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 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, including as a result of more contagious variants of the virus that causes COVID-19, 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. 17 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
Three and Nine Months Ended
Three Months Ended Nine Months Ended
July 2, June 26, July 2, June 26,
2021 2020 2021 2020
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 50.0 54.7 50.0 51.9
Gross profit 50.0 45.3 50.0 48.1
Operating expenses:
Research and development 11.7 15.9 10.1 14.1
Selling, general, and administrative 7.6 7.5 5.8 7.0
Amortization of intangibles 0.2 0.4 0.2 0.4
Restructuring, impairment, and other charges 0.1 1.6 0.1 0.6
Total operating expenses 19.6 25.4 16.2 22.1
Operating income 30.4 19.9 33.8 26.0
Interest expense (0.2) - (0.1) -
Other income (expense), net (0.1) (0.5) - -
Income before income taxes 30.1 19.4 33.7 26.0
Provision (benefit) for income taxes (0.2) 1.9 2.8 2.4
Net income 30.3 % 17.5 % 30.9 % 23.6 %
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 nine months endedJuly 2, 2021 , the following key factors contributed to our overall results of operations, financial position, and cash flows: •Net revenue increased by 58.3% to$3,798.2 million for the nine months endedJuly 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 203.9% to$2,978.1 million as ofJuly 2, 2021 , from$980.0 million as ofOctober 2, 2020 . The increase in cash, cash equivalents and marketable securities during the nine months endedJuly 2, 2021 , was primarily due to the issuance of$500.0 million of Senior Notes due 2023 (the "2023 Notes"),$500.0 million of Senior Notes due 2026 (the "2026 Notes"), and$500.0 million of Senior Notes due 2031 (the "2031 Notes" and, together with the 2023 Notes and the 2026 Notes, the "Notes") in order to fund the anticipated Asset Purchase. The remaining increase was primarily the result of cash generated from operations of$1,373.7 million , partially offset by capital expenditures of$374.8 million , the repurchase of 1.4 million shares of common stock for$195.6 million , and dividend payments of$248.1 million .
Net Revenue
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Three Months Ended Nine Months Ended
July 2, June 26, July 2, June 26,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Net revenue $ 1,116.4 51.5% $ 736.8 $ 3,798.2 58.3% $ 2,398.9
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 increase in net revenue for the three and nine months ended July 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 Nine Months Ended
July 2, June 26, July 2, June 26,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Gross profit $ 558.6 67.2% $ 334.1 $ 1,898.7 64.5% $ 1,154.0
% of net revenue 50.0 % 45.3 % 50.0 % 48.1 %
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 ended July 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
$197.9 million , partially offset by 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. Gross
profit margin increased to 50.0% of net revenue for the three months ended
July 2, 2021 , as compared with 45.3% in the corresponding period in fiscal 2020.
The increase in gross profit for the nine months ended July 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
$766.0 million , partially offset by lower average selling prices. 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. Gross profit margin
increased to 50.0% of net revenue for the nine months ended July 2, 2021 , as
compared with 48.1% in the corresponding period in fiscal 2020.
Research and Development
Three Months Ended Nine Months Ended
July 2, June 26, July 2, June 26,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Research and development $ 130.8 11.8 % $ 117.0 $ 383.1 13.4 % $ 337.9
% of net revenue 11.7 % 15.9 % 10.1 % 14.1 %
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.
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The increase in research and development expenses for the three and nine months endedJuly 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 Nine Months Ended
July 2, June 26, July 2, June 26,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Selling, general, and administrative $ 85.1 54.7 % $ 55.0 $ 222.0 31.3 % $ 169.1
% of net revenue 7.6 % 7.5 % 5.8 % 7.0 %
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 July 2, 2021 , as compared with the corresponding periods in
fiscal 2020, was primarily related to increases in costs associated with
business combinations contemplated during the period and increases in
employee-related compensation expense, including share-based compensation
expense.
Amortization of Intangibles
Three Months Ended Nine Months Ended
July 2, June 26, July 2, June 26,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Amortization of intangibles $ 2.4 (14.9) % $ 2.8 $ 7.9 (11.9) % $ 9.0
% of net revenue 0.2 % 0.4 % 0.2 % 0.4 %
The decrease in amortization expense for the three and nine months ended July 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.
Interest Expense
Three Months Ended Nine Months Ended
July 2, June 26, July 2, June 26,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Interest expense $ (2.6) 100.0 % $ - $ (2.6) 100.0 % $ -
% of net revenue (0.2) % - % (0.1) % - %
The increase in interest expense for the three and nine months ended July 2,
2021 , as compared with the corresponding periods in fiscal 2020, was due to the
issuance of the Notes in May 2021 .
