Q2 2026 Earnings Call Transcript

Good afternoon, and welcome to Skyworks' Second Quarter 2026 Earnings Conference Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President of Investor Relations for Skyworks. Mr. Gill, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Skyworks Second Fiscal Quarter 2026 Conference Call. With me today for our prepared remarks is Phil Brace, our Chief Executive Officer and President; and Philip Carter, Chief Financial Officer and Senior Vice President for Skyworks. This call is being broadcast over the web and can be accessed from the Investor Relations section of the company's website at skyworksinc.com.

In addition, the company's prepared remarks will be made available on our website promptly after the conclusion during the call. 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. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, today's discussion will include non-GAAP financial measures consistent with our past practice.

Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Phil Brace.

Thanks, Raji, and welcome, everyone. Let me begin by highlighting a few key developments. One, we secured a significant multigenerational design win with a leading Android OEM expected to generate over $1 billion in revenue through 2030. This win reflects our expanding footprint in premium AI-enabled devices, validating our RF content platform and our technology differentiation. Two, we introduced a range of new product innovations, including BAW filters targeting early 6G FR3 spectrum and next-generation RF front-end solutions supporting frequencies above 7 gigahertz.

We also expanded our timing portfolio with new clock buffers addressing data center, wireless infrastructure and PCIe Gen 7 applications. Moreover, we're actively engaged with customers on early WiFi 8 programs, positioning us well for the next upgrade cycle. Three, regarding the Qorvo combination, regulatory reviews are progressing as expected. We have entered Phase 2 of the China SAMR review and are maintaining constructive dialogue with the relevant antitrust authorities.

While our formal guidance remains an expected closing early in calendar 2027, we are increasingly hopeful that we could close in late 2026. We continue to make good progress in our integration planning and remain confident in our ability to realize the anticipated synergies of $500 million or more. Finally, in accordance with our operating covenants in our merger agreement, we supported Qorvo's $400 million share repurchase during the quarter, reflecting what we believe to be a prudent and efficient deployment of capital. Our confidence in the strategic and financial logic of this combination remains as strong as ever, and we look forward to closing and delivering its full value to shareholders and customers.

With that, and consistent with prior practice, we won't be discussing the transaction further on today's call, and we'll focus on our second fiscal quarter results and June quarter outlook. Skyworks delivered strong results, driven by upsides in both mobile and broad markets. We posted revenue of $944 million, roughly $20 million above the high end of our guidance range, delivered earnings per share of $1.15, $0.05 above the high end of our guidance range, and paid $107 million in quarterly dividends. We continue to see solid demand across the portfolio with strength spanning mobile, WiFi, data center and automotive.

We're mindful of the ongoing industry discussion around memory supply and pricing. Consistent with what we observed last quarter, we have not seen an impact on our business to date. Demand across mobile and broad markets has remained solid. Channel inventories are lean, and our portfolio is weighted towards premium high-complexity solutions where demand tends to be more resilient.

We'll continue to monitor the environment closely, but our current outlook remains supported by what we're seeing across the customer base today. In mobile, we again outperformed expectations, supported by healthy sell-through and strong execution on new product launches at our key customers. We remain bullish on the long-term RF content opportunity. Stronger unit backdrop and potential for increasing RF complexity driven by AI workloads continue to support our growth outlook.

Stepping back, the long-term driver of this business is the steady expansion of a more connected wireless world with physical AI emerging as the next wave of growth. Future growth is going to be driven by 4 converging forces: one, more units. The installed base of wireless devices continues to expand globally. Two, more RF content per device.

Next-generation standards, including 6G, WiFi 7 and beyond and satellite connectivity will drive more bands, more antennas and more filters into every endpoint. Three, AI-driven workloads. Edge inference is placing higher demands on wireless performance, particularly uplink, latency and power; and finally, 4 new form factors, robotics, autonomous platforms and edge AI devices are emerging as a new generation of connected endpoints. Turning to broad markets.

