Q4 2022 Qorvo Inc Earnings Call
Please standby.
Good day, everyone and welcome to the Corvo incorporated fourth quarter 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 of Investor Relations. Please go ahead Sir.
Thanks, very much Sarah.
Hello, everybody and welcome to <unk> fiscal 2022 fourth quarter earnings Conference call. This call will include forward looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe Harbor statements contained in the earnings release published today as well as the risk factors associated with our business and our <unk>.
Annual report on Form 10-K filed with the SEC because these risk factors may affect our operations.
And as a result.
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.
That's performance without the impact of certain noncash expenses or other items that may obscure trends in our underlying performance.
During our call.
Our comments and comparisons to income statement items will be based primarily on non-GAAP results.
A 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 Grant Brown interim CFO , Eric Creviston, President of <unk> mobile products group Philip Chesley.
Corporate was infrastructure and defense products group as well as other members of cargos management team and with that I'll turn the call over to Bob.
Thanks, Doug and welcome everyone to our call.
<unk> delivered fiscal fourth quarter results above the midpoint of our outlook. We provided on February 2nd earnings call.
Demand drivers were broad based across end markets, including <unk> Iot connectivity defense empower.
Both mobile products and IDP grew year over year and sequentially.
In mobile products revenue was diversified across customers and supported by content and integration trends of note.
I'll now cover more than doubled revenue year over year at Samsung with growth across multiple product categories.
We also expect content gains as the year progresses across on our smartphone portfolio with opportunities spanning multiple products and technologies.
In IDP revenue was broad based across markets and included our newly added high voltage Silicon Carbide solutions. We were pleased to see IBP returned to year over year growth driven by infrastructure power management and other markets.
IDP enjoys an increasing number of long term drivers and growth markets, including automotive connectivity and electrification defense radar and comms power management comms infrastructure and others now.
Now, let's look at some of the quarterly highlights.
Mobile products, we increased shipments to Samsung for mass tier and flagship <unk> smartphone programs corporate products included our infusion Wi Fi six <unk> antenna control solutions and RF power management Ics.
We were recognized by honor as their only core strategic supplier in the RF category and we received the first production orders for our next generation RF fusion solutions.
Multiple China based smartphone Oems, we secured design wins covering a range of products, including complete main pass and secondary transmit solutions supporting multiple base stance.
And ultra Wideband, we were selected by an existing ultra wideband customer to supply our first system in package or Sip for multiple upcoming smartphone models.
Our ultra wideband <unk> strengthens our product portfolio and offers customers a complete solution that integrates our SLC RF front end and software.
<unk> ultra wideband offerings receive a higher percentage of FCC certification last year than competing solutions and design activity. This year has been robust.
In automotive sensors.
We received a design win to supply Mems based touch sensor solutions for smart interiors at one of the largest U S based automotive Oems.
Moving to IDP and power devices, we continue to see strong design in activity as silicon carbide technology expands across multiple markets.
During the quarter, we received a multimillion dollar order for a new silicon carbide power device solution for circuit protection and EV charging stations.
In power management Ics, we achieved another quarter of sequential and year over year revenue growth driven by solid state drives and motor control solutions for power tools.
And automotive connectivity, we received our first design win for a highly integrated V to X span enhancing performance and extending range and a shark fin application for a leading European based automotive OEM.
In infrastructure the business returned to year over year growth and we secured design wins from multiple leading Oems for massive mimo small signal applications supporting C band deployments in the U S.
And Wi Fi, we sampled our first of all based Wi Fi six E filter, reducing form factors for CPE Tri band mesh networks.
We also began ramping the industry's first wideband <unk> covering both Wi Fi six and six <unk> for enterprise CPE customers. This new fab enables configure ability and RF chain management, increasing capacity and maximizing throughput.
Low power connectivity markets, we secured design wins for our multi protocol low power wireless Soc integrating BLE zigbee and thread.
These wins enable remote control applications for our leading Korea based TV Oems and leading U S based MSL.
And sort of in support of the matter connectivity protocol, we expanded customer engagement with retail and service providers to integrate matter into Wi Fi gateways.
Matter is an open and universal Smart home protocol expected to simplify and accelerate the adoption of seamless and reliable wireless connectivity.
In both mobile and IDP cargoes markets are supported by multiple long term secular trends related to connectivity electrification.
Sustainability and are increasingly digital lives.
<unk> team continues to do a fantastic job supporting customers, while adjusting to challenges related to the war on Ukraine supply constraints and Covid Lockdowns in China.
While challenges persist they are temporary in nature and not structural.
