Q3 2021 Skyworks Solutions Inc Earnings Call
And welcome to Skyward solutions third quarter fiscal year 2021earnings call. This call is being recorded at this time I will turn the call over to Mitch Haws Investor Relations for Skyward. Mr. HUS. Please go ahead.
Thank you Rachel good afternoon, everyone and welcome to Sky works third fiscal quarter.
<unk> 2021 conference call.
With me today are Liam Griffin, our chairman, CEO, and President 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.
Please refer to our earnings 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.
Consistent 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. Scott works delivered record third quarter results with strong year over year growth in both revenue and earnings per share.
Further the completion of our acquisition of the infrastructure and automotive business of Silicon Labs, we have significantly expanded our market opportunity, while accelerating our top and bottom line growth.
Here are a few highlights.
In the quarter, we delivered revenue of $1, $1.1.6 billion.
52%.
Percent above Q3 of last year.
We posted a new Q3 record for earnings with EPS of $2.15 above consensus and representing a year over year increase of 72%.
And given our strong and predictable cash generation, we announced a substantial increase to our quarterly.
Yeah.
Looking ahead, we expect continued momentum as we execute on strong design wins with our mobile and broad market customers.
<unk> by the performance gains of 5 G.
We are seeing a tipping point with 5 G acting as the catalyst transforming entire industries.
Hello, Madison and autonomous driving for factory automation and intelligent energy management.
By increasing efficiency. Despite <unk> enabled applications are also lowering carbon footprints.
And driving renewable energy.
Sky works at the center of this unique technological shift.
From tenants reliance on wireless connectivity.
With innovative solutions developed over 20 years and across multiple technology transitions.
The combination of our innovative solutions.
Rod customer reach and unrivaled manufacturing scale drove another quarter of strong design win ex.
For sure.
In mobile we expanded the reach of our Sky 5 portfolio.
<unk> upcoming smartphone launches at tier 1 manufacturers, including Google Apple vivo Xiaomi among others.
In Iot, we secured wins across a diverse set of customers specifically.
Execute we delivered Wi Fi front end modules for Facebook for their new portal launch.
Captured design wins at peloton supporting home fitness applications.
Partnered with Linksys on their newest Wi Fi 6 <unk> mesh network system.
And ramp additional advanced Wi Fi platforms at Lt's.
Typically auto communications and Aruba networks.
We also launched connected home and security solutions at Honeywell and ship cognitive audio platforms to Samsung and Vizio for their home theater systems.
In wireless infrastructure, we continue to leverage our small cell and advanced mimo expertise.
In support of multiple tier 1 Oems.
And finally in automotive, we strengthened our position across the global ecosystem with our integrated solutions, enabling advanced telematics for leading auto manufacturers.
In summary, Sky works Trust the technologies play a pivotal in.
A central role in the way, we live work play and educate.
Enabling ubiquitous reliable ultra fast connections possess.
Positioning our business for continued growth.
Sky work success is underpinned by unique strengths Inc.
<unk> are highly integrated connectivity engines per.
Yeah.
Patients across an increasingly diverse array of customers.
On multiple high growth end markets.
A differentiated manufacturing footprint levering strategic technologies from high performance filters to custom gallium arsenide in advanced packaging.
And finally, along with our seasoned.
And diligent work force, we maintained deep collaborative relationships with our customers.
These advantages will be further enhanced by the acquisition of the <unk> business.
This combination immediately broadens our product portfolio.
<unk>, our engineering prowess and expands our market reach.
While diversifying revenue and enhancing profitability.
With that I will turn the call over to Chris for a discussion of Q3 and our outlook for Q4.
It's Liam.
<unk> posted another quarter of strong financial results delivering record Q2 Q3 revenue.
<unk> of $1, $1.1.6 billion exceeding the midpoint of our guidance.
Total revenue grew 52% year over year, demonstrating exceptional performance across both mobile and broad markets.
Mobile revenue grew 52% year over year as we capitalized on.
Technology rich content powering and impactful set of <unk> customers in parallel broad markets revenue was up 50% year over year benefiting from strong demand for Iot solutions, including Wi Fi, 6 and <unk> and smart audio as well as emerging use cases.
Industrial and automotive markets.
Gross profit in the quarter was $565 million, resulting in a gross margin of 56% up 50 basis points year over year.
Operating expenses were $161 million or 14, 5% of revenue.
Anything spending discipline, while continuing our strategic investments to drive growth.
