Q1 2021 Skyworks Solutions Inc Earnings Call
Okay.
Good afternoon, and welcome to Sky work solutions first quarter fiscal year 2021 earnings call. This call is being recorded.
At this time I will turn the call over to Mitch Haws Investor Relations for Sky works. Mr. Haws. Please go ahead.
Thank you, Rob and good afternoon, everyone and welcome to Sky works first fiscal quarter 2021 conference call.
With me today are Liam Griffin, our President and Chief Executive Officer, and Chris <unk>, 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.
Distant with our past practice, please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP with that I'll turn the call to Liam.
Thanks, Mitch and welcome everyone Sky works delivered record quarterly results in the first fiscal quarter of 2021.
Leveraging our expansive technology reach and deep customer engagements spanning both mobile and broad markets.
We established new quarterly records for revenue operating margin and earnings per share.
Demonstrating both the power of our financial model and unique opportunity to lead the global transition to more advanced wireless communications.
Now looking at the quarter in more detail.
We delivered revenue of $1.51 billion.
More than $455 million above the midpoint of our guidance.
We posted earnings per share of $3.36 exceeding our guidance by a $1 30.
Effectively doubling year over year earnings.
We achieved gross margin of 51, 1%.
And record operating margin of 41, 2%.
And we generated strong operating cash flow totaling $485 million on the quarter.
As our results demonstrate the demand for always on connectivity is accelerating.
And extending into new applications.
Including telemedicine high speed videoconferencing.
Remote learning a ton on the transport essential services for the infrastructure markets.
For the door delivery.
And touchless commerce.
This is a global phenomenon, where upgrades of key technologies are increasingly critical in the face of the ongoing pandemic.
The investments we've made over the last two decades have prepared sky works to address these challenges.
The mobile and wireless ecosystems will benefit from these dynamics, yet outsized gains will largely accrue to those companies that have invested deeply in core technology and scale.
These gains are being driven by both a growing device count and an expanding content per device.
Some cases, doubling or even tripling for Sky works.
We are proud to play an instrumental role in shaping the fast evolving landscape.
Collaborating with our partners and customers leveraging key technologies from TC saw to high performance bought filtering.
Soi gallium arsenide and state of the art packaging technologies.
Our strong results in Q1 demonstrate our execution around these themes.
Specifically in mobile we accelerated the ramp of our Sky five portfolio supporting the next wave of <unk> launches at Samsung <unk> vivo Xiaomi and other tier ones.
In Iot, we captured design wins across a diversified array of new and existing customers.
Specifically, we partnered with the sous deliver.
Delivering the world's first Wi Fi six eat connected home router, we shipped Wi Fi six solutions for access points at top network Oems, including Cisco net year Centurylink in Aruba.
We captured new wins at Google.
For their latest Fitbit smartwatch.
And we delivered low latency cognitive audio solutions.
Powering wireless gaming headsets at multiple tier one accounts.
In industrial we ramped I trying to multi standard I S M connectivity solutions for smart cities.
In infrastructure, we deployed five G amplify on receive modules supporting multiple European base station Oems.
And finally in automotive, we accelerated shipments of advanced connectivity solutions supporting the world's Premier EV manufacturer.
We leverage <unk> solutions with Volkswagen and Toyota.
For their enhanced safety systems.
And partnered with Mediatek for five G reference designs, specifically targeted at automotive applications.
Moving forward.
We are seeing a confluence of multiple market developments.
Significant rise in device complexity.
An expansion in wireless spectrum and band Count.
Combined with the technology bar that has never been higher.
These trends directly translate to increased opportunity for Sky works.
With both new and existing customers.
With essential technologies and scale propelling performance gains across a broad set of applications.
Our purpose built solutions address all key network protocols.
Spanning five G Wifi enhanced GPS Bluetooth.
Additionally, we expect the current C band auction to be a catalyst.
With new spectrum, creating significant content opportunities for our sky five platform.
Yes.
While smartphones for the first to embrace five G.
The performance gains will power a broad set of use cases extending into billions of Iot devices.
Looking ahead, we see five G is a transformative technology catalyzing new applications, while acting as the universal connector from the home to the car to the factory floor.
