Date: February 3, 2026 | Source: Motley Fool (fool.com) full conference call transcript
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Rajvindra Gill (VP of Investor Relations, Skyworks Solutions): Thank you, operator, and good afternoon, everyone. Welcome to Skyworks' first fiscal quarter 2026 conference call. With me today are Phil Brace, our Chief Executive Officer and President, and Philip Carter, our Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Additionally, today's discussion will include non-GAAP financial measures. Please refer to our press release for a complete reconciliation to GAAP. With that, I'll turn the call over to Phil Brace.
Philip Brace (CEO and President, Skyworks Solutions): Thanks, Raji, and welcome, everyone. Before turning to the quarter, I want to briefly address our previously announced combination with Qorvo. We believe this transaction is highly strategic and transformative, bringing greater scale, deeper R&D, and a broader technology portfolio. Together, this combination is expected to reduce historical mobile volatility, strengthen our competitive position, enhance our broad market capabilities, and expand our TAM into defense and aerospace, while creating a clear path to more than $500 million of synergies over time. As highlighted in our investor presentation on October 28, we believe this combination will deliver substantial financial benefits. We expect to achieve healthy gross margin through the cycles, in the 50% to 55% range, supported by significant operating leverage and enhanced earnings power. The combined company will generate robust free cash flow, underpinned by an extremely favorable capital structure with expected net leverage of approximately one at close.
Since announcing the transaction on October 28, we've made solid progress. We've completed our initial regulatory filings, a shareholder vote has been scheduled, and our teams have begun integration planning. As is typical for a transaction of this scale, we expect a comprehensive regulatory review, and we are working closely with regulators around the world. We still expect the transaction to close in early calendar year 2027, subject to the receipt of required regulatory approvals, approval of both company shareholders, and the satisfaction of other customary closing conditions. I'd also like to recognize the Qorvo team for the constructive and collaborative approach brought to the integration planning process. Beyond these prepared remarks, we will not be discussing the transaction, as today's call will focus on our results from the first fiscal quarter as well as our outlook for March.
Turning now to Skyworks Solutions' performance for this quarter, we stayed focused on what we can control: operational execution, customer engagement, and disciplined investment in our product roadmap. Our strategy remains straightforward: focus on our customers, invest in our core technologies, and continue to grow broad markets. In the first fiscal quarter, we delivered revenue of $1.035 billion, exceeding the high end of our guidance range. Mobile represented 62% of total revenue, and we delivered strong broad markets growth of 11% year-over-year, marking eight consecutive quarters of expansion. We generated $339 million of free cash flow, reflecting a 33% free cash flow margin, and paid $106 million in dividends.
We continue to see strength across our broad markets business, with particular momentum in edge IoT, automotive, and data center. In data center, enterprise demand is outpacing segment averages, driven by specialty power isolation and timing products in next-generation 800 gig and 1.6 terabit architectures. In automotive, our pipeline is broad, global, and aligned with long-cycle OEM platforms, enhancing forward visibility. And in edge IoT, Wi-Fi 7 design win activity and strong backlog support future positioning, while early Wi-Fi 8 customer engagement has commenced. We're also navigating capacity constraints in certain product lines, where our demand exceeds our supply, and we continue to operate hand to mouth, scrambling for every part we can build. With that, I'll turn the call over to Phil for the financial details.
Philip Carter (SVP and CFO, Skyworks Solutions): Thanks, Phil, and good afternoon, everyone. Turning to our first fiscal quarter results, Skyworks delivered revenue of $1.035 billion, exceeding the high end of our guidance. During the quarter, our largest customer accounted for approximately 67% of revenue, consistent with the previous quarter. Mobile represented 62% of total revenue, and broad markets grew 11% year-over-year and 4% sequentially, marking eight consecutive quarters of expansion. Diluted earnings per share was $1.54, $0.14 above the midpoint of guidance. Gross margin was 46.6%, with gross profit of $482 million. Operating income reached $252 million, equating to a 24.3% operating margin. Operating expenses were $230 million, at the low end of guidance, attributed to disciplined cost control. We generated $339 million of free cash flow, reflecting a free cash flow margin of 33%. We ended the quarter with approximately $1.6 billion in cash and investments and $1 billion in debt, maintaining a strong balance sheet and ample flexibility. We paid $106 million in quarterly dividends, with a declared $0.71 dividend per share for the next quarter.
