Q1 2022 Qorvo Inc Earnings Call

Please standby we're about to begin.

Good day and welcome to the equivalent Inc. Q1, 'twenty 1 'twenty 2 conference call. Today's conference is being recorded and now at this time I'd like to turn the conference over to Mr. Douglas Toledo, Vice President of Investor Relations. Please go ahead Sir.

Thanks, very much Cody.

Hello, everybody and welcome to your Corvid is fiscal 2022 first 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 encourage you to review the safe Harbor statements 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 SEC because these risk factors may affect our operations and financial results in today's release and on today's call. We will provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results.

I've analyzed for that's performance without the impact of certain noncash 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 for complete reconciliation of GAAP to non-GAAP financial measures. Please refer to our earnings release issued earlier today.

Available on our website at Corvo Dot com under investors joining us today are Bob <unk>, President and CEO, Mark Murphy, Chief Financial Officer, James Klein, President of Carbos infrastructure and defense products Group, Eric Creviston, President of Corporates mobile products group as well as other members of corporate management team and with that I'll turn it over to Bob.

Thank you, Doug and welcome everyone to our call for.

The cargo team delivered an exceptional June quarter revenue gross margin and EPS were each above guidance.

<unk> demand during the quarter was broad based and included recently released product categories, including <unk> diversity receive modules.

Space touch sensors.

And Wi Fi 6 <unk> to name a few.

Our R&D teams are relentlessly advancing technologies that enable more complete integrated solutions and increase our differentiation.

We are partnering with leading customers serving them, where we are most valued and introducing new products and technologies that expand our addressable markets.

We are pleased with ongoing design activity, we are locking in wins and we expect the demand environment to remain robust.

In the smartphone market <unk> devices are adopting new architectures, and adding functionality that enhance performance and create new challenges related to current consumption for space and handset design resources.

To address these challenges handset manufacturers are selecting more highly integrated solutions that deliver superior performance.

For hormone the content opportunity in a <unk> device increases by 5 to $7 when compared to a <unk> device.

We expect handset units to grow 5% to 10% this year.

<unk> doubling to around 550 million units.

In 2025, 5 G units are expected to be approximately 80% of total units.

And other connectivity markets new applications are proliferating supported by generation over generation advancements and Wi Fi Bluetooth Zigbee thread ultra wideband and other wireless protocols.

Growing number of applications multiple wireless standards coexist and operate concurrently.

As an example, 1 of the largest smart home providers recently integrated numerous low power wireless protocols into its distributed Wi Fi 6 router.

<unk> infrastructure for seamless whole home Operability.

We expect this integration trend to continue our expertise in areas, including product design software support and system solutions enable us to simplify our customers' product development efforts, while significantly enhancing the end user experience.

Outside of connectivity markets, the expanding opportunities are driven by a diverse set of underlying upgrade cycles.

This DC motors are replacing larger less efficient conventional DC motors.

Solid state drives are replacing slower and less reliable hard disk drives and touch sensor solutions are replacing less functional traditional buttons.

We also expect RF based biotechnology testing will enable central lab performance at the point of care for.

We expect our first commercial orders for omni it's test platform by the end of the year.

Turning to the June quarterly highlights.

And finally handset customer demand for highly integrated modules is expanding.

During the quarter, we launched our next generation complete main pass solution, which includes low band mid high band and Ultra high band modules offering higher output power and enhanced mimo support for upcoming <unk> phones.

For the diversity path, we began sampling our first 5 G D. Rx a sub 6 ultra high band placement offering best in class received sensitivity.

These main path and diversity path solutions integrate filtering and amplifiers that were formerly discrete helping our customers to save board space improve device performance and accelerate product development efforts.

Also during the quarter, we announced the interoperability of our family of Ultra wideband products with apples <unk> chip and the near by interaction protocol.

<unk> Ultra wideband solutions provide a superior level of accuracy for liability latency and security when compared to traditional technologies like Wi Fi BLE and NFC.

In addition to remote access to our cars and homes ultra wide band will enable new applications and the connected home indoor navigation contactless payment factory automation and other use cases with more in house software capabilities from our recent 7 hubs acquisition, we now offer a complete.

<unk> solution and we're working with customers on products, combining our ultra wideband hardware with our latest software release shortening time to market.

We see a growing set of applications for ultra wideband solutions and customer design activity is accelerating.

And Wi Fi for handsets, we secured new reference design engagements with our Wi Fi 6 <unk>.

These chip on board firms reduce insertion loss and enhanced handset design flexibility versus system in a package solutions by enabling placement closer to the antenna.

Leading Android manufacturers are moving from system in a package placements for best in class RF solutions and Corvo is winning on the strength of our product design performance and customer support.

