Q3 2020 Earnings Call
Good day and welcome to the core vote. She was 320 20 conference call Today's conference is being recorded.
This time I want to treat the temperature Douglas Delieto, Vice President Investor Relations. Please go ahead.
Thanks, very much John Hello, everybody and welcome to corporate fiscal 2023rd quarter Earnings Conference call. This call will include forward looking statements involve risk factors that could cause our actual results to differ materially from management's current expectations.
We encourage you to review the Safe Harbor statement contained in the earnings release published today as well as the risks factors associated with our business and our annual report on Form 10-K filed with the FCC because these risk factors may affect our operations and financial results.
In today's release and on todays call, we provide both GAAP and non-GAAP financial results. We provided this supplemental information to enable investors to perform additional comparisons of operating results and to analyze the collateral performance without any impact of certain non cash expenses or other items that may obscure trends in our underlying performance.
During our call or comments he comparisons to income statement items will be based primarily on non-GAAP results for completions, a complete reconciliation of GAAP to non-GAAP financial measures. Please refer to our earnings release issued earlier today available on our website at <unk>, although dotcom under investors.
Did you would need to sitting with me today or Bob drug with President and CEO , Mark Murphy, Chief Financial Officer, James Gorman, President afford us infrastructure Intervest products group aircraft has been president afford was mobile products group as well other members of corporate management team and with that I'll turn the call over to Bob.
Thanks, Doug and welcome everyone Global delivered record EPS in the December quarter, driven by strength in our end markets apologies wildfire and difference.
I'm, especially pleased with how our team is engaging with customers to enable breakthrough products and contribute to a multi year technology upgrade cycles.
Mobile products.
Celebration of far GE is driving demand for core vote high performance and highly integrated solutions.
Carriers are bringing advanced fiveg services across new frequency spectrum, and that's driving greater complexity and handset design as board space remains constrained.
Well go solving their complexity by integrating the industry's broadest portfolio of technologies and advancing the state of the arts and functional integration.
Looking at December we enjoyed significant design win traction for a broad based multiplexers across a range of ban combinations, including our Hexaplexers and our recently launched micro ball based quadplexer.
These are multiplexers enable advanced carrier aggregation and they are critical for next generation higher data rates applications.
We also secured multiple design wins to supply low mid high and ultra high band solutions for next generation Fiveg smartphones.
These are highly integrated and high performance Fourg bargy solution, enabling customers to reduce park footprint enhanced system performance and deliver products to market even faster.
Design wins for Ultra high band from were broad based across customers and they didn't with multiple foggy cellular trips chipsets.
Well those solutions deliver highly differentiated performance at higher frequency as we expand our content in the next wave of Fiveg smartphones.
Consistent with what we said last quarter, we continue to expect approximately 300 million Fiveg handsets in calendar year 20, adding approximately $2 billion to the mobile RF Pam.
Turning to RTP organic customer engagements broaden during the December quarter, as we ramped again hard power amplifiers and small signal components that a third major OEM and support of Fiveg massive mimo deployments.
To support trying to mobiles deployment of Fourg small cells, we ramped our newest BAW filters that we talk to your infrastructure OEM.
We also introduced breakthrough guestrooms addressing the more demanding requirements of second generation Fiveg millimeter wave base stations.
And our connectivity business, we enjoyed a rebound in demand driven by white Fivesix and supported by recently released gas and ballpark Francis customer demand for our newest workforce expense was broad based and support a CPT retail and mobile applications.
For the connected home, we began sampling the industry's first radio solution, combining would be thread and Bluetooth low energy as closely with a wide fivesix Fred to enable next generation distributed why find networks.
<unk> connected car, we introduced a complex.
Excuse me, we introduced a complete.
Our next Cronin solution, featuring our recently released 5.9 gigahertz why fly codes that BAW filters, which are quickly gaining traction among automotive Oems and tier one suppliers.
Finally, we continue to expand our customer base and the programmable power management and market shipping power management, our cities in a data center solid state drives for two of the top three stores providers.
After the quarter closed we signed definitive agreements to acquire deck away a pioneer in ultra wide band solutions for mobile automotive and I hope you applications and custom mimic a leading supplier of high performance gas again mimics for defense and aerospace applications.
Adding decker wave establishes our position in the emerging market for ultra accurate ultra secure short range location solutions.
The mix.
Expands our portfolio of hard performance gas against solutions for the defense and aerospace industries.
Looking forward.
