Q3 2023 Qorvo Inc Earnings Call

February 1, 2023

Greetings and.

And welcome to the Corvo, Inc. Third quarter 2023 conference calls at.

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As a reminder, this conference is being recorded it is now my pleasure to introduce your host Douglas Toledo, Vice President of Investor Relations. Thank.

Thank you you may begin.

Thanks, very much Hello, everyone and welcome to <unk> fiscal 2020, Three's third quarter earnings Conference call.

This call will include forward looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe Harbor statements contained in the earnings release published today as well as the risk factors associated with our business and our annual report on Form 10-K filed with the SEC because these risk.

Risk factors may affect our operations and financial results and.

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 and to analyze financial performance without the impact of certain noncash expenses or any other items that may obscure trends in our underlying performance during our <unk>.

Call, our comments and comparisons to income statement items will be based primarily on non-GAAP results for complete reconciliation of GAAP to non-GAAP financial measures. Please refer to our earnings release issued earlier today available on our Investor Relations website at IR Dot Corvo Dot com under financial releases joining us today our.

Bob <unk>, President and CEO Grant Brown, Chief Financial Officer, Dave <unk>, Senior Vice President of sales and marketing and other members of corporate management team and with that I'll turn the call over to Bob.

Thanks, Doug and welcome everyone to our call Corvo delivered fiscal third quarter revenue and EPS above the midpoint of our outlook provided during our November 2nd earnings call and.

In high performance analog quarterly revenue reflected year over year growth in defense broadband and power our power business posted a strong quarter with robust design activity for our silicon carbide power devices are.

Setting this or power management markets with consumer exposure and infrastructure, where customers are working down elevated inventory levels.

In our connectivity and sensors group.

<unk> reflected lower end market demand and channel inventory consumption for Wi Fi products, partially offset by strength in automotive.

Design activity was strong across customers and products, including ultra wideband matter and sensors use.

Use cases continue to proliferate that benefit from precision location indoor navigation seamless connectivity and enhanced human machine interfaces.

Lastly, an advanced cellular corvo participated broadly across customers portfolios.

Macro environment weighed on overall smartphone volumes across customers and revenue reflected channel inventory consumption within the Android ecosystem.

Activity continued to be strong across customers and product categories and supports year over year content gains at our largest customers.

Now, let's turn to some quarterly highlights.

In high performance analog Cornwell began sampling a radar power solution that combines a high voltage power conversion peanut and silicon carbide power switches to control again RF power amplifier.

The solution reduced the size by up to 30% and DNA radar systems, while expanding kormos content opportunity.

We also expanded our ship state of the art RF packaging contract with the U S government to develop multi chip modules that combined digital optical devices with <unk> mixed signal RF and.

In aerospace we delivered a multi chip solution that includes kormos high frequency bar filter as well as again pay.

For low orbit satellites and other applications.

This solution supports cellular satellite links and we have secured new designs the opportunity for Corvo is notable given the trend in defense and aerospace applications of one to many.

That means rather than one jet there will also be many drones rather than one geo satellite.

Also be many Leo satellites at.

At the same time, new capabilities are being added to existing platforms that.

That required increased semiconductor content and higher density and more advanced packaging all areas, where corvo is strong and is investing to advance the technology.

In cellular infrastructure, we commenced pre production shipments of our first integrated PAA modules or pans to a tier one European infrastructure Oems for <unk> massive mimo base stations.

We also began sampling our next generation Pan which delivers market leading efficiency for <unk> massive mimo installations to the leading European infrastructure Oems.

For broadband infrastructure applications, we sample to CATV power double amplifier that maintains linearity and extends bandwidth to enable higher throughput DOCSIS 4.0 capabilities with industry, leading power efficiency.

Deployments of DOCSIS four <unk> are scheduled to begin this year and corvo is very well positioned as the industry leader.

In <unk>, we expanded our Wi Fi content at a Korean based smartphone Oems to include Wi Fi six E and Wi Fi seven designs, and we ramp Wi Fi seven cents for access points and routers for a smart home ecosystem customer.

We also commenced sampling five gigahertz and six gigahertz filters. Please filters leverage <unk> next generation <unk> process and enable worldwide Wi Fi seven frequency coverage.

There is increasing customer interest related to multi link operation, which is a key attribute of wildfire seven and enables higher throughput and lower latency.

Lastly, we began volume shipments of Mems based sensors, enabling an enhanced HMO experienced and true wireless stereo Airbus Corvo sensors were selected to replace legacy capacitive touch sensor technology.

Design activity for our sensors continues to be strong across markets, including automotive we are working with leading automotive tier ones and have secured automotive smart interior design wins and more than 25 vehicles.

And advanced cellular we secured multiple design wins across Android Oems in support of 2023 devices.

During the quarter, we commenced the production ramp of multiple components for the leading Korea based smartphone Oems flagship platform.

We have increased our content significantly year over year were broadly serving this customer across our portfolio and continuing to support the migration of the mass market phones to integrated <unk> solutions.

Got a U S based Android OEM, we were selected to supply multiple solutions, including ultra wide band antenna tuning and Bob based antenna flexing in support of their 2023 smartphone launches.

Lastly, <unk> was recognized by multiple customers.

We're presented with honors 2022 Golden supplier Award and we were seeing quality awards from vivo for discrete switches and amplifiers and highly integrated solutions.

Before handing the call off the grant I want to make a few high level comments to frame our outlook both in the near term and further out.

At our largest two customers we are very confident in our ability to grow year over year content and that includes this year in 2023, we expect growth and broad based content as well as other content growth.

Equally important we enjoy a range of opportunities across all of our customers in the future years corporate supporting the highest volume flagship phones, while supply an integrated <unk> solutions as mass market portfolios migrate to <unk>.

Fewer than half of the Android devices were <unk> in 2022, and the migration to <unk> is expected to extend over many years.

We are unique and advanced cellular and the breadth of our customer exposure and in the depth of our product and technology offerings are.

Our long term view of ACG continues to be mid to high single digit growth driven by multiyear content gains.

In particular, we see expanding market for our biotechnology.

Productivity gains in our Richardson, Texas Fab have enabled a doubling of our ball outflows.

We intend to put that to good use as we continue to capture designs and grow our ball content in flagship phones.

We expect the long term growth rate of HPA and connectivity and sensors to outpace advanced cellular.

Our view for HPA is double digit growth and in <unk>, we expect growth in the strong double digits.

Key growth areas supported by recent wins with Silicon carbide devices in Evs in solar Inverters, Mems sensors, and notebook trackpad, and automotive smart interiors, and ultra wideband and automotive and Android devices.

These and other investment businesses are securing new designs that extend our opportunity and large growth markets.

In the near term the team is performing exceptionally well, while navigating extraordinary events.

III loadings have been reduced and we are bringing down channel inventories were also actively managing the expense line, while sharpening our focus and support of targeted growth.

We are working to accelerate revenue related to our omni a broad based set by our centers by exploring options for the associated Omnia test hardware I mean in the army of desktop.

Test unit and cartridges that contain our ball biosensors.

Technology has been proven commercially.

And we are engaged with a diverse set of customers.

Copper remains at the forefront of connectivity sustainability on electrification, we enjoyed exceptional customer relationships and we are a key enabler of future architectures. Please.

Please architectures continue to favor higher levels of performance integration and functional density to deliver a successful improvements in each markets next generation products.

Our customers value Corvo is best in class products and technologies and we are securing broad based design wins in high growth markets.

As volumes recover we are positioned to deliver long term growth and robust free cash flow.

With that I'll hand, the call off to grant.

Thanks, Bob and good afternoon, everyone.

As a reminder, our references today will be to our three operating segments high performance analog or HPA connectivity and sensors group or ESG and advanced cellular group or ACG and our upcoming 10-Q, we will provide historical financial information that reflects these operating segments additional hyster.

Oracle information will be made available in our fiscal 2023 10-K to be filed this may.

I'll now turn to our latest quarterly results.

Revenue for the third quarter of fiscal 2023 was $743 million $18 million above the midpoint of our guidance. We enjoyed relatively strong performance in automotive broadband defense and silicon carbide power devices, However, elevated channel inventories and weak end mark.

Demand pressured revenue and order activity across all three operating segments.

Looking at each operating segment individually HPA revenue of $155 million.

In the quarter compares to revenue of $182 million in the.

<unk> quarter last year.

<unk> growth in areas, such as defense and Silicon carbide power devices was offset by inventory consumption in the <unk> base station market and softness in consumer facing markets like Ssds and battery powered tools.

<unk> revenue of $97 million in the quarter compares to revenue of $158 million in the same quarter last year.

This reflects weakness in end market demand for Wi Fi products and channel inventory consumption.