Corporate remains laser focused on the opportunities ahead, introducing new technologies launching best in class products, entering new markets and expanding our customer engagements.
As an example, take Samsung where we are.
Previously, the underrepresented and where we where the combined opportunity extends for years.
Note, our customer diversification and mobile is unmatched and our fourth quarter, though an expanding set of opportunities as <unk> continues to grow.
Adding to that an increasing percentage of <unk> revenue exposure is to higher growth end markets. These include Iot connectivity power management power conversion and defense all of which are forecast to grow long term in the double digits.
So while we navigate these challenges our current views suggest June is the bottom with sequential growth in revenue resuming in September I am proud of how the team is staying focused advancing technology and supporting our growth.
With that I'll now turn it over to grant Brown, who I'm pleased has accepted the role of interim CFO Grant has been with <unk> for many years. Most recently as treasurer before that we don't let our tax NFPA departments as well as other management roles. He has been a key contributor to <unk> growth and he has extensive.
Knowledge of our business I am confident grant the finance and it teams will continue to execute on <unk> ongoing financial and strategic priorities.
I'm glad to hand, it over to Greg.
Thanks, Bob and good afternoon, everyone I'd like to start by thanking Mark Murphy for his leadership and many contributions to core of.
Working alongside Mark and Bob for many years together with the strength and experience of our finance team has enabled a smooth transition.
Turning to the quarter <unk> revenue for the fourth quarter fiscal 2022 was $1 billion $166 million $16 million above the midpoint of our guidance mobile products revenue of $865 million was up both year over year and sequentially on <unk> content gains.
And higher flagship volumes infrastructure and defense products revenue of $301 million was up double digits, both year over year and sequentially driven by broad based strength across the product portfolio and customer base.
non-GAAP gross margin in the March quarter was 52% in line with our guidance non-GAAP operating expenses in the fourth quarter were $229 million up $15 million sequentially due to seasonal payroll effects and increased spend related to technology infrastructure.
Year over year operating expenses were up $21 million, primarily related to recently acquired company Opex, new product investments in technology infrastructure, partially offset by lower incentive compensation.
non-GAAP operating income in the March quarter was $377 million or <unk> 32, 3% of sales non-GAAP net income in the fourth quarter was $340 million and diluted earnings per share of $3 and <unk> was 18.
Above the midpoint of our guidance.
Cash flow from operations in the fourth quarter was $346 million capital expenditures in the quarter were $51 million and remain concentrated in core areas, such as bar and gas where we see continued demand for solutions that include these differentiated process technologies.
Free cash flow was $295 million, and we repurchased $327 million of shares during the quarter. We continued to repurchase shares based on our long term outlook low leverage and other factors.
Turning to the balance sheet as of the March fiscal year end, we had approximately $2 billion of debt outstanding and $973 million of cash and equivalents in our GAAP financials as part of our annual assessment, we recognized at $48 million impairment of acquired goodwill regarding inventory we ended the quarter at <unk>.
$756 million, which is near the higher end of our historical range the inventory balance will be reduced over time.
While supply and demand and macro factors persist our inventory is expected to remain elevated.
Looking at the full year <unk> reported strong results, having achieved record revenue and earnings per share.
During fiscal 2022, we recorded revenue of $4 6 billion up 15, 7% gross margin of 52, 4% up 30 basis points operating margin of 33, 4% up 120 basis points and earnings per share of $12 35 up.
26, 8% from the prior year.
<unk> full year fiscal 'twenty two performance demonstrates our ability to provide differentiated solutions for our customers' most challenging technology and product needs.
As connectivity and electrification trends accelerated and product performance requirements increase we're expanding our growth opportunities through technology leadership portfolio management sustained productivity reduced capital intensity and broadening market and customer exposure.
Now turning to our current quarter outlook.
We expect revenue between 1 billion and $1 $50 million non-GAAP gross margin of approximately 50% non-GAAP diluted earnings per share in the range of $2 to $2 25.
Forecasted revenue of $1 billion $25 million at the midpoint incorporates our current view of the Covid Lockdowns in China, The war in Ukraine, and existing industry supply chain constraints, we estimate IDP revenues of approximately $300 million, reflecting strong year over year growth and in line.
Our commentary last quarter since.
Since the Covid Lockdowns occurred at the end of March we are revising our forecast of <unk> handsets in 2022 to between $650 million and $675 million, which represents a reduction of 50 to 75 million units given our share in average content, we expect the impact to core vote to be.
Approximately $250 million. This revenue impact is expected to occur over this quarter and next as we adjust to demand and responsibly manage inventories.
