Q1 2022 Skyworks Solutions Inc Earnings Call

February 3, 2022

Good afternoon, and welcome to Sky work solutions first quarter fiscal year 2022 earnings call. This call is being recorded.

At this time I will turn the call over to Mitch Haws Investor Relations for Sky Regs. Mr. Haack. Please go ahead.

Thank you Rachel good afternoon, everyone and welcome to Sky works first fiscal quarter 2022 conference call.

With me today are Liam Griffin, our chairman, CEO , and President and Chris <unk>, Our Chief Financial Officer.

Before we begin I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward looking statements.

Please refer to our earnings release.

And recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. Additionally, the results and guidance. We will discuss include non-GAAP financial measures consistent with our past practice.

Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP with that.

I'll turn the call to Liam Thanks, Mitch and welcome everyone Sky works delivered a strong start to the fiscal year, establishing all time quarterly records for revenue and free cash flow.

Looking at the quarter in more detail we.

We delivered revenue of 115 1 billion.

Above consensus and up 15% sequentially derma.

Demonstrating the strength of our broadening product portfolio.

Specifically, the mobile business grew 12% sequentially.

Driven by increasingly complex architectures, and <unk> phones at our largest customer.

And momentum across the Android ecosystem.

In parallel our broad markets business achieved a record $477 million in the quarter up 23% sequentially and 46% year over year.

Our growth was fueled by both the continued adoption of our solutions across five G Iot automotive and wireless infrastructure and.

And an expanding set of new customers and markets from our recently recently acquired <unk> business.

Importantly, Sky works continues to drive strong profit margins and exceptional cash flow.

We achieved gross margin of 51, 2% and operating margin of 38, 8%.

We posted earnings per share of $3 14.

Above consensus and up 20% sequentially.

Finally, we generated record Q1 operating cash flow of $582 million.

As our first quarter results illustrate the growth trajectory, we established in fiscal 2021 is extending into fiscal 2022.

We continue to see deployments accelerating with five <unk> cellular subscriptions predicted to grow from 700 million today to more than four 4 billion by the year 2027.

As connectivity becomes more vital to the ways, we work educate and play.

Devices are increasingly integrating <unk> with advanced Wi Fi precision.

Precision GPS Bluetooth Zigbee and other wireless protocols Cree.

Creating the seamless and ultrafast experience demanded by our customers.

The rapid adoption of new wireless technologies enables a proliferating set of use cases with design wins spanning mobile and broad markets further bolstered by contributions from our recently completed acquisition.

Specifically in mobile we shipped sky five platforms across leading smartphone Oems, including Samsung also vivo and Xiaomi among others.

In enterprise and Iot, we supported Wi Fi access points that Siemens powered net gears latest Wi Fi six and 60 mesh system.

Partnered with British Telecom to launch <unk> home routers.

Ramp Wi Fi six and 60 modules at Juniper networks, and tell us and provide a digital isolation solutions for GE consumer appliances.

Moving to automotive.

We leveraged sky five technology to enable a telematics security driver assist and other advanced services at leading Oems.

We scale volume production of timing and isolation products, enabling the leading EV manufacturers.

And finally across the infrastructure and industrial space.

We captured design wins at quick tell for enterprise end to end platforms.

Delivered industrial Iot solutions to I Tron Honeywell in palace.

Supporting smart energy in factory automation.

We also expanded our position in timing applications at the top five data centers.

And as markets evolve, we expect to deploy billions of wireless devices.

Capitalizing on our strong multiyear growth trend.

Advances in cloud and edge computing.

Thomas vehicles and factory automation together with the emergence of the meta versus.

We are intensifying the burden on existing networks catalyzing demand for our highly integrated and customized platforms.

From inception Sky works has been a driving force empowering the wireless network Revolution.

Connecting people places and things.

We invested early and extensively to develop and fabricate cutting edge technology at massive scale.

Today, we're a global leader, providing the essential elements required to deliver the highest performance connectivity platforms in the industry.

Producing billions of units integrating core technology nodes.

Including gallium arsenide bulk and surface acoustic wave as well as the most advanced multi chip module test and assembly capabilities in the world.

Underpinned by this powerful foundation.

We are leading the transition to <unk> inspiring a new era of unrivaled innovation.

The strength of our balance sheet and consistent outperformance demonstrates the significant value of our vertically integrated model and the compelling advantages it delivers.

Looking forward, we are committed to supporting the strategic investments in technology product development and World class manufacturing scale to <unk>.

Further extend our market leadership.

With that I will turn the call over to Chris. Thanks.

Thanks Liam.

<unk> revenue for the first fiscal quarter of 2022 was $1 five 1 billion up 15% sequentially driven by continued strong demand across our entire portfolio.

Gross profit in the first quarter was 773 billion, resulting in a gross margin of 51, 2% up 20 basis points sequentially.

Operating expenses were 187 million or 12, 4% of revenue demonstrating leverage in our operating model, while continuing our strategic investments in support of future growth.

We generated $586 million of operating income translating into an operating margin of 38, 8% up 160 basis points sequentially.

We incurred $9 million of O&M expenses, and I would effective tax rate was nine 3% driving net income of $543 million.

So strong revenue growth and execution on margins drove diluted earnings per share of $3 40 up 20% sequentially.

Turning to the balance sheet and cash flow first fiscal quarter cash flow from operations was a Q1 record of 582 million.

Capital expenditures were 96 million.

<unk> in an all time record free cash flow of $486 million.

Free cash flow margin was 32% driven by strong profitability and great working capital management.

Inventory levels were reduced by 22 days to 103 days and receivables were reduced by five days to 47 days.

In terms of capital allocation during the quarter.

We paid $93 million in dividends and repaid $50 million and we repurchased one 7 million shares of our common stock for a total of $269 million.

In summary, discovery team continues to execute well delivering strong profitability and record free cash flow in the December quarter.

We have design wins across our growing product portfolio and customer set.

<unk> outperformed through 2022.

Now, let's move on to our outlook for Q2 of fiscal 'twenty two.

We expect to deliver double digit year over year revenue and earnings per share growth in the March quarter.

Specifically, we anticipate revenue between $1 3 billion and $1 $3 6 billion.

The midpoint of $1 $33 billion revenue for the quarter is expected to increase 35% year over year.

Sure.

Gross margin is projected to be in the range of 50, 75% to 50, 125%.

We expect operating expenses of approximately 186 to 158 million.

Below the line do you anticipate roughly 10 million in all of expense and a tax rate of approximately 95%.

Expect that diluted share count to be approximately 166 million shares accordingly at the midpoint of the revenue range, we intend to deliver diluted earnings per share of $2 62 and.

An increase of 11% over Q2 of last year.

Finally, given our strong cash flow and confidence in the business model. We will continue to focus on investing in our business, while returning cash to shareholders through both share repurchases and dividends and with that I'll turn the call back over to Lee Thanks, Chris <unk>.

Despite macro challenges and supply chain specific headwinds Sky works delivered excellent first quarter results underscoring the increasingly diverse composition of our customer base and extending our track record of strong profitability and robust free cash flow generation.

This strong performance and outlook reflect our critical position within the wireless ecosystem and how complexity favors sky works with its vast IP deep customer relationships differentiate differentiated manufacturing capabilities and market leading solutions.

The momentum established in Q1 physician Sky works for another year of record revenue and earnings that concludes our prepared remarks, operator, let's open the lines for questions.

Yeah.

Thank you as a reminder to ask your question you will need to press star one on your telephone keypad and do withdraw your question press the pound key.

Given time constraints. Please limit yourself to one question and one follow up. Thank you. Please standby, while we compile the Q&A roster.

