Q1 2020 Earnings Call

<unk> Investor Relations for Skyworks. Mr. Host. Please go ahead.

Thank you Rob good afternoon, everyone and welcome to start first fiscal quarter 2020 conference call.

With me on the call today are leaving.

Our president and Chief Executive Officer, Chris send us all our Chief Financial Officer.

Before we begin I would like to remind everyone that our discussion will include statements related to future results and expectations that are or maybe considered forward looking statements.

Please refer to our earnings press release, and recent <unk> SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially.

Personally from any forward looking statements made today.

Actually the results and guidance, we will disclose discussed include non-GAAP financial measures consistent with our past practice.

Please refer to our press release within the Investor Relations section of our company website for complete reconciliation to GAAP with that I'll turn the call over to Liam.

Thanks, Mitch and welcome everyone Skyworks exceeded December quarter expectations, driven by global demand for high performance connectivity solutions.

As our results demonstrate.

Skyworks is leveraging decades of experience scale and vertical integration capabilities.

Along with a highly advanced guy by platform accelerating the adoption of Fiveg technology across a broadening set of end markets in customers.

Now looking at the first quarter in more detail.

We grew revenues by 8% sequentially.

$896 million produced gross margin of 50.1%.

Operating margin of 35.2%.

We posted earnings per share of adult and 68 cents refunds ahead of our guidance and up 11% sequentially.

And we generated exceptional operating cash flow totaling 398 million in the quarter.

At a higher level skyworks is offering in age of truly ubiquitous connectivity.

Enabling richer smarter and more convenient ways to live work play and educate.

Smartphones are leading this early transition with substantial volumes of Fiveg enabled devices shipping this quarter, but more importantly overtime, we expect an incredible unit uptake outside of mobile we're connected devices and things will be measured in tens of billions.

And as we've noted in prior calls.

Fiveg catalyzes new markets from Aiotv autonomous transport artificial intelligence and high definition streaming media.

[noise] currently in the U.S. there are approximately eight network devices per person.

A number that is expected to climb to 14 devices by 2022.

That represents a 50% increase.

And that's a recent example, a higher percentage of U.S. households, and now subscribe to a screening media service rather than traditional pay TV.

Clearly our world continues to rely upon seamless high speed connectivity and this trend will only accelerate as fiveg adoption grows and novel usage cases emerge.

Recall Fiveg is a technology not a product not a brand or a slogan. It offers a gigabit speeds ultra low latency and greatly enhance network capacity.

Fueling a wide range of applications, while becoming the universal connector.

Skyworks is playing a pivotal role in the deployment of the standard with a rich 20 year heritage and designing and delivering highly integrated and customize system solutions.

We have demonstrated technology leadership across a bath set of critical product categories.

Resolving increasingly complex architectures and preparing our customers for the performance gains demanded in Fiveg.

As we look ahead, the expanding product pipeline at Skyworks is clearly generating strong design win momentum across both mobile and broad market segments.

Specifically in our mobile business traction in Fiveg is gaining strength with our Skype by platform powering launches that awful vivo Xiaomi and Samsung.

Our Basemat Ignostic solutions offer interoperability and are being deployed across leading chipset suppliers, including media attack Samsung and Qualcomm.

And with our expanding filter capabilities and Tc saw and bulk acoustic wave, we help our customers navigate complex challenges, while extending our reach across a broader spectrum of four in fiveg bands.

Moving on to broad markets at CES, Skyworks and now a unique set of Fiveg enabled solutions, including including massive Mimo aiotv.

Suite of connected home devices and high Fidelity Smart audio products.

Specifically, we are powering rapidly emerging aiotv applications with cellular based platform certified by Kt D.

NTT Docomo Softbank and Verizon.

We're driving growth with the launch of our wife by six platforms, expanding our customer reach with industry leaders, including 80 and T. Cisco Netgear Arison Aruba.

We are advancing automotive content with sky one in our emerging beat WEX portfolio.

And supplying low power long range I O T products at ring and many others.

And the infrastructure space Skyworks is leveraging its capabilities in silicon germanium so why.

Gallium arsenide bulk acoustic wave and ceramic filters wall powering fiveg mimo and small cell base station design wins.