Nine consecutive quarters of growth, approximately $400 million in quarterly revenue and double-digit year-over-year growth. Our three growth engines, WiFi, data center and automotive, accounted for nearly 2/3 of our broad markets business and collectively grew 30% year-over-year. Let me briefly talk about these 3 growth engines. One, WiFi.

WiFi 7 adoption is accelerating as AI workloads push towards the endpoint. Strong design engagement, solid backlog and early collaboration with customers on WiFi 8 position us well for continued growth into the next cycle. Two, automotive. The connected car and infotainment are driving growth today with power and connectivity expanding our footprint further into FY '27. We're engaged with global OEMs and Tier 1 suppliers on multiyear vehicle programs.

Three, AI data center. While still modest in absolute terms, this segment is expected to grow nearly 50% this year. The structural shift to higher data rates and rack density is driving demand for precision timing and advanced power delivery. Skyworks is well positioned across 800-gig and 1.6 terabit platforms with leading hyperscalers, global ODMs and infrastructure OEMs as the industry transitions to 400-volt and 800-volt HVDC architectures.

Together, these 3 engines are reshaping the mix of our broad markets business and driving the diversification thesis we've been executing on. In summary, strong quarterly execution, broad-based performance across both mobile and broad markets with 9 consecutive quarters of growth in broad markets and double-digit year-over-year gains. Our outlook remains solid. Customer demand is healthy, channel inventory is lean, and our portfolio is positioned in segments with structural tailwinds.

The Qorvo transaction is proceeding as expected. Regulatory process is on track, and we are confident in delivering the shareholder value. Finally, the long-term setup is compelling, more endpoints, more content per device, AI at the edge and exposure to secular growth areas like data center, WiFi, satellites and more, we believe we are well positioned for what comes next. With that, let me turn the call over to Philip for a discussion of last quarter's performance and outlook for Q3 of fiscal '26.

Thanks, Phil. Skyworks delivered revenue of $944 million, exceeding the high end of our guidance range. During the quarter, our largest customer accounted for approximately 60% of revenue. Mobile represented 58% of total revenue and came in higher than our expectations, driven by healthy sell-through at our top customer and product execution.

Broad markets also outperformed expectations, representing 42% of sales and grew 10% year-over-year, driven by growth across WiFi, data center and automotive. Gross profit was $425 million with gross margin of 45%, in line with the midpoint of guidance. Input costs remain a modest headwind to gross margin, but we continue to do a good job of containing those pressures through cost controls and selective price adjustments. Operating expenses were $236 million, in line with the midpoint of our guidance range.

Operating income was $189 million, translating to an operating margin of 20%. Other income was $3 million, and our effective tax rate was 10%, resulting in net income of $173 million and diluted earnings per share of $1.15, $0.11 above the midpoint of our guidance. We ended the quarter with approximately $1.4 billion in cash and investments and $1 billion in debt, maintaining a strong balance sheet and ample flexibility to support our strategic and financial priorities. Looking ahead to the third quarter of fiscal 2026, we expect revenue to range between $900 million to $950 million.

We anticipate mobile to decline approximately low single digits sequentially, consistent with normal seasonality. We expect broad markets to be up modestly sequentially, representing 43% of sales and up high single digits year-over-year. Gross margin is projected to be approximately 44.5% to 45.5%, flat sequentially, reflecting seasonally lower volume and higher input costs. We expect operating expenses to be between $235 million and $245 million as we continue to fund key R&D initiatives while maintaining tight control over discretionary spending.

Below the line, we anticipate approximately $4 million in other expenses, an effective tax rate of 10% and a diluted share count of 151 million shares. At the midpoint of our revenue outlook of $925 million, this equates to expected diluted earnings per share of $1.03. With that, I'll turn it back to Phil for closing remarks.

Thank you, Philip. Before we wrap up, a heartfelt thank you to our employees, customers and partners. And as the Qorvo team, we deeply respect what you've built, and we're energized by the opportunity ahead of us. Your dedication fuels our success and sets the stage for continued leadership and growth. Operator, let's open the line for questions.

[Operator Instructions] First question coming from the line of Timothy Arcuri with UBS.

