Q3 2022 Qorvo Inc Earnings Call

Good day and welcome to the Corporation Q3, 2022 Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Douglas Toledo, Vice President Investor Relations. Please go ahead.

Thanks, very much Carrie Hello, everybody and welcome to Corpus fiscal 2022 third 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 statement contained in the earnings release published today as well.

As the risk factors associated with our business and 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 provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results.

To analyze financial 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 <unk> Dot com under investors joining us today are Bob <unk>, President and CEO , Mark Murphy, Chief Financial Officer, Phil.

Philip <unk> President of <unk> infrastructure, and defense products script, Eric Creviston President of covers mobile products group as well as other members of corporate management team and with that I'll turn it over to Bob.

Thanks, Doug and welcome everyone to our call.

Delivered fiscal third quarter results above the midpoint of the outlook. We provided November 3rd on our earnings call.

Demand during the quarter was broad based across markets included multiple new product categories, including <unk> transplant diversity Ultra wideband Wi Fi six and seven power management and other power solutions.

In mobile products Corvo game content and flagship and mass market <unk> devices.

The fundamental challenges.

And increased complexity and lifting <unk> content are being driven by network efficiency and carrier requirements for <unk>.

<unk> architectures in addition to new Pfizer and bans requirements are increasing for carrier aggregation band combinations and both the transmit and receive to maximize bandwidth to and from the device.

These are long term trends impacting <unk> devices independent of tier.

In addition, new industrial designs like Foldable phones are increasing RF challenges demanding more advanced antenna management systems.

Lastly, because corvo smartphone portfolio includes cellular RF.

<unk> Wi Fi and emerging categories like ultra wideband and Mems based sensors corvo can participate broadly across Oems product tiers.

Chipset providers.

<unk> offers a broad portfolio of key enabling technologies and cordless stands to benefit as connectivity continues to proliferate.

More critically corvo is leveraging the same competencies that placed us at the forefront of connectivity to grow in new markets.

In IDP revenue increased sequentially and growth was broad based across markets. The.

The integration of United Silicon Carbide is proceeding well and enhancing our opportunities and higher voltage applications that demand maximum power efficiency. These include EV charging stations and renewable energy systems.

Now, let's look at some of the quarterly highlights starting with mobile.

For our Korean based smartphone OEM, we ramped shipments in support of flagship and mass market smartphone launches.

We expanded customer sampling of highly integrated main path solutions as well as secondary transmit solutions, which increased content as these architectures are adopted more broadly.

And ultra wideband, we achieved an important strategic milestone supplying our first complete ultra wideband solution and an Android smartphone.

This speaks to the strength of our core technology and highlights the opportunity across the Android ecosystem.

For industrial and enterprise applications, we introduced a fully integrated module, combining our ultra wideband chipset with Nordics BLE solution to address a wide range of industrial and enterprise applications.

In Wifi design activity continues to be robust for mobile applications, we secured new Wi Fi seven chip onboard reference design engagements and began customer sampling of Wi Fi <unk>.

Offering superior performance and design flexibility.

For home and enterprise applications.

We're at Wi Fi six <unk> for mesh networks, and released five gigahertz iphones with boss filtering for Tri band applications.

In cellular infrastructure Corvo was selected by base station OEM to supply three four to three eight gigahertz.

Gan power amplifier modules for massive Mimo <unk> deployments in Europe .

We see infrastructure market strengthening in 2022 worldwide with significant growth in the rest of the world Excluding China.

And automotive Corvo was selected to provide cellular visa ex connectivity for a leading Europe based automotive OEM and power, we secured design wins to supply silicon carbide on for onboard Chargers and DC to DC converters in support of leading.

Oems in Europe and in Asia.

Sales of Phoenix for video processors and solid state drives were strong as were sales of motor control solutions for battery powered tools.

To expand our power franchise, we are combining our power management and silicon carbide technologies to deliver superior levels of power efficiency and high power applications.

Our first products are from the defense industry, and we are broadening the portfolio to serve additional markets, including infrastructure and automotive.

And bio we were awarded a $4 $1 million follow on contract with the NIH <unk> initiative supporting a cohort flu combo assay and a COVID-19 antigen pooling application.

We also signed the channel partnership agreement for distribution in the U S and submitted our CLIA waiver application to the FDA to expand deployment and point of care settings.

In both mobile and IDP core versus capturing diverse opportunities supported by multiyear secular growth drivers in <unk>.

Connectivity defense empower.

We are operating well and expanding the markets, we serve while investing to sustain product and technology leadership across our portfolio and with that I'll hand, the call over to Mark.

Thanks, Bob and good afternoon, everyone.

<unk> revenue for the fiscal year 2022, third quarter was $1 billion $114 million.

$9 million above the midpoint of our guidance.

Mobile products revenue of $848 million was stronger than expected on higher flagship volumes.

Infrastructure and defense products revenue was $266 million.

With infrastructure in programmable power management up sequentially and year over year.

non-GAAP gross margin in the December quarter was 52, 6%.

35 basis points above the midpoint of our guidance on better than expected mix and yields.

This was the company's fifth consecutive quarter above 52%.

non-GAAP operating expenses in the third quarter were $214 million down $8 million sequentially on lower incentive compensation and timing of development programs.

Year over year Opex was up over 20 was up $20 million on new product and technology investments.

Including recently acquired company Opex, partially offset by lower incentive comp.

non-GAAP operating income in the December quarter was $372 million and 33, 4% of sales.

non-GAAP net income in the third quarter was $330 million and diluted earnings per share of $2 98.

Was 23 cents above the midpoint of our guidance.

Cash flow from operations in the third quarter was $117 million, reflecting payments associated with the long term supply agreement discussed on last quarter's call.

As mentioned then we believe supply agreements allow us to advance our differentiated technology position and simplify our long term planning.

Corvo is building longer term and more collaborative partnerships to provide our customers supply assurance and to address their product and technology needs.

Capital expenditures in the December quarter were $50 million and remain concentrated in core areas.

Is boss and gas, where we enjoy a differentiated position and see continued growth.

Free cash flow of $67 million, and we repurchased $302 million of shares during the quarter.

We continue to repurchase shares based on our long term outlook low leverage and other factors.

Turning to the balance sheet in December Corvo issued its first investment grade notes.

The proceeds from the $500 million three year note were used in part to retire our $195 million term loan.

As of the December quarter end, we had $2 billion of debt and $1 billion of cash.

Our net debt to EBITDA increased to over half a turn.

Now turning to our current quarter outlook, we expect revenue between $1 billion $135 million and $1 billion $165 million.

non-GAAP gross margin of approximately 52%.

And non-GAAP diluted earnings per share of $2 94.

At the midpoint of guidance.

Our March quarter revenue outlook reflects an improving supply situation high volume smartphone launches and stronger IDP volumes.

Forecasted revenue of $1 billion $150 million at the midpoint is up 3% sequentially and 7% year over year.

We expect mobile to be flat sequentially and up around 5% year over year on flagship in mass tier phone launches and content gains and a more stable supply demand situation.

We project IDP to return to year over year growth in the March quarter with broad based demand supporting revenues over $300 million.

Our March quarter gross margin guide of approximately 52%, resulting in full year fiscal 'twenty two outlook about 30 basis points higher than last fiscal year.

We project non-GAAP operating expenses to increase in the March quarter to approximately $232 million.

Due to increased investment in core technologies, and new capabilities as well as early calendar year payroll effects.

For the full fiscal year, our opex is projected to be just over 19% of sales down from close to 20% of sales last fiscal year.

Below the operating income line other expenses will increase to approximately $17 million on the additional net debt.

We project, our non-GAAP tax rate in the current quarter to be approximately seven 5% and a full year rate to be eight 2%.

Capital expenditures are projected to be around $55 million in the March quarter, as we manage spend to intersect demand and support long term supply agreements with multiple customers.

We are still supply constrained in some areas and forecast to remain so beyond our fiscal year end.

We continue to expand bond gas capacity, along with some of the assembly and test to support growth.

In summary.

Our results exceeded the midpoint of our December quarter Guide.

Our March quarter guide is consistent with our previous comments, including sequential growth in the March quarter.

At the midpoint of our current quarter guide for fiscal year 'twenty, two we expect revenue growth over 15% and operating margin over 33%.

We project, our full fiscal year EPS to be approximately $12 18.

Up 25% year over year.

Looking beyond this fiscal year Corvo is well positioned to serve secular growth trends and connectivity and power and to deliver growth in earnings and free cash flow.

As mentioned last quarter.

Looking at the business by end market highlights kormos growth potential over the next several years.

We expect solid growth on our advanced cellular products for smartphones as five mix grows RF complexity increases and content expands.

On broader connectivity solutions, we expect strong double digit growth as connected devices increase and use cases proliferate.

And finally, we expect infrastructure defense and power markets to support double digit growth as <unk> build outs pick up outside of China defense spend mixes to higher performance electronics and our requirements increase for power semi to support electrification trend.