We see both RVP and mobile products growing year over year in the March quarter on the strength of our broad technology, <unk> technology portfolio and strong underlying trends in our end markets.
With that.
I'll hand, the call over to Mark.
Thanks, Bob and good afternoon, everyone.
P revenue improved sequentially to $270 million on strong defense volumes and remain down year over year due to export restrictions on infrastructure products.
We expect I.D.P. revenue to increase again sequentially and returned a year over year grows in March quarter on sustain strengthened defense.
<unk> of why five six and broader five g. infrastructure customer demand.
Nongaap gross margin into December quarter was 49.3% with better than expected manufacturing costs unfavorable mix effects.
Nongaap operating expenses were $176 million, which were at the low end of our guidance range.
Nongaap net income into December quarter was $221 million and diluted earnings per share was $1.80 619 cents over the midpoint of our guidance.
Cash flow from operations in the December quarter was $301 million in cap X. was $41 million, which yielded free cash flow of $260 million.
Are free cash flow through the first nine months of fiscal 20 was over $600 million exceeding any prior full fiscal year.
We read purchase $125 million a stock in the corridor and completed an opportunistic 200 million dollar add on to our 2029 on secured notes issued earlier in the corridor.
During a December quarter, we completed the purchase of the remaining equity and Cavendish kinetics, an R.F. men's company.
Further strengthening our technology portfolio for switches tuners and other products.
As Bob mentioned, following the quarter and we signed definitive agreements to acquire two companies that we have been evaluating for extended periods.
With both companies there is.
Excellent strategic alignment and cultural Fad.
Jackaway pioneer and leading supplier of ultra wideband solutions adds to core voters R.S. technology leadership and opens up access to a large new and rapidly growing wireless market.
Custom mimic a leader in in high performance gas in Ghana mimics solutions for defense in Aerospace markets is a bolt on I.U.P.S. core business.
The combined purchase value of these two acquisitions is approximately $500 million, which will be funded from existing cash on hand.
Our guidance assumes both transactions close in February .
And the financial impact slightly deluded to earnings in the near term is reflected in or March God.
Turning to our March quarter outlook, we expect revenue between 800 and $840 million or $820 million at the midpoint.
Nongaap gross margin of approximately 48.5%.
And non gap diluted earnings per share $1.55 at the midpoint of our guidance.
Our revenue outlook for the March quarter reflects continued robots mobile fly g. demand.
Return to year over year gross Friday p.
For mobile, we expect March quarter sales to decrease sequentially, but with less than normal seasonality.
For I.D.P., we project March quarter sales to increase on sustained strengthened defense the ramp of why five six and broader five g. infrastructure customer demand.
While kormos current near term outlook is strong and channels are healthy trade and other factors, including potential demand and supply chain effects related to the.
Corona viruses concerns.
<unk>, two challenges and uncertainty forecasting the outlook.
On gross margin are March for a guide of approximately 48.5%.
Is down sequentially consistent with comments I made during our last earnings call.
Non gap operating expenses are projected to increasing the March core to approximately $185 million on higher personnel costs, including payroll effects and incremental costs associated with acquired businesses.
Not interest expense will increase with our notes out on and a lower cash balance falling acquisitions.
We expect our March quarter, non gas tax rates to be approximately 7.5%.
On capital expenditures, we project less than $190 million this fiscal year and remain highly disciplined on adding capacity.
Free cash flow forecast for the year is now over $700 million.
As it that summer quarter results and our March outlook show Corvo is helping customers grow and five G.Y. five defense and other markets by solving their challenges with best in Class Technology Award, winning quality and supply dependability.
What's that I'll turn to call back over John for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your <unk> equipment.
<unk> <unk> store one to ask a question. Please limit yourselves to one question and then one follow up questions at a time.
Will pause for just a moment to allow everyone an opportunity to signal for questions.
And our first question comes from.
Carl Ackerman with Conan company.
Thank you gentlemen, I have two questions if I may 1st question.
He's on margins. So you know I I get the seasonal softness in the March quarter, you know, but did you finalize the consolidation of your saw fab in Greensboro.
Two Greensboro, your Fogey, all Tri band pads him content likely proliferates across the top six.
<unk> later on this year, you know and I.D.P. <unk> returns a gross and back half you know why can't operating margins approach, 30% by the end of this year.
Yeah <unk> Carl too. This is mark two two effects on operating margins in the marked quarter one is.
