Skyworks Solutions, Inc. (SWKS) Earnings

Management highlights

### Corvo Combination Update - Regulatory review for the Corvo transaction has advanced to phase three with China's SAMR, the final stage of review, with progress in all remaining jurisdictions. Management is now optimistic the transaction will close within calendar 2026, with preparations to close as early as the current fiscal year, pending customary regulatory and closing conditions. - The company plans to raise approximately $2 billion in near-term debt financing to support the transaction, subject to market conditions. The expected leadership team for the combined company has been announced, drawing proven leaders from both firms, with Corvo's CEO joining the combined company's board of directors, enabling day-one execution post-close. - A new $2 billion stock repurchase program expiring January 2029 has been approved, replacing the prior authorization expiring February 2027. The company will discontinue quarterly dividends going forward, redirecting that capital to share repurchases, balance sheet deleveraging, and accretive strategic M&A, which management believes will deliver higher long-term shareholder value with greater flexibility. - Management expects the transaction to be immediately meaningfully accretive to non-GAAP EPS post-close, with the combined company starting with a modest net leverage position and strong free cash flow generation. Synergies of at least $500 million remain expected, with integration planning progressing well. ### Quarterly Operational Performance - Total quarterly revenue and non-GAAP EPS came in above the midpoint of management's prior guidance, with lean channel inventory levels across the business. Mobile demand remains solid heading into the fall product launch cycle, with some broad markets demand outpacing supply. - In Mobile, the company is positioned for long-term growth driven by increasing RF content complexity: higher transmit power requirements for real-time AI applications, multiplied receive data paths, and new satellite connectivity bands all add RF content to devices, a core strength of Skyworks. Blended content share is expected to remain roughly flat for 2026, with a multi-year extended design win secured with the company's largest Android customer through 2030. - In Broad Markets, Wi-Fi 7 adoption continues to grow with strong design engagement and solid backlog, with early customer collaboration for Wi-Fi 7 already underway. Automotive growth is driven by connected car and infotainment programs with global OEMs and Tier 1 suppliers on multi-year platforms. AI Data Center is the company's fastest growing business, outpacing the previously guided 50% annual growth rate even with supply constraints, driven by demand for high-speed connectivity solutions for 800G/1.6T platforms and precision power delivery for 400V/800V HVDC architectures.

Guidance

- For the fourth fiscal quarter 2026, Skyworks guides total revenue to a range of $1,010 million to $1,060 million, with a midpoint of $1,035 million. - Mobile revenue is expected to grow sequentially in the high teens percentage range, supported by the seasonal ramp of new product launches at the company's largest customer, and will represent approximately 61% of total fourth quarter revenue. Broad Markets revenue is expected to grow 5% year-over-year, representing approximately 39% of total fourth quarter revenue. - Gross margin is guided to a range of 44% to 45%, reflecting a seasonal mix shift toward mobile, with ongoing rising input cost pressures expected to persist. The company is offsetting these pressures with internal cost reductions and selective price increases. - Operating expenses are expected to be between $235 million and $245 million, as the company continues to invest in key technology roadmaps. Non-GAAP diluted EPS is expected to be $1.27 at the midpoint of the revenue range. - Long-term, management maintains a target gross margin range of 50% to 55% for the combined company post-close.

Segment performance

For the third fiscal quarter 2026, Skyworks reported total revenue of $935 million. The Mobile segment generated $532.95 million in revenue, accounting for 57% of total revenue, with performance supported by healthy demand at the company's largest customer and successful new product ramps at the largest Android customer. The company's largest single customer accounted for 57% of total overall revenue. The Broad Markets segment generated $403 million in revenue, representing 43% of total sales, and grew 8% year-over-year. Within Broad Markets, the three core growth engines of Wi-Fi, AI Data Center, and Automotive accounted for nearly two-thirds of segment revenue and grew 15% collectively year-over-year, with demand outpacing current supply capacity. Gross profit for the quarter was $420 million, with an overall gross margin of 45%. Operating income was $182 million, for an operating margin of 19.4%, and non-GAAP diluted earnings per share was $1.08.

Risks & headwinds

- Ongoing rising input costs remain a persistent headwind that has outpaced the company's ability to offset costs through internal efficiency gains, creating pressure on gross margins. - Supply constraints across fast-growing Broad Markets products limit the company's ability to meet current customer demand, constraining near-term revenue growth. - The Corvo transaction remains subject to regulatory approval and customary closing conditions, with inherent uncertainty in the regulatory review process even with recent progress. - Softness in consumer IoT end markets acts as a headwind to overall Broad Markets growth, offsetting double-digit growth in the core data center and automotive segments. - Industry memory market dynamics remain uncertain, with ongoing volatility that could impact customer build plans.

Analyst Q&A

• Q: How has pricing held up during fiscal 2027 negotiations, especially for mobile at the largest customer, and what is the gap between demand and supply for broad markets? /

  A: Post-design selection price renegotiation does not typically occur after business is awarded, so there is no ongoing in-cycle pricing renegotiation. Gross margin pressure comes from rising input costs that cannot be adjusted post-contract, which the company offsets through internal cost cuts and selective price increases elsewhere. Broad market demand accelerated from the prior quarter, with data center demand exceeding the 50% annual growth target, and broad-based supply tightness across the fastest growing products with no specific components to single out.

• Q: A competitor announced a long-term supply agreement with your largest mobile customer. How does this impact your content opportunities, and what is your outlook for your content this year and the large Android design win? /

  A: Skyworks cannot comment on peer-customer agreements as details are unknown, and this deal appears consistent with past multi-year agreements from the competitor. Skyworks' design win pipeline and engagement with the largest customer remains unchanged, and the combined company's broad RF portfolio will expand the range of platforms the firm can compete for, improving revenue stability. Blended content is expected to remain roughly flat for 2026, and the large Android design win extends an existing strong relationship through 2030, demonstrating Skyworks' strong competitive RF position.

• Q: What assumptions about mobile market growth were baked into the new capital allocation framework, and where are selective price increases being applied? /

  A: The new capital framework is a long-term plan for the combined company, not based on short-term mobile market growth assumptions, and is designed to enable disciplined capital deployment to maximize long-term shareholder value. Selective price increases are pursued across all segments where input costs can no longer be absorbed internally, but are mostly focused on the broad markets segment, particularly for long-tail, long-life products, with some increases not yet effective.

• Q: What changed to increase confidence in closing the Corvo transaction this year, and how many remaining regulatory phases are there? /

  A: Phase three of the SAMR review in China is the final stage of the process, and the company is actively working constructively with the two remaining jurisdictions. Progress in these discussions and with the SAMR review has led to increased confidence that closing is possible as early as the current fiscal year, though the regulatory process remains inherently uncertain.

• Q: Why did the company eliminate the quarterly dividend entirely to fund share repurchases, and what long-term M&A priorities does the combined company have? /

  A: The decision was made after extensive analysis with the board, and reallocating dividend capital to share repurchases, deleveraging, and strategic M&A was determined to deliver higher long-term shareholder value with greater flexibility. Near-term priority is exclusively closing and integrating the Corvo transaction to deliver expected synergies. Long-term, strategic accretive M&A to further diversify the business remains a capital allocation priority, with no specific target categories or timelines set, and management will remain disciplined in pursuing only accretive opportunities.