We generated $403 million of operating income translating into an operating margin of 36, 1%, a 480 basis points improvement over Q3 of last year.
Concerning other expense was 3 million, reflecting a partial quarter of interest expense associated with the recently completed acquisition of the infrastructure and automotive business of Silicon labs.
Our effective tax rate was 10, 4%, resulting in net income of 359 million or a.
Net income margin of 32, 1%.
Execution on top and bottom line growth, while expanding gross and operating margins drove record Q3 diluted earnings per share of $2.15.
Beating the guidance by <unk>, <unk> and an increase.
72% when compared to fiscal Q3 of 2020.
Turning to the balance sheet and cash flow third fiscal quarter cash flow from operations was 273 million capital expenditures were $115 million and we paid $83 million on dividends.
We ended the quarter with a net cash position of $1.5 billion with $3 billion in cash and investments and $1.5 billion in depth.
Moving to our outlook now for Q4 of fiscal 2021.
Based on continued robust demand for connectivity solutions.
<unk> in mobile and broad markets.
And the inclusion of a partial quarter of revenue from the recently completed acquisition. We expect continued growth into the September quarter specifically.
Specifically in the fourth fiscal quarter of 2021, we anticipate revenue to be between 1.
$2.7 billion and $1.3 3 billion with non-GAAP diluted earnings per share of $2.53 at the midpoint of our revenue range.
This represents revenue growth of 36% and non-GAAP diluted earnings per share growth of 37%.
Compared to the fourth fiscal quarter of 2020.
Exclusive of acquisition related revenue, we expect double digit sequential growth in both mobile and broad markets.
Gross margin is projected to be in the range of 51% to 51, 5%.
And we expect operating expenses to be between 180 and $183 million.
Below the line, we anticipate roughly $11 million in other expense, reflecting the interest expense associated with the acquisition financing.
We expect a tax rate of approximately 10.5 per cent and a dilutive.
<unk> account of approximately 167.5 million shares.
And lastly, given our conviction and scour strategic outlook and predictable strong cash generation to day, we also announced a 12% increase to our quarterly dividend to <unk> 56 per share.
Sure and with that I'll turn the call back over to Liam. Thanks, Chris Skywalk is clearly on track to deliver record financial results for fiscal 2021.
As mentioned the addition of the <unk> business further propels our expansion into strategic growth segments.
And with a widening array of usage cases.
The proliferation of <unk> is driving significant momentum for Sky works.
Our powerful generation cash generation capabilities technology centric operational scale and global reach are fueling a robust design win pipeline.
And finally, the strength of our balance sheet allows us the flexibility to invest.
To win while delivering consistent shareholder returns.
That concludes our prepared remarks, operator, let's open the line for questions.
Thank you as a reminder to ask your question you will need to press star 1 on your telephone keypad and you enjoy your question just suppressed the balance.
And given time constraints, please limit yourself to 1.
Question and 1 follow up.
Our first question comes from the line of Craig Ellis from B Riley Securities. Sir Your line is open.
Yes, Thanks for taking my question and congratulations on the financial results guys. Chris I wanted to start with you and just see if I could get you to put a finer point in time the contribution.
From a N I and fiscal fourth quarter can you be a little bit more specific on on what you'd expect from a revenue standpoint, and the earnings contribution from the jail.
Yes, yes correct.
We are not going to report on any specific business line on product line within the quarter.
But given that you asked.
First of all we're very excited about our conclusion and the closing of the acquisition on July 26 or earlier this week.
It's a great business.
Very diversified new revenue streams and high growth markets for us.
Abuse business was running and we told you that when we announced the deal at approximately $400 million of revenue on on annualized basis, So approximately $100 million.
Of revenue on a quarterly basis, if it's a full quarter, but this is only a partial quarter. So we only get 2 out of 3 months.
In.
This September quarter, we will get 3 out of 3 months in the December quarter.
So I hope that.
Answers your question.
That helps and then I'll, just stick with Eni, but make it a longer for more.
Strategic question and I'll flip it to you Liam.
Under.
The Blender Silicon labs. This was a very high quality business that steadily grew over time.
2 different end markets and and now you have it.
Just hoping that you could spend a minute talking about your vision for what you can do from a synergy standpoint with channels with customers.
With product Roadmaps.
What do you think that means for the growth rate of the business on a multiyear basis from the base that Chris talked about which is up $400 million business yes.
Yes, absolutely well first of all as Chris mentioned, we really are excited about taking on this saw this acquisition gray.