In summary, Sky works is solidifying market leadership as connectivity meaningfully alters the way we live work play and educate not just from home but from anywhere.
Our record performance clearly reflects this dynamic.
With that I will turn the call over to Chris for a discussion of Q1 and our outlook for Q2.
Thanks Liam.
Sky works start with fiscal 'twenty, one with very strong Q1 results delivering all time with record revenue of $1 five 1 billion, adding more than 550 million of incremental sequential revenue and exceeding the midpoint of the guidance for Q1 by $455 million.
Revenue was up 58% sequentially and up 69% year over year, driven by increasing adoption of our mobile solutions with all smartphone Oems.
With record growth markets revenue and customer reach.
Mobile revenue grew 80% sequentially as well as on a year over year basis, largely driven by widespread content increases as <unk> phones are ramping with all major smartphone brands worldwide.
Broad markets revenue grew two three on the $26 million, establishing a new quarterly records.
This reflects revenue growth of 35% over Q1 of last year.
<unk> from a diverse set of use cases supporting work play learn from anywhere and the increasing adoption of technology, such as Wi Fi six and six E. Along with the continued momentum in our audio solutions business.
Gross profit in the first quarter was $771 million, resulting in a gross margin of 51, 1% up 70 basis points sequentially and up 100 basis points year over year.
Operating expenses were 149 million or 10% of revenue demonstrating strong leverage on our operating model, while continuing our strategic investments in support of future growth.
We generated 622 million of operating income translating into an all time record operating margin of 41, 2%.
Other income was $1 million and I would affect the tax rate was 10%.
<unk> net income was 560 million on a net income margin of $37 one per cent.
Topline momentum and execution on both gross and operating margins drove record diluted earnings per share of $3 36.
Beating the guidance by $1 30.
EPS grew 82% sequentially and doubled when compared to Q1 of last year.
Turning to the balance sheet and cash flow.
First fiscal quarter for cash flow from operations was $485 million.
Capital expenditures were $119 million.
We paid $83 million in dividends and we spent $196 million to repurchase one 4 million shares of our common stock at an average price of approximately $139 per share.
Additionally, as noted in our separate press release issued today.
<unk> Board of directors has authorized a new $2 billion stock repurchase program.
This new buyback plan reflects our board's confidence on Sky works business model and in management's ability to consistently produce strong free cash flow.
Allowing us to leverage share repurchases and dividends to generate higher stockholder returns.
Now, let's move on to our outlook for Q2 of fiscal 'twenty and 'twenty one.
We expect the continued and rapid adoption of multiple wireless protocols and expanding use cases to drive strong year over year growth for Sky works.
Specifically in the second fiscal quarter of 2021, we anticipate revenue to be between $1 125 billion and one on $1 75 billion with non-GAAP diluted earnings per share of $2 30 for <unk>.
At the midpoint of our revenue range.
This translates into a year over year revenue growth of 50% at the midpoint of the revenue range and year over year non-GAAP diluted earnings per share growth of 75%.
Gross margin is projected to be in the range of $55 to 51%.
We expect operating expenses to be between 150 and 152 million.
And below the line, we anticipate roughly 1 million in other income and a tax rate of approximately 10%.
We expect our diluted share count to be approximately $166 5 million shares and with that I will turn the call back over to Liam. Thanks.
Thanks, Chris.
Sky work started the new fiscal year with record results.
Clearly demonstrating the breadth and depth of our business model from tier one mobile.
<unk> is a broad market customers.
Importantly, the multiyear wireless transition is now underway, creating a burgeoning set of new opportunities and use cases.
With deep customer engagements underpinned by decades of technology investments and scale Sky works is uniquely positioned to lead.
Finally, our high levels of profitability and strong cash generation are for.
For us the flexibility to invest and win while generating consistent returns to our stockholders.
That concludes our prepared remarks, operator, let's open the lines for questions.
As a reminder to ask a question you will need to press star one on your telephone to with.
Draw your question press the pound key.
Given time constraints. Please limit yourself to one question and one follow up on your first question comes from the line of Karl Ackerman from Cowen <unk> Company. Your line is open.
Hey, good afternoon, gentlemen, and thank you for letting me ask a question.
I guess.
With results and an outlook the strong the elephant in the room is about sustainability.
In terms of revenue growth, but also profitability.
