Two Irvine-based tech companies last week reported quarterly results that are foreshadowing future industry trends.
Skyworks Solutions Inc. forecast on April 30 that its fiscal third-quarter sales and adjusted profit will be much lower than analysts expected. It cited slowing mobile device sales. Shares dropped 15% in the following trading session to $90.30, for a $14.4 billion market cap (Nasdaq: SWKS).
Skyworks, which makes semiconductors for cellphones and automobiles among other products, said its mobile business slowed in March and April, which may indicate problems for its largest customer, Apple Inc.
Across town, Lantronix Inc. on April 29 posted fiscal third-quarter earnings that beat analysts’ estimates. It surged 8.7% to $3.76 and a market cap approaching $150 million (Nasdaq: LTRX).
Revenue at Lantronix, which makes devices to connect products to the internet, is accelerating as it focuses on three verticals: smart cities, automotive and enterprise.
“I’m very optimistic about the future, given our strong products and solutions, our growing customer engagement, and our improving EBITDA and solid balance sheet,” Chief Executive Saleel Awsare said on a conference call with analysts.
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Skyworks forecasts third-quarter adjusted profit of $1.21 a share on sales of $900 million, below the $1.47 a share and $1 billion in revenue expected by analysts.
“During the March quarter, in our mobile business, we saw below normal seasonal trends, with lower-than-expected end-market demand,” Chief Executive Liam Griffin said in a statement.
A criticism of Skyworks is that it relies too heavily on one customer—Apple, which in the second quarter provided 68% of Skyworks’ revenue. Even so, Griffin said Skyworks undeservedly lost business.
“We were placed in a unique situation with our largest customer where we were unable to consummate an award that we expected and, frankly, thought we had earned,” Griffin told analysts on a call.
That loss may have been to rival Qualcomm Inc. of San Diego, Oppenheimer analyst Rick Schafer wrote in a note to investors. Skyworks indicated that that it lost more than 10% of its typical content in the coming iPhone 16, according to Schafer.
“Reduced content combined with iPhone units expected down more than 5% this year paves a bumpy road to 2024 growth” for Skyworks, Schafer wrote.
Skyworks is facing a period of declining revenue that dropped 13% in fiscal 2023 and analysts expect it to fall another 7.3% this year to around $4.4 billion; they estimate fiscal 2025 revenue will rebound 6.8% to $4.7 billion.
The reduced revenue is due to excess inventory that “is not a major correction” and it will be fixed in the third quarter that ends in June, Skyworks Chief Financial Officer Kris Sennesael told analysts.
However, analysts are skeptical, predicting fourth-quarter sales will fall 4.5%.
The company is still by far the most valuable publicly traded tech company with headquarters in Orange County; overall, it is the third most valuable company.
While industries such as cellphones, industrial and automotive are “under pressure,” Griffin said it’s in the “early innings of a multiyear upgrade cycle,” specifically pointing to artificial intelligence being installed on cellphones.
“There are going to be upgrades on the devices and it’s going to drive tremendous power. And power is really, really important,” he said. “The burden on technology in the smartphone world is really going to go up and it’s going to narrow the playing field. And I love our chances. We’ve got a great business.
“We’re definitely anticipating some upside here.”
Griffin also mentioned the importance of Internet of Things, also known as IoT, a segment where a lot of different products such as water meters are connected to the internet.
“Over the long term, we intend to leverage our connectivity technology across edge connected IoT devices, automotive electrification and advanced safety systems, and AI infrastructure,” he said.
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Lantronix, which calls itself an IoT company, makes more than 50 products for industries like robotics, medical devices and video conferencing. The company has several alumni of former Aliso Viejo-based chipmaker Microsemi Corp., whose former CEO Jim Peterson has a large stake in Lantronix.
The third-quarter result is among the first bits of good news for Awsare since he was named as its new CEO last November, replacing Paul Pickle, who resigned to pursue another opportunity as CEO of Semtech Corp. (Nasdaq: SMTC).
Awsare previously was senior vice president of the enterprise and mobile division at semiconductor maker Synaptics Inc.
On Feb. 9, Lantronix shares dropped 33% to $3.92 after the company reported fiscal second-quarter results below analyst estimates and lowered its fiscal 2024 forecast.
Last week, Lantronix reported fiscal third-quarter revenue jumped 25% to $41.2 million, topping the analyst consensus at $40.2 million. It also posted an adjusted profit of 11 cents, which also topped the average 10 cent estimate.
Importantly, Lantronix confirmed that revenue is accelerating by forecasting fourth-quarter sales between $46.5 million to $51.5 million, implying growth from 33% to 48%.
Since touching a 52-week low of $3.08 in early April, shares are now up 22%.
The three verticals where it’s competing have a combined total addressable market of $8.5 billion, with an annual growth rate around 12%, Awsare said.
“We see both computer and connected technologies converging at the edge of the network, and that’s exactly where we play with our core capabilities and solutions,” he said.
“I expect over the longer term we can grow at or really better than the market.”
