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 possible impacts 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. 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 the resulting economic downturn are affecting business 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 nine months endedJune 26, 2020 . The duration, severity, and future impact of the pandemic continue to be highly uncertain and could still result in significant disruptions to our business operations, including our supply chain, as well as negative impacts to our financial condition. As a result of the temporary suspension of our operations inMexicali, Mexico , for approximately two weeks inApril 2020 , we incurred a$23.4 million production utilization charge, as described below. A renewed suspension of our operations inMexicali , or a continued reduction in our production capacity due to employee quarantines, employee absenteeism, and restrictions on certain of our employees' ability to work, would negatively impact our future operating results. RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED
The following table sets forth the results of our operations expressed as a percentage of net revenue:
Three Months Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2020 2019 2020 2019
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 54.7 59.3 51.9 53.0
Gross profit 45.3 40.7 48.1 47.0
Operating expenses:
Research and development 15.9 13.1 14.1 12.4
Selling, general and administrative 7.5 6.1 7.0 5.6
Amortization of intangibles 0.4 0.7 0.4 0.7
Restructuring, impairment and other charges 1.6 - 0.6 0.1
Total operating expenses 25.4 19.9 22.1 18.8
Operating income 19.9 20.8 26.0 28.2
Other income (expense), net (0.5) 0.3 - 0.2
Income before income taxes 19.4 21.1 26.0 28.4
Provision for income taxes 1.9 2.3 2.4 3.3
Net income 17.5 % 18.8 % 23.6 % 25.1 %
16-------------------------------------------------------------------------------- Table of Contents 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 nine months ended
•Net revenue decreased by 5.9% to$2,398.9 million for the nine months endedJune 26, 2020 , as compared with the corresponding period in fiscal 2019. This decrease in revenue was driven primarily by reduced demand resulting from theU.S. Bureau of Industry and Security of theU.S. Department of Commerce continuing to keepHuawei Technologies Co., Ltd. and certain of its affiliates (collectively, "Huawei") on the Bureau's Entity List (the "Entity List"). Additionally, demand for our products was negatively impacted by the ongoing COVID-19 pandemic. These decreases in revenue were partially offset by an increase in demand for the Company's new 5G solutions being deployed across a growing set of customers. •Our ending cash, cash equivalents and marketable securities balance increased 7.4% to$1,162.4 million as ofJune 26, 2020 , from$1,082.2 million as ofSeptember 27, 2019 . This increase in cash, cash equivalents and marketable securities during the nine months endedJune 26, 2020 , was primarily the result of cash generated from operations of$937.5 million , partially offset by the repurchase of 4.6 million shares of common stock for$416.5 million , capital expenditures of$243.5 million , and dividend payments of$223.5 million .
NET REVENUE
Three Months Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Net revenue $ 736.8 (3.9)% $ 767.0 $ 2,398.9 (5.9)% $ 2,549.4
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 nine months ended June 26, 2020 ,
as compared with the corresponding periods in fiscal 2019, was driven by reduced
demand resulting from Huawei continuing to remain on the Entity List as well as
the ongoing COVID-19 pandemic, partially offset by an increase in demand for the
Company's new 5G solutions being deployed across a growing set of customers.
GROSS PROFIT
Three Months Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Gross profit $ 334.1 6.9% $ 312.5 $ 1,154.0 (3.7)% $ 1,197.8
% of net revenue 45.3 % 40.7 % 48.1 % 47.0 %
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.
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The increase in gross profit for the three months ended June 26, 2020 , as
compared with the corresponding period in fiscal 2019, was primarily the result
of a favorable product mix, partially offset by lower unit volumes and lower
average selling prices. In addition, there was a $23.4 million production
utilization charge in the three months ended June 26, 2020 , due to the temporary
suspension of our operations in Mexicali in the government's effort to contain
the COVID-19 pandemic. This one-time charge was less than the $66.6 million
inventory-related one-time charge incurred in the three months ended June 28,
2019 , due to lower expected demand as a result of Huawei being added to the
Entity List. Gross profit margin increased to 45.3% of net revenue for the three
months ended June 26, 2020 , as compared with 40.7% in the corresponding period
in fiscal 2019.