In automotive, we achieved record revenue up more than 80% year over year in support of automotive Oems in the U S Europe and in Asia.

Growth was driven primarily by the increased demand and expanding connectivity requirements for Wi Fi.

<unk> LTE and <unk>.

Content growth was also include included our touch sensor solutions, which automotive Oems are using to enable smart interiors. This.

This is a new growth category for Corvo, and we have secured design wins in support of multiple automotive customers.

To enhance the functionality of our touch sensor solutions and foster new use case cases, we've integrated infrared capabilities, a milestone achievement for sensor team.

For the smartphone we partnered with a leading supplier of home mesh networks to introduce the first Wi Fi 6 router with integrated BLE thread and Zigbee multi protocol operation.

This leveraged our concurrent connect technology, we also secured a <unk> filter design win with a leading supplier of high end audio speakers to support the pairing of Bluetooth low energy and Wi Fi 6.

As a member of the connectivity standards Alliance.

And an early participant in the upcoming matter connectivity standard corvo stands to benefit as multi protocol seamless interoperability drive Iot adoption and growth.

In power management, we released a 40 volt motor control solution that supports the ongoing transition to higher voltage battery power tools.

Demand for our motor control and power management products has been very strong driving growth in applications from appliances and battery powered tools to enterprise compute laptops and gaming.

We are seeing demand for brushless, DC motors expand into lower cost power tools and smaller appliances, given the advantages and efficiency size and reliability.

We're also leveraging the configure ability of our power management solutions to address new applications in defense and other markets.

In infrastructure, we increased shipments to multiple Oems in support of FRG sub 6 gigahertz massive mimo and macro deployments in the U S, Japan Korea, and Canada, we are.

Also achieved initial design wins supporting a massive mimo deployment in India and.

And we've secured bonds filter design wins for 3.5 gigahertz and 4.9 gigahertz <unk> small cells with a major China based Oems.

New product launches, including Gan integrated modules for massive Mimo systems, and a family of high efficiency power amplifiers for <unk> small cells, serving densely populated areas.

Across our markets. There are strong secular tailwind connectivity is proliferating and complexity is increasing which is expanding our growth opportunities.

We supplied best in class products, and our investments in new product areas and differentiated technologies are extending our technology leadership and broadening our reach.

As our June results and September guidance demonstrate end market demand is broad based and robust and our outlook is strong.

And with that I'll hand, the call over to Mark.

Thanks, Bob and good afternoon, everyone Carver.

<unk> revenue for the fiscal year 2022, first quarter was $1 billion $110 million.

$30 million above the midpoint of our guidance and $323 million or 41% higher than last year.

Mobile products revenue of $836 million was up 79% year over year on the growth of higher content <unk> smartphones.

Infrastructure and defense products revenue of $274 million was down year over year due to the especially strong infrastructure demand during the June 2020 quarter.

But the segment was up sequentially as Wi Fi and programmable power management growth continued and infrastructure growth resumed.

Non-GAAP gross margin was 52, 5% and above our guidance on more favorable mix and pricing improved manufacturing yields and lower inventory charges.

Non-GAAP operating expenses in the first quarter were $216 million or 19, 4% of sales and in line with expectations.

Sequential and year over year increases in Opex are driven by technology and product development expenses associated with key organic growth programs and recent acquisitions.

Non-GAAP operating income in the June quarter was $367 million and $33.1 percentage of sales.

This was the third consecutive quarter of operating margin over 33%.

Non-GAAP net income in the first quarter was $323 million and diluted earnings per share of $2.83 was 38 cents above the midpoint of our guidance.

Cash flow from operations in the first quarter was over $341 million in Capex was $65 million.

Cisco at the level of spend we have discussed previously to support our outlook.

Free cash flow was $276 million, and we repurchased $300 million of shares.

The first quarter share repurchase was the largest dollar amount since an ASR in the March quarter of 2016.

Since the company's formation and through the June quarter, we have repurchased $3.7 billion of shares at an average price of approximately $71.

On the balance sheet cash decreased to $1.2 billion. Following the close of our next day put acquisition and share repurchases.

That remained unchanged at approximately $1.7 billion.

Our leverage remains low alright revolver is untapped and we have no material near term maturities.

Yesterday Fitch initiated a credit write down and corvo at Triple B plus.

This along with S&P's upgrade of Corvo to investment grade in April highlights the quality of core of other business the strength and durability of our cash flows and our financial discipline we've maintained.

Now turning to the current quarter outlook.

We expect revenue between $1 billion $235 million.

And $1 billion $265 million.

Non-GAAP gross margin between 52 and 52, 5%.

Non-GAAP diluted earnings per share of $3.24 at the midpoint of guidance.