Yeah.

Now I'll Cody would you please open the lines for questions.

Absolutely. Thank you.

Like to ask a question. Please signal pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off today your signal to reach our equipment.

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

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

We will take our first question from <unk> Hari with Goldman Sachs. Please go ahead.

Hi, guys.

Good afternoon, and thank you so much for taking the question.

I guess my first question is on the supply front.

Mark I think you mentioned this.

Supply constraints eased a little bit but you also noted that you expect supply constraints to kind of stay around.

Beyond the current quarter.

Can you kind of elaborate on what you saw in the quarter and what's embedded in guidance going forward I think last quarter you talked about.

Gallium arsenide capacity constraints.

Which are internal to cargo and then also matched set of issues on the part of your customers, but if you can kind of describe what youre seeing from a supply perspective that would be helpful.

Sure.

I'll start and others can add.

Yes during last quarter's call to share where we are in the midst of the <unk>.

Disrupted supply chain effects of the past two years.

And these effects.

Impacted add further complexity to the demand picture.

We provide the best we could and we've seen it play out largely as expected.

Specific question on supply China chain effects.

They did moderate in the quarter and we expect the supply environment to continue to improve through this quarter in the calendar year.

So yes.

Specifically our businesses, we're still saying.

Some chipset shortages in Wi Fi, which impacted that business.

In the defense supply chain, there is still some disruption.

<unk> related.

And and then Theres other pockets here and there but to see it did improve as we expected.

Even though we expect some continued supply disruptions in the March quarter, we expect.

It to be less than the December quarter.

This is Bob the only thing I'll add is we've made significant progress in bringing on our capacity and our gallium arsenide and we're in pretty good shape. There we've made good progress there.

Our IDP business some of the silicon supply in ore.

Activity business, there along with some of our power management systems business. There, we still see tightness. There. So that's been impacting us, but as Mark pointed out we do expect things to improve through the quarter and throughout the year.

Yeah, that's great. Thank you so much for the context and then as my follow up.

For the March quarter, I think the guidance you provided for both mobile and IDP is pretty consistent with what you had guided to three months ago.

I'm guessing, though the mix, particularly within mobile may have changed may have evolved over the past three months.

Can you speak to.

What youre seeing in sort of the respective regions in mobile in the U S and Korea and broader China, how you see those regions playing out and as a quick follow up to that any sort of guidance on fiscal 'twenty three I know, it's early mark but any revenue.

Looks or gross margin guidance on fiscal 'twenty three would be super helpful. As well. Thank you.

Sure. This is Eric I'll start with the.

The mix in mobile.

No particular meaningful changes we expected.

We.

Our earnings call last quarter that we would see strengthen in Korea.

Due to a lot of new design wins on ramping platforms across mass tier.

In flagship as well and those are playing out.

Consistent with our expectations.

We did see a bit of mix shift within our China customer base, it's clear looking back into the December sell out data in the channel there was some mix shift between them.

So far we're early in this quarter, but it's beginning to moderate back to normal so.

Really not noted any significant changes versus what we expected.

And to share on that on the outlook beyond this.

Fiscal year, we'll plan to provide more on our fiscal 'twenty three and the rest of the calendar 'twenty two.

On our next earnings call.

What we can say is based on what we guided.

We know this March 'twenty two quarter is stronger than typical and that's based on the timing of phone launches content gains in the profile of IDP demand.

Thank you we'll take our next question from Karl Ackerman with Cowen.

Yes. Thank you.

Good afternoon.

Two questions. If I may firstly, a clarification may you comment on the overall revenue contribution.

Your largest customer contributed to you in the quarter I have a follow up.

Carl as you know, we don't report quarterly what we do with our largest customer youll find that when we report the K at the end of the year, we'll clearly give you what our largest customer was.

Yes.

Hi.

I try my luck I appreciate that.

Carl give us or consistent.

Susan.

That is true.

Hey on the guide one of the concerns from investors is that capacity constraints may limit the adoption of <unk> handsets this year.

While you have less control over the number of <unk> phones being sold I was hoping you could discuss the content opportunities you see collectively from uwp wins.

And engagements across Android mid range as well as what sounds like share gains in Wi Fi for flagship devices. So if you could just discuss that that'd be helpful. Thank you.

So the first part of it regarding chipset constraints affecting.

The amount of five G. I think to the extent that there are chipset constraints in the modem side of the business.

Assumed those suppliers are going to prioritize <unk> latest technology. So.

We doubt that's going to be a major factor.

When we look at for example, our kind of customer base, there's still well under half their shipments are <unk>. So they've got a lot of forging shipments, especially in the export market that would be more impacted probably than the <unk> I think so so yes looking forward we.

We're real pleased with that.

$6 six launch known a lot of content there, we talked about last quarter, beginning across integrated modules and tenant control, but also of course uwp.

It's a great foothold for us gets it.

It gets our software stack proven.

And that makes it a lot easier to go across the rest of the Android ecosystem and we are already talking about wins in the consumer home devices for AWP Xiaomi for example, with their connected home products and we're beginning to put the whole Android space together for you to be so thats great.

And then.

In addition to that the integrated module is generally power management, we definitely see both Apd average power trucking and <unk> power management systems getting a lot of traction from cargo and then lastly of course, our antenna control solutions continue to be strong transitioning to MIM basis Nims based as we as we exit the.

The next fiscal year, so a lot of a.

A lot of potential areas for strength throughout the year.

Thank you.

Thank you we'll hear next from Vivek Arya with Bank of America.

Hello, Thanks for taking my questions on the first one just to clarify.

Mark you said that.

That March is stronger than typical so what does that say about June versus some seasonal trends.

Yes.

It's a good question.

As I answered the earlier question.

We're going to refrain from talking about next fiscal year, and any sort of detail until we finish this fiscal year.

I think it's just in this environment, it's too early to call.

Yes, the June quarter, it really depends on volumes and some of the supply situation that we've discussed earlier.

And as you pointed out given the strength of March yes, we may see a sequential decline in June but again, it's too early to call and in any case, we would expect a return to year over year growth in September .

Were to happen so.

That's all I'll say at this point.

And the follow up to that.

A clarification on inventory if my model is right. It is up to I think over 114 days or so.

I imagine the supply chain insights everywhere, but.

What's happening with your balance sheet inventory and how should we think about your.

The direction of that inventory what that implies for utilization.

Its impact on gross margins over the next several quarters.

Sure Vivek and Youre right on its about a 115 day so.

As you point out we ended the quarter at over $700 million of inventory.

I think the first thing I would say is this was in line with our forecasts and.

And when viewed historically, it's high but it's within the range of experience that we've had.

Having said that.

Given our focus on cash flow and capital returns and risk management, it's certainly higher than we want it to be.

And higher that's run over the past year and a half or so.

We have clear line of sight and bringing it down.

It's elevated for a number of reasons, including Bell labs for ramps that youre seeing now.

And sustained volumes in flagship and also content gains in flagship and mass tier and the.

Increases in IDP and there are other demand factors.

Such as supply demand alignment in China as some share shifts there.

But yes, we're working through those we understand why its up we forecasted it.

We have a plan that.

Rolls off over the next few quarters, and we expect more normal turns as we move through the year.

Thank you we'll take our next question from Blayne Curtis with Barclays.

Hey, Thanks for taking my question.

Again in general I expect we don't want to give a number out I guess.

Work on this guided it down in June so you're talking about to.

Down maybe you can just talk about you have a lot more higher exposure to Android market. So.

So maybe without giving an actual amount can you maybe just talk about that Android market. Obviously there is.

The new ramps in terms of new modems from some vendors that you should do well with Youre clearly growing in March.

It may not be the same Iowa story that others are indicating I just kind of try to if you could walk us through the kind of moving pieces for June that would be helpful.

Eric you want to take it.

I mean, we have two parts to our business plan, we have our IDP business than our mobile so I think we'll let Eric talk a little bit about the mobile side, yes.

Yes, I think.

To your point, Glenn the Android ecosystem is pretty exciting right now and growing especially growing exports.

Just a China story by any means.

<unk> products from from Google For example, and Samsung Obviously, we believe is going to be a very good story for us this year.

Our alignment there we'll start out youll see beginning to see the phones come to market you will see a portion of the content I think throughout the year, we will continue to grow content as more devices move move out from them. So.

That'll be a good story for us this year.

And we mentioned Wi Fi earlier as well Wifi.

Across the Android ecosystem has really opened up for us since you had a $660 million seven it's getting harder.

The filtering is definitely getting harder and they're implementing.

Implementing with chip on board front end solutions instead of fully integrated modules.

So that's a very good trend for US who were seeing broad traction across Android with very complex Wifi front end modules now so all of that goes to.

We think it's going to be a good year for us in content growth in Android.

Okay I guess my follow up I, just wanted to ask you about the growth you're forecasting for.

March.

I think the connectivity part of IDB.