We project non-GAAP operating expenses in the June quarter to be approximately $245 million due to the impact of acquired company Opex higher employee related expenditures and investments in product development, including high performance, Bob based integrated products.
Below the operating line other expense will be approximately $17 million and our non-GAAP tax rate in the current quarter is expected to increase to approximately nine 5% up from seven 7% in fiscal year 'twenty two.
Capital expenditures are projected to be approximately flat on a sequential basis as we continue our discipline around capital intensity, while expanding ball and gas capacity in support of long term supply agreements with multiple customers.
As we have discussed on past earnings calls looking at our business by end market helps to highlight our long term growth drivers as a leading supplier of advanced cellular solutions for smartphones. We're positioned for years of content expansion is advancing technology standards drive RF complexity and integration trends.
In broader connectivity solutions, we anticipate strong double digit growth as connected devices increase in use cases, where if rates.
We have broad exposure across high growth Iot markets, including industrial automation connected home Wearables and automotive where our product portfolio features a unique combination of technologies. Finally, we anticipate double digit growth in infrastructure defense power management and power conversion as <unk> deploy.
And its increase outside of China defense budget mix to higher performance electronics and requirements increase for power semi is supporting renewable energy and electrification trends.
At this time please open the line for questions. Thank you.
Yes.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
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And our first question will come from Harlan sur with J P. Morgan.
Good afternoon. Thanks for taking my question you know on the last call. The team was pretty confident given your pipeline of new customers and content gains in mobile combined with the sustained strength in IDT that you guys could get back to year over year growth in September .
I know the Covid situation in eastern European complex, our new dynamics, you guys talked about sequential growth in September .
But a lower <unk> Tam outlook, so taking all of this into account.
We expect to get back to year over year growth in the September December quarters.
This is grant I'll take that one.
Yeah. Thanks for the question.
Given the temporary issues you manage you mentioned and as we've already discussed.
Limiting visibility across the industry prevent a precise view of timing and so given the inventory.
Tories and the situation in China related to the Covid Lockdowns.
We're not providing any longer term guidance.
Until the continuing uncertainty around the world.
Clear thank you.
Okay I appreciate that.
I guess, along those same lines I know.
Florida outlook is a bit cloudy, but you do have some visibility on customer ramps design wins and like I said IDT is sustaining pretty strong strength.
We are anticipating double digit growth for IDP. This year, but do you guys anticipate with the pickup in the second half at least driving back to 52% gross margins.
There are some are going to talk about at least sure. Thank you guys talk about the business and then I'll do the gross margin. Yes, yes. This is Eric I'll start.
We're we're very confident and pleased with the content gains that we're seeing.
We're broadly diversified across all customers adopting our fully integrated portfolio of <unk> solutions.
More and more Wi Fi content coming in advance tuners. So the portfolio, we've put together over the past several years is really maturing nicely and so when we look at the second half of the calendar year.
There is no content gain issues that all of these content, it's really good kind of come down to how many units end up getting sold through especially at <unk> where of course, the RF content is greater on just resolving all of the issues today with getting materials and also getting consumers, especially in China.
Back to buying phones right now semi lockdowns are really affecting and market demand. So and of course, that's as we said pretty hazy and hard to predict the second half, but content wise, we're very pleased with the design wins, we have now.
This is a follow up on the IDP side IGT is well positioned in multiple market segments that are growing.
Double digits and so if you look at our power management business, which I'll break into kind of two pieces, our programmable power business. We continue to see strong design in and win.
And revenue growth for that business.
We have a unique digital power architecture that allows us to really add a lot of value in the motor control space and.
And we see that are really driving our business going forward and then.
On the Silicon carbide and Silicon carbide technology, we continue to see really strong design in funnel as well as revenue opportunities in that space. So that's one on the defense side, we see that business not only with.
Short term tailwind, we see that with long term tailwind as well if you look at the continued penetration of phased array radar systems in that segment.
When you use phased array radar you tend to use again, that's where we're positioned so we see growth. There we have our ship program, which is really bringing.
<unk>.
Packaging backs in the United States, specifically for RF and defense programs as a growth driver for us, though we're positioned well there and automotive again I don't think I have to kind of outline the growth that we see there so.
We like where we're at.
And we we.
We foresee really strong strong future for the business.
That's great. So let me tackle the gross margin piece of the question.
We ended the year on a pretty strong note having achieved a 52% gross margin in Q4 sequentially June is typically our low point. So the decrease there is very much anticipated as we see a shift to some lower margin mix within mobile, but beyond June certainly expect that mix to improve throughout the year.
