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

Good afternoon, and welcome to Skyworks Third Quarter 2026 Earnings Conference Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President of Investor Relations for Skyworks. Mr. Gill, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' Third Fiscal Quarter 2026 Conference Call. With me today for our prepared remarks are Phil Brace, our Chief Executive Officer and President; and Philip Carter, Chief Financial Officer and Senior Vice President of 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 Brace.

Thanks, Raji, and good afternoon, everyone. Today, alongside our June quarter results, we're making several important announcements related to the Qorvo combination. One, an update on regulatory process; two, our financing plans; three, the expected leadership team for the combined company; and four, a new capital allocation framework. Let me take these first. The regulatory process continues to move forward. In China, the review has advanced to Phase III with SAMR, and we are working constructively with regulators in all remaining jurisdictions. We are now optimistic that we can close within the calendar year, and we will be preparing to close as early as within this fiscal year. As always, the transaction remains subject to regulatory approvals and customary closing conditions. In connection with the transaction, we anticipate raising approximately $2 billion of debt financing in the near term, subject to market and other conditions. Philip Carter will cover the details, including what's already reflected in our September guidance. We're also announcing the expected leadership team for the combined company. Philip Carter, Chief Financial Officer and Senior Vice President; Philip Chesley, Senior Vice President and President of High Performance Analog; Kari Durham, Senior Vice President, Human Resources; J.K. Givens, Senior Vice President and General Counsel, Secretary; Yusuf Jamal, Senior Vice President and General Manager of RF and Mixed-Signal Intelligence Solutions; Reza Kasnavi, Executive Vice President, Chief Operations and Technology Officer; Joel King, Senior Vice President and General Manager of Mobile Solutions Business; Todd Lepinski, Senior Vice President, Sales and Marketing; Frank Stewart, Senior Vice President and President of Advanced Cellular. Bob Bruggeworth, President and Chief Executive Officer of Qorvo, is expected to join the Board of Directors of the combined company. This team brings together proven leaders from both organizations and the work that we've done to identify these leaders now means we're ready to execute from day 1. Finally, our Board has approved a new capital allocation framework for the combined company. Let me first remind you why we're in a position to do this. We deliberately structured the transaction so the combined company starts with a favorable capital structure with modest net leverage. And as we said in October, we expect it to be immediately and meaningfully accretive to non-GAAP EPS post close. That financial strength is the foundation for the framework. This combination creates a company with robust free cash flow and adjusted EBITDA generation, and we intend to put that capital to work wherever it creates the greatest long-term value, repurchasing shares, delevering the balance sheet and pursuing strategic and accretive M&A. We expect stock repurchases to be a key vehicle for returning capital to shareholders and to support that, the Board has replaced our repurchase authorization expiring in February 2027 with a new $2 billion stock repurchase program expiring in January of 2029. As part of this framework, we have decided not to declare a quarterly dividend going forward, redirecting that capital toward these higher return uses. Taken together, we believe this framework returns more value to shareholders over time with far greater flexibility. Stepping back, the strategic logic of this combination is simple, scale and diversification. In mobile, we're creating a best-in-class RF portfolio with complementary capabilities that expands our reach across platforms and drives greater revenue stability. In broad markets, we're building a larger, more diversified business across defense and aerospace, edge IoT, AI data center and automotive, a key growth platform for the combined company. The same scale is what drives our cost opportunity, and we continue to make good progress in integration planning and remain confident in our ability to realize the anticipated synergies of $500 million or more. A lot of important news, all pointing in one direction. With that update on the transaction and consistent with prior practice, we won't be discussing it in any further detail on today's call and we will focus on our third fiscal quarter results and September quarter outlook. Now let me turn to the June quarter, where the business performed well. We delivered solid results with both revenue and earnings above the midpoint of our guidance, revenue of $935 million and non-GAAP diluted earnings per share of $1.08, $0.05 above the midpoint. Let me touch on the demand environment. What we see across our business is steady. Channel inventories are lean, demand in mobile remains solid as we head into the fall launch cycle and in parts of broad markets, demand is running ahead of what we can supply. On memory, I know it remains front of mind for many investors. We're not a buyer of memory, so I'll speak to what we can see directly. Our demand signals have remained stable, and our September guidance reflects what we see today, consistent with what we said in the past couple of quarters. We recognize these dynamics are still playing out across the industry, and we're staying close to our customers and monitoring order patterns as we move through the second half. Our content sits predominantly in premium high-complexity platforms, which have historically been the most resilient part of the market. In mobile, we executed well in what is seasonally a lighter quarter with revenue slightly ahead of our expectations, supported by healthy demand at our largest customer and successful new product ramps at our largest Android customer. Looking ahead, we're well positioned for the fall season. And over the long term, the demands placed on RF front end continue to expand, which is why we're confident in our growth thesis. Let me spend a moment on those drivers. Uplink is becoming as important as downlink. Real-time applications like video, cloud AI and live translation demand higher transmit power and more sophisticated power amplification. Receive paths are multiplying to carry more simultaneous data streams and satellite connectivity is going mainstream, requiring entirely new bands and components. All of this adds RF complexity to every device and complexity is what we do best. Turning to broad markets. Revenue of approximately $403 million, up 8% year-over-year. Our 3 growth engines, Wi-Fi, data center and automotive, again represented nearly 2/3 of our broad markets business and collectively grew 15% year-over-year. Demand for these products continues to run well ahead of what we can currently supply, and we are actively working to close that gap. Wi-Fi. Wi-Fi 7 adoption continues as AI workloads move toward the endpoint. Design engagement is strong, backlog is solid and our early collaboration with customers on Wi-Fi 8 positions us well. Automotive. The connected car and infotainment are driving growth today with power and connectivity expanding our footprint over time. We are engaged with global OEMs and Tier 1 suppliers on multiyear vehicle platforms. AI data center, our fastest-growing business, is tracking ahead of the 50% annual growth we outlined last quarter, even with supply constraints. We're engaged with leading customers on 2 fronts: high-speed connectivity as the industry moves to 800-gig and 1.6 terabit platforms and power as it shifts to 400 volt and 800 volt HVDC architectures. Rising data rates and rack density are driving demand for our precision timing and advanced power delivery solutions. Together, these engines are reshaping the mix of our broad markets business and validating the diversification strategy we've been executing. To summarize, we delivered another solid quarter of execution, revenue and earnings above the midpoint of guidance with continued traction in broad markets. The Qorvo combination is advancing. Regulatory reviews are progressing, and we are optimistic that we can close within the calendar year, and we will be preparing to close as early as within the fiscal year. We are preparing the combined company to execute from day 1 with our financing plan set, the expected leadership team announced and a new capital allocation framework in place centered on balance sheet flexibility. Demand is healthy and channel inventories are lean. And the long-term setup is compelling, more endpoints, more content per device, AI at the edge and growing exposure to secular growth markets, including data center, automotive, defense and aerospace. With that, let me turn the call over to Philip to take you through our third quarter results and fourth quarter outlook.

