Q2 2021 Qorvo Inc Earnings Call

Good day and welcome to the core incorporated Q2 2021 Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Douglas Delieto, Vice President of Investor Relations. Please go ahead Sir.

Thanks very much.

Everybody and welcome to core goods fiscal 2021 second quarter earnings Conference call.

This call will include forward looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We courage you to review the Safe Harbor statement contained in the earnings release published today as well as the risk factors associated with our business in our annual report on form 10-K filed with the US you see because these risk factors may affect.

Our operations and financial results.

In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze it and that's not a woman.

The impact of certain non cash expenses or other items that may obscure trends in our underlying performance.

During our call our comments and comparisons to income statement items will be based primarily on non-GAAP results.

Leave for consolidation of GAAP to non-GAAP financial measures. Please refer to our earnings release issued earlier today is available on our website at <unk> dot com under investors.

Today are Bob Rucker, <unk>, President and CEO, Mark Murphy, Chief Financial Officer, James Klein, President of <unk> infrastructure, and defense products group and our Christian President of Forgoes products group as well as other members of the cargo as management team and with that I'll turn it over to Bob.

Thank you Darren and thanks to everyone for joining our call in our second fiscal quarter corridor outperformed our updated guidance on revenue gross margin and Dps.

<unk> was broad based across customers and supported by multi year technology upgrade cycles.

Businesses had strong year over year growth supported by new product launches hygiene and wash six.

In mobile products the transition to Fiveg is fueling a shift from discrete products.

Oh, you content, including integrated modules in flagship and mass market Fiveg smartphones.

Driving growth.

Although it's leveraging our deep technology portfolio.

Pursuing opportunities throughout the front end.

In total in the main pass.

Most of the past.

Plus the frequency spectrum.

But the antenna introduction of new brands and then combination is creating significant design challenges for yes.

Well those shows these challenges with a range of products, including an expanding portfolio advanced cancers in.

In the September quarter, we increased volume shipments over Bob based antenna pledged to solutions to multiple tier one OEM smartphone manufacturers in.

Uh huh.

Well, there's hardly integrated pharmacy solutions, it seems little bit.

Hi, Dan and ultra high band modules.

Resigned activity has been robust.

We expect our main solutions to grow across customers as demand for integrated solutions expands through Wow I've only mid.

Mid tier.

September we expanded she mentioned her complete main pass solutions across multiple tier one Android smartphone Oems.

University Huh.

The option of dual tranche <unk> architectures is creating new requirements for integrated transmit and receive filters.

This is especially meaningful to kill them because our good connectivity modules leverage many other technology advantages we enjoy in the main.

Including how to feel much pay multiplexing.

We said previously we anticipate approximately 250 million Sergey sports fans in calendar 20.

Well that number approximately doubling in 2021 and that remains our view.

And ultra wide band, we see adoption in smartphones as the catalyst for a broad ecosystem of connected devices.

Tell me the Bluetooth smart change will be the hub connecting to multiple performs.

No would you will enhance how we interact with our media lighting appliances automobiles digital wallets and a range of other applications.

The home.

So also transforms how relocate equipment and production pieces on the factory floor, even how we interact with Telehandlers.

In the September quarter, we acquired seven hogs labs, a pioneer and ultra wide band software and system solutions to enhance our capabilities and U.W.B. solutions and accelerate adoption across mobile.

In automotive ecosystems.

The combination of our hardware technology with their software expertise positions, causing it to accelerate the development of broad ultra wideband ecosystem.

Expected to reach billions of devices in the coming years.

Southern hubs brings a highly skilled team with vast experience in U.W.B. applications and a portfolio of intellectual property.

We're excited to welcome them according to build on their success.

Right right and ultra wide band.

We also signed a partnership with a leading design services company superconductivity to develop advanced you WD solutions and assist customers in the creation of breakthrough applications leveraging the unique capabilities of U.W. Baird.

The one area applications like extra tracking close neighbours long range low beta waves productivity body's cellular biopsies, we offer a broad portfolio of discrete solutions as well as highly integrated modules for <unk>, yeah and.

Never Dan G. through a partnership with Nordic semiconductor.

In wash logistics, we enjoyed broad based content games across both businesses in support of the leading suppliers of smartphones tablets mesh networks gateways smart speakers and virtual reality headsets.

Before turning to RVP Clearvale was recently granted a license to shift certain mobile products to Ireland.

Our December guidance currently contemplates no walk away revenue as we work with the customer so I understand the impacts on the license.

Now turning to RTP.

Wireless connectivity revenue more than doubled year over year was sorry revenue was broad based across products and customers and supported by the layout of why five six.

Customer demand for front end modules and bar filters was especially strong and support a CPG and retail applications.