In addition, we are gaining momentum in automotive, enabling new wins with leaders like Continental Nissan and Renault.

Along with industrial players, including Honeywell Bosh and G.

As these highlights suggest we remain focused on driving diversification across high value segments in markets with more than 2000 products supporting thousands of customers.

So in summary, Skyworks has decades of connectivity experience across multiple technology transitions.

Uniquely positioning us to meet the performance demands of Fiveg.

Our portfolio of highly integrated customize connectivity engines.

Bolstered by the early strategic investments, we have made anticipating both the complexity and the immense opportunity across our end markets.

And finally, I highly profitable and predictable business model that allows us to invest aggressively while providing consistent returns to our shareholders.

With that I will turn the call over to Chris for discussion of Q1 in our outlook for Q2.

Thanks, Liam Skyworks revenue for the first fiscal quarter of 2020 was 896 million up 8% sequentially and 16 million above the midpoint of the outlook we provided in November .

Driven by the successful launch of flagship phones and early success of our Skype why product portfolio as new five GE phone spoke ramping globally.

Gross profit into first quarter was 449 million, resulting in a gross margin of 50.1% inline with expectations.

Operating expenses were 134 million down 4% year over year as we continue to prudently manage opex, while making the necessary investments to accelerate future growth of the business.

We generated 350 million of operating income trends reading into an operating margin of 35.2% up 120 basis points from fiscal Q4.

Other income was 1 million and our effective tax rate was 8.9% driving net income of 289 million or $1.68 cents diluted earnings per share.

11% sequentially.

Turning to the balance sheet and cash flow.

First fiscal quarter of cash flow from operations was 398 million.

Capital expenditures were 111 million, resulting in 287 million of free cash flow on 896 million of revenue translating into a strong free cash free cash flow margin of 32%.

We paid 75 million in dividends and repurchased 742000 shares of our common stock for a total of 74 million.

During the last 12 months, we have returned 87% or free cash flow back to the shareholders through a combination of our dividends and share buyback program.

We ended the first fiscal quarter with cash and investments of 1.2 billion and we have no doubt.

Now, let's move onto our outlook for Q2 fiscal 2020.

Early momentum from the initial loan so fiveg as we ramped design wins in our mobile business must we have solid correction and brought markets or driving better than seasonal performance into March quarter.

For the second fiscal quarter of 2020, we anticipated revenue to be between 800 and 820 million.

At the midpoint of the range I would revenues would be flat to last year's Q2, however, including why way or excluding why are we in the second quarter fiscal 19 in fiscal 20 revenue is expected to be up mid teens year over year.

We expect gross margin between 50, and 50.5% and operating expenses of approximately 135 million.

Below the line, we anticipate roughly 2 million and all the income and the tax rate of 9%.

We expect our diluted share count to further reduced to approximately 171 million shares accordingly at the midpoint of these ranges, we intend to deliver diluted earnings per share of $1.46 cents, if that I'll turn the call back over to Liam.

Thanks, Chris Skyworks delivered strong results to start fiscal 2020.

Looking ahead, we are in the early innings of a multiyear technology cycle with fiveg, gaining momentum and the growth of connected people and things continuing to expand.

We have invested aggressively ahead of this transition and we are uniquely positioned with strategic technologies crafted in our own fabs, providing sustainable competitive advantage.

At the same time through Chris operational execution, and a strong business model. We are translating these results into long term shareholder value.

That concludes our prepared remarks, operator lets open the lines for questions.

Certainly in order to ask a question you will need to press star one in your telephone to withdraw your question press the pound Keith.

Given time constraints, please limit yourself to one question and one follow up.

Your first question comes from a line of their Garrido from Bank of America Merrill Lynch. Your line is open.

Hi, Thanks for taking my question and congratulations on the strong results and guidance good good to see the recovery and the sector after why.

So Liam I had two questions first just on the core business I'm curious you mentioned the start of off the Fiveg ramp up how much off that drops are you seeing in the March quarter, and just roughly what does the direction of content, but you're seeing in these fiveg smartphones that I think you mentioned integrate.

Question is it kind of a vendor to take all in some of these the initial wins or are you still kind of you know maintaining your share and the specific components that that you have expertise and.