But be tempered somewhat by lower utilization.
As we balance that customer demand and manage our inventory and factory utilization will respond accordingly, and likely leave some fixed costs and absorbed.
But once the near term issues aside.
There is no change to the long term dynamics around margin certainly our products are highly differentiated and our customers value that performance advantages, we help them achieve from a cost perspective, the multi year productivity gains that we've achieved still remain and those benefits will be increasingly evident as volumes return.
Thank you we can go to the next question.
Thank you. Our next question will come from Toshi Hari with Goldman Sachs.
Great. Thanks, so much for taking taking the questions.
I had two as well my first one is on your business in China I think based on your filings China was about a quarter of revenue in the December quarter curious, how how bigger how small that region was in the March quarter, and what Youre, assuming for June and I guess most important.
Lee.
What your thoughts are into the back half as your customer base kind of recovers from these lows and you've talked about some of the wins and on our so if you can kind of speak to that as well that'd be great.
I'll take the first part as far as the associated with.
The business in China was down slightly as a percent of sales quarter over quarter. So just give you that.
Quantify that much one thing I will tell you though is.
Samsung is getting about his biggest China right now at the levels, we're at and as far as far as things go forward I mean, we're planning on staying pretty much at historical lows. The last two quarters have been.
The lowest for US is China as a percent of sales since we formed corvo to be quite candid about the math. So looking forward, we're not expecting a significant bounce back anytime sooner Greg mentioned already we've got to work through some channel inventories and things like that.
Their business is really slow down and you know what happens when they are expecting more business in things like the shutdowns with consumer confidence in China is way down their export market has also been impacted Europe's not exactly firing on all cylinders right now as well. So we've got to work through that so as we look forward, we're expecting it to stay low and possibly even lower than.
What it is now but as far as.
The excitement that we have on the growth opportunities at some of those customers I'll, let Eric speak to that is just units not content.
Yes, similar to what I've said previously.
Great relationships and very well.
Long term roadmaps together.
Helping to drive our roadmap, we're responding to that.
And as Bob mentioned earlier as well great to see honored coming back as well.
I have worked through the inventory that they inherited from Huawei beginning to now move to best in class integrated solutions and.
And we've got great relationships there.
None of those guys for years since where they were in Huawei. So.
Really pleased to be bringing them back their.
Their business in the second half of the year, and notably there'll be the launch customer for our latest version of our infusion so they're.
Starting with the best and latest and greatest technology from cargo and so.
So that will definitely be a tailwind in the second half for China.
Great. That's helpful. And then quickly as my follow up on the inventory side of things as you guys noted inventory was up on your balance sheet on a sequential basis. I think you guys talked about inventory you're potentially staying elevated for the next couple of quarters, but.
If you can kind of confirm how we should be thinking about the cadence of any inventory drawdown on your balance sheet going forward that would be helpful. And then if you can kind of also speak to.
How you would characterize customer inventory, both smartphone inventory and component inventory that would be that'd be helpful. Thanks, So much.
Sure, let me take that one.
As you pointed out we ended the quarter with about 118 days worth of inventory, which is near the high end of our range.
Around 81 to 125 days historically, so as we look to work down the balance we will do so over time, but as you pointed out while the supply and demand challenges persist our inventory is expected to remain elevated.
It is important to consider however that we understand why its up and we have visibility into the demand that will consume it.
In terms of your question, specifically I might try to answer it by comparing raw material and web.
As Youll see when we when we file our K those will be up but are based on our firm orders and supportive of our largest customers demand.
Certainly beyond that Youll see.
Increases in our inventory related to supporting our new acquisitions in some growth areas, such as power and defense so healthy growth on the inventory side there.
I think Bob touched on already the channel inventories in China.
Hello there.
Yes, I can add a little more color around China channel, Chris We've got a mix in China of direct customers in channel.
Customers as well.
And we're working working hard to maintain that channel and healthy levels of inventory. It's part of why we guide the way we do but.
At this point there is still a good day.
Component inventory still a bit elevated over historical best in class timeframe again, we're managing it with the customers and are working hard to make sure everything gets consumed and we don't overbuild of course supplying more into it.
And I think handset channel inventory itself in terms of the finished good handset is relatively healthy it's a little hard to say with these significant near term changes of course and disruptions in the supply chain, but that's really just the China local situations.
Operator.
Our next question will come from Blayne Curtis from Barclays.
Hey, guys. Thanks for my question, maybe just on IDP I think obviously you saw a nice recovery in March just curious on the flat outlook. I think you had previously kind of talked about it continuing to improve is that just because you got it.