8 people great technology Fabulous end markets and the other really important thing is this is all uncorrelated to what we do on mobile. So this is really unique for us.
1 of the things Craig that we absolutely will capitalize on is the quality of the technology that the silicon labs team has brought and our ability.
<unk> Sky works to scale to scale at high level. So we look at these products now that are great and we think we can take them as is and bring them to newer customers broader scale opportunities proliferate much further than what we see today.
And it's going to be a lot of fun doing that in our on our folks at Sky works you know our operational team on.
For the.
The ability to do work on our own Fabs, which is very strategic right now.
We'll definitely put some fuel behind it. So we're excited about a lot of great end markets. Our improved margin improved diversification theres. Some customers that we know very well that we can take them to these products and there is some new accounts that we're going to find together. So we're really excited about the opportunities.
Very early but we're.
We're very very excited about what we can do.
Got it thanks, guys and good luck.
Thanks.
Thank you. Our next question comes from the line of Ambridge Srivastava from BMO, Sir Your line is open.
Alright, Thank you very much excuse me Liam.
Can you comment on shortages.
And in this case, there's a public comment that will make so I can name them I know, we're not supposed to your name your customers, but they talked about shortages getting worse in the third quarter. It's from from your perspective are you seeing that impact your business in the third quarter and the cash.
Got into the third quarter, and then I had a.
Quick follow up please.
Sure well on a general basis I mean, there is a.
Supply chain crunch around around semiconductors, I think we all understand that and it's affecting everybody to some degree I would say that Sky works and if you know the company here right. We were an investor in technology, and we have a low.
Take care of our technologies in house in our own Fabs, all the way from gallium arsenide to assembly and test the bulk acoustic wave filtering Tc saw a lot of really complex.
Portfolios that we have in technologies that we bring in our own house. So we have.
The benefit of that scale and the investments that we've made over the years for.
Lions share position in supply chain now, having said that as we all know that any any given platform, whether it's a smartphone or a piece of the infrastructure pie on.
All the components have to come together to create a solution for the customer. So if anything is short anywhere in the food chain.
It can impede demand right execution.
And around demand. So we are certainly seeing that all I feel like our teams are doing a good job navigating through.
But it's clear that there's there's more demand opportunity now that hasnt really been execute it. So I think we're going on we're going to work on our end to support our customers sought we're certainly doing the work in our Fabs in our labs.
<unk> to be a little bit more efficient there and driving the technology, but it's clear that there is an impediment in demand right now globally and supply chain. So that that is a that is a real issue.
Got it. Thank you and you did flex for supply chain capability. So remember December quarter I had a question on gross margin maybe Chris you can address.
Yes.
And I'm just trying to do my math on the fly is it.
Delta and we haven't seen this level in a while.
This delta is coming from impact from the contribution from the Silicon lab business, because the cost headwinds out there and seem to be getting not getting any better. So can you just walk.
With the Delta on gross margin. Please thank you.
Well first of all I'm pleased with our execution on gross margin, we did 56% gross margin in the June quarter up 50 basis points year over year and that's just pure.
Organic.
We guided just 51%.
That's 1 and a half so that's up on all of those 65 basis points sequentially or up 85 basis points on a year over year basis.
As we indicated before the eye on new business is helping them because thats running on or about 60% gross margin.
But you can clearly.
For <unk> as well that we continue to make further improvements in gross margins in our organic business as well as we execute on our technology Roadmaps get more and more <unk> Wi Fi 6 Wi Fi 6 E higher level of complexity higher performance parts in our product mix.
Thank you.
Thank you. Our next question comes from the line of Karl Ackerman from calling Sir Your line is open.
Great. Thank you very much.
I want I wanted to focus first on the slab I.
On a division that just closed.
Yes.
I know.
Can you just closed a couple days ago, but during your due diligence process have you been able to find areas of cost overlap that may drive incremental synergies over the next few quarters and I guess as you address that question.
Could you also describe any early indications.
Sales synergies in the broad markets Division now that that acquisition has closed and that I think will allow you to have a much broader solutions set for customers.
Yeah, absolutely so on the on the cost side clearly the ability to take our Sky works for $5 billion run rate revenue company.
On and the infrastructure that we already have in house and the technology Knowhow that we have it's definitely a strategic piece of a day equation with the silicon Labs' deal for sure.
And then on the customer side.
Some great products that are ready to go right. Now we just have you know as a team can can lever up some of those portfolios.