Our September quarter revenue outlook reflects sustained and broad based customer demand driven by multiyear technology upgrade cycles.

Cargo revenue of $1.250 million at the midpoint is up 13% sequentially, 18% year over year, and approximately 27% year over year adjusting for last year's 14 week quarter.

As a reminder, our fiscal year 2021 was a 53 week fiscal year and the September quarter last year was a 14 week quarter versus this fiscal year is more typical 13 week quarter.

We forecast mobile revenue in the current quarter to be approximately $985 million at the midpoint.

31% year over year and 18% sequentially.

In IDP, we project revenue to decline slightly to approximately $265 million in the current quarter on defence program timing and continued supply constraints.

We expect IEP sequential and year over year growth to return in that December quarter.

Our September quarter gross margin guide of $32.2 5% at the midpoint is 55 basis points higher than last year's second quarter.

And reflects our ongoing portfolio management and sustained strong operating performance.

In the second half for the fiscal year. We currently expect gross margins to remain around 52%.

Resulting in full year gross margin above 52%.

Non-GAAP operating expenses are projected to increase in the September quarter to approximately $233 million on added labor and other development expenses associated with recent acquisitions and key growth programs.

At the midpoint of our September quarter guidance operating margin is forecasted to remain over 33% for the fourth consecutive quarter.

We now project, our current quarter and full year non-GAAP tax rate to be approximately 9%.

Capital expenditures are projected to increase to around $75 million in the September quarter as they work to intersect demand and support long term supply agreements with multiple customers.

We are off to a strong start in fiscal 'twenty, 2 and we are well positioned to continue delivering premium technology to an expanding set of customers and <unk> Wi Fi Iot defense power management and other growth markets.

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

Thank you.

Like to ask a question. Please signal by pressing star 1 on your telephone keypad. If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.

In order to accommodate as many questions as possible. Please do limit yourself to 1 question and 1 follow up before reentering the queue.

Once again that is star 1 if you'd like to ask a question.

We'll take our first question from Blayne Curtis with Barclays. Please go ahead.

Although we're unable to hear you. Please check your mute function sorry about that.

Nice results and guide.

I'll work better on the mute button.

Maybe just a high level you talked about the strong growth you're looking at in mobile up 16%.

Our team for Ed sequentially, just kind of curious I think the Android market is still growing and youre seeing a nice mix of <unk>.

But I think a lot of people are kind of saying more flattish kind of trending for the back half of the year you seem to be doing a bit better than maybe you can just walk us through the puts and takes in the mobile world guidance for September.

Thanks, Blaine, Eric I'll take that 1 sure yes, we are.

Turning to see really strong design activity for our <unk>.

Highly integrated for main pass solution, we introduced diffusion 'twenty 1.

Even more capability more band coverage and more mimo support in particular.

We've entered the diversity of market as you saw other strategic highlights.

And really a lot of the activity in next generation <unk> phones is around antenna management. So that's part of our business, which has been strong for some time continues.

<unk> continues to see a lot of design interest in customers asking us to even step up and take a maybe a.

A larger role in terms of determining the antenna control interfaces the tuning in and.

Internet flexing and so forth in and out of the antennas. So.

Really as you are looking to build the next generation of <unk> handset you were just real pleased with the way our portfolio is lining up to the key challenges that our customers are having.

Thanks, and then maybe a question for Mark just on gross margin you had thought maybe the June quarter would be a bit lower can you just walk us through what came in better for you and then as you look out.

I guess youre kind of talking about more flattish for the rest of the year any kind of puts and takes to that.

I mean, I know it is down but I guess, you're saying you should come back so that should help.

Yes Blayne.

Wanted to wanted to 1 of the issues.

Is the are deliver.

Delivering these sort of margins with with a weak infrastructure business in IDP. So I think that speaks to the quality of.

Yes for the rest of the business.

Yes.

June quarter.

And other strong b.

And thanks for just going really well I would say that combination of the environment. We're in.

Which which makes yes, it can be challenging other forecast, but also just our improvements are outrunning, even our own high expectations. So we're we're doing.

For the Oregon is operating very well.

And we're in the right places.

And that's paying off as it relates to the June date, we.

We did have the higher volumes and Atlas.

Yes favorable it skewed favorable on the mix.

Those higher volumes relative.

Relative to the guide.

We're still supply constrained so that allows us some tactical opportunities either day types of products and price.

And then again, we're just operating exceptionally well.

Yes, the product cash yields are better than I expected.

Manufacturing costs around control, we've got good utilization so.

The fixed cost absorption as predictable or better than expected and then we add other inventory charges.

For lower than expected so again.

Really pleased with the quarter.

Now we are.

Guiding down a bit.