Finally, ACG revenue of $491 million compares to revenue of $775 million in the same quarter last year.

This reflects lower smartphone unit volumes and channel inventory digestion within the Android ecosystem.

On a non-GAAP basis gross margin in the quarter was 49%.

Gross margin fell sequentially due to lower factory utilization and higher inventory related charges, including a quality issue at a supplier.

non-GAAP operating expenses in the quarter were $206 million $19 million lower than our guidance and down $8 million versus last year due to opex discipline, the timing of product development spend and lower employee related expenses, including incentive based.

Compensation.

In total non-GAAP operating income in the quarter was $99 million or 13% of sales.

Breaking out operating margin by each segment.

<unk> was 20% HPA was 19% and CST was negative 32%.

non-GAAP net income was $77 million representing.

Representing diluted earnings per share of <unk> 75.

Which was at the high end of our guidance range.

Free cash flow was $203 million.

Capital expenditures were $34 million, and we repurchased approximately $200 million worth of shares during the quarter.

Rate and pace of our repurchases is based on our long term outlook low leverage alternative uses of cash and other factors.

Turning to the balance sheet as of quarter end, we had approximately $2 billion of debt outstanding with no near term maturities and $919 million of cash and equivalents.

Our net inventory balance ending the quarter was up slightly at $857 million.

Now turning to our current quarter outlook, we expect quarterly revenue between $600 million and $640 million.

non-GAAP gross margin of approximately 41% and non-GAAP diluted earnings per share in the range of 10 to 15.

Our current view reflects ongoing demand weakness across end markets as well as our expectations for further consumption of channel inventory.

We continue to expect sales to Android smartphone customers will increase sequentially in the March quarter.

For historical reference the March quarter revenue in fiscal 'twenty, two for each of ACG, HPA, and CST was $777 million $211 million and $179 million respectively.

At the volume levels assumed in our guidance, we expect core gross inventory position will decline in March but remain elevated.

In terms of channel inventory the picture has begun to improve for example, total channel inventory for our components in the Android ecosystem was reduced by over 20% in the December quarter.

We expect continued improvement this quarter and anticipate the channel to normalize later this calendar year.

We are actively working with customers to consume channel inventories and in doing so we expect production levels to remain compressed this will lead to continuing underutilization charges related to inventories, which will weigh on gross margin during fiscal Q4 and carry into next fiscal year.

We project non-GAAP operating expenses in the March quarter will be up approximately $20 million sequentially due to the timing of product development spend seasonal payroll effects and other employee related expenses.

Below the operating income line nonoperating expense will be approximately $15 million, reflecting interest paid on our fixed rate debt offset by interest income earned on our cash balances FX gains or losses, along with other items.

Our non-GAAP tax rate for fiscal Q4 is expected to be consistent with fiscal Q3.

The rate remains elevated due to the absolute level and geographic mix of pre tax profit, including FX related gains within high tax jurisdictions as well as the impact of a U S tax law change related to R&D capitalization among other factors.

With regards to operations I want to highlight the outstanding progress. Our teams have made in terms of productivity gains. We continue to make improvements in product development filter design process Engineering factory planning manufacturing efficiency and many other areas to date. These gains have significantly increased our <unk>.

<unk> bought capacity and as Bob indicated the progress continues and looking forward, we can double our <unk> capacity in the Richardson facility versus our current maximum theoretical thresholds today.

Increasing the throughput of an existing asset not only reduces cost, but can reduce complexity within the factory network as production has consolidated the fall.

Productivity gains in our Richardson facility allow us to achieve our long term growth goals across all of our customers, including the most demanding Bob based placements.

As a result, we have decided to sell our farmers branch facility. We're in the early stages of marketing the site and initial interest has been encouraging.

For reference the site has been incurring approximately $12 million of non-GAAP Cogs per year.

We are also evaluating strategic alternatives for our biotechnology business to accelerate and maximize its potential value.

The Omnia platform, which is based on our boss sensor technology has demonstrated significant promise as a diagnostic testing solution.

<unk> technology unit currently reside in our <unk> segment.

While the revenue impact from a transaction would be negligible. It would reduce total expenses by approximately $32 million per year.

At this stage, it's too early to comment on the eventual outcome timing or potential valuation.

These actions will sharpen our focus and resources on the many growth drivers across our three operating segments. Our long term outlook is positive and we are well positioned to weather current macroeconomic challenges.

<unk> performance requirements continue to increase in our end markets sustainability initiatives underscore the increasing global reliance on power efficiency and connectivity and electrification trends are accelerating worldwide.

This has supported strong financial performance during a challenging environment and has positioned us for long term increasingly diversified growth.

At this time please open the line for questions. Thank you.

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One moment please poll for questions.

Thank you.

Next question is from Toshi Hari with Goldman Sachs. Please proceed with your question.

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

You gave really good color on channel inventory, but I was hoping to ask a follow up there.

So channel inventory as it relates to Android I think you said was down more than 20%.

Remember quarter.

I guess, how do you see that evolving over the next couple of quarters and I guess more importantly on the.

Non Android side or the iOS side, what's your current assessment of channel inventory and how that plays out over the coming quarters.

Yeah. This is Dave I'll answer the island. So first we're not going to comment on the iOS side of the inventories and grant already mentioned.

I think when you look at the overall channel inventories and when we refer to channel inventories were talking about all of our components that are out there and our distributors are at the end customers and so on balance overall is down about 20% across the entire business not just within the Android ecosystem.

Look just within our distribution channel is down about a third in the December quarter, but as grant mentioned, we still have a ways to go there. So we expect to continue reducing that.

Ross this quarter and then into the early part of FY 'twenty four.

Got it and then as my follow up on gross margins Youre guiding the March quarter to I guess 40, 41%, which is essentially flat sequentially.

Can you speak to where your utilization rates are today and as you continue to.

It worked out of inventory and the overall industry continues to work down inventory.

What cadence should we should we be thinking about.

For the rest of the calendar year do you think you can exit kind of in the high 40% or even close to 50% calendar 'twenty three or is that a little too optimistic at this point. Thank you.

Sure sure. Thanks for the question I'll touch on margins here and I'll try to cover all of it both in Q3, and then looking beyond that into fiscal 'twenty four.

For fiscal 2003 of the primary driver of gross margin continues to be under utilization and inventory related charges.

In Q3, it accounted for about 920 basis points of headwind.

Or in that neighborhood and it is expected to remain there in the March quarter.

Hence the flat gross margin guidance.

Patients across direct costs were approximately 80 basis points in Q3, and again expect it to remain there in Q4 as we stated earlier in Q3, there was a supplier quality issue.

Presenting approximately 30 basis points of headwind in our Q3 period, so kind of walking through that <unk> you can see the dominant factors clearly underutilization.

To your question about getting back to 50%.

<unk>.

It's unlikely in fiscal 'twenty four although it depends on your view of the macro economy and a number of other variables.

Underutilization creates a lingering impact due to timing and so as volumes fall those inventory balances will reflect higher per unit costs.

Simply put you know fewer units moving through fixed cost factory collect more cost per unit. So.

So we saw this heading into the December quarter, and it will it will carry forward into fiscal 'twenty four.

The rate at which that high cost inventory flows through the P&L will obviously depend on variables like our future utilization or product mix.

Including the ramp of revenue.

Over the course of fiscal 'twenty, four but although the precise timing is uncertain.

The reduction in channel inventories is very encouraging and it's a necessary first step if if I do look out over the course of fiscal 'twenty four I could see potentially that 920 basis points of margin get cut in half.

Again subject to your view of the revenue trajectory throughout the year.

Very helpful. Thank you.

And our next question is from Karl Ackerman with BNP part.

Please proceed with your question.

Yes. Thank you.

Noon.

I was hoping you know.

You can discuss a little bit more commentary regarding your outlook.

You certainly gave much commentary.

Across the P&L for March but within that outlook could you discuss the order of magnitude decline between your segments I'm just trying to have a better understanding of what's occurring I guess in the legacy IDP segment, which grew driven by some.

Maybe some inventory overhang within Wi Fi Iot and.

Telecom infrastructure and then as you as you address that question what are your assumptions for your mobile revenue in China.

In the March quarter, which I believe was guided to 10% in December .

Sure. So let me, let me start with our view of the segments in the in the March quarter.

If we go back to comparing our current March guide to our thoughts last November theres, a bit of variance in HPA and CST.

Third a flattish there'll be rather modest declines there in dollar terms for our guide our biggest driver of course is ACG. If you consider the size of our largest customer relative to ACG revenues in December .

And that core that customer excuse me seasonally down in March and June .

It's a sizable headwinds and that really dictates the path of our of our topline.

In terms of our China based smartphone OEM revenue.