During the different segments or any kind of color.
As to the flat guide in June .
Yeah. So.
Blayne this is phillippe.
So I think.
When you look at the flat guidance I wouldn't take that Directionally in terms of the rest of the year, we continue to see strong demand.
I think that we.
We still do have some supply challenges in IDP.
And some of that is really kind of regulating what we can ship.
In the in the.
Q1 timeframe, so I think thats, probably the biggest story in terms of kind of.
That number and that that that flat flat quarter over quarter guys.
And I just wanted to revisit the gross margin. The 200 basis points is that more maybe some premium products are down and the mix is negative or are you seeing in terms of new RAF lower margin on those and I guess I. Just can you just help us a little bit with the recovery through the year.
We'll come back to that 52 range fairly quickly or is it something that's going to have to work throughout the fiscal year.
Yeah. So on gross margin throughout the year, we expect it to increase and improve as the mix improves over the balance of the year.
Yields have been.
Very good.
Across the year and as.
As we look forward, we will have some utilization that will leave some fixed costs unabsorbed in the factories and so that'll weigh against the mix improvement over the course of the year, but but certainly we expect it to trend up.
Our next question Mccarrick, Joe Moore with Morgan Stanley .
Great. Thank you I wanted to ask in terms of thinking about the full year for mobile products.
And again I know youre not guiding beyond June , but just to sort of understand the dynamics.
Standing <unk> handsets are lower than you thought they are still up well.
Well north of a 100 million units since last year, you've talked about good content gains like I would think you would get pretty good growth out of mobile products with that dynamic.
Yes.
Assuming headsets are only down slightly.
Is there something I'm missing in that in terms of.
Connecting inventory from last year I was hoping this year is this just a very backend loaded.
Again, I'm not looking for guidance I'm, just trying to understand what the drivers are of the full year and making sure I understand them. Thank you.
Yes, I think I think youre really right on the money.
Got all the right underlying business factors right.
Great content growing content.
<unk> will be growing year over year to your point it really does just come down to managing the inventory levels.
Bit elevated right now so that's what we have to work down.
But otherwise no no other particular headwinds.
Got it thank you.
Our next Joseph will come from Edward Snyder with charter equity research.
Thanks, Eric sounds like most of your problems in China, primarily if not exclusively demand driven right versus like supply and if not how would you split those up between.
The two and Philip was defense your largest segment again this period and then I have a follow up thanks.
Yes, so ed starting out in China first of all I agree all of our issues are in China.
In China.
It's right now it's hard to separate demand from supply right frankly, because.
Our internal supply.
Is in pretty good shape handset customers have other supply issues here and there, but with the with the lockdowns their ability to produce just getting people to their factories.
Getting supply chain moved throughout the country as various cities are going in and out of Lockdown many people.
Printed this I mean, it's.
It's a challenging environment and getting the supply chain to work.
Smoothly is really challenging right now so that that becomes a demand problem for us only because our customers can't keep their factories running in some case, but then on the other end of that as they do produce bonds you a lot of consumers are being very very cautious right now in China.
The challenging environment for folks as large cities are being completely shut down for weeks at a time and it's not an environment, where consumers are feeling frothy by any means.
The latest and greatest <unk> handset so it's.
It's a period of time that we're in right now as we set us on a structural change at some period in time.
We have to get through it and get to the other side.
So no we don't disclose individual segments, but I will say that defense came in very very strong healthy and has a very healthy <unk>.
<unk> to it but it's not the only business, we see strong backlog as I mentioned in our power management business, we see strong backlog and our Wi Fi business automotive, it's pretty much most segments.
Strong growth in so.
I think.
As we look forward it will be a fun battle between which ends up being the biggest segment over this coming year.
Great and as a follow up if I could Eric to use Samsung is growing nicely. It sounds like it's all playing out their reorganization of the handset business and then move to modules.
Can you provide us any kind of color on what they were as a percentage of revenue.
And is most of the gains that youre seeing now.
Going to be in the fall.
The flagship line or can we expect that the mass years, now really kicking in and Youre getting.
Must be.
<unk> contribution from that and then grant I stocked again Budd.
Questions.
It sounds like a problem in our utilization.
This doesn't this ice farmers branch for now I mean, if youre going to be dealing with and utilization through the rest of the year. What are your plans for farmers branch with regard to bringing that on for Bob I imagine, mostly it's a ball still factory to price some color on that I appreciate it. Thanks.
Well add three questions I think if I understood them, all but I think Eric will go first right.