Looking more closely at content opportunities our shipments to the leading connected home platform provider included wash expense.

Oh filters and Multiprotocol efficiencies.

Also for next generation Y. side Gateway, we were awarded the entire or a bomb and superior.

The leading north American multiple system, operator, or MSO included the 2.5, and five gigahertz times and a variety of filter products.

Absolutely see recently approved new spectrum for wildfire fixed eat into those actively supporting leading Oems and the design sixtyv platforms.

That's probably six even continuing to increase the capacity and lower the latency of next generation platforms, creating a new class of products and applications.

In defense and aerospace.

<unk> was the exclusive orest recipient of the multiyear U.S. government ship program, recognizing our leadership in advanced semiconductor packaging.

This program will continue to advance the state New York in packaging targeted towards a broad broad range of applications.

Also note we advanced the performance of the sensed phased radars with 151 2.9 to 3.5 gigahertz power amplifier using our industry leading game process.

In power management growth was driven by the transition of solid state storage and client devices, such as laptops and enterprise computing and data center demand.

Demand has also been strong for motor control products.

Brushless Motor technology continues to gain share in a broad range of consumer products.

Our programmable power management business is performing very well across diverse markets as we help customers enhance brought up performance reduced rate improved reliability and bring markets bring products to market faster.

In automotive we began sampling a second generation automotive cellular vito effects from that integrates the P.I. LNA switch and bar coexistence filter to solve critical system level challenges.

In wireless infrastructure, we were awarded multiple design wins in support of Fiveg massive mimo deployments, expanding our customer base for Dan amplifiers within that we commenced shipments of Dan amplifiers supported massive Mimo C band base station deployments first in the U.S. and in all the regions globally.

We also launched hard performance bar filters for band 41, Fiveg small cells and repeaters jump enable fiveg and rightfully so existence.

Next calendar year, we see we see continued year over year growth on global Fiveg deployments the deployment of Fourg base stations and upgrade to Fiveg smartphones are expected to span multiple years.

RTP.

Fiveg growth drivers include content gains in small cells, many voices and Dan P A's and massive mimo and the adoption of JMP A's and macro base station deployments.

Before handing the call over to Mark.

Thanks to the team for a standout performance in a tough environment.

Our design teams are releasing best in class products are up.

Petition engineering and sales teams are engaging closely with customers to solve their most complex RF challenges and our global operations team continues to excel.

I'm extremely proud of the team for their outstanding efforts and ongoing commitment to our customer success and with that.

Yeah, I'll hand, the call over to Mark.

Thanks, Bob and good afternoon, everyone.

Carbos revenue for the fiscal 21 second quarter was $1.060 billion $45 million above the midpoint of our updated guidance provided on September eight.

Following our updated guidance customer demand continued to strengthen and we were able to support some of that demand within the quarter.

Mobile products revenue of $754 million exceeded our expectations driven by seasonal demand the facts and the ramp of Fiveg smartphones.

Infrastructure and defense products revenue was $306 million was down sequentially as expected but.

But up strongly year over year and supportive of the ongoing build out of Fiveg networks and the deployment of like five six.

As a reminder, our fiscal year 2021.

Is a 53 week fiscal year and our September quarter was a 14 week quarter versus a typical 13 week quarter.

Our last 14 week quarter occurred in the period ended October 32015 during our fiscal 16, which has Alaska has 53 week fiscal year reported.

Non-GAAP gross margin in the second quarter was 51.7%.

Which was above our updated guidance due to better than expected mix and favorable manufacturing cost variances.

Our efforts to improve the portfolio drives productivity and carefully manage inventories continue to yield favorable results.

Non-GAAP operating expenses in the second quarter were $219 million higher sequentially on the additional week incentive compensation and other labor costs.

Non-GAAP net income in the second quarter was $282 million and diluted earnings per share of $2.43 was 29 cents above our updated September guidance.

Cash flow from operations in the September quarter was $281 million in Capex was $44 million, yielding free cash flow of $237 million.

We repurchased $105 million of shares during the quarter.

During the quarter, we took steps to reduce our cost of debt and further improve our financial flexibility.

We renewed our unsecured credit facility at more favorable terms and extended it to 2025.

We also increased our term loan to $200 million and raised $700 million through a new issue of unsecured notes maturing in 2031.

After the quarter closed these proceeds in cash on hand were used to pay down our notes maturing in 2026.

Today, our debt balances under 1.8 billion.

And cash is approximately 1.1 billion.

Our leverage remains low our revolver as untapped.

The weighted average maturity of our debt is 2029 and.

And we have no material near term maturities.

With our financial flexibility, we can focus on advancing technology supporting customers and making prudent organic and inorganic investments that support long term earnings and free cash flow growth.