Set the Silicon labs team has brought to us and we know where to take it on.
We're also a big volume player at Sky work. So we are absolutely ready to go after big game.
We have to scale for it we have the appetite for it we have the technology know how on promise to make that happen. So there's a lot of really good technologies that are there in.
And the slab iron 18 that we can scale with known customers and known markets and that's going to be an important part here and we've spent a lot of time working on it as we as we went through diligence on this process.
And both of those vectors are going to be strategic for us as we go for it and we have a game plan to make it happen.
I appreciate that Liam for them.
My follow up.
Outlook for September it looks to be up 11% sequentially on on even just an organic basis on par with.
1 of your RF peers, who reported this week.
That Pierre indicated that some of the slowdown in Android production did impact.
<unk> results.
But it's more really due to supply constraints.
And I guess some of that would improve in the September quarter. My question and then maybe Dovetailing to an earlier question. Today I was hoping you could address whether you see improvements in assembly and test or other areas of constraint.
Allow you to propel strong results from here. Thank you.
Sure no that makes total sense and that's what we're seeing so for that for most part we have a great deal of control on our supply chain, because we have our assets, but it only takes 1 or 2 devices that you don't make to want to create an impediment on demand. So there.
Theres clearly levels of demand that are being delayed in terms of execution due to supply chain constraints.
It's kind of a global issue right now all we're doing some really good work on our end we're levering what we can on our side and working with our partners were.
The outside partners that we may have but and I don't think.
This is going to be a long term problem, but it's certainly a problem that it.
It is making its way through the semiconductor cycle.
Companies have it worse than others.
With our internal capabilities I think we have.
Some strength there that others may not have but it is certainly a unique case, where demand is being impeded that.
Some degree with supply chain issues in that and that is just a kind of a global issue now in the semiconductor space a lot of work being done.
To walk you know get that free flow of demand again, but the demand opportunities. There. So I want to make that clear I think the demand opportunity for the products that we have.
On the appetite from our customers is still very strong.
On the technologies that are coming to market are a rich and powerful and I think that's all going to come to market here soon.
Thank you.
Thank you. Our next question comes from the line of steam as the Arcuri from UBS. Sir Your line is open.
Thanks, a lot.
This is probably a tough.
A question to answer given the addition of the slab revenue, but I'm just kind of wondering as you look into December.
For the strip that out.
It seems like December is normally up.
Low.
Teens.
I'm wondering if you can look at it into December and if you excluded slab is that sort of how you see things trending into.
Yeah.
Yeah. So Tim as you know, we only guide 1 quarter at a time and we feel really good about the guide that we provided for September.
Having said that looking to December.
You you're absolutely right, we typically see further strong sequential growth.
Does that mean that December quarter.
As we execute on some high content rich.
<unk> <unk> from ramps.
And we do expect our broad markets business organically to further continue to growth.
The December quarter, and so Pleasant addition.
And as I mentioned before we will have 3 months of the eye on a business in the December quarter, and so on when you put that altogether, we feel really good about our about December.
Thanks, Chris.
Thanks for that and I guess typically your concentration from your largest customer is in the June quarter.
Into the 45 to 50 per cent range and I. Just you know typically you sort of give us a sense of where that came in was it in that same range 45 or 50 per cent.
Yes. So in June it was slightly above 50%, which by the way it was exactly the same percentage a year ago.
In the June quarter.
Quarter on 2020.
Thank you Chris appreciate it.
Thank you. Our next question comes from the line of Ed Snyder of charter equity Sir Your line is open thanks.
Thanks for a lot Liam.
Acquisition, I think slab was a great acquisition, but if I look at this as very.
It was somewhat in somebody else have you done and I think 1 of the best probably the best you've ever did in 1 of the best in the industries. Besides you back in 2011, but that was a screaming for primarily because the technology. They had was a was excellent and was a coveted by some of your largest customers your largest customer, but they couldnt buy for them because.
Different ball so on Scarborough has got a hold of it off to the races. You went and it's been a huge success I'm sure. This looks to be more like a ti national acquisitions, where it's kind of a plug and play diversification rule I'm not clear I know you you plan on growing it and I know you've got a lot of great technologies and excellent profile in terms of our margins.
But could you give us some examples of where you can grow this into your customer base and most of it I imagine there's going to be in broad markets, and there's probably little chance that you'd see.
On anything close to the growth in this revenue line that you saw with sides because it's not going to go into your mobile customers right. So maybe maybe you can help us flush that out a little bit more on on what the growth rate could be.
