, March 27, March 29, 2020 Change 2019 2020 Change 2019 (dollars in millions) Net revenue$ 766.1 (5.5)%$ 810.4 $ 1,662.2 (6.7)%$ 1,782.4 We market and sell our products directly to OEMs of communications and electronics products, third-party original design manufacturers and contract manufacturers, and indirectly through electronic components distributors. We generally experience seasonal peaks during our fourth and first fiscal quarters (which correspond to the second half of the calendar year), primarily as a result of increased worldwide production of consumer electronics in anticipation of increased holiday sales, whereas our second and third fiscal quarters are typically lower and in line with seasonal industry trends. The decrease in net revenue for the three and six months endedMarch 27, 2020 , as compared with the corresponding periods in fiscal 2019, was driven by reduced demand resulting fromHuawei continuing to remain on the Entity List as well as the COVID-19 pandemic. GROSS PROFIT Three Months Ended Six Months Ended March 27, March 29, March 27, March 29, 2020 Change 2019 2020 Change 2019 (dollars in millions) Gross profit$ 375.6 (6.2)%$ 400.2 $ 819.9 (7.4)%$ 885.4 % of net revenue 49.0 % 49.4 % 49.3 % 49.7 % Gross profit represents net revenue less cost of goods sold. Our cost of goods sold consists primarily of purchased materials, labor and overhead (including depreciation and share-based compensation expense) associated with product manufacturing. Erosion of average selling prices of established products is typical of the semiconductor industry. As part of our normal course of business, we mitigate the gross margin impact of declining average selling prices with efforts to increase unit volumes, reduce material costs, improve manufacturing efficiencies, lower manufacturing costs of existing products and by introducing new and higher value-added products. The decrease in gross profit for the three months endedMarch 27, 2020 , as compared with the corresponding period in fiscal 2019, was primarily the result of lower average selling prices, lower unit volumes, and unfavorable product mix. Gross profit margin decreased to 49.0% of net revenue for the three months endedMarch 27, 2020 , as compared with 49.4% in the corresponding period in fiscal 2019. The decrease in gross profit for the six months endedMarch 27, 2020 , as compared with the corresponding period in fiscal 2019, was primarily the result of lower average selling prices and unfavorable product mix, partially offset by favorable unit volumes. Gross profit margin decreased to 49.3% of net revenue for the six months endedMarch 27, 2020 , as compared with 49.7% in the corresponding period in fiscal 2019.
RESEARCH AND DEVELOPMENT
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Research and development $ 113.2 5.3% $ 107.5 $ 220.8 1.9% $ 216.7
% of net revenue 14.8 % 13.3 % 13.3 % 12.2 %
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Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation and testing of new devices, masks, engineering prototypes and design tool costs. The increase in research and development expenses for the three and six months endedMarch 27, 2020 , as compared with the corresponding periods in fiscal 2019, was primarily related to an increase in employee-related compensation expense due to higher performance achievement with respect to performance stock awards. Research and development expense increased as a percentage of net revenue, when compared with the corresponding periods in fiscal 2019, as a result of our increased investment in developing new technologies and products.
SELLING, GENERAL AND ADMINISTRATIVE
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Selling, general and administrative $ 58.6 22.4% $ 47.9 $ 114.0 19.2% $ 95.7
% of net revenue 7.7 % 5.9 % 6.9 % 5.4 %
Selling, general and administrative expenses include legal and related costs,
accounting, treasury, human resources, information systems, customer service,
bad debt expense, sales commissions, share-based compensation expense,
advertising, marketing, costs associated with business combinations completed or
contemplated during the period, and other costs.
The increase in selling, general and administrative expenses for the three and
six months ended March 27, 2020 , as compared with the corresponding periods in
fiscal 2019, was primarily related to increases in employee-related share-based
compensation expense due to higher performance achievement with respect to
performance stock awards. Selling, general and administrative expenses for the
three and six months ended March 27, 2020 , increased as a percentage of net
revenue, as compared with the corresponding periods in fiscal 2019, primarily
due to the increase in employee-related share-based compensation expense.