Yes, we're still going to be up 55 basis points year over year.

Some of that is.

Yes, we just believe that.

Some of the price effects will begin to moderate a bit.

Yes, the inventory charges, we expect to be a bit more normal.

But I think it's hugely important to keep in mind net net we're stabilizing around 52%.

And structurally this is a better business than it was years ago.

Yes, that's.

So it is sustainable.

Yes, it's been driven by.

A number of efforts.

Dimensions, we've laid out before.

We are definitively a leader across a number of technologies have very broad portfolio gives us flexibility in the products and the opportunities we pursue.

Yes.

Actively managed the portfolio, we pick the right products, we've got broad customer exposure and take the places where they're going to evaluate the most.

You're already doing a terrific job on productivity and the culture has matured here around.

<unk>.

Cost savings and just getting more done with less and getting it done more efficiently which benefits customers at all.

And those are ongoing and it's allowing us to manage risk better.

I think as proven in this.

Our share and a half.

And then we're being very disciplined about our capital spend.

As as we are picking up spend.

But it's but it is to serve what we believe is a very clear.

And compelling outlook.

Thank you we'll take our next question from Vivek Arya with Bank of America.

Thanks for taking my question for the first 1 I think last quarter. Bob you gave us this kind of 15 ish percent sales going forward for Alere.

For fiscal 2000 and was hoping you could update that number and just give us some perspective on.

What that range implies for the back half of the year.

Sure sure Vivek. Thank you for the question actually I think it was mark that gave it but I'll go ahead and give you my answer for the year.

Last quarter, when we gave you the year.

Given you guys an idea that we thought we could grow about 15%.

Now lets safe to say, we're going to grow well north of 15% for probably less than 20, So I'd put it in that range now.

Really pleased with how the mobile business is running all the team is going on Mark mentioned that supply constraints.

Team is managing the complexity of the business with the constraints that are out there that all of you know about.

But clearly.

Yes.

We're not demand constrained it's on the supply side moving so obviously, if we can continue to do an extremely good job.

We'll keep you updated.

And maybe I'll just add to Bob's comments vivek.

Maybe to get a little sense of the profile as Bob said we.

We see revenue now between 15 and 20% versus around <unk>.

If we look at the year.

Yes, we look at the second or third quarter as being flat.

Flattish maybe down net if the macro situation of roads, but right now, we're not seeing that or for stone a supply constrained environment.

We do as I mentioned see IDP growth resuming in the third quarter.

Sequentially, but but the business will still be less than $300 million.

In the December quarter.

Would imply then that mobile is down a little bit sequentially.

And our fourth quarter is just too early at this point.

Really call it definitively.

We think that <unk> be over $300 million.

In the fourth quarter, so continuing to grow through the year.

And that mobile will be down a bit seasonally.

Sure.

We do this.

Yeah on gross margins to be clear.

Yes, it does sort of leveling out around 32% and the.

Back half for our for a total year of.

A little over 52.

Very helpful and then for my <unk>.

Follow up I was.

I was hoping you would give us your perspective on the China smartphone market.

For your mobile business is exposed to the Chinese smartphone makers kind of on an aggregate how much of it is <unk>.

G versus for GE.

And.

What have you seen recently there have been kind of mixed data points about sell through and.

Some deceleration in units, perhaps more to do with export market for anything else, but just give us your overall perspective on the China smartphone market level of exposure <unk> versus for GE and any trends that youre seeing there versus your expectation for 90 days ago. Thank you.

Sure Doug This is Eric.

Yes, so we're very pleased with our business in China and working with the major Oems there to continue to help them build out their <unk> portfolio and as you pointed out their markets not just China domestic but also to a large extent youre.

For your international shipments now in exports so.

<unk> got a broad and growing portfolio of really leading edge technology handsets and doing very well in Europe for example, and other places so.

Its a vibrant design opportunity for us using leading edge technologies.

Continuing to stick with the roadmap around highly integrated products that were supporting.

And very very much adopting our antenna control solutions and so forth. So.

The environment for design and <unk> relationships.

And so forth is fantastic.

Product portfolio turns over fairly often which gives us lots of opportunities for new functions and new integration levels and features and so forth, which is always always great for us.

<unk>.

So in terms of recent slow slowness in the sell through you see some noise in the data it's still great sell through the <unk> phones are on track this year.

The vast majority of what we're shipping to our Chinese customers today is 5 components.

And of course to sell in into China, domestic as well as vastly <unk> already.

But even for the export market, they're transitioning rapidly to <unk>. So it's a great great opportunity for <unk> going very well.

Thank you we'll take our next question from Karl Ackerman with Cowen <unk> Company. Please go ahead.

Yes, good afternoon.