Where you go to where you're going to see that growth specifically if you could thanks.
Sure sure Yeah, so obviously through the process.
Deep dives into all of the elements of the <unk> business. They have a very strong timing portfolio, which we can take the multiple customers and customers that we have right now they have an isolation business thats.
Very strong they are automotive portfolio is outstanding.
A lot we can do there.
There's quite a bit of customer and sales synergy here that we can unlock.
1 of the things I would say is is their their portfolios.
Very strong technically but hadn't.
Like it has as broad in terms of scale right going after the very very large players.
And that's something that we do very well here. So we're going to lever up the scale, we're going to enhance the technology, we're going on we're going to invest in this portfolio.
Some great great folks there are some great people great end markets that we can pursue.
And we think it's going to it's going to really be a special deal for us in the early innings here, what we're seeing.
And the engagements with their customers and what we're doing on with our sales channel I think its going to be unique and then the manufacturing benefits right for the most part.
On the <unk> business has been outsourced.
And I think Theres a credit.
Credit tail off.
Of synergy that we can use in our assembly and test operations, even if even if there's some fabless elements just having the packaging assembly and test in house as a strategic advantage as well. So we're really excited about it and and we spent.
A great deal of time working through this transaction and you know we haven't done a lot of deals here at Sky works for very conservative with that and it has.
Has to fit before we go go about an acquisition and this is 1 of those transactions that.
As we move through the process, we liked it more and more and we really like it now.
And look forward to demonstrating that opportunity as we go forward.
Great and then if I could shift to mobile, perhaps I mean, your largest customer leads.
Yield on the complexity and sophistication of our friend and I think everybody knows that and and some of the things that they implemented last year and look to be playing this year. They write the skywalk strength, obviously I mean, we saw the December quarter for last year was phenomenal, but in terms of the rest of the world, especially with regard to China They lag.
It looks like they're moving in that direction now stepped back and looked for the sales of abuse Sky works is kind of what might under earned in in China over the last several years maybe over earned domestically.
I'm wondering if those technologies move into into the box group.
Does that present, an opportunity to do you think you'll be able to exploit that.
And it's on the largest share so we should we expect to see more acceleration in growth in the in the in the Chinese Oems Android set coming out of there for Sky works for them in the next year.
Yeah, It's a great comment I'm glad you brought it up.
And the answer is we are seeing a great opportunity there that we went through the last calendar year with great success will continue to do.
To get flagship.
Models, largely domestic U S players.
And we're starting to see now the incremental move with the Apo vivo Xiaomi media Tech players as they bump up and bring their technology along in 5 G.
And that's a great opportunity and the content Delta out there can be substantial.
And we're working that very hard you know we mentioned it in our prepared remarks.
And that's a very strategic lever for Sky works and we're engaged so this isn't a case, where you have to break in and form a relationship but we're already a supplier to these key players, but we're seeing the technology lift within their devices, it's exactly what we anticipated so we should.
Expect more from that corner of the world.
Yeah.
Next question.
Thank you. Our next question comes from the line of Gary Mobley from Wells Fargo Securities. Sir Your line is open.
Hey, guys. Thanks.
For taking my question.
Your 1 of your competitors on there are upside you had been talking about.
For example opportunity of roughly $10 billion. It has opened up largely because of Huawei business essentially dying on the buying.
And that being redistributed amongst more influential customers.
I'm wondering I was hoping to get your perspective on how that has benefitted sky works in recent quarters, what inning, we may be in with respect to that redistribution of market share in and how it may impact you guys looking forward.
Yeah, no. It's an interesting question.
As we just mentioned in the last with the last caller.
So we're deeply engaged in China across all the platforms and we have good relationships there.
When we formed those for years. So we've always been a trusted partner we have the knowhow to create custom engines with our sky 5 portfolio that allows our our end market customers to step in quickly with a solution.
<unk> that we've architected, so we see that demand opportunity as well as anyone.
We have a more diverse portfolio that can address those markets as well. So it's not a single solution. We can crack that we can customize that we can reach into our sky phy portfolio and do exactly what the customer needs.
So we look forward to that growth. So we see that same opportunity.
And it can be upside for us as we see the China move into <unk> accelerate.
Okay My follow up I wanted to.
I wanted to ask you about content growth at your lead customer, but I will.
We'll go there but.
Maybe you can give us a little more.
Detail.
On on your sort of the frequency band support that will be needed as we move from 1 <unk>.