We know that foggy handsets will increase this year, but.
Really appreciate it if you could talk.
You know, perhaps qualitatively how you see that outlook for the balance of the year as well as you know your view on broad markets too given what appears to be a a multitude of design ramps across your Wifi six portfolio. Thank you.
Sure absolutely well a couple of things the five G cycle really is just beginning and Thats and Thats clear and I think if you listen to Sky works and what we've been saying, it's all about complexity, it's all about content gains and the culmination of those coming together with a tremendous unit launch in five T and again very early.
And <unk>.
For the estimates for unit uptake at five G. If you think about 2020, maybe there were 202 hundred 20 million phones.
Those numbers are going to be more than double going into 'twenty, one and they'll continue to move you got almost 7 billion subscribers on the planet.
And you know the percentage that own a <unk> phone are very very low. So there is a tremendous upside there in our core business in mobile.
And also advanced by Great technology execution with our team. So that's one big driver. The second driver that's been Bubbling up for a while is our broad market portfolio, we had tremendous gains in our broad market portfolio of 35 per cent year over year with a broad set of customers names like Nokia names like Honeywell names like GE Bosch.
Just an entirely new landscape of customers that we've been able to engage with and then we talked a lot about usage cases here on the call usage cases, new applications that require connectivity, whether it's Wi Fi, whether it's Bluetooth whether it's five G.
All of those trends are moving moving in the right direction for us and they are sustainable.
Yeah.
I appreciate that very much.
If I could for a follow up you know.
One of the one of the baseband companies.
In Asia. The other day spoke about how they do not see any evidence of a build of inventory across the channel sales.
Really its now well known that there remains tightness across the foundry and component supply chain. My question is how are these dynamics driving your discussions on both pricing and volume commitments to your customers. Thank you.
Sure Yeah, Great question, I think one of the and by the way Youre right about the tightness in supply in some of the challenges operationally and on and I would say that.
The Sky works team did an incredible job executing on in the Q1 period and I think we'll continue to see that opportunity extend into the full year, but I will say. This you know we have made the unique investments in capital and scale. We have our own 10 billion unit Tc saw factory for customer customize filtering we have bulk.
Acoustic wave in house, we have our own assembly and test and packaging capabilities that are unique and purpose built for this market. So we were we were able to win for avoid some of the real challenges in supply chain, because we built a lot of this in house in our own factories.
But there's certainly have been some bumps on the execution side throughout the landscape the technology landscape and the connectivity landscape.
But we're starting to see that clear and Fortunately, we were able to execute through that in the December quarter.
And your next question comes from the line of Amyris through debt.
From BMO your line is open.
Alright, Thank you Liam and Chris.
Oh, it's food for a second I thought I was reading the tea ice for Adi, earning.
The earnings release with debt kind of operating margin.
So.
That's pretty solid guidance, but.
Let me address maybe a baby on defense, that's going to go down at least in our minds.
Is China, so theres been a lot of talk about overbuild in China, especially in the box complex from holiday, we're trying to take share from Huawei. So so maybe if you could just give us some sense quantitatively how big was the China business and then quantitatively just help us understand what's going on and then I had a follow up for Chris.
Sure well, we've been a key element of key supplier for the auto vivo Xiaomi ecosystem and that continues and we had great results with those accounts this year.
There's a lot of opportunity to grow their <unk> base as well.
And that's something that we should be looking forward to throughout the year and multi it's a multi year cycle of course, but again you know one of the things that debt that we continue to say here on Sky works and it really rings true as our ability to get in and help these customers customize and configure the complexity around five <unk> levered.
Leveraged solutions like Sky, five debt really integrate a tremendous amount of components and complexity and make it easy for the customer to go to market.
So we had some strong uptake there in the China space.
We continue to see that looking good obviously, there you have a Chinese new year opportunity here as.
As we get into our new year, So I think theres going to be some more some good signs of growth, but we have a good position there today and I think there's just more more room to move on units as we go through the year.
What was the growth in China, Inc. Q over Q.
Yeah.
So our China business and into December quarter, It was up double digits sequentially.
And of course, very very strongly on a year over year basis and of course looking into March. We are we will have stronger than seasonal growth double digit growth accelerating our year over year growth.