Sure well the way we're seeing it right now we believe we're absolutely gaining share and Fiveg and the rollout of these new highly complex phones are exactly what we want to see all we're continuing to gain share with our sky five platform. We're doing a very difficult things that we've been talking about in prior calls really crafting and creating these wonderful.

Devices that are going in fiveg enabled phones.

We're seeing that across a number of customers.

Great position.

In China with a number of leading players position at Samsung and then also you know what some of the larger players in the U.S. that haven't even launched their fiveg phone yeah. So there's lot of positive momentum there.

And we feel very very upbeat about where we're going in the second half.

Got it and my follow up it's kind of you know strategic question. So you have been developing your own internal ball capability.

For some time, but one of your competitors have put up the RF assets unforeseen I'm curious if those assets get sold to a potential competitors or customer.

The impact on or are you know those asset something that.

You might be interested in taking a look at just how should we think about you know kind of the impact of five this potential consolidation on on Sky book.

Sure sure appreciate the question well, we really can't get into any specifics around M&A.

We're well aware of the of the opportunity that you just suggested but at the same time, we are real really happy with what we're doing and our organic business and we see a tremendous opportunity there with Fiveg now just just starting in the momentum in our demand really accelerating so we feel good about it but at the same time, we have to look at M&A opportunities.

And I'm pleased to say that we have the powder and the cash flow to do deals when when deals are necessary, but at this point, we really just can't comment on anything specifically.

And your next question comes from a line of Timothy Arcuri from you'd be US Your line is open.

Thanks, much Chris can you give us the splits for for booked for both businesses for December at how you think about it for the guidance from March.

Yeah, I'm, so our broad markets business and the December quarter was approximately 27% of total revenue that is a inline with what we saw last year keep in mind that the December quarter, there's typically a very strong mobile quarter wave.

Oh, obviously, a lot of business, we have our large customer and then to ramp of Fiveg phones.

So mobile was 73% of total revenue I'm looking forward into the March quarter. That's is what we see a little bit of a flip right. This is typically a stronger brought markets.

Quarter, we do expect some mid single digit sequential growth in our broad markets business and we will see some mid single to Oh, yeah mid single.

You don't do you growth and broad markets.

In the into March quarter, and then of course, even further to stronger Grove into second half all for 2020.

Great. Thanks for that and can you just talk about hallway and how it ended up playing out I think you expected about $10 million and my guess is that it was maybe a little bit better than that but how did that play out in sort of how do you think you know not just about them as a customer, but how do you think about.

You know how the export a you know weve strictures might change and how that is impacting what that customer and what's your other Chinese customers are pulling how hard they might be pulling are they perhaps double ordering thanks.

Sure well, obviously, it's an evolving situation and we have fall really dynamic business today in China with Oppo, vivo Xiaomi and even even some of the mediatek ecosystem supported.

While we of course, there's been some limitations and what we can do as we've said in the past, we can't provide a quarter by quarter guidance by customer, but I will say that.

And the out in the Q1 timeframe, while we came in a little bit better than we expected.

But I will tell you that we are de risking exposure to walk away in the business. We're still going after the design wins were going to do everything we can to gain share when its available, but we are de risking that in our in our financial outlook. As we go forward so want to make sure that thats clear to investors.

And your next question comes on line of Toshiya Hari from Goldman Sachs. Your line is open.

Hi, guys. Thanks for taking the question and congrats on the strong results Liam I was hoping you could talk a little bit about the infrastructure business within broad markets. A couple of your peers I've talked to.

A pause in activity on the part of their customers is that sort of the case with skyworks and if so how much of a drag was it in the quarter and more importantly, I guess, what's the outlook into fiscal Q2 in the back half of the year I've a follow up thank you.

Sure Yeah, I mean, the infrastructure business has been a little bit slow and I don't think it's changed in terms of its pace, but it's a very necessary element in fiveg and I know some of the players like Ericsson Nokia are really stepping up right now obviously, there's there's while we opportunities in there as well that have some limitations, but it's obviously an opportunity.

So I see the infrastructure space still very vital for us all we do some incredible work there.

Mike Mimo solutions, and 10 or raise some of the filtering that we mentioned, including ceramic filters. So we have a role and we have a necessary role in that area, but saw but I would expect infrastructure to pick up in the second half of the year. It's also a positive margin driver for us across broad markets. We know we know how to operate in those industries we have.