Provision for Income Taxes
Three Months Ended Nine Months Ended
July 2, June 26, July 2, June 26,
2021 Change 2020 2021 Change 2020
(dollars in millions)
Provision (benefit) for income taxes $ (1.6) (111.2) % $ 14.3 $ 110.5 91.4 % $ 57.7
% of net revenue (0.2) % 1.9 % 2.8 % 2.4 %
We recorded a benefit for income taxes of $1.6 million (which consisted of a
benefit of $13.8 million and a provision of $12.2 million related to United
States and foreign income taxes, respectively) and a provision of $110.5 million
(which consisted
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of $63.7 million and $46.8 million related to United States and foreign income
taxes, respectively) for the three and nine months ended July 2, 2021 ,
respectively.
During fiscal 2021, we concluded an IRS examination of our federal income tax
returns for fiscal 2015 and 2016. With the conclusion of the audit, we decreased
the reserve for uncertain tax positions, which resulted in the recognition of an
income tax benefit of $42.8 million and $34.8 million during the three and nine
months ended July 2, 2021 , respectively.
The decrease in income tax expense for the three months ended July 2, 2021 , as
compared with the corresponding periods in fiscal 2020, was primarily due to a
decrease in the reserve for uncertain tax positions, partially offset by
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.
The increase in income tax expense for the nine months ended July 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, partially offset by a decrease in the reserve for
uncertain tax positions.
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ended
July 2, June 26,
(in millions) 2021 2020
Cash and cash equivalents at beginning of period
1,373.7 937.5
Net cash used in investing activities (101.0)
(391.0)
Net cash provided by (used in) financing activities 1,005.6 (606.5) Cash and cash equivalents at end of period
$ 2,845.0 $
791.3
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$436.2 million increase in cash provided by operating activities during the nine months endedJuly 2, 2021 , as compared with the corresponding period in fiscal 2020, was primarily related to a$604.1 million increase in net income, partially offset by$178.5 million of unfavorable changes in working capital, due primarily to an increase in net cash outflows for accounts receivable which correlates with higher sales during the period. 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$290.0 million decrease in cash used in investing activities during the nine months endedJuly 2, 2021 , as compared with the corresponding period in fiscal 2020, was primarily related to a$421.1 million increase in the net sale of marketable securities, partially offset by a$131.3 million increase in cash used for capital expenditures. Cash provided by financing activities: Cash provided by financing activities consists primarily of proceeds and payments related to our long-term borrowings and cash transactions related to equity. The$1,612.1 million net increase in cash provided by financing activities during the nine months endedJuly 2, 2021 , as compared with the corresponding period in fiscal 2020, was primarily related to an increase of$1,489.7 million in long-term debt issued and a decrease of$220.9 million in stock repurchase activity, partially offset by an increase of$24.6 million in dividend payments, a decrease of$44.4 million in net proceeds from employee stock option exercises, and an increase of$22.7 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$2,978.1 million as ofJuly 2, 2021 , representing an increase of$1,998.1 million fromOctober 2, 2020 . The increase resulted from$1,489.7 million in long-term debt issued,$1,373.7 million in cash generated from operations, partially offset by$374.8 million in capital expenditures,$195.6 million used to repurchase 1.4 million shares of stock, and$248.1 million in cash dividend payments. 21 -------------------------------------------------------------------------------- Table of Contents We have outstanding$500 million of Notes Due 2023,$500 million of Notes Due 2026, and$500 million of Notes Due 2031. We have a Revolving Credit Agreement (the "Revolving Credit Agreement") under which we may borrow up to$750 million for general corporate purposes and working capital needs of the Company and its subsidiaries. As ofJuly 2, 2021 , there were no borrowings outstanding under the revolving credit facility (the "Revolver"). The Revolving Credit Agreement expiresJuly 26, 2026 . OnMay 21, 2021 , we entered into a term credit agreement (the "Term Credit Agreement") providing for a$1.0 billion term loan facility (the "Term Loan Facility"). As ofJuly 2, 2021 , there were no borrowings outstanding under the Term Credit Agreement. OnJuly 26, 2021 , we borrowed$1.0 billion in aggregate principal amount of term loans under the Term Loan Facility to finance a portion of the purchase price for the Asset Purchase and to pay fees and expenses incurred in connection therewith. Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, the cash we expect to generate from operations, proceeds from the Term Loan Facility, and funds from our Revolver 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, cash generated from operations, and funds from our Revolver 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,
We are exposed to interest rate risk via the terms of our Revolver and Term Loan Facility, which have variable interest rates. See Note 13 of the Notes to Consolidated Financial Statements for further information. A potential change in the associated interest rates would be immaterial to the results of our operations. CONTRACTUAL OBLIGATIONS Except for the issuance of our Notes, our contractual obligations disclosure in the 2020 10-K has not materially changed since we filed that report. Refer to Note 13 of the Notes to Consolidated Financial Statements for further information.
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