The operator welcomes participants to the Third Quarter 2024 Earnings Conference Call for Qorvo. The call will include forward-looking statements and a discussion of both GAAP and non-GAAP financial results. The company's CEO, CFO, and Senior Vice President of Sales & Marketing will be present.

In the second quarter, Qorvo saw strong performance due to improved demand and its position in key trends such as connectivity and electrification. The company's unique strengths and technology roadmap make it a preferred supplier for customers seeking efficiency and performance. In the HPA segment, customer demand is improving and the company has secured new design and product orders in defense and aerospace.

Qorvo is experiencing multi-year secular trends in their defense and aerospace business, including the transition to active electronics scanning systems. They have recently acquired Anokiwave, a leading supplier of high-performance integrated silicon ICs, to expand their offerings in defense and aerospace, SATCOM, and 5G applications. In power management, they have secured a PMIC chipset for wearables and have seen a rebound in SSDs for PC and enterprise markets. Their QSPICE circuit simulation software was also recognized at the 2023 Elektra Awards. In power devices, they are shipping to power supplies for blockchain applications and have strong design activity in data centers and circuit protection. In the automotive industry, they have seen strong design activity for onboard chargers and other emerging applications. In infrastructure, Qorvo is leading the DOCSIS 4.0 upgrade cycle and has begun volume shipments of their newest DOCSIS 4.0 hybrid power doubler. In the cellular base station market, demand conditions are expected to remain soft through 2024.

Qorvo is experiencing increasing customer activity for ultra-wideband in secure access automotive applications, as well as new applications such as presence detection and radar-based sensors. They have recently won contracts for ultra-wideband in both an in-vehicle car access platform and a flagship Android smartphone launch. The company is also involved in enterprise and connected home solutions using radar and ultra-wideband technology, such as door locks, smart lighting, and indoor navigation. In force-sensing touch sensors, they have received production orders from an automotive supplier for a leading car-based OEM. Qorvo is also seeing growth in WiFi design activity and collaboration, particularly in the Android ecosystem. They have secured design wins for WiFi 7 across various segments, and have started shipping for the 2024 flagship smartphone launch for a leading Android OEM. Qorvo has also gained significant content in the flagship tier for this customer, including ultra-wideband, low/mid/high-band, secondary transmit and receive, tuning, and WiFi. The company is ramping up and expects a transition to 5G in Android mass-market smartphones throughout the decade.

Qorvo's collaboration with Android customers on their long-term product roadmaps positions them to benefit from the increasing demand for 5G devices. They have been recognized by top China-based Android OEMs for their innovation, quality, supply, technology, and strategic partnership. Qorvo continues to launch new architectures and products to simplify 5G adoption and maintain their position as a leading supplier to Android OEMs. They have also received purchase orders for their next-generation BAW filters and are seeing incremental improvement in end-market demand. They expect low single-digit growth in total smartphone units and over 10% growth in 5G units for calendar 2024. Qorvo collaborates with customers on their three-year product roadmaps and supplies them with industry-leading solutions, making them the preferred strategic RF supplier for all their customers in the Android space.

In the most recent quarter, Qorvo's revenue increased by 44% due to improved demand for their products and significant content gains at their largest customer. Gross margin exceeded expectations, but was impacted by lower utilization and higher unit costs. The company continues to invest in new product development and launch productivity initiatives to drive future growth and profitability. Non-GAAP operating income was $237 million, representing 22% of sales, and non-GAAP net income was $206 million.

During the December quarter, Qorvo generated a record free cash flow of $467 million and repurchased $100 million of stock. Their capital allocation strategy balances future growth and the return of capital to deliver long-term shareholder value. They currently have $1.6 billion of long-term debt and over $1 billion of cash and equivalents. They expect to retire their 2024 notes later this year. Qorvo successfully reduced their net inventory balance by $113 million and expects continued improvement in the March quarter. For the current quarter, they expect revenue of approximately $925 million, non-GAAP gross margin of 42%, and non-GAAP diluted EPS of $1.20. March revenue is expected to reflect a larger percentage of higher cost inventories previously manufactured during periods of lower utilization.

Qorvo expects to see improved gross margins in the second half of the year as they sell through higher cost inventories. They anticipate non-GAAP operating expenses of $245 million in the March quarter, with variability in labor and program development costs. Non-operating expenses are expected to be around $10 million, and the non-GAAP tax rate for fiscal 2024 is projected to be between 11% and 13%. The company has announced a partnership with Luxshare to divest their Beijing and Dezhou facilities, while maintaining their sales and support employees in China. This move aligns with their efforts to reduce capital intensity and efficiently manage their supply chain.

The company will use both internal manufacturing and outsourcing to differentiate their products and take advantage of growth opportunities. They are confident in their technology, product development, and manufacturing investments to drive growth. The first question in the Q&A session addressed the potential for content growth this year, particularly with their largest customer. The CEO clarified that their competitor, Qualcomm, has not won any sockets or challenged their share in any of the sockets they are competing for at their largest customer.

The company is confident that they are the top choice for ultra-high band sockets and have consistently won over the past three years. They expect to continue growing with their largest customer in the coming years. The gross margin impact from underutilization charges has decreased and will be worked through in the second half of the year. There are other factors that also influence gross margin, and the recent Luxshare deal may benefit gross margins in the medium to long term.

