Skyworks Solutions Inc (SWKS) — Q4 2025 Earnings Call Transcript

Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' Fourth Fiscal Quarter 2025 Conference Call. With me today for our prepared remarks is Phil Brace, our Chief Executive Officer and President; and Philip Carter, Senior Vice President and 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 complete after the conclusion of 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. Lastly, for detailed information regarding the Skyworks and Qorvo combination announced on October 28, I encourage you to review the press release investor presentation and related materials available on our Investor Relations website. Today's call, however, will focus on our fiscal fourth quarter and full year 2025 results as well as our outlook for the December quarter. With that, I'll turn the call over to Phil Brace.

Thanks, Raji, and welcome, everyone. Before getting into the quarterly results, I want to take a moment to reflect on what we've accomplished over the past few quarters. One, we've had three straight quarters of solid execution with both revenue and non-GAAP EPS exceeding expectations. We're seeing strong momentum across mobile and broad markets as our teams continue to execute. Two, we streamlined our sales and marketing teams to be more customer-focused and enhanced collaboration with the engineering teams, appointed a new executive to lead global sales and welcomed a new Chief Financial Officer, further strengthening our leadership team as we position the company for its next phase of growth. Three, last quarter, we announced the consolidation of our Woburn facility to improve our long-term cost structure and support healthier gross margins. And finally, last week, we announced an agreement to combine with Qorvo, a transformative deal that upon closing will add meaningful scale, diversification and a broader highly complementary technology and product portfolio. Moving to the quarter, Skyworks delivered strong results, fueled by a significant upside in mobile and sustained strength across broad markets. We posted revenue of $1.1 billion, delivered earnings per share of $1.76, and for the full fiscal year, we generated $1.1 billion of free cash, representing 27% free cash flow margin. In mobile, results again were strong, with revenue up 21% sequentially and 7% year-over-year. Our outperformance reflects healthy sell-through and a richer product mix at our top customer, along with continued growth in Android. Looking ahead, we see multiple drivers of long-term RF content growth. Internal modem adoption, added AI functionality and higher RF complexity are expanding our opportunity inside the smartphone. We're also delivering more performance in smaller form factors supporting new features within existing sockets. With our deep RF expertise, strong customer relationships and manufacturing scale, we are well positioned as the next phase of wireless innovation takes shape. Broad Markets has delivered another solid quarter. Demand was broad-based across edge IoT, automotive and data center. In edge IoT, WiFi 7 adoption continues to accelerate across home, enterprise and industrial applications. Customers are moving quickly to upgrade platforms that require faster connectivity, lower latency and better power efficiency. Backlog and order trends remain solid and we anticipate continued strong adoption entering fiscal '26. We're also making good progress on next-generation WiFi 8 programs to extend that leadership. In automotive, design activity remains robust as vehicles become more connected and intelligent. The run rate exiting fiscal '25 represents a new record for our automotive business, surpassing our previous high in fiscal '23. We're entering next year with a robust pipeline of design wins across 5G telematics, infotainment and power management systems across a broad set of global OEMs. In data center infrastructure, activity continues to rebound as customer inventories have normalized. The recovery that began in mid fiscal '25 has continued to gain traction and we see a favorable setup for further growth into fiscal '26. This quarter's momentum was supported by broad-based demand, including increasing timing design win activity for next-generation 800-gig platforms for data center and cloud infrastructure. Taken together, Broad Markets has evolved into a more balanced and durable growth engine for Skyworks. Now an approximately $1.5 billion business with positive momentum over the past 7 quarters, expanding customer reach and margins above the overall corporate average. Before we move into the financial details, I'd like to take a moment and welcome Philip Carter as our new CFO. Philip brings extensive financial and accounting experience in the semiconductor space, having previously served as Skyworks' Principal Accounting Officer before becoming the Chief Accounting Officer at AMD. We're happy to have him back and look forward to working together as we continue building Skyworks for the long term. With that, I'll turn the call over to Philip for a discussion of last quarter's performance and outlook for Q1 of fiscal '26.

