Skyworks Solutions, Inc.

Good day and welcome to the SkyWorks third quarter fiscal year 2025 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Raji Gill, Vice President, REST Relations and Corporate Development. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to Skyworks' third fiscal quarter 2025 conference call. With me today for our prepared remarks is Phil Brace, our Chief Executive Officer and President, and Rob Streisheim, Interim Chief Financial Officer for Skyworks. This call is being broadcast over the web and can be accessed from the investor relations section of the company's website at skyworksinc.com. In addition, The company's prepared remarks will be made available on our website promptly after the conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, today's discussion will include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the investor relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Phil.

Thanks, Raji, and welcome, everyone. Skyworks delivered strong results this quarter, fueled by an upside in mobile and sustained strength across broad markets. We posted revenue of $965 million, delivered earnings per share of $1.33, and generated free cash flow of $253 million. Revenue, gross margin, and EPS exceeded the high end of our guidance. We returned $430 million to shareholders this quarter through share repurchases and dividends, and more than a billion dollars across the past two quarters, supported by strong free cash flow and disciplined working capital management. In mobile, revenue came in above seasonal trends, with strength continuing into the September quarter, supported by healthy sell-through at our top customer and new product launches in Android. While in-demand signals remain solid, we're actively monitoring the channel and are maintaining a disciplined approach to inventory. Looking ahead, we see multiple drivers of long-term RF content growth, including opportunities from internal mode of adoption higher RF complexity with AI features, and a larger addressable footprint within the smartphone. At the same time, we'll continue to deliver more performance in smaller form factors, enabling richer features within current sockets. Smartphone replacement cycles remain historically long, now averaging over four years, even as our top customer maintains a record installed base. The first wave of AI-capable phones is reaching scale, and early demand signals are encouraging. As AI capabilities become more intuitive and integrated, we believe this could drive an inflection in upgrade cycles, leading to a potential tailwind to volumes and content over time. Our deep RF expertise, strong customer relationships, and advanced manufacturing put us in a strong position to lead through this next phase. Broad markets continue to gain momentum, driven by new customer engagements across edge, IoT, and automotive. we are seeing stronger order flow, healthy book-to-bill levels, and lean channel inventory. In Edge IoT, Wi-Fi 7 adoption is accelerating across consumer, enterprise, and industrial applications. These systems demand faster speeds at ultra-low latency, translating to greater RF complexity. Looking ahead, we're already investing in Wi-Fi 8 to support the next wave of performance. Automotive remains a key growth driver for Skyworks, supported by long design cycles that offer greater visibility and more durable revenue streams. We broadened our reach across a growing roster of global OEMs, securing programs with BYD, Ford, Geely, Nissan, and others. As vehicles become more software-defined and connected, the need for secure wireless links continues to grow, from 5G telematics to over-the-air updates and infotainment, all of which increase our content opportunity. In traditional data center and infrastructure, business activity is rebounding as inventory normalizes. Meanwhile, accelerating AI workloads are driving upgrades to 800 gig and 1.6 terabyte switches, increasing demand for our precision timing solutions. Altogether, BroadMarkets is becoming a stronger, more resilient growth engine for Skyworks, and we expect this momentum to continue with both sequential and year-over-year growth in the September quarter. In aggregate, this is a $1.5 billion business with a double-digit long-term growth profile and gross margins above the corporate average, a core part of our portfolio that we believe remains underappreciated relative to its scale and contribution. Today, we're taking action to optimize our manufacturing footprint with the planned closure of our Woburn manufacturing facility and the consolidation of operations into our Newberry Park site. This move is designed to drive higher FAB utilization, lower fixed costs, and improve overall efficiency in the future. As our product mix shifts towards more advanced higher value content, this consolidation positions us to expand gross margins over time while reinvesting in next generation technologies and maintaining the scale and technical capability required to serve our premium customers at the highest levels. Before we dive into the numbers, I want to welcome Rob Shresheim to the team in his role as interim CFO. Rob has served on the Skyworks board for nearly 20 years and knows our business strategy and leadership team exceptionally well. His appointment ensures continuity as we move through this transition. On the CFO search, we've been taking a deliberate approach and have a number of strong candidates in the pipeline. I expect the process to conclude shortly. With that, I'll turn the call over to Rob for a discussion of last quarter's performance and outlook for Q4 of fiscal 25.