Your first question comes from the line of Chris Caso with Raymond James Sir Your line is open.

Yes. Thank you good evening I guess the first question.

Can you help us detailing the breakout of broad markets versus mobile in the quarter and what's your expectations are for those markets as we go forward into March.

Yes.

As we indicated in the prepared remarks.

We have very strong performance in growth markets. It was roughly 32% of our total revenue compared to 22% last year and so we saw very strong growth, 23% sequentially and 46% on a year over year basis and the growth was.

Driven by ongoing strong demand for wireless connectivity, especially as it relates to Iot solutions. In addition to that we have a strong contribution all time record from the acquired business of the infrastructure and automotive business as well so great execution.

In broad markets on the flip side of course, you have mobile which was in the December quarter, approximately 68% of revenue was up 12% sequentially. It was down 13% year over year, but you have to take into account the timing of the ramp flagships, especially last year.

Yeah.

Just to remember the large customer was had a condensed ramp we have a late launch in the late October early November timeframe. This year. The launch was spread over the September into December quarter, but.

Great execution data as well in mobile as it relates to the March quarter. We we typically don't really guide by segment, but we just provided the guidance for the March quarter, which is up 13, 5% year over year, we do expect both segments to grow double digit year over year of course stronger in.

Global markets than it is in mobile.

Okay. Thank you.

And just following on to some of the comments that you made.

With respect to seasonality and last year.

Analogy was skewed as you said because of the late launch of the phones.

But this year they were all.

Also capacity constraints affecting your customers also so.

Is your largest customer said that they weren't able to ship as much as they wanted to December quarter, how does that affect seasonality for the March quarter.

And does that have any implications for June as well.

Some of your customers, perhaps or are touching catching up on fulfill demand during the March quarter.

Yes, Chris So again, if you look at the guide we provided for March.

Down 12% sequentially up 13, 5% year over year, but down 12% sequentially is actually slightly better than normal seasonality. If you compare to the last five years for the March quarter.

As you probably remember from the call of our large customer they left some revenue on the table in the December quarter, and he's still trying to catch up and they see improvements going into the March quarter.

Looking ahead for June .

Again, we only guide one quarter at a time, but sitting here today I don't see any reason why June would not be in line with normal seasonality. So we do expect normal seasonality for the June quarter also keep in mind that June is just a transition quarter.

We feel very strong based on our technology roadmap the products.

Good design win momentum and the design wins that we have on the book right now we feel very strong for further sequential growth into the September and December quarter.

Typically as you see with strong performance in the second half of the year.

Yeah.

Okay.

Thank you. The next question comes from the line of Gary Mobley with Wells Fargo Securities. Sir Your line is open.

Hey, guys. Thanks for taking my question I'm going to pick up right, where you left off Chris and ask.

Specifically.

What you would classify or quantify as a typical June quarter over quarter, Susan comp focusing specifically on the mobile business and then I have follow up.

Yes, so for the total company if you look at the average over the last five years.

In June we have been flat to down 5% so call. It an average of three 4% down sequentially in the June quarter Thats. The average over the last five years.

That's mobile specifically to be clear that is mostly driven by mobile.

Okay Alright.

Alright, and then switching gears over to the broad markets business I know that you have been capacity constrained for that business I presume given the upside that you delivered in the December quarter, Thats less of an issue or turned out to be less of an issue. So maybe if you can give us an update on where you stand with expanding capacity to support the broad markets business.

How the backlog is trending for that business in relationship to the to the improved supply and that's it for me. Thank you.

Yes sure. This is Liam well as noted in the prepared remarks, we had a record broad market.

Quarter $477 million, 46% year over year, there's just a lot more for us to do in those areas.

Our extending the reach of customers new customers.

We're driving more and more complex.

Cellular engines Iot engines to our customer base.

Also gaining some traction and meaningful traction with the <unk> portfolio from Silicon labs, So that's coming together.

Theres so much opportunity in the broad markets business and we're happy to see the numbers.

That we are discussing now but the market Tam there is substantial if you think about the scale and scope of where we can take our products. So there's a lot of work can be done there, but we're really pleased with the effort our team is doing well.

Having some new customers.

In our corner as always great and we're going to continue to drive in that way. So good stuff and a lot of good technical synergy as well so.

Most of these products to have a kind of a common core in some cases.

So it does help us drive through our supply chain very effectively in high velocity and.

Leveraging that scale that we talk so much about.

Thank you. The next question comes from the line of <unk> Srivastava from BMO. Your line is open.

Alright. Thank you very much currently tied to execution on their balance sheet and cash the cash flow said Chris.

Just still just a quick housekeeping what should we expect capex to be for for this year, then I had a quick follow up please.

Yes, so capex in the quarter was 96 million, which is somewhat light.

But we don't really manage the capex quarter by quarter, we will definitely continue to invest.

This is still early stages in a multi year five G upgrade cycle.

As Liam just explained there is a lot.

Both opportunities in growth markets and so we will continue to further invest in our manufacturing.

Being more size and scale, but at the same time also supporting the technology Roadmaps, we have major success with bulk acoustic wave.

And so we are the revenue of integrated devices that have BARF filters inside is growing very strong and we supporting that we're also making the necessary investments in mexicali and our back end operation supporting advanced packaging and test and so again, we have a lot of global opportunity for us.

We will support that and we will continue to.

Expense.

The capacity in and pay topics.

So it's.

Just in terms of numbers double digit low double digit is the right number to be modeling.

Double digit forecast intensity.

Okay, Okay, and then for my follow up is.

As Dan for you on the broad markets business. What's now that you have included the clinical lab business, what's the right way to think about the longer term.

The CAGR for this business. Thank you.

Yeah, absolutely we do.

Definitely see great opportunity in that portfolio as it is right now.

And so levering around that is a very substantial.

Sales team from the core skywalk still leveraging yesterday, the IAA portfolio.

We've done really well in the last couple of months of introducing the <unk> products and technologies to customers that we already have proven customers that we do have lots of business with.

Which is a great synergy for US we are scaling operationally the majority of the portfolio and.

In the <unk>.

Business had been more of a fabless play over time, we're going to bring that technology under our under our own roof here and skywalk and leverage the great scale that we have so there's a lot of really interesting things that we're doing on the inside inward looking but there's tremendous opportunity on the outbound side. So a lot of activity great people off the spa.

Garrett.

Our business there is very high and the opportunity that we have is tremendous we really have.

A small piece of the total opportunity size that that that product line can bring so I think we're excited about the opportunity.

Continue to report on our results, but thus far things have been going really well.

Thank you. The next question comes from the line of Blayne Curtis with Barclays. Sir Your line is open hey, thanks.

Taking my question I assume.

Just wanted to follow back on the mobile side and just make sure I heard two things that's because we've heard it from some of so many other companies, but in terms of the March seasonality I mean, we've heard that.

Largest customers.

Selling more product and maybe has less than a typical.

Period, there are also monitoring and following that so that's all good. So I'm just trying to understand are you seeing that because you can make comments that June should be normal and I think you've now had a couple companies talk about June being down more because margins stronger I. Just wanted to just go back to that point and make sure I understand what youre, saying.

Sure Blayne. This is lance yeah, I think what what you may see here is relatively typical.

Demand cycle, but then within that demand cycle, whereas the technology and how do you grow that technology, even in constant units right.

Be constant units, but if we have a baseline.

Some of the enthusiasm around our view going into June it's really about design wins that we have.

Squarely in our sites in some cases design wins that have been consummated they haven't shipped yet so.

So a lot of that is skywalk specific but the typical calendar or fiscal cycles that we tend to see are still relatively in place, but I will tell you that the opportunity within the devices that we're serving.