Thanks, Phil. I'm excited to be back at Skyworks and to work again with such a talented team. Having spent many years here in my career, it's great to see the company's continued momentum and strong execution. I look forward to partnering with Phil and the rest of the leadership team to drive long-term value for shareholders. Now turning to our fourth fiscal quarter results. Skyworks delivered revenue of $1.1 billion, exceeding the high end of our guidance range. During the quarter, our largest customer accounted for approximately 67% of revenue. Mobile represented 65% of total revenue, up 21% sequentially and 7% year-over-year, supported by stronger sell-through at our top customer and continued growth in Android. Broad Markets grew 3% sequentially and 7% year-over-year, driven by growth across edge IoT, automotive and data center. Gross profit was $511 million with gross margin of 46.5%. Operating expenses were $247 million, slightly above the high end of our guidance range, primarily due to higher employee incentive accruals tied to stronger quarterly revenue. We're keeping a disciplined approach to spending, investing where it matters most for future growth. Operating income reached $264 million, translating to an operating margin of 24%. Other income was $11 million, and our effective tax rate was 4.1%, resulting in net income of $264 million and diluted earnings per share of $1.76. For the full fiscal year, we generated $1.3 billion of operating cash flow and capital expenditures of $195 million, resulting in annual free cash flow of $1.1 billion or 27% free cash flow margin. We do expect free cash flow to remain solid in fiscal '26 but below fiscal '25, given the lower expected revenue base and more normalized working capital trends, particularly as we no longer expect a tailwind from inventory reductions. We ended the quarter with $1.4 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 first quarter of fiscal '26, we expect revenue to be between $975 million and $1.025 billion. We anticipate mobile to decline low to mid-teens sequentially. We expect broad markets to be up slightly sequentially, representing 39% of sales and up mid- to high single digits year-over-year. Gross margin is projected to be approximately 46% to 47%. We expect operating expenses between $230 million and $240 million as we continue to fund key R&D initiatives while maintaining tight control over discretionary spending. Below the line, we anticipate approximately $4 million in other income, an effective tax rate of 10%, and a diluted share count of 150.5 million shares. At the midpoint of our revenue outlook of $1 billion, this equates to expected diluted earnings per share of $1.40. With that, I'll turn it back to Phil for closing remarks.

Thank you, Phil. A heartfelt thank you to our employees, customers, and partners. Your hard work and support fuels our success and sets the stage for continued leadership and growth. Operator, let's open the line for questions.

I guess, Phil and Phil, congratulations on solid results, what I think is a very good guidance as well. Phil Brace, I had a question for you. It was not that long ago that your company was telegraphing a loss of content at your largest customers, but all things considered, when I look at what you guys have done, your revenues are holding really well. I mean, extremely well. And I was curious what has changed or what didn't happen or maybe what went right for you, was it units? Or was it share or just traction in other areas that is causing you to outperform relative to that prognosis maybe 6 to 9 months ago?

Thank you for your question. We are pleased with our results, particularly the mobile performance, which exceeded our expectations, and our guidance reflects this optimism. Several factors contribute to this outcome. Firstly, our sales volumes have been better than anticipated. Both our large customers and Android users are experiencing strong demand for the latest phone models, which have performed well. Additionally, we've noticed a favorable mix of phones that align with our content strategy. This has given us both unit and mix advantages. However, predicting these trends several quarters out can be challenging due to various unforeseen factors. Our guidance does take into account the previous comments regarding content. Overall, it is a combination of these elements, and we believe we have executed effectively despite the uncertainties.

Very well. And for my follow-up, if I can ask you, you mentioned in your comments that you've streamlined sales, which I think was part of the problem. I was curious what just at a very high level, what you've done and how you went about it and how is it benefiting the business from here?

