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, the completion, timing, financing, and benefits of the acquisition of Silicon Labs' Infrastructure and Automotive business, 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 2020 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 to
Impact of COVID-19 The COVID-19 pandemic and the resulting economic downturn are affecting business conditions in our industry. 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. A renewed suspension of our operations inMexicali, Mexico , similar to what we experienced inApril 2020 , 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. 14 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
Three and Six Months Ended
Three Months Ended Six Months Ended
April 2, March 27, April 2, March 27,
2021 2020 2021 2020
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 50.6 51.0 50.0 50.7
Gross profit 49.4 49.0 50.0 49.3
Operating expenses:
Research and development 11.2 14.8 9.4 13.3
Selling, general, and administrative 6.0 7.8 5.1 6.9
Amortization of intangibles 0.2 0.4 0.2 0.4
Restructuring, impairment, and other charges - 0.2 - 0.1
Total operating expenses 17.4 23.2 14.7 20.7
Operating income 32.0 25.8 35.3 28.6
Other income, net 0.1 0.5 - 0.2
Income before income taxes 32.1 26.3 35.3 28.8
Provision for income taxes 4.3 2.9 4.2 2.6
Net income 27.8 % 23.4 % 31.1 % 26.2 %
OVERVIEW
We, together with our consolidated subsidiaries, are empowering the wireless
networking revolution. Our highly innovative analog semiconductors are
connecting people, places, and things spanning a number of new and previously
unimagined applications within the aerospace, automotive, broadband, cellular
infrastructure, connected home, entertainment and gaming, industrial, medical,
military, smartphone, tablet, and wearable markets.
General
During the six months endedApril 2, 2021 , the following key factors contributed to our overall results of operations, financial position, and cash flows: •Net revenue increased by 61.3% to$2,681.8 million for the six months endedApril 2, 2021 , as compared with the corresponding period in fiscal 2020. This increase in revenue was driven primarily by an increase in overall demand for wireless connectivity products coupled with the onset of technology upgrade cycles, including for 5G and Wi-Fi 6 solutions. Additionally, our average content per device for these next-generation solutions increased. •Our ending cash, cash equivalents, and marketable securities balance increased 45.3% to$1,423.6 million as ofApril 2, 2021 , from$980.0 million as ofOctober 2, 2020 . This increase in cash, cash equivalents and marketable securities during the six months endedApril 2, 2021 , was primarily the result of cash generated from operations of$1,100.8 million , partially offset by capital expenditures of$259.8 million , the repurchase of 1.4 million shares of common stock for$195.6 million , and dividend payments of$165.6 million . Net Revenue Three Months Ended Six Months Ended April 2, March 27, April 2, March 27, 2021 Change 2020 2021 Change 2020 (dollars in millions) Net revenue$ 1,171.8 53.0%$ 766.1 $ 2,681.8 61.3%$ 1,662.2 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 15 -------------------------------------------------------------------------------- Table of Contents 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 increase in net revenue for the three and six months endedApril 2, 2021 , as compared with the corresponding period in fiscal 2020, was driven primarily by an increase in overall demand for wireless connectivity products coupled with the onset of technology upgrade cycles, including for 5G and Wi-Fi 6 solutions. Additionally, our average content per device for these next-generation solutions increased. Gross Profit Three Months Ended Six Months Ended April 2, March 27, April 2, March 27, 2021 Change 2020 2021 Change 2020 (dollars in millions) Gross profit$ 578.4 54.0%$ 375.6 $ 1,340.1 63.4%$ 819.9 % of net revenue 49.4 % 49.0 % 50.0 % 49.3 % 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 increase in gross profit for the three months endedApril 2, 2021 , as compared with the corresponding period in fiscal 2020, was primarily the result of a favorable product mix and higher unit volumes with a gross profit impact of$220.8 million , partially offset by lower average selling prices. Gross profit margin increased to 49.4% of net revenue for the three months endedApril 2, 2021 , as compared with 49.0% in the corresponding period in fiscal 2020. The increase in gross profit for the six months endedApril 2, 2021 , as compared with the corresponding period in fiscal 2020, was primarily the result of a favorable product mix and higher unit volumes with a gross profit impact of$562.5 million , partially offset by lower average selling prices. Gross profit margin increased to 50.0% of net revenue for the six months endedApril 2, 2021 , as compared with 49.3% in the corresponding period in fiscal 2020.