And I'll start with off Axis, I mentioned objects is going to increase sequentially due to a number of factors payroll effects and and the incremental costs associated with the acquisitions moving up the gross margin.
Consistent with what I said last quarter, we we will see a sequential declining gross margin, which is typical around seasonal product mix effects. So yeah. This is very much in line with what I said last quarter about 100 basis.
Pointer so decrease sequentially.
Got it. Thank you for my follow up [noise].
Regarding your March outlook. It seems are base assumptions, you know call for US you know slightly less seasonal decline that or or I guess, a seasonal reclining your largest customer, but a sizable up tick at trying to handset providers.
Maybe some stability at your Korean customer given all design once you've alluded to last quarter and of course earlier today and <unk> comments.
First time I think about the the right way second you know how should we think about the revenue opportunity from China handsets I think you know for the overall industry would you endorse content from mainstream handsets advancing from one to $2 to like six Bucks. Thank you.
<unk> like the beginning of that you know from a perspective I'm just looking at a year over year.
Businesses are returning to grow through over your that's great to see.
P business sequentially is growing very nicely. So that's that's also offsetting some of the seasonality. It's typically flap up slightly so that's doing well and and our mobile business. You know very pleased with how much we're offset in your over years have declined that we've seen one way and it's broadbased throw we're seeing strength across the costs.
<unk>, well, what Erica a little more color to the specifics of the customer basically you out.
Sure Yeah as as you referenced a the five you roll out in China, it's very much on tracking and content games, they're associated with your more bands and wider bands and multiple carrier operation and so forth is leading to an expansion of dollar content as well as units a a bit higher than we had originally planned.
There's a dollar contract opportunity that your reference it's not not at all unusual at least five your hand. So says he total dollar content in the 10 to 12 dollar range and they tend to to buy as much of that as possible from one supplier. So we have many handsets in China now we have eight to $10 worth of or have content.
Far next question comes from <unk> Hari with Goldman Sachs.
Hi, guys. Thanks for taking the question and congrats on the strong results. My first one was on I.D.P. you guys talked about.
You know why five six and a and calms and defense contributing to gross a into March corridor can you kind of help us quantify sort of the magnitude of all three on a relative basis and if you can speak sustainability beyond the March quarter for those three buckets there'll be helpful.
<unk>.
Mm.
Oh, Yeah. This is James now that you're you're girls will be relatively small, but considering we lost one of our top customers. Just a few quarters ago I am really pleased with the appearance of the team to return back to grow so quickly.
I think it does demonstrate the underlying strings of the products that we have in the market. So we serve defense low power wireless empowerment, we'll all have double digit your your grow quarters in March.
Why if I as we've talked about with the ramp of wife I six is returning and it'll have a high single digit type growth rate.
And then you know other markets are we sort of I think will be a mix.
Of of up and downs still at the phase of deployments in base station, we're we're starting ramps and starting to recover but would last a while we were obviously still significantly off of our all time highs in base station.
Got it because on my second one it was for Mark in terms of free cash flow it looks like for the full year.
You're you're thinking you know free cash flow margins of 22% based on your two for revenue guide and and your full year free cash flow commentary, which I think is the highest a free cash flow margin since the merger.
I guess importantly, going forward do you feel like there's more upside from there or.
<unk> and to the extent you you do think there's more upside what are some of the lovers or you can pull to improve margins and then sort of related to that as you continue to build cash how are you thinking about cash usage between you know organic organic investments I'm, an a. and shareholder return. Thank you.
Yeah, there's there's a lot in that question, yeah, I'll I'll work through it so.
So yeah. We're we're really plays the progress we've made on on free cash and it's been at the absolute focus for the company. We've gone from Yeah 224 million free cash on a year up to we're now forecasting over over 700 and just in in a number of years here and.
Yeah, we we reached close to 30% basically Brian right almost on top of 30% in the third quarter of free Cashel margins and and I think that's a that's an objective we set some time ago for the full year. So you know we're not gonna as you said, we're going to be closer 22%, but we continue to C.D.
Ability to expand free cash flow margins and you know it's nothing is really change their I've I've gone through this in previous call.
Yeah, we're pursuing a model and investing in a way to achieve stronger and more sustainable free cash flow generation over time and that comes from investing I end to end the right technologies of of what you see some of that in the acquisitions, we we announced today it's selecting the.
Products, and having a rigorous portfolio management process.