I had a clarification question and a follow up my clarification question is how many 10% customers did you have in the quarter and my second question is on IDP. Some of your peers in the supply chain have noted Wi Fi module for automotive and industrial electronics are seeing lead times extend.

Availability is in tight supply.

I was wondering are you able to fully meet demand and our conservative on broader supply chain constraints or are you also seeing tightness for substrates in our Iot business and if you are seeing tightness, what steps have you or could you take to alleviate some of those constraints over the next couple of quarters. Thank you.

Maybe I'll start and then James can kind of round out the answer.

On the AD number at 10% customers Carla.

Tend not to do that during the quarters.

And gave you the disclosure in the full year, but I will say just like last quarter, we had a number of 10% customers and an additional customer that was very close so I think I can say that we have.

For our space are relatively broad customer.

Net.

On an on net business and constraints in Wi Fi in particular.

Yes.

<unk> would be growing.

And its Wi Fi and and programmable power management and some other areas.

IAP will be growing sequentially, but we've got I'd say the supply constraints are in actually 3 areas. We've got some internal constraints.

As you know we have.

In house.

Capacity for certain components and we're we're tight there.

We've got external and that can be either incoming material.

<unk>.

Outside service providers.

And there are some constraints there and then finally the third 1 we do have some what I would call maybe kitting issues were.

A customer may not be able to get all their parts. So it impacts our demand.

Sort of a derivative effect.

For us, but with that James Yes, Carl and I think all of that Mark talked about is on a little bit different timeline.

To start at the back that some of the kitting things appear to be getting better and so I think as we go into.

Our Q3 and Q4 those start to get better we are bringing all the internal capacity.

That really does start to to help us as we go into the end of the calendar year.

And sort of the same note on our supply constraints from outside those start to get significantly better as we go into our into our fourth quarter with some improvement.

In the December quarter as well.

So as Mark talked about I think that really allows us to to move back and starting to grow in Q3 and Q4 for IDP.

Now Theres a couple of other things that are going to help help us get back into growth.

As we entered the back half of the year.

Part of that as we get beyond a really really high growth that we had last year in the first 2 quarters with base station.

And so that will be part of what allows us to get into that growth area.

But also we.

We see significant strength of pretty good visibility as we go in the back half and in power management and in our Wi Fi business and the base that base station business continues to sort of.

Distribute.

Have a recovery.

Very helpful. Thank you.

Thank you we'll take our next question from Gary Mobley with Wells Fargo Securities.

Hey, guys. Thanks for taking my question I'll ask a 2 part question because I think the Inc.

There may be the same.

Curious to know.

Your largest customer I think is expecting some lower unit volume some supply chain constraints and I'm wondering if you factored in those extraneous factors into your to your September quarter guidance for <unk>, you have and then as well are you sort of walking back the second half.

Or even the second quarter gross margin guide a little bit because it perhaps some additional customer concentration.

No.

Yes, actually Gary I would say our gross margin guide is up for the year.

So.

Yes, the profile Avi a little bit different yes, we exceeded in the set in the second quarter, but.

I wouldn't read into that.

And then net.

Yes.

We guide with what we believe is our best read on the demand in and any of these isolated supply chain constraints.

And we get the best view, we can.

I can't add any more than that.

Okay.

Just a follow up question I wanted to ask about.

The lower inventory charges. These.

Lower inventory charges have been a tailwind for you guys for several quarters now I understand it's a supply constrained environment are those lower inventory charges a function of just the demand environment exceeding supply.

Is it as simple as just less obsolescence and.

And being able to sell perhaps some products or borderline obsolete.

I think it's.

It starts with where our operating better.

And better matching what we're building to customer demand.

And yes, the tightness in the market can help clarify that but I think we've just.

Over the year share gotten better operationally and that's helping us. So we've seen we've seen are.

Inventory charges sort of trending down and I'd say at this point.

Yeah, we just probably need to do a better job of building it into forecasts it is steady.

Yes, a more durable level.

Which for a course happy about.

Thank you we'll now take our next question from Edward Snyder with Charter equity Research. Please go ahead.

Thanks, a lot. So your margins are looking excellent and I know you broke down a bit mark on how that's all shaking out between operational efficiencies and mix I mean, with IDP down and the margins up.

Certainly I think surprising is that largely due to the mix coming out of them.

Out of mobile because given what's happening in China, which it knows very large for you.

We're seeing a lot more intense tuning we're seeing a lot more demand for for ball both products, which are accretive to gross margins I was just trying to get an idea is this is this driven largely by what.

For the technology evolution in the Chinese phones, coupled with better operational performance or is there something else going on and then I have a follow up.

I think you've got it directionally correct that I mean, we've got.