Very good relationships with the customer so we should expect a better climate there in the second half.

Got it that's great and then as a follow up on this one's for for Chris.

On your last call you guys talked about gross margins potentially hitting your 53%.

Target in the back half of the fiscal year I just wanted to confirm it still the case and if so what were some of the key drivers on a half over half basis. Thank you.

Yeah first of all I'm pleased to have our gross margin execution. So into December quarter. We came in at 50.1 slightly above what we guided and so we are guiding slightly up into March quarter, not 50 to 50 and a half despite our normal seasonal decline in revenue going into the March.

Quarter, and then in the back half of 2020 I do expect.

Further gross margin improvements to watch our longer term goal of 53% and I I Didnt say last time that we were going to hit 53 at the end of 2020, but continue to make very good progress towards that target longer term target of 53%.

Your next question comes from the lineup Blayne Curtis from Barclays. Your line is open.

Hey, guys. This is Tom O'malley on for Blayne Curtis I, just wanted to clarify real quick Chris you made a comment about broad markets into March you. Originally said that it was going to be up mid single digits than you said mid single digit growth year over year can you just clarify that sequential or year over year.

So it's both sold sequentially, it's mid single digits as well as year over year, it's mid single digits.

Excluding why way right because we have some why we infrastructure business that was part of that brought markets. Obviously due to the ban we lost most almost all of the up and so if I exclude why we we will be back to.

Good single digit year over year Grove in March and then a potentially even stronger year over year growth, excluding why we into second half of 2020.

Great. That's helpful. And then just a broader question. When you guys are looking at design wins, particularly in Fiveg.

Guys have a competitor that also does the modems clearly the competition is pretty fierce there and theres a lot of talk about them being attached at the RF RF on many early solutions just how do you compete there and how do you break down kind of the bundling aspect.

Sure well, our customers drive that and our customers want solutions from Skyworks the integration capabilities that we bring specific specifically in fiveg, where the architectures are substantially more complex than they were in fourg integration around solutions, such as our Sky five platform are ideal for for customers moving.

In Fiveg and I mean, the proof is in the putting if you look at the devices today to Fiveg devices that are going to market right now you're going to see that kind of integration from skyworks, it's not it's not being driven by by the chipset providers that may work and small markets, where the customer doesn't have a level of sophistication and they want a turnkey solution all in but thats not what works.

And right now we're seeing best in class solutions, leveraging integration looking for companies that have their own facilities like like us from filter to gallium arsenide to assembly and test customizing and crafting a solution thats, how we win and by the way we work with every based man supplier, whether their friend or foe, all and we take our lead from the customer and that's always.

For for Us.

Great. Thanks, guys.

Sure.

And your next question comes the line of Ambrish threat from BMO. Your line is open.

Hi, Thank you.

Live you May now you may not have to worry about that whether you have to buy that business are not looks like a PR hit the tape as soon as you call. It started that Oh, we going up.

Yeah, They signed a multiyear deal with Apple.

Let me show this focus or do you guys. What does your portfolio looks like for Fiveg football and then within your portfolio, what where do you think you had the most opportunity to game content that insight.

Sure well I mean, just to take a long look just just a little bit of a backdrop your understand right now fourg phones.

Basically driving spectrum from 700 megahertz to about 2.5 to three game right. So all that action continues in a mobile phone today and then you add to that with Fiveg solutions unique solutions that Rome at Fiveg spec, let's say, let's say three three to six gig or six gig in higher.

That's an incredible opportunity, it's all incremental physical contact and each one of the players in our space looks at it differently. What we want to do is captured the maximum opportunity work with our customers give them absolute choice on the kind of componentry. They want the markets that they're going to roam in their current budget all of these things and then craft.

And integrated solution for them. So we say sky five as a platform. It's a platform it could be very different from the largest customer to a customer in Korea to customers in China and that is a unique skyworks differentiator and we have the toolsets to do that now we've added bulk acoustic wave we have high capacity in TC saw we have standard saw we have.

Rapid assembly and test with facilities under our watch really unique style and that makes a big difference for us and it late in it broadens the opportunity reach that we have in any given fiveg device.