To that end, we acquired seven Hodges labs in the second quarter to support the ongoing development and adoption of our ultra wide band products and solutions.

This acquisition enhances corvo software capabilities and is an important step in realizing the potential of you WBB.

We see a wide array of applications emerging with ultra wide band technology and have significant customer engagement on the design of new products and solutions.

We expect Q WB to contribute meaningfully to corvo overtime.

Turning to our current quarter outlook.

We expect revenue of approximately $1.060 billion, plus or minus $15 million.

Non-GAAP gross margin of approximately 52.5%.

And non-GAAP diluted earnings per share of $2.65 at the midpoint of guidance.

Our December quarter revenue outlook reflects seasonal demand effects and demand for multi year technology upgrade cycles.

And mobile demand for Fiveg is adding RF complexity and driving higher content and we've put our cash mobile revenue in the current quarter to be approximately $790 million.

We suspended shipments to walk away in mid September and accordance with department of Commerce regulations and.

And although weve sense received a license for certain mobile products, we've assumed no sales to walk away and our current outlook.

And I repeat we project revenue of approximately $270 million in the current quarter, reflecting the timing of base station deployments.

We forecast I EPA to sustain strong double digit year over year growth through the balance of the fiscal year with it infrastructure demand picking up in the March quarter.

We expect continued strength in defense fly Fi and power management due to durable underlying trends.

Well considerable economic uncertainty remains that the ongoing effects as pandemic. Currently we expect end market demand to support full fiscal year double digit revenue growth for core of.

Our December quarter gross margin guide of approximately 52.5% reflects volume growth.

And ongoing efforts to improve the quality and efficiency of our business.

Specifically, we've invested early inadequately and the technologies that market's need focused our product portfolio and where we can best serve customers gain productivity across our operations.

And reduced our capital intensity.

We believe our work to keep our inventories and cost structure low will help us sustain over 50% gross margin through the balance of the year.

Fiscal year.

Non-GAAP operating expenses are projected to decrease in the December quarter to around $205 million as we return to a normal fiscal quarter length and other personnel costs decrease.

We expect other expense to decrease to $120 million on lower net interest costs.

We project, our current quarter and full year non-GAAP tax rate to be at or below 8%.

We still project capital expenditures to remain below $200 million in fiscal 21 and focused on areas that advanced a differentiated position for carbo does that serve customer needs such as bar and Gan.

Currently we expect free.

Free cash flow to be approximately $900 million this fiscal year.

As of September quarter results, and our December quarter outlook show.

Corvel continues to operate well through a challenging period, while serving customers in fiveg infrastructure and smartphones like by Aiotv defense and other growth markets.

In closing I'd like to join Bob and thanking Corvel employees for their continued efforts during this time.

Now I'll turn the call back over to the operator for questions.

Thank you say if he would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

And it's been ask that you limit yourself to one initial question and one follow up.

Again press Star one to ask a question.

Take our first question from Karl Ackerman, the Cowen and company.

Good afternoon gentlemen.

Very solid results.

I guess from my [noise].

For my first question, you know I know, you're having a record year Friday, p. and it's great to see be sustained margin improvement.

I know you don't providing a quantitative outlook beyond one quarter, but I was hoping you could talk about the opportunities you have in RTP next year, and perhaps whether you think that segment can grow year over year.

Yeah. Carl this is James Thanks for the question.

I think the underlying trends for the business or where we said they've been for the last several quarters we've.

We've got a great position in Fiveg with the rollout of massive mimo with the adoption again.

And the adoption of higher frequencies I think those are all very good trends for us and we've got a great momentum coming out of this first year of deployments predominantly in China.

Why Fivesix continues to roll out we've had a string of record quarters for that part of the business and again I expect that continue and as Bob mentioned, we see Sixsix come in right at the end of that a string of results and it really allows allows for another opportunity to update Uh huh.

Headwear.

And then our defense business just continues to provide a very solid base to the business was really some of the same underlying trends that we've seen before and with the adoption again and phased array antenna is coming to play in that market. So overall I think we're positioned very well for the business to continue on this 10 to 15.

Pursuant to a trend that we've been on for several years.

Very helpful and if I may for my follow up you know you have a record amount of cash on the balance sheet and you're going to generate record free cash flow this year you're.

Your recent capital allocation priorities have centered on IP focused M&A.

What are your thoughts on buybacks and or perhaps a dividend given your robust multiyear outlook. Thank you.

[noise] Karl this is mark add no no change to our capital allocation message.

Yeah, We Howard County primary source of capital return is then share repurchase which as you can see we did about 44% of our free cash flow this quarter.

If you remember we were we were since you're doing it updated guide and layer on us on the capital markets. We were hit we had periods of the quarter, we were unable to repurchase outside of a tenbfive one so.

