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Apple Influences Skyworks’ Fiscal 3Q16 Guidance

How Have Apple's Semiconductor Suppliers Been Faring?

(Continued from Prior Part)

Skyworks’ guidance influenced by Apple’s outlook

In the previous part of this series, we saw that Skyworks (SWKS) improved its profit margins despite a slowdown in revenue growth in fiscal 2Q16. While margins were boosted by new products, revenue was hit by scaled-back production back by its largest customer, Apple (AAPL). The handset maker reported 18% YoY (year-over-year) decline in iPhone revenue in fiscal 2Q16 and expects to post further declines in fiscal 3Q16.

Amid weak growth, Apple extended its production scale back of the iPhone 6S to June 2016 quarter. It hopes that the launch of iPhone 7 in September 2016 would boost its sales in fiscal 4Q16. Running parallel to Apple’s outlook, Skyworks also lowered its fiscal 3Q16 guidance. However, it expects double-digit growth in fiscal 4Q16, driven by the launch of the iPhone 7.

This optimism comes as the iPhone 7 is expected to exceed the growth of the iPhone 6S. Although Apple reported record sales of 13 million iPhone 6S units in just three days of its release in September 2015, it could not maintain this momentum.

Fiscal 3Q16 revenue guidance

After reporting revenue growth for the past five quarters, Skyworks expects its revenue to fall by 7% YoY to $750 million in fiscal 3Q16, missing the analysts’ estimate of ~$799.8 million. At the fiscal 2Q16 earnings call, Skyworks’ CEO, David Aldrich, said, “During the June quarter we expect to be impacted by an inventory adjustment at a large customer, partially offset with gains across broad markets and crisp operational execution.”

The company serves top smartphone vendors including Samsung (SSNLF) and Apple, as well as China’s (MCHI) Huawei, Lenovo, and Xiaomi. According to IDC (International Data Corporation), Samsung’s global smartphone shipments fell by 0.6% YoY, Apple’s fell by 16.3% YoY, and that of Huawei rose by 58.4% YoY in 1Q16.

Lower exposure in high-growth sector

Samsung and Apple together command ~40% market share, while Huawei commands 8.2% share, according to IDC. Hence, Huawei’s growth is unlikely to offset Samsung and Apple’s declines. Even strong growth from the broad markets would not be able to offset the declines as the company’s exposure to these markets is less—only 25%.

On the other hand, Qorvo (QRVO) reported strong guidance for the June 2016 quarter because of its increasing exposure in growth areas.

Profitability

While Skyworks cannot improve its revenues in the short term, it expects to improve its non-GAAP (generally accepted accounting principles) gross margin from 49% in fiscal 3Q15 to 51% in fiscal 3Q16 by maintaining its operating expenses at $108.5 million. However, it expects non-GAAP EPS (earnings per share) to fall by 3% sequentially to $1.21 per share.

In the next few parts of this series, we will look at the financial performance of another Apple supplier, Cirrus Logic (CRUS).

Continue to Next Part

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