And with the customers that we're serving we're seeing growth potential there.

And that's much more predictable for us.

Because we know exactly what we're winning we know exactly where that's going we know how to prepare that operationally.

And still do that shoulder to shoulder with our leading customers. So we feel really good about it.

The macro seasonality can be a little bit different than what we felt very confident in what we're going to do.

And then just a question for Chris I think when you when you bought the Silicon Labs' business Youre going to require retired at quite quickly I think.

You were actually pretty active on the buyback for December so the pullback in the stock that you're thinking about that differently and anything you can talk about for the remainder of this fiscal year in terms of buybacks versus.

Debt retirement.

Yeah I believe so currently we have still $2 $2 billion of depth of the balance sheet. In addition to 1 billion is a lot of cash so we feel really good about our liquidity position today.

In terms of even gross debt, it's less than a turn of EBITDA and so given where the stock is trading today.

And when it was trading over the last three months.

We have.

Switched on the buybacks again, and we will continue to do so.

Going forward.

Thank you. The next question comes from the line of Edward Snyder with Charter equity research Sir Your line is open.

Thanks, a lot a couple if I could.

So Liam scarce traditionally has been very strong in Wi Fi to put four gig section that you own when they use extra lamps, but that's always been shipped and the phone business into a sip or system in package from a route or somebody else combined with lower other products, but it looks like now finally, the Android ecosystem is moving to more of an RF module.

Architecture.

The break up of RF separately.

So.

I kind of understand what that means from a content from a content point of view, especially with Wifi succeed, but poses a problem does that I mean, because now in addition to the apps you've got to have the best filters.

To put four uses a tough ball filter in Wi Fi six he will use itself ball filter.

So one are you seeing the shift to modules and Wi Fi finally to <unk>.

Does it prevent any difference in content opportunity to view does it go up does it go downstairs or stay the same how do you how do you characterize sky works positioning.

And we will moves in mass to this new architecture.

I have a follow up now that's a good question I think.

Don't know if everybody followed that but I know where you are.

So the bottom line on that which is great. We have outstanding position in Wi Fi today, just when.

Let me make that clear a very substantial.

And it's been going great, but there has been improve.

Improvements in technology and demand for higher speeds and higher performance and in those cases bulk acoustic wave is a critical element within the within within the Wi Fi system. So we have ramped Wi Fi we have ramped our bulk acoustic wave technology, obviously in smartphones.

A lot of work a lot of investment and Thats been going great and now we're seeing that move into Wi Fi and we have design wins now that captured bulk acoustic wave within a within a Wi Fi system multiple customers. So it's another vector of growth for Sky works.

And that a lot of that is in the broad market side that it's very diverse.

It's certainly we love our handset business, but you've got a handful of customers when you get into the connectivity nodes around Wi Fi and other cases.

You have a broadening there so we're in good great.

And then great and great position also now to start to lever up bulk acoustic wave beyond the mobile phone.

Okay.

So it's safe to say you're shipping a coexist filter to four gig, which is one of the reasons I thought you even started the ball to protect your wife.

We have and we have that we do have those today and we're going to we're going to continue to go higher in frequency as we move along.

Okay, and then if I could.

Is it very well in flagship phones last round.

Finally, moving to transmitter into the diversity section and you landed that which is a big too.

So two questions if I could what is the content opportunity look like at your largest customers in that area. Because it turns you tend to really dominate the diversity section and of course, the low bands too, but that will have already added that are we going to see any big kickers or if we got most of what we need there and then how does this play out with everybody else Samsung.

And the Chinese Oems.

One when do you think they'll move to transmit into your exit two do you think the same dynamic competitively will play out where you've been kind of sweep out.

And push wherever else like Murata out there like you did on the on the flagships.

Yeah, Yeah. So on the higher end the opportunity there and we talked about driving higher performance and filtering.

And moving up the data rate going to <unk> all of that's working but then if you go down to the mid tier.

There's tremendous opportunity because theres still.

Asked majority of phones off and the Android in the Android World and some of the markets in China.

Just now stepping up with the higher performing filters and they get great performance return for that so we're doing a lot of work.

And in shoulder shoulder design and work with customers to make sure. They see the merits of this technology in.

The performance upside that they gained four.

We'll have incremental dollar saw itself. So I think theres, a great opportunity there coming from a low base too so that's not.

It isn't just a simple upgrade cycle, that's coming from very low base to mid to higher end.

And we'll continue to work along that curve.

The Knowhow that you build in mobile and in RF translates very well so all the hard work and the engineering talent that we Havent Sky works, that's been working on flagship phones for years and years. They know how to scale when it goes into Wi Fi and some of these other.

Wireless technology, So we look forward to.

Leveraging that skill set as we meet with new customers.

Thank you. The next question comes from the line of Craig Ellis with B Riley Securities. Sir Your line is open.

Yes, thanks for taking the questions and congratulations on the nice quarter and cash flow.

I wanted to start with an operational question so.

Clearly, we've got a very strong demand environment out there right now and yes, Chris It sounds like you expect the business to be seasonally strong in the back half of the year. So can you just talk a little bit about how you plan to manage.

Manufacturing loadings as we go through the calendar first and second quarter your fiscal <unk>.

Second and third quarters should we expect to see that youll build inventory to.

Put yourself in a position or.

<unk>.

For whatever reason wed inventory stay at a relatively lower level here.

Yes, Craig I mean, we do that every year, because we do have some large seasonal swings in our business right. We've typically strong sequential growth in September December and then and then down in March and kind of flattish to slightly down in June that's the seasonal pattern we of course try.

To maximize <unk>.

Factory utilization and drive efficient use of our capital equipment and so we are always.

11 loading as much as we can it's not perfect.

Why you also see some seasonal fluctuations in the gross margins there as well.

But.

But we definitely will try to maximize that also.

In this business.

The design wins, we know them.

Right. So we know what we when we know the product we can start building two to certain extent ahead of it and we do that every year.

Yep got it that's helpful and then.

Ill flip one over to Liam.

I think there's a general view out there that this year will be a year for somewhere around 40% growth in the smartphone market really is we shipped a lot more mid range <unk> smartphones. So.

I know you just talked about some of the things you're excited about on the Android ecosystem, but is it possible to put.

Quantification around the degree of content gain that slipped at that tier of the market, then and beyond that tier what still possible prescribers.

Sure sure Yeah, I mean, we have two vectors right, we have kind of a thought.

The mid tier moving up and then you have the premium devices.

Really stepping up with high performance.

And both of those portfolios have been great for us and I think our ability the years and years of time investment.

Shoulder to shoulder engineer work we.

We basically follow the lead with our customers. So we're very flexible we can go to the highest end and we can also bring companies that haven't engaged and get them on board.

And so that continues to grow and the merits of mobility and wireless connectivity everyone. This call knows how important that is so there's a lot of opportunity. There and then if you can move out of smartphones Greg.

We had a question on that a few minutes ago. We just we're really excited by.

The potential for proliferating connectivity everywhere right and you're hearing more about end to end youre hearing more about automotive these are real.

These are real markets right now, but there's Wi Fi opportunity it could be cellular all of these end markets.

Have great promise for us beyond just the mobile phone.

And the technologies that we have in the in house scale that we have really create flexibility. So we don't have a.

One stop shop, we can be very crafty and configuration it configurable with a customer.

Pending on the applications. So there's a lot of really interesting design wins that we have.

That really come about with customer problems and our engineers huddling together to solve it. So it's really cool to see youre going to see more and more growth around that but still the connectivity factor is the primary U S.

Element here to make it all work.

Thank you. The next question comes from the line of Brett Simpson with Arete Research Sir Your line is open.