And then kind of flat to down so I know supplies, but a big issue can you talk about the.

The driver for that double digit sequential growth for IDP for March.

Helane this is Phil.

So we are seeing really.

Strong demand in most of our end markets. If you look at the.

The cellular infrastructure side of the business. What you see is really the deployments moving into the U S and into Europe .

Strongly positioned in those segments and so we're seeing some of those tailwind when you look at our defense business defense and <unk> space business again, we continue to see big.

Big programs coming in that were positioned well on.

And so we are excited about what that business looks like going forward and then on power. We continue to see a lot of strength both on the programmable power management side of the business.

But also on the United Silicon carbide side of the business and.

We we kind of lump those two together we feel that we have a real strong advantage both from a technology and products out of the United Silicon Carbide side, but also as we put the silicon side of power and create system level solutions for our customers.

We see a lot of opportunities for Sam expansion in that market as well. So we feel we're positioned well and we like where we are right now.

Yes, Blaine I would just add that.

As Philip said.

The growth is broad based and virtually every business line in IDP is up sequentially and year over year.

Section is Wi Fi and that's related to.

Some of the chipset issues, we talked about earlier, but we expect that business to pick up in FY 'twenty three.

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

Hi, everyone. Thanks for taking my question.

To go back to the next question Doubleclick on the inventory.

Inventory topic.

Our.

The days of inventory up primarily because of you anticipating some some good growth in fiscal year 'twenty three or is it up.

They ship to some of your long term.

Supply agreements.

And maybe you can give us a little more detail on how you plan to roll off that inventory.

Sure Gary it's not related to supply agreements.

So combination of.

One to support the growth that's in front of us and we've talked about the flagship in mast here.

And the success, we've had there and the strong.

Atypical growth profile you see here in March.

So there.

Absolutely demand factors.

There is a.

Yes, there is a demand realignment in China.

And we've we have.

<unk> seen that.

We feel great about our position in China.

And over time.

Yes.

On the other side of that alignment we're in we're in a great position and we've got Ah.

Agreements in place that will support.

The demand and working down that inventory. So we've got a good plan we've got.

The.

Guidance I've given before on our target, 52% gross margin that is still something we.

We adhere to and we're working to expand off that and.

And then we'll provide you more guidance.

And the next earnings call.

Okay as my follow up I wanted to ask about some of the emerging new revenue opportunities.

Perhaps on the Silicon carbide side can you give us a sense of where you may be.

Revenue run rate, perhaps exit fiscal year 'twenty, two and then on ultra wideband.

Is there an opportunity here in the automotive end market I know that hasn't necessarily been a big end market for you, but should we think about AWP as being primarily smartphone centric for for Corvo.

So yes. This is Philip so yes, so Gary I'll take that so in terms of silica carbide.

I don't think we are given out specific kind of revenue numbers on that business, but.

I can tell you that.

The number of opportunities that we see coming in to our sales funnel is impressive and.

So we feel like we have a real significant opportunity there.

When you think about.

The World is we as we electrify as we go towards more carbon neutral system energy efficiency is one of the key factors, that's driving that right in and with that drives. This this power need to look at compound semi type solutions and really that's in our wheelhouse at core of Alright, Thats, what we do.

And so.

We feel really good about that business and.

The opportunities continue to scale on UW be I'm going to pass that over maybe to Eric Yes, sure. We when we did the acquisition deck wave I know one of the key markets, we talked about was automotive and that certainly hasn't changed.

There is no question that next generation <unk> based and that will grow throughout the years up to seven new WB.

Points in each car plus one in each key fob. So it's going to be is going to be a great market in terms of units of course.

It's a couple of hundred million dollars, a year sort of automotive units. So for us anchoring in the handset is super exciting when you look at the.

The one one to one 5 billion handsets available anywhere from three to five accessories for each one before we even start talking about connected home things. So.

It's going to take some time for a new technology like this to rollout there's a lot of activity in the standards bodies now everybody is onboard is clearly it's clearly happening so.

So that's a broad area. We also we mentioned one of our strategic highlights was around our module combining our uwp with the Nordic BLE and targeting a completely different segment, which is sort of the enterprise and industrial Iot applications and theirs.

<unk> of use cases for these sorts of devices around the enterprise for asset tracking and also in industrial applications for similarly asset tracking and are there other things like tax, but so it's a broad it's really a broad broad market and applications.

Really based on.

Very.

Similar radio architecture. So there is a lot of leverage in our core technology development and need to be both in the software and hardware.

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

Thanks, a lot I've got a couple mark it's clear there is a large overshoot on shipments to Chinese Oems last year, you guys are shipping everything you use your hands on I guess March and June and then we had an overshoot. It was reflected in last quarter's guide in this quarter's inventory I know you don't have hubs inventory with any of the Chinese new visibility into what's actually happening there is very limited.

But you've already got a quarter now underneath your belt.

What do you given that.

One quarter, what the burn rates going on what you see now with the when do you think youll get more back to a normal inventory level and your shipments into China will start reflecting really sell out versus.

What we've seen so far which is this will take everything that you can get and then Eric if I could.

Given the big changes in Samsung food business with Broadcom out now and then move to modules in the mass tier can we expect Samsung will break the 10% revenue level for your four core will this calendar year and it's kind of a sub question.

Given all these shifts who do you think you're taking share from especially in the last year given that was more of a quasi discrete design.

Youre, gaining there who do you take it from it and then I have one for ADP.

So I'll.

I'll start and then Eric can even add more color on the China channel, but.

I think we've got better visibility than you may think and we're certainly monitoring it very closely.

There are actually some positive signs in the December quarter itself throws decent we've been looking at the phone and phone inventories in there. They are actually very healthy. So it's just a matter of some of the components.

Working its way through and we've got an eye on how that will play out and we're certainly minding the channel and adjusting our own.

Manufacturing is as a result.

We've also got these long term agreements.

That's <unk>.

As intended helpful in managing the process.

I cannot.

Sure.

Overstate how excited we are about the market long term.

Yes, we're optimistic about that growth the exports that they do in on our position serving it. So we'll work through this over the next couple of quarters and being I think in decent shape by by sometime in the summer.

And regarding.

Samsung.

It's a broad family of products as I touched on earlier, there's a lot of Bakken while content.

And I think youll see us kind of starting out in flagship and expanding towards excuse me starting on in more mass tier and expanding towards flagship as the year progresses.

Heavy ball content.

It also.

Power management.

<unk> is also a very very significant.

Timna tuning, which we've always been quite strong that that will continue to be strong.

And then Wi Fi.

The chip onboard trend so.

I'm going to speak specifically to who we're taking share from but were.

It's not any one thing it's a broad product portfolio alignment, which has been in the works with Samsung for some time its good to see it finally come to fruition.

If you could break 10% with Samsung this year.

Dear.

Okay.

Yes.

We had 210% customers in the quarter, but thats on today.

Thank you, we'll now move on to our next question from Ambridge Srivastava with BMO.

Hi, Mark I wanted to come back to the cash flow statement and balance sheet again.

Your free cash flow.

Sales points to delivering double digit before.

My model almost hurdles that have to go back to 2018.

When do you actually had a single digit free cash flow to sales number.

So I get the inventory increase and then.

Tables coming down quite a bit as well after shooting up the quarter before.

Is that kind of unrelated to the.

Obligations that you talked about.

Securing supply in advance I, just wanted to make sure I understood all the moving parts for free cash flow to sales being.

Odd percent versus.

Double digit that you've been posting for several quarters.

Now that <unk> got it operation.

As I talked about last quarter, we signed this.

Long term agreement, which.

Had a considerable payment to make which we made in the December quarter, and so as you pointed out there was the increase in payables.

Which I mentioned last quarter, and then we paid that out in the December quarter and that was disclosed.

And the Q filing as well and then as a number of noted our inventories were up so.

Excluding these two effects shale, we have what is our normal very strong free cash flow generation and we've talked about.

The nature of both of those and so I would expect free cash flow this year to still end up.

Near $900 million, and then I would expect that next year to grow.

Okay got it so I had a quick follow up on inventory.

I just want to make sure I understood. When you are talking about theres been realignment, we are aware of that.

That is not in the past I want to make sure I understand what youre talking about youre talking about customer teams from what was a lot of shipments.

A big market share at Huawei, and then everybody else was kind of.

Grab that market share. So that's been one shift the other has also been some sort of.

Bifurcation in low end versus high end.

During two or is there something else and the risk of <unk>.

Don coming on their inventories now.

No no.

No and if there were risks we were at a rate in stop loss.

In the quarter.

Our view.

And Eric can expand on this.

I'll bring it back to our last call we had a.

Substantial dip.

Dislocation in supply and created.

Pockets of components in the supply chain and so thats, yes, Thats one factor and then concurrently you have a.

Demand factor, where you have.

Both a a.

A re alignment amongst.

OEM.

In China, and some share shifts associated with that it will shake itself out here and it's it's ongoing.