Thanks, Bill. Skyworks delivered revenue of $935 million, above the midpoint of our guidance range. Mobile represented 57% of total revenue, supported by healthy sell-through at our largest mobile customer and strong execution of new product ramps at our largest Android customer. Our largest customer accounted for approximately 57% of total revenue. Broad markets represented 43% of sales and grew 8% year-over-year, led by strong double-digit growth in data center and automotive. Gross profit was $420 million with gross margin of approximately 45%, in line with our guidance. Input costs remained a headwind in the quarter, consistent with what we discussed last quarter, and we continue to work toward containing these pressures through disciplined cost controls and selective pricing actions. Operating expenses were $238 million, slightly below the midpoint of our guidance as we continue to fund high-return R&D programs while maintaining tight control over discretionary spending. Operating income was $182 million, translating to an operating margin of 19.4%. Other income and expense was roughly neutral and our effective tax rate was 10%, resulting in net income of $164 million and non-GAAP diluted earnings per share of $1.08, $0.05 above the midpoint of our guidance. Turning to the balance sheet. We ended the quarter with approximately $814 million in cash and investments and $497 million of debt, having retired $500 million of notes that came due during the quarter. The balance sheet is well positioned to support the Qorvo transaction. In connection with the transaction, we anticipate raising approximately $2 billion of debt financing in the near term, subject to market and other conditions in preparation for an earlier close. Now to our outlook. For the fourth quarter of fiscal 2026, we expect revenue in the range of $1.010 billion to $1.060 billion. We expect mobile to grow sequentially in the high teens range, supported by the seasonal ramp of new product launches at our largest customer, while broad markets is expected to grow approximately 5% year-over-year, representing approximately 39% of total sales. We expect gross margin in the range of 44% to 45%. This reflects the seasonal shift in mix towards mobile as new product ramps reach full volume. In addition, we noted last quarter, input costs continue to rise, and we expect that dynamic to persist. We are working to offset this through cost reductions and selective pricing adjustments. We expect operating expenses of $235 million to $245 million as we continue to invest in our key technology road maps. Below the line, we anticipate approximately $6 million in other expense, which includes approximately $5 million of incremental net interest expense, reflecting a partial quarter of financing costs for the Qorvo transaction. We expect an effective tax rate of approximately 10% and a diluted share count of 152 million shares. At the midpoint of our revenue outlook of $1.035 billion, this equates to expected non-GAAP diluted earnings per share of $1.27. With that, I'll turn it back to Phil for closing remarks.

