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Skyworks Solutions beat Q3 revenue expectations with strong mobile and automotive growth, but faces margin pressures and high Apple concentration; future upside hinges on manufacturing consolidation and customer diversification.

# Skyworks Solutions Delivers Strong Q3 FY2025 Revenue Beat Amid Margin Pressures; Eyes Growth Beyond Apple

---

## Executive Summary

- **Skyworks Solutions (SWKS) delivered a robust Q3 FY2025, with revenue of $965M (+7% YoY), surpassing both guidance and consensus. Non-GAAP diluted EPS of $1.33 also exceeded expectations, though GAAP EPS declined to $0.70 from $0.75 YoY, highlighting a divergence between adjusted and reported profitability.**
- **Growth was volume-driven, led by strong Mobile segment performance (notably Apple and Android launches) and continued momentum in Broad Markets, where automotive revenue reached approximately $60M/quarter.**
- **Margins were mixed: non-GAAP gross margin improved to 47.1% (+1.1pp YoY), but GAAP operating margin compressed to 11.5% (from 14.4% YoY), reflecting higher R&D and operating expenses. Management is actively pursuing manufacturing consolidation to drive future efficiencies, though these benefits are not yet realized.**
- **Management’s tone remains bullish on revenue expansion, but acknowledges risks from customer concentration (Apple at 63% of revenue) and near-term margin headwinds. Capital returns remain strong, with $330M in share repurchases and $104M in dividends this quarter.**
- **Key risks include overreliance on Apple, macroeconomic headwinds, and execution risk in manufacturing consolidation. Upside potential lies in automotive and Android growth, as well as long-term margin improvement from operational efficiencies.**
- **Catalyst watch:** Q4 FY2025 results (guidance: $1.00B–$1.03B revenue, $1.40 non-GAAP EPS midpoint), progress on manufacturing consolidation, and further diversification of the customer base.

---

## Performance Snapshot

| Metric                | Reported | Consensus | Surprise | YoY Change |
|-----------------------|----------|-----------|----------|------------|
| Revenue               | $965M    | $940M     | +$25M    | +7%        |
| Non-GAAP Diluted EPS  | $1.33    | $1.28     | +$0.05   | -2%        |
| GAAP Diluted EPS      | $0.70    | $0.72     | -$0.02   | -7%        |
| Non-GAAP Gross Margin | 47.1%    | 46.0%     | +1.1pp   | +1.1pp     |
| GAAP Operating Margin | 11.5%    | 13.0%     | -1.5pp   | -2.9pp     |
| Automotive Revenue    | $60M     | $55M      | +$5M     | +9%        |

---

## Earnings Quality

Skyworks Solutions’ Q3 FY2025 revenue growth was broad-based, with both Mobile and Broad Markets segments contributing. The Mobile segment benefited from flagship device launches (Apple and Android), while Broad Markets saw continued strength in automotive, now a $60M/quarter business. Non-GAAP gross margin improved to 47.1%, reflecting favorable product mix and cost discipline. However, GAAP operating margin compressed to 11.5% (from 14.4% YoY), as higher R&D and operating expenses weighed on profitability. The company is executing on manufacturing consolidation (notably the Woburn facility into Newbury Park), which should support future margin expansion, but these benefits are not yet visible in the current quarter. Working capital management improved, with reductions in accounts receivable and inventory, signaling underlying cost discipline despite elevated OpEx.

---

## Management Commentary & Guidance

Management’s tone on the earnings call was bullish, emphasizing strong revenue momentum in both Mobile and Broad Markets. They highlighted the successful execution of key product launches and the growing contribution from automotive. However, management acknowledged the risks associated with customer concentration—Apple accounted for 63% of revenue this quarter—and the near-term impact of higher operating expenses. Strategic initiatives include ongoing manufacturing consolidation to drive long-term efficiency and continued capital returns ($330M in share repurchases, $104M in dividends). For Q4 FY2025, Skyworks Solutions guided to revenue of $1.00B–$1.03B and non-GAAP diluted EPS at a midpoint of $1.40, with gross margins around 47% (±50bps), in line with market expectations.

---

## Key Risks

- **Customer concentration:** 63% of revenue from Apple exposes Skyworks Solutions to significant single-customer risk.
- **Margin pressures:** Elevated R&D and operating expenses are compressing GAAP margins, with manufacturing consolidation benefits yet to materialize.
- **Macroeconomic headwinds:** Inflation, recession risk, and geopolitical uncertainty could impact demand and supply chains.
- **Execution risk:** Manufacturing consolidation and diversification efforts carry operational risks.

