Q4 2020 Skyworks Solutions Inc Earnings Call

School year 2020 earnings call. This call is being recorded.

This time I will turn the call over to Mitch Haws Investor Relations for Skyworks Mr. Haws. Please go ahead.

Thank you Rob good afternoon, everyone and welcome to Skyworks fourth fiscal quarter and year end 2020 conference call.

With me today are Liam Griffin, our president and Chief Executive Officer, and Kris Sennesael, our Chief Financial Officer.

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

Please refer to our earnings press release, and recent SEC filings, including our annual report on form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. Additionally, the results and guidance. We will discuss include non-GAAP financial measures concern.

Distant with our prior practice please.

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

Thanks, Mitch and welcome everyone.

Skyworks delivered exceptional results in the fourth fiscal quarter with revenue and earnings well ahead of our guidance.

Importantly, the momentum span across our entire customer base more.

Mobile aiotv automotive cognitive audio and infrastructure.

In fact revenues in our mobile and broad markets portfolios each grew 30% sequentially.

And generated double digit growth compared to Q4 of last year.

Now looking at the quarter in more detail.

We delivered revenue of $957 million.

More than 100 million above the high end of our guidance.

We achieved gross margin of 50.4% and operating margin of 35%.

We posted earnings per share of $1.85 exceeding our guidance by 34 cents.

And we generated strong operating cash flow totaling $267 million in the quarter.

Capitalizing on years of investment in next technology generation products.

We are now both driving and benefiting from the rollout of Fiveg in markets around the world.

Recent data points highlight just how rapidly this adoption is accelerating.

38 countries have already launched Fiveg networks with more regions set to deploy.

And already in 2020, 12% of the world's smartphones, our fiveg enabled with projections of over 50% by 2023.

[noise], notably the world's leading smartphone manufacturer has just now released its entire lineup of new Fiveg devices.

A key catalyst underpinning our growth thesis.

Although we are only in the early innings Fiveg has arrived ushering in a new and expansive set of opportunities.

During the quarter our solutions powered a broad set of use cases from the newest and most innovative smartphones to industrial Aiotv automotive cognitive audio and touchless commerce.

Specifically in mobile.

We accelerated the ramp of our Sky five portfolio.

While supporting leading Fiveg smartphone launches.

Including those from Samsung Oppo, vivo shall make Google and other major tier ones.

And Aiotv, we enable touchless point of sale systems that square.

Powered Wi Fi six access points for Amazon.

Ramped Wi Fi six solutions for advanced routers at Netgear and a seuss.

And launched residential gateways at Verizon and Telecom Italia.

We also supported Facebooks newest Oculus VR platform.

And we further bolstered our position and low latency cognitive audio solutions.

Powering wireless headsets at large attack razor and Sony among others.

Now moving to the industrial space.

We introduced embedded connectivity modules, enabling fitbit comps latest enterprise I O T architectures.

We delivered critical medical applications at Boston scientific and GE.

And also supported wireless utility metering at Itron and census.

In infrastructure, we secured multiple design wins in next generation Mimo base stations and small cell installations.

And finally in automotive, we ramped telematics subsystems for BMW, and Tesla and launched high speed connected car solutions for Don Miller, and leading Oems in Japan and Korea.

These engagements illustrate the diverse and expansive nature of our portfolio.

Supporting a broad array of customers and applications.

Fundamentally our ability to execute and deliver on successive technology nodes fuels above market growth.

This momentum is underpinned by increasing demand for our unique system solutions.

Differentiated by performance.

Integration scale, and most importantly customer value.

Skyworks is well positioned to capitalize on the rapidly changing landscape with deep customer relationships established over 20 years.

Experience across multiple technology transitions.

Strategic investments and global scale, a seasoned and talented workforce and finally in efficient cash flow engine.

That funds continuous development of market leading solutions.

With that I will turn the call over to Chris for discussion of Q4, and the fiscal year, along with our outlook for Q1.

Thanks, Liam Skyworks revenue for the fourth fiscal quarter of 2020 was 957 billion. This is 170 million higher than the midpoint of the guidance going into Q4.

Revenue was up 30% sequentially and up 16% year over year, driven by increasing adoption of our mobile solutions and rising growth market momentum.

In fact, both mobile and growth markets revenue grew 30% sequentially and were up double digits compared from Q4 of last year.

We established a new quarterly record of 295 million improved markets revenue well greatly expanding our customer reach.

Gross profit in the fourth quarter was 482 million, resulting in a gross margin of 50.4% up 30 basis points sequentially.

Operating expenses were 147 million or 15.4% of revenue demonstrating leverage in our operating model, while continuing our strategic investments in support of future growth.

We generated 335 million of operating income translating into an operating margin of 35%.

We incurred 1 million of other expenses and our effective tax rate was 6.5% driving net income of 312 million.

Top line momentum and Executional margins drove diluted earnings per share of $1.85 cents, beating the guidance by 34 cents.

As grew 48% sequentially and increased 22% compared to Q4 of last year.

Turning to the balance sheet and cash flow fourth fiscal quarter of cash flow from operations was 267 million and capital expenditures were $146 million.

Repaid 84 million in dividends and given our conviction in the underlying strength of our business, we repurchased 1.7 million shares of our common stock at an average price of approximately $140 per share for a total of 231 million.

As this is the fourth quarter fiscal 2020, that's also review our annual results.

We generated 3.4 billion of revenue with gross profit of 1.7 billion, resulting in a gross margin of 50.2%.

Operating income was 1.1 billion, we have an operating margin of 33.7%.

Net income was 1 billion translating into $6.13 of diluted earnings per share cash.

Cash flow from operations was 1.2 billion and we returned nearly 1 billion to shareholders in fiscal 2020, we have 307 million of dividend payments and 648 million in share buybacks as we repurchased 6.3 million shares throughout the fiscal year.

And we ended the fiscal year with cash and investments of 1 billion and we have no debt.

In summary, the Skyworks team executed exceptionally well despite a challenging environment navigating the COVID-19 pandemic and headwinds from Us China trade relations.

We delivered strong profitability and cash generation.

We ended the fiscal year on a high note and positioned the company for future top and bottom line growth as we enter the new Fiveg era.

Now, let's move on to our outlook for Q1 of fiscal 2021.

We expect to deliver another quarter of double digit sequential revenue and earnings per share growth in our first fiscal quarter.

Specifically, we anticipate revenue between 1.040 billion and 1.070 billion.

The midpoint of 1.055 billion revenue for the quarter is expected to increase 10% sequentially and 18% year over year.

Gross margin is projected to be in the range of 50 point, 25% to 50 point, 75% as we continue to drive profitability expansion.

We expect operating expenses of approximately 148 million reais.

Below the line, we anticipate roughly 1 million and all that expense and a tax rate between nine and 10%.

We expect our diluted share count to be approximately 168.5 million shares accordingly at the midpoint of the revenue range, we intend to deliver diluted earnings per share of $2.06, an increase of 11% sequentially and more than 20% on a year over year.

Basis, and with that I'll turn the call back over to Liam.

Thanks, Chris Skyworks significantly exceeded September quarter expectations, and revenue and earnings per share.

Capping off a fiscal year that tested and demonstrated the resilience and agility of our business.

As Fiveg, Revolutionizes connectivity, and proliferates and global platform launches.

We are ramping our innovative sky five solutions across a rapidly expanding set of end markets.

Clearly skyworks technologies are playing an essential role in today's challenging environment, enabling ubiquitous reliable ultra fast and safe connections dry.

Driving momentum across our portfolio, while positioning our business for continued growth.

Finally, our strong balance sheet and consistent cash generation provide a formidable platform for technology investment as we deliver premium returns to our stockholders that concludes our prepared remarks, operator, let's open the line to questions.

In order to ask a question you will need to press star one on your telephone to withdraw your question press the pound key given time constraints. Please limit yourself to one question and one follow up. Your first question comes from a line of Victoria from Bank of America. Your line is open.

