SKYWORKS SOLUTIONS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially and adversely from those referred to herein due to a number of factors, including, but not limited to, those described below and in Item 1A "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
OVERVIEW
We, together with our consolidated subsidiaries, are empowering the wireless networking revolution. Our highly innovative analog and mixed-signal 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, defense, entertainment and gaming, industrial, medical, smartphone, tablet, and wearable markets.
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, as well as negative impacts to our financial condition. Like many companies in the semiconductor industry, we are experiencing various supply constraints due to the pandemic. While we are working with our global supply chain partners to mitigate this risk, the duration and extent of the supply chain disruptions remain uncertain.
RESULTS OF OPERATIONS
Fiscal Years Ended
The following table sets forth the results of our operations expressed as a percentage of net revenue. See Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedOctober 1, 2021 , filed with theSEC onNovember 24, 2021 , as amended by Amendment No. 1 to such Annual Report on Form 10-K, filed with the SEC on January 28, 2022 (the "2021 10-K"), for Management's Discussions and Analysis of Financial Condition and Results of Operations for the fiscal year endedOctober 2, 2020 . Fiscal Years Ended September 30, October 1, October 2, 2022 2021 2020 Net revenue 100.0 % 100.0 % 100.0 % Cost of goods sold 52.5 50.8 51.9 Gross profit 47.5 49.2 48.1 Operating expenses: Research and development 11.3 10.3 13.7 Selling, general, and administrative 6.0 6.3 6.9 Amortization of intangibles 1.8 0.7 0.4 Restructuring, impairment, and other charges 0.6 0.2 0.4 Total operating expenses 19.7 17.6 21.5 Operating income 27.8 31.6 26.6 Interest expense (0.9) (0.3) - Income before income taxes 26.9 31.3 26.6 Provision for income taxes 3.7 2.0 2.3 Net income 23.2 % 29.3 % 24.3 % 29
--------------------------------------------------------------------------------
General
During the fiscal year ended
•Net revenue increased 7.4% to$5,485.5 million in fiscal 2022, as compared to$5,109.1 million in fiscal 2021. This increase in revenue was driven primarily by our acquisition in the fourth quarter of fiscal 2021 of the Infrastructure and Automotive business of Silicon Laboratories Inc. (the "Acquisition") to support high-growth market segments, such as automotive including electric and hybrid vehicles, industrial and motor control, power supply, 5G wireless infrastructure, optical data communication and data center, and smart home. The increase in net revenue was also driven in part by an increase in demand for next-generation wireless connectivity products, including for 5G and advanced Wi-Fi solutions, from major OEMs and the associated increases in average content per device for these products, offset by a decrease in demand for our mobile products from smartphone customers inChina . •Our ending cash, cash equivalents, and marketable securities balance decreased 43% to$586.8 million in fiscal 2022, as compared to$1,027.2 million in fiscal 2021. The decrease in cash, cash equivalents, and marketable securities during fiscal 2022 was primarily due to the repurchase of 6.5 million shares of common stock for$886.8 million , capital expenditures of$489.4 million , and dividend payments of$373.1 million , partially offset by cash generated from operations of$1,424.6 million . Net Revenue Fiscal Years Ended September 30, October 1, October 2, 2022 Change 2021 Change 2020 (dollars in millions) Net revenue$ 5,485.5 7.4%$ 5,109.1 52.3%$ 3,355.7 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 in fiscal 2022, as compared to fiscal 2021, was driven primarily by the Acquisition in the fourth quarter of fiscal 2021 to support high-growth market segments, such as automotive including electric and hybrid vehicles, industrial and motor control, power supply, 5G wireless infrastructure, optical data communication and data center, and smart home. The increase in net revenue was also driven in part by an increase in demand for next-generation wireless connectivity products, including 5G and advanced Wi-Fi solutions, from major OEMs and the associated increases in average content per device for these products, offset by a decrease in demand for our mobile products from smartphone customers inChina .
For information regarding net revenue by geographic region and customer concentration, see Note 15 to Item 8 of this Annual Report on Form 10-K.
Gross Profit
Fiscal Years Ended
September 30, October 1, October 2,
2022 Change 2021 Change 2020
(dollars in millions)
Gross profit $ 2,604.3 3.7% $ 2,512.4 55.8% $ 1,612.9
% of net revenue 47.5 % 49.2 % 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, share-based compensation, and amortization of acquisition
intangibles, including inventory step-up expense) associated with product
manufacturing. As part of our normal course of business, we intend to improve
gross profit with efforts to increase unit volumes, improve manufacturing
efficiencies, lower manufacturing costs of existing products, and by introducing
new and higher value-added products.
30
--------------------------------------------------------------------------------
The increase in gross profit in fiscal 2022, as compared to fiscal 2021, was
primarily the result of a favorable product mix, including volume increases for
new product introductions, with a gross profit impact of $453.8 million ,
partially offset by lower comparable unit volumes and an increase in
amortization of acquisition intangibles, including inventory step-up due to
additional intangible assets acquired as part of the Acquisition during the
fourth quarter of fiscal 2021.