Thanks, Phil. It's a privilege to step in as interim CFO and support the Skyworks team during this transition. Having served on the board for nearly two decades and being a shareholder, I know the company well and have confidence in our strategy, our financial discipline, and our long-term growth opportunities. Turning to our third fiscal quarter results. Skyworks delivered revenue of $965 million, exceeding the high end of our guidance range. During the quarter, our largest customer accounted for about 63% of revenue. Mobile represented 62% of total revenue, up 1% sequentially and 8% year-over-year, driven by stronger sell-through at our top customer and new product launches in Android. Broad markets, which includes Edge IoT, Automotive, industrial, infrastructure, and cloud, grew 2% sequentially and 5% year-over-year. This marks the sixth consecutive quarter of growth and reflects stronger end demand and further inventory normalization across key verticals. Gross profit was $454 million, with gross margins of 47.1%, above expectations, driven by product mix and ongoing cost disciplines. We see further opportunities to expand margins over time as we execute on our manufacturing efficiency roadmap. Operating expenses total $230 million, aligned with our long-term product roadmap. We remain disciplined with spend, balancing investment and future growth with prudent cost management. Operating income reached $224 million, translating to an operating margin of 23.3 percent. Other income was $1 million, and our effective tax rate was 11.2%, resulting in net income of $200 million and diluted earnings per share of $1.33, 9 cents above our guidance. Cash flow remains strong, with operating cash flow of $314 million and capital expenditures of $61 million. Over the past two years, our free cash flow has benefited from effective working capital management as we've reduced inventory levels. We returned $430 million to shareholders during the quarter, comprised of $104 million in dividends and $330 million in share repurchases. Over the past two quarters, we've returned more than $1 billion to shareholders. We ended the quarter with $1.3 billion in cash and investments and $1 billion in debt, maintaining a strong balance sheet and ample flexibility to support our strategic and financial priorities. Looking ahead to the fourth quarter of fiscal 2025, we expect revenue to range between $1 billion to $1.3 billion. In mobile, we anticipate mid-single-digit sequential growth. We're seeing healthy sell-through lean channel inventories, and solid order visibility heading into the September quarter. Broad markets is set to grow again this quarter, with year-over-year trends accelerating and continued strength in bookings, backlog, and channel sell-through. Gross margin is projected to be approximately 47%, plus or minus 50 basis points, reflecting the stable product mix and ongoing cost disciplines. We expect operating expenses between $235 million and $245 million as we continue to fund key R&D initiatives while maintaining tight control over discretionary spend. As a reminder, the September quarter includes a 14th week, which adds about $7 million incremental expenses. Below the line, we anticipate approximately $4 million in other income, an effective tax rate of 13 percent, and a diluted share count of 149.5 million shares. At the midpoint of our revenue outlook, this equates to expected diluted EPS of $1.40. With that, I'll turn it back to Phil for closing remarks.

Thank you, Rob. Before I close, I want to thank our employees for their incredible dedication and our customers and partners for their continued trust and collaboration. Operator, let's open the line for questions.

Thank you. If you'd like to ask a question, please press star 11. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Chris Caso with Wolf Research. Your line is open.

Yes, thank you. Good evening. I guess the first question is, you know, within the handset business, Is there anything that you consider that's changed over the last 90 days with respect to what you expect on content, what you expect on unit sales? Just a little bit of color about what may have been changing within the mobile landscape.