Hi, Thanks for taking my question and congratulations on the strong results on the accelerating sales outlook.

My first question is on your Q1 December quarter outlook, where do you think the IDE into Fiveg I'm cycle. When we look at the strength that you're seeing in December.

Is this kind of the run rate business and you can annualize from here does it grow from here just how much that fiveg is fiveg contributing to December and how much runway is there to grow off of these quarterly levels.

Sure Yeah, Great question, well, let me, let me start by saying, we saw a bit of the fiveg ramp in Q4, and actually a larger part of that with our APAC customers all and so far it's been going great. You know we have been winning business. We've been expert at expediting products. The demand has been incredible and so we're really.

Thrilled about that but it's also very very early in the cycle off so our Q4 period, which accelerated rapidly towards the end of the quarter and brought momentum into Q1 or Q4 period was typically led by the APAC region.

As we move into our fiscal Q1, it's led by tier one customers are and in both cases work very well balanced and well positioned.

In addition to that we round out with a great a great set of plays here in Aiotv and in broad markets are so really good strength, that's moving into from Q4 and into Q1.

And again very very early in the overall overall fiveg landscape.

[laughter] and how my follow up on land given the late start then at one of your large customers how should we think about the seasonality as as they go into calendar Q1 should we expect to see this strength sustained into going into Q1, just how conceptually what visibility.

Do you have into Q1, and then if you could have any color around 2021 that would also be very helpful. Thank you sure sure well as you see it coming off our Q4 guidance, our Q4 delivery, which was a 100 million above consensus and 200 million sequentially. Just just make sure we get that right and now we go into.

Q4, we're guiding about 10% at the midpoint.

We feel comfortable with that its diversified across customer bases is certainly a couple of flagship players that are leading the charge, but we are working very quickly to get these products to the customer and we know that the demand is there.

So we feel very good about our outlook and look forward to delivering more as we go forward.

Your next question comes from the line of Timothy Arcuri from U.B.S. Your line is open.

Thanks, a lot.

I'm wondering Chris if you can give us an idea of what the assumed for the December guidance for broad markets and then I also had a follow up thanks.

Yes, so we definitely very pleased with what we see in our growth markets and just to talk maybe first a little bit about September quarters right. It was approximately 31% of total revenue.

It was just shy of $300 million will have revenue in the quarter, which is a new all time record for growth markets as Liam.

Just indicated as well it was up 30% sequentially, which is almost 70 million dollar of incremental revenue that we saw into the September quarter, and so we are back to double digit year over year growth into September quarter ended December quarter sold to our Q1 of fiscal 21, we.

But further sequential revenue growth in growth markets. So we will end up with a new all time high in the December quarter, and so thats Wednesdays into very very strong.

Double digit year over year growth for broad markets in Enbrel markets due to the strength that we see is really across the board and of course, it's in part driven by some strong demands what I would wireless connectivity solutions supporting work from home play for them all learn from home.

Almost from home everything from home right order from any place.

We also saw a really nice rebound in our industrial aiotv as well in our automotive business.

And we also have really good and great positive momentum in our cognitive audio business.

And then last but not least due to the infrastructure business.

Supporting the build out of Fiveg networks, and so when you put it all together our broad markets business is doing really well all time records in September and guiding to an all time record in December.

Thanks, a lot guidance and then I guess my second question is on gross margin, there's very little incremental margins dropping through year over year at September if I look at the December guidance groups. You know, it's like you know the drop here is not really much about what the overall.

Margin levels are and you're not too far away from the from the revenue that's assumed in the financial model, but we're still you know 250 basis points below one you know gross margin. So can you talk a little bit about what's going on there is it is it simply just mix. Thanks.

Yeah first of all I'm pleased with the gross margin in the September quarter at 50.4 up 30 basis points sequentially and so we have been hinting at that quarter over quarter. We will continue to make steady progress as further gross margin improvement and so we are guiding 50 25 to 50 75, so again.

Sequentially into the December quarter keep in mind that we still have some headwinds as a result of COVID-19, with social distancing and extra cleaning and sanitation and some disruption in the supply chain here that is hitting us and so we expect over time to.

See further improvements that on the gross margin towards our target model of 53%.

Your next question comes from a line of Toshiya Hari from Goldman Sachs. Your line is open.

Hi, guys. Thanks for taking the question and congratulations on the strong results.

Liam how would you how would you characterize or assess inventory today, both at Skyworks as well as at your customer base, obviously, there's a big concern that some of your customers might be pulling in a little bit and any thoughts there and I've got a quick follow up.

Yeah, you know I honestly, we were working our tails off that deliver you know we had customers that were we were late on a lot of orders are scrambling to get these parts out. So we are inventories are very low our dsos are down.

It has been you know a breakneck pace operationally to deliver into this great cycle. So those have been the biggest challenges. There were some you know I think further back we had some bumps with with cobot issues and our own factories that are created a little bit of a difficulty in supply chain I think that night, 90% of that is by us.

And you know, we're well positioned to continue to bring up the topline, but we at that this this Q4 and coming into Q1, it's been very aggressive demand and you know a lot of that is unique to us and I. It may not be to the total market, but for the things that we do.

Great portfolio right now of work at home portfolio that Chris mentioned, but really catalysts, whether it's soon with video or Palatine or browsing real estate on your phone.

The the move towards connectivity is real it's it's sticky it's going to stay with us.

And then in the Fiveg handset side, you know a great position with the leaders in China.

With a tremendous amount of technology rich content gains crafted in house and then also some very compelling solutions with our largest customer again highly customized crafted in house that are just now moving out a into.

Into the customer so you know it it's been a are we waited for this for a long time, we've invested in this for a long time up we've been talking about fiveg for quite a while and we were very articulate unclear about our ability and our ability to win and that and that's what we're doing right now where we're winning.

Got it.

Thanks for that Liam and then Chris I, just wanted to double click on gross margins.

Again, what we're not seeing a ton of.

Leverage here in the model.

I was hoping you could you could elaborate a little bit on sort of the headwinds that you are seeing that sort of offsetting the increase in revenue is it customer mix is it mix between in sourced product versus outsourced product as a co bid.

We're hearing wafer pricing might be going up a little bit just given the tightness and you think you can you can add there would be super helpful. Thank you.

And then also on a pricing point of view, it's business as usual, we don't see anything special there and so again the way we improve our gross margins is threefold. It's continued to bring new high added value products to the markets.

Especially as Fiveg is becoming a larger part of our portfolio, we do have a tailwind.

In addition to that of course, we continue to drive operational efficiencies, but as I pointed out.

Due to COVID-19 of the pandemic that also mean efficiencies today, and I would own factories as well as in the supply chain and the logistics.

And and unfortunately, that's there, but it's not going away quickly, but hopefully in a couple of quarters down the road, we will see some benefit from that as well and then you have good is always mix and mix changes as you know brought markets has a higher gross margin compared to our mobile segments.

And indefinitely.

And definitely the mobile segment is going to grow a little bit fossett into the December quarter. So when you put it all together and again, we will continue to make further good progress on improving gross margins.

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

Hey, good afternoon in grants on the results just wanted to go back to the prior question is going to make sure I heard the answer correctly as you look into the December quarter.

Some comments on whether you expect Android to be up and certainly that's been a down quarter for a lot of China, but obviously with biogen content and maybe up I just wanted to understand what you were saying in December on the Android World.

We we see increased across the board right in more while at all accounts in growth markets. At all accounts saw yes of course, the large customer will be up sequentially Samsung will be up sequentially. The key China customers will prove you wish I won't be will be up sequentially. There's one exception of course and Thats why.

Well as you know.

Based on the new export restrictions, we are no longer allowed to ship a past September 14, as a result of that the why we have revenue in Q4 was actually slightly below expectations, Oh loan about 3% of revenue and so into December.

Good guide we did not include any revenue for a while we despite the fact that more more recently, we did get a limited license to ship certain products to while away, but we are still figuring it out with the customer which products they need which products. They want and so we did not include.

Dive into I would guide for the December quarter.