You laid it out well in your question Ed Samsung is going very well for US now and part of it is the realignment of their product portfolio and their technology strategy lining beautifully with our roadmap. We've had as you know very good long term relationships there so.
The pump was primed and we're really excited to ramp across our full integrated module portfolio as well as power management tuners.
So for us so.
But it's not just in the flagship tier in fact, I mentioned last quarter that we're beginning more in the mass tier and then we'll be adding.
Throughout the year, new models will be ramping in so just at the beginning it's a very strong first couple of quarters here of the new business ramp with Samsung.
But it's all coming in.
In line with what we.
What we had hoped it would for the year.
Adding to your question on.
Size of Samsung, we did have 210% customers you also read in the carry that we had to for the year and I think Youll see who it was I think <unk> got a good feel for our business. So I'll, let Greg talk to you about farmers branch.
Sure. Thanks, Ed on farmers branch, we don't have any.
We anticipate bringing farmers branch online this year, but it really depends on a number of those global issues, we already discussed and how those play out it's a multi faceted decision as I'm sure you understand and not entirely volume base rate its a function of die shrinks yields and efficiently using Richardson.
Okay.
And our next question will come from Timothy Arcuri with UBS.
You just spoke to what's going to be in the K customer wise I Wonder if you can give us.
For the fiscal year Whats your largest customer was as it is.
A portion of revenue.
Yes, that'll be in the K it will be in the K.
Yeah.
Okay. Okay.
And then I guess I wanted to go back to your question about September I know you don't have a lot of visit ability but would.
Would you agree that sort of normal seasonal for mobile products was up about 20%.
And I guess within that maybe can you talk about what the puts and takes are.
Around that if if things do open back up in China.
I mean, I would think that that would be a tailwind to our normal seasonal 20% just given how depressed June is can you just kind of talk about that relative to what we had normal seasonal wise.
Yes.
Frankly, I am not sure there is such thing as normal seasonality anymore honestly I mean, we don't have the kind of.
Repeatable sort of ramp patterns that we used to have.
We have so many such a diversified customer base and showing people move in integrated modules.
Timing of large project ramps, who can impacted significantly.
We have some products that are built in sub assemblies that they then go on to the main board, which affects timing ahead of the ramp there is just too many variables.
I can't really comment on what normal seasonality Institute remains anymore.
And we'll now take a question from Matt Ramsey with Cowen.
Thank you very much good afternoon. Thanks for taking my question.
I had a.
Follow up question on Samsung.
It sounds like in the Galaxy 22 going forward there may be a fairly significant shift from that.
In house baseband toward San Diego and I Wonder.
It was interesting to juxtapose that against the commentary that you guys made my understanding at least from from San Diego crude that they're pulling a decent amount of RF attach with that new share that theyre getting.
Maybe you could address.
Our relative position in content on the internal baseband platform and the one that Qualcomm going forward in the Galaxy is 'twenty two given the change there. Thank you.
Yes, we can't comment on Samsung's strategy for baseband obviously.
I can't comment on our content, we are content across all tiers and all baseband.
And the Samsung So of course at various model the model but.
With such a broad portfolio, we have from power management through antenna tuning and all the RF bands of coverage.
Content on every single baseband platform that this year.
Got it no no. Thanks I appreciate the sensitivity there.
As my follow up I was interested to hear I guess more expanded commentary in the script about.
Some of the different IOP protocols around zinc.
Siegfried thread.
Matter.
And I Wonder could you give us a little bit of flavor I mean, we all follow what's going on at <unk> because of the big numbers per unit, but.
What the.
Sort of RF content in the connectivity content trends are in that Iot market just from a content per unit, it's a very diverse space, but just trying to understand the Tam growth there and the content per unit growth at some of these new protocols rollout. Thank you very much.
Maybe Eric and I as Philip or maybe tag team this a little bit but.
We think matters important we think that this.
This is kind of the standard that's going to help kind of drive.
Interoperability across different.
Iot segments in the home.
We see that that content and.
The connectivity piece of that growing nicely for us.
We see both we see that both on the Wi Fi side, but also on the Bluetooth.
Zigbee and thread side, and we're seeing actually more and more.
Unique kind of both.
In each of these applications so.
We're pretty.
We're pretty bullish.
On that segment over time, we think that's going to grow nicely.
And so I.
I don't know if that answers your question, but maybe Eric do you want to add yeah, yes, looking at it from our perspective with ultra wideband coming in as well, it's a key enabler to a lot of these Iot ecosystems.
When you look at it.
They are actually getting quite meaningful.