And no matter what scenario plays out we think we think we're fine.

I would say a third factor has been over the past few months. There there probably has been some macro effects and consumer demand and pick up and locked down. So there is probably that factor, though that we're not as concerned.

With that because and found demand is actually pretty lean so.

I think <unk>.

Just a case of this will settle out we've got.

Yeah, we've got agreements in place we've got firm orders, we have line of sight on the inventory working down and.

I believe we'll be in a good spot in several months.

Got it thanks, Thanks, Rob Thanks again.

Thank you we'll take our next question from Christopher Roland with Susquehanna.

Hi, guys. Thanks for the question.

I think last call you guys mentioned that maybe you were opening up farmers branch again, just just wanted to confirm that was happening that that's ramping and.

Where might Utilizations go there as we move through the year.

That's a good question, Chris and of course, we're continuously looking as to whether we need investment or not and.

Yes, there has been some reduction in loadings, because obviously, we've got some inventories and were right sizing the factories, but in the case of <unk>.

In the case of farmers branch, yes, we are still planning to turn that on.

Utilize that in fiscal 'twenty three.

Okay.

Great.

And secondly.

Qualcomm I think it has an ultra bar product coming.

Maybe working into parts of your market. There I know you guys really haven't seen too much there so far but.

Have you seen a little bit more over the past few quarters and would you expect are you preparing for more competition.

In 'twenty two.

Well, we haven't seen a lot.

Frankly at this point and so I can't comment on competitiveness and so forth I think we're continuing head down pushing hard to advance our technology and our.

<unk> sampling seven gigahertz farm.

Integrating.

A lot of it in our modules, which were shipping soon.

And then as we've talked about many times, it's not just about what frequency you can get to with the filter it's about how well you can combine them.

Working in multiplexing and combining multiple fits our technologies together in the St module.

There's a lot of complexity going on so it's a very valuable and key part of the communications market. So theres going to be a lot of people investing in it and trying to build capability.

Thank you we'll take our next question from Rajeev <unk> with Needham <unk> company.

Yes.

For taking my questions I appreciate it.

Gross margins continued to be resilient in a challenging environment.

Last quarter, you mentioned that you were benefiting from premium products better pricing power and maintaining utilization of your of your factory network.

Wondering how to think about margins as you migrate to a better demand supply.

<unk> make throughout the year.

And also would love to hear a little bit more about the pricing situation.

You kind of move upstream with respect to your products.

Yes Ravi.

I'll start.

Yes, we've been talking about this 52% level for several quarters.

And.

GM gross margin is going to move around quarter to quarter of course based on <unk>.

Customer or product mix business mix yields factory loadings price and other factors.

Yes, we do believe that the current business setup.

The products, we've got our footprint.

Productivity efforts and sales force support this 52% level, but we are definitely working to improve that over time.

I think.

All I can say is we had.

Try and do the same things we've been doing.

Applying that same discipline.

<unk> and the technology to maintain leadership actively managing the portfolio.

Where we're producing.

Producing products were revalued most.

I would add that some of the new areas, we've talked about today power defense uwp. They all had favorable gross margin profiles.

Yes, we are driving productivity, that's especially important in this period, where there is pockets of inflation.

<unk>.

And and then the lag.

Last question about farmers branch, we're always looking for.

As to make sure we're supporting the business in the most capital efficient way in action.

Should hopefully allow us to sustain and expand from here.

Great.

My follow up you had mentioned that you expect <unk> infrastructure build outs to.

To begin to kind of reaccelerate.

The year outside of China, I Wonder if you could elaborate further in terms of what youre, seeing specifically which region.

You were very successful in China with the penetration of your Gan base stations.

And your dominance in Gan technology, So I wanted to get a sense of when you're thinking about the build out outside of China, how thats affecting your IDP business and kind of your market share position in Gan.

This is Phil I'll take that question so when.

When we look at the overall market this year this calendar year.

What we see as kind of China being similar to what it was.

In last calendar year, but really where we see most of the real deployments and growth is in Europe and in America, and we've we spent a tremendous amount of time and energy, creating a family of technologies and products that really are kind of optimized.

For those markets, we see our organic technology is a critical piece to that same with kind of our small signal product families that we have and so we like how we're positioned.

And we right now if you were to look at kind of backlog and where things are in that business.

We're we're excited about that so hopefully that answers your question.

Thank you we'll take our next question from <unk> Malik with Citi.

Okay.

Thank you for taking my questions Mark I hate to beat you on.

The China demand realignment commentary, but when you go out into the December quarter last year, you broke out the supply impact is what is the demand impact and my question is.

The March quarter guide.

Are you seeing similar demand or supply impact or.

No because the March quarter is in line with what you were thinking last year.

Yes.

Last last earnings call.

We yes, we broke broke it out with specificity, we could and it is yes. The March quarter is playing out as we expected.

I will say that there is there or thereabouts supply factor still.

There are demand factors still.

And yes that balances probably more.

More equally distributed now than it was then.

Certainly a.

Predominantly a supply issue then.

We still have we still have both and.

It's reflected in our guidance.

Great and then another question on supply it.

Expecting supply to improve through the rest of the year.

Does that.

Lower your competitors the ability to bundle.

It's our intent to abstract the supply eases.

I'm not sure there is a direct.

Correlation to that necessarily.

I mean is.

A lot of things that go into the customers' buying buying behavior.

There are certain times when there are bundling factors of course.

I don't think this is necessarily.

Our main theme that I mean, it's a broad market.

We're selling across many different baseband.

And so it's a bigger picture than that I think.

Thank you, we'll now take a follow up from Edward Snyder with charter equity research.

Thank you very much.

I had a question on IDP I have to say I'm a bit confused by your silicon carbide power business at all I know you guys acquired.

I did.

But maybe you could articulate what the strategy is here.

Again, I get what you're doing it again your huge supplier defense, that's a U S based business really with U S based suppliers.

It used to be your biggest competitor it creates kind of dropped by the wayside will snow, but on silicon power. So the other way around at this point thinking about the Bill turn on their new New York Fab, which will make them the largest silicon carbide device power manufacturer on the face of the Earth.

And the cost basis is 50% lower than anybody else, so youre buying wafers from them more likely maybe one other folks and you're going to pay twice as much as they're paying.

Dressing this market.

On a scale of a cost why I said, even SD micro and on are going to have a problem with.

So is it is it that you are selling power into niche markets. They want to diversify away from them I don't understand the marketing game of this at all because youre going to be an under scaled player purchasing materials from the guys who are producing the devices on a scale that you can't compete with so maybe you can articulate what you think this is going to do.

<unk>, how does it fit in with your your model in the long term. Thanks.

Well there are a lot of air.

I would tell you should just go home.

Theres a lot yes.

This pick what you want to answer that.

And five minutes I don't know if I can go through all of that.

And then I have a follow up.

[laughter] so ed.

I think that.

When we look at the business, Okay, and we look at it from a capability perspective, what we like about our Silicon carbide technology is one we have a leadership position inefficiency in the specific technical areas that drive that efficiency and I think that's important and I think.

That capability is why you see the business, having quite a bit of traction I mean, you can see it in the release, there's announcements about onboard charging wins in automotive and DC to DC I think the other piece to it is that when you look at the technology that we have we can we can generate.

About twice the revenue per wafer silicon carbide wafer that our competition can't so we because of that advantage, we feel like we have.

The ability to.

Use of more of a foundry model as opposed to.

And in House model right now and when you look at.

Specifically, the silicon carbide substrate supply.

What we see is more.

More and more invest.

Investment in that area, and we see more and more.

Entrants coming into that space, which we think will make that more competitive over time. So I mean, those are some of the economic dynamics that we see okay.

I would also say that again.

Silicon carbide is in our wheelhouse.

Jorge compound semiconductor company right, we have a lot of those relationships. So.

I hear you.

I understand your view, but we think theres, a real opportunity there for us and the market, let's just talk a little bit about the market. It's a very very large market.

And even what you may be calling niche and I would assume maybe youre talking outside of automotive you look at it infrastructure you look at other areas.

A very very large opportunity and so we feel like we have the opportunity to build a meaningful franchise and then when you combine that with our programmable power management, where I can build systems I can put that into module capability, which is at the core of what we do.

We feel like maybe we have a better shot at it and then.

You've given us credit for it.

Thats short and sweet and.

And I guess, one last thing.

I've been an executive in the power business in analog and I've been doing this for 25 plus years and.

I think there's something there I really do I'm excited about it and I think it can be a meaningful franchise for us here at <unk>.

Great. Thanks.

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.

Yes.

I want to thank everyone for joining us today, we look forward to speaking with you again in upcoming Investor conferences. Thanks, again, and hope you have a great night. Thank you.

Thank you and that does conclude today's conference. Thank you all for your participation.

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Yes.

Good day and welcome to the equivalent Inc. Q3, 2022 Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Douglas Toledo, Vice President and Investor Relations. Please go ahead.