And with those accounts.
Okay.
Quick follow up for you Chris since since you are on the line. It's just just remind us on big capital kept low.
Vacation priority, it's good to see the two.
$2 billion buyback, but just kind of just walk us through.
Debbie buyback and M&A and I'm, assuming you have the name with most keep these broad markets. Thank you.
Yeah, we're not changing our strategy that we did have a $2 billion buyback program in place.
That had a two year on life cycle, and so that came to an end and so we are replacing that.
That program with a new $2 billion buyback program. So we will continue to return on most of our free cash flow back to shareholders a combination of our dividend program and now the new $2 billion.
Our buyback program.
Thanks.
Our next question comes from the line of Timothy Arcuri from UBS. Your line is open.
Hi, Thanks.
I guess the first question is.
The beat was so.
Significant in your guidance just in early November and you typically get pretty good visibility from your biggest customers. So I guess my first question is sort of like what drove the big beat was it a pull in from your large customers can you just sort of double click on what drove the beat and then I had a follow up thanks.
Sure Yeah, well it was certainly not Poland. So that's for sure I mean, it was a quarter that saw it started a little slow and really accelerated through the period.
A tremendous amount of technology execution behind this on.
On the mobile side, but again in broad markets, we had a record 35 per cent year over year. So it's a culmination of.
Strong five launches with the most important customers.
And within those launches.
Extended reach of technology from Sky works the content that we're putting forth right now are six net significantly more advanced and more and more impactful than what we've had in prior years and that comes through our own technology.
Fabs are on the investments in R&D and in scale to make that happen. So you had a very strong mobile opportunity and then you had a broad market opportunity in parallel that was leveraging some of the core technologies as well, but again things like Wi Fi moved on.
<unk> GPS Bluetooth all the connectivity protocols, the new usage cases popped up customers that we didn't have before emerged. So it was a culmination of multiple factors, but but those factors are sustainable I mean, those customers that we've won are going to stay with us as we go through the next couple of quarters and years and and you know we look forward to more opportunity there.
Okay got it and then I guess Chris.
Oftentimes you can give us what your largest customer was in terms of revenue in the quarter I think last December it was in the low 60, so I imagine, that's probably as bad or even higher.
December so can you give us that number.
Yeah, our revenue with our largest customer in the December quarter was approximately 70% of total revenue. Obviously it was a great quarter with that large customer that just launched their first five G phones, which with very rich powerful content inside.
We talked about that and we indicated that the 912 months ago. In addition to that we.
We do have some very nice and good content and some of their other products that debt.
Large customer sales as well, but again, so great execution debt, we have a large customer, but as Liam indicated the strength in the December quarter was not just with the large customer all on what other customers. All our other segments every region was up double digits sequentially and Stu.
Growing double digits on a year over year basis, Yeah on just a follow up with Chris I think it is important to note that the growth with our large customer is also accelerating in their new application. So it's not all just about smartphones.
A lot of other opportunities there that that require that connectivity protocols that we bring to market, which is really great.
Got it got it yeah. Thank you.
Your next question comes from the line of Blayne Curtis from Barclays. Your line is open.
Hey, guys. Thanks for taking my question just truly amazing results.
Maybe you can just help us a little bit with margin obviously.
Your large customer that very high numbers.
I'm curious your outlook, maybe between mobile and broad market.
Do you expect broad markets.
Typically it would be down but within that outlook for March do you expect it to be on.
Yeah, no absolutely. So on the guide that we provided for March has some seasonality with a large customer as you can expect but if you look at the revenue in mobile outside of a large customer as well as the revenue in growth markets. It will be up double.
Digits sequentially, which is actually stronger than normal seasonality, a lot stronger than normal seasonality and it further accelerates our year over year revenue growth.
All of those accounts sold a Korean to Chinese as well as thousands of broad markets.
Gotcha, and then on what I'd ask you also I guess within broad markets, but the mobile players as well on why fight the Samsung launch from without I'm, assuming you'll see another mobile customer with that and then I guess at some point you'll see at this point can you just talk about the content.
Driver for you for Wifi Six Inc.
Sure Yeah, I mean, we are seeing that rollout now very quickly a lot of great design wins with key customers today now.
