Expert Meeting Minutes | Skyworks Q2 2023 Earnings Call Transcript

1. Performance and Profitability: The company reported $1.15 billion in revenue, with 60% coming from the mobile phone business. While revenue from the largest customer increased, weak demand for Android devices offset some gains. Gross profit was $577 million, but underutilization of production capacity led to a decline in gross profit margin.

2. Inventory and Demand Challenges: The company faced inventory management issues, primarily in the Android2 market, where slow recovery and weak demand resulted in the underutilization of production capacity. They plan to adjust inventory levels in anticipation of a gradual recovery, but it may take several quarters to normalize inventory.

3. Free Cash Flow and Market Penetration: Despite the challenges, the company maintains a strong free cash flow rate, exceeding 30% with a target of 30%. They actively pursue customer cooperation and diversify their product portfolio, focusing on mobile communications, IoT, and other markets to continue expanding their presence.

$1.15 billion in revenue.

Among them, the mobile phone business revenue accounted for 60%, and the most significant customer revenue increased year-on-year, offset by weak demand for Android.

Gross profit of 577 million US dollars and margin of 50%.

Opex was US$190 million, down year-on-year and quarter-on-quarter.

Operating profit of $386 million, 33.5% operating margin.

Other expenses of $13 million, the effective tax rate of 13.4%.

Net income of $323 million, Non-GAAP EPS-diluted of $2.02, in line with guidance.

Operating cash flow of $412 million, Capex of $45 million, free cash flow of $366 million, free cash flow rate of 32%.

FY23H1 free cash flow is US$1.1 billion, free cash flow rate is 43%; FY23 free cash flow rate is expected to be higher than the target of 30%.

Dividend payment of $99 million, share repurchases of $9 million, repayment of $200 million variable-rate term loan.

Revenue $1.05-1.09 billion.

Gross profit margin 47-48%, capacity utilization rate down, and internal inventory down.

Opex 183-187 million US dollars, both quarter-on-quarter and year-on-year decline.

Other expenses $13 million, effective tax rate 13.5-14%.

EPS - $1.67 diluted (at mid-point of revenue guidance).

Delivery of the Sky5 platform, supporting high-end and mainstream mobile phones launched by Samsung.

Partnering with Cisco to Deliver Enhanced Power over Ethernet Capabilities for Enterprise Networks.

Introduced Tri-Band, Wi-Fi 6E, and Wi-Fi 7 Gateways for CommScope and ASUS.

Delivered Programmable Timing Solutions to Top U.S. Satellite Providers.

Partnered with a Japanese telecommunications company to enable the deployment of small-cell infrastructure.

Partnered with a top smart meter company offering the company's industrial product range.

A: The gross profit margin of Q2 in the fiscal year is 50%, mainly due to the underutilization of production capacity; the gross profit margin of Q3 is expected to be 47-48%, due to the underutilization of production capacity.

The cost of production is 4-5%, which is partially offset by cost reduction and efficiency increase.

The reason for the underutilization of production capacity is that the recovery of the Android mobile phone market is slower than expected, the downstream is still digesting inventory, and the market demand is relatively weak. Profitability underutilization hurts gross margin, but will not hurt cash flow, the company is continuing to generate strong cash flow. Companies plan to adjust inventory levels in anticipation of a slower-than-expected recovery.

A: FY23Q2 inventory has decreased, but due to lower income, inventory turnover days have increased. The company's inventory turnover days are higher in the off-season,

High season improvement. The company plans to reduce the amount of inventory and turnover days. Over the next few quarters, gross margins will be roughly stable. As business changes good, gross margin will resume growth. The low gross margin is not a price or cost issue, but just a temporary underutilization of capacity.

A: In March, revenue from the largest customer accounted for 64%. In terms of inventory, the customer's supply chain management is good.

A: The company continues to diversify its product portfolio and is securing new design contracts every month. Strong performance in the automotive market, WiFi 7, and some of The infrastructure markets also made progress, with continued good performance in the I&A segment.