Phone to the next generation in other words the cycles within a cycle so to speak as it relates to air interfaces.
What sort of content growth do you think you can see long term and broad market related.
As these flagship phones needed.
Support more frequency bands in particular.
Things like millimeter wave support and then related to that perhaps what your current stance is with respect to millimeter wave. Thank you.
Sure well I mean.
As you've seen the frequency opportunities continue.
And if you look at the C band auction for example that opened up a tremendous amount.
On the technology for years to 6 gig when we can capitalize on immediately.
I think the appetite.
If we go high level the appetite for this technology is really strong right the mobile technology that.
That we see every year gets.
It's more complex for challenging whether it's in China, whether it's in the U S and we love that because we're a company that focuses on the high end, we focus on technology, we focus on excellence in our products and we see that opportunity be rewarded with our customers. So we can hit on.
All of those nodes, whether it's a China play whether it's at the high end of.
The U S and we've grown the technology along with it. So that's how we go to market there.
There's nothing new about the news around Huawei or anything like that all that stuff is completely understood.
Millimeter wave you mentioned millimeter wave as an interesting technology works in certain areas. It has some drawbacks as well all.
All of that that are well known and we listen to our customers and we have great engagement with all the players that we need to work with.
And together, we resolve the complexity and work on the end market solutions. So we have investments across that entire spectrum.
We know we know what we need to do to win we also know what.
We need to do to allow our customers to win and that's the recipe that's been working.
Thank you. Our next question comes from the line of Blayne Curtis from Barclays. Sir Your line is open.
Thanks for taking my question I, just wanted to revisit the September guide.
I guess when you look at it.
On an organic basis, it's a little over $100 million sequentially. If you look back last year your lead customer kind of contributed that amount and with the earlier launch in content gain do you think it will.
It's more so just trying to understand are there some segments that.
<unk> are down or are you, adding some conservatism just trying to understand with the acquisition I know, it's a great sequential but.
Just from looking at the moving pieces should be a bit more in my mind. So I'm just trying to figure out what I'm missing.
No Blaine I think so as we indicated.
We organically.
So we see double digit sequential growth into September.
Both in our mobile and broad markets business.
Uh huh.
We have really done well and executed well on the design win side, we have higher content.
In multiple.
<unk> phones at all Oems that are launching and that will be launched here.
In the next couple of months or so.
And so it's.
Sometimes it comes a little bit of a unit play. So we as you know we always are somewhat conservative in our assumptions there.
There is definitely strong demand for our for the products, we do take into account as Liam earlier expressed some of the.
Global supply issues, which are there right and.
You need 100 parks to make a phone either on only 95, including the Scotland spots, but do not missing some other parts from somebody else who can.
For bone, so that's all being taken into account.
Again.
The growth will continue into the December quarter.
And so when you look on how we will execute in the second half of the calendar year September and December combined I think you will see some really nice strong year over year growth.
Okay, and I guess, maybe.
Maybe just drilling a finer point on broad markets I know you don't on a breakout for contribution, but maybe could you talk about would it be up on.
On organic basis into September.
No thats exactly the points right. So our broad markets business will be up double digit sequentially.
Excluding any contribution from day <unk> business and when you look on a year over year basis, it's up.
Strong double digits right, we continue to be on that call it on or about 30% year over year growth.
Okay.
Thank you.
Thank you. Our next question comes from the line of Chris Caso of Raymond James Sir Your line is open.
Yes. Thank you first question on on broad markets.
And I know that Wi Fi is a big part of the broad markets our organic business.
And thats been strong in Wi Fi 6 ramp.
I guess the question is for how long do you expect that Wi Fi 6 ramp to continue.
It has been Wi Fi has been 1 on this.
Segments, that's benefited from from work from home, but I.
We've also heard is there is also an enterprise refresh on Wifi 6 that has to happen.
So I'm not sure of the size of those particular segments on on whether that gives it.
Enough strength, even if some of the work from home trend should should subside if that allows that Wi Fi 6 trend to continue.
Yeah, Christy Wi Fi cycle on in some ways almost apparel for what we're seeing in <unk>.
Hi.
High complexity, you know moving into 16.
Really complex stuff from from <unk>.
Consumer enterprise. It continues to grow we have really good technologies in this area, we have great relationships with our customers.
Kind of a ubiquitous player in terms of connectivity. So it's finished.
On a strong driver for us in the complexity and the devices continues to go up we have really good business Wifi enhance net but then we also have incredible opportunities.