So I mean, there's a technology pop their claim when you look at the Wi Fi six products is even bulk acoustic wave opportunity within those systems.
And the data rates and speeds are demonstrably more powerful you can see that in your zoom calls or whatever so Wi Fi six <unk> is a big driver for us as a Wi Fi six.
And that's one of the things to think about.
With Sky works, it's really about connectivity connectivity can be five G connectivity can be can be Wi Fi six Wi Fi six ETP Bluetooth all of those protocols with there, but Wifi six and <unk> are meaningful and they are really now the product of choice and the work at home work from anywhere dynamic.
And I think that's an opportunity for continued gains for us and with content and also with adding additional customers.
Okay.
Our next question comes from the line of Kevin Cassidy from Rosenblatt. Your line is open.
Thanks for taking my questions.
I'll add to the congratulations on the stunning quarter.
Thank you for the for.
For your outlook is there any capacity constraints in your own manufacturing or is it you.
You brought the inventory down is there is that a constrained number.
No I think right now we are in good shape from a from a capacity point of view in fact, I think you know.
We've been able to broaden on the aperture a little bit on execution and drive more technologies through our own fabs. So we should be in good shape. I mean, obviously the December quarter really tested our metal in terms of execution team did very very well, we still had to navigate some supply chain hiccups here and there that were outside of our our supply chains.
But for the most part we executed very well and we could take that momentum and the lessons learned through the December quarter to put us in better position to come through strong through the calendar year 2021.
Okay, great. Thanks, and then just.
Can you give us a timeline for the C band you know how does that move into revenue and what kind of a percentage increase would you expect that.
Our handsets with C band I have on it.
No. That's a great question. So the C band auction now is pretty much commenced and it what it does which is which is great as it opens up.
New spectrum in mid band, so, let's let's call. It mid band one gig to six gig there's a lot of opportunity there that had been really kind of tied up pre auction.
That will be very beneficial for Sky works, because we have a great portfolio of product and mid band. We have we have great product and ultra high band on high band as well, but C band is going to be unique here.
It's going to be an important piece of the five G landscape are very necessary piece going from low to mid to high <unk>.
The layer cake approach, if you will with low bit low band at the bottom mid band on the Middle and then technologies like millimeter wave narrowly at the top so that C band auction will drive more technology, we will be delivering five day signals through that new spectrum will require upgrades on our sky five platform that we're ready to go.
Go on and it will be able to add content.
Okay, great. Thank you.
Your next question comes from the line of Chris Caso from Raymond James Your line is open.
Yes. Thank you good evening I guess the first question is just digging into you know what what was different from your expectations going into the quarter again, and if I guess the question, maybe a little differently.
We had talked about some supply constraints coming into the quarter was the nature of this be just that you were able to get more supply out the door. This quarter than you would expect in an otherwise you know when your guidance back in September that that perhaps more of this would have been pushed into the March quarter.
Is it that you know either content or where.
Demand from your customers turned out to be better.
Yeah, Chris it's it really is a lot of debt there's elements of each each comment. So first of all there was a an accelerating demand signal here in the December quarter, which was great. You know things were a little bit slower in the Q4 period and we started really.
Seeing the wheels turn on the right way in December and that accelerated that was at the December quarter was a quarter that accelerated it didn't decelerate we've had other periods where.
We have launches that started out great and kind of tailed off that didn't happen.
And so what it did is it put a lot of focus on execution supply chain execution. Unfortunately, and if you look at obviously our filings we've been spending money on capital on Capex and that really isn't just adding adding late lanes of new equipment, it's actually bringing new technology to the markets. So it was a culmination of.
Supply chain execution, largely within Sky works and then we had a couple of hiccups outside we don't make everything in house, but most of it is done in house, so owning our own factories delivering within our facilities being efficient they're managing the constraints, but then also bringing that technology up.
And we've learned a lot in that period it puts us in a much better position at the company the lessons learned.
When the intensity was high I think are really on our key for us and will make us a better company as we supply further.
But then some of the other things that Chris mentioned this was not just the mobile launch mobile was great and it was the highlight but we've really executed in our broad markets and I'm really proud about that.
The customer names I already rattled off at really high quality accounts that were not customers of Sky works on a year ago and they were and they are today and they will be in the future.