Which we've executed on it's driving productivity and operations and sourcing and I can't say enough about the job be off scheme is doing I and and yeah meeting customer quality expectations in on time delivery and doing it efficiently.
And then the ops alignment with the business is as good as it's ever been in the company. So I've seen great things there and then finally, we're just focused on reducing castle intensity and all those factors as as Hell.
With with margin expansion on on gross margins specifically, yeah. There's there's room to run we believe you know we're still not the utilization levels.
That we had hoped this year the infrastructure market softness has.
Has impacted us in a couple areas and the network, particularly Texas gas scan in Oregon.
Yeah, we we and the fourth quarter or in that December quarter, We had period costs in Florida as I think Carl mention those those do drop off in in March I thought we still have some period costs associated with farmers branch and and some small period costs elsewhere.
And then you know over time, we expect I.D.P. to improve as as a percent of the overall mix.
And and I've talked about portfolio management and operations productivity and so forth, so I believe and and the ability of our business to grow the top line. We had a number of lovers to expand margins, we're focused on spending capital only when we need to and.
And driving free cash flow grow switch it allows us to make prudent investments either for a accretion or or on technology. Finally, you asked about you know capital allocation basically.
Last fall months, we generated 750 54 million of of free cash flow, we've repurchase 689 million to share so over 90% return to shareholders.
And then over the over this time, we've we've also completed the purchase of two companies over $500 million.
That's not including the two we announce today.
So yeah, we'll continue to again dry free cash flow growth and then you look for a a investments that makes sense for corvo, we said technology investments for above.
Mobile an I.D.P. and then ball Don's variety P. is typically how we look at things and then what.
The Pentagon yard leverage and other factors low returned cash shareholders.
And our next question comes from harsh Tomorrow with Piper sampler.
Yeah, Hey, guys, congratulations fantastic execution, and congratulations and let cash flow number I know you guys have been focused on that.
I had a put you on a spot here Bob you had a pretty strong mobile March guide and you're also you basically saying you know pretty good Trenton, five g. pretty good design when traction.
I I take that to be that this trend in March the better than she's and all student in March is not going to come at the expense of the rest of the year. Historically during September December of all that much better quarters could you just maybe to the bus that you can I know, it's a tough one <unk>.
Yeah, maybe harshest as Mark maybe I'll step in and we're we're going to we're going to provide more.
More information on on F.Y. 21 at the next earnings call you know as as it as it relates to June .
You know, we're we're not going to provide detailed guidance and not quarter, either but I think maybe this is maybe this is at a time to talk about.
Risk to the June quarter now, we we we feel good about the March corridor.
Yeah. This corona virus concerns and first our thoughts are with our with those affected in the region, but we've been revisiting are are outlook based on those concerns we're comfortable with our forecast and feel that we've adjusted for what we perceive now at some risk, but we've been keeping.
Close signed a situation, including extensive checks on the supply chain today, we've seen no material impact far supply chain or with demand signals. However, you know the situation is evolving. So we've we've reflected some added risk as I mentioned to our March guide and.
Cutting edge, you'll notice a wider range of outcomes.
So you know to your question. Likewise, we're we're thinking about potential effects into the June corridor, and even though our channels Arlene. We we are are concerned about how this plays out because we we just don't know.
As it stands now we would estimate the June quarter to be between yeah, 750 to 800 million or revenue Ah, but again, it's it's early yeah. There's a lot of uncertainty around that will provide a more detailed update at a later date and a fiscal year 21 view on our next aren't in school.
That's sad we you know I appreciate you the the the the the color that you gave has a follow up the the spent in China that you guys, just seeing maybe once or bother roddick.
What kind of customers that coming from the start coming from the the the the two year choose or is that also to some extent coming from wildly at this point.
Right Yeah, it's primarily you throughout Asia, So Korea in China, as well were relatively high end five G. handsets are still you know entering entering the channel for now we're beginning to also C.R. or large customers in China. So revolt push on me for example, you know bringing.
G further down into the portfolio with some of the handsets it'll be launching them in large core.
Next question comes from Bill P. for some J.P. Morgan.
Yeah, I think shortly ask a question and for a job and on the on the results and guide maybe first one for Eric I'm going back to rattle estate from year to half I guess closer two years ago. He talked about some unique you guys with your boss relative to other filter technologies I'm Beth bar and so forth you've been to <unk>.
<unk> 79 in particular.
