Skyworks (SWKS): A Beat, a $2B Buyback, a Killed Dividend — and Free Cash Flow Went NEGATIVE

Skyworks Solutions, Inc. (SWKS) Q3 FY2026 — Reported after the close July 28 (fiscal Q3 2026 ended July 3; Skyworks' FY ends October 2). Revenue $934.8M (-3.1% YoY) beat ~$920M; non-GAAP EPS $1.08 beat $1.01 but fell 18.8%; GAAP EPS $0.22 vs $0.70. The board KILLED the dividend and authorised a new $2.0B buyback. The stock fell 5.4% on the print and finished July 31 at $62.28. The line nobody printed: free cash flow was NEGATIVE $16.7M against POSITIVE $252.7M a year earlier. Nine-month FCF fell 70% on a 2.5% revenue decline, inventory hit ~165 days, and finished goods nearly DOUBLED. THE CALL: AVOID (4/5, THE CASH ENGINE STALLED) — base-case value ~$47.0 vs ~$62.28 today. KEY METRICS: - CALL: AVOID 4/5 — fair value ~$47 vs $62.28 (-24.5%). Owner earnings: FY26E non-GAAP operating income ~$825M less $224M stock comp, ~$70M restructuring, ~$20M interest, ~$165M cash taxes = ~$346M; consensus FCF $575M less stock comp = $351M. Base $400M, 6%/yr for 5 then 3%, 2% terminal at 10.5% = $41. REVERSE DCF: $62.28 demands 14%/yr for five years. - THE PRINT — A BEAT ON A FALLING BUSINESS: revenue $934.8M vs ~$920.3M consensus, non-GAAP EPS $1.08 vs $1.01. But revenue -3.1% YoY, non-GAAP EPS -18.8%, non-GAAP operating margin -390bps to 19.4%, gross margin -220bps to 44.9%, GAAP EPS $0.22 vs $0.70. - THE 86-CENT GAP: $0.22 GAAP becomes $1.08 via $0.35 stock comp, $0.17 deal costs, $0.23 amortisation, $0.14 restructuring — and restructuring recurs every year ($54.3M over nine months). Stock comp is NOT offset: diluted shares ROSE to 151.4M. - THE CASH ENGINE STOPPED — the line nobody printed: FCF -$16.7M vs +$252.7M; nine-month FCF $290.2M vs $961.8M (-70%) on a 2.5% revenue decline. Inventory $1,015.5M vs $754.7M, ~165 days vs ~122. FINISHED GOODS $332.1M from $169.3M, +96%. Nine-month capex $226.0M vs $139.0M, +63%. - THE BUYBACK IS MOSTLY A RE-AUTHORISATION: the dividend is gone (~$427M/yr, a 4.5% yield). The 'new' $2.0B program replaced the February 2025 one, which still had ~$1.2B unused. Skyworks bought ZERO shares this quarter and $7.5M over nine months vs $837.7M a year ago. - THE MIX — WHERE THE BULL CASE LIVES: Mobile $533M (57%); Broad Markets $403M (43%), +8% YoY, Wi-Fi/data centre/auto +15%. Data centre compounds above 50%, supply- not demand-constrained. Content loss at the top customer now tracks LOW TEENS vs 20-25% guided. - THE BALANCE SHEET: $813.8M cash vs $496.9M debt = $316.9M net cash, but cash fell $575M in nine months and a non-repeating $250.0M receivables release flattered it. ~$2.0B of debt is coming, plus ~90M new shares for Qorvo on 151.4M — about 60% dilution. - THE MERGER AND THE GUIDE: stockholders approved, FTC compliance certified, China's SAMR at phase three (final). Combined ~$7.7B revenue, $500M+ synergies. Q4 guide $1,010-1,060M and $1.27 EPS, gross margin 44-45% — DOWN again, as mobile prices are set annually while input costs rise. - VALUATION AND THE STREET: EV $9.11B = 12.4x FY26E non-GAAP EPS ~$5.04 but ~43x GAAP. Street is Hold, and the blended ~$72 average is STALE: post-print Citi cut to $64, TD Cowen $65, JPMorgan $65, BofA $65 (Underperform), RBC $70; only UBS raised, to $70 — average ~$66.50. We DIFFER: we charge the $224M of stock comp. What to watch: Bullish: finished goods draining from $332M, FCF back above ~$250M next quarter, gross margin above 46%, and the Qorvo close inside the calendar year. Bearish: a second negative-FCF quarter, inventory above 170 days, or the merger slipping. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.