When we look at the access points and routers that we're seeing today that are really scaling up significantly in terms of the performance.
The data rates.
And so that's continuing to move and I don't think it's really just a work from home I think we're starting to see that.
Come on really must have type of technology. So that's been a play for us other other areas in broad markets continue to grow we are doing.
Really good work on the infrastructure space, we've got customers like Honeywell and in the industrial.
Area.
The wireless infrastructure side, we need for like Nokia and Ericsson are stepping up a bit.
And as Chris mentioned, and you are talking about 50% year over year in that business. So it is a unique portfolio continues to grow.
Very diverse and also a great partner to tag with our with our <unk> portfolio.
So I think.
We're going to be able to bring some cross <unk>.
Cross selling and new customer engagements through that thought process as well. So we look forward to the Wi Fi as you said at the beginning it's really strategic and we're very well positioned.
Okay.
As a follow up with.
This is somewhat.
Some of the costs that you've been absorbing that a bit of a headwind for margins.
Particularly some of the Covid costs.
Some of them.
Production facilities have been running quite as efficiently.
As you wanted.
<unk> seen some reports that some of the subcontractors in southeast Asia have had to take some shut.
<unk> Downs again.
What's your view of that what what's the headwind that youre still seeing from these costs and.
Is there a timeframe that you could see that some of these costs would come out and therefore be a positive for gross margins.
Yeah, Chris So again, we executed well on gross margin was 56% 50.
2 points year over year. Despite the fact that there are still a couple of headwinds the COVID-19 headwind costs are still there.
And and I think honestly they go on to stay there for a couple more quarters were working it hard we're getting better at it but those headwinds are.
Still there in addition to that as we discussed earlier, it's a very tight supply environment and and.
And so again, that's not really helping us but despite that we are further we are further improving our gross margins a lot of that of course.
50 basis, as we scale up the business.
We last year, we did $3.$3.3 $4 billion of revenue. This year, we will be doing more than $5 billion.
For revenue. So we are able to mitigate some of those headwinds and as I've said before.
<unk>.
Keep on climbing the technology ladder.
<unk> higher complexity higher performance more <unk> more Wi Fi 6 and 60.
And then in addition, you have the <unk> business at higher margin. So you combine all of that you will see continue further gross margin improvement.
1 some of those headwinds will will start.
Hang on to become tailwind, we will make further improvements towards our target model of 53%.
Thank you.
Thank you. Our next question comes from the line of <unk> Hari of Goldman Sachs. Sir Your line is open.
Hi, Thank you so much for taking.
The question.
Got 2 as well my first 1 is on is on broad markets.
In the June quarter grew really nicely on a year over year basis. I think you said, 50% on a sequential basis I think it was down about 10, which was a little bit below what you had you guys had guided to so just curious what the delta there was.
Tony puts and takes and then on the flip side, obviously youre guiding that business up double digits in September. So if you can kind of speak to.
On the drivers in September within broad markets that would be super helpful.
Yeah first of all I mean, we went up 55 zero, 50% year over year in broad markets in June saw.
Some of them I would say great execution, maybe it was slightly below what we anticipated and some of that to be honest as supply because the demand is is a lot stronger there but.
We worked supply and as Liam pointed out we have we have some minor bumps.
And.
<unk>.
So thats part of it again, we continue to see strong growth into September guiding up sequentially double digits continue to see very strong year over year growth.
Across all of those end markets.
Got it and then as a quick follow up.
Wanted to ask about cash.
And going forward.
Congrats on closing.
Labs, you talked about raising the dividend as well.
So that's pretty clear.
On between Capex, and perhaps deleveraging the balance sheet and buybacks how should we think about the balance going forward. Thank you.
Yes in terms.
Use of cash and cash usage and cash allocation I would say first of all we will continue to invest in technology and innovation with our research and development activities.
That is key to what <unk> is doing secondly, we will also continue to further expand.
For manufacturing assets and gallium arsenide in filter advanced packaging.
So we will continue to contribute substantial amounts.
Capex to further expand our reach and expand our manufacturing assets.
All of that we will.
To deliver strong free cash flow, we have a free cash flow target of 30%. We will continue to make further improvements towards that target and the free cash flow will be used first of all to pay the dividend and.
And we just announced a 12% increase in dividend now at 56.
And notice.
Continued room for improvement there secondly, we will focus on repaying the depth, we have $2.5 billion of depth on the balance sheet.