Yes, Thank you and then maybe I'm.

I'm, sorry, I just wanted to add one more to that I think when you. When you look at the Android cycle that really kicked off in Q4, where I think the larger tier one is more of a December quarter play so very good position and Android, which will stay with us launch a little bit sooner in fiveg, what a great solutions. They are a lot of embedded media tech play as well that.

That will continue to roll and then you have more of the December quarter being being led by the top players.

Thanks, and then maybe just a follow up on the September quarter, you Havent always beat by a huge amount through the night beat I was just curious what you pointed to as surprised you most of the upside in the December quarter.

Yeah, Yeah, just really steep acceleration in Fiveg and also an incredible sticky set of opportunities and broad market. The broad market business not only did it set a record for for a quarterly record, but it really had some incredible diversification with many many new customers and you know were really.

Cited about that we have a whole set of green shoot opportunities that we have consummated over the last couple of months that will continue to drive revenue for us into the future. So that was a great benefit you know some of those things with the pandemic. It's hard it's been there's been some some opportunity that's come about and that that that's one area that certainly benefited.

Your next question comes from the line of Chris Caso from Raymond James Your line is open.

Chris case only your line is open.

Your next question comes from the line of Karl Ackerman from Cowen and company. Your line is open.

Good afternoon, gentlemen, Liam if I may go back to China handsets, you know clearly Wally has been impacted from U.S. trade restrictions.

I know, it's difficult to handicap, but with the election tomorrow, there seems to be a growing investor interest.

And how you may position, if while a word to procure a smartphone components from your suppliers. So I guess, how do you balance the enthusiasm you have for the order book versus making sure inventory across supply chain remains balanced.

Sure well first of all you know walk away as Chris indicated is a very very very small piece of our business right. Now is very small and we don't expect there to be any any upside going forward. However, you know as Chris mentioned, we did get a license from commerce and there's a door opening potentially for more opportunities. We had a great position with why wait a few years ago.

And there were a number to customers. So we know how to work with them and they were a company that were more of a high end player appreciated the integration that we provided and the technologies that we provided.

So you know Unfortunately, you know the trade issues separated us and also separated some of our our our peers, but if that door opens up and were able to deliver again, we're right right back at it there's there's nothing lost but in the meantime meantime, we're moving forward, we're working with all the other players in China that we mentioned the Android ecosystem and others. So.

We feel like we're very well balanced and hedged on that if there's an opportunity that's great. We know how to sell to that we know how to design in.

But we feel like a lot of that business has been redistributed and we've been able to catch it on the other end. So we're not too concerned about it but we'll certainly stay vigilant if opportunities emerge.

Understood. Thank you Chris It for my follow up if I may you know I know, it's not usually your practice to comment beyond a quarter you know, but it appears your mobile business will grow high single digits in calendar 2020, when overall units should decline double digits, you know with expectations that foggy smartphone should increase from roughly 200 million phones this year to perhaps.

500 million next year. It is there a fundamental reason why your content you know, perhaps could not be as significant next year. Thank you.

No I'm not going to really comment on the units I mean, we definitely see strong adoption of Fiveg.

But we will see what what the units how it all plays out.

On the flip side, yes, we do have very strong content increase in content gain as Fiveg me being introduced into phones, it's adding a lot more complexity is adding new bands, we saw being layered on top of the existing Fuji Threeg Fourg technology and that is a lot of complexity and that's.

Again, what Liam has been indicating we've been investing into that for many years.

We have our peak days, our filter business, our capability integrate all of that into our integrated solutions and Thats, where we see a really a big opportunity for skyworks as more and more fiveg adoption will happen over the next couple of years.

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

Thanks, a lot a limb and it's very clear from our tour down of your largest customer slowed youve really knocked the ball park on this you had 10 modules in the current version unless you get six I know some of the big content increases your experience there and probably in China, given 10 mobiles requirements or have pulled power amplifiers into what is traditionally receive.

Only jurisdiction would you dominate my question is given China mobile's requirements for many more bands for several more bands and we and most of the industry expected a pulling in what I would consider to be out period fiveg content into the current period and inclusion of greater functionality. This broadcast Mimo, you do see et cetera.

I'd like to get your opinion about where we're going to see the growth next year I I'm sure. The unit volume game is going to work <unk> everybody's favorite we're going to see more phones, Oh using fiveg next year, but maybe you could help us out with what you think the content increase would be because it sounds like you're capturing a lot of that in this first glut of fiveg phones.

Loans, both in Asia and in the flagship phones coming out this year and I'm just kind of scratching my head what we can expect from a content point of view and then in the next year or two and then I have a follow up please.

Sure and that's it that's a good question.

Well you know as as much as we're encouraged by the results that we've been putting forth in the content that we gain theres. So much more out there at a tremendous opportunities that we haven't captured new solutions that we're inventing right now they're going to be very different than what we have today.

Oh, you know were under the Hood with all the customers and all the players and one of the things that we do is we look we look and listen to see where the problems are how can we make our parts better how can we make skype by better.

Oh, and we continue to do that and that's the way we gain our content a lot of it is just really getting in there under the hood shoulder to shoulder with the best engineers in the world.

From Skyworks in our customers and we try to figure it out together and oftentimes. It solution is born so I think the technologies that we're seeing now first of all we all know everybody on this on this call knows that this is the early innings of Fiveg.

Early innings, and we think Fiveg today in 2021, and 2020 is going to be different in two or three years and will be 60. So there's a lot of work to be done continuous work our customers are constantly pushing us they want faster they want more data they want lower current consumption.

And that that you know, we all that technology will continues to turn so as much as we're happy with what we've been able to do so far there are just so much more that we can do.

So I feel very comfortable that early innings in fiveg, you're getting a read on that now from US. We can do a lot better. We think the adoption is going to go up faster and faster. We think the usage cases are going to continue to grow the same way they didnt threeg and fourg.

So I'm not I'm not too concerned about I think what for US it's about investing in the right markets. It's about raising our technology bar and then executing with our customers. Those are the key elements for us at this point.

Yeah, They kinda meshes with my second question, because one thing that we did pull from this is your largest customers flown was a stunning increase and the complexity, especially antenna system. It went from six to 10 is the 13 on this phone, yeah, which I know and I saw that they pulled in a lot more antenna switching control content from Skyworks, which is I know you play there before but it wasn't a huge.

Jerry for you.

And a lot of the stuff is being pulled into modules like so it doesn't this plane to the gross margin because there's so many different ways. This could go if you look at what ultra wideband is doing in the phones et cetera, the throwing so much in the handset side of it.

Is it more of a share gain from a module players' point of view I would say you inquiry will probably but predominantly because of phones getting so much more complicated going so many directions that they're they're turning to you guys to really just started integrating more of this in is that were not just the content, but also where the opportunity for gross margin starts to play out given just kind of assume.

The mono in a module this point versus just you know RF components. Thanks, Yeah, I agree completely at what that comment I think we're getting into a world now or things are getting very complex. You know you can look at it from thing band Count and Ken account Trx, you know transmit receive very very complex and our customers have a.

His job on there and so the burden on on Con players like Skyworks is it lets go solve this lets go work at it and to try to configure in a platform and an integrated solution is just much much better for the cost of its difficult with the suppliers, but we are getting paid for that.

And I think it's a unique it's a unique set of technologies that we're seeing in Fiveg, we know there's more to do.

It's one of the reasons why we have been an investor in our own fabs, whether its bar, whether its Tc saw whether its BJ capacity and packaging all of these things all bring bring us the opportunity to deliver what our customers want uniquely each one having their own needs and satisfying those at every point. So there's a lot to do we love doing it and.

You know again early innings, but theres plenty of upside from here that we got to just go learn.

Your next question comes from the line of Ambrish Srivastava from BMO. Your line is open.

Hi, Thank you very much excuse me sorry, Chris you seem to be especially popular today, so I'm going to stick with you as well.

That's my head a little bit on the gross margin side. So.

If I look back at the last time, you had a billion dollar in DRAM.