It came in largely in line, just a bit above 10%.

Understood I guess, just maybe just to follow up on that with regard to the China Android Oems.

It sounds like they came a little bit better.

Should that remain at a similar level of revenue on a mixed basis in March it sounds like that's gonna be improving and I guess.

<unk>.

To the extent you could talk about the recovery process or how you see the recovery process.

The balance of year I guess that.

The question that I would like to understand is given.

Given some of the new <unk>.

And premium tier Android flagships, you've announced today.

Today.

It's certainly great to hear but I guess, if you could discuss the.

<unk>.

The level of confidence you have in demand returning for mid tier.

Handsets the balance of the year would be super helpful. Because I asked because two very large Korean memory Oems. This week indicated the smartphone market could bifurcate between good demand for flagships, yet weaker demand for lower mature models and so if you could just kind of comment on I suppose.

The production approach and your design approach.

For those markets if they do bifurcate would be very helpful. Thank you.

Sure.

Composer I'll start and I'll, let Dave tackle the different tiers of handset models.

In terms of revenue as we look forward into the guide we would expect our China based smartphone Oems in dollar terms to be roughly flat, but overall, our android revenue to be up.

And then as we look deeper into fiscal 'twenty four without going into too much detail are attempting to guide at this point given the overwhelming impact of macroeconomic factors I can I can shape it a bit for you and provide some of the drivers.

In terms of revenue beyond the March quarter, we would expect June to be roughly flattish it could be a bit higher a bit lower depending on your view of the economy or or China's reopening we don't have terribly ambitious expectations for the reopening at this point, we're playing a bit conservative with our view.

From there I would expect September to see significant.

Sequential growth and then December and the March 2024 quarters to be back to strong annual growth from there.

Dave I know if you mind, commenting on it tears so Bob mentioned in his remarks as well.

We're seeing really nice content growth in the premium tier so we're well represented there and.

And of course, we've always been well represented in the last year as well.

And so there is still a lot of.

The room to go in terms of conversion to <unk>, so the rate and pace of that may not be as quickly as we would've liked.

It's still a lot in front of us. So we expect to see that math year still moving to buying to you over time.

Very helpful. Thank you.

And our next question is from Gary Mobley with Wells Fargo Securities. Please proceed with your question.

Okay.

Mr. Murphy. Please check if your line is muted.

Yes.

Guys can you hear me now.

Yes, we can gear.

Apologies I want to start out by asking for some clarification on what grant just mentioned regarding the sequential revenue comps year over year growth.

Looking into the first half of next calendar year was that.

In reference to <unk> or the business overall.

That was the business overall.

Okay. Thank you for that.

And any change in view on purchase commitments from your foundry and.

And suppliers.

Sure.

Anticipate utilizing all of those commitments or might we be looking at some additional write downs there.

Kevin.

Dynamics.

Yes, no no change to our view as you'll remember we restructured the agreement last quarter to better align our view of demand with supply and are working with that partner on an ongoing basis.

Alright, Thank you great. Thanks, everybody.

Thank you Dan.

And our next question is from Edward Snyder with Charter equity Research. Please proceed with your question.

Thanks, a lot guys.

Several questions actually first off it sounds like the competitive environment, especially in China, and maybe in Samsung is getting much more difficult.

We've gotten lots of feedback back and being a major competitor in switches fairly high band modules competing in ultra wideband, which wasn't the case two years ago, and I know there'd been they've been out there slugging away for some time and now it seems like maybe the political environment in China is favoring them more.

First off are you seeing that they are they becoming more aggressive and number two.

Margin expectations for the Chinese.

Anywhere close to what we normally expect normal western competitors.

If not would.

It would not affect asp's or is it affecting your ASP here should we expect as PC client and then I have a follow up please.

Hi, Ed Thanks for the question.

As far as the Chinese competitors, they've always been there we've always seen them I think is overriding everything is the highly integrated modules that require premium filter performance, particularly for those that are being exported as well as for it within the China.

Consumer markets. So we still feel very good about our position there with our integrated modules, whether its ultra high band.

We're doing obviously with mid high as well as the work that we've done.

We improve significantly the performance and cost in our soft filters for low band pads. So we feel real good about how that's positioned and from a pricing perspective.

Haven't seen significant changes there Ed I think there are some areas, we're actually raising prices and.

Some areas, there's a little bit of competition, but we always have that so we haven't really seen a change in the market.

Great and then on that same note about increasing it sounds like the men's business as well.

<unk> been working on them in forever.

And now they're showing up in.

The asps.

Looking at a few of them just tuners, and we protect that business pretty closely.

Sounds like you might be seeing a significant increase in asps.

To the extent that you want to.

Infrastructure, adopting Mems and maybe if I can flip that over it sounds like since samsung's reorganized enhancing division now that are using open market modules.

The actual <unk>.

Content and ESP for those modules seems to have dropped significantly.

Whether it would be the mid high band low band and I'm, just talking about the flagship of course because of the masters of big step up going into module. So I'm just trying to get at my hands arms around what.

What the overall, let's say year over year or.

Over two years ago content picture looks like from from.

From the Koreans point of view in terms of redesigning their front end and then what kind of what kind of.

Trends in products like men's if you have that are bucking that trend.

Yes, Thanks, Ed I'll take the Mems <unk> bank speak a little bit more about your comments about the standard products that we've been selling that are highly integrated integrating in all the filters as far as Mems goes we're still very early on in that Ed as far as the RF Mems go as you know we've been working on that through the acquisition of Cavendish kinetics, and really just bigger.

Getting the rollout out and yes. They are paying for that we don't expect that to note.

<unk> and replace all of our antenna tuners.

New DB or so people that are willing to pay forward will pay for that that technology is cost a little bit more per function, but you pick up a significant improvement in the performance.

And then second we're also.

Our pressure sensor Mems, we're doing extremely well there are commented in my opening comments about being in 'twenty.

25 different vehicles and people are starting to implement it and track pads across all of the major Oems are now looking at it we're engaged with them.

We're just seeing that proliferate into watches and various other devices. So it's very early on also in its lifecycle. So we feel real good about that and I'll, let Dave speak a little bit about your question about some of the Korean manufacturers and what we're seeing there yes.

While the architectures are similar especially that particular customer that you mentioned there is still very demanding from a performance standpoint. So they have their requirements and you have to meet their requirements to win that business. So we're very focused on that we work very closely with them.

The advanced architectures years in advance to meet their needs.

So I wouldn't think of it necessarily as a standard product, it's still very demanding sockets.

Great. Thanks.

And our next question is from Vivek Arya with Bank of America. Please proceed with your question.

Thanks for taking my question on the first one.

Gross margin and then how you're <unk>.

Balance sheet inventory effects that overtime. So you mentioned gross margin I think 41% of our March and June sales are flattish I imagine gross margins are better.

Probably a flattish also and then I heard that you could checkout, but about half of the 900 basis points.

On the utilization so thats gross margin somewhere in the mid forties in the back half, but how do I align that with the inventory that you have on your balance sheet.

Where do you see it going over time and does that impact how the gross margin progression happens in the back half of the year.

Hey, Thanks, This is Greg and I'll take your question, Yes, you've got it in terms of gross margin and the answer on inventories rather simple right as that inventory begins to get sold and flow through cost of goods sold it'll drag with at those higher cost per unit associated with under utilization. So I would expect the <unk>.

Mentors to trend down over time.

Subject to normal seasonal ramps at large customers, where we do have to build inventory in advance of those sales. So.

Over time, it will come down again.

Again offset by some of those <unk>.

<unk> growth oriented builds.

Builds that we do at seasonal periods of the year.

The reason I asked the question because I heard before on the call that you think channel inventory normalizes later in the calendar year.

I am hoping I got that right. So it's channel inventory doesn't normalize until later.

Your balance sheet inventory and start to get back to more normal levels.

Yes, they're not necessarily sequential.

Can happen simultaneously depend on the level of demand.

Although you are correct I think the first stage of that would be a reduction in the channel inventories increase in order activity from our customers pulling through our inventory along with as I said, the offset and builds for large customer ramps, but theyre happening somewhat simultaneously not perfectly sequentially.

Understood and then for my second question.

You mentioned content gains at your top two.

Customers.

These competitive wins or is this new time like as Youll gain somebody else's lots of content or is it just.

New capabilities that customers are planning to add.

And kind of related to that.

Just given the nature of these customers do you expect to regain this content and the following years like are these multiyear.

Programs or the visibility it only therefore.

Thank you.

Yes science delivered part of the questions, we can't answer, but I will tell you that it.

And as both content and share gains at our largest customers our largest two customers.

Which can continue Bob so these are like multiyear.

Decisions are.

Can be in some ours homeowner.

We'll see.