Research and Development
Fiscal Years Ended
September 30, October 1, October 2,
2022 Change 2021 Change 2020
(dollars in millions)
Research and development $ 617.9 16.1% $ 532.3 14.7% $ 464.1
% of net revenue 11.3 % 10.4 % 13.8 %
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, non-production masks, engineering prototypes, and
design tool costs.
The increase in research and development expense in fiscal 2022, as compared to
fiscal 2021, was primarily related to headcount-related expenses, including
share-based compensation, as a result of our increased investment in developing
new technologies and products. The increase in headcount was partially due to
the Acquisition in the fourth quarter of fiscal 2021.
Selling, General, and Administrative
Fiscal Years Ended
September 30, October 1, October 2,
2022 Change 2021 Change 2020
(dollars in millions)
Selling, general, and administrative $ 329.8 2.3% $ 322.5 39.4% $ 231.4
% of net revenue 6.0 % 6.3 % 6.9 %
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 in fiscal 2022, as
compared to fiscal 2021, was primarily related to increases in headcount-related
expenses, partially offset by a decrease in acquisition costs each as a result
of the Acquisition in the fourth quarter of fiscal 2021.
Amortization of Intangibles
Fiscal Years Ended
September 30, October 1, October 2,
2022 Change 2021 Change 2020
(dollars in millions)
Amortization of intangibles $ 98.9 174.7% $ 36.0 205.1% $ 11.8
% of net revenue 1.8 % 0.7 % 0.4 %
The increase in amortization expense for fiscal 2022, as compared to fiscal 2021, was primarily due to the intangible assets acquired during the fourth quarter of fiscal 2021 as part of the Acquisition.
31
--------------------------------------------------------------------------------Restructuring, Impairment, and Other Charges
Fiscal Years Ended
September 30, October 1, October 2,
2022 Change 2021 Change 2020
(dollars in millions)
Restructuring, impairment, and other
charges $ 30.7 244.9% 8.9 (35.5)% 13.8
% of net revenue 0.6 % 0.2 % 0.4 %
Restructuring, impairment, and other charges incurred in fiscal 2022 were primarily related to the abandonment of previously capitalized in-process research and development ("IPR&D") projects.
Restructuring, impairment, and other charges incurred in fiscal 2021 were primarily related to an impairment on property, plant, and equipment.
Interest Expense
Fiscal Years Ended
September 30, October 1, October 2,
2022 Change 2021 Change 2020
(dollars in millions)
Interest expense $ 47.9 257.5% $ 13.4 100.0% $ -
% of net revenue 0.9 % 0.3 % - %
The increase in interest expense for fiscal 2022, as compared to fiscal 2021,
was due to the issuance of the Notes (as defined below) in
Provision for Income Taxes
Fiscal Years Ended
September 30, October 1, October 2,
2022 Change 2021 Change 2020
(dollars in millions)
Provision for income taxes $ 201.4 100.6% $ 100.4 30.6% $ 76.9
% of net revenue 3.7 % 2.0 % 2.3 %
The annual effective tax rate for fiscal 2022 of 13.6% was less than the United
States federal statutory rate of 21.0% resulting primarily from foreign earnings
taxed at rates lower than the federal statutory rate, a benefit from
foreign-derived intangible income deduction ("FDII"), windfall tax deductions,
research and development credits, and foreign tax credits, partially offset by a
tax on global intangible low-taxed income ("GILTI") and an increase in the
reserves for uncertain tax positions.
The increase in income tax expense in fiscal 2022, as compared to fiscal 2021,
was primarily due to a prior period decrease in the reserve for uncertain tax
positions, partially offset by a decrease in income from operations and an
increase in windfall tax deductions in the current period.
See Note 9 to Item 8 of this Annual Report on Form 10-K for additional information regarding income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Set forth below is a summary of our cash flows for the periods indicated:
32
--------------------------------------------------------------------------------
Fiscal Years Ended
September 30, October 1, October 2,
(in millions) 2022 2021 2020
Cash and cash equivalents at beginning of period
$ 566.7 $ 851.3 Net cash provided by operating activities 1,424.6 1,772.0 1,204.5 Net cash used in investing activities (378.9) (3,133.2) (581.4) Net cash provided by (used in) financing activities (1,362.6) 1,677.4 (907.7) Cash and cash equivalents at end of period$ 566.0
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$347.4 million decrease in cash provided by operating activities for fiscal 2022, as compared to fiscal 2021, was primarily related to unfavorable changes in working capital of$523.7 million , due primarily to increases in inventory and cash with deposits with suppliers.
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$2,754.3 million decrease in cash used in investing activities for fiscal 2022, as compared to fiscal 2021, was primarily related to a$2,751.0 million decrease in cash payments made for the fiscal 2021 acquisitions.
