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Earnings preview: Shipments cessation to hurt Skyworks Q3 results

Skyworks Solutions (NASDAQ: SWKS) is set to release its earnings results for the third quarter of 2019 on Wednesday after the market closes. The results will be hurt by the cessation of shipments of mobile and wireless infrastructure solutions to Huawei Technologies and affiliates after the actions taken by the US Department of Commerce against Huawei.

Apart from this, the top line will likely be impacted by the weakness in smartphone demand despite the increasing number of applications of the Internet of Things and its expanding analog product portfolio supporting new vertical markets. Skyworks sells products directly to OEMs of communications and electronics products, third-party original design manufacturers and contract manufacturers, and indirectly through electronic components distributors.

The company generally experiences seasonal peaks during the fourth and first quarters, primarily as a result of the increased worldwide production of consumer electronics in anticipation of increased holiday sales, whereas its second and third fiscal quarters are typically lower and in line with seasonal industry trends.

Earnings preview: Shipments cessation to hurt Skyworks Q2 results
Photo Courtesy: Skyworks / Facebook post

Analysts expect the company’s earnings to decline by 17.70% to $1.35 per share and revenue to drop by 14.10% to $768.63 million for the third quarter. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters.

For the second quarter, Skyworks reported a 22% drop in earnings due to lower revenue and higher research and development expenses. The company experienced an increase in R&D expenses due to its intention to strengthen its business model and momentum across its high-growth broad markets and Internet of Things (IoT) portfolio.

For the third quarter, the company lowered revenue outlook to the range of $755 million to $775 million from the previous range of $815 million to $835 million and adjusted earnings guidance of $1.34 at the mid of the revenue range compared to the prior estimate of $1.50 per share.

Also read: CyberArk Software Q2 preview

Market-wise, the company competes with global semiconductor manufacturers, including Analog Devices (NASDAQ: ADI), Broadcom (NASDAQ: AVGO), Maxim Integrated Products (NASDAQ: MXIM), Murata Manufacturing, NXP Semiconductors (NASDAQ: NXPI), Qualcomm (NASDAQ: QCOM), and Qorvo (NASDAQ: QRVO).

Skyworks expects that intense price and product competition will continue as it faces significant competition in the markets. In addition, the growth opportunities in communications electronics, global expansion, and policy changes could aid in additional competitors entering the market. For tackling this, the company has resorted to investments in new products and services apart from acquisitions.

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