Okay. Thank you.

Okay.

And our next question is from Blayne Curtis with Barclays.

Please proceed with your question.

Questions.

Maybe just want to start out you've been kind of given how larger largest customer 10% customers are just trying to get a starting point for some of these moving pieces in December .

Sure. So our largest customer is a significant portion of ACG revenues, usually representing about two thirds of that business if not more in certain periods.

And then our second largest customer we haven't commented on but generally hovers around that 10% Mark and certainly with some of the growth we expect there.

Could be could be more.

Got you and.

And then I guess following up on to the next question is just sort of trying to gauge the magnitude of these content wins Youre speaking to you talked about being able to double capacity Ed Richardson I'm, assuming you have given the pullback in Android.

Excess capacity already so I'm, just kind of curious the timeframe in terms of doubling that capacity. If you have that on your horizon.

Sure. Let me, let me talk to that I think just at the highest level there isn't about placement that we can't fully support at any customer at our Richardson facility is really the key takeaway there.

Driven some significant gains for the reasons I mentioned earlier in the prepared remarks, but the productivity gains.

Overall die shrinks the move from six to eight inches and then of course, the successive generations of bar filters that were running through that factory lend themselves to a significant increase in capacity. So as we look at farmers branch.

Need for that.

I guess over time has been somewhat of a safety valve in case any of those initiatives didn't come to fruition, but given the success of the team there we're able to support all of the bar.

Based processing, we need out of our Richardson facility.

Okay. Thanks.

Okay.

Our next question is from Matt Ramsey with Cowen. Please proceed with your question.

Thank you good afternoon guys.

I guess.

I was going to ask you in all swap the order because they kind of built on on planes last question, but.

And the bar filter space.

Any any changes in the competitive landscape there I think one of your U.

U S competitors has made up a decent amount of progress on there Bob roadmap internally in the last couple of years and it seems like some products might be a little bit closer to.

Impacting sort of the market. So any any it sounds like you are very confident in what comes in content gains to the last couple of answers that you've given but any competitive dynamic changes.

What are your primary competitors on boss.

Yes, no no no changes to our primary competitors.

And to the earlier follow on regarding the capacity at Richardson.

Something that we can do over time not necessarily this year, but thats something that we have the ability to do in subsequent years to add on to.

The effective capacity there at Richardson again, just want to make sure. That's clear that we do have to take steps add equipment et cetera in order to make that possible. It will be in the out years, but it's really a comment around farmers branch in supporting the ability for us to do that in the future.

Given our ability to sell the farmers branch facility.

Got it thanks for the clarification there as.

As my follow up there, obviously, given how big it is and in the <unk>.

Revenue most of the focus of the call here has been on.

The mobile and smartphone markets, but I wanted to ask quickly on the wireless infrastructure side. There is some some.

I don't know if they're correlated but similar inventory dynamics that are happening.

If you guys any commentary about the.

The inventory buildup there.

Has it come down.

<unk> of any potential reacceleration is it similar to on the mobile side or longer shorter or just any context, there would be helpful. Thank you.

Yeah, and I think it's pretty well known we've seen inventory buildup, there and thats certainly been impactful to our infrastructure business and it will take some time, we think for that to bleed off throughout the year.

So it's probably.

Similar, but maybe even take longer than what we'll see in modal.

Alright, Thanks, a lot I appreciate it.

Thank you. Our next question is from Rajeev <unk> with Needham and company. Please proceed with your question.

Yes, thanks for taking my question.

I just wanted to break down.

The commentary about the September and December and March if I could just the commentary about significant sequential growth in September off the flat June .

What's driving that that commentary and seasonally September is is higher.

But can you maybe frame it in terms of relative seasonal patterns.

It's also being aided by more of a significant rebuild and by these by these customers plus share gains just any commentary around.

Qualitatively, what's specifically driving the September commentary, and then December and March being up year over year.

I'm, obviously December and March.

December of 2022 in March 2023 are relatively easy compares in terms of the revenue. So just some thoughts around December and March would be helpful. Thank you.

Yes, sure. So as we look into September again, I would just reiterate we're not providing any official guidance into fiscal 'twenty, four but were attempting to shape. It just a bit given some of the macroeconomic uncertainty and obviously the macroeconomic situation will inevitably dictate.

The trajectory of revenue, but but just looking at some of the drivers that we see seasonally there is a significant ramp in the September quarter. So.

And as Bob stated, we feel as though we're well represented on large platforms across all of our largest customers. So continued strength at some of those customers as the channel inventories began clearing will occur as well as a large seasonal ramp gets to a sequential increase in September .

That's pretty substantial off of a rather low base as we're talking about.

Roughly flattish June so thats, the primary driver or color around around September .

Then into December and March you're right the comps get get relatively easy, but with the channel inventory picture clearing up by the end of the calendar year as we talked about earlier it should provide for a.

A restocking if you will or us selling into.

Potentially demand even at just recurring to normalized levels.

Got it and for my follow up regarding <unk>.

Your conversations with the Chinese Oems and the Korean Oems.

What is the kind of expectation as it stands today in terms of their customer forecast.

For calendar 'twenty, three going into calendar 'twenty, four obviously calendar 'twenty two was kind of a horrific year in terms of units or the forecast relatively conservative.

Off that debt.

Challenging 2022 are some Oems more more aggressive in there.

Forecast plan.

There is more capacity coming online for a variety of different smartphone components does that enabled new product ramps just any commentary in terms of what the customer feedback is.

And forecast thank you.

David would you like to take that sure so the.

The customer sentiment and therefore cast is very cautious.

Until now we've seen some early signs of life in China in the smartphone sell through first few weeks of January with promising.

But we need to see a couple of months of that I think our customers do as well before they really start to gain confidence there. So right now the purchase order patterns or forecasts remain.

Very cautious.

Through the rest of the calendar year.

Okay.

That answer your question.

Oh, yes, it does.

Thank you appreciate it.

And our next question is from Chris Caso with Credit Suisse. Please proceed with your question.

Yes. Thank you.

<unk> is regarding capex and cash flow and.

Both on a short term.

Standpoint on how are you.

How do you plan to manage that as we still burning off inventory here and then a bit longer term and kind of were hearing from you is that it.

It sounds like from a capacity standpoint, yes.

May be set for a little bit so what can we expect there can we expect that.

As the.

As the market normalizes and this inventory.

Stark head Burns off and had some benefits to revenue that we see that flow through floor for cash flow performance.

Sure. So we don't guide specifically to the balance sheet, our cash flow, but I'll try to give a little bit of color on the drivers. So.

Having.

Now collected on sales in prior quarters, our cash flow will likely start to follow the path of the.

The P&L obviously.

As we look forward, we still expect to generate free cash flow and capex should be in the 5% to 7% range of sales representing discipline, there and some reduced capex intensity as we move forward, having invested in our facilities over the prior prior years and looking.

Forward will be largely capacity driven.

As we see demand and obviously improvements in our performance and technology.

Required but.

Generally speaking.

We'll be looking for for the cash flow to follow P&L.

Got it okay just to follow on and again a lot of discussion has been on the on the cellular portion.

For the non handset part of the business.

I guess, what I heard is some of the infrastructure.

Products that theres still some inventory to burn off but.

What would just say more generally.

It would be the inventory situation for the non handset part of the business. It was a situation where you know this is a little bit slower to come back as compared to the cellular business or.

Whats the view is that those businesses as you proceed through the year.

Yes, it definitely varies so the infrastructure business is probably going to be slower to recover.

Full year, we've got Wi Fi a lot of that is consumer facing that probably very similar to what we see in the smartphone space, but some of that's also more operator and enterprise driven.

And so we saw that occur a little bit later, so that will probably take a little bit longer to recover and then our power our power management business as well as very consumer facing.

Power tools and solid state drive and other types of devices like that that are more consumer oriented.

It would probably be very similar to the way the smartphone market.

Okay. Thank you.

Thank you and our next question is from harsh Kumar with Piper Sandler. Please proceed with your question yes.

Yeah, Hey, guys I wanted to ask about another question that was asked about December growth March growth I know you said year over year or the question was asked in reference to year over year, but.

Did you mean to say that or is it possible that those businesses given the falloff in revenues and units is it possible that those business group since could your businesses could also grow sequentially in those timeframe, although they follow seasonal pattern.

Are you referring to our fiscal 'twenty four or just.

Since December in this March.

Fiscal 'twenty four.

Fiscal 'twenty four it's a little early to comment on that certainly from a year over year standpoint, the comps are relatively easy and it's with a high degree of confidence we believe we'll be able to grow the degree to which would determine whether it was sequential or not I think it's a bit premature to comment on overall, we still are encouraged by fiscal 'twenty.