Thank you.
A follow up.
With with with the big revenue growth.
What can we speak what can we think about margins as we go into next year and I know that.
He may have been leaning on on on some production outsourcing given all the supply constraints in the big ramp that happened this year.
With the investments that you're making now.
Will that allow you to get some some more margin leverage you know on these very large revenue numbers and you can start to grow the gross margin line as we go on into next year.
Yeah, Chris Great question, and so first of all.
I'm pleased with the fact that we delivered 51, 1% gross margin up 70 basis points sequentially up 100 basis points year over year, and 35 basis points above the high end of what we guidance right. Despite the fact that as you pointed out it was a very tight supply chain environment.
And keep in mind, we still have some COVID-19 headwinds out there as well, but as Liam indicated great execution by the operational team delivering more than $1 $5 billion on revenue to our customers right and so as we move forward and as we move of course through our seasonal trends here and on some of.
Those headwinds I just talked about will abate over time, we definitely will see further gross margin improvements here and maybe just to add that of course I mean, we are focused on driving topline growth and we are focused on driving gross margin improvements all the time, but we also focus on overall profitability.
<unk> operating margin improvements and saw that as well very pleased with the delivery.
Delivery of the 41, 2% operating margin in the December quarter.
Great. Thank you.
Your next question comes from the line of Edward Snyder from Charter equity Research. Your line is open.
Thank you excellent results guys congratulations.
I'd like to ask you if possible I mean, obviously, you've got a big boost from your largest customers their results yesterday. Your comments on today's call on all clearly your revenue lines show that but in terms of sustainability.
Why shouldn't we expect things to actually get truly better because if you look at your content I mean, no big content increase on the latest model something like buy out.
By our own tiered on about 20 per cent, but.
You still have a lot of runway.
Korean and Chinese customers, we've been kind of under earning last year that seems to be coming back. So can you maybe help characterize.
<unk> revenue growth, maybe 'twenty, one you've got a very strong one with the domestic suppliers what should we expect for the for the.
For the Korean and China on things.
Sure Ed I'll take this for for for the first question is if you have a follow up I'll throw to Chris Yes, I mean, great question for you for you there I appreciate it and I think one of the things that you know very well is the complexity and five G and and the nuances around that technology and really all key elements need to come together.
So we were able to put that forward with of course, our largest customer but were also gaining in China with key players the abo vivo Xiaomi as we've got great attachment with Mediatek as well on.
It's still so early if you look at units and five G versus where they could be in a couple of years right you've got <unk>.
6665 to 7 billion mobile subscribers.
We were talking about a couple of hundred million units, a five day phones in 2020, it'll probably double in 2021, but theres still a great opportunity for us at Sky works.
And the other thing that we do well is we are in under the Hood player we get in there with those with those customers and help them stitched together the necessary technologies to make it work and <unk>. When you look at the Apo vivo Xiaomi.
The people support that we provide is very unique the sky five platform is highly integrated and really puts them on a fast fast time timeline to market with.
Which is ideal.
We're also seeing our large customer perform extremely well extremely well and taking share globally in our view. So there's a lot of positives there and its sustainable five G. Again still early innings. We believe this is a multiyear thematic cycle for us and others.
And then the inflection towards other markets automotive Iot. So many other markets that will consume this these technologies that they can just.
Comes together for a good long term thesis here.
So maybe my follow up then kind of hits on that issue I mean, it was only 18 months ago two years ago that people were fretting about Chinese Oems, we play a component guys, replacing replacing the U S suppliers after the Huawei ban, which seemed ridiculous on space and it's clearly not the case now.
So what I'm trying to.
I guess the question really is is that the complexity that we've already seen that your largest customers and is now being designed into some of the Chinese phones to acquire some of these more elaborate modules with all the system design et cetera. That's also kind of porting into Wi Fi six E. On almost every wireless solutions into current standard at this point are you.
Scene is the competitive dynamic changed much at all I mean, do you corvo less to much lesser extent of bogs because they don't plan on all these things outside of that group are you seeing anybody else or is it the reverse well the content that they were providing especially some of the quasi dispute phones is now accruing to to you and the other leader.