It also recently, you're talking about traction with their new micro boss I guess it can you give us nothing at all your boss, helping you when relatively competitors I guess, both entrenched as well as new entrants for some of these five g.'s specific bands and I guess in terms of other contact you've been talking to pass about antenna flux and you haven't heard as much about that recently, but I was that than playing out and and and I guess, how can you meet that.
Imagine that getting your portfolio or ball portfolio. Thanks.
Right Yeah, yeah. Thanks to the technology roadmap has a continued to progress for us since we formed a company. We really made a just a a ton of progress in improving the performance of R.S.M.R., a ball filters and also our ability to integrate them into modules and also together to make a intended.
<unk> high level, multiplexers, and and so forth so.
So that's maturing and getting more and more competitive every single month. In addition to course at the same time to market you know asking for higher performance more bands are being added it seems every quarter wider bandwidth multi channel operation and so forth. So there's plenty of challenges to be met with the filter technology.
Frankly, a pretty target rich environment right now you know for these these opportunities. So I think it's it's it's fundamental technology combined really with our ability to integrate it with also very very good power amplifiers. For example in the ultra high band opportunities you know power amplifier efficiency and power levels are very important.
To accomplish and then of course, our leadership in switching technologies and and putting all those into high level modules together, it's very similar to the fundamental trends. We we've talked about personal reporters now we're just continuing to March on on driving the investments into the the court technologies to to make it better.
Okay, Great and I guess the next question I guess I spoke to your insurance can try and then the topic a millimeter wave you know obviously some some your competitors are talking up the millimeter wave opportunities period, like you and you're you're close to cut it are really still focused on sub sex I.
I guess for the <unk> wouldn't unique and different solutions can you bring in the market where the key hurdles to address what are the key based technologies power amplifiers switching filters and so forth and I get some game decide what you spoke to it a little bit already on the prepared remarks, but how do you see the growth of millimeter wave and the impact is does this and some of the unique I guess.
Things that he can bring to the market as well.
Yeah. So things all all started this is Eric and so the mixed drinks that we bring a millimeter wave in the mobile site, who is really leveraging to work. The James is done in the infrastructure side and defense applications developing advanced <unk> processes per millimeter wave operation. So we've release new a commercial.
Versions of those processes and I've introduced those two multiple handset manufacturers and and platform providers. We're building prototypes to help demonstrated the capability of mobile a millimeter wave and <unk> could be done in terms of you know thermal dissipation and power efficiency and battery life and so far.
But at the end of the day I I think you know the Big question is this was a business model is going to close on it I I think there's a lot of challenges <unk> in a mobile application by definition, you're you're moving in a mobile application and the the path losses quite high millimeter wave. So so we'll see we're we're certainly getting lots of demonstrations out there you're seeing carriers put up.
Them, you're away from multiple cities and and we're going to be participating in helping to validate the market.
And Bill this is James and you know as far as infrastructure is involved I mean, we're certainly engaged and very similar to what we showed in in our analysts day almost a couple of years ago about how we see more and more of those systems using gas face run is I'm getting away from pure <unk> solutions, because it's just a much more fish.
It implementation, but we also are also seem fixed wireless come on board and you know the the last mile. If you call. It and we've released some products. This last quarter to start to address those kind of parts of the market and again, you know kind of leading the industry and efficiency based on those gas processes in particular.
Some of the smallest <unk> leagues that we've released in production, so really high frequency focus tied back activities.
I also want to add to the ball question, you know, we talked about how balls, enabling inside mobile Eric did but it's also been a a big benefit for us to the wife I market. We've released I films in the 2.4 gigahertz and we've been sampling those at five gigahertz as well we're also using our new five.
You can hurts processes to release products, and the automotive space and into small cells and base station. So we are using our older technology to really allow us to compete in several different markets and for me, particularly in the higher frequencies.
Our next question comes from Timothy our Curry with U.B.S.
Hey, this is sets Gilbert on for Tim just I guess, a follow up to one of the earlier questions. June is is usually up something like mid single digits quarter of a quarter and september's, usually as well as the double digits quarter of recorder. So just curious off this much new hire this new hire base for March.
It's still the right way to think about seasonality is is we will tend to June in in in September . Thanks.
Yeah.
The the set this is mark you know I I reluctantly go to June because of the Colorado virus concerns and I gave a I gave a revenue number there.
Thing I would I would add just just to make sure yeah like folks folks are appreciative of it <unk>, we we tend to go down from.