You had a 51.2% gross margin for the quarter right that September 18.

The broad market business was a little bit smaller.

So and then you talked about the the positives that and say the headwind than the tailwind.

So on the had been you mentioned included 19 cost in some other inefficiencies that you're working to remove and then the positives are.

Better higher advance products, so that should be incremental really positive for gross margin as well as your your broad market business is growing and should cross the $300 million Mark next quarter. So.

Is it fair.

Fair to assume that the corporate related costs is about a 100 bips and that's kind of the had been that the margin is facing and once we get past that but just a couple of quarters that we should see gross margins come back to more in line with historical and then given that broad markets is getting bigger.

That should help gross margin to get to your 52% target.

Well when you think about it.

Right way on Verizon, So I've I've talked about that before yes, the COVID-19 headwinds into 75 200 basis points range.

And but it will come down over time here and so we're working it hard to every quarter and so that is definitely upside from that and then you list. All the other elements that are that we see as well that gives us conviction that overtime. We will continue to further improve the gross margin.

Okay and then my quick follow up is really again on the broad markets business could you just help us understand how is the business looking.

More in terms of where you're seeing the growth opportunities and it's a 1.2 billion plus and okay, great fairly large business.

And how has it changed from two years ago, maybe its a question to you.

Yeah, two or three years ago, a lot of it was pretty narrow it was mainly low end connections GPS or early early lifeline, some infrastructure and if you look at the portfolio. Today is really diversified we've got you know players like rain Netgear Amazon Sonos core.

Just one of our larger customers, there's a lot of work in broad markets.

Oh names like Google, we have Facebook really cool application. So we have an audio business that had a great quarter.

Thinking about gaining technologies like that with good margins as well. So it's not you know some of these products consumer oriented the technologies that we bring or not we've actually grown the business in automotive and defense or working with more I T partners like they become that we mentioned.

Again access points and routers with wife by six coming in right now some of the the the new applications that weve seen through through this difficult pandemic and if you're going to be quite sticky. When you look at whether its work from home or work from anywhere and we're seeing those usage cases continue to grow. So so we think that that is a move up that.

It's sustainable we don't think that that's a quarterly bump we think thats a sustainable.

And its variably, we're going to start to see more more wide area connection with five G. Connecting some of these devices. So if you look at broad markets today much of the connectivity is why five who do the GTS.

Still some customers that are adopting adopting fiveg, but overtime I think you're going to see fiveg converts is going beyond the handset and then in basically spreading into a number of applications in the car the factory some of the consumer options as well and we're extremely well positioned there I think thats one of the unique things about skyworks, we can take the connectivity from low day rate.

Very very high data rate and we can customize it by application. So that's an important part and again the customer reach in broad markets continues to extend will report more next quarter. If you look at more design wins in north more players that we bring in but it. It's definitely you know stepping up on its growth path and we're really happy to see that.

Your next question comes from the line of Chris Caso from Raymond James Your line is open.

Yes. Thank you I guess first question would be regarding.

Use of cash and then obviously that cash flow is increasing given what's happening now any changes in and your approach to that on what your plans are for the cash flow.

No no changes there and I mean, we continue to deliver.

Deliver very strong free cash flow and we continue to return all of that back to the shareholders of combination of our dividend program.

As well as our share buyback program and ER and so we've been very active from a buyback a point of view and continue to be active there that's still leaves a billion.

The level of cash on the balance sheet with no doubt and so this cannot be from an M&A point of view.

Got it. Thank you just as a follow up with what you're seeing in China, and given you know that the inability of wawa to procure components, maybe you could talk a little bit about what what you're seeing into those customers and I get it right to assume that you know some of the strength you're seeing it at at a.

Oh PLE vivo shall me is I'm kind of stepping in and filling the void. If if why you still unable to get components and that continues as we go into next year.

Yeah, Chris that that's off some of what we're seeing so obviously you know we're agnostic to base and the customer who we want to win with everybody. So.

While we had been a major customer for us for a while for a long while and we just indicated earlier and and acumen I hear that they've they've obviously gotten a lot smaller to trade and you know it's great. If they come back we're ready to go but what we what we are seeing is a redistribution of that technology, obviously, the China market still love cell phones.

The global market does as well and were able to fortunately with some changes in our design and certain things that we need to do to to all calibrate for the customer we've been able to move a lot of that technology to the oppose to the v. those to the Japanese even Samsung as well and if things change at Wawa, That's fine that's great well step right in.

Oh and work with them, we have no problem with that there's no customer issue with its more trade related but but I think you know that the that the need and the desire to have the fiveg phone is very real everywhere and certainly we want to sort of China. This weekend.

Your final question comes from a line of Craig Ellis from B. Riley FBR. Your line is open.

Thanks, very much for sneaking it in and congratulations on the strong revenues kind of so I hopped on a little bit late so apologies. If this has already been asked but.

Im and Chris can you provide some color on the relative strength, but you would expect in the business going into the fiscal first quarter.

And then the follow up to that is how should we think about how the second quarter could perform relative to normal seasonality and what would you characterize normal seasonality out in this environment.

Sure sure a good question you know as we had said earlier in the call. You know we had a really strong acceleration of design wins that we've been working on for years and investing in and start to really see that lift off in the back half of Q4 as you know resulted in a $200 million sequential gain 100 million goal would be to get that there's a lot of momentum.

And as we entered Q1, our current quarter, we continue to see that.

We've got some great catalyst with a leading player in the market right now with some incredible technologies that are just being launched all the China market adopted a little bit earlier, and weve been shipping well to that ecosystem Oppo vivo Xiaomi also partnering up with Mediatek to try to get that pool, that's full of that full pie of opportunity across Asia.

And doing very well with that so our factories are harming our teams are executing.

On the inventories remain lean right now we're shipping overnight and in many cases with our customers. So while you know that that's kind of where we see it so.

When we look at the March quarter, it's a little bit too early to give you a guide on that but saw you know that you just look at where we are.

200 million sequential we got it up 10% for Q1, we feel pretty good about that position.

We also recognize anything and we mentioned this earlier, but it's true. This is these are the early innings of hi, Keith This is really a first.

A quarter or so where are these technologies are available in many cases in the U.S., there's still some some some products that people want to get yet.

And that's going to happen. So there is a lot more to go.

And the complexity is going to continue to move up and the opportunity is going to continue to move up and the adoption rate, which is extremely low right now it's going to move higher and higher every year. So there's a lot to do in the future and we feel like the production really good performance here now, but we have a lot more to go as we as we move into 2000.

Yeah, that's really helpful. Liam and I agree that we're in the very early innings in the public question relates to that so broad markets is annualizing at a billion dollars far faster than I thought so good for you and the team back with Fiveg smartphone units I think based on most industry observers forecast.

Likely to increase to wax and 2021, and then doing the same thing in 2022.

Is it possible for a broad markets to pull in either additional programs in existing end markets for new end markets with new programs for new customers. So that it could keep pace and keep that same level of revenue.

Contribution on a relative basis work over.

Over the next couple of years would we expect mix to swing significantly towards integrated mobile. Thank you.

Yeah, No. That's a great great question at the end of the numbers. This all last quarter actually 30% sequentially. So had some really good balance and if you look at what the market's bringing west now there's a tremendous amount of Wi Fi opportunity TPS opportunity.

And fulsome cellular opportunity that is going into broad market. So I think you got two distinct portfolios that share a common supply chain, all and often can share a common technology that we can we can drive too. So you know over the long term, we want to be the connectivity meter in any application. We can take that application, whether it's a gaming headset or say so you're in.

Restructure or whether it's in defense or automotive all of those end markets really our target cells, Oh, and we could certainly do better but we are pleased with what we've been able to do in the last quarter or two and look forward to a great 2021.

Ladies and gentlemen that concludes today's question and answer session ill 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 talking with you at upcoming conferences during the quarter take care.

Ladies and gentlemen that does conclude today's conference call and we thank you for participating.

