Apple Supplier Cuts Down Revenue, EPS Guidance Due To Coronavirus – States Manufacturing Operations Remain Unaffected
As markets all around the globe reel, recover and then reel again from the coronavirus outbreak, we're seeing companies all around revise their earnings estimates. The biggest such revision came from Cupertino tech giant Apple, who blamed a slowing manufacturing environment and decreased smartphone sales in China as the primary reason behind its expectation to miss revenue estimates set in the first quarter of the fiscal year 2020 for the second quarter.
Naturally, as Apple reels so do its suppliers. Yesterday, Qorvo Inc who supplies Apple with ultrawideband modules for the iPhone 11 lineup's AirDrop cut down revenue estimates for its current quarter by $30 million - $70 million. Now, the coronavirus has caused another supplier of the Cupertino tech giant to revise estimates for the quarter as Skyworks Solutions, Inc (NASDAQ:SWKS) has more information for investors today.
Skyworks Solutions, Inc Cuts Revenue Guidance For Fiscal 2020's Second Quarter By $40 Million - $50 Million
In a statement, Skyworks has revised its revenue guidance for the second quarter of the fiscal year 2020. The company initially expected to earn in between $800 million - $820 million during this quarter, but now, it states that the coronavirus has forced it to bring down this estimate to $760 million - $770 million in a drop that ranges between $40 million - $50 million.
In addition to providing top line estimate revision, the company also provides details about what it expects will be the effect on its bottom line from the coronavirus. Skyworks states that due to the coronavirus its non-GAAP earnings per share will drop by 12 cents at the midpoint range of its prior guidance and stand at $1.34 for the current quarter. The company had originally expected earnings per share to have a midpoint of $1.46 for its second quarter of the fiscal year 2020.
Skyworks relies heavily on the smartphone industry for its revenue and any impact on the sector as a whole is bound to affect the company as well. The smartphone industry's fate started to become clear at the start of this year when San Diego chip giant Qualcomm Incorporated accepted that disruption from the coronavirus will impact the company's financial performance.
As far as Skyworks goes, the company earned 73% of its revenue in its second quarter of the fiscal year 2019 from the smartphone industry. In its fiscal year 2018, Skyworks earned 47% of its total revenue from Apple, and once you take this factor into account, then the company's reduction of revenue and earnings per share estimate provided today really does not come as a surprise.
The importance of both Skyworks and Qorvo in Apple's supply chain has become more important this year owing to the upcoming launch of the 5G iPhone. The companies provide Apple with key components for cellular connectivity such as RF Front end modules, and given that some analysts believe that an iPhone 'supercycle' is once again upon us, the two suppliers' fortunes are naturally apt to rise as well.
This sentiment was reflected by Mizuho analyst Vijay Rakesh at the start of this year when he chose to raise Skyworks to Buy from Neutral. Rakesh stated at the time that, Skyworks "should see a rebound in growth this year and next as "as 5G requires an incremental 50%-60% increase in the RF (radio frequency tech) content of handsets."
Finally, in addition to revising its earnings estimate, Skyworks states that the coronavirus has not created any disruption in the company's manufacturing supply chain. As per the company's chief executive officer Mr. Liam K. Griffin,
Although COVID-19 has caused no significant disruption within Skyworks’ manufacturing operations to date, the current demand environment for our products has been negatively impacted by interruptions in global supply chains. Despite this, we remain upbeat about our design win momentum and our ability to deliver strong profitability and cash flow. As we navigate these challenges, we continue to focus on the health and safety of all our employees, customers and partners worldwide.