And believe that it'll be above fiscal 'twenty three.

That's fair.

And then I wanted to ask about your gross margins.

Media revenues came down for the guidance for March with your margins.

Hanging in there you mentioned a couple of things small things, the 80 basis points and 30 basis points issues.

But what's the what's the reason why our margins are hanging in here.

I think generally speaking if I look back over the productivity gains that we've made over multiple years, we are still seeing those.

In our margins today, even though the volumes arent in the factories.

900, plus basis points of headwind from under utilization is significant I don't want to understate that but in terms of productivity and the work that our operational teams have done.

Is really speaking to the strength of those gains and our ability to hold margins at 40%.

Fair enough guys Thats it from me. Thank you.

Thanks Marcy.

Thank you and our next question is from Joe Moore with Morgan Stanley . Please proceed with your question.

Great. Thank you.

Can you talk about the changes to your foundry agreements can you just speak generally to the cost of our foundry wafers do you see that continuing to rise.

And if so are you able to pass that through to your customers and if the reverse is do you anticipate having to pass declines onto your customers. Thank you.

Thanks, Joe.

Actually with some of the capacity freeing up we're not seeing the increases.

So we saw some of that earlier last year.

Calendar year earlier in the year. So we're not seeing it in some cases to your point, we have been able to pass that onto our customers and then again as we've always said pricing set by the competition and we're all raised prices. We all get an increase we all know we don't get an increase.

So we've been able to pass some of that along but as grant pointed out the employee inflation is impacting us and our Cogs about 80 bps. So we're not able to pass it all along but theres other inflation and Theyre not just foundry reports.

Alright, Thank you very much.

Thanks, Joe.

Thank you and our next question is from Keith Marty Quinn.

Please proceed with your question.

Hi, Thank you for taking my question I had one clarification and one question, but when you guys talk about channel inventories to normalize later this calendar year are you talking about China, Android or total Android or total smartphone.

Well, we're talking about total smartphone inventory spread but even some of the other markets that we mentioned earlier in one of the previous questions.

Goddamn received we see elevated inventories not just in smartphones, we see it in a lot of the other markets as well.

But when are you expecting that China Android.

Inventories to normalize.

All depends on how well the phone sell through in the end market like I said January .

Early indications in January that's improving.

If that continues through February and March and into calendar Q2, then of course, the inventory is going to be burned off much more quickly, but we're not we're not forecasting that we want to go in and see that sustained before we get too excited about that.

Understood and then is it possible to breakout or comment on how big the silicon carbide power device business.

Is it as a percentage of <unk>.

<unk>.

Yes, we havent given that information what I can tell you is we're very pleased with the acquisition.

I think when we I know when we file our Q, you'll see why I say that.

But it's been a tremendous acquisition, but I'm sorry, we haven't sized it it's probably bigger than what most people think and small into what some other people.

Well, we haven't given any of that revenue out yet, but we're very pleased with it it's.

It's profitable and it's doing a fine job.

Thanks, Paul.

Thank you.

And our next question is from Bruce Srivastava with BMO capital markets. Please proceed with your question.

Hi, Thank you I just had one posting growth thanks for providing that.

20%.

Comment.

I'm just traveling with how does it help us.

And I ask.

Sure.

With reference to what are we talking about I'll be talking days months.

What is normal level and I know, it's harder and be more diversified areas, but on the headset side, you should be able to kind of quantify and tell us.

Alright at the peak it was X weeks X months and here we are and.

When we think.

There is some kind of a normal pattern. This is what normal looks like.

Yes, I think Thats a great question <unk>. The issue always is when you look at your days of inventory in the channel you have to understand what's the sell out and so far and I think I said this last quarter as well when we work with our customers. When we go through all the math they will reduce their production, we reduce ours and unfortunately.

<unk> has been lower.

So.

You have to look at it again, Dave mentioned, a couple of times on the call. The first three weeks so far in January at least at least we can speak to the data that we get and I think all of you did.

The actual sell out is up and Thats a good sign but we're not going to get into the game of naming numbers like this because it all depends on the future output of what they sell out. So we've got a little ways to go that's why I think we're being careful on comments around June but we feel very good about September . So we roughly think it's in that timeframe.

So handset inventory.

Inventory came up by September .

The rest as you said those will take longer.

Best guess at this point is by December that should came out is that right.

Well, we've got different parts of the business and Wi Fi area, it's going to follow because we're in a lot of the Android phones with our Wi Fi products that will follow more of what I said for the handsets and Wi Fi that's in some other retail and some of the.

Our industrial applications things like that that may take a little bit longer we don't always get a good read there is a smaller part of our market not as much data as published but I think on the infrastructure side, what Dave talked about that is going to take a little bit longer.

The area of RF power management that goes into the Ssds and that's a call on the PC market. So you guys follow that.

We will see all of that goes so it's going to be all different ones, but the major part of our business is the handsets as you know I think we're giving you as much color as we can as we project forward.

Yes got it appreciate it thank you guys. Thank.

Thank you.

There are no further questions at this time I would like to turn the floor back over to management for closing comments.

We want to thank everyone for joining us on today's call. We look forward to speaking with you at upcoming Investor events. This quarter. Thanks again I hope you have a good night. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Thank you.

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Yeah.

Okay.

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Yes.

[music].

Greetings.

And welcome to the Corvo, Inc. Third quarter 2023 conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Douglas Toledo, Vice President of Investor Relations. Thank.

Thank you you may begin.

Thanks, very much Hello, everyone and welcome to <unk> fiscal 2023 third quarter earnings Conference call.

This call will include forward looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe Harbor statement contained in the earnings release published today as well as the risk factors associated with our business and our annual report on Form 10-K filed with the SEC because these risk.

Risk factors may affect our operations and financial results.

Bob <unk>, President and CEO Grant Brown, Chief Financial Officer, Dave <unk>, Senior Vice President of sales and marketing and other members of <unk> management team and with that I'll turn the call over to Bob.

Thanks, Doug and welcome everyone to our call cobalt delivered fiscal third quarter revenue and EPS above the midpoint of our outlook provided during our November 2nd earnings call.

Setting this or power management markets with consumer exposure and infrastructure, where customers are working down elevated inventory levels.

In our connectivity and sensors grew the quarter reflected lower end market demand and channel inventory consumption for Wi Fi products, partially offset by strength in automotive.

Design activity was strong across customers and products, including ultra wideband matter and sensors.

Use cases continue to proliferate that benefit from precision location indoor navigation seamless connectivity and enhanced human machine interfaces.

Lastly, an advanced cellular corvo participated broadly across customers portfolios.

The macro environment weighed on overall smartphone volumes across customers and revenue reflected channel inventory consumption within the Android ecosystem.

Design activity continued to be strong across customers and product categories and supports year over year content gains at our largest customers.

Now, let's turn to some quarterly highlights and.

In high performance analog Cornwell began sampling a radar power solution that combines a high voltage power conversion peanut and silicon carbide power switches to control of Gan RF power amplifier.

This solution reduces size by up to 30% and DNA radar systems, while expanding <unk> content opportunity.

We also expanded our ship state of the art RF packaging contract with the U S government to develop multi chip modules that combined digital optical devices with <unk> mixed signal RF and.

In aerospace we delivered a multi chip solution that includes kormos high frequency block filter as well as again.

For low Earth orbit satellites and other applications.

Solution supports cellular satellite links and we have secured new designs the opportunity for Corvo is notable given the trend in defense and aerospace applications of one day minute.

That means rather than one Jed there will also be many drones.

Rather than one Geo satellite there will also be many Leo satellites at.

At the same time, new capabilities are being added to existing platforms that.

That required increased semiconductor content and higher density and more advanced packaging all areas, where corvo is strong and is investing to advance the technology.

In cellular infrastructure, we commenced pre production shipments of our first integrated modules or pans to a tier one European infrastructure OEM for <unk> massive mimo base stations.

We also began sampling our next generation Pan which delivers market leading efficiency for <unk> massive mimo installations to the leading European infrastructure Oems.

For broadband infrastructure applications, we sample the CATV power double amplifier that maintains linearity and expand bandwidth to enable higher throughput DOCSIS four <unk> capabilities with industry, leading power efficiency.

Deployment of DOCSIS four point out are scheduled to begin this year and corvo is very well positioned as the industry leader.

In <unk>, we expanded our Wi Fi content at a Korean based smartphone OEM to include Wi Fi six and Wi Fi seven designs and we ramp Wi Fi seven funds.

For access points and routers for a smart home ecosystem customer.

We also commenced sampling five gigahertz and six gigahertz filters. Please filters leverage <unk> next generation <unk> process and enable worldwide Wi Fi seven frequency coverage.

There is increasing customer interest related to multi link operation, which is a key attribute of Wi Fi seven and enables higher throughput and lower latency.