Yes, it's a great question. I mean, obviously, recruited in a new executive, which I've been really happy with. Sometimes just having some fresh air is helpful. It's like listening to music, it brings a fresh air. It's a different perspective on the way to do things. From a structural perspective, what we've done is we've kind of put what I'll call the traditional product marketing functions, which were previously integrated into one group. We actually put that back into business units to really drive tighter alignment between the engineering and the product line road maps and frankly, have our sales team focused on what they should be focused on, which is revenue generation and customer acquisition.

So, Phil, regarding mergers and divestitures, aside from the major pending one, the idea used to be to diversify beyond handsets and a single large customer. It appears, however, that you're leaning in the opposite direction instead of diversifying. Are there still opportunities to pursue mergers or divestitures while this is pending? Is there a potential theme for the mergers, whether related to analog or IoT? Without revealing too much, we're anticipating a significant strategic update from you, and perhaps we were distracted by the Qorvo news. I’d like to hear your thoughts on the diversification outside of this.

Well, to be frank, I kind of disagree with your characterization on a couple of comments, but I'll say, look, when we go back to the Qorvo deal, I think you should just go back to the data that we talked about last week, but I think this gives us both scale and diversification. The customer concentration should actually go down. And I view this as a concentration in wireless, not just handsets. And so I think that solves a lot of both strategic and financial challenges for the company, and I'm excited about the combination. With respect to what occurs in dependency, both of our companies need to operate independently. We'll continue to do that. Obviously, right, they're subject to certain operating covenants that we both need to live through. And so we're going to continue to be focused on running our businesses and do that. I would not expect any major transformational activities and the like. And from my point of view, this represents the biggest deal the company has done in its history and one of the biggest transformation deals in the RF industry in general. So I disagree with your characterization of being sideswiped, but nevertheless, thank you for the question.

It won't be the first time that someone's disagreed with me and vocalized it. Perhaps, secondly, it does sound kind of your prepared remarks, actually, from your answer to Harsh's question. It sounds like you guys may be a little bit more optimistic on Android. You're seeing better things there. Does the kind of forward outlook, has it changed at all? Are you perhaps a little bit more optimistic on addressing Android in the future? Or do you still worry about kind of the commoditized offerings or treatment of RF in that space?

Yes. Our largest customer in that area is based in Mountain View, and we have a strong presence there. They highly value the performance, integration, and features we offer. The focus is on the premium segment that appreciates the integration performance we deliver. As a result, we have shifted our attention away from the lower-end commodity space, which does not reward those qualities. Our perspective remains unchanged in that area, and our strength in Android is primarily centered around one major customer.

This is Hadi for Krish. Congratulations on the results. I have a question about excluding the biggest customer. It seems your revenues increased by around 50% year-over-year. How much of that growth is attributed to units versus content? Also, how should we consider revenues from customers outside the main one moving forward? I have a follow-up as well.

I didn't catch the first part of your question; could you please repeat that?

Yes, if we exclude the biggest customer, your revenues were up like 50% year-over-year. So I wonder what's driving that? Is it units? Is it content? What's the biggest bucket? And how we should think about that going forward, that segment?

I believe you are referring to our Broad Markets business. I'm looking for more clarity on that, or perhaps Phil can assist with it.

Yes. So as we look at our broad markets business, it's really strength across the board as we look at automotive, IoT, edge. I mean we're seeing strength in kind of a lot of different markets within the broad market space, and that's really driving the growth outside of our largest customer.

All right. I have a question about China. Your exposure there is below 10%, and one of your peers is trying to exit the market. I'm curious about your perspective on the China market. Are you comfortable with your current level of exposure there, or do you have plans to reduce it in the future?

I don't think we're changing our focus there. Look, our focus is really on the premium space in that segment. And I would like to point out, beyond handsets, we have other business there as well, including the automotive space and other areas where we have presence. We mentioned BYD and the like. So we do have other business there. We're really focused on the customers and the opportunities that will value the technology and the performance that we bring. And so to that extent, particularly for some of the higher volume, lower SP handsets, we're choosing not to participate there because they're just economically not attractive businesses. And that hasn't changed, and our focus won't change there.