Well, thanks for the question. Look, I think in general, we've just seen strong demand. I mean, strong demand for some of our products. I think, you know, our largest customer had a conference call the other day and kind of reflected that and some very strong demand. And we're seeing the benefit of stronger unit demand and, frankly, shipments that benefit us from a mixed point of view. So that continues to be strong as reflected in our results and our forward-looking guidance.

Okay. And just with regard to the extra week that you talked about in the September quarter, you know, well, how should we think about December quarter seasonality, you know, both given, you know, some of the content changes that your largest customer, you know, typical seasonal effects and then the impact of the absence of the extra week as you go into the December quarter?

Well, you know, we're obviously not guiding beyond the current quarter, and I would say that, you know, we're seeing solid demand across the board, both in mobile and in non-mobile. Our book-to-bill remains strong, and we have low inventories at this point. So, you know, that's where we are. I think it's been, you know, December quarter has been a little bit more volatile than others over the past couple of years, I think just given by other factors. So it's hard for us to say. We're just, you know... We're just focused on one step at a time, continue to execute and deliver, and our guidance for the quarter kind of stands.

And just a quick follow-up, Chris. This is Raji. The extra week did not have an impact on the revenue for the September guide. It just has an impact on the OPEX.

Got it. Okay. Thanks.

Thank you. Our next question comes from Edward Snyder with Charter Equity Research. Your line is open.

Thank you very much. So you've talked at length earlier this year about the changes as your largest customer, this new product release. I want to touch on a couple of things. Obviously, that has a lot to do with the kind of odd mix of phones that they'll be releasing this year. I know you can't talk about details, but as we move into 2026, if the trends that they've talked about, other companies like Qualcomm have talked about, and other folks have hinted at, if they actually play out as expected when the mix starts favoring an internal modem, does that naturally increase your blended content? Not so much on the phones that are being produced now, but if everything, if you take a snapshot and hold things constant on internal versus external modem for 2026, would that give you guys a significant boost or are things going to change significantly or could change significantly for that next year's model So everything's back up in the air, and we've got to figure it all out from zero again.

Yeah, I mean, look, for this particular cycle, we kind of commented that, generally speaking, we have more content available to us in the internal modem as some parts that were previously unavailable to us now become available to us again. So I think that apples to apples, that remains to be seen through and constant through the cycle. As we look at things that affect our overall business, that's one factor. A mix of what the customer ships between the various different phones is another factor. Mix of the various different, you know, iPhone particular models, geography. There's a whole bunch of factors that are reflected in that, and I think right now we've got a little bit of tailwind with respect to we're getting solid demand across the phones that have our content in them. So, you know, what happens going forward, you know, we'll see. But right now, it's good.

But part, if I could follow up, part of... Part of the hand you were dealt this year, this fall, was basically because that internal momentum is such a small percentage of telephone sold here that dual sensing on the part is clear. You have talked about it. We've talked about it at length. It's hard to split that when you're only doing maybe 10% or 15% of telephone volume. I guess my question is, Is it a rational expectation that that might get split on the internal modem when volumes pick up as a natural consequence of, one, you gaining back share in that exact part in the upcoming phone on the external modem? So clearly you qualify for that party against Avago or Broadcom. So I'm just trying to get a handle on is it a rational assumption to assume that if that volume picks up on that form, the mix starts favoring you and it's large enough to start splitting you to get a bigger chunk of that. Because if your content's already up on that without the transmit, diversity, receive, and that's what you said, then one would expect to be up significantly with it, right?

Yeah, I mean, all things being equal, you know, I think that's probably fair. But, I mean, all things aren't necessarily equal. It just depends on what phones they ship and all the rest of that stuff. But, you know, generally speaking, we do have more content to us available on the internal modem versus the external modem. So as that shifts more to the internal modem, there's a natural tailwind for us there, I would say that.

Okay. Thank you.

Yeah. Thank you. Our next question comes from Carl Ackerman with BNP Paribas. Your line is open.