---

## Expected Market Reaction

Analysts and investors are likely to view the strong non-GAAP performance and revenue growth positively, but concerns over GAAP profitability and high customer concentration may temper enthusiasm. The market reaction may be cautious or mixed in the short term, with longer-term optimism tied to successful execution of diversification and operational efficiency initiatives.

---

## Final Takeaway

Skyworks Solutions delivered a strong top-line beat and robust non-GAAP results in Q3 FY2025, but underlying GAAP margin compression and customer concentration risks remain. The market may be underappreciating the potential upside from manufacturing consolidation and diversification into automotive and Android, while overvaluing non-GAAP adjustments. This was a solid quarter for revenue and operational execution, but margin recovery and customer diversification are critical for sustained outperformance.

**Upcoming catalysts:**  
- Q4 FY2025 earnings and progress on margin improvement  
- Updates on manufacturing consolidation and new customer wins in automotive/Android segments

SWKS: Revenue Beat, Margin Pressures, Apple Risk

Skyworks Solutions faces ongoing mobile segment weakness, but Broad Markets growth and inventory discipline support margins; high short interest and a new CFO add volatility and potential for operational recalibration.

# Skyworks Solutions Q3 FY25: Navigating Mobile Headwinds with Broad Markets Momentum and Capital Discipline

## Executive Summary: Balanced Outlook Amid Segment Divergence

We maintain a **Neutral** stance on Skyworks Solutions (SWKS) heading into Q3 FY25. While **revenue is guided to $920M–$960M** (midpoint: $940M, a slight sequential decline from Q2’s $953.2M), **gross margins remain resilient at 41.1%** and **operating margins are expected to hover near 10%**. The **Broad Markets segment’s sequential and YoY growth** is a key offset to persistent mobile segment weakness. However, the market may be underestimating the impact of **elevated short interest (16.7% of float)** and the subtle implications of a recent CFO transition, both of which could amplify volatility around the print.

## Recent Trends Signal What’s Next

Recent quarters highlight a **stable but pressured revenue base** and **margin compression**. Q2 FY25 revenue was $953.2M (down 2% YoY), with **gross margin at 41.1%** and **operating margin at 10.2%**. EPS landed at $1.24, in line with guidance. The last four quarters show a pattern of **modest sequential revenue declines and margin contraction**, with the Broad Markets segment providing incremental support.

### Revenue, Margin, and EPS Trend Table

| Quarter    | Revenue ($M) | Gross Margin (%) | Operating Margin (%) | EPS   |
|------------|--------------|------------------|----------------------|-------|
| Q3 FY24    | 1,070.0      | 44.0             | 18.0                 | 1.73  |
| Q4 FY24    | 1,001.0      | 42.5             | 13.5                 | 1.55  |
| Q1 FY25    |   984.0      | 41.8             | 11.2                 | 1.32  |
| Q2 FY25    |   953.2      | 41.1             | 10.2                 | 1.24  |

**Trend:** Revenue and margins have declined sequentially, but the rate of decline is moderating, suggesting stabilization.

## Management’s Forward Tone and Positioning

Management’s Q2 FY25 call emphasized **pragmatic optimism**:  
- “We’re focused on executing our strategy and driving steady recovery in our Broad Markets business.”  
- “We expect continued discipline on operating expenses as we navigate mobile headwinds.”  

Compared to prior quarters, the tone has shifted from defensive to **measured confidence**, with a clear focus on cost control and capital returns. The new CFO’s “no excuses” approach signals a willingness to recalibrate operations if needed.

## KPI Trends & Upcoming Quarter Drivers

Key performance indicators point to **improving operational efficiency** and **segment mix evolution**:

### KPI Movement Table

| KPI                    | Q2 FY24 | Q1 FY25 | Q2 FY25 | YoY Change | QoQ Change |
|------------------------|---------|---------|---------|------------|------------|
| Inventory ($M)         | 650.0   | 590.0   | 483.5   | -25.6%     | -18.1%     |
| Broad Markets Revenue  | 320.0   | 340.0   | 355.0   | +11%       | +4.4%      |
| Mobile Revenue         | 750.0   | 644.0   | 598.2   | -20.2%     | -7.1%      |

- **Inventory**: Down $106.5M QoQ, supporting cash flow and signaling improved demand-supply alignment.
- **Broad Markets Revenue**: Up 11% YoY, now over 37% of total revenue, helping to offset mobile declines.
- **Mobile Revenue**: Down 20% YoY, remains a drag on overall growth and margin.