Some highly differentiated discrete parts, but a.

Big Big move here for US is the move to integrated modules more sophisticated modules and then just our operational performance.

And driving.

Driving cost out better utilizing our our factories getting that fixed cost absorption spending control and that is having a good roadmap.

2.

Drive costs down and pick the right places to compete so.

It's.

It's a collective effort. It takes it takes early R&D.

Many years ahead of time, and having an advantage and Doug.

Design and good portfolio management at the end of the day, we ought to be able to produce things efficiently and everyone's zone, a great job across the board in your standard results.

And if I could maybe digging with Erik a little bit on mobile when you merge with Franklin in order for micro move wage back when we were on the road you were talking about not really wanting to put a tiger team on the largest customer at the point because he didn't want to get the revenue concentration at that point, if we take a snapshot of what happened back. Then you were you were spread around 20% for each of the.

The major groups, including IDP, which you seem to be happy, but now it seems like were kind of returning back to that kind of a model.

With multiple 10% customers.

What Im wondering is with the push of 5 G into lower cost phones, which is capturing more of the discrete market.

Is that going to change because if you look at China as a total must be very large portion of your total revenue.

Or are you counting and 10%.

Blend across China did multiple 15% customers.

The box guys.

Doesn't that expose you to swings in China, maybe a little bit more then would you be comfortable with.

So I guess.

First of all to differentiate.

Our business in China tour with our Chinese handset Oems it is not.

As we said by any means entirely China domestic consumption of course right.

Roughly half for volumes are now being exported around the world.

Selling into high minutes, even ultra high tier phones across many.

Countries today, so I think that the biggest thing thats changed over the 5 or 6 year period are you referring to is how much like their phones are becoming like the true flagships of the world.

Implementing the latest features and sometimes ahead of the bigger guys. If you will because they're faster than a portfolio that turns over there theyre shipping all over the world. So.

<unk>, our new highly integrated things like <unk> modules like the dual connect modules.

And a lot of what we're doing.

Antenna systems.

They're early movers in that new technology, and I think yes.

Again, we're very very pleased to be working with these guys.

Thank you we'll take our next question from Chris Caso with Raymond James.

Yes. Thank you good evening for.

First question is on the supply constraints and if you could give us some sense for how long you expect these constraints to last obviously the mobile business.

As a seasonal aspect to it the first half of the year I imagine the answer would be different for IDP.

<unk>.

Perhaps as you catch up on some of these constraints does that affect the seasonality of the business such that if you're catching up on supply we catch some some better than seasonal quarters as youre able to catch up with some of the demand that perhaps weren't able to fulfill.

Chris This is Bob Thanks for the question.

As I said earlier the team has worked extremely hard to manage through all of this complexity into to forecast whats unknowable at this time would be quite challenging and I'm pretty pleased with how the team has been running the operations.

Chasing demand and product mix, and James and Eric both James and Mark both talked about.

For the kitchen at our customers and matching things up and everything like that so.

I think theres been a lot of smart people out there that are forecast for this thing that's going to go on for years, some say quarters.

And I think it's not in our place to forecast this.

What I can tell you is today, we are clearly.

Capacity constrained not demand.

James pointed out we are adding capacity our suppliers are adding capacity.

We'll have to see how some of these great products that we support in both IDP and mobile continue to sell Mark also commented about the global situation and what's going on and how the world recovers and has it spikes with whats dealing with the virus and we've got to factor all those things in and for me to sit here and give us spur.

Ossific paid I think would not be smart on our part, but what I do feel good about is the progress we are making and the demand just continues to grow and I think thats whats important.

Okay got it thank you.

As a follow up.

Perhaps you could talk a little bit about uses of cash and the cash flow.

Has improved pretty nicely last year and this you spoke about repurchases in your prepared remarks.

Now that you're generating this cash.

What are your plans for it.

Okay.

Yes, Chris.

Say that our plans are organic.

Operate as we have been and we've been pretty balanced.

Yeah.

Any around deploying capital for.

We're thrilled with the June quarter.

<unk> for the year.

276 million net free cash in <unk>.

We actually deployed 467, so yes, I'd say, a very strong deployment out of the gate.

If you look at <unk>.

Last 12 months, we generated $1.2 billion of free cash.

Yeah, we deployed about 80% of that of which 3 quarters of that was on repurchase now keep.

Keep in mind beginning of the year last year was everyone was.

Hunker down Covid, So I think 80% is pretty good.

All things considered and then the last 8 quarters.

We've generated $2 billion of free cash, we've actually deployed $2.1 billion.

60% of that was to repurchase about 40% of 40% was acquisitions now.

We just got out of the quarter, where we the ninth quarter was was active semi so if you included that we.