Yeah, and it was even in the prepared remarks, we are seeing a consolidation I mean, if this stuff is it's great technology. It's wonderful it's amazing to that for the consumer, but it's really really hard and for those companies that have the ability to invest and scale and technology are going to win and it's not for everybody I mean, it's not forever.
And it's we're not the only game in town I think we've done a great job on advancing in that area and developing the technology and you know we built our stuff in house, which has been strategically advantageous for us, but when you look at China.
We provide the perfect recipe we can we can scale. We can provide content, we can provide coaching and flexibility on the architectures and bring them to market in a technology that is just incredible today. So all that comes together and as you said the smaller players right now it's a difficult task, it's a difficult task the technology bar is really.
Really high and five G.
You know, it's not a slogan right. It's not a tech nights are really really high bar to get there. So I think fewer and fewer and fewer companies can do it those that can are going to be successful and we wanted to be part of that.
Thank you.
Your next question comes from the line of Harrison Barrett from FHA Research. Your line is open.
Hi, guys, thanks, very much and taking my questions sure.
Ask about millimeter wave.
What steps.
It's on a ship so investments what steps have you taken towards millimeter wave capability.
And from your perspective, how do you see the adoption curve changing over the next couple of years.
Yeah, it's a great well certainly it is it has been launched it is available.
With certain carriers and certain phones. It is still a bit of a challenging technology today.
There's line of sight issues, there is power consumption issues and Theres cost issue. So so it is it is early innings for millimeter wave in time over time, it's possible that that footprint could expand and millimeter wave become more pervasive in the smartphone.
But I'll tell you the interesting thing, though is the C band auction here opens up new spectrum.
That will allow immediate immediate lanes of transmission back and forth that just haven't been there today that could step up and provide a another path for five G. So I think millimeter wave will continue to move on.
And it's a great application in certain environments line of sight environments campus environments, large stadiums and things like that would be perfect, but it's a bit more difficult for a broad stream technology. So you know.
It's quite possible that as we built out five G and the advancements are made youre going to see that layer cake low band mid band and then millimeter wave at the top for certain applications. So I think all technologies there can play.
Millimeter wave right now is probably the lowest in terms of introduction and exposure, but but I think there is opportunity for it to grow it and we're making investments in millimeter wave as well here at Sky works to make sure that we're close.
Close to the action and doing what we need to do to support our customers.
Great. Thanks.
As a follow up how should we think about M&A. It looks over the next couple of years you guys looking to bolster.
Good markets, but at this stage.
Yeah No great question you know.
First of all we love our organic outlook, we love our business and you know that the markets that we plan have been incredible they've been dynamic they've been challenging but they've been incredibly rewarding for us.
And so what we do though is as we pursue opportunities and work with customers ideas and M&A opportunities come about right naturally. So we continue to have our eyes and ears open on that front on.
The opportunities do pop up we have a tremendous cash machine at Sky works, you've heard the data with our free cash flow margin and just the net cash that we have so with the right opportunity comes together well, we'll be ready to take advantage.
Thanks again.
Your next question comes from the line of Tristan <unk> from Baird. Your line is open.
Hi, good afternoon.
In the day Trina has to get hurt as bad as we see more bands being added and some of debt will come from that.
U C band opportunity.
At which point over the next few years do you think.
On that.
Module moves from Southsea pairs to balance sheet.
<unk> and.
And how do you think you're positioned for it.
Ahead of that transition.
Yes, yeah. So if you if you think about the transition here as we move for them and we have for great technology in Tc saw.
Standard saw and also ultra high band bulk acoustic wave. So we have the ability to play along that spectrum that frequency spectrum and capture more and more opportunities I think where you're going to see.
Probably the most incremental growth on the Sky works front is that you're looking for.
Bulk acoustic wave technology.
And if you look back on our company couple of years ago, we talked a little bit about Bob but we were honest and we said look we just don't we don't have to scale. A couple of years ago. Now we're shipping hundreds of millions of units of bulk acoustic wave and that technology is purpose built for mid and high band spectrum.
So that is being laid out where you're seeing it now in some of the tear downs for some of the phones that we're working with today that are on the shelves and Youll see further advancement in our bulk acoustic wave technology embedded in new phones as we go out for the next set of devices in 2021 2022.
Okay, Great and then as a quick follow up.
Would you characterize inventory level.
