Skyworks had a successful second fiscal quarter in 2024, with strong revenue, earnings per share, and operating cash flow. They are currently in the early stages of a multiyear upgrade cycle and anticipate further growth as retailers, carriers, and MSOs begin to adopt their products.

Despite soft markets in wireless infrastructure and traditional data centers, the company is optimistic about long-term growth in AI workloads, Ethernet switches, and precision timing solutions. They also see potential growth in the automotive industry through software-defined vehicles and connected cars, as well as in the edge connected IoT devices, automotive electrification, and advanced safety systems and AI infrastructure markets. The company's RF technology is crucial in enabling connectivity for these applications, and they are particularly excited about the increasing number of radios and antennas in vehicles to support various communication standards. In the data center market, there is a demand for networking and optical upgrades due to the rise of large language models.

The company, Skyworks, has a portfolio targeting next generation technology such as 800 gig and 1.6 terabyte Ethernet switches and AI enabled phones. They have delivered platforms to leading smartphone companies and expanded into the automotive and audio markets. Despite challenges in the current market, they remain confident in their long-term strategy. In the second fiscal quarter of 2024, their revenue was $1.046 billion and gross margin was 45%. Mobile revenue decreased while broad markets revenue increased. Gross margin was lower than the previous quarter due to seasonality.

During the second quarter of the fiscal year, the company reduced internal inventory by $91 million and operating expenses were below the guidance range. They generated strong cash flow and paid dividends, with cash balances growing to over $1.2 billion. For the third quarter, they anticipate revenue of $900 million and expect gross margin to improve due to cost reduction actions, favorable mix shift, and higher utilization rates.

The company expects operating expenses to be between $192 million and $198 million as they invest in mobile and broad markets. They anticipate $2 million in order income, an effective tax rate of 11.5%, and a diluted share count of 161.5 million shares. The company expects to deliver diluted earnings per share of $1.21 at the midpoint of their revenue range of $900 million. During the March quarter, the mobile business saw lower than expected end market demand, resulting in excess inventory in the channel. This trend continued into April, and the company expects the mobile business to be down 20-25% in the June quarter as they work to clear out the excess inventory.

During a conference call, a company's executives discussed their expectations for the second half of the year. They mentioned that they expect to see modest sequential growth in their broad markets business, in addition to the growth seen in the previous quarter. When asked about the impact of inventory headwinds on the second half of the year, the executives stated that they only guide one quarter at a time and expect the inventory clearance to be completed in the June quarter. They also mentioned that this is a short-term issue and should not have a significant impact on demand in the future. When asked about any potential correlation between the inventory issue and upcoming content and programs, the executives could not comment on specifics but provided some directional color.

The company faced a unique situation with their largest customer, resulting in content headwinds for the upcoming cycle. However, they were able to partially offset the loss with new content gains. The company cannot disclose specific details, but the issue was not related to performance or technology. They remain strategic partners with their largest customer and are looking forward to future collaborations.

Edward Snyder from Charter Equity Research asks about the company's gains in sockets and potential content losses in the second half of the year. Liam Griffin responds that they are striving to gain share in all sockets, but there have been some unique commercial issues that they are working through. Snyder then asks about the content picture in the next few years, specifically mentioning the impact of AI on the RF section of phones. Griffin responds that they are not participating in the machine learning part, but are facing pressure from flagship customers to make smaller packaging.

The speaker discusses the impact of Generative AI on mobile phones and how it will require more power efficient solutions. They mention working with larger customers and narrowing down the playing field in the mobile market. The speaker also mentions moderating CapEx following a significant investment year in 2022.

Kris Sennesael discusses the company's CapEx outlook for the year and how it relates to their long-term opportunities in broad markets and 5G handsets. He explains that the company has focused on efficiency and operational improvements, leading to underutilized factories and the potential for revenue growth without significant additional CapEx. He also mentions that gross margins are expected to improve in the second half, particularly in the mobile business, and could potentially reach 50%.

Chris, during the March quarter, could you provide the percentage of revenue from your largest customer? Additionally, could you elaborate on your mention of inventory work being done at the customer during the March quarter?

In paragraph 12, Kris Sennesael explains that the existing inventory and sales are related to the current phone, not the next launch. The largest customer accounted for 68% of revenue in the March quarter and there may have been some built-up inventory in the channel. For the June quarter, mobile is expected to decline by 20-25%, with Android stabilizing around $100 million per quarter. The inventory correction is over and the company is seeing traction with design wins, expecting year-over-year growth in the next four to eight quarters.

Liam Griffin discusses the growth and opportunities in broad markets, such as automotive, industrial, solar, and PlayStation. The company has been successful in these areas and is now looking at a wider range of opportunities. The inventory levels have improved in some areas, but it varies depending on the market. The consumer IoT market is particularly strong.

The company has seen strong technology transfer and an improving book-to-bill ratio in the Wi-Fi 6E and 7 market. However, the infrastructure networking and data center market is currently soft due to excess inventory that needs to be cleared out. The automotive and industrial market also has excess inventory, but Skyworks is performing well in this sector. China mobile revenue is still low, but improving, and the company has good relationships with major players in the market. Overall, end customer demand in China is still somewhat soft.

The speaker believes that there will be meaningful growth in the business by fiscal 2025, with the potential to reach $125 million to $200 million. However, it may be difficult to reach the previous peak of $200 million due to excess inventory from the COVID years. The company is focused on improving revenue through product development and engagement with high-end players like Google and Samsung. The broad market segment is bottoming and recovering, but there is still an implicit growth rate of 4%.

The company expects to see an acceleration in sequential growth in the back half of the year, with modest year-over-year growth initially and strong double digit growth later on. They are not currently engaged with Huawei due to product quality and the difficult environment in the Chinese market. They anticipate increased dollar content opportunities in addition to unit volume replacement cycles for AI in the future.

The speaker discusses the potential impact of AI on the mobile market and the need for upgrades in both servers and devices. They express confidence in their company's ability to capitalize on this growth and mention the potential for a resurgence in smartphone upgrades. They also mention specific areas that could benefit from increased processing rates and connectivity demands.

The speaker discusses the current demand environment and an inventory correction in the June quarter. They mention the use of carrier aggregation and better filters in their technology, as well as new frequency bands in upcoming devices. They also mention the opportunity for smartphone upgrades and the technical work being done to make it happen. In response to a question about the demand softness, they clarify that it is not a major correction and is expected to be mostly resolved in the June quarter based on customer forecasts.

The speaker addresses a sensitive issue regarding a socket loss at a large customer. They clarify that it is a near-term commercial issue and not indicative of a move towards a multi-sourcing strategy. They express confidence in their ability to continue delivering the product in question. The call ends with the speaker thanking participants and inviting them to upcoming investor conferences.

This summary was generated with AI and may contain some inaccuracies.