So I wonder, can you talk a little bit about your content trajectory at your largest customer? I know you talked about this big Android win, and you've talked in the past about feeling like content would be pretty flat on a blended basis this fall. How do you feel about content looking into next year with this win? Does this bode well for your content at your largest customer?

Yes. Look, I think we talked about in our last call -- by the way, thank you for the question. In our last call, we talked about generally holding serve where we need to serve -- need to hold serve. I mean, in general, when we look at our content position there, we feel good about it.

I think that we're not seeing any -- there's been some industry chatter around different seasonality and things. We're not seeing anything unusual with respect to that. We feel good about our content. And I think the win at the premium Android segment really emphasizes our technology play and the value proposition we can offer.

So I think it bodes really well. I'm excited about it. I'm proud of the team for what they did and looking forward to the future.

And I guess just as a quick follow-up. So September is typically -- it's up usually like 13% to 14%, but the market had been a little weak last year. So are there any puts and takes where you would call out for the third calendar quarter that it would be any different than the usual up like 12%, 13%, 14% sequentially?

We're only really guiding, as you know, 1 quarter in advance. But what we see so far, I mean, book-to-bill remains above 1. Our inventories are lean. We're keeping a close eye on it. We hear lots of chatter about it. But right now, I mean, we don't see anything that wouldn't expect to be otherwise seasonal for the back half of the year, and we'll continue to monitor it closely.

Our next question coming from the line of Chris Caso with Wolfe Research.

The first question would be with regard to this Android win. If you could give us a little more color behind what this means? And would you expect that this represents share gain for Skyworks? Is it something that's a follow-on of the existing platform you have? Or would you consider this to be incremental?

Yes, it's a good question. I'm going to just be careful to answer given the confidential nature of it. I mean, it obviously is a customer we've been working with in the past. I do think it represents incremental business for us going forward.

It's in the premium part of the segment, and we think the gross margins will reflect that. And I think it represents a really good technology statement for us across multiple generations. And I think it's really a testament to the technology we have, but also collaboration with the customer, right? They wouldn't have done that if we don't think that we could deliver sustained value generation over generation, and that's really what we've done here.

As a follow-up with regard to gross margins, I guess with the assumption from your prior answer, we're kind of seasonal in the back half of the year. We've got some continued momentum in broad markets. What do we see as the gross margin trajectory in the back half of the year, recognizing that you probably don't want to guide specifically?

Yes, this is Carter here. Yes. So as we look at the back half of the year, typically, our gross margin is down from Q2 to Q3 on average, 70 basis points over the last 5 years, and we're guiding flat. We are seeing some input costs increase as we're kind of going through the current quarter, incurring expedite fees, looking at gold prices, things like that.

But we're actively pursuing cost reductions where we can, fab optimization, utilization rates. And so looking for that. We do see a slight increase in broad markets, and that does help a little bit as well as we look into the next quarter.

Our next question coming from the line of Edward Snyder with Charter Equity Research.

Okay. So you've got an incremental Android win that's going to be $1 billion between here and 2030, which means it's not Apple. And you played with Google before, and it sounds like you're winning there. And everything you described suggests that maybe that's a win.

In the past, they have -- I wouldn't say they're really sticky. The balance between you and Qorvo in the past. I'm just trying to get a handle on how sticky this is. I guess the 2030 guidance gives you some answer to that.

But do you expect, especially given your merger with the only real competitor there that that's why the guidance is $4 billion over 2030 because there's not going to be many other choices once this gets done? Or even if the merger didn't go through, you'd still think you'd have $1 billion there?

Yes, it really has absolutely nothing to do with the merge, the opportunity in front of us with Qorvo. I really can't comment much more on that other than kind of what I said before. It's a multigenerational design win, significant RF content. It's a really great opportunity for us, and that's really all about I can say the stickiness of it, we've kind of -- I wouldn't say otherwise, I wouldn't say anything out to 2030 unless I was confident about the stickiness of it.

Very good job there. And then my follow-up, -- so you guys have done a very good job. Memory isn't affecting you. We've seen it through the entire industry.