Yes, thanks, very much maybe to two big picture questions.

And then maybe for Liam the first just just Android.

As a market opportunity for Sky works I guess your mobile business is much more skewed towards iOS, historically, but if I look at Android.

Probably looking at about $1 billion of revenue for Skybox every year and there's more than $1 billion shipping for Android.

Youre getting sort of less than one dollar today of of RF content on average.

And I guess, just moving to <unk> and more modules can you, perhaps just talk about the <unk>.

Opportunity that you see ahead of yourselves in terms of getting more strategic with customers or where you think you can really start to sort of grow your average content per unit in the Android ecosystem. Thanks sure sure that's a great question.

And you're right I think there's a lot more opportunity in Android now for us to go get.

And it's really about an education opportunity for us and we're working with these customers where we're demonstrating.

One why not a little bit of incremental content can do in terms of the the end user's experience. So theres a lot more.

All of a drive there we absolutely its not a technical hurdle for US I mean, we know how to do it.

It's more around how do we craft a solution that provides the technology and the performance and does it at a price point and a cost point for us where it makes a lot of sense and that's happening now because as you start to see.

<unk> really accelerate.

To really get the performance that's been promised and thats been desired you've got to put in more content you've got to put it more filtering that we talked about already in the call.

You need to raise the performance.

Youre gallium arsenide technologies cheaper you kind of bring them and you've got to look at your packaging and test.

And the coexistence issues that happen when you have more and more of these technologies in a single single applications, whether the application is a phone or something else. So there is a lot. There are a couple of things I would say in the last several months, we've been doing much much better at the at the higher end of Android.

Customers like Samsung has been very strong and these are on the new platform season on the highest performing.

New platforms that they are offering and then we're going to bring along the auto vivo Xiaomi players in aggregate today those are still very significant for us, but the content opportunity from todays baseline and where it could go over the next two to three years is quite substantial.

The point that you made at the beginning is definitely well taken so so that saw how we see that and.

We've got we've got great inroads right now on products that will you know they are a little bit of a different cycle than some of the larger U S. Players, but you should see a lot more content from Sky works in Android products going into the second half of the year and into 2023.

Hmm.

Great and then maybe just a follow up Liam on Ed's question on Wi Fi I guess.

Yes.

Like over 4 billion units of Wi Fi that ship every year and I just love to understand.

The RF.

Tom or the opportunity set that you see especially with the transition to <unk> and some of the.

Some of the changes that we're going to see and how this is packaged up but I.

I guess, we could expect Pcs and routers and smartphones and Tvs to move quite aggressively towards <unk> over the next sort of year or two but is there anything you can share with us in terms of your strategy and how you. How you plan to address this because I guess this transition should be.

Positive for RF players like Skybox has done very well traditionally in Wi Fi space.

Yes, no that's a great point, so the appetite for high end Wi Fi has really accelerated and you can see.

Use case opportunity everywhere now right you take consumer products all.

All the way to the Super High end, you have Wi Fi, whether it's <unk> or <unk>. So that's all going to move in the right direction for us and so one of the things that will happen as we move along the curve of Wi Fi it'll it'll actually create a cycle not unlike what you see in mobile where content growth and then content continues to move as the App.

Obligation and the burden on the technology prices right that the more.

More important hire to speed the more efficient it needs to be that's going to require better technology on the semiconductor and the filtering side. So that that plays together very very well for Sky works you can think about us as kind of the mid to high tier player, but we can step into that low end in the market too, but we are seeing a lift when you start to look at six.

<unk> six <unk> and Wi Fi.

Bulk acoustic wave filters, there that we've already talked about on this call, but very very important in the higher end Wi Fi.

And not today very highly populated it's a cycle there that is on the upswing and it's still early.

We have the know how to do it. So the wonderful thing there is we have the key elements to get it done.

Similar elements that we would have in a high end smartphone, but but positioned and scaled and configured in a way to deliver Wi Fi signals versus cellular.

There's a lot of opportunity there and it plays into core technologies that we have in house.

That's a really good question and it's up.

It is a key element in our strategy and broad markets has to do to do more and raise raise the bar there.

Overall Wi Fi performance.

Thank you. The next question comes from the line of Tristan <unk> with Baird. Sir Your line is open.

Hi, good afternoon, so you've talked about the strength and opportunities in the Android ecosystem.

Two years ago, you really had a greenfield opportunities in the three to six gigahertz range.

Another key customer so how should we look at the competitive landscape now.

Credit Company recently, you announced.

Alright.

So then you get a range of media Tech also getting in that segment.

Like that.

Six gig.

Second <unk> gained significant share three years ago, starting to get more clouded.

Wondering whether there could be when applications of that including in the Android ecosystem.

Yes, we are.

Actually in a pretty significant growth path with with the bulk acoustic wave filtering technology that would populate.

Of the three to six gig range.

We also have.

Great deal of Knowhow and complexity on both transmit and receive.

And also the way to integrate the complexity around that so when you are dealing with.

The high end smartphones that would demand that kind of performance you got to have the isolation, you've got to have the form fit and factor to integrate all of that because youre going to carry all of the existing <unk> stuff around it and then you have to populate when you get to three to six gig theres going to be some additional filtering.

And that has to all be co existing in a way that makes perfect sense within the device itself corn consumption et cetera size and.

When scale. So we know how to do that there is absolutely no.

GAAP at all.

And we are populating three months to six gig now and as we mentioned.

Our ball filter technology is very robust extremely competitive and populating some of the most iconic highest performing phones today.

So that same recipe Ken can scale across Android can go to the highest end.

<unk> phone saw.

Can find itself in applications that are not mobile applications like automotive for example, so we have we have the keys for that so that's something to work on the market. In some cases is just starting to demand. This technology. Some cases the market has been behind the technology.

But now we're starting to see the intersection with the high performance technology and the needs of the consumer in the market together.

And I think that's where things really are going to accelerate.

Okay, Great and then as a quick follow up.

We have opportunities for content increases in and share gains how do you look at the <unk>.

Inventory situation in China smartphone Oems.

And is that something we should get some kind of in the next few quarters.

Yeah.

For us we don't we don't see anything I mean, theres, some bumping us there, but not in the portfolios that we're driving right now we keep a very very lean view.

Our products and you know Chris mentioned it in terms of our days of inventory et cetera, We're very we're not a big distribution play we're kind of like we go direct.

So we have a very clear view of where the demand is where the product sorry for the most part things have been kind of sure and in terms of supply chain.

Which has limited some.

Our customers and created some imbalance I think some of that's getting ironed out now.

With Sky works as you know the lion's share of our business is done in house, we have our own gallium arsenide technology, we have our own TC saw standard saw bulk acoustic wave assembly and test all of that stuff is in house.

So we're able to execute extremely well even if the conditions are choppy out there in the supply chain. So there can be some movement around that but.

We feel we feel very good about our ability to execute in that way.

Yeah.

Thank you. The next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Sir Your line is open.

Thank you thanks for taking my question.

I'm, just we're getting a lot of information around input costs going up and I wonder, how you're controlling that and it looks like even your opex stays kind of flat next quarter.

But also just for all your manufacturing how are you controlling input costs and what's the outlook for the rest of the year.

Yes, Kevin.

This is not a sky works specific issue there is definitely some input costs.

Increases, but as Liam just said I mean, we control a lot of our own supply chain and we have most of the supply chain is actually in house now we still do buy some third party materials and we have seen some increases.

They are as well, but if you look at the gross margins I mean, we have been able to slightly improve our gross margins.

Part because we do have also a dynamic pricing policy.

And that means we increase or decrease prices where.

Where we can depending on.

