Skyworks Solutions, Inc. (SWKS) Earnings Call Transcript & Summary

Hey, guys. Thank you for joining us today for a conversation with Liam Griffin. He is the CEO of Skyworks. The company has done exceedingly well. It's 1 of the 3 dominant players in the RF space, and there's a lot to ask because there's a lot going on in the RF chain.

So let me just jump right into it, Liam. Let me ask you about the supply chain because that's something we hear about all over the press. You guys have done a tremendous job so far. But I wanted to see if you could provide just kind of any update on how you see the supply chain and what is happening in the supply chain from your angle.

Yes. Well, first of all, thanks for the invite for the conversation today. Appreciate your words, Harsh, to kick this off. And yes, I mean, it's a very interesting time in technology and the supply chain issues that are among us right now are very unique. But you also have to look at supply chain customer by customer or supplier by supplier. And for Skyworks, I think you know that we've been an investor in technology. We have our own labs. We have our own fabs. We have our own gallium arsenide. We have our own highly customized packaging. We've invested billions of dollars in filter technology, starting with standard SAW, then moving to temperature compensated SAW, then moving to bulk acoustic wave technology. So we've always been a company that prides itself on technology generation and building that technology in-house, not just more things and expanding capacity with more machines. It's different technologies and growing those cores. And that comes from customer needs and complexity that our customers have. And so for Skyworks, having these building blocks, very unique assets that we've invested in allow us to do really creative things when the market turns up or down. So certainly, there are some challenges in supply chain. That is absolutely a fact. And in any finished device, there's going to be hundreds or thousands of incremental devices and pieces that will need to come together for a full solution. So we're doing everything we can with our partners to ensure that they get products that they need, and they can sell to the end user and consume to the end user. And we're also doing tremendous work on our end, really appreciating the value of in-house technology. And it's coming to bear right now. So that's how we see it. In the long term, we think some of these changes will abate, and I think that's starting to happen. But our conviction on technology development and scale will not go -- will be unwavered. We're going to continue to play with that book, and we think it's what our customers want. And we have a great team within Skyworks operationally to deliver these results. So maybe a lot to start for the quick first question, but that's how we see it.

Appreciate it. Liam, as always. But the -- what I struggle with to know is there's 2 sides to your business, right? There's the filtering side, which is somewhat unique; and the RF side, which is very, very kind of complex to tune and tweak to a specific phone. And then there's the broad side, which is your typical semiconductor business. And I'm sure the supplying is a little different on each of those. I was curious if you could differentiate between one and the other.

Yes. No, that's a great question. At the outset of the finished product, if you backed up, you could see lots of different technologies in a finished unit. So there's a lot there. And for Skyworks, we have that flexibility to do very, very high scale, really high-scale device count. Our factory in Japan, for example, is a 10 billion unit TC-SAW factory per year. Our bulk acoustic wave technologies are growing in the multimillion level. So there's a lot of scale. There's a lot of scale. And because we are not a company that develops technologies and sells these devices, we integrate and sell solutions. So it's a very, very different model. We're not a company that -- it's not a fabulous play for us. We basically develop and deliver the solutions largely internally with internal cores. But at the same time, we have that flexibility, Harsh, to deliver a product that may be in an IoT device, not a handset or maybe in an automobile, also in infrastructure. A lot of these core technologies can be ported and scaled for any of these markets. And then you have the size, right? You have sizes. You look at a mobile device. In a mobile scale, things are measured in millions or hundreds of millions. So you've got to have that expertise in operations and scale and execution. Broad market is more like -- it's more like an artisan in broad markets. You have to craft and develop shoulder-to-shoulder with your customer. It's not the same thing. Everybody has a different approach, a different cost budget and maybe what the functionality could bring to bear to the market. So there's a lot of that going on, which I think is great because again, for us, owning those building blocks, having an engineering team that knows how to put things together flexibly opens the aperture up for us on the demand side. So you've got your broad market piece, a lot of complexity, probably smaller order sizes but a lot of growth. And then you have your core mobile that is really tough with tremendous complexity, early in 5G. And that is our bread and butter. So we bring that together to deliver the results that you've been seeing. And look at the last year, we grew our revenues by $1.7 billion on a year-over-year basis. And that's still early innings for 5G. So we're really excited about the opportunities in front of us. The supply chain issues, we think, will abate and the outlook for us continues to look very good.