Thanks, very much Cody Hello, everybody and welcome to Corp fiscal 2022 third 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 statement contained in the earnings release published today as well.

The risk factors associated with our business and 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 provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results into.

<unk> financial 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 <unk> Dot com under investors joining us today are Bob drug risk, President and CEO , Mark Murphy, Chief Financial Officer, Phil.

Philip <unk> President of <unk> infrastructure, and defense products group, Eric Creviston, President of <unk> mobile products group as well as other members of corporate management team and with that I'll turn it over to Bob.

Thanks, Doug and welcome everyone to our call.

<unk> delivered fiscal third quarter results above the midpoint of the outlook. We provided November 3rd on our earnings call.

Demand during the quarter was broad based across markets included multiple new product categories, including <unk> transplant diversity Ultra wideband Wi Fi six and seven power management and other power solutions.

In mobile products corporate game content and flagship and mass market <unk> devices.

The fundamental challenges.

And increased complexity lifting project content are being driven by network efficiency and carrier requirements.

<unk> architectures.

Addition to new funds and bends requirements are increasing for carrier aggregation band combinations and both the transmit and receive to maximize bandwidth to and from the device.

These are long term trends impacting <unk> devices independent of tenure.

In addition, new industrial designs like Foldable phones are increasing RF challenges demanding more advanced and patent management systems.

Lastly, because corvo smartphone portfolio includes cellular RF.

<unk> Wi Fi and emerging categories like ultra wideband and Mems based sensors corvo can participate broadly across Oems product tiers.

Chipset providers.

Coronado offers a broad portfolio of key enabling technologies and corvo stands to benefit as connectivity continues to put with sprint.

More critically kormos, leveraging the same competencies that placed us at the forefront of connectivity to grow in new markets.

And RVP revenue increased sequentially and growth was broad based across markets.

The integration of United Silicon Carbide is proceeding well and enhancing our opportunities and higher voltage applications that demand maximum power efficiency. These include these charging stations and renewable energy systems.

Now, let's look at some of the quarterly highlights starting with mobile.

For our Korean based smartphone OEM, we ramp shipments in support of flagship and mass market smartphone launches.

We expanded customer sampling of highly integrated main path solutions as well as secondary transmit solutions, which increased content as these architectures are adopted more broadly.

And ultra wideband, we achieved an important strategic milestone supplying our first complete ultra wideband solution and an Android smartphone.

This speaks to the strength of our core technology and highlights the opportunity across the Android ecosystem.

For industrial and enterprise applications, we introduced a fully integrated module, combining our ultra wideband chipset with Nordics BLE solution to address a wide range of industrial and enterprise applications.

In wildfire design activity continues to be robust for mobile applications, we've secured new Wi Fi seven chip onboard reference design engagements and began customer sampling of Wi Fi seven firms offering superior performance and design flexibility.

For home and enterprise applications.

Wifi six <unk> for mesh networks.

We released five gigahertz or firms with boss filtering for <unk> NAND applications.

In cellular infrastructure Corvo was selected by base station Oems to supply three four to three eight <unk> eight.

Gan power amplifier modules for massive Mimo <unk> deployments in Europe .

We see infrastructure market strengthening in 2022 worldwide with significant growth in the rest of the world Excluding China.

And automotive Corvo was selected to provide cellular visa ex connectivity for a leading Europe based automotive OEM empower we secured design wins to supply silicon carbide on for onboard Chargers and DC to DC converters in support of leading auto.

Motive Oems in Europe and.

In Asia.

Sales of Phoenix for video processors and solid state drives were strong.

As for sales of motor control solutions for battery powered tools.

To expand our power franchise, we are combining our power management and silicon carbide technologies to deliver superior levels of power efficiency and high power applications.

Our first products are from the defense industry, and we are broadening the portfolio to serve additional markets, including infrastructure and automotive.

And bio.

We were awarded a $4 $1 million follow on contract with the NIH <unk> initiative supporting a cohort flu combo assay and Covid antigen pooling application.

We also signed the channel partnership agreement for distribution in the U S.

Submitted our CLIA waiver application to the FDA to expand deployment and point of care settings.

In both mobile and IDP core versus capturing diverse opportunities supported by multiyear secular growth drivers.

Margie Iot connectivity defense empower we are operating well and expanding the markets, we serve while investing to sustain product and technology leadership across our portfolio.

I'll hand, the call over to Mark.

Yes.

Thanks, Bob and good afternoon, everyone.

<unk> revenue for the fiscal year 2022, third quarter was $1 billion $114 million.

$99 million above the midpoint of our guidance.

Mobile products revenue of $848 million was stronger than expected on higher flagship volumes.

Infrastructure and defense products revenue was $266 million.

With infrastructure in programmable power management up sequentially and year over year.

non-GAAP gross margin in the December quarter was 52, 6%.

35 basis points above the midpoint of our guidance on better than expected mix and yields.

This was the company's fifth consecutive quarter above 52%.

non-GAAP operating expenses in the third quarter were $214 million.

Down $8 million sequentially on lower incentive compensation and timing of development programs.

Year over year Opex was up over 20 was up $20 million on new product and technology investments, including recently acquired company Opex, partially offset by lower incentive comp.

non-GAAP operating income in the December quarter was $372 million and 33, 4% of sales.

non-GAAP net income in the third quarter was $330 million and diluted earnings per share of $2 98.

It was 23 cents above the midpoint of our guidance.

Cash flow from operations in the third quarter was $117 million, reflecting payments associated with the long term supply agreement discussed on last quarter's call.

As mentioned then we believe supply agreements allow us to advance our differentiated technology position and simplify our long term planning.

Corvo is building longer term and more collaborative partnerships to provide our customers supply assurance and to address their product and technology needs.

Capital expenditures in the December quarter were $50 million and remain concentrated in core areas, such as Bath and gas, where we enjoyed a differentiated position and see continued growth.

Yeah.

Free cash flow of $67 million, and we repurchased $302 million of shares during the quarter.

We continue to repurchase shares based on our long term outlook low leverage and other factors.

Turning to the balance sheet in December Corvo issued its first investment grade notes.

The proceeds from this $500 million three year note were used in part to retire our $195 million term loan.

As of the December quarter end, we had $2 billion of debt and $1 billion of cash.

Our net debt to EBITDA increased to over half a turn.

Now turning to our current quarter outlook, we expect revenue between $1 billion $135 million and $1 billion $165 million.

non-GAAP gross margin of approximately 52%.

And non-GAAP diluted earnings per share of $2 94.

At the midpoint of guidance.

Our March quarter revenue outlook reflects an improving supply situation high volume smartphone launches and stronger IDP volumes.

Forecasted revenue of $1 billion $150 million at the midpoint is up 3% sequentially and 7% year over year.

We expect mobile to be flat sequentially and up around 5% year over year on flagship in mass tier phone launches and content gains and a more stable supply demand situation.

We project IDP to return to year over year growth in the March quarter with broad based demand supporting revenues over $300 million.

Our March quarter gross margin guide of approximately 52% results and full year fiscal 'twenty two outlook about 30 basis points higher than last fiscal year.

We project non-GAAP operating expenses to increase in the March quarter to approximately $232 million.

Two increased investment in core technologies and new capabilities.

As well as early calendar year payroll effects.

For the full fiscal year, our opex is projected to be just over 19% of sales down from close to 20% of sales last fiscal year.

Below the operating income line other expenses will increase to approximately $17 million on the additional net debt.

We project, our non-GAAP tax rate in the current quarter to be approximately seven 5% and a full year rate to be eight 2%.

Capital expenditures are projected to be around $55 million in the March quarter, as we manage spend to intersect demand and support long term supply agreements with multiple customers.

We are still supply constrained in some areas and forecast to remain so beyond our fiscal year end.

We continue to expand bond gas capacity, along with some assembly and tests to support growth.

In summary.

Our results exceeded the midpoint of our December quarter Guide.

Our March quarter guide is consistent with our previous comments, including sequential growth in the March quarter.

At the midpoint of our current quarter guide for fiscal year 'twenty, two we expect revenue growth over 15% and operating margin over 33%.

We project, our full fiscal year EPS to be approximately $12 18.

Up 25% year over year.

Looking beyond this fiscal year Corvo is well positioned to serve secular growth trends and connectivity and power and to deliver growth in earnings and free cash flow.

As mentioned last quarter.

Looking at the business by end market highlights kormos growth potential over the next several years.

We expect solid growth on our advanced cellular products for smartphones as <unk> grows RF complexity increases in content expands.

On broader connectivity solutions, we expect strong double digit growth as connected devices increase and use cases proliferate.

And finally, we expect infrastructure defense and power markets to support double digit growth as <unk> build outs pick up outside of China defense spend mix as the higher performance electronics and requirements increase for power semi to support electrification trend.

Now I'll Cody would you please open the lines for questions.

Yeah.

Absolutely. Thank you.

