Skyworks Solutions, Inc. (SWKS)
UBS Global Technology Conference
November 14, 2012 11:00 a.m. ET
David Aldrich – President & CEO
Steve Ferranti – Director of Investor Relations
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Thank you. Good morning everyone. Can you hear me out – oh I guess I am mic’d up thanks. Okay, why don’t we jump right in, I think we’ve got about 20 minutes of prepared comments and a little bit of time for Q&A and then a breakout session. So again thank you for joining us.
For those of you who have known us for a while, I think you’ll find that our strategy is pretty straight forward. It’s basically to focus exclusively on what we consider to be high-growth markets, markets where the wind is at our back and where we have differentiated technology. Today it’s all about scale and the ability to provide a better system performance, an easier time of integration for our customers who are struggling to deal with all the analog complexity of delivering smartphones and tablets and so on and so forth.
So our strategy is to focus on growth markets, to diversify technically and through scale advantages and to make sure that those markets and the technology we’re developing is differentiated long term, so we can have a sustainable advantage and we believe we have.
And then finally to make sure that as we increase our revenue and market share that we’re able to reliably convert that to earnings. And the mantra we use internally all the time and I think I’ve used with you in the past is that we look to produce diversified analog returns with the growth of the mobile Internet, and we’ll talk about what that means and specifically the returns we’ve been delivering, and we will deliver. But we think that’s quite unique because in today’s world, many companies who are highly diversified with high margins are struggling with growth. And then many growth companies are struggling to deliver high incremental margins and we believe we’ve got a mix of businesses that allows us to do both.
So, this chart just talks about that first element of strategy which is diversification. We went back five years, just to sort of do a little retrospective, and as you can see from the markets addressed, the customers we address, and ultimately the right products, we’ve moved technically from a pure RF company, PAEs and switches, to an analog and an analog mixed signal company. So when I talk today about our diversification and our differentiation, it’s much less about the traditional businesses you may have thought of us five years ago and it’s more about again the whole system experience. In a smartphone for example, it’s going from the power management or the transceiver all the way through the antenna and back. Power amplifiers, GPS, WiFi, antenna switch modules, PAs, complicated switches.
So we’ve moved our product offering up from pure RF into analog, and diversified analog because our customers need reliable system performance. And in order to deliver that, we needed to get broader. We needed to get bigger but we needed to get broader. In the middle from a customer standpoint, we’re quite proud of the fact that if you went back five years ago, we were delivering to the biggest mobile phone manufacturers in the world. And as those OEMs have shifted rather dramatically, our shift has followed that path without any loss in market share. In fact we’ve gained market share as each new OEM has emerged and today you see a lot of concentration particularly in smartphones and those are our best positioned companies. So we think we’ve navigated very well the shifts in OEM.
And then over to the left, our market footprint continues to expand, because not only do we want to ship more content into a smartphone or a tablet but we want to take that same technology and apply it into markets that have longer product lifecycles, that have a different degree of seasonality and cyclicality. So, you’ll hear us talk a lot about new businesses in home automation, in automotive and in medical, that uses similar or the same technology platform, but where we’re able to derive much greater margin and less volatility frankly. So, we diversify and you can see from this period of time that went back now to 2010, it wasn’t that long ago when we were about 80% mobile cellular telephones and 20% other. And other was infrastructure, smart energy and so on.
In 2012, we grew the business to about $1.6 billion, but if you see the front-end solutions business, which is primarily PAs, power amplifiers, okay, transmit path stuff. That business grew, but what really grew faster even was that HPA mobile. HPA, high performance analog mobile, that means that we’re taking that PA and if you look at the latest teardown reports of the Galaxy S III for example or others, look at big smartphones. You’ll see that not only is it a PA from Skyworks, but it’s a power management device. It’s a camera, flash device. It’s a GPS device. It’s multimode WiFi, all from Skyworks that we’re then able to shield, develop and bundle in a way that makes the system work better and our customers appreciate that for which we get a lot more revenue. And then vertical markets where today it’s not just about infrastructure, it’s smart energy, it’s the connected home, it’s the connected automobile. So, we’ve grown our business in a far more diversified way and that’s made us more profitable and to some degree less volatile.