I know it's complex and I know you guys work very hard. But every time you guys report numbers, you guys make it look easy because, as always, comes through. And I think investors appreciate the consistency and the reliability. But with these shortages, which is unprecedented right now because of COVID, the world's like turned over. What kind of conversations are you having with customers in terms of how they want to stock in the future or how they want to work with you to maybe have safety stock and things of that nature? Is that a conversation that's even brought up anymore?

Yes. I mean, to some degree, that's a theme. It's less of a theme for us, though, because, again, we have our in-house capabilities and it allows us to be extremely agile when the market shifts. That's another key point. If you're in a distribution fabless world, you have multiple layers before you get to the final product. We have a direct shot to the final product, right? We do what we've got to do. We execute with our customer, and in a collaborative way as well, Harsh. So there can be opportunities that the supply chain issues or some other nuance creates a wrinkle, we have the ability to help correct that for our customer even, right? So because we don't have to look at a third party 2, 3 steps away from us and hope that we get what we ask for. We can control our destiny that way. And it's been a signature of this company for years. I'm 100% behind it. It's not -- like I said, it's not just making more of things. It's about growing the technology in-house, building your factory with a purpose-built approach, knowing exactly what is going to be made there and for who it's going to be made for. So there's a unique approach there with Skyworks. And certainly, you've got a long tail of other core technologies. The work that we're doing now, bringing in the Silicon Labs I&A business is going to be really special for us. Perfect, perfect opportunity to take extremely high-tech devices in IP and lever the scale opportunity that we've been talking about on this call, about Skyworks' ability to deliver, build it in-house, customize packaging and go after some of the biggest customers in the planet. So it's going to be a lot of fun when we get our wheels going on that. Things are still looking solid. A long way to go, but we're really pumped about that deal.

Yes. That was a really good deal. I think it's going to be really, really good for you guys in the future. When I talk to -- Liam, when I talk to investors, they often bring up -- the momentum guys, in particular, often say, well, 5G started with a bang and the numbers sort of accelerated, pretty huge. And now we're sort of at the peak, and we're looking to come down. And I'm curious what you have to say to this. I try to make the case to these investors that there will be sustained continued RF growth because of 5G. But I'm curious how you think about that sustained steady growth from the point of acceleration. And now, what do investors look forward to in content?

Sure, sure. Well, I will tell you that we are still -- and I know you've heard the phrase from us, but I'll say it one more time. It's still very early innings in 5G. It truly is. I mean the largest customer only launched last year. We see a multiyear cycle with -- and we're going to get the content before we use another word, I'm going to tell you about complexity because complexity is what drives this. And complexity becomes more and more important when you put a higher burden of usage case on your device. So it's the usage cases that drive the effort, the energy, the data rate, the speed, the needs. That creates tremendous complexity. And then that complexity at Skyworks gets resolved by all of those individual technologies that I spoke about. We're very focused on core markets. And so what we're able to do is take that complexity and make it very simple and very easy for our customers to digest and implement. And that is a core feature. And that is why you don't see a huge wide, wide, wide scale in multiple different technologies and multiple fabs. We want to do it ourselves. We want to craft it. We want to be able to course correct, add and subtract from our customers' current budgets and make the solution work for them. And that's extremely unique and different in semiconductors. And it's something that we're very proud of, and it's a strategy that we're going to continue to employ.

So Liam, when I ask you to maybe elaborate on that a little bit, what do you -- what kind of things will be needed in the phone of the 5G? I know that 5G is very early and you can call it quasi marketing right now because not all the bands are there. But as you think about 5G 2, 3, 4 years out, what are some of the things that you would provide as a company -- Skyworks can provide as a company to enable that content growth?