Research and Development
Three Months Ended Six Months Ended
April 2, March 27, April 2, March 27,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Research and development $ 130.7 15.5% $ 113.2 $ 252.3 14.3% $ 220.8
% of net revenue 11.2 % 14.8 % 9.4 % 13.3 %
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
ended April 2, 2021 , as compared with the corresponding periods in fiscal 2020,
was primarily related to headcount-related expenses as a result of our increased
investment in developing new technologies and products.
Selling, General, and Administrative
Three Months Ended Six Months Ended
April 2, March 27, April 2, March 27,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Selling, general, and administrative $ 70.2 19.8% $ 58.6 $ 136.9 20.1% $ 114.0
% of net revenue 6.0 % 7.7 % 5.1 % 6.9 %
16-------------------------------------------------------------------------------- Table of Contents 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 endedApril 2, 2021 , as compared with the corresponding periods in fiscal 2020, was primarily related to increases in employee-related compensation expense, including share-based compensation expense.
Amortization of Intangibles
Three Months Ended Six Months Ended
April 2, March 27, April 2, March 27,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Amortization of intangibles 2.8 (9.7)% 3.1 5.5 (12.7)% 6.3
% of net revenue 0.2 % 0.4 % 0.2 % 0.4 %
The decrease in amortization expense for the three and six months ended April 2,
2021 , as compared with the corresponding periods in fiscal 2020, 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
April 2, March 27, April 2, March 27,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Provision for income taxes $ 50.5 130.6% $ 21.9 $ 112.0 156.9% $ 43.6
% of net revenue 4.3 % 2.9 % 4.2 % 2.6 %
We recorded a provision for income taxes of $50.5 million (which consisted of
$36.4 million and $14.1 million related to United States and foreign income
taxes, respectively) and $112.0 million (which consisted of $77.4 million and
$34.6 million related to United States and foreign income taxes, respectively)
for the three and six months ended April 2, 2021 , respectively.
The increase in income tax expense for the three and six months ended April 2,
2021 , as compared with the corresponding periods in fiscal 2020, was primarily
due to increased income from operations, a reduction in the relative amount of
benefits related to foreign income taxed at rates lower than the federal
statutory rate, and a reduction in the relative amount of windfall tax
deductions as compared to income from operations.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended
April 2 , March 27,
(in millions) 2021 2020
Cash and cash equivalents at beginning of period
1,100.8 678.8
Net cash used in investing activities (214.9)
(136.5)
Net cash used in financing activities (392.7)
(481.2)
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$422.0 million increase in cash provided by operating activities during the six months endedApril 2, 2021 , as compared with the corresponding period in fiscal 2020, was primarily related to a$396.2 million increase in net income. 17
-------------------------------------------------------------------------------- Table of Contents 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$78.4 million increase in cash used in investing activities during the six months endedApril 2, 2021 , as compared with the corresponding period in fiscal 2020, was primarily related to an$87.9 million increase in cash used for capital expenditures, partially offset by a$15.2 million increase in the net sale of marketable securities. Cash used in financing activities: Cash used in financing activities consists primarily of cash transactions related to equity. The$88.5 million decrease in cash used in financing activities during the six months endedApril 2, 2021 , as compared with the corresponding period in fiscal 2020, was related to a decrease of$162.4 million in stock repurchase activity, a decrease of$36.2 million in net proceeds from employee stock option exercises, partially offset by an increase of$22.6 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards, and an increase of$15.6 million in dividend payments.
Liquidity:
Cash, cash equivalents, and marketable securities totaled$1,423.6 million as ofApril 2, 2021 , representing an increase of$443.6 million fromOctober 2, 2020 . The increase resulted primarily from$1,100.8 million in cash generated from operations, partially offset by$195.6 million used to repurchase 1.4 million shares of stock,$259.8 million in capital expenditures, and$165.6 million in cash dividend payments. 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 significant 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, certificates of deposits, money market funds,
CONTRACTUAL OBLIGATIONS Our contractual obligations disclosure in the 2020 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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