[laughter] like my follow up for Chris is on the operating model and as you try to available opportunities what does the due to Opex and also capex as we think it's going through so just to remind us what capex was cadence for this year as well if that changes.

Yes. So in terms of operating model, we are driving the business and growing to topline above market. We are.

Driving operational efficiencies and bringing a high added value products to the market that will drive the gross margins towards our long term target of 53%.

And our operating margins approaching 40% currently opex is running on or about 15% and I think we can do a little bit better them. So you get to an operating margins that approached 40% at the same time, we very much focused on driving free cash flow.

Up 30% or slightly above 30% and you saw last quarter, we had 32% of free cash flow margin.

We will continue to invest in the business. There's no question about that we.

We as Liam just.

Explained one of our strengths is our operational footprint with our gallium arsenide flops, our filter operation as well as our backend operation and we continue to expand the capacity in those flaps and we continue to develop new technology package technologies and Phil.

The technologies and that of course require sufficient capex support capex is running on or about 10% to revenue.

And I think it into foreseeable future. That's a that's what you have to put into a models.

And your next question comes in a line of Bill Peterson from JP Morgan Your line is open.

Yes, thanks for taking the question coming back to broad markets you spoke to the infrastructure opportunities of course, a large portion is your wife I know T. Try to you mentioned the instructors kinda back half weighted but try to get it feel for how you expect the ramp of why fighting progression I guess, how that manifests itself in your broad markets growth.

It really for that for the full year for the full fiscal year and especially the backlog.

Ill makes it makes sense bill So I think if you look at broad markets. In total we want to give me a little bit more of our broad view here. So we have first of all a wide set of protocols to reach for right Fiveg White by six Bluetooth GPS Zigbee lore, all those are opportunities for us to connect things with our customer.

The why by six now is really gaining momentum we've got some new strategic design wins that are just comment about in this last quarter and looking into the into the second half of the year more ramps with names like 18, Tiet and Cisco net gear and we've also done some great work moving into industrial and automotive spaces. So were securing wins now with Bob.

Honeywell Siemens GE these were not customers two or three years ago. They were not at all on the Plainfield for Skyworks and now we're also moving in automotive we've got wins with Continental BMW No Nissan and other so what are really cool things and even some amazing consumer products. We've got some devices now infant.

On a train with Procter and Gamble of course were lined up with rain. All we've got a lot of product with Amazon. So it's a really rich portfolio that goes from high end to mid tier, but the key for US Bill is it levers technology and at levers connectivity and the fact that we have that broad set of protocols, we can pick and choose with our call.

Number what's the right connectivity protocol to lock into their solution. So we feel really good about that and we think that that momentum is going to carry forward for many many years.

Okay. Thanks, I guess, if you think about the fiveg phones that are going to be launched here and the first after this year of course, Samsung already launched Fiveg funds last year yet.

As we go you guys called LDX can you speak specifically to the Fiveg. Once you have I guess really like ultra high.

I know that the Fourg bands are cleared important LTV LP advanced pulling so for the can you speak to the the design when do you have and and the O. VX cabin Samsung.

Yeah, absolutely so the the Fiveg momentum the early momentum in five you lot of that is actually led.

By the China names. So we have great position in Fiveg solution. So this is again fiveg. So we still have great fourg position with these accounts, but were overlaying incremental content in fiveg with names like Oppo vivo and Xiaomi. So those players were very strong.

We are doing some good we're partnering with chipset providers Mediatech as one as an example in their phase seven designs. We've got great position designed reference position. These are all Fiveg solutions.

And again early early moves with China with that with what those players that I named but also.

Some really significant moves that we expect later in the year with thought some of the larger customers as well, where you'll see substantial content gains as well.

Your next question comes from line of Edward Snyder from Charter equity Research. Your line is open.

Thanks, a lot then we talked a lot about fiveg, let's clarify if we could especially go to your comments about share gains or some of the new products coming out the smartphone products coming out here.

By the world into like Fourg LTE.

You bet for pro and the pure Fiveg content small seal ultra wide banner.

Referring to both referring to one I know you guys were strong and some of the initial ultra high band last year and I know the wrapping not only that but also the ban and 77 bands in the Chinese form is that where you're seeing most of your share gains.

