The operator introduces the Qorvo Inc. Second Quarter 2024 Earnings Conference Call and informs participants that the call will be recorded. Douglas DeLieto, Vice President of Investor Relations, welcomes everyone and reminds them of the risk factors associated with the company's business. He also mentions that both GAAP and non-GAAP financial results will be provided, with a focus on non-GAAP results. The call will include comments from Qorvo's President and CEO, CFO, and Senior Vice President of Sales and Marketing.

The speaker, Bob Bruggeworth, discusses Qorvo's strong performance in the fiscal 2024 second quarter, with revenue, margin, and EPS exceeding expectations. This is largely due to increased demand from a large smartphone customer and a decrease in channel inventories. Qorvo's differentiated products have led to new opportunities and design wins, supporting their expectations for growth. The company's three operating segments are benefiting from global macro trends in connectivity, sustainability, and electrification, and Qorvo's technologies are critical in enabling these capabilities. Customers increasingly require higher levels of power efficiency, integration, and functional density, and Qorvo's best-in-class technologies and solutions are meeting these demands. In the HPA segment, Qorvo is benefiting from the trend towards "one to many" in the defense and aerospace business.

Qorvo's technologies are supporting higher customer volumes and integration in various applications such as unmanned vehicles, radar systems, satellites, and broadband. Their power franchise offers a differentiated solution with their silicon carbide JFET architecture, leading to faster battery charging, longer battery life, and lower current consumption in markets like EVs and data centers. In power management, they are expanding into various markets with their unique IP. In CSG, Qorvo is focused on the adoption of ultra-wideband and Wi-Fi 6E and 7, offering breakthrough advances in speed and network capacity. They also provide components and system solutions for Bluetooth Low Energy, Zigbee, Thread, and Matter.

Qorvo has recently launched Matter, a technology overlay that improves interoperability across smart home devices. They also have ultra-sensitive MEMS sensors that are being used in various consumer applications. With the growth of 5G and 5G Advanced smartphones, Qorvo sees a big growth opportunity in terms of content. They are recognized as a leading technology innovator but their outlook does not expect a significant change in the macro-economic environment.

In the defense and aerospace market, Qorvo has seen growth in shipments and secured new orders for their products. They have also introduced new technologies and received production orders for cell-to-satellite solutions. In the infrastructure market, they have been selected by a Tier-1 base station OEM and have multiple design wins for DOCSIS 4.0 broadband upgrades. In the power management market, they have released a new tool called QSPICE, which has been well-received by designers. In the automotive market, they have been selected to support a major in-vehicle car access platform, which has a lifetime value of over $250 million.

Qorvo has secured several design wins in the automotive industry, including a V2X solution for a German Tier-1 company and forced sensing touch sensors for a Korean automotive OEM. They have also been selected to supply ultra-wideband technology for a leading Android smartphone OEM, and are expanding their reach into other markets such as fleet management and logistics. In the Wi-Fi market, they have secured design wins with Tier-1 network operators in the US and India. Qorvo has also increased shipments of their highly integrated modules for Android smartphones and expanded their share with a leading OEM. Additionally, they have expanded customer sampling of their mid-high band pad, which utilizes advanced technologies for improved performance.

Qorvo's highly integrated architectures for the Android ecosystem are improving efficiency and freeing up board space for future 5G form factors. The company has made efforts to reduce channel inventories and expects revenue to be more closely aligned with end-market demand in the March quarter. In the December quarter, revenue exceeded expectations due to significant content gains at their largest customer. Despite improved factory production levels, the impact of underutilization and factory-related variances still affected gross margin. However, a larger portion of September revenue was manufactured at external silicon foundries and processed at third-party OSAPs, resulting in higher gross margin.

In summary, the company expects to see a return to 50% plus gross margin in the future and has invested in new product development and productivity initiatives to support growth and profitability. Non-GAAP operating expenses were slightly higher than expected due to performance-based compensation. The company also successfully closed the sale of a business and repurchased $100 million worth of shares. At the end of the quarter, the company had $2 billion of debt and $707 million in cash and equivalents.

In the previous quarter, the company's net inventory decreased by $78 million and the days of inventory decreased from 210 to 138. The company expects revenue of $1 billion plus or minus $25 million, a non-GAAP gross margin between 43% and 44%, and a non-GAAP diluted EPS of $1.65 in the current quarter. Operating expenses are projected to be $235 to $240 million. The company also expects a decrease in inventory and a non-GAAP tax rate of 13% to 15% for fiscal year 2024. The company is seeing improvement in channel inventory for Android OEMs, but smaller pockets of inventory will take longer to digest. Qorvo has multi-year growth drivers and is investing to drive growth in diverse businesses. The call is now open for questions.

The operator announces the start of the question-and-answer session and the first question is from an analyst asking about the trajectory of gross margin for fiscal 2025. The speaker, Grant Brown, explains that there are many factors that can influence gross margins, such as revenue mix and input costs. He also mentions that product mix and unit cost can impact gross margin and gives examples of how historical underutilization and lower future demand can affect it.

The impact of anticipated changes in demand tends to lead to changes in gross margin. The company is focused on returning utilization levels to normal and running factories efficiently in order to achieve a gross margin of 50% or higher. The full year guidance implies a 10% sequential revenue decline in the fourth quarter, but the company is uncertain about the exact seasonal trends due to unpredictable factors such as losing a major customer and the effects of COVID-19.

The speaker discusses their expectations for market rebound and end market demand, mentioning their largest customer's rental rates and seasonal trends. They also mention growth in their ACG and CSG businesses, while their HPA business has been lagging due to a decrease in infrastructure demand. They expect significant growth in March and for the fiscal year. When asked about their largest customer's percentage of revenue, they decline to comment and say it will be disclosed in the 10-K.