Marched in June quarter on gross margin. So we would we would see yeah. The revenue Guy. They gave and then we would see a gross margin you know into 47 somewhere between 47 and and the high 40 Sevens and low 47 to hide 47, So and then we have our backs increasing but beyond that.
I'm not going to talk about September I'm, not going to give a detail on fiscal 21, I I would just say that we believe we're investing in the right areas with the and selecting the right products building or I capabilities to the support growth in the market and we expect to grow.
And then and then we're driving for free cash flow generation.
I'll provide more in during the next during school.
Thank you.
Our next question crumbs from Chris <unk> Raymond James.
Yes. Thank you guess first question is about the content opportunity between the premium to your on the mass to your phones when new transition of five g.
And I guess in the in the forties generation.
Most of the content was in the premium cheer phones that was no. If I look at your total content opportunity that was the largest part of your mix does that shift somewhat as you move to five g. because you're moving those master your phone I'm such low content to something you know how how does that change.
Mix exposure.
Of of of your total revenue between you know sort of printing into your phone to master phones, obviously, realizing master phones represent more volume.
Right. That's excellent question really and you know what am I mentioned, a little bit ago, seeing you're not unusual to see 10 to $12 worth of our of content and sometimes even higher and in some of our trying to base to handsets, which are primarily master there at the higher end today, but you know that's what's driving down into the.
Amassed here as we speak them. So if you look at kind of percentage increase from 40 to five years much much higher than or it's it's more like a two x. in content now as we've talked about before it's not only adding to five g. proper or if you will content, but also bringing all the forgie up to you know up to a higher levels of capability as well and each of those five g. hands.
So so to your point, we see content increases in the premium here for for sure, but as a percentage of the total they're more on the order of call. It a 2020, 5% of content increase where in the master seem more like a double or even more of content. So does tend to to new the mix effect slightly I would say.
You know as we go into 2020.
Yeah. It's helpful. Thank you as a follow up you could talk a little bit about a ultra wideband. It obviously you sound like you did it acquisition in there I I guess, how how important is ultra wideband to you you know in terms of.
Revenues today, and I guess, where do you see it going you know not just within handsets, but also do opportunities for a ultra wideband denial T. type devices, you know how significant kinetic.
Right. It's another good question, we as you probably know where the leading supplier ultra wideband front ends today into the mobile handsets, although it's a relatively.
Small market today, but it's really just emerging and I think between between the fact that it's now you know beginning to penetrate mobile handsets. We believe it will eventually be absolutely required in every handset that combined with the fact that they're going to have to car consortium has adopted a adopted to technology for.
Future Kulas Nutri systems. We think this is really just the very beginning of inflection point, we are absolutely thrilled to be adding deck wave a a fantastic company great great people grade technology, they've been out. This 15 years really truly pioneered as we said the the technology and so we see beyond.
Automotive and the mobile applications, we think a whole host of both consumer and industrial I.O.T. applications are there as well. So you know when we look forward wide 2024 remodeling in $2 billion to $4 billion worth of additional Pam and we think there'll be just a few people position to to capture it so pretty exciting.
[noise] sent our next question comes from Ed Snider with charter equity research.
Thanks, a lot Eric on China.
How much of your strength you I mean is from C., Oh, a jet opposed to different.
Different factors that are fucking child, because obviously, we can be a very big part of your business, but so if you could maybe give us some idea of how much of it's coming from five g. content upside versus five G.B. pushed into more phones than we expected versus O.U.M. is moving there oh for G. phase two designs to module, so five g. content versus units.
Versus the shift to modules and four G., if you could what what percentage of you revenue you think you're getting from.
Them trying to this point in a James.
Sounds like defenses.
Only acting as you expected, but also leading the charge may call him just to know somebody call last night, they're finally getting to again on silicon carbide. So I'm I'm trying to get an idea of how sticky all the applications for your again on sick and both fights you base stations and and then if you could talk to some degree about how that applies to defense too.
Thanks.
Right. So regarding the first part of your question was drink we're seeing a throughout trying to right now it's largely driven by five g. content. That's that's the primary driver I think I spoke last quarter about seeing the need for more like dual signalling a capability for example, driving you know additional switching and and and.
Into work the in then I forgot what all three of the categories at the bottom would be the modules in four g. only handset that's probably the least impactful right now the the insides heavily driven by five g. in in most of the content more than yeah.
Yeah. This is James I mean, you know certainly we believe we've got great technology and with our again and have been doing very well in in the the defense market and we are seeing gay and grow you know well north of what the markets growing and so we also continue to make investments in.