Yeah exactly so we're continuing to have the fourg placement, which is basically kind of backward compatibility and then you HB bands and 77 in 79.

Unique products there that are incremental that you wouldn't see in a fourg phone, but to be incremental dollars that would lay into a fiveg phone and the other point that we've been making here is as you know.

The more complexity that you have the more devices that we have physically we've got to deal with size. We've got to deal with competition for current consumption co existence and all the challenges that you get when you put more and more semiconductors together. So our approach with that is to offer that customer disguised by platform and configured and such way that.

Some of those challenges that one would have been putting together a complex device can be resolved with skyworks overlaying that into a platform solution, but the incremental content is in its you Hps and 77 and 79 this more bands coming out over time.

But we're really good really good position to capitalize as Fiveg continues to rollout.

Yes, you've done really well those.

Separate part of that then let's talk about the Fourg for good for while China went to phase six last year as we all know corbelled took a lot of that because there's a lot of nervousness on the Oems part about going to fully integrated financially wanted one guy we've gotten feedback that thats starting to change now and that Scott, we're starting to carve out your traditional low little bit.

As part of that platform are you seeing that to any material extent and then in the larger question.

Do you I know you're ball filled the programs come along very well.

You've got some receive devices now and it could have duplexers, but that seems to be a long way from being able to offer the kind of performance did you have to offer to talk show actually capsular, the mid and high bands to is our path to that mid high band portion of the Fourg section of these phones over the next year or so or is it going to be something further out.

Yes, So let me try to capture both so on the media Tech side, all when you're getting to the lower band opportunities Theres a tremendous amount of.

Skyworks opportunity there with low band pad with DSME et cetera, So thats the fourg space. When you go to the ultra high band or mid and high band solutions.

We recognize that the challenge, but we were on pace right now to address it we've done some good work with them you HB opportunities, we do recognize the performance merits with some of the leading players and mid high band and we aspire to get there all we're doing the work internally, but we understand that it is going to be a task is going to be a challenge, but we have.

The expertise growing expertise engagement with customers. The facilities are important we've got some facilities here in fact position that will help us but yeah. We're on the on the path to achieving the highest grade.

But we still have a lot of work to do quite frankly.

Your next question comes from the line of Craig Ellis from B. Riley FBR. Your line is open.

Yes, thanks for taking the question congratulations on the good execution guys.

I wanted to follow up on that last question and maybe tied into one that for that cancer and really focus on a longer term dynamic. So skyworks is historically working with customers.

Team months out of the handset launch on new products. So from the vantage point that you have now what does content gain look like in the final for things that we'll be launching in calendar 21 versus the early content gain that you're getting in year. One of Fiveg is it flat is it if it's.

To what extent would MPF next year it should continue to try and.

Your next into things like.

Mid band or are high band pads with.

With your bought capability.

Sure. So so let me let me just be really clear about one thing the technologies that we have right now we don't have everything but the technologies that we have right now in Fourg and the new technology that we haven't fiveg are going to add substantial content to our opportunities no question about that.

So now we're talking about further route and ball what else can we do we got aspirations to continue to do more but the things that we're doing now today off leveraging BAW leveraging sky five as a platform leveraging the incremental content that fiveg bands brain.

All going to be a great great opportunity for us to step up and one of the things that is helping us.

Is the complexity, we keep we keep saying is really important the technology burden in a fiveg devices is substantially harder more difficult to implement more challenging for the customer and then bring that's a market quickly. So there's a lot. There we are the experts at doing that Thats why we talk about decades of experience we've been through these transitions.

This is one of the hard ones and that's great for us and it's great for the top players in the market because we're going to be able to enjoy solving our customers problems and put in position to win. So we're excited about it we're going to lever all of our technologies, our Tc saw capability our packaging technology.

Our bulk acoustic wave ceramic the all of these technologies that we have will play a role, but but the content opportunity is absolutely there.

We've talked about that before and presentations prepared remarks, but we see meaningful dollars of content opportunity in some of that will start in the second half of this year.

And.

And with regards to that last point with content kicking in in the second half of the year beyond what we're.