Thank you, Philip. Before we open the line, I want to thank our employees, customers and partners for another quarter of outstanding execution. And to the Qorvo team, the closer we get, the more energized we are by what we can build together. Your dedication sets the stage for continued leadership and growth. Operator, let's open the line for questions.

[Operator Instructions] Our first question coming from the line of Ruben Roy with Stifel.

Phil, I understand sort of the commentary on memory pricing, and Skyworks is not a buyer of memory. But in May, you said you hadn't seen pricing pushback. I'm wondering if you could just kind of give us within the context of your guidance for the September quarter, how pricing has held up through the sort of the fiscal '27 negotiation cycle? And it sounds like there's still potentially some moving parts. Is that sort of the way to read into your comments on at least mobile at your largest customer?

No. Thanks for the question. No, I just want to -- typically, what happens is you go through a negotiation and it's negotiated at the time of down selection. There typically is not any price negotiation that happens post that. That's kind of part of the whole package that you win. So there's no in-cycle negotiation on that. Now the flip side of that is we don't have the ability to adjust when input costs go up as well. So what you're seeing there is a little bit of pressure on the gross margin side, primarily driven by input cost increases that have been difficult. We've been working to offset some of that with our own cost reductions and selective pricing improvements elsewhere, but that's where we see that. On the memory dynamics, look, we've been just watching this every quarter. We've been keeping our inventories low and the demand reflects what we believe to be reflective of that in the current quarter.

Okay. Helpful. And then as a follow-up on the broad markets. I hate to sound picky here with the 3 growth engines happening, but with the kind of the guidance into September, you mentioned the demand versus supply. There is a little bit of deceleration. Is there a way to think about sort of what you're shipping against what the gap is between sort of demand against what I guess on the supply side and any specifics on components that are hard to come by?

Yes. I can't really get into specifics hard to come by. I would just say -- I would say the demand has accelerated from the prior quarter, particularly our data center demand is higher than the 50% we talked about last quarter. We've seen definitely, I would say, tightness across the board in some of those products that are growing faster. Offset that, we've seen some, I'd say, softness in more of the consumer exposed areas of the broad markets business, which is kind of causing a little bit of what you see there. But our growth engines continue to be strong. Supply shortages are pretty much across the board, what you read in the news, and we're kind of working to get more supply to supply our customers' demand at this point.

Our next question in queue coming from the line of Karl Ackerman with BNP Paribas.

One of your competitors in mobile intra-quarter announced a long-term supply agreement with your largest customer. How do you see the -- how do you see their long-term supply agreement impacting your ability, if at all, to regain content opportunities within mobile? And I have a follow-up, please.

Yes. Thanks for the question. Obviously, we can't really comment on peers or terms of agreement between our customers and third parties, frankly, we can't comment because we don't know the details. So that's number one. Number two, I want to observe, right, just from what you can get disclosed. So this seems to be consistent with similar multiyear agreements that they've had in the past. Our position has earned design win by design win, platform by platform. And frankly, our engagement and design win pipeline with that customer remain unchanged. So I think what I can say as a combined company, we're going to have the broadest RF portfolio. I think nobody has shipped more RF components across the board than we have, and we're going to continue to invest in that. And I think that, that breadth gives us a wider range of platforms that we'll be able to compete for. And frankly, some more improved revenue stability that I think is going to be important for us going forward as well.

Yes. I appreciate that. For my follow-up, as you indicated, one of the ways in which you regain content, we believe, is for the mix of the internal baseline modem share to increase over time, which we believe to be at 20% this cycle and 70% in devices as a whole. Do you still anticipate Skyworks' content to be relatively flat this year? And then as you address that question, if you could also just talk about any additional timing or incremental commentary with respect to the $1 billion plus Android win that you have mentioned previously through 2030?