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Good afternoon, and welcome to Skyworks solutions fourth quarter and fiscal year 2020 earnings call. This call is being recorded.

At this time I will turn the call over to Medtronic Investor Relations for Skyworks Mr. Carlos. Please go ahead.

Thank you Rob good afternoon, everyone and welcome to Skyworks fourth fiscal quarter and year end 2020 conference calls.

With me today are Liam Griffin, our president and Chief Executive Officer, and Chris Ciena, So our Chief Financial Officer.

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

Please refer to our earnings press release and recent FCC filings.

Leading or in the <unk> report on form 10-K for information on certain risks that could cause actual outcomes to differ materially.

Firstly from any forward looking statements made today. Additionally, the results and guidance. We will discuss include non-GAAP financial measures consistent with our prior practice.

Please refer to our press release within within the Investor Relations section of our company website for a complete reconciliation to GAAP with that ill turn the call to Liam Burke.

Mitch and welcome everyone.

Skyworks delivered exceptional results in the fourth fiscal quarter with revenue and earnings well ahead of our guidance.

Importantly, the momentum span across our entire customer base mobile.

Mobile I O T automotive cauldron of audio and infrastructure.

In fact revenues in our mobile and broad markets portfolios each grew 30% sequentially.

And generated double digit growth compared to Q4 of last year.

Now looking at the quarter in more detail.

We delivered revenue of $957 million.

More than $100 million above the high end of our guidance.

We achieved gross margin of 50.4% and operating margin of 35%.

We posted earnings per share of $1.85 exceeding our guidance by 34 cents.

And we generate strong operating cash flow tone.

Totaling 267 million in the quarter.

Capitalizing on years of investment in next technology generation products.

We are now both driving and benefiting from the rollout of Fiveg in markets around the world.

Recent data points highlight just how rapidly this adoption is accelerating.

38 countries have already launched Fiveg networks with more regions set to deploy.

And already in 2020, 12% of the world's smartphones, our fiveg enabled.

With projections of over 50% by 2023.

Notably the world's leading smartphone manufacturer has just now released its entire lineup of new Fiveg devices.

Catalyst underpinning our growth.

Although we are only in the early innings Fiveg has arrived.

During in a new and expansive set of opportunities.

During the quarter our solutions powered a broad set of use cases from the newest and most innovative smartphone to industrial Aiotv automotive cognitive audio touchless commerce.

Specifically in mobile we.

We accelerated the ramp of our Sky five portfolio.

While supporting leading Fiveg smartphone launches.

Including those from Samsung Oppo, vivo, Xiaomi, Google and other major tier ones.

And Aiotv, we enable touchless point of sale systems that square.

Powered Wi Fi six access points for Amazon.

Ramped Wi Fi six solutions for advanced routers at Netgear and assume.

And launched residential gateways at Horizon and Telecom Italia.

We also supported Facebooks newest Oculus VR platform.

And we further bolstered our position and low latency cognitive audio solutions.

Powering wireless headsets at larger tech razor and Sony among others.

Now moving to the industrial space.

We introduced embedded connectivity modules, enabling FEIBA comps latest enterprise I O T architectures.

We delivered critical medical applications at Boston Scientific Angie.

And also supported wireless utility metering at Itron and census.

In infrastructure, we secured multiple design wins in next generation Mimo base stations and small cell installations.

And finally in automotive, we ramped telematics subsystems for BMW, and Tesla and launched high speed connected car solutions for dollar and leading Oems in Japan and Korea.

These engagements illustrate the diverse and expansive nature of our portfolio.

Supporting a broad array of customers and applications.

Fundamentally our ability to execute and deliver on successive technology nodes fuels above market growth.

This momentum is underpinned by increasing demand for our unique system solutions deferred.

Differentiated by performance.

Integration scale, and most importantly customer value.

Skyworks is well positioned to capitalize on the rapidly changing landscape with deep customer relationships established over 20 years.

Experience across multiple technology transitions.

Strategic investments and global scale.

Seasoned and talented workforce and finally in efficient cash flow engine.

Thats funds continuous development of market leading solutions.

With that I will turn the call over to Chris for discussion of Q4, and the fiscal year, along with our outlook for Q1.

Thanks Liam.

Revenue for the fourth fiscal quarter of 2020 was 957 billion. This is 170 million higher than the midpoint of the guidance coming into Q4.

Revenue was up 30% sequentially and up 16% year over year, driven by increasing adoption of our mobile solutions and rising growth market momentum.

In fact, both mobile and global markets revenue grew 30% sequentially and were up double digits compared to Q4 of last year.

We established a new quarterly record of 295 million improved markets revenue well greatly expanding our customer reach.

Gross profit in the fourth quarter was 482 million, resulting in a gross margin of 50.4% up turn.

30 basis points sequentially.

Operating expenses were $147 million or 15.4% of revenue demonstrating leverage in our operating model, while continuing our strategic investments in support of future growth.

We generated 335 million of operating income translating into an operating margin of 35%.

We incurred 1 million of them and expenses and our effective tax rate was 6.5% driving net income of $312 million.

Top line momentum and execution on margins drove diluted earnings per share of $1.85 cents, beating the guidance by 34 cents.

EPS grew 48% sequentially and increased 22% compared to Q4 of last year.

Turning to the balance sheet and cash flow fourth fiscal quarter of cash flow from operations was 267 million and capital expenditures were $146 million.

Repaid 84 million in dividends and given our conviction in the underlying strength of our business, we repurchased 1.7 million shares of our common stock at an average price of approximately $140 per share.

A total of 231 million.

This is the fourth quarter fiscal 2020, that's also review our annual results.

We generated 3.4 billion of revenue with gross profit of 1.7 billion, resulting in a gross margin of 50.2%.

Operating income was 1.1 billion, we have an operating margin of 33.7%.

Net income was $1 billion translating into $6.13 per diluted earnings per share.

Cash flow from operations was 1.2 billion and we returned nearly 1 billion to shareholders in fiscal 2020, we have 307 million of dividend payments and.

648 million in share buybacks, as we repurchased 6.3 million shares throughout the fiscal year.

And we ended the fiscal year with cash and investments of 1 billion and we have no debt.

In summary, the Skyworks team executed exceptionally well despite a challenging environment navigating the COVID-19 pandemic and headwinds from Us China trade relations.

We delivered strong profitability and cash generation.

And that the fiscal year on a high note and positions the company for future top and bottom line growth as we enter the new Fiveg era.

Now, let's move on to our outlook for Q1 of fiscal 2021.

We expect to deliver another quarter of double digit sequential revenue and earnings per share growth in our first fiscal quarter.

Specifically, we anticipate revenue between 1 million and 40 million and 1.070 billion.

At the midpoint of 1.055 billion revenue for the quarter is expected to increase 10% sequentially and 18% year over year.

Gross margin is projected to be in the range of 50 point, 25% to 50 point, 75% as we continue to drive profitability expansion.

We expect operating expenses of approximately $148 million.

Below the line, we anticipate roughly $1 million and all that expense and a tax rate between nine and 10%.

We expect our diluted share count to be approximately 168.5 million shares accordingly.

Point of the revenue range, we intend to deliver diluted earnings per share of $2.06, an increase of 11% sequentially and more than 20% on a year over year basis.

I'll turn the call back over to Leah.

Thanks, Chris Skyworks significantly exceeded September quarter expectations, and revenue and earnings per share capping.

Capping off a fiscal year that tested and demonstrated the resilience and agility of our business.

As Fiveg Revolutionizes connectivity and proliferates in global platform launches we.

We are ramping our innovative sky five solutions across a rapidly expanding set of end markets.

Clearly skyworks technologies are playing an essential role in today's challenging environment, enabling ubiquitous reliable ultra fast and safe connections dry.

Driving momentum across our portfolio, while positioning our business for continued growth.

Finally, our strong balance sheet and consistent cash generation.

Slide a formidable platform for technology investment as we deliver premium returns to our stockholders that concludes our prepared remarks, operator, let's open the line to questions.