But yeah, we still we still view share repurchases as as our capital return.

As source to your broader question on on.

Our capital returns overall, we've yeah I want to point out that we reached a milestone as this quarter and that the last 12 months free cash flow margin of the business reached about 25%.

Which is noteworthy.

Noteworthy in our view and Weve generated about $860 million of free cash over the last 12 months.

Weve deployed about $700 million of that two acquisitions, and we've repurchased over 400 million.

Dollars' worth of stock. So we've we've deployed 1.1 billion on an 860 million of free cash and then the last six quarters, we deployed even more we've we've we've.

We've generated 1.2 billion of cash we bought about $1 billion worth of companies.

And weve repurchased about $700 million worth of stock and since inception, we've returned to shareholders 113%.

Of our free cash flow or $3.1 billion at an average price of $63. So so weve had a successful.

Capital return plan and.

We continue to look at acquisitions, we've we've done five now in the in the past six quarters.

We continue to look at where it makes sense and markets customers technology as you've mentioned, we've been focused on bolt ons.

Which we've done two bolt ons.

For James as a business and technology additions, which we've done three of those and.

We're feeling very good about what we've done in the capital is deployed and have a lot of confidence going forward I'm of the five that we've done over the past year and a half.

We feel very strongly they serve an important and growing markets, we've been able to integrate them very quickly and the teams are driving by saying corbo.

And they are performing at or better than expected.

And then finally were met you can see from the seven hugs we're investing.

Any any assets, we've we've acquired.

So.

So feeling good about both deploying capital Inorganically and then feel our capital return has been strong to shareholders.

Thank you we'll take our next question from Toshiya Hari with Goldman Sachs.

Hi, guys. Thanks for taking my question and congratulations on the very strong results I have two as well for my first question I wanted to ask on the ultra wideband opportunity long term.

Mark I think it was you you talked about contribution from this business potentially being meaningful over the long run.

Just just for context, how big could this business be over the next call. It two to three years.

As a percentage of cargos revenue.

And how are you thinking about the relative size.

Of of revenue contribution between mobile I. OTN automotive and then I've got a quick follow up thanks.

Yeah. Thanks, Trisha this is Eric just to.

I couldn't ultra wide band, how big it could be we haven't really said you know public numbers from the internal revenue for ultra wideband might be but as you know there's very few players in the area in the Delaware team that we've acquired really pioneered the latest version of ultra broadband impulse radio type, which is what gives us the capability to proximity awareness and interest.

Navigation and so forth. So we see those as being the key you know real opportunities for ultra wideband going forward and as Mark said, we think that proliferation in the mobile phone will become sort of the infrastructure. The hogs for many many applications not consumer Aiotv smart home of course automotive.

You will access your car fleet from your phone and even in industrial energy applications as well, though there will be opportunities. There. So it's just a very target rich environment and you know we have said that we expect within four years through kind of encounter 24, it's somewhere between two and 4 billion units again very Oh.

A limited number of the people supplying that market. We think we have the broadest approach to the solution and we have not.

The ability to to not only served.

Served the mobile phone, but all the accessories to talk to them on a phone as well as automotive and all the industrial I don't see verticals. So.

So we're really excited about the capability and the growth prospects for the business for sure.

Oh sure as far as Oh, T. revenues, and they're very meaningful, but we have not broken those out so but it is sizable and growing very nicely.

I'm very pleased with that and our automotive business today is reasonable size, but also growing very nicely and should grow substantially over the next few years.

Got it thanks for that and then Mark as my follow up on gross margins great job here, and then I guess into the December quarter, you're guiding margins.

Margins I think up 80 basis points sequentially, despite revenue being down what should be a headwind for for for mix and what are some of the puts and takes in terms of gross margins in the quarter and I guess more importantly, going forward I think you talked about.

Sustaining 50% or higher in the back half, but when you think about gross margins on a multiyear basis.

Where's the ceiling or what was the potential for corvel given given some of the initiatives of initiatives in place. Thank you.

Yeah, So toshiba as it relates to the December quarter.

Gross margin as you mentioned or we're forecasting 52.5, so 80 basis points up you're correct in that and we've got an increased mobile mix, but you know there are many forms of mix one of which is product mix.

So we've got some some favorability there about half of that.

80 basis points is actually a mix.

Mix effects.

The other half is manufacturing costs.

Continued it to be a tailwind for us and just an outstanding.

Outstanding performance by the Ops team, we've got we've got higher volumes of course, which is helping us on absorption.

But we've also had very good test yields on which we forecast to improve and then we've had excellent spend control and then.

Yeah, and all these things has have been.

Being contributing two weeks, we expect that to continue to help us in the December quarter census, since I am talking before I talk to a.