Palliative landscape and depending on certain increases or decreases in our cost structure as well.

Okay great.

Just a reminder.

The <unk> business that you just acquired what's the manufacturing strategy with that for the longer term.

Yes, I mean right now we are still operating in kind of the Fabless play, although still leveraging our teams in a way that's very cohesive, but theres definitely operational scale advantages with bringing some of the core technologies from the IAA slab business.

And of course Sky works facilities, I mean, I think that's what we know I mean, that's something we're working on right now.

And is 100% in our control we don't need help from it we know exactly what we need to do we just need to get it done.

And it will do a lot of things because it will open up the portfolio greatly there'll be more scale to drive the products and there is also as I said earlier.

Great.

Synergy with the technologies that we have today and how they can dovetail with the <unk> business, but also the very very large roster of customers that the slab IAA business has that we can generate and engage our customers today with them. So theres going to be some great synergy there upside synergy around revenue.

And also synergy around operations, so looking forward to seeing that more as we as we pursue the business longer.

Thank you ladies and gentlemen that concludes today's question and answer session. I will now turn the call back over to Mr. Griffin for any closing comments.

Thank you all for participating on today's call. We look forward to talking to you at upcoming Investor events. Thank you.

Ladies and gentlemen that does conclude today's conference call. We thank you for your participation.

[music].

Yes.

[music].

Good afternoon, and welcome to the Sky work solutions first quarter fiscal year 2022 earnings call. This call is being recorded.

At this time I will turn the call over to Mitch Haws Investor Relations for Sky bricks. Mr. HUS. Please go ahead.

Thank you Rachel good afternoon, everyone and welcome to Sky works first fiscal quarter of 2022 conference call.

With me today are Liam Griffin, our chairman, CEO , and President and Chris <unk>, Our Chief Financial Officer before.

Before we begin I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward looking statements. Please.

Please refer to our earnings release.

Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP.

That I will turn the call to Liam Thanks, Mitch and welcome everyone.

<unk> delivered a strong start to the fiscal year, establishing all time quarterly records for revenue and free cash flow.

Looking at the quarter in more detail.

We delivered revenue of one Bill 151 billion.

Both consensus and up 15% sequentially.

Demonstrating the strength of our broadening product portfolio.

Specifically, the mobile business grew 12% sequentially.

Driven by increasingly complex architectures, and <unk> phones at our largest customer.

And momentum across the Android ecosystem.

In parallel our broad markets business achieved a record $477 million in the quarter up 23% sequentially and 46% year over year.

Our growth was fueled by both the continued adoption of our solutions across five G Iot automotive and wireless infrastructure.

And an expanding set of new customers and markets from our recently recently acquired <unk> business.

Importantly, Sky works continues to drive strong profit margins and exceptional cash flow.

We achieved gross margin of 51, 2% and operating margin of 38, 8%.

We posted earnings per share of $3 14.

Above consensus and up 20% sequentially.

Finally, we generated record Q1 operating cash flow of $582 million.

As our first quarter results illustrate the growth trajectory, we established in fiscal 2021 is extending into fiscal 2022.

We continue to see deployments accelerating with five <unk> cellular subscriptions predicted to grow from 700 million today to more than four 4 billion by the year 2027.

As connectivity becomes more vital to the ways, we work educate and play.

Devices are increasingly integrating <unk> with advanced Wi Fi precision.

Precision GPS Bluetooth Zigbee and other wireless protocols Cree.

Creating the seamless and ultra fast experience demanded by our customers.

Specifically in mobile we shipped sky five platforms across leading smartphone Oems, including Samsung also vivo and Xiaomi among others.

In enterprise and Iot, we supported Wi Fi access points at Siemens powered net gears latest Wi Fi six and <unk> mesh system.

Partnered with British Telecom to launch <unk> home routers.

Ramp Wi Fi $6 60 modules at Juniper networks, and tell us and provide a digital isolation solutions for GE consumer appliances.

Moving to automotive.

We leveraged sky five technology to enable a telematics security driver assist and other advanced services at leading Oems.

We scaled volume production of timing and isolation products, enabling the leading EV manufacturers.

And finally across the infrastructure and industrial space.

We captured design wins at quick tell for enterprise end to end platforms.

Delivered industrial Iot solutions to I Tron Honeywell in palace.

Supporting smart energy and factory automation.

We also expanded our position in timing applications at the top five data centers.

And as markets evolve, we expect to deploy billions of wireless devices.

Capitalizing on our strong multiyear growth trend.

Advances in cloud and edge computing.

Thomas vehicles and factory automation together with the emergence of the Med affairs.

We are intensifying the burden on existing networks catalyzing demand for our highly integrated and customized platforms.

From inception Sky works has been a driving force empowering the wireless network Revolution.

Connecting people places and things.

We invested early and extensively to develop and fabricate cutting edge technology at massive scale.

Today, we're a global leader, providing the essential elements required to deliver the highest performance connectivity platforms in the industry.

Producing billions of units integrating core technology nodes.

Including gallium arsenide bulk and surface acoustic wave as well as the most advanced multi chip module test and assembly capabilities in the world.

Underpinned by this powerful foundation we.

We are leading the transition to <unk> inspiring a new era of unrivaled innovation.

The strength of our balance sheet and consistent outperformance demonstrates the significant value of our vertically integrated model and the compelling advantages it delivers.

Looking forward, we are committed to supporting the strategic investments in technology product development and World class manufacturing scale to further extend our market leadership.

With that I will turn the call over to Chris.

Thanks Liam.

<unk> revenue for the first fiscal quarter of 2022 was 151 billion up 15% sequentially driven by continued strong demand across our entire portfolio.

Gross profit in the first quarter was $773 million, resulting in a gross margin of 51, 2% up 20 basis points sequentially.

Operating expenses were 187 million or 12, 4% of revenue demonstrating leverage in our operating model, while continuing our strategic investments in support of future growth.

We generated $586 million of operating income translating into an operating margin of 38, 8% up 160 basis points sequentially.

We incurred $9 million of O&M expenses, and our effective tax rate was nine 3% driving net income of $543 million.

So strong revenue growth and execution on margins drove diluted earnings per share of $3 40.

Up 20% sequentially.

Turning to the balance sheet and cash flow first fiscal quarter cash flow from operations was a Q1 record of $582 million.

Capital expenditures were 96 million, resulting in an all time record free cash flow of $486 million and our free cash flow margin of 32% driven by strong profitability and great working capital management in fact inventory levels were reduced by 22 days to 103 days.

And receivables were reduced by five days to 47 days.

In terms of capital allocation during the quarter repaid $93 million in dividends and repaid $50 million of our terminal and we repurchased one 7 million shares of our common stock for a total of $269 million.

In summary discoveries team continues to execute well delivering strong profitability and record free cash flow in the December quarter.

With design wins across our growing product portfolio and customer set.

<unk>.

Perform through 2022.

Now, let's move onto our outlook for Q2 of fiscal 'twenty two.

We expect to deliver double digit year over year revenue and earnings per share growth in the March quarter.

Specifically, we anticipate revenue between $1 3 billion and $1 three 6 billion.

At the midpoint of $1 33 billion revenue for the quarter is expected to increase 35% year over year.

Gross margin is projected to be in the range of $50, 75% to 50, 125%.

We expect operating expenses of approximately $186 million to $158 million.

Below the line, we anticipate roughly $10 million analytics pence, and a tax rate of approximately 95%.

We expect our diluted share count to be approximately 166 million shares accordingly at the midpoint of the revenue range, we intend to deliver diluted earnings per share of $2 62.

An increase of 11% over Q2 of last year.