Lastly, we began volume shipments of Mems based sensors, enabling an enhanced <unk> experience and true wireless stereo Airbus Corbo sensors were selected to replace legacy capacitive touch sensor technology.

And advanced cellular we secured multiple design wins across Android Oems in support of 2023 devices during.

During the quarter, we commenced the production ramp of multiple components for the leading Korea based smartphone Oems flagship platform.

We have increased our content significantly year over year were broadly serving this customer across our portfolio and continue to support the migration of the mass market phones to integrated <unk> solutions.

At a U S based Android OEM, we were selected to supply multiple solutions, including ultra wideband antenna tuning and Bob based antenna flexing in support of their 2023 smartphone launches.

Lastly, <unk> was recognized by multiple customers we have.

We're presented with honors 2022 Golden Supplier Award and we received quality awards from vivo for discrete switches and amplifiers and highly integrated solutions.

Before handing the call off the grant I want to make a few high level comments to frame our outlook both in the near term and further out.

At our largest two customers we are very confident in our ability to grow year over year content and that includes this year in 2023, we expect growth and Bob based content as well as other content growth.

Equally important we enjoy a range of opportunities across all of our customers in the future years corporate supporting the highest volume flagship phones, while supplying integrated <unk> solutions as mass market portfolios migrate to <unk>.

Sure then half of the Android devices were <unk> in 2022, and the migration to <unk> is expected to extend over many years.

We are unique and advanced cellular and the breadth of our customer exposure and in the depth of our product and technology offerings.

Long term view of ACG continues to be mid to high single digit growth driven by multiyear content gains.

In particular, we see expanding market for our <unk> technology.

Productivity gains in our Richardson, Texas Fab have enabled a doubling of our ball outputs.

We intend to put that to good use as we continue to capture designs and grow our ball content in flagship phones.

We expect our long term growth rate of HPA and connectivity and sensors to outpace advanced cellular R.

Our view for HPA is double digit growth and in <unk>, we expect growth in the strong double digits.

Key growth areas supported by recent wins with Silicon carbide devices in Evs in solar Inverters, Mems sensors, and notebook track pads, and automotive smart interiors and ultra wideband in automotive and Android devices.

These and other investment businesses are securing new designs that extend our opportunity and large growth markets.

In the near term the team is performing exceptionally well, while navigating extraordinary events.

III loadings have been reduced and we are bringing down channel inventories were also actively managing the expense line, while sharpening our focus and support of targeted growth.

We are working to accelerate revenue related to our omni a broad based set biosensors by exploring options for the associated Omnia test hardware and in the <unk> desktop.

Test unit and cartridges that contain our ball biosensors.

The technology has been proven commercially and we are engaged with a diverse set of customers.

<unk> remains at the forefront of connectivity sustainability and electrification really enjoying exceptional customer relationships and we are a key enabler of future architectures. Please.

Please architectures continue to favor higher levels of performance integration and functional density to deliver a successive improvements in each markets next generation products.

Our customers value Corvo is best in class products and technologies and we are securing broad based design wins in high growth markets.

As volumes recover we are positioned to deliver long term growth and robust free cash flow.

With that I'll hand, the call off to grant.

Thanks, Bob and good afternoon, everyone. As a reminder, our references today will be to our three operating segments high performance analog or HPA connectivity and sensors group or ESG and advanced cellular group or ACG and our upcoming 10-Q, we will provide historical financial information they refer.

Flex these operating segments additional.

Historical information will be made available in our fiscal 2023 10-K to be filed this may I.

I'll now turn to our latest quarterly results.

Demand pressured revenue and order activity across all three operating segments.

Looking at each operating segment individually HPA revenue of $155 million.

In the quarter compares to revenue of $182 million in the same quarter last year.

In HPA growth in areas, such as defense and Silicon carbide power devices was offset by inventory consumption and the <unk> base station market and softness in consumer facing markets like Ssds and battery powered tools.

<unk> revenue of $97 million in the quarter compares to revenue of $158 million in the same quarter last year.

This reflects weakness in end market demand for Wi Fi products and channel inventory consumption.

Finally, ACG revenue of $491 million compares to revenue of $775 million in the same quarter last year.

This reflects lower smartphone unit volumes and channel inventory digestion within the Android ecosystem.

On a non-GAAP basis gross margin in the quarter was 49%.

Gross margin fell sequentially due to lower factory utilization and higher inventory related charges, including a quality issue at a supplier.

non-GAAP operating expenses in the quarter were $206 million.

$19 million lower than our guidance and down $8 million versus last year due to opex discipline, the timing of product development spend and lower employee related expenses, including incentive based compensation.

In total non-GAAP operating income in the quarter was $99 million or 13% of sales.

Breaking out operating margin by each segment.

<unk> was 20% HPA was 19% and CST was negative 32%.

non-GAAP net income was $77 million representing.

Diluted earnings per share of <unk> 75.

Which was at the high end of our guidance range.

Free cash flow was $203 million.

Capital expenditures were $34 million and we repurchased.

<unk> approximately $200 million worth of shares during the quarter.

The rate and pace of our repurchases is based on our long term outlook low leverage alternative uses of cash and other factors.

Turning to the balance sheet as of quarter end, we had approximately $2 billion of debt outstanding with no near term maturities and $919 million of cash and equivalents.

Our net inventory balance ending the quarter was up slightly at $857 million.

Now turning to our current quarter outlook, we expect quarterly revenue between $600 million and $640 million non-GAAP gross margin of approximately 41% and non-GAAP diluted earnings per share in the range of 10 to 15.

Our current view reflects ongoing demand weakness across end markets as well as our expectations for further consumption of channel inventory.

We continue to expect sales to Android smartphone customers will increase sequentially in the March quarter.

For historical reference the March quarter revenue in fiscal 'twenty, two for each of ACG, HPA, and CST was $777 million $211 million and $179 million respectively.

At the volume levels assumed in our guidance, we expect core gross inventory position will decline in March but remained elevated.

In terms of channel inventory the picture has begun to improve for example, total channel inventory for our components in the Android ecosystem was reduced by over 20% in the December quarter we.

We expect continued improvement this quarter and anticipate the channel to normalize later this calendar year.

We are actively working with customers to consume channel inventories and in doing so we expect production levels to remain compressed this will lead to continuing underutilization charges related to inventory, which will weigh on gross margin during fiscal Q4 and carry into next fiscal year.

Below the operating income line non operating expense will be approximately $15 million, reflecting interest paid on our fixed rate debt offset by interest income earned on our cash balances FX gains or losses, along with other items.

Our non-GAAP tax rate for fiscal Q4 is expected to be consistent with fiscal Q3.

The rate remains elevated due to the absolute level and geographic mix of pre tax profit, including FX related gains within high tax jurisdictions as well as the impact of the U S tax law change related to R&D capitalization among other factors.

With regards to operations I want to highlight the outstanding progress. Our teams have made in terms of the productivity gains we continue to make improvements in product development filter design process Engineering factory planning manufacturing efficiency and many other areas to date. These gains have significantly increased our <unk>.

<unk> capacity and as Bob indicated the progress continues and looking forward, we can double our bond capacity and the Richardson facility versus our current maximum theoretical thresholds today.

Increasing the throughput of an existing asset not only reduces cost, but can reduce complexity within the factory network as production has consolidated the <unk> productivity gains in our Richardson facility allow us to achieve our long term growth goals across all of our customers, including the most demanding Bob based.

Placements.

As a result, we have decided to sell our farmers branch facility. We're in the early stages of marketing the site and initial interest has been encouraging.

For reference the site has been incurring approximately $12 million of non-GAAP Cogs per year.

We are also evaluating strategic alternatives for our biotechnology business to accelerate and maximize its potential value.

Omnia platform, which is based on our boss sensor technology has demonstrated significant promise as a diagnostic testing solution.

So technology unit currently reside in our <unk> segment.

While the revenue impact from a transaction would be negligible. It would reduce total expenses by approximately $32 million per year.

At this stage, it's too early to comment on the eventual outcome timing or potential valuation.

These actions will sharpen our focus and resources on the many growth drivers across our three operating segments.

Long term outlook is positive and we are well positioned to weather current macroeconomic challenges.

Product performance requirements continue to increase in our end markets sustainability initiatives underscore the increasing global reliance on power efficiency and connectivity and electrification trends are accelerating worldwide.

We have diversified our opportunities across markets customers and product categories, while maintaining our commitment to technology leadership portfolio management productivity gains and reduce capital intensity business supported strong financial performance during a challenging environment and has positioned us for long term increasingly.

Diversified growth at this time please open the line for questions. Thank you.