We actually had deployment of about 50% acquisitions, 30% repurchase.

I think we're going to the whole management team is focused on long term free cash flow generation. So.

Yes, we believe we're going to continue to grow free cash flow. We think we will this year.

Our priorities organic investment.

Yes. It continues to have a technology lead we've got all the capacity we need for a market that we feel confident about.

And.

And then yes, we look at inorganic opportunities, where it makes sense and we've been we've been fairly active.

The other $1.2 billion.

We spent on acquisitions.

In the last 9 quarters.

Yes, we're really excited about the markets that we have exposure to we think that we've brought on over $4 billion of Tam.

With that that's conservative and Thats excluding Bayou.

And then several years out.

We would see the Tam.

Being north of $10 billion.

For what we bought and.

And again, Essex assets, excluding buyout, which is an exciting.

Completely new market for cargo.

So I think I think we will continue to look at things that make sense for corvo on markets customers technology differentiation financials of course and then.

Yes.

<unk>.

Yes, we know culture matters.

Okay. Thank you.

Thank you, we'll hear next from Timothy Arcuri with UBS.

I had 2 as well I guess Mark the first question is on gross margin.

I think you've beaten the last 4 quarters by about 200 basis points each of those quarters and then even before that you were beating by about 100 basis points. So I guess the question is like is this just consistent conservatism or is there something that's kind of surprising you enter quarter thats, making it better I mean, if I apply that same level.

September Youll do 54%, which is like 70% drop through that's like Super good given that it's a doubt IDP quarter. So I'm just trying to handicap your guidance versus the fact that you've been beating by a lot during the past 4 quarters. Thanks.

Yes, I'd say and I alluded to this earlier.

Admittedly haven't been great at forecasting Fortunately it ended up on the right side.

Yeah.

<unk>.

Yes, I think Doug.

It certainly would not add to our basis points you can't do that because we're trying to obviously refine things I would say that yes. This has been a very difficult period. This past year year, and a half to forecast and the markets tightened up quickly and of course, there is a lot of operational considerations. So.

I think you've got to factor some of that and that.

Difficult forecasting tender.

In periods like this.

Be a bit more conservative or more cognizant of the risks I should say.

But the other thing is we're just.

Yes.

Yes for the improvements that we're making.

We had great expectations, and we're we're doing even better.

On an adjusted and bowling us to do more of the same.

Our our operating leverage.

Yes, which is kind of 1 of your points does slip.

As we look out to the December quarter and March quarter.

But you've also got to consider that that's very.

Very difficult comps the prior year.

And at the time.

When we are putting up those numbers.

Yes, we said that.

Yeah.

It's really showcase for what the business could do but we guided down so.

And we did come down some as you know as you see here.

But again I'll repeat something I said earlier.

I think it's important to keep in mind that we stabilized around 52%.

And net the business is structurally better than than it was.

Awesome Mark Thank you.

I guess my second question is really on the shape of the business for fiscal Q3, and Q4, it might be splitting hairs, maybe a little bit but.

Comments seem to imply maybe a little below seasonal in.

Mobile products for fiscal Q3, and fiscal Q4 is that supply constraint, maybe some concern around China and I guess, maybe a different way of asking the question is.

If the constraints that didn't exist.

How much better with fiscal Q3 and fiscal Q4 be like is it having a material.

Effect on the guidance thanks.

Yes, Ken its Marc.

I think as you go out.

We're in the September quarter trying to give you guys a sensitive profile.

I think we have a decent view on December as you know it starts to it's a ways out there are many companies if any guidance guiding out in March I'm trying to give you just a sense of things.

Yeah.

On the supply constraints, we are clearly supply constrained at the moment and it gives us confidence in the near to medium term demand and we feel confident in the long term demand just given our market position.

Now.

There are some green shoots around that.

Sort of pricing.

It has moderated.

Moderate a little bad last few less expedites.

Yes, we see some channel.

Yes.

<unk> leaned to the point of unhealthy and we see a little bit of that recovering. So I think those are signs early signs that.

The industrial will work through this and.

And at this point I think it's prudent just to.

Yes, we've given you.

It is best for you we can.

Thank you we'll take our next question from Ann Bruce <unk>.

<unk> <unk> from BMO.

Alright, thank you.

Mark I, just wanted to come back to the longer term gross margin.

You actually have been very candid about that.

The uneven performance.

On that front as well as.

The free cash flow side, so kudos to you.

On that.

And then did you bring on it.

The net.

Just wanted to come back to the structural changes.

Remind us what are the.

What are the big heavy lifting.

And then its easy for us to just model it out, but it's 500 bps.

Versus where it used to hover around.

And obviously the business is bigger but can you just help us understand what are the changes you've made.