Several of these verticals, whether it's access points either in the enterprise or in the home as wearable is whereas kind of wearable applications, which affect your interface with the Iot variables. The audio and then also just all the compute platforms that each of these can be hundreds of millions of units. So when you put them together you are looking at a market is quickly approaching.
Mobile in terms of scale, and we think ultra wide band, it's going to be a key enabler for various reasons.
The precise location we will.
At all kinds of feature sets to a lot of these ecosystems in the way they interact with each other but also it's a very low latency high high high data rate connection and Thats got a lot of applications in smart home or you want to reduce latency for gaming applications for example, or audio applications. So I think across all of <unk>.
Got a lot of pieces of puzzle coming together and what what is emerging as a very large market.
Great.
Okay.
And we will take our next question from Christopher Rolland with Susquehanna.
Hey, guys. Thanks for the question.
Some of our contacts in Asia have talked about Chinese handsets, maybe dis backing there five G phones kind of eliminating some of the sub six RF, making them a little bit more simpler almost like four <unk> plus I was wondering if you guys had.
<unk> seen this in any segments. This change in any segments, maybe even mid and low end.
In China, and whether there are any effects for you guys.
Yes, I don't think that Thats a trend.
To the extent something like that has happened it would've been a reaction probably to the shortages that we were experiencing in supply last year. I mean, we are as we've talked about last year, we were having a hard time keep up with demand and so we had some of our customers go to kind of fall back to skinny down architectures discrete architectures things because I think again I don't think Thats a trend.
By any means.
Great.
And then also you guys had had great free cash flow in the quarter.
I was just wondering how you guys are seeing M&A right now with kind of the market sell off here or are there any kind of.
Fat pitches here, so to speak or Conversely, just remind us on kind of your cash return strategy.
From an M&A perspective, I think we pointed this out before demonstrated it.
In IDP, we look for tuck in acquisitions in la.
Latest one we did was United Silicon Carbide, where we thought were a better owner help them scale and grow that business.
We will continue to look at opportunities like that that are out there and in mobile for the most part we acquired technologies, whether it was the RF Mems and cabin nature, you look at what we're doing with ultra wideband. It's a great new technology that we felt we were a better owner could scale that so from an M&A perspective, I don't see any changes on the horizon.
When we see good opportunities that we think we're a better owner and we can drive good cash flows off of the assets that we acquire that's what we're going to look to do I'll, let Chris talk a little bit about other uses of cash yes. Thanks, Bob So the generally the approach to capital allocation is something of an ongoing exercise and balancing the.
The needs of the business are you working capital et cetera, and then we looked at internal growth So capex R&D.
Then external growth M&A as Bob touched on and then finally, some return of capital, which we do in the form of repurchase so acquisitions a bit opportunistic exercise that has to be evaluated case by case, but generally looking for a good fit strategy and culture.
Okay.
And our next question will come from <unk> Malik with Citi.
Hi, Thank you for taking my question and welcome Grant.
Two questions for you.
You talked about $250 million revenue impact from lower <unk> smartphones.
Corbett Lockdowns.
Spreading over June and September quarter, and I was curious if you could further elaborate how much of that impacted in June versus September and the reason I ask this question because your peers yesterday was <unk> most of the impact only in the June quarter, and then I have a follow up.
Yes sure so.
I think Eric touched on the fact, we can't separate supply and demand impacts, but as you pointed out in aggregate, we're looking at $250 million in.
Also point out that after the Covid related lockdowns, so youre right.
To size it in June and September it's probably heavier in September than in June .
And.
Primarily affecting our China based Oems.
Great and then as my follow up it sounds like you and Mark.
Very much aligned on key initiatives like gross margin expansion at Carnival.
Other areas that are.
Political can improve upon.
Yeah, I'd say, Mark and I are very much aligned on gross margin I would say in terms of what drives the business ultimately it'll be free cash flow. So looking at our capital intensity continuing to drive that I'd say productivity enhancements, whether its in Cogs or Opex is another area, where we see very much.
And certainly the predictability and control of our of our internal finance operation and forecasting going forward are areas, where in addition to many others, but at least those are top of mind.
Okay.
Yes.
Our next question from Rod.
Our next question will come from Rajeev, <unk> with Needham and company.
Yes. Thank you for taking my question just a follow up from <unk> question on the 250.
$1 million impact over those two quarters.
So even despite that reduction.
And revenue related to the decrease in <unk> smartphone you still are expecting kind of sequential improvement off of that trough base in June is that correct.
Yes, our current view is that we expect to return to growth in September over June .
We're not providing anything beyond the detail I already talked about in the.
<unk> right.
What's driving that sequential improvement, if you're seeing kind of a.