Looking ahead to the second fiscal quarter, we expect revenue to be between $875 million and $925 million. We anticipate mobile to decline approximately 20% sequentially, aligning with historical seasonality. We expect broad markets to be flat sequentially, accounting for 44% of sales and up high single digits year-over-year. Gross margin is forecasted between 44.5% and 45.5%, reflecting seasonally lower volume and modestly higher Android mix. We expect operating expenses between $225 million and $235 million, other income of approximately $5 million, and an effective tax rate of 10%. At the midpoint of our revenue outlook, this equates to expected diluted earnings per share of $1.40. With that, I'll turn it back to Phil for closing remarks.
Philip Brace (CEO and President, Skyworks Solutions): Thank you, Phil. A heartfelt thank you to our employees, customers, and partners. Your hard work and support fuels our success and sets the stage for continued leadership and growth. Operator, let's open the line for questions.
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Harsh Kumar (Piper Sandler): On the mobile side, content at your largest customer — can you speak to the trajectory given the strong results?
Philip Brace (CEO and President): Mobile blended content at the top customer was flat year over year, with gains from architecture changes offset by uncertain product mix. Our outperformance reflects healthy sell-through and a richer product mix. Looking ahead, we see multiple drivers of long-term RF content growth: internal modem adoption, added AI functionality, and higher RF complexity are expanding our opportunity inside the smartphone.
Analyst (Q2): Broad markets continues to grow — can you frame the durability and the drivers?
Philip Brace (CEO and President): Broad markets delivered 11% year-over-year growth, marking eight consecutive quarters of expansion, with particular strength in edge IoT, automotive, and data center. In data center, enterprise demand is outpacing segment averages, driven by specialty power isolation and timing products in next-generation 800 gig and 1.6 terabit architectures. In automotive, the pipeline is broad, global, and aligned with long-cycle OEM platforms. In edge IoT, Wi-Fi 7 design win activity and strong backlog support future positioning, while early Wi-Fi 8 engagement has commenced. We continue to see capacity constraints in certain product lines, where demand exceeds supply.
Analyst (Q3): On the Q2 gross margin guide down 160 basis points — what's driving it and how should we think about the cost structure?
Philip Carter (SVP and CFO): We did guide margin down 160 basis points, and that's mostly due to typical seasonality in mobile and lower volume in March, as well as a slightly higher mix of Android, and additional costs such as expedite fees. We expect gross margin between 44.5% and 45.5% in the March quarter.
Analyst (Q4): On the Qorvo combination, can you reaffirm the synergies and the timeline to close?
Philip Brace (CEO and President): We reaffirm the more than $500 million of synergies over time and the 50% to 55% combined gross margin target through cycles. We've completed our initial regulatory filings, a shareholder vote has been scheduled, and integration planning has begun. We expect the transaction to close in early calendar year 2027, subject to regulatory approvals and shareholder approvals.
Philip Brace (CEO and President) (closing): Great. Thanks for participating in today's call. I look forward to speaking with you at upcoming investor conferences throughout the quarter. Thank you.
Operator: Gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
SWKS (Skyworks Solutions) — Q1 FY2026 (Feb 3, 2026). Revenue $1.035B (above high end), non-GAAP EPS $1.54 (+$0.14 vs midpoint), GM 46.6%, OM 24.3% — mobile 62% of revenue with broad markets +11% YoY (8th straight quarter of growth), FCF $339M (33% margin); Qorvo combination on track for early CY2027 close with >$500M synergies; stock +3.31% on the print.