SWKS slips below key support as Broad Market weakness weighs on sentiment
2min read Skyworks Solutions (SWKS) reported Q4 earnings with adjusted EPS of $1.55, slightly surpassing analyst expectations of $1.52, while revenue of $1.02 billion was in line with forecasts but represented a 16% year-over-year decline. Despite a challenging quarter, Skyworks’ results were solid, but the guidance for Q1 2024 fell short of Wall Street's expectations, which led to some tempered reactions from investors and analysts.
Shares of SWKS broke below key support at $86. However, they settled at the $81 area and have been able to crawl back. A push above the $86 area would entice bulls to take a shot on the long side.
A key aspect of Skyworks’ performance was its Mobile business, which includes its relationship with Apple. Mobile revenue was relatively stable, driven by seasonal product ramps, especially with Apple, which accounted for 69% of total revenue in the September quarter, up 21% quarter-over-quarter. Apple’s strong showing dispelled some fears about revenue pull-ins and content losses, as Skyworks expects Apple revenue to grow an additional 5-10% sequentially in December, providing a positive outlook in this segment.
The Broad Markets segment, which includes applications in automotive, industrial, and IoT, underperformed slightly. Excess inventory and a slower-than-expected recovery in various markets have hindered growth, causing a drag on revenue and gross margin expectations. Analysts suggest that Broad Markets could take until FY25 to return to higher growth rates, indicating potential challenges ahead.
Gross margins for the quarter came in at 46.5%, in line with expectations, but slightly down from last year. Elevated R&D costs and slower Broad Markets recovery contributed to this dip, as Skyworks increased investment in areas expected to benefit from AI and next-generation technology. Analysts noted that these headwinds may persist, potentially capping margin expansion in the near term.
Skyworks reaffirmed its commitment to AI-driven growth, which it anticipates will boost demand for RF content in both Mobile and Broad Markets applications. The company is banking on AI-enhanced smartphones to trigger an upgrade cycle that would increase demand for its RF solutions. This AI focus has garnered positive feedback, with analysts seeing it as a promising driver for long-term growth.
The relationship with Apple remains vital for Skyworks, and despite anticipated content losses with the upcoming iPhone iterations, Apple continues to drive a substantial portion of Skyworks' revenue. Skyworks aims to manage these potential losses by expanding its content in other areas and increasing its presence in Broad Markets, though the path to diversification appears challenging.
Guidance for Q1 2024 reflected the ongoing pressures in Broad Markets, with revenue expected between $1.05 billion and $1.08 billion, below the $1.096 billion anticipated by analysts. The EPS guidance of $1.57 also missed the consensus estimate of $1.72, emphasizing the near-term difficulties in achieving significant growth outside the Mobile segment. Skyworks’ management is cautious about macroeconomic uncertainties and market dynamics affecting its Broad Markets.
In conclusion, Skyworks delivered a mixed quarter with stable performance in Mobile, driven by Apple, while Broad Markets faced slower recovery. Although the company shows potential in AI-driven applications and RF solutions, near-term headwinds and elevated operating expenses pose challenges. Skyworks' cautious guidance for Q1 reflects these concerns, while analysts remain divided, with some lowering price targets but retaining favorable long-term outlooks due to the company’s strategic position in the connectivity landscape.