Yes. So certainly, there's a device-by-device opportunity in content growth. More spectrum is being added every year, first of all. The technology bar is going up every year. The need for improved latency, speed, data rate continues to grow. All that matters. But then we also have the opportunity to step out of the mobile device and think about the opportunity of 5G as what I would call the universal connector. It can take share from opto. It can take share from cable. It can take share from all kinds of wire technologies and continue to grow and take share in mobile devices that continues to grow. So I think that the market is starting to embrace wireless technologies in a whole new way. Some of that was pandemic-driven and work from home-driven and seeing that these technologies really can make a difference. But at the same time, it needs to get better. I don't think everyone is completely satisfied with what they have. And that's something that we can improve on as an industry and as a company. So we see tremendous needs for connectivity. Doesn't have to be in a mobile phone. It can be an IoT. It can be in automotive. It can be in base station. Usage cases like WiFi have been tremendous for us. We have every configuration you could imagine for WiFi, very, very high-grade technology with great outcomes for the customers. So that's a segment that is being populated in a number of broad market applications, also in mobile device. So the -- and then if you think about the general demographic around this, I mean the younger audiences are living and breathing on these technologies. They're not going away. We have super essential products for health care, for markets that -- education, things like that, really important things that are very different than what we would have talked about 3 or 4 years ago. So we see that opportunity continuing to grow. There'll be inflections. There'll be changes. There'll be wants and desires from our customer that we would certainly like to get ahead of, but it's those core technologies and building blocks and deep customer engagement in a way that allows us to put it together and makes a very, very complex solution easy for the customer to use.

And Liam, let me talk about the other thing. When we talked about content, we've been talking about what you can do to make the experience better. But how about the units? Do you think that 5G units are at the peak? Or I'd be just curious as an insider into the industry, what's your viewpoint is in terms of units of 5G going forward.

Yes. As I said, I really, really believe and our team and our company believes that we're still in the very early innings. One way to look at this thing is just think about total global mobile subscribers. I think we're around 7 billion-ish. We're not even at 1 billion in smart -- in 5G smartphones, and we're in the hundreds of millions. So there is a long, long tail here in front of us. And at each inflection, there's a content upgrade. Sometimes that upgrade is really steep, sometimes it's incremental depending on the customer. But also what we're seeing is not only is it the core classic RF devices, but we're seeing the upgrades go all the way through the phone. The WiFi devices tend to pop up and do more. The GPS technologies are asked to do more. Data rates and speed, everybody wants it faster. Battery life, that's all about car consumption. We can control that. So even if units appear to be at a certain rate, the content needs to evolve to deliver the experience that the customers want. So clearly, in the early innings of 5G, without question, is a tremendous opportunity globally to drive hundreds of millions and billions of incremental units from today's position to the next 4 or 5 years. And certainly, new inflections and new standards will come about along the way. And it's been a relatively consistent path for years. But what's different now, it's not just the mobile phone. You've got a great opportunity there that we know well. We talk about it. But the unit scale outside of mobile is going to be incredibly impressive and a market that I think we're going to execute in very, very well.

And what about -- so you brought up -- you almost segued into my next question, interestingly, which is the low-end guys, the $150, $200, $250 phone, call it, versus the mid-end versus the top tier phones. Can you talk about the incremental content opportunity in one versus the other, low versus the middle versus the top end?

Yes. Sure. Absolutely. Well, I mean, at the high end, it really is complexity, performance-driven, usage case-driven and the best and the brightest on the engineering side to execute on that, and we do phenomenally well there. But at the same time, and this is -- it's an obvious point, but it's often missed. At the mid-tier or the low end, the incremental move from 4G to 5G is substantial on a dollars per dollar basis. So you could have a device that would be maybe $3 to $4 of RF opportunity. And now you move that to 5G, you could have -- you could go to $6 and have a 50% improvement in content from a low base. And there's a lot of units there. There's a lot of units there. So you've got a high number of units and the incremental move on RF and performance that we deliver, whether it's RF and WiFi in our portfolio. We can typically drive that a couple of dollars, $2, $3, $4, maybe incrementally. So you've got very, very high-end markets that demand the best and the brightest and push that technology hard, wonderful. We love it, we're there for them. And then in the same factories and the same core technologies, we can develop solutions that are a little bit more focused country by country, market by market and deliver those solutions. And like I said, even though the total content opportunity in one of those devices may be less, the incremental from 4G to 5G is actually quite large.

So I -- right after your earnings, I was informed that you are now the largest RF provider to the iPhone or very close to that, if not the largest. So that also means -- and I know that there's only like 3, 4 guys that do this, that do this really well, that have the scale to be supplying to these units, millions of units. That also means that you're more somehow tightly integrated into the design process. Could you talk about how that's changed over the last 5, 6, 7 years, where you're becoming much more important to the large OEMs that make phones? And how are you becoming important?