Saying with momentum in the business here in the quarter that you're just guiding two which is above seasonal. So is it fair to think that with the content that you've got you've got a year, where integrated mobile can drive consistently above seasonal performance in the business or is it just too early to be able to have that kind of visibility from where you are to yeah. Yeah, I mean, it give us.

With that that to figure out what that the natural seasonality is going to be but we definitely see all improving opportunities for Ross design wins that have been consummated that haven't yet chip and.

Let's let's also look at where the customers are up one of the largest customers great customer Hasnt put a fiveg phone out yet. So that's another thing to think through off so I think theres theres plenty on the horizon. We're really excited about it we just delivered a beat and raise Q1 in Q2 off I think the broad markets business is going to it.

Accelerate we talk a little bit about that with Chris.

The fiveg opportunities are right there in front of US we're executing fully we're adding capital.

And we are really.

Enthused about the opportunities that are in front of us.

Your next question comes from a line of Chris K.. So from Raymond James Your line is open.

Yes. Thank you.

Just first question is if you could characterize.

At this.

The strength that you're seeing and kind of where the strength is coming from is driving the better seasonal Q1, I guess I'm assuming that.

The new Chinese Fiveg phones are large part of that if you can clarify that and then as we go through the year, what is going to be the pace of new introductions and your content gains from the Chinese phones is that going to be something that steady through the year is it more kind of front end loaded.

If you get some some clarification on that.

Sure sure Chris.

A couple of things up this is the first period that were actually talking about fiveg in devices and bring in revenue. The table. So early early innings, and we're already seeing some improvements and our numbers Q1 in Q2.

And that's the early part of Fiveg and if I wouldn't look at that allow that is China.

It's awful Tivo Chalmette names like that but we're also seeing ramps coming in with Samsung.

I think theres going to be some really nice ramps with one of the larger customers off again haven't put a fiveg phone out.

And in the complexity that we see that I've talked about on this call is real and it it's a great opportunity for Skyworks and where the company and knows how to do the complex things very well, we know mobile we've been we've been doing this for 20 years. So.

So the transition from Tujia Threeg to Fourg, we talked about that Fiveg is much harder and its calling upon the resources our people our know how the facilities the ability to troubleshoot all that really good stuff is coming to bear right now in allowing us to win business and allowing our customers to be successful so.

Theres, a lot going on and that it and then the broad market business.

The numbers bounce around a little bit, but I can tell you that one of the metrics that we look at as customer acquisition, we want to add customers, who want to add high class, Hi, Hi Inn players margin, which customers and we're doing it some of the names that we talked about.

Bosh Raytheon.

Names like that getting into industrial and automotive working with companies like being BMW Nissan I mean, that's that's really cool stuff and it's still plays on on the connectivity core and what's really important for Skyworks is connectivity and we still can lever those technologies and those resources to port into other markets outside.

Of the mobile phone.

That's helpful. Thank you.

As a follow up.

To to really what you just said how does that affect your capacity planning as you go through the year and your your Capex has been fairly steady I guess, maybe up a little bit, but as the fiveg ramp proceeds.

You know other scenarios, where you need to put in more substantial capex.

In order to meet that and.

What point in time do you need to make some of those decisions.

No, we making those decisions.

On a continuous basis, just look at the December quarter, we put in an additional 100 million goal of Capex and so we will continue to do so every quarter and and again. It's a combination some of that is is pure capacity related write an expanding the capacity. So we can handle the high.

Higher volumes, but a big part of that is also technologies really to different and more complex type of packaging and testing.

Expanding our reach and filter technologies as well as Weve hour.

Most of my power amplifiers so.

Can count on or about 10% of Capex.

And despite that we will continue to drive a 30 plus percent free cash.

And your next question comes from a line of Karl Ackerman from Cowen Your line is open.

Thank you I have two if I may I have two if I may.

First of all if we just go back to March quarter outlook Theres, a question on inventory, but.

How would we classify or how would you classify your inventory across the channel given all top six smartphone suppliers are launching flagships in the March and April time frame it seems to be it kind of fairly tight window and I've a follow up.

No the inventory into channel seems to be very healthy at least as far as we have visibility right on on the component level.

That is there is definitely a little bit of a build up in anticipation of Chinese new year.

But.

What we see is that the supply chain is actually struggling a little bit to keep up with the launch of those new five fiveg phones and saw inventing the channel is pretty healthy.