Thank you we will now be conducting a question and answer session, maybe you'd like to ask a question. Please press star one on your telephone keypad.

Your line is in the question queue.

You May press star two if he would like to remove your question from the queue.

All participants using speaker equipment, it may be necessary to pick up your handset before pressing with Barclays.

Ask that you limit to one question and one follow up.

One moment, please while we poll for questions.

Thank you and our first question is from Scotia, Hari with Goldman Sachs. Please proceed with your question.

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

You gave really good color on channel inventory, but I was hoping to ask a follow up there.

So channel inventory as it relates to Android I think you said was down more than 20% in the December quarter.

I guess, how do you see that evolving over the next couple of quarters and I guess more importantly on the.

Non Android side or the iOS side, what's your current assessment of channel inventory and how that plays out over the coming quarters.

Yeah. This is Dave I'll answer the island. So first we're not going to comment on the iOS side of inventories and grant already mentioned the Android I think when we look at the overall channel inventories and when we refer to channel inventories were talking about all of our components that are out whether they are in our distributor.

Or at the end customers and so on balance overall is down about 20% across the entire business not just within the Android ecosystem.

If you look just within our distribution channel is down about a third in the December quarter, but as grant mentioned, we still have a ways to go in there. So we expect to continue reducing that.

Across this quarter and then into the early part of FY 'twenty four.

Got it and then as my follow up on gross margins Youre guiding the March quarter to I guess 40, 41%, which is essentially flat sequentially.

Can you speak to where your utilization rates are today and as you continue to.

Worked down inventory and the overall industry continues to work down inventory what cadence should we should we be thinking about.

For the rest of the calendar year do you think you can exit kind of in the high 40% or even close to 50% calendar 'twenty three or is that a little too optimistic at this point. Thank you.

Sure. Thanks for the question I'll touch on margins here and I'll try to cover all of that both in Q3, and then looking beyond that into fiscal 'twenty four.

For fiscal 2003, the primary driver of gross margin continues to be under utilization and inventory related charges.

In Q3, it accounted for about 920 basis points of headwind.

Or in that neighborhood and it is expected to remain there in the March quarter.

Hence the flat gross margin guidance inflation across direct costs were approximately 80 basis points in Q3, and again expect it to remain there in Q4 as we stated earlier in Q3, there was a.

Supplier quality issue, representing approximately 30 basis points of headwind in our Q3 period, so kind of walking through that <unk> you can see the dominant factors clearly underutilization.

To your question about getting back to 50%.

It's unlikely in fiscal 'twenty four although it depends on your view of the macro economy and a number of other variables.

Underutilization creates a lingering impact due to timing and so as volumes fall those inventory balances will reflect higher per unit costs.

Simply put fewer units moving through fixed cost factory collect more cost per unit. So.

So we saw this heading into the December quarter, and it will carry forward into fiscal 'twenty four.

The rate at which that high cost inventory flows through the P&L will obviously depend on variables like our future utilization or product mix.

Including the ramp of revenue over the course of fiscal 'twenty, four but although the precise timing is uncertain.

The reduction in channel inventories is very encouraging and it's a necessary first step if I if I do look out over the course of fiscal 'twenty four I could see potentially that 920 basis points of margin get cut in half.

Again subject to your view of the revenue trajectory throughout the year.

Very helpful. Thank you.

And our next question is from Karl Ackerman with BNP.

Please proceed with your question.

Yes.

Yes. Thank you.

Noon.

I was hoping.

You can discuss a little bit more commentary regarding your outlook.

You certainly gave much commentary.

Some inventory overhang within Wi Fi Iot.

Telecom infrastructure and as you address that question what are your assumptions for your mobile revenue in China.

March quarter, which I believe was guided to 10% in December .

Sure. So let me, let me start with our view of the segments in the in the March quarter.

If we go back to comparing our current March guide to our thoughts last November theres, a bit of variance in HPA and CST.

Instead of flattish there'll be.

Rather modest declines there in dollar terms for our guide our biggest driver of course is ACG. If you consider the size of our largest customer relative to ACG revenues in December .

And that core that customer excuse me seasonally down in March and June .

It's a sizable headwind and that really dictates the path of our of our topline.

In terms of our China based smartphone OEM revenue.

It came in largely in line, just a bit above 10%.

Understood I guess, just maybe just to follow up on that with regard to the China Android Oems.

It sounds like they came a little bit better.

Should that remain at a similar level of revenue on a mixed basis in March it sounds like that's going to be improving.

I guess.

To the extent you could talk about the recovery process or how you see the recovery process.

The balance of year I guess.

The question that I would like to understand is given.

Given some of the new <unk>.

Qt and premium tier Android flagships, you've announced this today.

Today.

It's certainly great to hear but I guess, if you could discuss.

<unk>.

Yes.

The level of confidence you have in demand returning for mid tier <unk>.

Handsets the balance of the year would be super helpful. Because I ask because two very large Korean memory Oems. This week indicated a smartphone market could bifurcate between good demand for flagships, yet weaker demand for lower mid tier models and so if you could just kind of comment on I suppose the.

The production approach and your design approach.

Those markets if they do bifurcate would be very helpful. Thank you.

Sure.

If I decompose it maybe I'll start and I'll, let Dave tackle the different tiers of handset models.

In terms of revenue as we look forward into the guide we would expect our China based smartphone Oems in dollar terms to be roughly flat, but overall, our android revenue to be up.

And then as we look deeper into fiscal 'twenty, four without going into too much detail or attempting to guide at this point given the overwhelming impact of macroeconomic factors.

Can shape it a bit for you and provide some of the drivers.

From there I would expect September to see significant.

Sequential growth and then December and March 2024 quarters to be back to strong annual growth from there.

Dave I know if you mind, commenting on it tears so Bob mentioned in his remarks as well.

We're seeing really nice content growth in the premium tier so we're well represented there and.

And of course, we've always been well represented in the last year as well.

And so there is still a lot of.

Room to go in terms of conversion to <unk>, so the rate and pace of that may not be as quickly as we would've liked.

It's still a lot in front of us. So we expect to see that math here still moving to find year over time.

Very helpful. Thank you.

And our next question is from Gary Mobley with Wells Fargo Securities. Please proceed with your question.

Okay.

Mr. Murphy. Please check if your line is muted.

Yes.

Guys can you hear me now.

Yes, we can do here.

Apologies I wanted to start out by asking for some clarification on what grant just mentioned regarding the sequential revenue comps year over year growth.

Looking into the first half of next calendar year was that.

In reference to <unk> or the business overall.

That was the business overall.

Okay. Thank you for that.

Any change in view on purchase commitments from your foundry and.

And suppliers.

<unk>.

Anticipate utilizing all of those commitments or not we'd be looking at some additional write downs here just given.

Dynamics.

Yes, no no change to our view as you'll remember we restructured the agreement last quarter to better align our view of demand with supply and are working with that partner on an ongoing basis.

Alright. Thank you thanks, everybody.

Thank you Dan.

And our next question is from Edward Snyder with Charter equity Research. Please proceed with your question.

Thanks, a lot guys.

Several questions actually first off it sounds like the competitive environment, especially in China, and maybe in Samsung is getting much more difficult, we've gotten lots of feedback back and being a major competitor in switches fairly high band modules competing in ultra wideband, which wasn't the case two years ago, and I know theres been a bit.

Out there slugging away for some time and now it seems like maybe the political environment in China is favoring them more.

First off are you seeing that they are they becoming more aggressive and number two are there.

Margin expectations for the Chinese.

Anywhere close to what we normally expect normal western competitors.

If not would not affect ASP is it affecting as per year should we expect a specie client I'm going to have.

Pablo please.

Yeah, Hi, Ed Thanks for the question.

Consumer markets. So we still feel very good about our position there with our integrated modules, whether its ultra high band.

What we're doing obviously with mid high as well as the work that we've done.

Proved significantly the performance and cost in our software orders for low band pads. So we feel real good about how that's positioned and from a pricing perspective, we haven't seen significant changes there and I think there are some areas, we're actually raising prices in some areas, there's a little bit of competition, but we always have that so we haven't really.

<unk> seen a change in the market.

Great and then on that same note about increasing it sounds like the men's business as well.

Come in forever.

And now they are showing up in the end.

The Asps I don't know Youre looking into a few of them just tuners, and we protect that business pretty closely but it sounds like you might be seeing a significant increase in asps.

To the extent that you want.

Infrastructure, adopting Mems and maybe if I can flip that over it sounds like since samsung's reorganized enhancing division now that are using open market modules.

The actual <unk>.

The content of an ESP for those modules seems to have dropped significantly.

Whether it would be the mid high band or the low end and I'm just talking about the flagship of course because of the masters of big step up going to module. So I'm just trying to get at my hands arms around.