Longer term margin trend Toshi I I'll mention that we do expect as as you've seen our business sometimes.

We do expect gross margins to decline actually in them in the March quarter. Some.

Some of that will be mix effects.

We expect lower volumes in the March quarter.

So we'll have some absorption effects and then.

Yes, and so on some other other factors and we expect gross margins to go down about a 150 basis points or so.

From from the third quarter as the fourth quarter.

Longer term, we continue yeah, yeah, Weve, it's taken US a number of years to two I'm, sorry to get things aligned in the company and you.

You know I would I would go back to the merger.

Where yeah, there was it a recognition that we needed to get to the tech not the best in class technologies and the ability to scale them to serve what was going to be a multi year technology trend and we're here so.

So you know it it started from efforts to.

Invest in the right technologies, we had several years of working on the right portfolio products.

And then we also had several years of getting the operations in order and driving productivity Rightsizing the footprint and then being very diligent or more circumspect about capital spend which continues to trend down as a percent of sales weve been able to reduce our cap on.

And C.

So a a multi disciplined effort within the company and we're going to continue to do those things we still have.

Rome, and the Fab network factory network to to expand volumes. So we could still get better absorption Paul and his team are doing a remarkable job on productivity.

On driving still doing six to eight inch conversions and Barbara.

Four to six inch.

In Ghana.

Micro Bob has been introduced and is growing as a share of our products and.

And again excellent job on cycle times spend control on a raft of other productivity projects. So and then finally, we're leveraging our supply chain partners that are so when you add all those things premium technology portfolio.

Active active product portfolio management.

On driving productivity throughout the Oregon, then reducing the capital intensity that business, we think were going to be able to sustain or expand gross margins as we go forward.

Beyond fiscal 2001.

Thank you for the details Mark.

Thank you we'll take our next question from Bill Peterson with JP Morgan.

Yeah, Hi, Thanks for taking the question and nice job on the quarterly execution and guide thanks.

I'd like to try to understand where you saw upside in September at the time you Preannounce you cited better smartphone demand you call it pretty broad based but that it appears that come in better than expectations I guess, how broader cross is because the six major smartphone customers you have including walk away or do you see the upside there I think you also saw a little bit upside of 90 p. relative to your expectation.

And I guess looking at December compared to your prior view of sort of somewhat flattish and now you're calling for some nice mobile growth, what's what's driving that upside relative to your prior view is that coming from and I guess your Android still sequentially increasing like it did in September if you can help us understand the upside that'd be great.

Thanks, Bill just Bob and I appreciate your questions as far as the upside after we.

Dave.

The guidance in early September it was broad based but it was not Wally.

I've said that I think a couple other public forums and was broad based across our owner five customers that you said the big six so while he was not one of them.

During that period, we saw a little bit of upside in Argentina, as James pointed out that our Wi Fi business is doing extremely well and that was a little bit of that in alumina defense little bit here and there, but overall the business is running extremely well and our operations team did a good job of keeping up with so.

Some of that demand so we're pleased with that.

Eric do you want to take the second part Phil's question looking into December and that strength, it's again not walk away.

Those who says but other than that it's a it's really pretty broad based across Android as well as our last but also with an Android you know China is still continuing to look very strong we're still in the very early innings of the fiveg rollout and there's a lot of subs there so.

So it's it's really fairly fairly broad based in the current view.

Yeah, Thanks for that and I guess, maybe the second question for James.

Yes, and I think earlier, you said that the Fiveg infrastructure should start to improve after December but I guess for the composite business, assuming you have better visibility across areas like defense and longer term opportunities how should we think about the season seasonality in that business.

Seem wife, I still sustains into the first half of next year based off work from home trends and other factors just trying to get a feel for how you see that business trending here in the next couple of quarters.

Yeah. Thanks for the question Bill you know as Mark said last quarter and I think we're tracking pretty close to that you will see us a you know Q3 have already said to 70, I think Q4 will.

Very similar to the Mark to the rings that Mark talked about last quarter, and then we'll see that growth start back in a in Q1 of next fiscal year.

And as I said before I think the underlying markets really support our ability to grow at a you know 10% to 15% in you know perhaps somewhere in the high range that we will see we had an absolutely great first half if you look at our first half of this year compared to the same period last year, we grew 55%.

And a year over year growth rate for the quarter were guiding now is about 30%. So we've got some very very nice trends grown up going on the business, We've got great technology right.

Really really strong partnerships with our customers. So you know I I think we're going to we're going to go through some lumpiness with the deployment of Fiveg and then it's going to pick right back up as we go into a into our fourth quarter and into the first part of our F Y 22.

Thanks.

Thank you we'll take our next question from the thick Orient with Banc of America Securities.