I mean, just thoughts on supply chain, notably in China.
So thats the OEM, you've mentioned basically Bethany for market share.
Taking glad for that.
On that from Huawei.
Yes.
Our scale out to a record low level both in total Sky works, but also into supply chain and then the distribution channel that keep in mind that there still has been somewhat of a demand.
Supply on balance although that is that is improving as we now move into the March quarter, but given all of that.
For the inventory in the channel is extremely low.
Great. Thank you.
And our final question comes from the line of Craig Ellis from B Riley Securities. Your line is open.
Yeah. Thanks for taking the question and congratulations on the tremendous revenue strength then.
Getting gross margin, yeah, getting gross margin back up to 51% per time in the quarter, it's nice to see.
Liam the question I wanted to ask for and I typically wouldn't ask it. This early in the year, but it really seems to be back given the strength of the business in the December quarter on in the March quarter.
As we look ahead at the calendar year I think we would typically think that seasonally the business would be down a few percent in the calendar second quarter, just given the pause between first half built in second half builds but you did mention earlier that doubling in five chi smartphone units.
Ongoing content gains and you and Chris both touched on the secular dynamics in broad markets.
And so the question is in part just how are you thinking about the Gibson takes as we look towards the middle of the year end and then given the strength we're seeing to start the year can we still expect to see the typical type of seasonality. We would expect in the second half of the year, we just starting so robustly.
Debt for whatever reason on linearity would be flatter.
Yeah, Yeah, that's a great great set of questions here, Craig I think what we're seeing now is again.
Great adoption right out of the gate with with with our <unk> portfolio. We're thrilled to see that early innings. So there's a lot to do and then in parallel these broad market opportunities are really scaling right now we talked a lot about Wi Fi six we've got Bluetooth who've got GPS and we're in platforms that are just proliferate even with even.
With our largest customer that the amount of revenue derived and non phone devices are not non non cellular devices incredibly well and that's a new area for us to see so that's continuing to advance.
And broad markets again, 35% year over year incredible numbers, and we're just really and that's a market that you.
Theres so much share that we havent captured it's just it's compelling to continue to make those investments in people and in technology to.
To grow that and then the mobile business will continue to do very very well if you look at.
Where we see the market, we continue to see new content opportunities that we chase.
And invariably when.
We've got a China position now that I think is going to inflect higher as the content there on a relative basis, it's still lower than it has in other markets. So there's a great opportunity to move.
And then the expansion of use cases, so it's it's you know.
Customers in use cases that we just haven't seen some of that came through the pandemic a difficult period of time and some of that where technologies that just emerge and you think about zoom you think about peloton.
Store to door delivered to your house Touchless payments all of this stuff is not going to go away, it's not going to go away.
But it's also going to be powered by connectivity, it's gonna be connected by the kinds of things that we offer again, whether it's Wi Fi whether it's five G. Whether its Bluetooth I mean, so there's a there's a parallel market here that is that is building and creating unique momentum I'm incredibly excited about the <unk> 35 per cent broad market number in it.
Period of time, it typically was.
All about mobile so we're really demonstrating the ability to create diversification, but still in many cases use common technology cores that run through our factories.
That's really helpful. It's pretty.
Pretty amazing to think that by late this year those two businesses could be annualizing at 5 billion I'm wondering how fill you on each so on.
My follow up really is for you and Chris on the share buyback so nice to see the $2 billion buyback. The question is this with 700 million.
Remaining on the existing buyback can you just give us some color on on why now with the new authorization and and what was it that dictated that 2 billion, what's the right amount versus say, one or one and a half or even two and a half to three.
It's very simple the time expired on the price.
For your authorization.
2 billion program for two years. So the previous plan was put in place in January 2019, and expires in January 2021, and so we are putting in place a new 2 billion program for covering the next two years.
Really helpful. Thanks, so much guys. Thanks.
Thanks, Greg.
Ladies and gentlemen that concludes today's question and answer session I'll now turn the call back over to Mr. Griffin for any closing remarks.
Thank you all for participating on today's call. We look forward to talking to you at upcoming investor conferences during the quarter. Thank you.
Ladies and gentlemen that does conclude today's conference call. We thank you for your participation.
Okay.
Yes.
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