I’m a tech industry analyst, not an equities analyst, but I have found that there’s no greater source of truth for a company’s quarterly performance than its earnings announcements. I can also find nuggets in earnings calls that provide a better understanding of the macro environment. This week I tuned into Skyworks’ third quarter earnings presentation, delivered by Mitch Haws, VP of Investor Relations, Liam Griffin, CEO and President of Skyworks and Kris Sennesael, the company’s CFO.

Skyworks , for those unfamiliar, is an Irvine, CA-based semiconductor manufacturer specializing in chips designed for RF (radio frequency) used in cellular, WiFi, Bluetooth, Zigbee, LoRa and GPS applications and analog power chips. The company has nearly $6B in revenue from 6,000 customers delivered by 11,000 employees in 17 countries. 

Formed in 2002 as a product of the merger of Alpha Industries and Conexant’s wireless communications division, Skyworks’ profitable niche is of ever-increasing importance in the world of wireless connectivity. Its portfolio runs the gambit, including but by no means limited to amplifiers, attenuators, front-end modules, circulators, modulators, diodes, power management devices and switches. I consider all these areas “black magic” as very few companies are good at this as wireless just keeps getting harder as the complexity rises. Analog is a hot area to watch in our increasingly connected world. 

Recently, Skyworks has grown organically and made acquisitions (ie Silicon Labsautomotive and infrastructure business) to expand its footprint outside smartphones that generate 40% of its revenue from areas like IoT, automotive, industrial, infrastructure, defense, audio, and even gaming.

Here are the highlights from the company’s earnings report this week without further ado.

By the numbers

Net-net, Skyworks Q3 delivered record, double-digit revenue growth with a small topline beat, beat on EPS by nearly 4% and provided solid guidance all in a challenging macro environment. 

To put a point on the growing demand for RF silicon, Skyworks reported revenue growth in the double digits year-over-year—$1.23 billion, up 10% from last year. Skyworks attributes this growth to the company’s “content” expansion into premium 5G-enabled smartphones and its 38% growth YoY in its broad markets—automotive, data center and network infrastructure sectors. Mobile growth included wins with OEM giants such as Samsung and Google, though the company says that soft demand in China reduced the overall number. Overall, I think Skyworks has derisked itself without a huge China inventory build and when the China demand returns, it will be there.

With a $631 million gross profit in the second quarter, Skyworks’ gross margin came in at 51.2%, a 60-point increase since Q3 last year. Its earnings per share also grew to $2.44—a 13% YoY rate that confounded consensus estimates. The company’s operating expenses dipped marginally to $191 million on a sequential basis, with $440 million in operating income giving Skyworks an operating margin of 35.7%. Skyworks says it incurred $11 million in additional expenditures. After being taxed at its effective rate of 8.1%, the company claims its net income for the quarter totaled $394 million. As for cash flow, Skyworks reported $214 million from operations in Q3, with total capital expenditures totaling $125 million. 

Any shareholders tuning into the call were likely pleased to hear the company’s announcement of an 11% increase in its quarterly dividend. I was impressed that this marks the company’s eighth consecutive year of dividend hikes. All total, this quarter, Skyworks says it returned $209 million to its shareholders—$90 million in dividends and $119 million in stock buybacks. Zooming out a little further, Skyworks stressed that it had returned over $1 billion to its shareholders during the first nine months of the fiscal year, 129% of its free cash flow. 

A return on targeted investments

According to Skyworks, these positive numbers reflect decades of targeted investments on the company’s part. Skyworks highlighted a litany of the company’s recent technology wins and accomplishments to give context for these financial gains. As mentioned, the company has been rubbing shoulders with leading smartphone manufacturers; Google and Samsung recently launched the Sky5 mobile platform inside their new smartphones. Moreover, the company says an outsized share of its mobile revenue comes from these high-performance 5G platforms. 

Skyworks also had several efforts to highlight in Enterprise and IoT. It powers tri-band access points at Cisco and is ramping Europe’s first carrier-grade 6E platform, Orange Livebox 6. The company also partnered with Verizon to launch advanced Wi-Fi and cellular gateways solutions. Skyworks’ cellular, GPS, Wi-Fi and Bluetooth technologies also supported Google’s latest Pixel Watch. 

Skyworks raked in record quarterly revenue in the automotive sector through its efforts to advance wireless and EV power technology with several of the top 10 OEMs in the space. Though it did not name names, the company also says a leading Robo-taxi and driverless vehicle maker is utilizing its timing solutions. The company also lists household names of Tesla, BMW, Audi, Mercedes, Ford, GM, Toyota and VW as customers.

Lastly, Skyworks cited successes in infrastructure and industrial spaces, such as design wins at top European equipment and service providers powering the deployment of massive MIMO. The company also says both data center and networking infrastructure market leaders are leveraging its integrated timing solutions. Additionally, Skyworks says it has shipped modules for high-power industrial and IoT applications that support a “prominent brand” in the smart energy world. The company also lists recognized names of AWS, Intel, Microsoft, Dell Tech, Cisco, IBM, Nokia, Ericsson, and Juniper as customers.

Fourth quarter outlook

Next quarter, Skyworks says it will deliver double-digit sequential revenue growth between $1.375 billion and $1.425 billion. If it ends up at the midpoint of that estimate, $1.40 billion, that will translate to a 14% sequential growth increase for the quarter. 

Skyworks also believes its broad markets portfolio is on pace to hit $2 billion in annualized revenue, given the doubling of its customer count year over year.

Overall, this is a strong outlook given the market demand for smartphones.

Wrapping up

There were not a lot of surprises in Skyworks’ Q3 earnings presentation—just good solid growth all around and a disciplined approach to managing inventory in China. And that was a good thing. I can’t necessarily say this for Qorvo or Broadcom. Skyworks’ substantial numbers are both a testament to the changing, hyper-connected world we live in and an example of a company that has made the right technology investments and strategic choices to diversify itself outside smartphones.