Of 2 day, including a $1 billion term loan we are going to focus on repaying debt term loan. We do have on authorized share buyback program, but we have.
Fairly suspended that as we for now focus on repaying the term loan, but at a certain point of Inc.
Time, we can of course switched that backhaul.
Thank you for the detail.
Thank you. Our next question comes from the line of Tristan Gara of Baird. Sir Your line is open.
Hi, Good afternoon, just wanted to expand a little bit on a prior question about alright content in next generation <unk> phones.
That increase in the first Gen <unk> zone was probably in.
In the 30% range year over year.
You didn't mention the things like C band that's going.
<unk> continued to drive content increases, but how should we look at.
That second Gen <unk> from this year would be the increase.
Increase down to maybe a high single digit.
For the year in terms of content and then the follow up question is in China, you did mentioned on <unk>.
In China, but the adoption rate for <unk> sounds there is almost 80%.
So are you expecting to gain market share or is it that the second Gen. <unk> in China are going to use much more RF content than the previous generation because clearly the adoption rate is up there.
They're already.
Sure sure let me, let me try to unpack that question here well first of all what I can say is there is a there is.
Here's a <unk> in China. So you have a <unk> phone that has a certain level of complexity that you could have another 5 years from that is much higher complexity and performance.
And we can scale through all of those nodes. So.
So penetration maybe still relatively high there's still a tremendous amount of loans in China that that need another quick performance.
We know that because I mean, we see the entire markets. We see the market from end to end from the U S to Europe to Asia.
And so theres a lot of opportunity for content gains from the current position in China.
If you look at other markets, we're seeing the same push for technology higher performing we're seeing more features more applications and a higher burden that's put on these smartphones and <unk>.
And that's all good stuff for us it gives us the opportunity to come in with our solutions all the way from.
See saw for bulk acoustic wave assembly and test packaging in house.
In our own fab. So we're really excited about it so we do see continuous growth and continuous growth in content, but the content is getting harder it's not more things it's more complex things.
And so you need to have an architect that can bring us together and make.
It easier for our customers to assimilate that's what we do.
So every year, it's not just from default on the phone for the technology and the complexity within the device is rising.
And that for US is very very good and it limits the competition and it puts us in a great position to delight the customer so we look forward.
To that and overall <unk> penetration at a high level is still very low right now globally. There is a lot of room to move from here and Theres a lot of upgrades that havent yet commenced so we're looking forward to it but the technology is not stagnant it continues to get tougher and tougher higher bar and opportunities for just a few players.
Sky works to execute.
Yes.
Great. Thank you.
Thank you our last question comes from Kevin Cassidy of Rosenblatt Securities. Sir Your line is open.
Oh. Thank you. Thanks for taking my question just wanted to understand a little more about your order.
Our flexibility are you getting orders that are.
Have to be scheduled now into the fourth quarter or even going out for that.
Fourth quarter calendar quarter that would be.
For the first quarter for calendar 2022.
Yeah, well I mean in general terms.
The ability to get that demand.
<unk> has been impeded Ryan as we discussed.
On the call today, I would say that Sky works uniquely with our own Fabs are wrong Assembly and test on assets.
We're a manufacturer as well as a developer of technology. So we should be able to do better than.
And then peers that are more fabless, but at the same time.
Through <unk>, we're all dealing with this global.
Chip shortage as we say.
And so that is an impediment to demand, we talked a bit about that and hopefully that can be on stock to some level, but we are working with our customers closely.
We're doing our teams are working very hard to resolve any impediments and demand execution and we certainly.
Hi.
Abate over time, but it does play through in the current quarter and into the second half of it.
Okay, great and just to make sure I understand that sort of if for your customer isn't getting the full bill of material, they're asking you to hold up deliveries there, they're not building inventory of your product waiting for.
Certainly.
Yes, there is somewhat.
It's true it just depends on how it's going sometimes our parts already and we're not hold anybody up at someone else's holding up price. So it is kind of a.
Everything has to be complete for an end product to shift so any anything in the food chain that goes sour.
Sentiment, but I think.
We will navigate our part and we do see some.
The clouds kind of clear on here in the next couple for few quarters, and we should benefit from that.
Okay, great. Thank you.
Sure.
Yeah.
Thank you, 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 comments. Sir. Please go ahead, thanks to everyone for participating today, we look forward to talking to you and I will cover upcoming conferences in the quarter. Thank you.
Ladies and gentlemen that does conclude today's conference call. We thank you for your participation.
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