Like to ask a question. Please sigma pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off today your signal to reach our equipment in order to accommodate as many questions as possible.

Please limit yourself to one question and one follow up before reentering the queue.

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

We'll take our first question from <unk> Hari with Goldman Sachs. Please go ahead.

Hi, guys.

Good afternoon, and thank you so much for taking the question.

I guess my first question is on the supply front.

Mark I think you mentioned that.

Supply constraints eased a little bit but you also noted that you expect supply constraints to kind of stay around.

Beyond the current quarter can you kind of elaborate on what you saw in the quarter and what's embedded in guidance going forward I think last quarter you talked about.

Gallium arsenide capacity constraints.

Which are internal to cargo and then also matched set of issues on the part of your customers, but if you can kind of describe what youre seeing from a supply perspective that would be helpful.

Sure.

I'll start and others can add.

Yes during last quarter's call to share where we are in the midst of the most disrupted supply chain effects of the past two years.

And these effects.

Impacted added further complexity to the demand picture.

Provides the best view, we could and we've seen it play out.

As expected sure.

To your specific question on supply, China, China effects.

They did moderate in the quarter and we expect the supply environment to continue to improve through this quarter in the calendar year.

So yes.

Specifically our businesses, we're still saying.

Some chipset shortages in Wi Fi, which impacted that business.

In the defense supply chain, there are still some disruption.

<unk> related.

And and then Theres other pockets here and there but to see it did improve as we expected.

Even though we expect some continued supply disruptions in the March quarter, we expect.

It to be less in the December quarter.

This is Bob the only thing I'll add is we've made significant progress in bringing on our capacity and our gallium arsenide and we're in pretty good shape. There we've made good progress there.

Our IDP business some of the silicon supply.

Sure.

Connectivity business, there along with some of our power management systems business. There, we still see tightness. There. So that's been impacting us, but as Mark pointed out we do expect things to improve through the quarter and throughout the year.

Yeah, that's great. Thank you so much for the context and then as my follow up.

For the March quarter, I think the guidance you provided for both mobile and IDP is pretty consistent with what you had guided to three months ago.

I'm guessing, though the mix, particularly within mobile may have changed may have evolved over the past three months.

Can you speak to.

What youre seeing in sort of the respective regions in mobile in the U S and <unk>.

Korea and broader China, how you see those regions playing out and as a quick follow up to that any sort of guidance on fiscal 'twenty three I know, it's early mark but any revenue.

Looks or gross margin guidance on fiscal 'twenty three would be super helpful. As well. Thank you.

Yes.

This is Eric I'll start with the.

The mix in mobile.

No particular meaningful changes we expected.

We.

Our earnings call last quarter that we would see strength in Korea.

Due to a lot of new design wins on ramping platforms across mass tier.

In flagship as well and those are playing out.

Consistent with our expectations.

We did see a bit of mix shift within our China customer base, it's clear looking back into the December sell out data in the channel there was some mix shift between them.

So far we're early in this quarter, but it's beginning to moderate back to normal so.

Really not noted any significant changes versus what we expected.

And to share on that on the outlook beyond this.

Fiscal year, we'll plan to provide more on our fiscal 'twenty three and the rest of the calendar 'twenty two.

On our next earnings call.

What we can say is based on what we guided.

No Thats March 'twenty, two quarter is stronger than typical and that's based on the timing of phone launches content gains in the profile of IDP demand.

Thank you we'll take our next question from Karl Ackerman Cowen.

Yes. Thank you.

Good afternoon.

Two questions. If I may firstly, a clarification may you comment on the overall revenue contribution your largest customer contributed to in the quarter and I have a follow up.

Carl as you know, we don't report quarterly what we do with our largest customer youll find that when we report the K at the end of the year, we'll clearly give you what our largest customer was.

Yes.

Hi.

I try my luck I appreciate that.

Okay.

Give us or consistent.

[laughter] that is true.

Hey on the guide one of the concerns from investors is that capacity constraints may limit the adoption of <unk> handsets this year.

While you have less control over the number of <unk> phones being sold I was hoping you could discuss the content opportunities you see collectively from uwp wins.

<unk> engagements across Android mid range as well as what sounds like share gains in Wi Fi for flagship devices. So if you could just discuss that that would be helpful. Thank you.

Yes.

The first part of it regarding chipset constraints affecting.

The amount of five G. I think to the extent that there are chips that constraints and the modem side of the business.

The assumed those suppliers are going to prioritize <unk> latest technology. So.

We doubt that's going to be a major factor.

When we look at for example, our China customer base, there's still well under half their shipments or <unk>. So they've got a lot of forging shipments, especially in the export market that would be more impacted probably than <unk> I think so so yes looking forward we.

We are real pleased with.

$6 six launch known a lot of content there, we talked about last quarter beginning in <unk>.

Across integrated modules and tenant control, but also of course uwp, that's a great foothold for us gets.

It gets our software stack proven.

And that makes it a lot easier to go across the rest of the Android ecosystem and we are.

We're already talking about wounds in the consumer home devices Uwp Xiaomi for example, with their connected home products and we're beginning to put the whole Android space together for you to be so thats great.

And then.

In addition to that the integrated modules generally power management, we definitely see both Apd average power trucking and <unk> power management systems getting a lot of traction from cargo and then lastly of course, our antenna control solutions continue to be strong transitioning to MIM basis Nims based as we as we exit.

The next fiscal year, so a lot of a.

A lot of potential areas for strength throughout the year.

Thank you.

Thank you we'll hear next from Vivek Arya with Bank of America.

Alright, Thanks for taking my questions on the first one just to clarify.

Mark you said that.

Net March is stronger than typical so what does that say about June versus some seasonal trends.

Yes.

Good question.

As I answered the earlier question.

We're going to refrain from talking about next fiscal year, and any sort of detail until we finish this fiscal year.

I think it's just in this environment, it's too early to call.

Yes, the June quarter, it really depends on volumes and some of the supply situation that we've discussed earlier.

And as you pointed out given the strength of March yes, we may see a sequential decline in June but again, it's too early to call and in any case, we would expect a return to year over year growth in September if that were to happen. So.

That's all I'll say at this point.

And the follow up to that.

A clarification on inventory if my model is right. It is up to I think over 114 days or so.

I imagine the supply chain in fact everywhere, but.

What's happening with your balance sheet inventory and how should we think about your.

The direction of that inventory what that implies for utilization.

Its impact on gross margins over the next several quarters.

Sure Vivek and Youre right on its about 115 day so.

As you point out we ended the quarter at over $700 million of inventory.

I think the first thing I would say is this was in line with our forecast and.

And when viewed historically, it's high but it's within the range of experience that we've had.

Having said that.

Given our focus on cash flow and capital returns and risk management, it's certainly higher than we want it to be.

Higher than its run over the past year and a half or so.

We have clear line of sight and bringing it down.

It is elevated for a number of reasons, including Bell labs for ramps that youre seeing now.

And sustained volumes in flagship and also content gains in flagship and mass tier.

The increases in IDP and there are other demand factors.

Such as supply demand alignment in China as some share shifts there.

But yes, we're working through those we understand why its up we forecasted it.

We have a plan that.

Rolls off over the next few quarters, and we expect more normal turns as we move through the year.

Thank you we'll take our next question from Blayne Curtis with Barclays.

Hey, Thanks for taking my question.

Try again on general I expect we don't want to give a number out I guess, a qualcomm just guided it down in June so you're talking about.

Maybe you could just talk about you have a lot more higher exposure to Android market.

So it may be.

Out, giving us an actual amount can you maybe just talk about that Android market. Obviously there is.

So new.

In terms of new modems from some vendors that you should do well with Youre clearly growing in March.

It may not be the same story that others are indicating I just kind of try to if you could walk us through the kind of moving pieces for June that'd be helpful.

Eric do you want to take a.

I mean, we have two parts to our business point, we have our IDP business intermodal. So I think we'll let Eric talk a little bit about the mobile side.

Yes, I think yes.

To your point Glenn.

Ecosystem is pretty exciting right now and growing especially growing exports.

Just a China story by any means.

High end products from from Google For example, and Samsung Obviously, we believe is going to be a very good story for us this year.

Our alignment there we'll start out youll see beginning to see the phones come to market, you'll see a portion of the content I think throughout the year, we will continue to grow content as more devices move move out from them. So.

That'll be a good story for us this year.

And we mentioned Wi Fi earlier as well Wi Fi.

Across the Android ecosystem has really opened up for us since you had a $6 67, that's getting harder.

The filtering is definitely getting harder and <unk>.

Implementing with chip on board front end solutions instead of fully integrated modules.

So that's a very good trend for us so we're seeing broad traction across Android with very complex Wifi front end modules now so all of that goes to.

I think it's going to be a good year for us in content growth in Android.

Okay.

My follow up I did want to ask you about the growth you're forecasting.

For March.

I think the connectivity part of IDB.