Hi, Thanks for taking my questions and congratulations on the strong results first question I'm curious what your sense is of the sense true off a fiveg smartphones across your customer base and you know what what that says about seasonality for the March quarter. You know a part of me says that you had in the early stages of Fiveg.

With that and you know marched the fiveg trend and content gains can continue so that's hard to argue for perhaps a more measured seasonality going into March you know down eight 9%.

But then you had such a strong second half on that maybe it could be more traditional seasonality down you know something in the mid teens I'm just curious what side are you leaning towards.

And just conceptually what what is your sense of central and Fiveg smartphones.

Yeah Vik, it's it's mark Yeah, we're not going to give detailed guidance on March but maybe make a couple of comments here I think the most important thing is that we believe that technology upgrade cycle for Fiveg is multi year and both handsets and infrastructure. So.

And that applies to broader cut cut activity trends as well, which we think are durable so, but but there is a lot of uncertainty.

Still on the broader market.

You know on the rate and pace of the rollout and maybe in the immediate term and then and then of course, you've got the associated effects of the pandemic that global economic recovery.

And other factors.

I would add that yeah that does that pick up in fiveg and work from home.

And other demand factors are actually straining parts of the of the supply chain and as you said, we do need to yeah, we need to watch sell through I mean, Fortunately for us our inventories are are good and our.

And we've also got a.

The supply chain inventories are lane.

And we're focused on doing everything we can to meet meet customer needs, but she cheered yeah directly. Your question for March we think it's reasonable to assume or some sort of decline over what's a very very strong December.

And now we would say, 10% or more sequential decline would.

As a view we have currently for our guide and then ER and then we would expect.

As I mentioned that gross margin to decline sequentially 150 basis points or more on lower volumes some mix effects and other factors, we would still be up on gross margin year over year 100 basis points or more.

And now we would expect opex to be flat.

Flat to up as we continue to invest for long term, but I would leave it with yeah. Weve again, we view this is a multi year.

Yeah secular trend and.

Our investing appropriately.

Pardon me for Mark and then for my follow up.

What do you think about the competition from Qualcomm you know they spoke about a 50, 60% plus kind of growth rate in there RF front end.

Business is bad apples to apples to what you said you know I I you starting to see them in more places do they have some kind of advantage because they're able to bundle some of that RF components, Oh wait to fiveg modem and the strong position they have on the Fiveg modem I'm just curious has the competitive landscape.

Changed for you from a Qualcomm perspective from from what you are seeing right now.

Hi, there.

Yeah. Thanks for the question Vic I don't think there's really been any any change we've talked a bit about this before I think different companies or do the RF tam differently or what they choose to put in into their RF business and in the case of Qualcomm. They got a lot of other features and functionalities Oh that they include that a bit.

Aren't addressed by the RF community generally so your power management pieces I think there are probably benefiting quite well from the initial rollout of millimeter wave a in that there are we believe at least including a great deal of functionality and content that is not RF at all by nature. So it's just a question of what they put into.

With what they call Laura I think more than anything else in terms of you know their attach rate in true RF components onto their base band, we haven't seen any any rotation that dynamic. There were you know our customers are looking for best in class or components and and the vast majority of the actual.

Our content is it's not a generally addressable by them competitively at least in the mass market. So there's a lot of opportunity and we haven't really seen does that dynamic change.

Great. Thanks very much.

Thank you we'll take our next question from harsh Kumar with Piper Sandler.

Yeah, Hey, guys first of all I, you know solid congratulations on a tremendous performance. So I'll pick it up right where the the previous question was so with respect to millimeter wave my understanding is the traditional subjects. There is in the honest, we're not there yet including yourself so that remains an opportunity.

Do you think it's a matter of coverage, it's a matter of time before you're able to play in there or is just there's just not not a used for your technology over there or is it some other industry dislocation type thing where the best spend change happened. Then you you have a shot to get in and just some color would be appreciated.

Yeah. Thanks, Harsha this is Erik again.

You know when we would get a millimeter wave I think it's important to realize that recordable is certainly a technology leader millimeter wave. The work that James This group has been doing for decades to provide millimeter wave and incredibly high performance. Those situations is second to none and our customers have validated that if we if we go up and do you know.

Pulling that level evaluations of various functions and the millimeter wave front end Oh, there's no question there would be a huge advantage to the system and that going out with with our technology. So the question is really the rate and pace of the rollout and then seeing how the economics play out I think as of now we're sort of testing the waters and millimeter wave so.

Customers are employing sort of easy to use integrated solutions are being one of the best performance, but for now the real question is whether there's any infrastructure to talk to there's there's rollouts of course across dozens of cities that they are incredibly limited in terms of coverage area and real world dynamics of getting.