Cash provided by (used in) financing activities:
Cash used in financing activities consists primarily of proceeds and payments related to our long-term borrowings and cash transactions related to equity. The$3,040.0 million decrease in cash provided by financing activities for fiscal 2022, as compared to fiscal 2021, was primarily related to a decrease of$2,488.2 million in cash provided by long-term borrowings, an increase of$691.2 million in stock repurchase activity, a decrease of$200.0 million in repayments of Term Loans (as defined below), an increase of$33.3 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards, and an increase of$32.5 million in dividend payments.
Liquidity:
Cash, cash equivalents, and marketable securities totaled$586.8 million as ofSeptember 30, 2022 , representing a decrease of$440.3 million fromOctober 1, 2021 . We have outstanding$500.0 million of Notes Due 2023,$500.0 million of Notes Due 2026, and$500.0 million of Notes Due 2031 (the "Notes"). We have a term credit agreement (the "Term Credit Agreement") providing for a$1.0 billion term loan facility (the "Term Loan Facility"). OnJuly 26, 2021 , the Company borrowed$1.0 billion in aggregate principal amount of term loans (the "Term Loans") under the Term Loan Facility to finance a portion of the purchase price for the Acquisition and to pay fees and expenses incurred in connection therewith. During fiscal 2022 and 2021, the Company repaid$50.0 million and$250.0 million of outstanding borrowings under the Term Loans, respectively. As ofSeptember 30, 2022 , there were$700.0 million of borrowings outstanding under the Term Credit Agreement. We have a Revolving Credit Agreement (the "Revolving Credit Agreement") under which we may borrow up to$750.0 million for general corporate purposes and working capital needs of the Company and its subsidiaries. As ofSeptember 30, 2022 , there were no borrowings outstanding under the revolving credit facility (the "Revolver"). The Revolving Credit Agreement expiresJuly 26, 2026 . For a description of contractual obligations, such as taxes, leases, and debt, see Note 9, Note 11, and Note 17 to Item 8 of this Annual Report on Form 10-K, respectively. 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, and funds from our Revolver, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: 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. 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. 33 --------------------------------------------------------------------------------
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 deposit, money market funds,
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with generally accepted accounting principles ("GAAP"). The
preparation of these financial statements requires us to make estimates and
judgments in applying our most critical accounting policies that can have a
significant impact on the results we report in our financial statements. The SEC
has defined critical accounting policies as those that are both most important
to the portrayal of our financial condition and results and which require our
most difficult, complex, or subjective judgments or estimates. Based on this
definition, our most critical accounting policies include revenue recognition,
which impacts the recording of net revenue; inventory valuation, which impacts
the cost of goods sold and gross margin; and income taxes, which impacts the
income tax provision. These policies and significant judgments involved are
discussed further below. We have other significant accounting policies that do
not generally require subjective estimates or judgments or would not have a
material impact on our results of operations. Our significant accounting
policies are described in Note 2 to Item 8 of this Annual Report on Form 10-K.
Revenue Recognition. We recognize revenue in accordance with the Financial
Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC")
606 Revenue from Contracts with Customers net of estimated reserves. Our revenue
reserves contain uncertainties because they require management to make
assumptions and to apply judgment to estimate the value of future credits to
customers for product returns, price protection, price adjustments, and stock
rotation for products sold to certain electronic component distributors. We base
these estimates on the expected value method considering all reasonably
available information, including our historical experience and current
expectations, and are reflected in the transaction price when sales are
recorded. Changes in actual demand or market conditions could adversely or
beneficially impact our reserve calculations.
Inventory Valuation. We value our inventory at the lower of cost or net
realizable value. Reserves for excess and obsolete inventory are established on
a quarterly basis and are based on a detailed analysis of aged material,
salability of our inventory, market conditions, and product life cycles. Once
reserves are established, write-downs of inventory are considered permanent
adjustments to the cost basis of inventory. Our reserves contain uncertainties
because the calculation requires management to make assumptions and to apply
judgment regarding historical experience, market conditions, and technological
obsolescence. Changes in actual demand or market conditions could adversely
impact our reserve calculations.
Income Taxes. The application of tax laws and regulations to calculate our tax
liabilities is subject to legal and factual interpretation, judgment, and
uncertainty in a multitude of jurisdictions. Tax laws and regulations themselves
are subject to change as a result of changes in fiscal policy, changes in
legislation, the evolution of regulations, and court rulings. We recognize
potential liabilities for anticipated tax audit issues in the United States and
other tax jurisdictions based on our estimate of whether, and the extent to
which, additional taxes and interest will be due. We record an amount as an
estimate of probable additional income tax liability at the largest amount that
we feel is more likely than not, based upon the technical merits of the
position, to be sustained upon audit by the relevant tax authority.
© Edgar Online, source