Kind of flat to down so I know supply has been a big issue can you talk about the.

The driver for that double digit sequential growth for IDP for March.

Hmm.

Helane this is phillippe.

So we are seeing really.

Strong demand in most of our end markets. If you look at the.

The cellular infrastructure side of the business. What you see is really the deployments moving into the U S and into Europe .

Strongly positioned in those segments and so we're seeing some of those tailwind when you look at our defense business defense and aerospace space business again, we continue to see big.

Big programs coming in that were positioned well on.

And so we are excited about what that business looks like going forward and then on power. We continue to see a lot of strength both on the programmable power management side of the business.

But also on the United Silicon carbide side of the business and.

We we kind of lump those two together we feel that we have a real strong advantage both from a technology and products out of the United Silicon Carbide side, but also as we put the silicon side of power and create system level solutions for our customers.

We see a lot of opportunities for Sam expansion in that market as well. So we feel we're positioned well and we like where we are right now.

Yes, Blaine I would just add that.

As Philip said.

The growth is broad based and virtually every business line in IDP is up sequentially and year over year.

Section is Wi Fi and that's related to.

Some of the chipset issues, we talked about earlier, but we expect that business to pick up in FY 'twenty three.

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

Hi, everyone. Thanks for taking my question.

To go back to the next question Doubleclick on the inventory.

Inventory topic.

Our.

The days of inventory up primarily because of you anticipating some good growth in fiscal year 'twenty three or is it up.

They ship to some of your long term.

Supply agreements.

And maybe you can give us a little more detail on how you plan to roll off that inventory.

Sure Gary it's not related to the supply agreements.

The combination of.

One to support the growth that's in front of us and we've talked about the flagship in Nast here and.

And the success, we've had there and the strong the atypical growth profile you see here in March.

So there.

Absolutely demand factors.

There is a.

Yes, there is a demand realignment in China.

And we've.

We've all seen that.

We feel great about our position in China.

And over time.

Yes.

On the other side of that alignment we're in we're in a great position and we've got agree.

Agreements in place that will support.

The demand and working down that inventory. So we've got a good plan we've got.

Yes.

The guidance I've given before on our target, 52% gross margin that is still something we.

We adhere to and we're working to expand off that and.

Yeah, and then we'll provide you more guidance.

And the next earnings call.

Okay as my follow up I wanted to ask about some of the emerging new revenue opportunities.

Perhaps on the Silicon carbide side can you give us a sense of where you may be.

Revenue run rate could sweep perhaps exit fiscal year 'twenty, two and then on ultra wide band.

Is there an opportunity here in the automotive end market I know that hasn't necessarily been a big end market for you, but should we think about <unk> as being primarily smartphone centric or for corvo.

So yes. This is Philip so yes, so Gary I'll take that so in terms of.

OCA carbide.

I don't think we are given out specific kind of revenue numbers on that business, but I can tell you that.

The number of opportunities that we see coming in to our sales funnel.

As impressive and.

We feel like we have a real significant opportunity there when you think about.

The World is as we electrify as we go towards more carbon neutral system energy efficiency is one of the key factors, that's driving that right in and with that drives. This this power need to look at compound semi type solutions and really thats in our wheelhouse at Cordoba right. That's what we do.

Do and so we feel really good about that business.

The opportunities continue to scale on UW be I'm going to pass that over maybe to Eric Yes, sure. We when we did the acquisition deck wave I know one of the key markets, we talked about was automotive and that certainly hasn't changed.

There is no question that next generation <unk> based and that will grow throughout the years up to seven new WB points in each car plus one in each key fob. So it's going to be is going to be a great market in terms of units of course.

It's a couple of hundred million dollars, a year sort of automotive units. So for us anchoring in the handset is super exciting when you look at the.

The one one to one 5 billion handsets available anywhere from three to five accessories for each one before we even start talking about connected home things. So.

It's going to take some time for a new technology like this to rollout there's a lot of activity in the standards bodies now everybody is onboard is clearly it's clearly happening so.

So that's a broad area. We also we mentioned one of our strategic highlights was around our module combining our uwp with the Nordic BLE and targeting a completely different segment, which is sort of the enterprise and industrial Iot applications and theirs.

<unk> of use cases for these sorts of devices around the enterprise for asset tracking and also in industrial applications for similarly asset tracking and other things like tax, but so it's a broad it's really a broad broad market and applications.

Really based on.

Very.

Similar radio architecture. So there is a lot of leverage in our core technology development and need to be both in the software and hardware.

Sure.

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

Thanks, a lot I've got a couple mark it's clear there is a large overshoot on shipments to Chinese Oems last year, you guys Youre shipping everything you use your hands on I guess March and June and then we had an overshoot.

As reflected in last quarter's guide in this quarter's inventory I know you don't have hubs inventory with any of the Chinese new visibility into what's actually happening there is very limited, but you've already got a quarter now underneath your belt.

What do you see given that.

One quarter and what the burn rate is going on what you see now with the when do you think youll get more back to a normal inventory level and your shipments into China will start reflecting really sell out versus.

What we've seen so far which is this will take everything that you can get and then Eric if I could.

Given the big changes in Samsung's food business with Broadcom out now.

And then move to modules in the mass tier can we expect Samsung will break the 10% revenue level for our core will this calendar year and as kind of a sub question.

Given all these shifts who do you think you're taking share from especially in the last year given that was more of a quasi discrete design.

We're gaining there who do you take it from it and then I have one for IDP.

So.

I'll start and then Eric can even add more color on the China channel, but.

I think we've got better visibility than you may think and we're certainly monitoring it very closely.

There are actually some positive signs in the December quarter itself throws decent we've been looking at the phone and phone inventories in there. They are actually very healthy. So it's just a matter of some of the components kind of working its way through and we've got an eye on how that will play out and we're certainly.

Minding, the channel and adjusting our own.

Manufacturing is as a result.

We've also got these long term agreements.

That's.

As intended helpful in managing the process.

Yes, I cannot.

Al.

Overstate how excited we are about the market long term.

So.

Yes, we're optimistic about that growth the exports that they do in on our position serving it. So we'll work through this over the next couple of quarters and being I think in decent shape by by sometime in the summer.

And regarding.

Samsung.

It's a broad family of products as I touched on earlier, there's a lot of Bakken while content.

And I think youll see us kind of starting out in flagship and expanding towards excuse me starting on in more mass tier and expanding towards flagship as the year progresses.

Have you bought content, but also like the power management aspect. It's also very very significant.

Antenna tuning, which we've always been quite strong that that will continue to be strong.

And then Wi Fi.

Mentioned, the chip on board trend, so I'm not going to speak specifically to who we're taking share from but were just not any one thing it's a broad product portfolio alignment, which has been in the works with Samsung.

Some time its good to see it finally come to fruition.

Do you think you'll break 10% with Samsung this year calendar year.

Okay.

Yes.

We had 210% customers in the quarter, but thats on today.

Thank you, we'll now move on to our next question from Ambridge Srivastava with BMO.

Hi, Mark I wanted to come back to the cash flow statement and.

Balance sheet again.

Free cash flow as a percentage.

Sales in U S poised to delivering double digit for <unk>.

My model almost for all they have to go back to 2018.

When you actually hit.

Is it free cash flow to sales number.

So I get the inventory increase and then.

Payables went down quite a bit as well just shooting up the quarter before.

Is that kind of unrelated to the.

Obligations that you talked about.

Yes.

Lie in advance I, just wanted to make sure I understood all the moving parts for free cash flow to sales being.

Odd percent versus.

Double digit that you've been posting for several quarters now.

Now that <unk> got it <unk>.

As I talked about last quarter, we signed this.

A long term agreement, which.

Had a considerable payment to make which we made in the December quarter, and so as you pointed out there was the increase in payables.

Which I mentioned last quarter, and then we paid that out in the December quarter and that was disclosed.

In the Q filing as well and then as a number of noted our inventories were up so.

Excluding these two effects that we have what is in our normal very strong free cash flow generation.

And we've talked about.

Yes, the nature of both of those and so I would I would expect free cash flow this year to still end up.

Yes, near $900 million, and then I would expect that next year to grow.

Got it so I had a quick follow up on inventory.

I just want to make sure I understood. When you are talking about theres been realignment, we are aware of that.

My head is not in the past, but I want to make sure I understand what youre talking about youre talking about customer teams from what was a lot of shipments a.

Big market share at Huawei, and then everybody else was kind of.

Grab that market share so thats been one shift the other is also been some sort of.

Kind of like a bifurcation in low end versus high end.

You're referring to or is there something else and the risk of.

Write down coming on their inventories now.

No no.

No and if there were risks grew at a rate in stop loss.

In the quarter.

Our view.

And Eric can expand on this.

I'll bring it back to our last call we had a.

Substantial.

Dislocation in supply.

And created.

Pockets of components in the supply chain and so thats, yes, Thats one factor and then concurrently you have a <unk>.

Demand factor, where you have.