AMORTIZATION OF INTANGIBLES
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Amortization of intangibles, cost
of goods sold $ 5.9 (20.3)% $ 7.4 $ 11.9 (23.2)% $ 15.5
Amortization of intangibles,
operating expense 5.4 (5.3)% 5.7 10.8 (17.6)% 13.1
Total amortization of
intangibles, including inventory
step-up 11.3 13.1 22.7 28.6
% of net revenue 3.0 % 3.5 % 1.4 % 1.6 %
The decrease in total amortization expense for the three and six months ended
March 27, 2020 , as compared with the corresponding periods in fiscal 2019, was
primarily due to the end of the useful lives of certain intangible assets that
were acquired in prior fiscal years.
PROVISION FOR INCOME TAXES
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Provision for income taxes $ 21.9 (19.8)% $ 27.3 $ 43.6 (34.3)% $ 66.3
% of net revenue 2.9 % 3.4 % 2.6 % 3.7 %
We recorded a provision for income taxes of $21.9 million (which consisted of
$11.8 million and $10.1 million related to United States and foreign income
taxes, respectively) and $43.6 million (which consisted of $23.3 million and
$20.3 million related to United States and foreign income taxes, respectively)
for the three and six months ended March 27, 2020 , respectively.
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The decrease in income tax expense for the three and six months endedMarch 27, 2020 , as compared with the corresponding periods in fiscal 2019, was primarily due to benefits related to increased foreign earnings taxed at rates lower than the federal statutory rate and increased windfall tax deductions.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended
March 27, March 29,
(in millions) 2020 2019
Cash and cash equivalents at beginning of period
678.8 741.1
Net cash used in investing activities (136.5 ) (96.6 )
Net cash used in financing activities (481.2 ) (561.5 )
Cash and cash equivalents at end of period
Cash provided by operating activities: Cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities. During the six months endedMarch 27, 2020 , we generated$678.8 million of cash from operating activities, a decrease of$62.3 million as compared with the$741.1 million generated during the six months endedMarch 29, 2019 . The decrease of$62.3 million in cash provided by operating activities during the six months endedMarch 27, 2020 , as compared with the corresponding period in fiscal 2019, was primarily related to unfavorable changes in working capital. Cash used in investing activities: Cash used in investing activities consists primarily of capital expenditures and cash paid related to the purchase of marketable securities, offset by cash received related to the sale or maturity of marketable securities. The$39.9 million increase in cash used in investing activities during the six months endedMarch 27, 2020 , as compared with the corresponding period in fiscal 2019, was primarily related to a$106.9 million difference in the net purchase and sale of marketable securities, partially offset by a$54.3 million decrease in cash used for capital expenditures. Cash used in financing activities: Cash used in financing activities consists primarily of cash transactions related to equity. The$80.3 million decrease in cash used in financing activities during the six months endedMarch 27, 2020 , as compared with the corresponding period in fiscal 2019, was primarily related to a decrease of$67.5 million in stock repurchase activity and an increase of$36.5 million in net proceeds from employee stock option exercises. These decreases in cash used in financing activities were partially offset by an increase of$16.9 million in dividend payments and an increase of$7.7 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards.
Liquidity:
Cash, cash equivalents and marketable securities totaled$1,108.0 million as ofMarch 27, 2020 , representing an increase of$25.8 million fromSeptember 27, 2019 . The increase resulted primarily from$678.8 million in cash generated from operations, partially offset by$358.0 million used to repurchase 4.0 million shares of stock,$150.0 million in cash dividend payments, and$171.9 million in capital expenditures. Based on our historical results of operations, we expect that our cash, cash equivalents and marketable securities on hand and the cash we expect to generate from operations will be sufficient to fund our research and development, capital expenditures, potential acquisitions, working capital, quarterly cash dividend payments (if such dividends are declared by the Board of Directors), outstanding commitments and other liquidity requirements associated with existing operations for at least the next 12 months. However, we cannot be certain that our cash on hand and cash generated from operations will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and acquisitions may require additional cash and capital resources. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.
Our invested cash balances primarily consist of highly liquid marketable
securities that are available to meet near-term cash requirements including:
term deposits, certificate of deposits, money market funds,
CONTRACTUAL OBLIGATIONS
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Our contractual obligations disclosure in the 2019 10-K has not materially changed since we filed that report.
OFF-BALANCE SHEET ARRANGEMENTS
We have no material off-balance sheet arrangements as defined in SEC Regulation S-K Item 303(a)(4)(ii).
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