Hi, this is Sam Feldman on for Carl Ackerman. So you indicated Android revenues were flat on a sequential basis in March quarter at around $70 million. How should we think about your Android business in this quarter relative to last quarter and going forward? Can you grow these levels?

Yeah, so this is Raji. So our Android revenue in the June quarter was up significantly. It was up just under $100 million. And this is really primarily related to our ramp with Google.

And we expect continued growth into the September quarter when we're thinking about Android.

Great. Thank you. And I have a follow-up. So is there any way to discern between demand coins out of tariffs versus improved demand? And what inventory levels are you seeing in your end customers compared to last quarter?

Yeah, we're trying to keep a really close eye on it. I think we talked about our prepared remarks. So in the past year, we've really been trying to be disciplined and take our inventory down. Our inventories right now are at very, very thin, lean levels. And so we're trying to maintain focus of that. Obviously, our customers don't always tell us why they're ordering products. We just try and deliver it where we can and We're just trying to keep our inventories low to manage that, and our current guidance kind of reflects what we believe is the current environment with respect to tariffs and all the rest.

Great. Thank you so much.

Thank you. Our next question comes from Christopher Rowland with Susquehanna. Your line is open.

Hey guys, thanks for the question and congrats on the results. Phil, maybe for you now that you've had some more time to look deeply at things at Skyworks, have you kind of solidified your view on the importance of diversification beyond handset? And perhaps you have any thoughts just broadly without obviously identifying any targets, but thoughts on end markets or products that are desirable for Skyworks? Or alternatively, would you be open to a larger merger within the RF industry? How might you feel on that? Thank you.

Yeah, I mean... Look, that's a very broad question, and I would say certainly, I mean, if you just look strategically at the company, and it's hard not to think that the single customer concentration we have is certainly probably suppressing our multiples compared to what it otherwise would be elsewise. So obviously, kind of diversification and growing the business is important. Having said that, right, I mean, we remain incredibly focused on continuing to keep our eye on the ball where our current bread is butter, right? We've got to maintain major focus on that. And so my message internally to the team is you need to walk and chew gum at the same time, right? We need to continue to be focused on executing cleanly, delivering the best parts we can for our largest customer, and then frankly, continue to look ways to grow and diversify our businesses elsewhere. I think if you ask me about priorities and how I look at things in general, I'd probably look for things that are Gross margin accretive, a little stickier, have a little, we'll say, a longer time constant of the revenue to help balance some of the potential volatility that comes from being in the handset market. So that's how I'd prioritize that. And in terms of size and scale, I mean, I'm really going to be focused on making sure that we can do things that are accretive. And I think that, you know, that's going to be kind of an important focus for us in the management team.

Awesome. And perhaps as a follow-up, are there any economics attached with closing the Woburn facility or consolidating that? Are there any other opportunities? And more broadly, maybe you can just talk to OPEX growth from here, how you kind of view it on a multi-year basis.

Yeah, on the factory, you know, question, you kind of, I mean, long-term on that is we're not really breaking out specific numbers at this time, primarily because, right, it takes a while to get through that. We've got to manage a bunch of parts and do that. And frankly, the end gross margin that we have is going to be driven by the utilization and all the things we get there. Having said that, I mean, clearly this will represent a tailwind both in factory utilization, CapEx reduction, OpEx improvement, and overall utilization of fixed-cost assets. And so... It should remain a tailwind and we'll continue to guide that as it goes on. Rob, would you have any other comments on that?