That has allowed you to structure you'd be 500 bps above where you used to be and then I had a quick follow up please.

I think we've talked about this for years and go back to the Investor days.

And Ed.

<unk>.

Yes repetitive at this point, but I mean, it starts with that both the companies that came together we are technology leaders in their own right on some different products.

Credit enterprise that was going to be a leader as <unk> head and yes. It took for years to get licensed under the yard, but yes that technology advantage in this wide suite of.

Technology to serve customers.

Problems is foundational to.

The rest of it and yes, we continue to maintain that lead and then that that gives us the opportunity to make good calls on where to play where to where to compete.

Where the customers added values mode. So we've been very active in portfolio management.

Yeah, we've driven productivity and we've talked about that over the years the wafer size expansion the die shrinks.

<unk> of other productivity programs not only in the factories button R&D in.

Other areas.

And then.

And then we've been very mindful that capital spend.

Our our capex as a percentage of sales was almost 20% at 1 point.

We've driven that down to mid single digits expected to stay around there and hence the <unk> <unk>.

<unk> had our factories as I've gotten loaded we're getting great fixed cost absorption costs are in control and then we've got this great pipeline of products that Eric talked about James So.

It's all of those things taking all of the all of the people in the company.

And that's allowed us this.

I think structurally higher gross margin.

Got it okay.

Quick.

Questions.

On the gross margin I, just wanted to make sure I understood. This.

<unk>, you mentioned pricing as 1 of the factors in the reported quarter, but then you said the <unk>.

Pricing environment.

Is it I'm not sure I caught the current whether you meant that pricing is not as strong as it was in the reported quarter.

Or pricing is not really that much for factor.

Your guidance.

It's still very constructive.

<unk> and <unk>.

Yes, the market is still tight I was just saying on a relative basis, it's less tight than it was.

Yes.

Couple of quarters ago.

And.

Yes, it's still it's still <unk>.

Still a very constructive environment I mean, we're still.

Eric Eric and James can talk and Bob can talk about long term.

Agreements with customers in.

Yes, that's still still going on.

So I was just making a relative comment Enbridge, Inc.

Got it okay. Thank you very much.

Thank you we'll take our next question from Chris Roland with Susquehanna. Please go ahead.

Congrats on the quarter and thanks for the question.

You guys had a lift in your own internal inventories in the quarter and I was just wondering was that just to service upcoming demand or do you guys plan to have a little bit of a buffer there maybe even use it.

Strategically just just wondering.

What that was about.

Yes, we are.

We have been performing really well in inventories.

Yes, and we're near.

Working capital overall or near historic lows.

And then on inventory itself, we've we're still close to 4 turns down a little bit as you mentioned.

It's in part to support seasonal ramp for primarily to support seasonal ramp.

I mean, we're basically is as we make it we ship it.

Yes, okay.

And then from recollection, I think Keith mothballed 1 of your facilities.

Is there a point here in the cycle here, where where you would open that up again.

And start filling that up.

I think youre, referring to farmers branch and yes that is that is 1 of the.

Aspects of trying to grow capital efficiently.

And we would expect to.

Utilize that facility next fiscal year.

Thank you we'll take our next question from Vijay Rakesh with Mizuho.

Yeah, Hi, guys. Thanks for letting me ask a question just looking at I know you talked about credit for any 1 of our trying to it for 50 million <unk> handsets just wondering what your take would be on 2022, if you take a stab at what types of units should look like.

My follow up.

If you could give some color to what the puts and takes would be to the content growth.

On <unk> handsets looking looking out thanks.

Yes. So this is Eric.

We're not.

Commenting formulary for 2022 yet.

At this level.

Once we get through.

Yet.

Still under half of the.

For those handsets, because we're shifting more of our smartphones that are shipping will be <unk>. We did say that we think 5 GB up to 80% by 2025. So you can kind of maybe connect the dots there to make an estimate.

Got it in terms of the content.

Growth opportunity into next year.

Yes. It continues.

Some of the more advanced features this year dropdown into the into the other tiers as you go forward right. So youre getting a lift not only on the say $250 million a year of additional tons, but also the other <unk> funds that are shipping are also having higher content. So that helps to support the overall Tam growth.

Thank you and that does conclude today's question and answer session I would like to turn the conference back over to management for any additional or closing remarks remarks.

We want to thank everyone for joining US Tonight, we look forward to speaking with you again at upcoming Investor conferences. Thanks.

Thanks, again and have a good night.

Thank you that does conclude today's conference.

Thank you all for your participation and you may now disconnect.

Alright.

[music].

Okay.

Okay.

Okay.

Okay.

Okay.

[music].

Yes.

Okay.

[music].