And finally, given our strong cash flow and confidence in the business model. We will continue to focus on investing in our business, while returning cash to shareholders through both share repurchases and dividends.

I'll turn the call back over to Uli.

Thanks, Chris.

This strong performance and outlook reflect our critical position within the wireless ecosystem and how complexity favors sky works with its vast IP deep customer relationships differentiated differentiated manufacturing capabilities and market leading solutions the.

The momentum established in Q1 physician Sky works for another year of record revenue and earnings that concludes our prepared remarks, operator, let's open the lines for questions.

Thank you as a reminder to ask your question you will need to press star one on your telephone keypad to withdraw your question press the pound given time constraints. Please limit yourself to one question and one follow up. Thank you. Please standby, while we compile the Q&A roster.

Your first question comes from the line of Chris Caso with Raymond James Sir Your line is open.

Yes. Thank you good evening I guess on the first question.

Can you help us detailing the breakout of broad markets versus mobile in the quarter and what your expectations are for those markets as we go forward into March.

Yes.

As we indicated in our prepared remarks.

We had very strong performance in growth markets. It was roughly 32% of our total revenue compared to 22% last year and so we saw very strong growth, 23% sequentially and 46% on a year over year basis and the growth was.

Driven by ongoing strong demand for wireless connectivity, especially as it relates to Iot solutions. In addition to that we have a strong contribution all time record from the acquired businesses of the infrastructure and automotive business as well so great.

Execution in broad markets on the flip side of course, you have mobile which was in the December quarter, approximately 68% of revenue. It was up 12% sequentially. It was down 30% year over year, but you have to take into account the timing of the ramp of flagships, especially <unk>.

Last year.

Just to remember.

Large customer was havent condensed ramp we have a late launch in the late October early November timeframe. This year. The launch was spread over the September into December quarter, but.

Global markets that it isn't normal.

Okay.

Thank you.

And just following on to some of the comments that you made.

With respect to seasonality and last year.

As analogy was skewed as you said because of the late launch of the phones.

But this year there were also capacity constraints affecting your customers also so.

Is your largest customer said that they weren't able to ship as much as they wanted to December quarter, how does that affect seasonality for the March quarter.

This year and doesn't have any implications for June as well as some.

Some of your customers, perhaps there are touching catching up on fulfill demand during the March quarter.

Yes, Chris So again, if you look at the guide we provided for March.

Down 12% sequentially up 13, 5% year over year, but down 12% sequentially is actually slightly better than normal seasonality. If you compare to the last five years for the March quarter.

As you probably remember from the call of our large customer they left some revenue on the table in the December quarter, and they are still trying to catch up and they see improvements going into the March quarter.

Looking ahead for June .

We feel very strong based on our technology roadmap the products.

Good design win momentum and the design wins that we have on the book right now we feel very strong for further sequential growth into the September and December quarter.

Typically as you see with strong performance in the second half of the year.

Thank you. The next question comes from the line of Gary Mobley with Wells Fargo Securities. Sir Your line is open.

Hey, guys. Thanks for taking my question I'm going to pick up right, where you left off Chris.

Ask.

And specifically, what you would classify or quantify as.

Typical June quarter over quarter seasonal comp focusing specifically on the mobile business and then I have follow up.

Yes, so for the total company if you look at the average over the last five years.

In June we have been flat to down 5% so call. It an average of three 4% down sequentially in the June quarter Thats. The average over the last five years.

That's mobile specifically to be clear that is mostly driven by mobile.

Okay.

How the backlog is trending for that business in relationship to the to the improved supply and that's it for me. Thank you.

Yes sure. This is Liam well as noted in the prepared remarks, we had a record broad market.

$477 million, 46% year over year.

Just a lot more for us to do in those areas, we are extending the reach of customers new customers.

We're driving more and more complex.

Cellular engines Iot engines to our customer base are also gaining some traction and meaningful traction with the <unk> portfolio from Silicon labs, So thats coming together.

Theres so much opportunity in the broad markets business and we're happy to see the numbers there.

We are discussing now but the market Tam there is substantial if you think about the scale and scope of where we can take our products. So there's a lot of work can be done there, but we're really pleased with the effort our team is doing well.

Having some new customers.

In our corner as always great and we're going to continue to drive in that way. So good stuff and a lot of good technical synergy as well so.

Most of these products do have a kind of a common core in some cases.

So it does help us drive to our supply chain very effectively high velocity.

And leveraging that scale that we talk so much about.

Thank you. The next question comes from the line of Ambridge Srivastava from BMO. Your line is open.

Alright. Thank you very much currently attained execution on their balance sheet and cash.

Chris.

Just still just a quick housekeeping what should we expect capex to be for for this year, then I had a quick follow up please.

Yes, so capex in the quarter was 96 million, which is somewhat light.

But we don't really manage the capex quarter by quarter.

We'll definitely continue to invest.

This is still early stages in a multi year <unk> upgrade cycle.

As Liam just explained there is a lot.

Growth opportunities in growth markets and so we will continue to further invest in our manufacturing.

Adding more size and scale, but at the same time also supporting the technology Roadmaps, we have major success with bulk acoustic wave.

Sure.

And so we are in the revenue of the integrated devices that have BARF filters inside is growing very strong and we supporting that we're also making the necessary investments in mexicali and our back end operation supporting advanced packaging and test and so again, we have more of a global opportunity.

We will support that and we will continue to.

Expand.

The capacity in and pay Capex.

Sorry.

Just in terms of numbers double digit low double digit is the right number to be modeling.

Double digit forecast intensity.

Okay, Okay, and Thats part of my follow up is.

NIM for you on the broad markets business. What's now that you have included the silicon that business, what's the right way to think about the longer term.

The CAGR for this business. Thank you.

Yeah, absolutely, we definitely see great opportunity in that portfolio as it is right now.

And so levering around that is a very substantial.

Sales team from the core skywalk still leveraging the IAA portfolio.

We've done really well in the last couple of months of introducing the <unk> products and technologies to customers that we already have proven customers that we do have lots of business with.

Which is a great synergy for US we are scaling operationally the majority of the portfolio and.

In the <unk>.

Business had been more of a fabless play over time, we're going to bring that technology under our under our own roof here and Sky works and leverage the great scale that we have so there's a lot of really interesting things that we're doing on the inside inward looking but there's tremendous opportunity on the outbound side so lot of activity great people.

The spirit and the business there is very high and the opportunity that we have is tremendous we really have.

A small piece of the total opportunity size that that that product line can bring so I think we're excited about the opportunity.

Continue to report on our results, but thus far things have been going really well.

Thank you. The next question comes from the line of Blayne Curtis with Barclays. Sir Your line is open.

Taking my question I had two.

Just wanted to follow back on the mobile side and just make sure I heard two things, it's because we've heard it from some of so many other companies, but in terms of the March seasonality that we've heard that.

Largest customers.

Pulling more product than maybe has less than a typical.

No period, they're also launching any following that so that's all good. So I'm just trying to understand are you, saying that because you can make comment that June should be normal I think you've now had a couple companies talk about June being down more because margins stronger I. Just wanted to just go back to that point and make sure I understand what you're saying.

Sure Blayne. This is lance yeah, I think what what you may see here is relatively typical.

Demand cycle, but then within that demand cycle, whereas the technology and how do you grow that technology, even in constant units right.

Be constant units, but if we have a baseline.

Some of the enthusiasm around our view going into June is really about design wins that we have.

Squarely in our sites in some cases design wins that have been consummated they haven't shipped yet so.

And with the customers that we're serving we're seeing growth potential there.

And that's much more predictable for us.

Because we know exactly what we're winning we know exactly where that's going we know how to prepare that operationally.