A fairly big drop off in terms of your mobile revenue related to the reduction in <unk>, because thats, where a lot of RF content exist.
<unk>.
I think it comes down to it we talked to all of our customers.
Combined view from our customers what products, we are planning to ramp.
And of course, when we're looking at our total revenue we're looking across all of our customers not just our China customer base and looking at timing of handset ramps and where we expect the.
The impacts to be and how we expect them to kind of deteriorating be less meaningful than certain ramps and others. I mean, we put that together and that's that's the outlooks.
Got it I appreciate it and just one quick follow up on IDP, you mentioned that Youre seeing some some growth in the in the infrastructure business. I was wondering if you could kind of elaborate there in terms of.
Development.
And interaction on the.
Again base stations. Thank you.
Yes.
So we continue to see the C band deployments.
In U S and in Europe really most places outside of China, I think China is still a bit of a.
A wildcard there continue to be really more focused on the macro side right now.
But with the infrastructure spending that we expect to happen in China. This year.
We'll see what happens in that market.
For us we have a strong footprint really in the small signal and a growing footprint in our <unk> business, but.
But I think really what's exciting about that business for us is that when you combine those two and you add the module capability that we have at our mobile business that we can move into.
The base station market, where we can integrate all of this technology into kind of a small form factor higher performance solution. That's really the end game of where we're going with this business. So.
We like we like where we are today and obviously a lot of work to do we can't really control the C band deployment piece of it but.
We're working hard with our customers to deliver these innovative solutions too.
Okay.
Our next question will come from Vijay Rakesh with Mizuho.
Yes, hi.
None of the questions have been answered, but just the last couple of years.
Are you seeing any elongated replacement cycle is on site in China.
And also as you look at this inventory kind of picking up in the March quarter.
And I think.
Akshay this is it.
Stays flat in the June goes up but any risk of a write off on the inventory side at all.
And that's it thanks.
Starting with the China replacement cycle.
It's a little hard to say.
Not sure if you're referring to <unk> or.
<unk>.
So replacing <unk> with <unk>.
Yeah, Yeah. So it's like somebody buying their second <unk> and if that's longer than it would've been unfortunately or is that what you're referring to yes, yes, yes, yes, I think thats really hard to sort out at this center has no reason to believe this cycle will be any different if anything pace of innovation, new applications need for faster data rates and better coverage and so forth.
We knew it factors in all that if anything I would expect that it would be at least.
Short of shorter, but I think it's too soon especially with all these other disruptions we've talked about.
Try to nail that down.
Yes, and I'll take the inventory one.
If there was any excess or obsolete inventory at quarter end, we would have written it off during our standard quarterly review, we monitor it closely and follow a very robust process.
So currently our view of forecasted demand supports the consumption of existing inventory.
Great. Thank you.
Thanks Vijay.
Our final question will come from Edward Snyder with charter equity research.
Okay.
Thanks, sorry for the follow up real quick.
I just wanted to drill down a little bit more on Samsung because that's your big growth engine. This year sounds like overall and I know there was a bunch of questions and the last one so I'll try and keep it to one.
In terms of growth are you seeing most of your gains this quarter next quarter and maybe through the rest of this year in the flagship as it moves to module I'm sorry in the mass tier as it moves to modules or is it equally distributed between flagship in the last year.
Yes so.
I personally don't look at that split so I can't answer it analytically.
We've got a portfolio of products going into a portfolio of phones I think.
Just based on the numbers and the scale of it I would have to say last year is probably driving the growth.
But of course, the opportunity some flagship for very attractive as well as just obviously the volume numbers are lower than that here, but I think across all of those tiers. We have everything we mentioned you know we've got power management, we had advanced tuning now coming in as well as band coverage and highly integrated modules across the <unk>.
<unk> so.
I think.
Well Wi Fi too I should mention Wi Fi, it's another great growth area for us now across all there.
Why five baseband suppliers so.
It really is it broad based.
And then based on that answer then it sounds like for the first time in memory. They are using the same generally the same components for both last year and flagship where previously the flagship is all custom is that a fair assessment.
In some cases sure yeah.
I think.
Yes, the difference between a flagship NMS year will be less than it has been in the past that is true.
Great. Thanks.
Thanks, Ed Thanks, Ed.
And that does conclude today's question and answer session I would like to turn things back over to management for any additional or closing remarks.
We thank you for joining us today, we appreciate your interest and we look forward to seeing you at our upcoming investor events. Thank you and have a good night.
And that does conclude today's conference call. Once again, thanks to everyone for your participation you may now disconnect.
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