In response to a question about 5G unit growth, the company's CEO and VP discussed their exposure to the China Android market and the impact of Huawei. They stated that a large portion of their 5G growth comes from Samsung, and most of their China exposure is in the export market. The VP also shared data on Huawei's recent phone ramp and projected annual growth of 10-20 million units.

The speaker discusses the company's presence in the Chinese market and their relationships with customers. They mention the growth opportunities in overseas business and the importance of considering this in addition to the domestic market. The speaker also talks about the company's strong relationships with customers and their role as a strategic supplier for RF. They mention discussions with customers about product roadmaps and the company's new platform.

The company is looking to expand their business in other areas such as power management and sensors. The market is improving as channel inventories are approaching normal levels. The company had their largest bookings quarter in over two years, indicating that customers are now placing orders aligned with their production plans. Despite signs of weakness in industrial, automotive, and comms infra, the company is still seeing growth due to design wins and cleared channel inventories. The company does not explicitly guide by segment, but the views for each business are factored into their total guidance. The company serves a diverse collection of businesses in various end markets.

The company is expecting to see year-over-year growth in its ACG, CSG, and HPA segments in the upcoming quarters. However, each segment is facing different challenges, with the base station market being weak and the DOCSIS 4.0 upgrade cycle being slower. The company's defense and aerospace group is expected to see growth, but there are cross currents within each segment. The company maintains a diverse set of businesses to mitigate risks and benefit from operating efficiencies. In the cellular IoT market, there was a downturn two quarters ago.

The company is expecting growth in CSG next quarter, but not in the cellular IoT business which has been down. The automotive business is also expected to grow, but from a small base. The company is excited about the opportunities in ultra-wideband, with recent wins in the Android ecosystem and potential expansion beyond smartphones. The opportunity in ultra-wideband is estimated to be several hundred million dollars, similar to the lifetime opportunity for the auto win.

The company is surprised by the growth of ultra-wideband in the automotive industry, with more design wins in this sector than in phones. They expect to lead in design wins in automotive and are also working with Chinese handset manufacturers to introduce ultra-wideband. The company also sees opportunities in other areas such as indoor navigation and other household products.

During a conference call, Ruben Roy asks a follow-up question to Grant Brown about inventory levels for the company. Brown responds that their target is around four turns and they typically aim for high threes to four. The next question from Edward Snyder asks for a breakdown of revenue for each of the three businesses and suggests that the company is dealing with a significant amount of inventory burn in China. However, the company has not commented on a normalized level of revenue for China.

The company's inventories in China are returning to normal levels and demand is increasing. This has led to an increase in revenues for the past two quarters. The company expects growth in the third quarter as they sell through their high-cost inventories. Bookings for the next quarter are not typically made a year in advance. In the upcoming March quarter, the company expects China to be seasonal, despite inventories returning to normal levels.

The paragraph discusses a conversation between Bob Bruggeworth and Srini Pajjuri about the demand for their business in China in March. Bruggeworth clarifies that while there is typically a decline in demand during this time, they have seen growth due to clearing out inventory and the launch of new phones. They also discuss the sustainability of content gains in the next six to 12 months.

The company has experienced strong growth this year, particularly with their largest customer, and has made investments in technologies and products to maintain their position as a trusted supplier. They have gained share in sockets they have held for many years and are underrepresented in the available TAM, making it a target for growth. The company is confident in their ability to continue growing their content in handsets, including in new sockets, and across their portfolio, including in flagship and mass market tiers. In the upcoming quarter, they expect a 9% decrease in sales, which is a change from their previous goal of staying flat.

Vivek, an analyst, asks Bob, the CEO, about the company's sales and gross margins. He notes that one of their competitors has seen a sharp ramp in sales in China, and wonders why the company is guiding sales down. Bob explains that their product timing is different and they ship a majority of their parts to flex circuits, so their ramp may come at a different time. He also mentions that their largest customer had an inventory build that they did not see, so their timing may be different. Grant adds that their Q2 sales were $100 million higher than expected, and their gross margins for December are expected to be 43.5% at midpoint.

The speaker is discussing the impact of inventory and utilization on gross margins for the March quarter and the upcoming fiscal year. They mention that the current high cost inventory will affect margins in the March quarter, but they expect a gradual increase in margins throughout fiscal year 2025, with a target of achieving 50% gross margin on a quarterly and annual basis.

The speaker is discussing the company's cash flow and its ability to improve once the market recovers. They expect cash flow to improve as they collect receivables, but CapEx will remain around 5% of sales. The competitive environment is also discussed, and the speaker does not see any major changes due to a new Huawei phone release.

Grant Brown, speaking on behalf of Qorvo, clarifies that the company's mobile revenue in the September quarter exceeded expectations, with the upside largely driven by their largest customer, ACG. Brown also mentions that the company will not disclose the percentages of their two 10% customers until the annual report. When asked about the impact of customer mix on gross margins, Brown explains that there was a 470 basis point improvement in Q2, with 2.5% attributed to moving from 800 basis points of underutilization to 550 basis points. The remaining improvement was due to product mix, as some products were produced outside of Qorvo's factory network and processed at third-party OSATs. The conference call then concludes.

Bob Bruggeworth thanks everyone for joining the call and expresses appreciation for their interest in Qorvo. He also mentions upcoming investor events and wishes everyone a good night. The operator then ends the call.

This summary was generated with AI and may contain some inaccuracies.