Yes, I'll take the first one. Obviously, what we said is we expect kind of blended content to be roughly flat. We're sticking with that. Obviously, the -- we can't really comment on particular SKUs, particular timing, any of those sort of things. A, we don't know; and B, we don't know what's going to sell. So our guidance really reflects what we believe to be the best view of what we have in the quarter, inclusive of where phones are going to shift to ramp our content, all the rest of that kind of stuff. With respect to the Android win, this is -- continues to be a very strong customer of ours. It's an existing customer of ours that we've had to date. It extends an agreement or an engagement we've had through 2030. And I think it's really demonstrative of our strong RF position and what we see there going forward. I think it gives an indication of kind of platform and capability that we have.

Our next question in queue coming from the line of Krish Sankar with TD Cowen.

This is Steven calling on behalf of Krish. Actually, first question for Philip on the new capital returns program. Just kind of curious like in terms of some of the assumptions that are baked into the new program, does it assume in terms of the mobile market that the end market returns to growth next year? Or are you calibrating the program based on current conditions, first of all?

No. I mean let's just make a comment. This is Phil Brace. I'll take this and then PhiI Carter can get into specific details. Look, when we looked at the capital allocation framework for the company, we feel very strongly that the combined company is an incredibly strong position. And we looked at the uses of capital, and we believe that this is the most accretive thing that we can do and do this, both buying back shares, delevering the company and looking for M&A to continue to diversify and expand the business. We're going to be disciplined and thoughtful about how we approach that. And it really was not reflective of any short-term dynamics, but represents kind of a longer-term framework for the combined company. And the new framework of $2 billion really gives us the opportunity to take advantage of dislocations we see in time. So it was not a short-term kind of view of any statement around that. It was a reflection of how we want to position the company going forward and the most effective use of capital to deliver value to the shareholders over the long term.

Understood. And as for my quick follow-up, just kind of curious on the selective price increases, a portion of the commentary earlier. I was wondering, is that more applicable to the mobile side of the business with the broad markets? And any additional specifics would be helpful.

Honestly, we're trying to do it everywhere we can. I mean we are trying to do our best to engage with all the customers and all the suppliers to make sure we do that, but to kind of minimize the impact the best we can. But we haven't undertaken price increases where the cost -- where we just simply can't absorb the cost anymore. We're trying to do our best to try and mitigate these price increases with other actions we take amongst ourselves, cost reduction efforts and the like. And we've been trying to do that. In certain cases, we just can't absorb them anymore. So we're working with our customers to pass some of those costs along.

Yes. And just to add to that, yes, so it's mostly on the broad market side. As Phil mentioned earlier in the call, right, our mobile business, we set prices pretty much annually. And so it's really focused on those long-life products that have long tails. And there's some selective price increases there. Some of them haven't taken effect yet, so they're kind of in the future as well.

Our next question in queue coming from the line of Srini Pajjuri with RBC Capital Markets.

My first question is on broad markets. I think, Phil, you addressed it a little bit, but I'm looking for a bit more detail. You talked about consumer being a little softer. That makes sense. I'm just curious as to how big consumer market is. Any additional detail because even for the outlook, you're guiding for about 5% despite the fact that your data center and auto seem to be growing in the mid-teens. I'm just trying to understand how much of a headwind that is going forward.

I don't think we break too much of that -- much more detail down on that, Srini. I think the way that I kind of think about that is like our growth engines, our data center business is growing faster than what we guided before. Overall gross engines are growing at 15% year-over-year. That is actually supply constrained at that point, and the headwind really represents some more of the IoT consumer-related devices where we're seeing some softness. So that's about kind of the level of breakout we're giving at this point.

Okay. Fair enough. And then on the acquisition closure, I understand there are sensitivities about additional details here, Phil, but you sound definitely much more confident than 3 months ago. So I'm just trying to understand what changed in the past couple of months that's giving you this confidence. You did talk about Phase III being completed. I guess just to give us some pointers as to what are the next steps and how many more phases, if any, are there in terms of the SAMR approvals. Any additional color, I think, would be really helpful.

Yes. Thanks. I think as everyone knows, the regulatory process is inherently uncertain, right? So you're not really kind of going through that. But we have -- we continue to move forward. The Phase III of SAMR is, in fact, the final stage of that process. And we are working actively and constructively with the 2 remaining jurisdictions. And I think that based on the discussions we're having with them and based on the progress with SAMR leads us to believe an increased closing is possible. And frankly, we're preparing to close as early as this fiscal year.

Our next question in queue coming from the line of Tom O'Malley with Barclays.

This is Kyle Bleustein, on for Tom O'Malley. So in Mobile, June and September are both coming in seasonally. Just when I think long term about the industry, given all the memory -- what's going on with memory and the different voice of customer build plans, is there anything that you can kind of comment on long term, if anything has changed in your view on either build plans or normal seasonality?