So good job there. But obviously, that's because you decided years ago to exit the China market and focus on your largest customer, and they're not as affected by it. Is there anything out there that would suggest that you would change that strategy? I mean, obviously, it's gotten much worse since your decision to leave China, and I guess it was 2019 or so, and you're not playing a big role in Samsung for a reason.

I mean I don't think it's competitive. I think you've decided not to be there because of the pricing problems at Samsung. So I'm just asking you, Phil, if you're looking out there, is there any reason why you would change that strategy of maybe reentering maybe high end in China or trying to compete for the Galaxy more aggressively at Samsung after the merger with Qorvo?

Yes. Look, I think in general, like our strategy needs to be to continue to grow our business and do so in a way that grows our business profitably. And so really, it's around can we deliver products to any customers via Android, iOS or others in a way that customers are willing to pay for our value proposition, and we get compensated accordingly. And that's kind of what we'll continue to look at.

I mean it's our strategic and financial best interest to do so. What's not in our best interest to do so is to engage in designs that are extremely dilutive, in some cases, negative. And so we'll continue to be prudent about how we allocate our resources to maximize the return and benefit for our customers and our shareholders.

And our next question coming from the line of Tom O'Malley with Barclays.

The first one is a follow-up on content. So I think when you guys gave a little guidance earlier, you talked about phone gen over phone gen. Can you give us an update on how content has trended since then? I think traditionally, you have some early design wins late in the year and then the board really gets set around April.

Has anything changed since we last talked at earnings? And then the follow-up is, it seems like you're pointing to normal seasonality for September and December. Historically, when you look at larger customers, you get a yearly forecast, but then as you get a little bit closer, those things change. Could you maybe talk about what type of lead times you have on the changes in order patterns there just so that people get comfortable around the idea that you wouldn't see any sort of changes as we got closer?

Yes. Look, on the content, I think kind of we're going to go back to what we said before, right? I think that we feel good about our content position. I think that we can't really comment and front run our customers.

And frankly, we don't really know, right, what models they're going to sell and how that's going to work. I just think we feel good about our content position. And I think we'll see how that plays out. But we don't see anything today that would suggest anything other than abnormal seasonality.

Our lead times are actually quite long. But our customers change the forecast all along. We're kind of dealing with some of that now. But I would say that, in general, we don't see anything that suggests abnormal seasonality.

Our book-to-bill is above 1. Our inventory is low, and we continue to get strong demand signals from pretty much across our customer base at this point. It's something we're keeping an eye on. But at this point, we feel really good about it.

Our next question coming from the line of Christopher Rolland with Susquehanna.

Yes, just maybe following on, on that last question about supply, about lead times. Maybe if you could elaborate there and also how it might play into pricing. I think you guys, in your prepared remarks, talked about select pricing adjustments. If you could talk about that, what that might mean actually for gross margin as well, that would be great.

Yes. I mean I'll make some high-level comments, and I'll pass it over to Carter for any particular details. I mean, I think we talked about -- we're dealing with a very dynamic environment. As a matter of fact, if I look back over the past 12 months, you think about the number of black swan events that we've all been managing, it's been pretty challenging and the current supply environment is just challenging.

And so we are definitely seeing effects of input price increases pretty much across the board, you name it. I think our team has done a good job of trying to figure out ways to keep those costs down and manage other things. And we are certainly doing where we can, sharing some of the price increases with our customers and trying to be a balanced and disciplined way to help offset some of these price increases that we're seeing. So it tends to be targeted, and we're trying to manage both the short-term volatility of that as well as the long-term sustainability of the business.

So we're taking a prudent approach to how to do it.

Yes. No, just to add to that, yes, some of the long-life products that we're able to increase price and pass those costs on. In the longer term, we are sticking with our long-term model of 50%, 55% post combination of the merger with Qorvo in terms of gross margin. So we do see a path to gross margin expansion in terms of favorable mix shift, lower cost structure through fab optimization, higher utilization.

So yes, we're still excited about the future and the road map and margin improvement.