Yes. I mean without any specific customer here, I would tell you that, as I said, the richness of complexity, the daunting challenges that the best and brightest companies want to go after, which is wonderful for us, it's about a collaborative approach. It's having those core building blocks, having the know-how, having the know-how to put them together, having the know-how to be working in harmony with the customer's end device and the customers' needs and performance. So for us, it starts with the building blocks that I said. And one of the reasons why we put up these incredible fabs that -- look at our CapEx. It put us in great position to endure a chip shortage or anything in supply chain. We invested early. Our customers love that. That's what you want to see. You have a trusted supplier that's investing in technology every year, trying to work with our customers together to take the ball up higher to raise our game. And it's a great experience. It's not easy. There's a lot of experimentation. That's why we literally say, labs the facts. We've got engineer shoulder-to-shoulder in bunny suits working on gallium arsenide, TC-SAW, bulk acoustic wave, whatever it may be. It's real. And those same folks are talking to the sales and marketing team. How can we can make it better? I just had a meeting with this customer. This is what they need. We've got to figure out how to get it done. So it's a really collaborative approach, but we also have the muscle behind it to execute.

So broad markets, which we never talked about thus far, always gets missed out. It gets sort of over -- investors' mind gets overshadowed and it's happening again in this conversation. So I do want to shed some light on it. Liam, what are the things that you're most excited about in broad markets? Not today, we know what's working today. You're doing extremely well. But as you look out maybe 3 to 4 to 5 years, what would be some of the shining stars that you're monitoring within that business that could be big?

Yes, absolutely. Well, I think the IoT space is really going to be an incredible, incredible winner for Skyworks. We're in there now. And because of the size of our business in mobile, some of our investors forget that we're delivering substantial incremental revenue in broad markets, well over $1 billion a year. We grew a tremendous amount of content this year broad -- with multiple new customers. So that's great. Now to add to that, our acquisition of the Silicon Labs I&A business is just a wonderful, wonderful opportunity for us to put core technologies together, bring the scale that we have at Skyworks operationally, bring the unique technologies that the I&A portfolio provides. And really, really good stuff, much deeper in automotive, doing work in timing, doing work in frequency control markets, industrial markets. And also now having the ability to leverage the scale and manufacturing capabilities in core Skyworks, leveraging Mexicali, leveraging Japan, Korea, all of our spots and gallium arsenide in Boston. All of that stuff can come together where some of the smaller players are really at the whim of the fabless market. And sometimes you're in the back of the line, there's nothing you can do. When you have that facility and you have your assets, you can be a lot more flexible. So we think the technologies -- and we really believe this and did a lot of hard work with the team, the I&A team, an incredible, incredible group of people that are all coming with us now. Great, great ideas, great designs, great technology cores. Let's bring it together with our scale operationally. Let's bring it together with the customers that we have that we could introduce and vice versa get some introductions on the I&A side. So we're really excited about it and the customer conversations have already begun, of course and getting some great input, great advice from our customers in how we can be a better supplier there. But certainly, that's going to be a big driver to broad markets. And broad markets as a stand-alone portfolio continues to do very, very well within the Skyworks team.

And my last question for you, Liam. So you're clearly very excited about the I&A business. It's been, in my opinion, a fantastic deal for you. But I was curious, as you made that acquisition, does it require any change in philosophy from a CapEx R&D angle to the way you've been running broad markets? Is there's something you need to tweak from those kind of metrics? Or does it just fit in right away and you sort of like cleanup hours or clean things as you go and then you are on your way to success?

Yes. The nice thing here is this house is clean. It is -- the team, the I&A team has done a great job of driving this portfolio for years. I think one thing, I know we can add. We can add our financial powder to this. So we're not going to have to make decisions on whether it's going to be $20 million. We're not going to have to make that decision. We're going to do the right thing and grow the business. So we're going to take the core technologies that they brought and they've earned and we're going to wrap that around with our financial powder and also our manufacturing excellence and the wonderful customers that trust Skyworks.

Well, Liam, thank you so much for your time. I'm super excited about Skyworks' future. But can't thank you enough for taking the time out of you're busy day for our clients and for ourselves. Thank you.

All right. Thank you, Harsh and Piper. I appreciate the time.

Appreciate it. Thanks.