In order to ask a question you will need to press star one on your telephone to withdraw your question press the pound key given time constraints. Please limit yourself to one question and one follow up. Your first question comes from a line of Cedrik ARIA from Bank of America. Your line is open.

Hi, Thanks for taking my question and congratulations on the strong results on the accelerating sales outlook.

My first question is on your Q1 December quarter outlook, where do you think the added into Fiveg cycle. When we look at the strength that you're seeing in December.

Is this kind of the run rate business and began annualize from here does that growth.

Growth from here, just how much Nick Fiveg is fiveg contributing to December and how much runway is there to grow off of these quarterly levels.

Yes, Great question, well, let me, let me start by saying, we saw a bit of the fiveg ramp.

In Q4, and actually a larger part of that with our APAC customers.

And so far it's been going great. We have been winning business, we've been expedited expediting products.

The demand has been incredible and so we're really thrilled about that but it's also very very early in the cycle.

So our Q4 period, which accelerated rapidly towards the end of the quarter and brought momentum into Q1 or Q4 period was typically led by the APAC region.

As we move into our fiscal Q1, it's led by tier one customers.

And in both cases work very well balanced and well positioned.

In addition to that we round out with a great great set of place here and Aiotv and broad markets.

So really good strength thats moving into from Q4 and into Q1.

Again, very very early in the overall overall fiveg landscape.

Okay, and then my follow up given.

Given the delayed start at one of your large customers how should we think about the seasonality as as we go into calendar Q1 should we expect to see this strength sustained into calendar Q1 just.

Conceptually what visibility you have into Q1 and then if you have any color around 2021 that would also be very helpful. Thank you sure sure well as you see it coming off our Q4 guidance Q4 delivery, which was $100 million above consensus and 200 million sequentially just me.

Make sure we get that right now we go into Q4, we're guiding about 10% at the midpoint.

We feel comfortable with that its diversified across customer bases is certainly a couple of flagship players that are leading the charge, but we are working very quickly to get these products to the customer and we know that the demand is there so.

So we feel very good about our outlook and look forward to delivering more as we go forward.

Your next question comes from the line of Timothy Arcuri from you. Yes. Your line is open.

Thanks, a lot.

Im wondering Chris if you can give us an idea of what's assumed for the December guidance for broad markets.

And then I also had a follow up thanks.

Yes, so we definitely very pleased with what we see in our growth markets and just to talk maybe talk a little bit about September quarters right. It was approximately 31% of total revenue.

It was just shy of $300 million of revenue in the quarter, which is a new all time record for growth markets as Liam.

Just indicated as well it was up 30% sequentially, which is almost 70 million dollar of incremental revenue that we saw into the September quarter, and so we are back to double digit year over year growth in the September quarter.

In the December quarter sold to our Q1 of fiscal 21, we expect further sequential revenue growth in growth markets. So we will end up with a new all time high in the December quarter, and so that resonates into very very strong.

Double digit year over year growth for capital markets.

Enbrel markets the strength that we see is really across the board.

And of course, it's in part driven by some strong demands what I would wireless connectivity solutions supporting work from all play for them all learn from long haul.

Almost from on everything from home or from any place.

We also saw a really nice rebound in our industrial aiotv as well in our automotive business and we also have really good and great positive momentum in our cognitive audio business.

And then last one at least infrastructure business Super.

Supporting the build out of Fiveg networks, and so when you put it all together.

Broad markets business is doing really well all time records in September and guiding to an all time record in December.

Thanks, a lot Chris and then I guess my second question is on gross margin.

There's very little incremental margins dropping through year over year in September, but if I look at the December guidance groups you know it's like.

The drop here is not really much above what the overall.

Margin levels are and you're not too far away from the from the revenue the consumed in the financial model, but we're still 250 basis points below one.

Gross margin. So can you talk a little bit about what's going on there is it is it simply just mix. Thanks.

Yes first of all I'm pleased with the gross margin in the September quarter to 50.4 up 30 basis points sequentially and so we have been hinting at that quarter over quarter. We will continue to make steady progress further gross margin improvement and so we are guiding 50 25 to 50 75, so again.

Up sequentially into the December quarter keep in mind that we still have some headwinds as a result of COVID-19, with social distancing and extra cleaning and sanitation and some disruption in the supply chain here that is hitting us and so we expect over time to.

See further improvements that on the gross margin towards our target model of 53%.

Your next question comes from the line of Toshiya Hari from Goldman Sachs. Your line is open.

Hi, guys. Thanks for taking the question and congratulations on the strong results.

Liam how would you how would you characterize or assess inventory.

Both at Skyworks as well as at your customer base. Obviously, there is a big concern that some of your customers might be pulling in a little bit.

And any thoughts there I've got a quick follow up.

Yes, honestly, we were working our tails off that deliver we have customers that were we were late on a lot of orders.

Scrambling to get these parts out. So we are inventories are very low our dsos are down.

It has been a breakneck pace operationally to deliver into this great cycle.

So those have been the biggest challenges there were some I think further back.

We had some bumps with cobot issues and our own factories that.

Create a little bit of difficulty in supply chain I think the night, 90% of that is by US and we are well positioned to continue to bring up the topline, but we at this this Q4 and coming into Q1.

It's been very aggressive demand.

And you know a lot of that is unique to us and it may not be to the total market, but for the things that we do.

Great portfolio right now working on portfolio that Chris mentioned, but really catalysts, whether it's soon with video or peloton or browsing real estate on your phone.

The the move towards connectivity is real it's sticky it's going to stay with us.

And then in the Fiveg handset side, great position with the leaders in China.

With a tremendous amount of technology rich content gains crafted in house and then also some very compelling solutions with our largest customer again highly customized crafted in house that are just now moving out.

To the customer so it.

It's been a off we waited for this for a long time, we've invested in this for a long time, we've been talking about fiveg for quite a while and we were very articulate unclear about our ability our ability to win and Thats and Thats. What we are doing right now we're winning.

Got it thanks.

Thanks for that and then Chris I, just wanted to double click on gross margins.

Again, what we're not seeing a ton of.

Leverage here in the model.

Was hoping you could you could elaborate a little bit on sort of headwinds that you're seeing that sort of offsetting the increase in revenue is it customer mix is it mix between in sourced product versus outsource products as a co bid.

We're hearing wafer pricing might be going up a little bit just given the tightness and you think you can you can add there would be super helpful. Thank you.

Right that helps from a pricing point of view, it's business as usual, we don't see anything special there and so again the way we improve our gross margins is threefold, it's continuing to bring new high added value products to the markets.

Specialty as Fiveg is becoming a larger part of our portfolio, we do have a tailwind.

In addition to that of course, we continue to drive operational efficiencies, but as I pointed out.

COVID-19 of the pandemic that also mean efficiencies today, and I would own factories as well as into supply chain and the logistics.

And.

We believe that it's not going away quickly, but hopefully in a couple of quarters down the road, we will see some benefit from that as well and then yes. It is always mix and mix changes as you know brought markets has a higher gross margin.

We have to our mobile segments.

And in.

And definitely the mobile segment is going to grow a little bit faster into the December quarter. So when you put that altogether and again, we will continue to make further good progress improving gross margins.

Your next question comes from a line of Blayne Curtis from Barclays. Your line is open.

Hey, good afternoon and grants on the results.

Just wanted to go back to the prior question I just want to make sure I heard the answer correctly as you look into the December quarter, just some comments on whether you expect and grades to be up historically, that's been a down quarter for a lot of China, but obviously with fiveg and content and maybe up I just wanted to understand what you are seeing in December on the Android World.

We see increased across the board right in more while at all accounts in growth markets. At all accounts saw yes of course, the large customer will be up sequentially Samsung will be up sequentially key China customers will have you wish I when we will be up sequentially. There's one exception of course Thats why.

As you know.

Based on the new export restrictions, we are no longer allowed to ship past September 40, as a result of that is why we have revenue in Q4 was actually slightly below expectations.