Yeah, a couple of comments. First of all, having been on this board for almost, I'm embarrassed to say, 20 years, one of the things we were excited about when we brought Phil in was not only has he got heavy operational focus and chops and discipline, but he thinks very strategically, and he acts very decisively, and the FAB consolidation or optimization was very much in line with that. He made that decision very quickly, and it was clearly focused on where the business is going, where the industry is going to forward invest in more advanced technologies. As to your second question on operating expenses, as I indicated in my prepared remarks, $235 million to $245 million in the September quarter, and we just did $230 million in the June quarter. Now, that $235 million to $245 million in the September quarter includes about $7 million related to the 14th week, so excluding that, OpEx is up only modestly quarter over quarter, and we'd expect it to trend lower in the December quarter, So for the full year, the 16% year-over-year increase in FY25 reflects both the timing dynamic and targeted investments we've made to support R&D programs. But I would also say, looking ahead to FY26 and beyond, Phil's made it very clear that we're going to be very disciplined.

Excellent. Great to hear. Thank you, guys.

Thank you.

Thank you. As a reminder, to ask a question, please press star 1-1. Our next question comes from Vivek Arya with Bank of America Securities. Your line is open.

Hi, this is Liam Farr on for Vivek. Thank you for taking our questions. On the first one, just what is your content visibility in flagship phones into next year?

So, Well, I'm hesitating on the question because, I mean, clearly it depends on lots of things. If you're asking what the next down selection happened, that typically doesn't happen until the late fall, you know, in the Christmas, January timeframe. So we won't have any other visibility other than that, other than what we've already shared. Having said that, right, I mean, I think you can see our results suggest that, you know, we've, our customer shipping, good mix of the phones where we have high content now. And if I look out long term, What am I encouraged about? I'm encouraged about our off-content growth as more transmit capabilities come online, as intermodal comes online, and as frankly as if the customer gets a good uptick in the refresh cycle. So all those things will kind of affect our performance going forward.

Makes sense. Okay, so then in terms of kind of this pricing environment and we're bidding for new sockets, has there been any material change there over the last kind of, 90 days or six months as you kind of continue to work for those sockets, you know, for, you know, expanding off of your current base, but also maybe regaining the ones that you've lost at your top customer.

Yeah. Look, the pricing, it is a highly competitive environment. We compete with, you know, very, very capable and incredible competitors. And that, those competition makes us stronger. I mean, when you're playing in this game, you got to like, you got to like that game. It's a competitive game and you got to, You've got to thrive in that, and we do. And I think that the pricing environment really hasn't changed. They expect us to deliver the best part at the best price, and we're kind of focused on doing that. I mean, long-term, what I'm encouraged about is we've got some of the stuff I talked about. Long-term content drivers include the movement to the internal modem, more transmit capability, a balance of increased transmit, which will drive more off-content, and frankly, a refresh capability on AI. So I kind of look at it, and stepping even further back, I go 99 point, as far out as you can go, percent of the devices connected to the Internet are going to be connected wirelessly, and I feel good about that spot too.

Thank you very much. Appreciate it.

Thank you. Again, to ask a question, please press star 1-1. Our next question comes from Edward Snyder, With Charter Equity Research, your line is open.

Great. Thanks for the follow-up questions. So, Phil, I don't know if you want to pontificate about it or not, but we've talked about it before. Do you feel like this year is probably your low point in content at your largest customer, given all the other trends?

Well, yeah. Look, I mean, we've obviously had a couple of down selections that have not worked in our favor, and I think Someone quoted happiness as an upward sloping line, and so I think we've got to change the trajectory of the downward sloping line to the upward sloping line. I think we're all laser-focused on that.

And then if I could ask, Woburn's being closed down, and I know you don't want to give too many specifics about the factory, but obviously I would imagine one of the goals here is to increase utilization in Newberry Park. Yeah. When are we likely to see the first results of that? Is it something we're going to see in a quarter or two? Do we wait until next calendar year?

No, not the next quarter or two. I mean, some of the products that are there, we've got to actually transition them to the Newberry Park side, and some of them are long lead time items, so it'll take a little while. But long term, you're 100% correct. Long term, this positions us to invest in leading technology in Newberry Park, drive increased stock utilization, better fixed cost utilization, which should benefit gross margin and reduce capex and all the rest of it. So that's kind of where we are.