Both a.

A re alignment amongst.

Oems.

In China, and some share shift associated with that it will shake itself out here and it's ongoing.

And no matter what scenario plays out we think we think we're fine.

I would say a third factor has been over the past few months. There there probably has been some macro effects to end consumer demand and pick up and locked down. So there is probably that factor, though we're not as concerned.

With that because and found demand is actually pretty lean so.

I think <unk>.

Just a case of this all settle out we've got.

Yes, we've got agreements in place we've got firm orders, we have line of sight on on the inventory working down and.

I believe we'll be in a good spot in several months.

Got it thanks, Thanks for all the clarification.

Okay.

Thank you we'll take our next question from Christopher Roland with Susquehanna.

Hi, guys. Thanks for the question.

I think last call you guys mentioned that maybe you were opening up farmers branch again, just just wanted to confirm that was happening that that's ramping and.

Where might Utilizations go there as we move through the year.

That's a good question, Chris and of course, we're continuously looking as to whether we need investment or not and.

Yes, there has been some reduction in loadings, because obviously, we've got some inventories and we are right sizing the factories, but in the case of <unk>.

In the case of farmers branch, yes, we are still planning to turn that on and.

Utilize that in fiscal 'twenty three.

Okay.

Great.

And secondly.

<unk> Com I think it has an ultra bar product coming may.

Maybe working into parts of your market. There I know you guys really haven't seen too much there so far but.

Have you seen a little bit more over the past few quarters.

And would you expect are you preparing for more competition.

In 'twenty two.

Well, we haven't seen a lot.

Frankly at this point and so I can't comment on competitiveness and so forth I think we're continuing head down pushing hard to advance our technology and our.

<unk> sampling seven gigahertz farm.

Integrating.

A lot of it in our modules, which were shipping soon.

And then as we've talked about many times, it's not just about what frequency you can get to with the filter it's about how well you can combine them.

Working in multiplexing, combining multiple fits our technologies together in the St module.

There's a lot of complexity going on so.

It's a very valuable and key part of the communications market, So theres going to be a lot of people investing in it and trying to build capability.

Yeah.

Thank you we'll take our next question from Rajeev <unk> with Needham <unk> company.

Thank you for taking my questions I appreciate it.

The gross margins.

To be resilient in a challenging environment.

Last quarter, you mentioned that you were benefiting from premium products better pricing power and maintaining utilization of your of your factory network.

Wondering how to think about margins as you migrate to a better demand supply.

Dynamic throughout the year.

And also would love to hear a little bit more about the pricing situation.

You kind of move upstream with respect to your products.

Yes Ravi.

I'll start.

Yes, we've been talking about this 52% level for several quarters.

And.

GM gross margin is going to move around quarter to quarter of course based on.

Customer or product mix business mix yields factory loadings price and other factors.

Yes, we do believe that the current business set up of the products, we've got our footprint.

Productivity efforts and so far support this 52% level, but we are definitely working to improve that over time.

I think.

All I can say is we had.

Try and do the same things we've been doing.

Applying that same discipline.

Investing in the technology.

<unk> maintained leadership actively managing the portfolio.

Wherever and.

Producing products were revalued most.

I would add that some of the new areas, we've talked about today power defense uwp. They all had favorable gross margin profiles.

Yes, we are driving productivity, that's especially important in this period, where there's pockets of inflation.

And.

And and then yes.

Last question about farmers branch, we're always looking for.

To make sure we're supporting the business in the most capital efficient way and that should.

Should should hopefully allow us to sustain and expand from here.

Great.

My follow up you.

You had mentioned that you expect by the infrastructure build out to.

Begin to kind of reaccelerate throughout the.

The year outside of China.

Wonder if you could elaborate further in terms of what youre, seeing specifically which region.

You were very successful in China with the penetration of your Gan base stations.

And your dominance in Gan technology, So I wanted to get a sense of when youre thinking about the build out outside of China, how that is affecting your IDP business and kind of your market share position in Gan.

This is Phil I'll take that question so.

When we look at the overall market this year this calendar year what.

What we see as kind of China being similar to what it was.

In last calendar year, but really where we see most of the real deployments and growth.

As in Europe , and in America, and we've we spent a tremendous amount of time and energy, creating a family of technologies and products that really are kind of optimized.

For those markets, we see our organic technology is a critical piece to that same with kind of our small signal product families that we have and so we like how we're positioned.

And we right now if you were to look at kind of backlog and where things are in that business.

We're we're excited about that so hopefully that answers your question Roger.

Thank you we'll take our next question from <unk> Malik with Citi.

Thank you for taking my questions Mark I hate to beat.

The China demand realignment commentary, but when you guided the December quarter last year, you broke out the supply impact is what is the demand impact.

And my question is.

The March quarter guide.

Are you seeing similar demand or supply impact or.

No because the March quarter is in line with what you were thinking last year.

Yes.

Last last earnings call.

We yes, we broke broke it out with specificity, we could and it is yes. The March quarter is playing out as we expected.

I will say that there is there or thereabouts supply factor still.

There are demand factors still.

And yes that balances probably more.

More equally distributed now than it was then.

Certainly a.

Predominantly a supply issue then.

But we still have we still have both and.

It's reflected in our guidance.

Great and then another question on supply it if you would expecting supply to improve to the rest of the year.

Does that.

Lower your competitor has the ability to bundle the RF front ends to apps.

The supply eases.

I'm not sure there is.

Direct.

Correlation to that necessarily.

I mean is.

Some.

A lot of things that go into the customers' buying buying behavior.

There are certain times when there are bundling factors of course.

But.

I don't think this is necessarily.

<unk>.

The main theme that I mean, it's a <unk>.

Rod market.

We're selling across many different baseband.

And so it's a bigger picture than that I think.

Thank you, we'll now take a follow up from Edward Snyder with charter equity research.

Thank you very much.

I had a question on IDP I have to say I'm a bit confused by your silicon carbide power business at all I know you guys acquired.

I did.

But maybe you could articulate what the strategy is here.

I get what you're doing it again your huge supply defense, that's a U S based business really with U S based suppliers.

Well it used to be your biggest competitor requires kind of dropped by the wayside will snow, but on silicon power. So the other way around at this point there isn't about the bill turn on their new New York Fab, which will make them the largest silicon carbide device power manufacturer on the face of the Earth.

Cost basis is 50% lower than anybody else, so youre buying wafers from them more likely maybe one other folks and you're going to pay twice as much as theyre paying and they're addressing this market.

On a scale and a cost why I said, even SD micro in or going to have a problem with so is it is it that you are selling power into niche markets. They want to diversify away from them I don't understand the marketing game of this at all because youre going to be an under scaled player purchasing materials from the guys who are producing the devices on <unk>.

You can't compete with so maybe you can articulate what you think this is going to do.

How does it fit in with your your model in the long term. Thanks.

Well there are a lot of air.

You should just go home.

Theres a lot yes.

I'm, taking this takeaway if you want to answer that.

And five minutes I don't know if I can go through all of that.

And then I have a follow up.

So Ed.

I think that.

When we look at the business, Okay, and we look at it from a capability perspective, what we like about our Silicon carbide technology is one we have a leadership position inefficiency in the specific technical areas that drive that efficiency and I think that's important and I think.

That capability is why you see the business, having quite a bit of traction I mean, you can see it in the release, there's announcements about onboard charging wins in automotive and DC to DC I think the other piece to it is that when you look at the technology that we have we can we can generate.

About twice the revenue per wafer silica carbide wafer that our competition can't so we because of that advantage, we feel like we have.

The ability to.

Use of more of a foundry model as opposed to.

And in House model right now and when you look at specifically the silicon carbide substrate supply.

We see as you know.

More and more.

Investment in that area, and we see more and more.

Entrants coming into that space, which we think will make that more competitive over time. So those are some of the economic dynamics that we see okay.

I would also say that again.

Silicon carbide is in our wheelhouse.

Jorge compound semiconductor company right, we have a lot of those relationships. So.

I hear you.

I understand your view, but we think theres, a real opportunity there for us and the market, let's just talk a little bit about the market. It's a very very large market.

And even what you may be calling niche and I would assume maybe youre talking outside of automotive you look at it infrastructure you look at other areas.

A very very large opportunity and so we feel like we have the opportunity to build a meaningful franchise and then when you combine that with our programmable power management, where I can build systems I can put that into module capability, which is at the core of what we do.

We feel like maybe we have a better shot at it and then.

You have given us credit for it.

Thats short and sweet and.

And I guess, one last thing.

I've been an executive in the power business in analog and I've been doing this for 25 plus years and.

I think there's something there I really do I am excited about it and I think it can be a meaningful franchise for us here at <unk>.

Great. Thanks.

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.

I want to thank everyone for joining us today, we look forward to speaking with you again in upcoming Investor conferences. Thanks, again, and hope you have a great night. Thank you.

Thank you and that does conclude today's conference. Thank you all for your participation.