Excellent. And perhaps a follow-up on the Android win, if you could maybe talk about -- I know there's some sensitivity here, but talk about how you got that win, how this product is differentiated in terms of getting the pricing that you want or wanted? And does this make you rethink the Android opportunity longer term? Or is this more of a one-off opportunity rather than category?

Yes. I guess just let me zoom back and make a comment a little bit. I mean what we were able to do is offer a technology advantage solution that we believe will enable our customer to make a very competitive product. And by having kind of a multiple generation design win with that particular one, it enables us to basically focus some of this opportunity cost to the engineers so we continue to focus and deliver that generation over generation.

And we think that's very competitive. And I think the customer supported that. And so that's really how that worked. With respect to longer-term opportunities, I'll kind of reiterate, I think Ed asked the question earlier.

It's in our strategic best interest to continue to grow the business we can. We're an expert in the field of RF wireless communications. And to the extent that we can develop solutions and products that customers want to buy at economics that make sense for both of us, and we're going to continue to do that. We get into situations where the economics are upside down, and that's when it doesn't work.

And so we just continue to be financially disciplined about allocating our resources, our R&D, our technology and our capability around things that are going to provide benefit to the customer and deliver financial return for us and our shareholders.

[Operator Instructions] Our next question in the queue coming from the line of Krish Sankar, TD Cowen.

I had 2 of them. One is what is your total China revenues roughly this year? And within that, is the China handset revenues like really small, like less than $10 million a year right now?

Yes. I would say looking at China, our overall business is less than -- annually would be less than $200 million and in handset, it would be less than $20 million.

Got it. And then as a quick follow-up on the broad market side, if I remember right, your data center revenues is still under $100 million and your auto revenues are probably like $250 million a year. Is that still the right ballpark? And how do you expect that to grow as we look forward into the future?

Yes. Those are about right from a number standpoint. We do see really good growth, as Phil mentioned in the prepared remarks around those areas. I think in terms of ranking those data centers growing a lot stronger than our automotive business, but it's a great healthy business that we are getting good design win traction within.

So yes, we're excited about those businesses, and we do see good bookings in those areas.

Our next question coming from the line of Peter Peng with JPMorgan.

When you think about that Android customer, that $1 billion over the next 4 or 5 years, is -- should we kind of think about it as being linear in terms of revenue opportunity? Or is it kind of rising over each year from gen over gen? Maybe some color on how we should think about when we factor that into the model.

Yes, we expect it to be rising year-over-year. We expect that to be a tailwind to growth from now through 2030.

Got it. Okay. And then just on RF content per device at your largest customer, I think it's been kind of stagnant for a number of years now. Just given when you look out the next couple of years, and you talked about some of the drivers like AI at the edge driving higher demand. Maybe you can talk about RF content potentially accelerating and growing.

Yes, absolutely. I mean I think I've said in the past couple of times, if you look at what we said, I think the -- as we look at next year, we expect the blended content to be roughly flat, right? Some potential for some tailwinds there as they migrate towards the internal modem, which opens up some new opportunities for us. It's obviously difficult to predict different models and how that's going to work.

But generally speaking, we feel good about our content. Going forward, we are absolutely seeing more RF complexity driven by increased number of bands, increased MIMO capability, increased power requirements, smaller devices. So we are absolutely seeing that pretty much across the board. And I think that should be a tailwind for us for content.

And so as we kind of look out as we zoom out and we look at the mobile business in general, we talk about having just in general, more units out there. The more units get put out there now, the more come up for refresh when they eventually get done. There's more RF content that's going to come down and then we get into 6G. Then we've got also new form factors and shortening refresh cycles.

So I think we've got a lot of tailwind here that we're pretty excited about. And we'll just keep monitoring that and keep executing in our playbook.

Ladies and gentlemen, that concludes today's question-and-answer session. I'll now turn the call back over to Mr. Phil Brace for any closing comments.

Great. Thanks, everybody, for joining the call today, and we look forward to seeing you at upcoming conferences throughout the quarter.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation, and you may now disconnect.