The decrease in gross profit for the nine months ended June 26, 2020 , as
compared with the corresponding period in fiscal 2019, was primarily the result
of lower unit volumes and lower average selling prices, partially offset by a
favorable product mix. In addition, there was a $23.4 million production
utilization charge in the nine months ended June 26, 2020 , due to the temporary
suspension of our operations in Mexicali in the government's effort to contain
the COVID-19 pandemic. This one-time charge was less than the $66.6 million
inventory-related one-time charge incurred in the nine months ended June 28,
2019 , due to lower expected demand as a result of Huawei being added to the
Entity List. Gross profit margin increased to 48.1% of net revenue for the nine
months ended June 26, 2020 , as compared with 47.0% in the corresponding period
in fiscal 2019.
RESEARCH AND DEVELOPMENT
Three Months Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Research and development $ 117.0 16.3% $ 100.6 $ 337.9 6.5% $ 317.3
% of net revenue 15.9 % 13.1 % 14.1 % 12.4 %
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 nine months
ended June 26, 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.
SELLING, GENERAL AND ADMINISTRATIVE
Three Months Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Selling, general and administrative $ 55.0 17.5% $ 46.8 $ 169.1 18.7% $ 142.5
% of net revenue 7.5 % 6.1 % 7.0 % 5.6 %
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
nine months ended June 26, 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.
AMORTIZATION OF INTANGIBLES
Three Months Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Total amortization of intangibles,
including inventory step-up 12.7 (13.6)% 14.7 35.4 (18.2)% 43.3
% of net revenue 1.7 % 1.9 % 1.5 % 1.7 %
The decrease in total amortization expense for the three and nine months ended
June 26, 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.
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PROVISION FOR INCOME TAXES
Three Months Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2020 Change 2019 2020 Change 2019
(dollars in millions)
Provision for income taxes $ 14.3 (19.7)% $ 17.8 $ 57.7 (31.3)% $ 84.0
% of net revenue 1.9 % 2.3 % 2.4 % 3.3 %
We recorded a provision for income taxes of $14.3 million (which consisted of
$4.1 million and $10.2 million related to United States and foreign income
taxes, respectively) and $57.7 million (which consisted of $27.3 million and
$30.4 million related to United States and foreign income taxes, respectively)
for the three and nine months ended June 26, 2020 , respectively.
The decrease in income tax expense for the three and nine months ended June 26,
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
Nine Months Ended
June 26, June 28,
(in millions) 2020 2019
Cash and cash equivalents at beginning of period
937.5 950.4
Net cash used in investing activities (391.0) (235.1)
Net cash used in financing activities (606.5) (705.8)
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. The$12.9 million decrease in cash provided by operating activities during the nine months endedJune 26, 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$155.9 million increase in cash used in investing activities during the nine months endedJune 26, 2020 , as compared with the corresponding period in fiscal 2019, was primarily related to a$230.6 million difference in the net purchase and sale of marketable securities, partially offset by a$70.5 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$99.3 million decrease in cash used in financing activities during the nine months endedJune 26, 2020 , as compared with the corresponding period in fiscal 2019, was primarily related to a decrease of$94.8 million in stock repurchase activity and an increase of$37.6 million in net proceeds from employee stock option exercises. These decreases in cash used in financing activities were partially offset by an increase of$24.7 million in dividend payments and an increase of$9.3 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$1,162.4 million as ofJune 26, 2020 , representing an increase of$80.2 million fromSeptember 27, 2019 . The increase resulted primarily from$937.5 million in cash generated from operations, partially offset by$416.5 million used to repurchase 4.6 million shares of stock,$223.5 million in cash dividend payments, and$243.5 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 19 -------------------------------------------------------------------------------- Table of Contents 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 Our contractual obligations disclosure in the 2019 10-K has not materially changed since we filed that report.
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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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