A: The current weakness comes from the Android market. The company has done its best to manage channel parts inventory, but cannot control end-end inventory levels. due to demand weak, the terminal is still destocking.

A: It is expected that the quarter-on-quarter growth in 23Q3 and Q4 will be better. The largest customer will launch new products in CY23H2. Therefore, the company’s growth in the second half of the year is optimistic.

A: In terms of Android, due to the destocking of terminals, the company's shipments are still lower than actual consumption.

A: The impact of underutilization on the income statement will continue for several quarters. The demand in the Android market is relatively weak, although it has improved, but the speed of improvement

Slower than expected; meanwhile, companies are destocking. The company does not see the risk of excess inventory and obsolescence.

Collaboration with a top European automotive supplier to develop EV on-board charging content Partnered with a leading Korean automotive OEM to develop key automotive digital radio products The company's cash return is considerable, and the free cash flow rate continues to be above 30%, which will help the company survive the cycle. The company actively promotes customer cooperation, Mobile communications, IoT, and other markets continue to penetrate.

A: The company hopes to continue to consolidate new projects in the second half of the year, and will achieve better performance in 23 and 24 years.

A: The company increases staffing promptly according to technology and product needs, and makes corresponding adjustments when the situation is severe. The company reduces staffing, Ensures continued support of key clients and projects, with a focus on improving operational efficiency and reducing non-core spending.

A: The company hopes to increase its value, but it depends on the situation in the second half of the year. Leading companies continue to introduce new technologies, and the company keeps paying attention and seeks to work with the best clients.

A: Yes, we plan to do so.

A: Yes, the company's market positioning is biased towards the mid-to-high end. The increased complexity of the Android market in Asia has created more opportunities for companies, contributing to this year's mid-year recovery.

A: The company does not have specific data on the surplus of mobile phones. According to information from customers and peers, it will take about a few quarters. The company previously It is estimated that it will take several quarters to clear the inventory, but at present it will take longer.

A: It is expected that 23Q2 Broad Markets (non-mobile phone business) will decline slightly from the previous month, and the automotive and industrial sectors will perform better surplus.

A: The company cooperates with OEMs, electric vehicle manufacturers, etc., and with the help of I&A business cooperation, it has achieved relatively good results in the automotive field in recent years.Fast growth. The company has a low share of the auto market and is expected to grow in recent years despite inventory issues.

A: The company focuses on the mid-to-high-end market and is more cautious in getting involved in the low-end market, but now the demand for connectivity of low-end products has increased, bringing more opportunities. Samsung and Google performed better, and Chinese customers have some difficulties, but they will recover. If the macro headwinds are overcome, the company will succeed by design.

A: It is expected that CY23 Broad Markets will grow slightly year-on-year, but the macroeconomy poses challenges. The business is expected to grow year-on-year in CY24.

A: The BAW configuration rate is increasing; BAW has multiple nodes, and not all situations apply to the same filter, bringing a lot of innovation and research send work. In addition, the company has advantages in capital intensity, the company has increased the production capacity and technology of BAW, and the existing sufficient production capacity is used for development. BAW is currently mainly used in mobile phones, but there are broader opportunities.

A: A lot depends on the strength of the business rebound. As the Android market recovers and continues to develop businesses in other markets, the company will begin to increase capacity utilization. A rebound is still several quarters away.

A: Yes, the equipment is still there. For the improvement of the utilization rate, the company has made preparations in terms of funds and other aspects, mainly due to demand issues. next few days. In 2019, there are growth opportunities in smartphones, BAW, and other fields.

A: More inclined to the influence of Android.

A: The target free cash flow rate is 30%. In the past few years, the company's free cash flow rate has been at a medium to high level of 20%+, and the reason why it has not reached 30% is technology and investment in manufacturing assets; In the future, the ratio of Capex to revenue will drop to mid-single digits.FY23H1's free cash flow exceeded last year's full-year level, with a free cash flow of US$1.1 billion and a free cash flow rate of 43%. From cash flow rate 30%+.