Got it.

That's helpful.

My follow up.

There's been a lot of noise and I guess, perhaps.

Overly concerned.

On the Fccs decision to halt satellite operator from offering private auctions.

The C band for.

Cellular five you services here in the United States.

Do you think that creates a delay in the implementation of Fiveg enabled phones here should we be worried about it at all any color there would be helpful. Thank you.

Sure, Yes, I don't think that it is saw going to affect us in any way in fact, I mean, if they open it up.

To the public then maybe an opportunity to have more spectrum and create more opportunities for us to realm.

Have our devices roam on but but the base case right now it doesn't assume any.

Any upside from off the three five auction so on our end, but that's a good question, we probably learned more over time, but I don't think Theres a.

There is a negative fall.

A negative.

A negative spin on that and I'll ran I think we've pretty much positioned fiveg and we're very well aligned with all the standards boards and where were the spectrum is going to be so we're all over that but so we'll definitely keep our eyes on the opportunity. If there is that if theres more spectrum. That's added we will absolutely absolutely be able to develop solutions that will support transmission. Thanks.

Indication over that spectrum.

And our last question comes from a line of harsh Kumar from Piper Jaffray. Your line is open.

Yeah, Hey, guys. Thanks for squeezing me in two questions as well the and one for you. There's a lot of debate on whether the first generation upsizing handsets in the U.S. will be millimeter wave capable clearly they'll have some sub six I was curious where the skyworks and and you guys stand on that that Todd process and then also Howard.

You have preparedness for millimeter wave.

His point on how to follow up.

Sure harsh <unk> millimeter wave, it's an interesting technology, it's an interesting technology and it had some benefits off.

Radically it has tremendous speed and latency opportunities.

But at the same time.

There's some drawbacks it's expensive it draws a lot of current you have line of sight impediments. There. So it isn't something that we're seeing today, we're working with all these customers.

Where it's going to be a kind of a standard offer.

It may it may be a great technology for high dense high density areas, whether college campuses are going into a stadium and you need.

Some really high speed connection over a short short distance thats unimpeded by any off any objects, it's possible, but tough, but there's some theres some challenges now over time that could evolve.

And maybe that's a way for.

In the technology to evolve and make a cost effective and also performance effective but right now it's a little bit are the aperture a lot of our customers are not looking at it right. Now some are all we do have some some small incremental bets on millimeter wave and as we've talked about we ever on Fabs. So we can we can run some of the technologies that we need to if thats.

Starts to blossom, but we talk to our customers and Thats, where we get our to use.

We share information about technology to help them, but at this point I don't think it's going to be a significant element in fiveg at least for the next year.

Understood and very helpful. Thank you them and then I think at the beginning of the call I think that they could asked a question on content increases.

And I believe you answered a lot of stuff, but I think you might have skip that part of his curious what.

Next slide by upgrades and other kind of things like.

Due to the upgrades that might be happening on the our side just pure.

Several of content increase in five deal with Fourg, what do you guys seeing would you put that as the in line with historical are greater than that or even if you want to give a number and be generous with us we'll take that.

It's going to be more than okay. I'll tell you, it's not it's going to be higher than the threeg to fourg upgrade that I definitely believe.

And again, it's because the content it's visit the physical content and the specific devices that are necessary to build the five key solution that incremental value is bigger than the incremental value that went from threeg to fourg Thats an absolute fact now the question is who is best positioned to capitalize yeah, we have an incredibly bright.

Reach we have engagements with all the customers we have the unique technologies that we noted not just for capacity, but yes, as Chris said technology. So we love that so we think theres going to be a meaningful multi dollar opportunity we talked about in our presentation.

Maybe five to $7 a more incremental from Fourg and then the capture on that is all about how do you execute how do you provide the best solution to your customer.

How you bring that to market on time. So those are the factors and thats the stuff, we love to do I mean, that's the strength of our company.

Ladies and gentlemen that concludes today's question and answer session I'll now turn the call back over to Mr. Griffin for any closing remarks.

Thank you all for participating on today's call, we look forward to seeing what upcoming investor conferences during the quarter. Thank you.

Ladies and gentlemen that does conclude today's conference call. We thank you for your participation.