The signal in and out in a reasonable way and the cost of employing the infrastructure and being able to be mobile with any device on a on a millimeter wave network. There's just a lot of questions. There then sorted out so I think it's great that it's being tested as an artist company, we would be thrilled if it becomes mainstream and.

And we'd love to participate in and I think customers.

Of all evaluated our technology, it's really a matter of waiting to see if the the need really survives the first one or two generations.

Understood staying so they can then for my follow up do you see RF content, increasing again next year associated with Fiveg. After this initial wave of Fiveg Clinton uptick and if so like what would be some of the big broad drivers is it just the same as you know expanded bands expanded channels and things.

NATO, you see something else happening.

Yes, we see there's probably two ways to think about it. So you know we said the units for five years, we expect to roughly double again next year, so from to 50 to 500, but.

On the doubling of the content increasing roughly the same at five to $7, depending upon the tier and you know the exact model right. So in that sense. You are saying you know the units time same same but then longer term I think you're going to see the same dynamic that's driven fourg. So we're still very early in the Fiveg cycle there are new bands.

Still coming in within the bands or you know trying to find ways to use more of the spectrum and so you know there's going to be a priority on higher technology to monetize all that spectrum and get the data out of it. The Fiveg promises. We're also just beginning to see you know these dual connect modules where are we.

Got dual Transmen antennas now opt for Fiveg and some of these are really challenging you know frequency allocations and and the bands that they want to translate on simultaneously that's going to add an awful lot of complexity and challenge for RF, which will we will drive even more value there I think and so you know.

We're investing in the areas that we think are going to be our customers' toughest challenges. So as the right. So it gets harder and more complex more guy, but we're going to be positioned to provide the best technology to solve the problem.

Thanks, guys congratulations.

I'm sorry.

Thank you well take our next question from Gary Mobley with Wells Fargo Securities.

Hey, guys. Thanks for taking my question.

To ask about the different moving pieces in the China Smokes smartphone market. You mentioned you have a perhaps a limited license with wawa tied specifically to the handset business that some others have.

And as they as well have received limited license from the U.S. Congress Department and so I'm curious if they have a their supply chains sort of shored up to feed into their mobile handset business or do you like to hear your opinion on whether or not you know they perhaps could be shared how core vote could benefit as your.

Market share alternative customers customers, maybe higher any thoughts there.

Yeah. Thanks, Gary a number one as you pointed out our license is for certain mobile products not RTP, So you're correct, let's get that claim.

You know, we're working with the customer, but I think we pointed out on our last quarter call that you know, we're very fortunate that we have.

Same products that we sell always customers and they go with multiple basins. So from a supply perspective, we're very fortunate with our inventories that you know we saw the same components to always guys mobile teams done a fantastic job.

Designing products that will work across customers and across basins.

Okay as my follow up I wanted to ask about why we again bid on the.

On the gas and power amplifier side I believe they've been pretty much the driving force of that portion of your business is the customer in China.

Curious to hear your thoughts on the adoption of some non walk away five g. RF players.

No we didn't mention Dan to walling for quite a long time over here [laughter] over a year or so we have been seeing tremendous growth in our can business is James loves to talk about and I'll, let him go through the multiple customers as I said in my opening remarks, but I can tell James would love to answer. This so James go ahead.

Chose yours [noise].

Yeah, I mean adoption is really been a broad base, Gary So we see pretty pretty much all of the Oems and I guess I can say all of the Oems have programs related to Cannes, a multiple of those Oems have those products into production and typically in a massive mimo.

Construct so you know relatively high content and all of those.

We've got wins across a good multiple of those Oems that are supporting both deployments in China and in other parts of the world. So I think I think adoption is going very very good we had a great Gan quarter. We retired a record for the quarter before and we almost quadrupled our Gan business from period to the same.

We did last year. So I think those trends are just like we have projected that fiveg is really going to drive mimo and higher frequencies and that's going to drive the adoption again.

We're very focused on scaling the technology and continuing to improve the performance.

Yes, and you know so that we can continue this ramp as we go because we very much are in the early innings of fiveg deployments around the world.

Appreciate it thanks guys.

Thank you well take our next question from Craig Hettenbach with Morgan Stanley.

Yes. Thank you I had a question on the gross margin and really from the Nicks perspective within mobile any context, you can share in terms of perhaps some of the tailwinds that integration is helping as well as maybe the Bob business, increasing as a percent of total as you go out in time.

Yeah, Craig we typically don't breakout out yeah mix in detail, but but you're correct any watch whats, helping US is this ongoing trend of integration and particularly a ball related modules.

As you know our.

Our largest out of his Richardson said largest cost structure. So.

So volumes and continued growth in boss is important and that's that's helping.

Yeah. There there are other products, where were you know have highly specialized technology that that.

That is helpful in the mix as well, but but certainly BAW and.