Well known about 3% of revenue and so in the December guidance. We did not include any revenue for allowing despite the fact that more more recently, we did get unlimited license to ship certain products to while away, but we are still figuring it out we've discussed.

Which products, they need which products they want and so we did not include that.

Two I would guide for the December quarter.

Yes, Thanks, and then maybe.

Im sorry, I just wanted to add one more to that I think when you. When you look at the Android cycle that really kicked off in Q4, where I think the larger tier one is more of a December quarter play. So very good position in the Android, which will stay with us launched a little bit sooner in fiveg lot of great solutions. They are a lot of embedded mediatech play as well that.

That will continue to roll and then you have more at the December quarter being being led by the top players.

Thanks, and then maybe just a follow up on the September quarter, you Havent always beat by huge amount through the night beat I was just curious what you pointed to as the prize the most the upside in the December quarter.

Yes, yes, just really steep acceleration in Fiveg and also an incredible sticky set of opportunities and broad markets. The broad market business not only did it set a record for quarterly record, but it really had some incredible diversification with many many new customers and we're really.

Cited about that we have a whole set of green shoot opportunities that we consummated over the last couple of months and we'll continue to drive revenue for us into the future. So that was a.

Great benefit.

Some of those things when the pandemic as far as its been.

There's been some some opportunity that's come about and Thats one area that certainly benefited.

Your next question comes from the line of Chris Caso from Raymond James Your line is open.

Okay.

Chris case on your line is open.

Your next question comes from the line of Karl Ackerman from Cowen and company. Your line is open.

Good afternoon gentlemen.

Liam if I may go back to China handsets currently Wally has been impacted from us trade restrictions.

I know, it's difficult to handicap, but with the election tomorrow, there seems to be a growing investor interest.

And how you may position, if while we work to procure a smartphone components from your suppliers. So.

So how do you balance the enthusiasm you have for the order book versus making sure inventory across the supply chain remains balanced.

Sure well first of all while way as Chris indicated is a very very very small piece of our business right now is very small.

And we don't expect there to be any any upside going forward. However.

As Chris mentioned, we did get a license from commerce and there is a door opening potentially for more opportunities. We had a great position with while a few years ago. There were a number to customers. So we know how to work with them and they were a company that were more of a high end player appreciated the integration that we provided in the technologies that we provided so unfortunately.

The trade issues separated us and also separated some of our peers, but if that door opens up and were able to deliver again right right back at Theres Theres nothing lost but in the meantime meantime, we're moving forward, we're working with all the other players in China that we mentioned the Android ecosystem and others. So we feel like we're very well back.

Constant hedged on that if theres an opportunity thats, great. We know how to sell to that we know how to design in.

But we feel like a lot of that business has been redistributed and we've been able to catch it on the other end. So we're not too concerned about it but we'll certainly stay vigilant if opportunities emerge.

Understood. Thank you Chris It for my follow up if I may.

No its not usually your practice to comment beyond a quarter, but it appears your mobile business will grow high single digits in calendar 2020, when overall units should decline double digits, which.

Expectations at five new smartphone should increase from roughly 200 million phones. This year to perhaps 500 million next year.

Is there a fundamental reason why your content, perhaps could not be as significant next year. Thank you.

No.

I'm not going to really comment on the units I mean, we definitely see strong adoption of Fiveg.

But we will see what what the units how it all plays out on the flip side, Yes, we do have very strong content increase in content gain as fiveg being introduced into phones is adding a lot more complexity is adding new bands, we saw being layered on top of.

Existing threeg Fourg technology and that is a lot of complexity and that's again, what Liam has been indicating we've been investing into that for many years.

We have our PPA is our filter business our capability integrate all of that into our integrated solutions and Thats, what we see.

Really a big opportunity for Skyworks as more and more fiveg adoption will happen over the next couple of years.

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

Thanks, a lot Liam is very clear from our tour down of your largest customers flow and Youve really knocked the ball Park on this you had 10 modules in the current version unless you get six I know some of the big content increases you're experiencing there and probably in China, given 10 mobiles requirements or have pulled power amplifiers into lids is traditionally we.

You only jurisdiction, which you dominate.

Question is given China mobile's requirements for many more bands were several more bands and we and most of the industry expected pulling in what I would consider to be out period fiveg content into the current period and inclusion of greater functionality. This broadcast mimo in DC et cetera.

I'd like to get your opinion about where we're going to see the growth next year and I'm sure. The unit volume game is going to work everybody's favorite we're going to see more phones.

Using fiveg next year, but.

Maybe you could help us out with what you think the content increase would be because it sounds like you're capturing a lot of that in this glut of fiveg phones, both in Asia and in the flagship phones coming out this year and I'm just kind of scratching my head what we can expect from a content point of view.

In the next year or two and then I have a follow up please.

Sure Thats a good question well as much as we're encouraged by the results that we've been putting forth and the content that we gain theres. So much more out there that are true.

Tremendous opportunities that we haven't captured new solutions that we are inventing right now that are going to be very different than what we have today.

We're under the Hood with all the customers and all the players and one of the things that we do we look we look and listen to see where the problems are how can we make our parts better how can we make skype by better.

We continue to do that and that's the way we gain our cost and a lot of it is just really getting in there under the hood shoulder to shoulder with the best engineers in the world from Skyworks in our customers and we try to figure it out together and oftentimes it solution. This point so.

So I think the technologies that we're seeing now first of all we all know everybody on this on this call knows that this is the early innings of Fiveg earlier.

Early innings, and we think Fiveg today in 2021, and 2020 is going to be different in two or three years and will be 60. So there's a lot of work to be done continuous work our customers are constantly pushing us they want faster they want more data they want lower current consumption.

And that that we all that technology will continues to turn so as much as were you happy with what we've been able to do so far there are just so much more that we can do.

So I feel very comfortable that early innings in fiveg, you're getting and read on that now from US. We can do a lot better. We think the adoption is going to go up faster and faster. We think the usage cases are going to continue to grow the same way they didnt threeg and fourg.

So I'm not I'm not too concerned about I think what for US it's about investing in the right markets. It's about raising our technology bar and then executing with our customers. Those are the key key elements for us at this point.

Okay that kind of meshes with my second question because one thing is we did pull from this is.

And your largest customers flown was a stunning increase in the complexity, especially antenna system that went from six antennas to 13 on this phone which.

Yes, I know and I saw that they pulled in a lot more antenna switching control content from Skyworks, which is I know you play that before but it wasn't a huge area for you.

And a lot of the stuff is being pulled into modules like so doesn't this plane to the gross margin because there's so many different ways. This could go if you look at what ultra wideband is doing in the phones et cetera, the throwing so much into the handset side of it.

Is it more of a share gain from a module players' point of view I would say you inquiry will probably but predominantly because of phones getting so much more complicated than going so many directions.

Turning to you guys to really just started integrating more of this in is that were not to the content, but also the opportunity for gross margin starts to play out given this kind of a system on module. This point versus just RF components. Thanks, Yeah, I agree completely add with that comment I think we're getting into a world now or things are getting.

Very complex.

You can look at it from from band Count and Ken account Trx transmit receive very very complex and our customers have a tremendous job on their end. So the burden on on con players like Skyworks is let's go solve this lets go work and to try to configure in a platform and an integrated solution is just much much better for the cost of its difficult but.

The suppliers, but we are getting paid for that.

And I think it's a unique it's a unique set of technologies that we're seeing in Fiveg, we know there's more to do.

It's one of the reasons why we have been an investor in our own fabs, whether its bar, whether its Tc saw whether its BJ capacity and packaging all of these things all bring bring us the opportunity to deliver what our customers want uniquely each one having their own needs in satisfying those at every point. So there is a lot to do we love doing it and.

Again early innings, but theres plenty of upside from here that we got to just go on.

Your next question comes from the line of Ambrish Srivastava from BMO. Your line is open.

Hi, Thank you very much excuse me sorry, Chris you seem to be especially popular today, so I'm going to stick with you as well.

Scratching my head a little bit on the gross margin side.