Any color on the timing long run? Is it two years or a year?

No comment right now.

Okay. And then am I correct assuming that it's all gas in Uber? And is most of that gas for broad markets or mobile?

Is it split? No. It's split. I mean, the gas technology is used for amplifiers, right? So it's split.

But it is all gas, right?

Yeah. Okay. Thank you.

Thank you. Our next question comes from Chris Sinker with TD Cowan. Your line is open.

Hi, thanks for the great question. I actually had like three of them. First one, in terms of auto business, can you say how big the auto business is today? Is it mid-single digit percentage, 10%? And could this double in the next year? How do you think about it? And I have two follow-ups.

Yeah, that's a great question, Krish. This is Raji. So automotive is now tracking around $60 million a quarter and up significantly on a year-over-year basis. And You know, in the press release, we talked about a number of programs that we won, particularly at BYD, Nissan, Ford. And it's really across a variety of our products, whether it's 5G telematics, infotainment, power isolation. So we are quite bullish on that business, and it's very long design cycles and more durable revenue streams. So we have a good pathway there to continue to accelerate that revenue.

Got it. Thanks for that. And then on the mobile side, how solid is the visibility of your largest customer versus Android? You know, compared to, let's say, three months ago, are you seeing stronger sales due to content or units or any color on iOS's Android visibility versus three months ago? It would be helpful. And then I have one last follow-up.

I don't... I mean, right now, our... I mean, if you... You know, right now our visibility is strong across the board, primarily booked bills higher than one, channeling mentors are low, and so, you know, and our visibility is solid at this point. We don't see any material difference between the two.

Got it. And then lastly, how do you think about OpEx into next year, you know, like, or I should say OpEx this year relative to posting opportunities in 2026? You know, is there flexibility on it, or should you assume that's going to kind of grow for future revenue growth? How do you think about OPEX? Thank you.

Yeah, I think when I started, I kind of mentioned, look, we're going to be taking very disciplined view of OPEX. I think over the past couple of years, the company has made significant increased investments, and you can look at that as OPEX, and that was really designed to, frankly, focus on our R&D. We are an engineering-focused company, and to the extent we do have some any modest increase in OPEX, it'll be really targeted on core R&D. Having said that, we're going to be disciplined about that. I wouldn't expect anything other than kind of nominal rates of OPEX improvement over time.

Awesome. Thank you very much. I appreciate it. Thank you.

Thank you. Our next question comes from Nicholas Doyle with Needham. Your line is open.

Hey, guys. Thanks for taking my questions. Asking about the infrastructure networking cloud sub-segment. In fiscal 24, you guys talked a lot about inventory digestion impacting the business. And I think that lasted through the year. But we're seeing a lot of positive demand signals from those ed markets. So can you just talk about how that business is performing in the quarter and any specific demand drivers? I think you mentioned 800 dig and 1.6T transition helping as well.

Yeah, I mean, I think you got it exactly right. I think in the past couple of quarters, we talked about the fact that we've did continue to see a little bit of inventory overhang in that space. That does appear to be behind us at this point. Inventory seems to be low and we're starting to, you know, continue to get, you know, seeing orders in order to grow. So it does appear to be that the inventory issue is behind and that our supply demand is kind of aligned with consumption at this point.

Okay. On the Apple broad markets piece, I mean, any reason to think that's very different from the average, you know, 15% of overall Apple revenue in 3Q or 4Q?

Thanks. Yeah, Nick, this is Raji. So, you know, our top customer in the quarter in June was roughly, you know, 63% of sales this split. was roughly 85% mobile, 15% broad markets, thereabouts. And we expect both a similar percentage of sales and a similar split going into the September quarter.

Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Phil Brace for closing remarks.

Great. I'd like to thank everybody for participating on today's call, and I look forward to speaking with you at upcoming investor conferences during the quarter. Thank you.