Skyworks: Increasing Reliance On A Single Customer Carries Significant Risk

Summary

• Revenue and net income both fell in FQ4 to cap off what can be described as a challenging year in fiscal 2019.
• Trade restrictions with Huawei played a big role in FY2019 by impacting Skyworks in several different ways.
• Dependency on Apple is on the rise, which may have consequences for Skyworks if we go by recent history.
• Skyworks needs to diversify or it will be left vulnerable to actions that could hurt the bottom line.

Skyworks (NASDAQ:SWKS) recently concluded another fiscal year, which means, among other things, the release of the latest Form 10-K. It's not unreasonable to say that FY2019 was not exactly a great year for Skyworks. Certainly not in comparison to previous years. The company did achieve progress in some areas, but it also experienced major setbacks over the last twelve months. However, there is one overriding trend that is becoming increasingly apparent and which may become problematic if left unchecked. What that is will be covered next.

Fiscal 2019

Fiscal 2019 proved to be a challenging year for Skyworks and FQ4 was no different. Revenue and net income fell by 18% and 26% YoY. Skyworks ended FY2019 with a decline in both revenue and net income after several years of growth. Guidance for FQ1 2020 calls for EPS of $1.65 and revenue of $870-890M, a decline of 9.47% compared to a year ago.

	FQ4 2018	FQ4 2019	YoY
Revenue	$1,008.4M	$827.4M	(18%)
Net income	$285.5M	$210.6M	(26%)
	FY2018	FY2019	YoY
Revenue	$3,868.0M	$3,376.8M	(13%)
Net income	$918.4M	$853.6M	(7%)

Click to enlarge

Source: Skyworks

Fiscal 2019 included major changes for Skyworks

A big reason why FY2019 turned out to be so challenging compared to previous years was that Skyworks encountered some unexpected setbacks. The most important one is probably the issue related to Huawei. Without the trade restrictions imposed by the U.S. government on Huawei, quarterly numbers would have been better. Management alludes to this when it states in its earnings call that:

"Skyworks' revenue for the fourth fiscal quarter of 2019 was $827 million, up 8% sequentially and $2 million above the midpoint of the outlook we provided in August. When excluding the revenue from Huawei, in both the June and September quarter, our revenue increased 20% sequentially."

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Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.