If I look back at the last time, you had a billion dollar in DRAM.

You had a 51.2% gross margin.

The quarter right that September 18.

The broad market business was a little bit smaller.

So and then you talked about the.

Positives that.

The headwinds and the Tailwinds.

So on the.

Headwind.

You mentioned included 19 cost and some other inefficiencies that youre working to remove and then the positives.

Better.

Hi, Rick Thats products, so that should be incremental lead positive for gross margin as well as your your broad market business is growing now it should close to $300 billion Mark next quarter.

So.

Is that.

Fair to assume that the corporate related costs is about a 100, bips and thats kind of a headwind at the margin is facing and once we get past that just a couple of quarters. Then we should see gross margins come back to more in line with historical and then given that broad markets is getting bigger.

That should help gross margin to get to your 52% target.

When you think about it.

Right way on Verizon, So I've talked about that before he has to call. It 19 headwinds into 75 200 basis points range.

And but.

But it will come down over time here and so we're working it hard every quarter and so that is definitely upside from that and then you listen all the other elements that.

That we see as well that gives us conviction that overtime, we will continue to further improve the gross margin.

Okay and then my quick follow up is really again on the broad markets business.

Could you just help us understand how is the business looking.

More in terms of where you're seeing the growth opportunities and it's a 1.2 billion plus.

Good bit about rate fairly large business.

And how does it change.

Change from two years ago, maybe its a question too.

Yes, two or three years ago, a lot of it was pretty narrow it was mainly low end connections GPS early.

Early early lifeline, some infrastructure and if you look at the portfolio today is really diversified we've got players like rain Netgear Amazon So no.

Of course, one of our larger customers as a lot of work in broad markets.

Names like Google, we have Facebook really cool applications, we have an audio business that had a great quarter. Thank.

Thinking about gaming technologies like that with good margins as well. So it's not you know some of these products.

Consumer oriented the technologies that we bring or not we've.

We've actually grown the business in automotive and defense.

And with more IP partners like they become that we mentioned.

Get access points and routers with wife by six coming in right now some of that.

The new applications that weve seen through through this difficult pandemic and if you're going to be quite sticky. When you look at whether it's from home or work from anywhere.

We're seeing those use cases continue to grow. So so we think that that is a move up that is sustainable. We don't think that that's a quarterly bump we think thats a sustainable.

And invariably we're going to start to see more more wide area connection with fiveg connecting some of these devices. So if you look at broad markets today much of the connectivity is Wi Fi Bluetooth GPS.

We still some customers that are adopting adopting fiveg, but overtime I think you're going to see fiveg converts is going beyond the handset and then basically spreading into a number of applications in the car that factory some of the consumer options as well and we're extremely well positioned there I think thats one of the unique things about skyworks, we can take the connectivity from low data rate.

Very very high data rate and we can customize it by application so.

As an important part and again the customer reach in broad markets continues to extend will report more next quarter. If we look at more design wins in north more players that we bring in but it is definitely stepping up on on its growth path and we're really happy to see that.

Your next question comes from the line of Chris Caso from Raymond James Your line is open.

Yes. Thank you.

I guess first question would be regarding.

Use of cash and obviously that cash flow is increasing given what's happening now any changes in and your approach to that.

On what your plans are for for the cash flow.

No no changes there and I mean, we continue to.

Deliver very strong free cash flow and we continue to return.

All of that back to the shareholders of combination of our dividend program.

As well as our share buyback program and.

So we've been very active from a buyback point of view and continue to be active there.

That's still leaves a billion.

Cash on the balance sheet with no doubt.

So this cannot be from an M&A point of view.

Got it thank you.

Just as a follow up with.

What you're seeing in China, and given that the inability of wawa to procure components, maybe you could talk a little bit about what.

What you're seeing into those customers and I get it right to assume that some of the strength you're seeing at at at Opel Vivo shall me is I'm kind of stepping in and filling the void. If if why you still unable to get components and that continues as we go into next year.

Yes, Chris Thats off some of what we're seeing so obviously, we're agnostic to basebands the customers we want to win with everybody. So while we had been a major customer for us for a while for a long while and we just indicated earlier.

Q when I hear that they have obviously gotten a lot smaller to the trade and it's great. If they come back we are ready to go but what we what we are seeing is a redistribution of that technology, obviously, the China market still love cellphones.

Global market does as well and were able to fortunately with some changes in our design and certain things that we need to do that.

Calibrate for the customer we've been able to move a lot of that technology to the opposed the those to the Japanese even Samsung.

Well and if things change at Wawa, that's fine that's great we'll step right in and work with them. We have no problem with that there is no customer issue with this more trade related.

But I think that the.

The need and the desire to have the Fiveg phone is very real everywhere and certainly we want to sort of China. The best we can.

Your final question comes from a line of Craig Ellis from B. Riley FBR. Your line is open.

Thanks, very much for sneaking it in and congratulations on the strong revenues guidance.

So I hopped on a little bit late so apologies. If this has already been asked but.

Jim and Chris can you provide some color on that relative strength that you would expect in the business going into the fiscal first quarter.

And then the follow up to that is.

How should we think about.

The second quarter could perform relative to normal seasonality and what would you characterize normal seasonality out in this environment.

Sure sure a good question as we had said earlier in the call. We had a really strong acceleration of design wins that we've been working on for years and investing in and start to really see that lift off in the back half of Q4 as well.

Belted in a $200 million sequential gain $100 million beat the consensus a lot of momentum.

As we enter Q1, our current quarter, we continue to see that.

We've got some great catalyst with a leading player in the market right now with some incredible technologies that are just being launched.

The China market adopted a little bit earlier, and weve been shipping well to that ecosystem Oppo vivo Xiaomi also partnering up with Mediatek to try to get that full full up that full pie of opportunity across eight into.

And doing very well with that so our factories humming our teams are executing.

On the inventories really lean right now we're shipping overnight in many cases with our customers. So that's kind of where we see it so.

When we look at the March quarter, it's a little bit too early to give you a guide on that but saw.

If you just look at where we are.

200 million sequential we got it up 10% for Q1, we feel pretty good about that position.

We also recognize and I think we've mentioned this earlier, but it's true. This is these are the early innings of hi, Keith This is really the first.

Quarter, or so where are these technologies are available in many cases in the U.S., there's still some some some products that people want to get yet.

And that's going to happen. So there is a lot more to go.

And the complexity is going to continue to move up and the opportunity is going to continue to move up and the adoption rate, which is extremely low right now it's going to move higher and higher year over year. So there's a lot to do in the future and we feel lucky production really good performance here now, but we have a lot more to go as we as we move into 2021.

Yes, that's really helpful. Liam and I agree that we're in the very early innings in the follow up question relates to that so broad markets is annualizing at a billion dollars far faster than I thought so good for you and the team with Fiveg smartphone units I think based on most industry observers forecasts are likely to increase.

Two acts in 2021, and then doing the same thing in 2022.

Is it possible for a broad markets to pull in either additional programs in existing end markets for new end markets with new programs for new customers. So that it could keep pace and keep the same level of revenue contribution on a relative basis work.

Over the next couple of years would we expect mix to swing significantly towards integrated mobile. Thank you.

Yes, Thats a great great question, if the numbers this quarter actually 30% sequentially. So had some really good balance and if you look at what the market's bringing what now there is a tremendous amount of Wi Fi opportunity GPS opportunity.

And so some cellular opportunity that is going into broad market. So I think you got two distinct portfolios that share a common supply chain.

And often can share a common technology that we can we can drive so over the long term, we want to be the connectivity leader in any application that we can take that application, whether it's a gaming headset or it's a cellular infrastructure or whether it's in defense or automotive all of those end markets really are targets for us.

And we could certainly do better but we are pleased with what we've been able to do in the last quarter or two and look forward to a great 2021.

Ladies and gentlemen that concludes today's question and answer session ill 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 talking with you at upcoming conferences during the quarter take care.

Ladies and gentlemen that does conclude today's conference call and we thank you for participating.