Scale and in reducing our cost. We we think are key enablers to that and technology to continue to proliferate as far as sticking though so I mean, obviously into bins that markets characterized as you know long cycles in programs and so I would consider that a very sticky market.
In base station, we are seeing the trends go just about like what we've talked about for the last couple of courtrooms. We are seeing massive vimal systems to deploy and we're also seeing Gan takes significant share from L.D. boss.
And so both of those are great trends for us and we're capitalizing on those trends and I think it's a good part of how we've been able to turn to business around fairly quickly.
And then from my fault, Eric if I could go on come a amounts to supply agreement with the Apple I guess it was like I can't remember this week last week.
And I know, it's probably more of a frame agreement, but decided 15 billion et cetera last time. They did this which is some years ago.
Two or three years at fall that agreement.
Marked by lack of content for for Corvo in there. So how does this change the landscape or does it at all in your view irrespective of if they keep the business or not and and and what what does that do for the mix of your your.
But you're revenue does it shift more to China in the upcoming two years or so do you even have any indication that.
Well frankly, it doesn't have any particular impact on our investments. They were you know picking our battles and investing areas, where we think of the highest went probabilities are it's it's a target rich environment right now for integrated modules as well as far as discrete components based on ball technology as I said, we've got a lot of it.
And since coming in in the wrong technology, and well placed great relationships across the industry and cross to all based on manufacturers and tears. So so then how can itself in in our understanding of what includes does not impact or crumb doesn't plans.
Next question comes from Blaine Curtis with Barclays.
You guys think similar questions just curious on the on the deals you said it closes in February is there any thing you can wrap around that in terms of revenue and AAPEX contribution I have a follow up there.
Yeah.
Yeah, I blame we'll we'll we'll provide more it's it's it's it's not a material matter revenue and it's an increase in our backs. It's all reflected in our guide.
And it's diluted them in their term.
Gotcha, and then and then market I noticed his prelim are you guys for doing it just a little confused on the seasonality here you're seeing all this strength in China.
Out usually apple's not stepping down as much in June and just trying to understand what you're baking in for as much as declines.
Yeah, Blaine I I'm I'm not going to go any more detail I I. What we've provided is our our best view given current demand signals and then adjusted for some risk factor and and what is you know very uncertain situation at the moment.
So doing doing our best to provide you.
At least a a directional call that far out I think that concern is we sit here today is yeah right now the channel is is lane unhealthy.
Yeah, the demand signals have not been yet been affected but we do have you know the Chinese new year, we'll wrap up and and you know people take stock of what's going on with this with this health situation in in China and elsewhere. So I I think.
Yeah. We're we're just we're just being mindful of that and and providing the some sort of directional view for you.
But you know in in in in the June corridor, It's still a story of you know Ah what you've heard on the call today about five g. related handset growth.
Content associated with that grows.
<unk> continued wife, I gross defense strength and infrastructure Ah recovery.
[noise]. Our next question comes from Cry cutting Buck with Morgan Stanley .
Yes, just first question walk just following up on the acquisitions I think you said in material to revenue, but but you said was 500 million in terms of total cost proposal.
Yes.
Can you maybe just help the frame just kind of that the opportunity over the next couple of years in terms of how maybe sizing like that that business in terms of where you see it's actually going.
Yeah, I mean, most most of the purchase price is associated with with the Deco wave acquisition in fact over over two thirds of that so for three quarter over three quarters of it so the the.
The.
You know and that that is a technology investment as Eric said, it's it's.
Analogy for a market that we think is several billion dollar market and and a number of years and that's that's going to take time to.
To develop and it's and it's yeah.
Largely immaterial revenue and and.
And and dilutive.
The smaller acquisition custom men neck as a defense falls on.
You know and and the you know very easy to integrate right in James is wheel house on on defense products Advanced technology defense products, we see and in the yeah for the for the part of the part of the March corridor that we have it integrate.
And it'll it'll provide about 3 million or rather knew that corridor.
And on on a on and fully fall quarter basis.
Yeah, it'll be roughly 5 million or so.
For the for the near term and that and it's a creative.
Yeah immediately.
Our next question comes from Roger kill wouldn't need them and company.
Yes, thank you questionable neat.
Structure market when when you expect that to rebound any color in terms of what you're saying with the mobile operators.
Playstation right across the world with resources that are starting to catch up Oh, they're starting to come slowly out any color there in terms of architecture.