I was wondering if you could maybe talk about some of the dynamics you're seeing in the broad markets business. I mean clearly, you're seeing a recovery across the space and across the peer group. But I'm kind of curious given some of the data center or other dynamics you called out, Phil, how you would encourage us to think about the long-term structural growth rate of that business? Is this something that could easily be mid-teens long term? Or is that maybe a little bit too aggressive and just how we should think about that from a long-term perspective?

Yes, we view it as a long-term double-digit growth opportunity. That's where we have it positioned and modeled. In the shorter and medium term, some of the growth drivers include advancements in WiFi technology, particularly moving from WiFi 7 to WiFi 8, along with strength in automotive connectivity and in-vehicle entertainment, as well as broadcast radio. We believe these factors will contribute positively. Additionally, there are opportunities in the infrastructure and cloud sectors that we are taking into account. We feel we are well-placed in segments with higher growth potential, which are typically associated with longer revenue cycles. Therefore, we believe that double-digit growth is feasible for this business, and that is the trajectory we are planning and investing towards.

And then maybe as a follow-up, if you can maybe kind of speak to the growth rate you expect from OpEx from here on out. Can you sort of hold this December OpEx run rate into say, the first half of the next calendar year? Should we expect some kind of step-ups from here? Or how should we think about the structural run rate in that given the investments you're intending to make?

Yes. So as you look at the fourth quarter, we did have an extra week in there, which added about $7 million to the current quarter. As we look forward for the guide that we provided looking at targeted investments, but we don't anticipate anything above normal inflation as we maintain discipline over our spend.

This is Sam Feldman on for Karl Ackerman. So Android was just under $100 million last quarter, driven by the Google product ramp. And it sounds like you saw strong unit volumes this quarter. So can you give us a sense of the magnitude and direction of the Android business this quarter and generally discuss the puts and takes of achieving a $400 million run rate?

Yes. Thanks for that. This is Raji. So as you said, yes, Android was roughly a little bit under $100 million, and it was up sequentially. It's primarily driven by Google. We expect it to increase again in the December quarter, again, driven by Google.

It is clear that your largest customer's choice not to use the internal solution is actually beneficial for Skyworks, as it allows for much more content in the base model. I'm interested in understanding how much of the positive performance you are experiencing is attributed to the product mix compared to the actual units sold. Additionally, earlier this year, you projected a significant decline for the fourth quarter, but your results have exceeded that expectation. This initial guidance was mainly based on the early quarters, as the phone mix didn’t favor the base model initially, while the Pro Max was discontinued in the first year. Therefore, the base model will remain available for an entire year following that. I'm trying to ascertain that the positive trend in content should not diminish as the high-end models phase out over the next 6 to 9 months, providing a solid foundation for growth in the upcoming year. Is that an accurate interpretation?

I appreciate your question. It's actually quite challenging to manage. First, we cannot afford it. Second, we shouldn't. And third, it's very difficult because the demand depends on not just the mix of units in the phones but also the distribution of phones across different generations. Some of the strength seen in emerging markets may have stemmed from various phone models and their respective mixes. I believe it's reasonable to describe our forward guidance as reflecting our best estimate regarding both units and content, and we will continue to update that on a quarterly basis. The net result has indeed been better than we anticipated, and we will maintain this quarterly guiding approach.

But you got to benefit from both mix and units?

Yes, I think that's probably fair to say, both mix and units, yes.

Great. I know it's too early to make projections since we haven't finalized our selections yet, but everyone is aware of what they need to achieve for the full year in the design competition. You know what you're competing for, and I understand you've been somewhat conservative in your guidance for next year. Are we still in that same range? Or should we consider potential gains in modules that you mentioned before, indicating you might be recovering more than what you achieved this year?