Yes, both Bon either integrated modules as a part of the favorable mix.

Got it thanks, and then just a follow up for Eric.

And in terms of integration within mid range phones or mass market can you talk about perhaps kind of with where we are in that cycle. If you will in terms of that that's an important growth driver, but just how much more do you see that in terms of as the market moves towards integration and how much is fiveg also playing a role in terms of the need person.

Discrete parts yeah.

Yeah. It's a good question as you know for GE said, Oh grew up discrete that as it became more complicated and more bands. The integration became oh required really to fit everything into the space and Fiveg is essentially launched was fully integrated modules and today I don't believe were aware of any any design.

Thats going to screen.

Just very very very complex and once you are used to having a highly integrated.

Fairly miniaturized compact RF solution, it's really hard to undo that and go to go to discrete solutions because you still have to do all of this on multi band operation and multiplexing and so forth. So it's very hard for a phone customer to match. These things are on the phone board so if not 100%.

The vast majority a fiveg phones are continuing to use fully integrated solutions.

Thank you we'll take our next question from Edward Snyder with charter the charter equity research.

Thanks, a lot if I could Eric and between Bob's comments, the details from our own tear downs. It seems as if most of the strength you're seeing.

And your business is the main power modules and.

Probably two years, which has been pretty good but you know skyworks is doing very well and diversity transmit versions and there's been a huge increase in antenna products or is that apple seem to all gone Broadcom I know you've got the technology to play in all these areas, but we really haven't seen a lot of it just yet.

See more participation from core will these areas as these technologies move into the Chinese phones or do you think you know because you've only really shifted in the last few years so to focus more on.

All these other obviously Lucas, but Luis Pea stuff that the big mid high bad. It's just a matter of time that you think you might make inroads into the non Chinese Oems and.

And then mark.

So please.

[laughter], yeah, so yeah.

Yeah, I think that's a you know since we formed a quarter ago, we really had a focus on on looking at the full architecture, because we've got visibility into it and investing in the key technologies are going to solve the customers' toughest problems and you're right. We've got tremendous expertise around around the antenna systems not just tuning, but also multiplexing in an.

10 of flexing and switching and holidays and all the things you need to make the antenna networks work and you know that's getting to be more and more and more important regardless of the tier ones or the customer base right.

But also the advanced power management that we have which is very specialized power management to help.

In these high modulation or standards, we're going to continue to invest in that we think there's new opportunities there.

Our BAW filtering and we believe we are second to none now.

And we're not slowing down we've got many many more improvements and and steps up in performance in cost as well as reductions were for boss. So that's going to be the anchor of a whole suite of models as your as you're indicating.

And are you know even the receive modules that have transit.

Capability in them and then all of the other main path margins will continue to to rely heavily on ball. So you know I don't think were limited at all where we play where it's a target rich environment for US. We're you know kind of prioritizing our investments to where we think we get the best or why I think it's going really well and we're going to continue to build bill.

Now the portfolio and continued to play in more and more areas as we see them being attractive.

Great. Thank you and then Mark if I could throw one for James do but Mark last time core will hit 51, and a half ish.

It was June 15 revenue was about 670 million.

It's about 6% higher last quarter and then like in 15.

Now shipping a lot more gan ball and resolve which carry lower gross margins.

Incident revenues gross margin something structural in the fab.

Is it more of a reflection of korbel, capturing all those filters and passive devices that used to be the supply by the discrete component vendors that are now being rolled and your big modules. Because obviously you can appreciate as Pete maybe doing some margin a bit more and I know that was the division one core but was form that you guys can sort of capturing a lot of this other discrete content.

Yeah, and I'm I'm, not I'm not I'm not sure exactly what your question is your your figures are correct and the historical data, but we've we've invested a lot in the business and says you know the yeah. There is ever efforts to yeah.

Rationalize the footprint may make it make it suited to how we want to take the business forward and as Eric just said.

A lot around active portfolio management, we're at a point now where we have steadily increased.

Gross margins.

From a low September 16, and we feel good about Oh, we feel great about the technology and the business as Eric Yeah talk through we're making the right product decisions that are best for our customers and for us.

The operations team is performing very well and there's a lot of runway on productivity and we'll continue to.

That'll continue to hopefully be tailwind on margins there should be and then and then we've got we're reducing our capital intensity.

And and all that points to yeah, we should be able to sustain these levels and and over time I don't see why we shouldn't be able to expand margins.

[laughter].

Thank you. This concludes today's question and answer session ill now turn it back to management for closing remarks.

Thank you for joining us on our call Tonight will be presenting via webcast at upcoming investor conferences, and we invite everyone to listen to him. Thanks, again and have a great night.

This concludes today's call. Thank you for your participation you may now disconnect.

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