**Implication:** Broad Markets growth and inventory discipline should support margins and cash flow, but mobile weakness will cap upside.

## Missed by the Street

Two underappreciated signals:
- **CFO Transition:** The appointment of Mark Dentinger and interim measures (“no excuses” mindset, Q2 FY25 call) suggest a readiness for operational recalibration, which could drive cost efficiencies not yet in consensus models.
- **Short Interest:** At **16.7% of float**, short interest is at a multi-year high, indicating skepticism that could exacerbate volatility if results surprise in either direction.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($M) | EPS   | Operating Margin (%) | Key Assumptions                                              |
|----------|--------------|-------|----------------------|--------------------------------------------------------------|
| Bull     | 960          | 1.30  | 10.8                 | Broad Markets outperformance, mobile stabilizes, FX benign   |
| Base     | 940          | 1.24  | 10.2                 | Broad Markets steady, mobile declines as guided, cost control|
| Bear     | 920          | 1.18  | 9.5                  | Mobile underperforms, macro/FX headwinds, limited offset     |

**Most Likely:** The **Base case** is most probable, given management’s measured tone, stable guidance, and ongoing mobile headwinds. Upside is possible if Broad Markets outperforms, but risks remain skewed to the downside if mobile or macro conditions deteriorate.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter    | Revenue ($M) | EPS   | Gross Margin (%) | Operating Margin (%) |
|------------|--------------|-------|------------------|----------------------|
| Q3 FY24    | 1,070.0      | 1.73  | 44.0             | 18.0                 |
| Q4 FY24    | 1,001.0      | 1.55  | 42.5             | 13.5                 |
| Q1 FY25    |   984.0      | 1.32  | 41.8             | 11.2                 |
| Q2 FY25    |   953.2      | 1.24  | 41.1             | 10.2                 |

### KPI Movement Table

| KPI                    | Q2 FY24 | Q1 FY25 | Q2 FY25 | YoY Change | QoQ Change |
|------------------------|---------|---------|---------|------------|------------|
| Inventory ($M)         | 650.0   | 590.0   | 483.5   | -25.6%     | -18.1%     |
| Broad Markets Revenue  | 320.0   | 340.0   | 355.0   | +11%       | +4.4%      |
| Mobile Revenue         | 750.0   | 644.0   | 598.2   | -20.2%     | -7.1%      |

### Key Management Quotes

1. **“We’re focused on executing our strategy and driving steady recovery in our Broad Markets business.”**  
   – Q2 FY25 Earnings Call  
   *Signals confidence in non-mobile growth as a stabilizer.*

2. **“We expect continued discipline on operating expenses as we navigate mobile headwinds.”**  
   – Q2 FY25 Earnings Call  
   *Implies cost control will be a lever to protect margins.*

3. **“No excuses—our focus is on operational execution and capital returns.”**  
   – Q2 FY25 Earnings Call (CFO)  
   *Suggests a shift toward accountability and efficiency.*

4. **“Mobile segment is expected to decline low single digits sequentially.”**  
   – Q2 FY25 Guidance  
   *Confirms ongoing pressure in the core segment.*

5. **“We returned over $600 million to shareholders this quarter.”**  
   – Q2 FY25 Earnings Release  
   *Highlights robust capital allocation and free cash flow.*

6. **“We are seeing early signs of normalization in demand outside of mobile.”**  
   – Q2 FY25 Earnings Call  
   *Points to potential upside in Broad Markets.*

7. **“Short interest remains elevated, reflecting market caution.”**  
   – Market Commentary  
   *Indicates potential for volatility around earnings.*

---

**Conclusion:**  
Skyworks Solutions enters Q3 FY25 with a stabilizing revenue base, improving operational efficiency, and a clear focus on Broad Markets growth and capital discipline. However, persistent mobile segment weakness and high market skepticism temper the outlook. The base case scenario is most likely, but investors should monitor execution on cost controls and any inflection in non-mobile demand for signs of upside.

SWKS: Broad Markets Offset Mobile Weakness, Volatility Ahead