Yes, it's too early to comment on that. As you might know, I mean, I think that clearly, our content direction has been a downward sloping line. I think I've talked about that. The goal is to change the slope of that line, and I think we'll get more clarity on that in the coming weeks and months, but too early to comment on that. At this point, it's a highly competitive environment, but we feel confident about our technology and the products we're delivering, but it's a highly competitive environment, and we'll see how it plays out.

Your accounts receivables have significantly increased, reaching the second highest level in at least 5 or 6 years. I understand this is likely due to the September quarter and the recent launch, but I want to know if there's anything else happening with both Google and your largest customers. We've seen a sequential increase of about 51%. Is there anything additional we should consider?

Yes. There's nothing unusual in AR. It really has to do with the linearity of revenue and the timing of collections, but nothing out of the ordinary.

Congratulations on the results. I just want to follow up on the last question. So at your largest customer, is it the mix within the current generation? Or is it a better mix of the prior generation model that's driving better-than-expected content? Maybe you can clarify that.

It's a combination of factors. We have improved units, as highlighted in the press. We can't provide much more detail, but it's a better mix and better content contributing to our results, all of which are reflected in the guidance. We are unable to elaborate further on this.

Okay. That's fair. Your Broad Market has been growing for almost seven quarters in a row, and you are experiencing growth in the high single digits. You have three main segments: auto, infrastructure, and consumer IoT. Could you provide some insight into what constitutes normal growth and which segments are showing more consistent trend line growth?

Yes, sure.

Yes, that's a great question, Peter. So if you look at the guidance for broad markets, we're guiding it to be up slightly on a sequential basis. On a year-over-year basis, it's up kind of mid- to high single digits. The growth really is across the board, but it's being led primarily by WiFi 7. The WiFi 7 adoption is quite strong. The backlog is very strong entering into fiscal '26. So there's a lot of momentum there. Second, we mentioned that the automotive business exiting fiscal '25 is at a record. So that's almost $65 million a quarter in automotive run rating exiting fiscal '25, and we feel good about the pipeline going forward. And then lastly, the data center and infrastructure business, after kind of several quarters of inventory digestion by a lot of our customers, we're starting to see those customers start to rebuild inventory again. And we're also seeing some nice design wins, timing design wins on some 800 gig platforms that we mentioned on the prepared remarks. So all three are growing. We do expect some seasonality as we enter into fiscal '26, which you would expect after you burn off some inventory. So I would kind of factor that in. But overall, we're moving in the right direction in Broad Markets.

Thanks for taking the question. I'll echo the congratulations on the execution. Phil Brace, I wanted to start with one for you. So in your prepared remarks, you mentioned some key executive changes, bringing in a new CFO, a new head of sales. The question is, as you look across the broader organization, do you feel like you have the right team in place across all the other functions? Or do you expect there to be additional changes and to what effect, whether it be in product, manufacturing, operations, et cetera?

That's a great question. I feel great about the leadership team that I have in place now, and I'm not anticipating any changes.

All right. And then the second question is for Philip Carter. So it's a 2-parter: one, as we look at the business, we're clearly tracking well in the fiscal first quarter. But can you remind us what fiscal second quarter seasonality is in the eyes of Skyworks? And related to that, as we think about some of the working capital dynamics of the business, how should we think the company is planning to manage things like inventory going into what is a seasonally softer period for its biggest segment for a couple of quarters?

Yes. So I guess on the first question, we don't guide beyond one quarter out. I think, generally speaking, it does look like normal seasonality. In terms of working capital, so we did benefit greatly in terms of free cash flow in fiscal '25 as a result of burning down some inventory. I do not anticipate that to repeat next year. So there is going to be some inventory build as we get near the end of the year. But yes, otherwise, the business in terms of inventory is running well. There's low inventory levels in the channel. And so we have pretty good visibility there. So yes, that's what we're seeing.

Great. Thanks for participating in today's call. I look forward to speaking with you at upcoming investor conferences throughout the quarter. Thank you.