And still do that shoulder to shoulder with our leading customers. So we feel really good about it.

The macro seasonality can be a little bit different from what we felt very confident in what we're going to do.

And then just a question for Chris I think when you when you bought the Silicon Labs' business Youre going to require retired at quite quickly I think.

You were actually pretty active on the buyback for December so the pullback in the stock are you thinking about that differently and anything you can talk about.

The remainder of this fiscal year in terms of buybacks versus.

Debt retirement.

Yes, I believe so currently we have still $2 2 billion of depth of the balance sheet. In addition to $1 billion a lot of cash. So we feel really good about our liquidity position today.

In terms of even gross debt is less than a turn of EBITDA and so given were just focused trading today.

And what it was trading over the last three months.

We have.

Switched on the buybacks again, and we will continue to do so.

Going forward.

Thank you. The next question comes from the line of Edward Snyder with Charter equity research Sir Your line is open.

Thanks, a lot a couple of I could.

So Liam garish traditionally has been very strong in Wi Fi.

Four gig section that you own when they use extra lamps, but that's always been shipped and the phone business into a sip or system in package from a route or somebody else combined with lower other products, but it looks like now finally, the Android ecosystem is moving to more of an RF module architecture.

The break up of RF separately.

So.

I kind of understand what that means from a content from a content point of view, especially with Wifi succeed, but I poses a problem does that mean because now in addition to the apps you've got to have the best filters.

To put four uses a tough ball filter in Wi Fi six <unk> will use a tough bar filter.

So one are you seeing the shift to modules and Wi Fi finally, two does it present any difference in content opportunity debuted does it go up does it go down is due to the stay the same how do you how do you characterize sky works positioning.

And what moves in mass to this new architecture.

No Thats a good question I think.

Don't know if everybody followed that but I know where you are.

So the bottom line on that which is great. We have an outstanding position in Wi Fi today, just let me make that clear very substantial.

And it's been going great, but there has been.

Improvements in technology and demand for higher speeds and higher performance and in those cases bulk acoustic wave is a critical element within within within the Wi Fi system. So we have ramped Wi Fi we have ramped our bulk acoustic wave technology, obviously in smartphones.

With a lot of work a lot of investment and Thats been going great and now we're seeing that move into Wi Fi and we have design wins now that captured bulk acoustic wave within a within a Wi Fi system multiple customers. So it's another vector of growth for Sky works.

And that a lot of that is in the broad market side that it's very diverse.

It's certainly we love our handset business, but you've got a handful of customers when you get into the connectivity nodes around Wi Fi and other cases.

Do you have a broadening there so we're in good great.

They're in great and great position also now to start to lever up bulk acoustic wave beyond the mobile phone.

Okay.

So it's safe to say you are shipping a coexist filter.

Filter of two four gig, which is one of the reasons I thought you even started the ball to protect your wife.

Do we have that we have that we do have those today and we're going to we're going to continue to go higher in frequency as we move along.

Okay, and then if I could.

Is it very well a flagship phones last round now finally, moving the transmitter into the diversity section that you landed that which is a big too.

So two questions if I could what is the content opportunity look like in July discussions in that area. Because it turns you tend to really dominate the diversity section and of course, the <unk> two but those have already added that are we going to see any big kickers or if we got most of it.

Need there and then how does this play out with everybody else Samsung and <unk>.

And the Chinese Oems.

One when do you think they'll move to transmit your exit two do you think the same dynamic competitively will play out where you're going to kind of sweep out.

Wherever else like Murata out there like you did on me on the flagships.

Yeah, Yeah. So on the higher end the opportunity there, we talked about driving higher performance and filtering.

And moving up the data rate going to <unk> all of that's working but then if you go down to the mid tier.

There's tremendous opportunity because theres still.

Vast majority of phones off and the endurance and the Android World and some of the markets in China.

Just now stepping up with the higher performing filters and they get great performance return for that so we're doing a lot of work.

And in shoulder shoulder design and work with customers to make sure. They see the merits of this technology.

The performance upside that they gained four a couple of incremental dollars.

So I think theres, a great opportunity there coming from a low base too so that's not.

It isn't just a simple operating cycle is coming from very low base.

Mid to higher end.

And we will continue to work along that curve and.

They know how that you build.

And in mobile and in RF translates very well so all of their hard work in the engineering talent that we Havent Sky works, that's been working on flagship phones for years and years. They know how to scale when it goes into Wi Fi and some of these other.

Wireless technology. So we look forward to leveraging that skill set as we meet with new customers.

Thank you. The next question comes from the line of Craig Ellis with B Riley Securities. Sir Your line is open.

Yeah, Thanks for taking the questions and congratulations on the nice quarter and cash flow.

I wanted to start with an operational question so.

Clearly, we've got a very strong demand environment out there right now and yes, Chris It sounds like you expect the business to be seasonally strong and up in the back half of the year. So can you just talk a little bit about how you plan to manage.

Manufacturing loadings as we go through the calendar first and second quarter or your fiscal <unk>.

Second third quarters should we expect to see that youll build inventory to put yourself in a position or.

Sure.

For whatever reason would inventory.

Stay at a relatively lower level here.

Yes, Craig I mean, we do that every year, because we do have some large seasonal swings.

In our business right. We've typically strong sequential growth in September December and then and then down in March and kind of flattish to slightly down in June that's the seasonal pattern.

We are of course trying to maximize factor.

Factory utilization and drive efficient use of our capital equipment and so we are always.

11 loading as we just we can it's not perfect. That's why you also see some seasonal fluctuations in the gross margins there as well.

But.

But we definitely will try to maximize that also.

In this business.

The design wins, we know them, we had right. So we know what we when we know the product. We can start building two to certain extent ahead of it and we do that every year.

Yep got it that's helpful and then.

Ill flip one over to Liam.

There's a general view out there that this year will be a year for somewhere around 40% growth in the <unk>.

Smartphone market really is we shipped a lot more mid range <unk> smartphones. So.

I know you just talked about some of the things you're excited about on the Android ecosystem, but is it possible to put.

Quantification around the degree of content gain that slipped at that tier of the market, then and beyond that tier what still possible prescribers.

Sure sure Yeah, I mean, we have two vectors right, we have kind of the mid tier and moving up and then you have the premium devices.

Really stepping up with high performance.

And both of those portfolios have been great for us and I think our ability the years and years of time investment and shoulder to shoulder engineer work.

We basically follow the lead with our customers. So we're very flexible we can go to the highest end and we can also bring companies that haven't engaged and get them on board.

And so that continues to grow and the merits of mobility and wireless connectivity everyone on the call knows how important that is so there's a lot of opportunity there and then if you move out of smartphones Greg.

We had a question on that a few minutes ago. We just we're really excited by.

The potential for proliferating connectivity everywhere right and you're hearing more about end to end youre hearing more about automotive these are real.

These are real markets right now, but theres Wi Fi opportunity it could be cellular all of these end markets.

They have great promise for us beyond just the mobile phone and the technologies that we have in the in house scale that we have really creates flexibility. So we don't have a.

One stop shop, we can be very crafty and configuration configurable without customer.

Depending on the applications. So there's a lot of really interesting design wins that we have.

Element here to make it all work.

Thank you. The next question comes from the line of Brett Simpson with Arete Research Sir Your line is open.

Yes, thanks, very much maybe to two big picture questions.

And then maybe for Liam the first just just Android.

As a market opportunity for Sky works I guess your mobile business is much more skewed towards iOS, historically, but if I look at Android.

Probably looking at about $1 billion of revenue from Skybox every year and there's more than 1 billion shipping for Android, So youre getting sort of less than one dollar today of of RF content on average.