Okay.
Yeah. This is James so we definitely are seeing deployments gone predominantly today below six gigahertz.
Dominantly in China.
What's helping us and talking about recovering aren't witnesses were.
<unk> my little continue to to more share if you want to talk.
<unk>.
And that's a big content for us about 10, x. or what we would have attacked base station.
So that's driving the recovery.
I think <unk> is obviously a challenge for us in the industry, because it's about 50% of this year.
As we said involves prepared remarks, we are ramping with our third because that's what he's.
I think that was dula so to recover the business.
Deployments look about Oh crack a little bit a share mix changes in the last quarter, but it appears that there were you know somewhere that 400000 or so.
Base stations that were deployed last year and it looks like that will grow about 50%. This year. So someone that 600000 playstations deployed.
Why mow content will probably go up for maybe 20% last year.
30 or.
So.
Drills.
I think we we heard yesterday about some frequency allocation to the U.S.
That that will also spur development to push forward in the United States.
I don't follow up you talked about you know again, making sure I guess, they often lost base station, what's what's driving that transition looks the channels for that.
Threefold, one is the move to higher frequencies Indians before performance for him to higher frequencies also broader bandwidth associated with five g. and a again again has a better ability to deal with those higher or broader frequency levels and then it's.
Cases, just higher output power, but.
All the technology does very well suited to move in these directions that we've talked about before higher frequency and brought her bandwidths.
Yeah.
Our next question comes from excuse me <unk> perjury with S.M.B.C. Nico Securities.
Thank you a couple of classifications, Mark maybe I can talk about how many temper. Some customers do you have been decoder and also if you could could cause a what percent of the mix mobile was China and of course.
Yeah. So [laughter], so we had to come per cent customers in the corridor.
And I I don't I don't break out by region, you know our ourselves like core.
Got it and then is it fair to say good while we're still kind of minimal on the mobile site or <unk>.
Yeah, Wow I was one of the 10% customers actually and it was yeah. It was it was stronger than we expected.
Along with along with the other A. Asia based handset producers Yeah, I sat on the call. The last call. The we expect a law it'd be about 5% and the second half.
They were larger than that and and the December quarter. So that statement is still correct. It's just that the obviously the waiting is not uniform across the second half.
So we expect them to be you know about a 5% customer second half.
Asleep largest portion of that.
December corridor I I think it's important to know here that that we're seeing broad base strength relating to five five g. across the Asia handset producers and importantly across all chipset producers.
And I think the Martin Guy drives home that point.
Mm.
And our next question comes from Victoria with Bank of America Securities.
Oh, that's I think my question, then and congratulations on on the strong results.
<unk> I'm curious what does the shape of the fight G. handsets rollout look this is this kind of more balanced plus five second half a is it more 60, 70% backup had you know when I look at that 300 million or so market size, it's much higher than what others have that's close.
200 million. So I'm just curious how you are seeing the five judo loud what do you have seen so far and what do you think the shape of the year looks like for the market.
Yeah, I'd say, it's pretty uniform across to here, obviously, we're getting out to a to a very strong start concerns that you know mark had about current a virus and so forth might impact demand and supply, we'll we'll see how it goes but I wouldn't have any other more specific comment on profile.
<unk>.
Follow up.
You know there has been some concern about the based on wireless deployments I'll be hooked back from Xilinx I'm in Texas instruments. <unk> you noticed you know any of those slow downs and I apologize if you onto this already but what are you, making and for your a base station thing is going into the module. Okay. Thanks.
Yeah.
Yeah, I mean, what's really been driving our recovery is again massive mimo the.
For us as we get that shift would get about up 10 X. content left so I think if we were only in macro are only looking at a macro view I would say, yes, we would see the deployments going slower in the business being slower, but because of content pick ups.
On top of US now being able to compete in the power amplifier slot with can I think that's what's really fueling a maybe a a bit difference with some some of the other folks in the business now that said, we are still way off artist Oracle highs.
From where we had been a year ago or so so a long way to go before we recover from the restrictions on being able to ship to walk away, which again I I'll restate is you know about 50% of the market at this point.
That concludes today's question answer session. At this time it will turn the conference back to management for any additional are closing remarks.
Thanks for joining our call Tonight, we hope to see many to do at our upcoming and that's the ribbons and we look forward to speaking with you on our fourth quarter earnings cool. Thanks, again and have a good night.
This concludes today's call. Thank you for your participation you may now disconnect.
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