The company's timing of manufacturing and selling products, as well as the mix of internal and external production, has affected its gross margins. However, the company remains confident in its ability to reach a gross margin of 50% or higher in the future. The company expects low single digit growth in the overall smartphone market and 10% growth in the 5G market. The company also has a strong position as the preferred strategic supplier for Android customers, including in Korea and other regions. The company is uncertain about the future of its position in the China Android market.

The company has a strong relationship with their Android customers and works closely with them on their product roadmaps. They have received top supplier awards for innovation, quality, supply, and strategic partnership from their China customers, and are also proud of their position in Android outside of China. They provide a full lineup of products for various bands and have recently received initial purchase orders for their next generation mid-high band. They believe they are well positioned to grow with their Android customers as they transition to 5G and have opportunities in ultra-wideband, touch sensors, and power management.

The speaker asks Grant about the long-term strategy for CapEx and cash flow, and Grant explains that they will follow the P&L and keep CapEx at 5% or less of the top line. He also mentions the sale of Beijing and Dezhou and their partnership with Luxshare. The next question comes from Edward Snyder, who asks about the Android market and inventory levels, and the speaker clarifies the situation.

The Chinese suppliers have improved, but they are not yet a threat to the company. The company has developed highly integrated modules that give them an edge over competitors like Skyworks. The integration of low, mid, and high bands allows the company to gain more content and work with customers on their long-term road maps. The company is also selling discrete filters, which they have not done in a long time, and they are mainly being used in WiFi.

Robert Bruggeworth, CEO of Skyworks Solutions, discusses the company's recent growth in the discrete filter market. He attributes this success to the company's focus on performance and the demand for the latest technology from customers. Karl Ackerman of BNP Paribas asks about the company's gross margins, with the shutdown of a Florida facility and the sale of a facility in Farmers Branch. Grant Brown, CFO of Skyworks Solutions, explains that these are productivity enhancements and that there is still room for improvement in terms of productivity. He also mentions that the company has increased effective capacity and is producing smaller die, which contributes to higher productivity. The company still has productivity initiatives in place and the reason for not achieving 50% gross margins is due to utilization issues.

The speaker is asking Bob for clarification on the growth of 5G units in the upcoming year and whether it will be driven by mid-range devices from Chinese Android manufacturers or Korean and US manufacturers. Bob responds that the growth will primarily come from the Android ecosystem, including manufacturers in China. In the next question, Srini asks about the company's March quarter outlook and why it is not better than seasonal, given that Android is coming back and the company's content is increasing. Grant Brown responds that they expect substantial year-on-year growth in APG, despite the typical sequential decline associated with their largest customer's fall ramp. He also mentions that there will be year-over-year growth in HPA, except for base station.

Grant Brown, from a mixed perspective, discusses the headwinds faced by the company in more capital intensive markets due to the interest rate sensitivity of customers and slower than expected ramps in IoT-related areas. However, the company expects year-over-year growth in the March quarter, supported by WiFi revenue. In terms of cash flow, the company has had a strong performance and expects it to continue with small CapEx and a potential decrease in inventory. The company has also made an acquisition and has been buying back shares, but the specific uses for the cash have not been disclosed.

The speaker discusses the expected cash flow for the next quarter, which may be impacted by increased CapEx and the monetization of receivables and reduction in inventory balances. They also mention that the rate and pace of their buyback will fluctuate and will be dependent on their maturing 2024 notes. The speaker also mentions the potential for accelerated content gains with their large customer due to increasing AI adoption in flagship handset devices.

The speaker is discussing the potential impact of AI on the handset market and how it could drive TAM and RF content for their company. They mention the potential for improved replacement rates, more data over the network, and increased computing power in devices. They also mention their company's ability to provide better RF and power management solutions to address these challenges. The speaker acknowledges that it is still early in the development of AI in smartphones, but they are optimistic about its potential. The speaker also mentions a recent acquisition made by the company, but financial details were not disclosed.

Grant Brown responds to a question about the technologies and people that Qorvo is bringing on board through the acquisition of Anokiwave. He mentions that the team has expertise in RF silicon antenna and phased array systems, which will complement Qorvo's existing product portfolio. The deal is expected to close this quarter and will add revenue in the low single digits per quarter. Brown also mentions that it is too early to comment on the rest of the year, but they expect to grow and improve gross margins year-on-year, barring any macro-related disruptions.

In 2024 and 2025, the company expects their revenue to closely align with their largest customer's programs and ramp profiles. They are also proactively investing and diversifying their business to pursue customer platforms where they have the technology and customer engagement to succeed. There is no change to their long-term growth metrics, with about two-thirds of their business coming from smartphones and other cellular devices, and the remaining third from HPA and CSG businesses, with HPA being primarily defense and aerospace and CSG being primarily WiFi. These businesses have higher gross margins and present opportunities for growth.

The company has smaller portfolio businesses that range from $25 million to $75 million annually and are expected to experience strong double-digit growth rates. The company's largest investments are aimed at very large customer programs, and they are looking to scale their defense and power franchises within one segment and their UWB and Matter business in another. These businesses bring diversification and financial resiliency. The company expects to grow its less capital-intensive businesses over time. Revenue from Huawei is currently very low, but their performance challenges may prevent them from exporting their phones to other markets.

The company believes that a competitor may enter the high-end Android market, but they are not concerned as they have strong relationships with existing customers and are well-positioned in BAW filters. They also believe that the growth in the 5G market will provide opportunities for continued growth.

The speaker talks about their long-standing relationships with customers in China and their confidence in maintaining their leadership position there. They mention recent awards and trust built over the years. They believe their competitors may come and go, but they are confident in their position. The conference call is now concluded.

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