And I guess, just moving to <unk> and more modules can you, perhaps just talk about the opportunity that you see ahead of yourselves in terms of getting more strategic with customers or where you think you can really start to sort of grow your average content per unit in the Android ecosystem. Thanks sure sure that's a great question.

Yes, and you're right I think there is a lot more opportunity in Android now for us to go get and it's really about an education opportunity for us and we're working with these customers we're demonstrating.

What a what a little bit of incremental content can do in terms of the <unk>.

And users experience, so theres a lot more.

Of a drive there we absolutely its not a technical hurdle for us I mean, we know how to do it.

<unk> really accelerate to.

To really get the performance that's been promised and thats been desired you've got to put in more content you've got to put it more filtering that we talked about already in the call.

You need to raise the performance.

Youre gallium arsenide technology for you kind of bring them and you've got to look at your packaging and test.

The coexistence issues that happen when you have more and more of these technologies in a single single applications, whether the application is a phone or something else. So there's a lot. There are a couple of things I would say in the last.

Several months, we have been doing much much better at the at the higher end of the Android.

Our customers like Samsung have been very strong and these are on the new platform. So these are on the highest performing new.

New platforms that they are offering and then we're going to bring along the abo vivo xiaomi players in aggregate today those are still very significant for us.

But the content opportunity from todays baseline and where it could go over the next two to three years is quite substantial.

The point that you made at the beginning is definitely well taken so so that's how.

How we see that and we.

We've got we've got great inroads right now on products that will you know they are a little bit of a different.

Cycle than some of the larger U S players, but you should see a lot more content from Sky works in Android products going into the second half of the year and into 2023.

Hmm.

Great and then maybe just a follow up Liam on Ed's question on Wi Fi I guess.

There's something like over 4 billion units of Wi Fi that ship every year and I just love to understand.

The RF Tam.

Tom or the opportunity you said that you see especially with the transition to <unk> and some of the.

Some of the changes that we're going to see and how this is packaged up but.

Yes, we could expect Pcs, and routers and smartphones and Tvs to move quite aggressively towards <unk> over the next year or two but is there anything you can share with us in terms of your strategy and how you. How you plan to address this because I guess this transition should be.

Quite positive for RF players like Skybox has done very well traditionally in the Wifi space.

Yeah, no that's a great point, so the appetite for high end Wi Fi has really accelerated and you can see.

The use case opportunity everywhere now right you to consumer products.

All the way to the Super High end, you have Wi Fi, whether it's <unk> or <unk>. So that's all going to move in the right direction for us and so one of the things that will happen as we move along the curve and Wi Fi it'll it'll actually create a cycle not unlike what you see in mobile where content grows and then content continues to move as the App.

Obligation and the burden on the technology rises right that the more that.

More important that the higher the speed the more efficient it needs to be that's going to require better technology on the semiconductor and the filtering side. So that that plays together very very well for Sky works you can think about us as kind of the mid to high tier player, but we can step into that low end in the market too, but we are seeing a lift when you start to look at 6% and $6.

<unk> and Wi Fi.

Bulk acoustic wave filters, there that we've already talked about on this call, but very very important in the higher end Wi Fi.

And not today very highly populated.

Cycle, there that is on the upswing and it's still early.

We have the know how to do it. So the wonderful thing there is we have the key elements to get it done.

Similar elements that we would have in a high end smartphone, but but positioned and scaled and configured in a way to deliver Wi Fi signals versus cellular.

There's a lot of opportunity there and it plays into core technologies that we have in house.

So that's a really good question and it's up.

It is a key element in our strategy and broad markets has to do to do more and raise raise the bar there.

Overall Wi Fi performance.

Thank you. The next question comes from the line of Tristan <unk> with Baird. Sir Your line is open.

Hi, good afternoon.

Talked about the trends and opportunities in the Android ecosystem.

Two years ago, you really had a greenfield opportunity in the three to six gigahertz range.

Another key.

Key customers. So how should we look at the competitive landscape now.

Quite a bit on the recently announced.

Alright.

So then you get a range of media Tech also getting in that segment, you obviously like that.

Six gig.

Second is where you have gained significant share two years ago, starting to get more crowded.

Im wondering whether there could be when applications of that.

Putting in the Android ecosystem.

Yes.

Actually in a pretty significant growth path with the bulk acoustic wave filtering technology that would populate.

Of the three to six gig range.

We also have.

Great deal of Knowhow and complexity on both transmit and receive.

And also the way to integrate the complexity around that so when youre dealing with.

And that has to all be coexisting in a way that makes perfect sense within the device itself current consumption et cetera size.

When scale. So we know how to do that there is absolutely no.

GAAP at all.

And we are populating, 3% to six gig now and as we mentioned.

Our ball filter technology is very robust extremely competitive and populating some of the most iconic highest performing phones today.

So that same recipe Kent can scale across Android can go to the highest end smartphones saw can find itself in applications that are not mobile applications like automotive for example, so we have we have the keys for that so that's something to work on the market in some cases is just starting to do.

And this technology in some cases the market has been behind the technology.

But now we're starting to see the intersection with the high performance technology in the needs of the consumer in the market together and I think that's where things really are going to accelerate.

Okay, Great and then as a quick follow up.

Do you see the.

Chinese content increases in and share gains how do you look at the.

Inventory situation in China smartphone Oems.

And is that something we should get some kind of in the next few quarters.

Yeah.

For us we don't we don't see anything I mean, theres, some bumping us there, but not in the portfolios that we're driving right now we keep a very very lean view.

Our products and you know Chris mentioned in terms of our days of inventory et cetera, We're very we're not a big distribution play we're kind of like we go direct.

So we have a very clear view of where the demand is where the product side for the most part things have been kind of sure and in terms of supply chain.

Which has limited.

Some of our customers and created some imbalance I think some of that is getting ironed out now.

So we're able to execute extremely well even if the conditions are choppy out there in the supply chain. So there can be some movement around that but.

We feel we feel very good about our ability to execute in that way.

Yeah.

Thank you. The next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Sir Your line is open.

Thank you thanks for taking my question.

I'm, just we're getting a lot of information around input costs going up and I wonder, how you're controlling that and it looks like even your opex stays kind of flat next quarter.

But also just for all of your manufacturing how are you controlling input costs and what's the outlook for the rest of the year.

Yes, Kevin.

This is not a sky works specific issue there is definitely some input cost increases, but as Liam just said I mean, we control a lot of our own supply chain and we have most of the supply chain is actually in house now we still do buy some third party mature.

And we have seen some increases.

They are as well, but if you look at the gross margins I mean, we have been able to slightly improve our gross margins.

Part because we do have also a dynamic pricing policy.

And that means we increase or decrease prices where.

Where we can depending on cote.

Positive landscape and depending on certain increases or decreases in our cost structure as well.

Okay, Great and just a reminder.

The <unk> business that you just acquired.

What's the manufacturing strategy with that for the longer term.

And of course Sky works facilities, I mean, I think thats, what we know I mean, that's something we're working on right now.

And is 100% in our control we don't need help from it we know exactly what we need to do we just need to get it done.

And it will do a lot of things because it will open up the portfolio greatly there'll be more scale to drive the products and there is also as I said earlier.

Great.

And also synergy around operations, so looking forward to seeing that more as we as we pursue the business longer.

Thank you ladies and gentlemen that concludes today's question and answer session. I will now turn the call back over to Mr. Griffin for any closing comments.

Thank you all for participating on today's call. We look forward to talking to you at upcoming Investor events. Thank you.

Ladies and gentlemen.

This concludes today's conference call. We thank you for your participation.

Q1 2022 Skyworks Solutions Inc Earnings Call

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