What the overall, let's say year over year or you over two years ago content picture looks like from from.

From the Koreans point of view in terms of redesign that front end and then what kind of what kind of.

Trends in products like Mems that you have there bucking that trend.

Yes, Thanks, Ed I'll take the Mems and let Dave speak a little bit more about your comments about the standard products that we've been selling that are highly integrated integrating in all the pillars as far as Mems goes we're still very early on in that Ed as far as the RF Mems go as you know we've been working on that through the acquisition of Cavendish kinetics and really.

Just beginning to roll that out and yes. They are paying for that we don't expect that to go.

And replace all of our antenna tuners. It gets you a BB or so people that are willing to pay for it we will pay for that that technology is cost a little bit more per function, but you get you pick up a significant improvement in the performance.

And then second we're also.

Our pressure sensor Mems, we're doing extremely well there are commented in my opening comments about being in 'twenty.

25 different vehicles or people are starting to implement it and track pads across all of the major Oems are now looking at it we're engaged with them.

On the advanced architectures years in advance to meet their needs.

So I wouldn't think of it necessarily as a standard product, it's still very demanding sockets.

Great. Thanks.

And our next question is from Vivek Arya with Bank of America. Please proceed with your question.

Alright, Thanks for taking my question on the first one.

Gross margin and then how your balance sheet inventory effects that overtime. So you mentioned gross margin I think 41% for March end of June sales are flattish I imagine gross margin dollars.

Probably a flattish also and then I heard that you could pick up about half of the 900 basis points.

On the utilization so.

Gross margin somewhere in the mid forties in the back half, but how do I align that with the inventory that you have on your balance sheet.

Where do you see it going over time and does that impact how the gross margin progression happens in the back half of the year.

Hey, Thanks, This is Greg and I'll take your question, Yes, you've got it in terms of gross margin and the answer on inventories rather simple right as that inventory begins to get sold and flow through cost of goods sold it will drag with at those higher cost per unit associated with Underutilization. So I would expect it.

Inventories to trend down over time.

Subject to normal seasonal ramps at large customers, where we do have to build inventory in advance of those so.

Over time, it will come down again offset by some of those growth oriented builds.

Builds that we do at seasonal periods of the year.

The reason I asked the question because I heard before on the call that you think channel inventory normalizes later in the calendar year.

I am hoping I got that right. So it's channel inventory doesn't normalize until later.

Your balance sheet inventory start to get back to more normal levels.

Yes, they're not necessarily sequential.

Can happen simultaneously depend on the level of demand.

Understood and then for my second question.

You mentioned content gains at your top two customers.

Are these competitive wins.

This new time like as Youll gain somebody else's lots of content.

New capabilities that customers are planning to add.

And kind of related to that.

Just given the nature of these customers do you expect to regain this content and the following years like are these multiyear.

Programs are the visibility only therefore, but yes. Thank you.

Yeah. Thanks, Vivek part of the questions, we can't answer, but I will tell you that it.

It is both content and share gains at our largest customers our largest two customers.

Which can continue Bob so these are like multiyear.

Decisions are.

Can be in some are some arent.

We'll see.

Okay. Thank you.

And our next question is from Blayne Curtis with Barclays.

Please proceed with your question.

Questions.

Maybe just want to start out you have been kind of given how large your largest customer are 10% customers are just trying to get a starting point for some of these moving pieces in December .

Sure so our largest customers of <unk>.

<unk> portion of ACG revenues, usually representing about two thirds of that business if not more in certain periods.

And then our second largest customer we haven't commented on but generally hovers around that 10% Mark.

With some of the growth we expect there.

B could be more.

Got you and then I guess following up on that last question just sort of trying to gauge the magnitude of these content wins Youre speaking to you talked about being able to double capacity at Richardson I'm, assuming you have given the pullback in Android some excess capacity already so I'm just kind of curious the timeframe in terms of.

Doubling that capacity if you have that on your horizon.

Sure. Let me, let me talk to that I think just at the highest level there isn't a bond placement that we can't fully support at any customer in our Richardson facility is really the key takeaway there.

We've driven some significant gains for the reasons I mentioned earlier in the prepared remarks, but the productivity gains.

Overall die shrinks the move from six to eight inches and then of course, the successive generations of Bob.

Filters that were running through that factory lend themselves to a significant increase in capacity. So as we look at farmers branch the need for that.

<unk>.

I guess over time has been somewhat of a safety valve in case any of those initiatives didn't come to fruition, but given the success of the team there we're able to support all of the bar.

<unk> processing, we need out of our Richardson facility.

Okay. Thanks.

Okay.

Our next question is from Matt Ramsey with Cowen. Please proceed with your question.

Thank you good afternoon guys.

Yes.

I'm going to ask you in all swap the order because it kind of builds on planes last question, but.

And the bar filter space.

Any any changes in the competitive landscape there I think one of your <unk>.

U S competitors has made up a decent amount of progress on there Bob roadmap internally in the last couple of years and it seems like some products might be a little bit closer to.

Impacting sort of the market. So any any it sounds like you are really confident in what comes in content gains to the last couple of answers, you've given but any competitive dynamic changes.

What are your primary competitors on ball.

Yes, no no no changes to our primary competitors.

And.

To the earlier follow on regarding the capacity at Richardson.

That is something that we can do over time not necessarily this year, but thats something that we have the ability to do in subsequent years to add onto the.

The effective capacity there at Richardson just want to make sure. That's clear that we do have to take steps add equipment et cetera in order to make that possible. It will be in the out years, but it's really a comment around farmers branch in supporting the ability for us to do that in the future.

Given our ability to sell the farmers branch facility.

Got it thanks for the clarification there as.

As my follow up obviously, given how big it is and in the <unk>.

Revenue most of the focus of the call.

He has been on.

The mobile and smartphone markets, but I wanted to ask quickly on the wireless infrastructure side. There is some some.

I don't know if they're correlated but similar inventory dynamics that are happening.

If you guys any commentary about the inventory.

Inventory buildup there.

How has it come down what timing of any potential reacceleration is it similar to on the mobile side or longer shorter or just any context, there would be helpful. Thank you.

So it's probably.

Similar, but maybe even take longer than what we'll see in modal.

Alright, Thanks, a lot I appreciate it.

Thank you and our next question is from Rajeev <unk> with Needham <unk> Company. Please proceed with your question.

Yes, thanks for taking my questions.

Just wanted to break down the commentary about the September and December Mark if I could so just the commentary about significant sequential growth in September off of flat June .

What's driving that that commentary.

Seasonally September is is higher.

But can you maybe.

In terms of relative seasonal patterns.

Also being aided by more of a significant rebuild and by these by these customers plus share gains just any commentary around.

Quantitatively, what's specifically driving the September commentary, and then December and March being up year over year.

I'm, obviously December in March of.

December 2022, and March 2023 are relatively easy compares in terms of the revenue.

Just kind of thoughts around December and March would be helpful. Thank you.

<unk> dictate the.

The trajectory of revenue, but but just looking at some of the drivers that we see seasonally there is a significant ramp in the September quarter. So.

And as Bob stated, we feel as though we're well represented on large platforms across all of our largest customers. So continued strength at some of those customers as the channel inventories being clearing will occur as well as a large seasonal ramp gets to a sequential increase in September .

That's pretty substantial off of a rather low base as we're talking about.

Roughly flattish June so thats the primary driver color around around September .

Then into December and March you are right the comps get get relatively easy.

But with the channel inventory picture clearing up by the end of the calendar year as we talked about earlier it should provide for a.

A restocking if you will or us.

Selling into.

Essentially demand even at just recurring to normalized levels.

Got it and for my follow up regarding <unk>.

Your conversations with the Chinese Oems and the Korean Oems.

What is the kind of expectation as it stands today in terms of their customer forecast.

For calendar 'twenty, three going into calendar 'twenty, four obviously calendar 'twenty two was kind of a horrific year in terms of units or the forecast relatively conservative.

Off that very challenging.

Challenging 2022 are some Oems more more aggressive in there.

Our forecast plan.

There is more capacity coming online for a variety of different smartphone components does that enabled new product ramps just any commentary in terms of what the customer feedback is in.

And forecast thank you.

David would you like to take that sure so the.

The customer sentiment and therefore cast is very cautious.

And I think until we've seen some early signs of life in China in the smartphone sell through first few weeks of January with promising.

But we need to see a couple of months of that I think our customers do as well before they really start to gain confidence there. So right now the purchase order patterns their forecasts remain.

Very cautious.

Through the rest of the calendar year.

Yes.

Okay.

Does that answer your question.

Oh, yes, it does.

Thank you appreciate it.

And our next question is from Chris Caso with Credit Suisse. Please proceed with your question.

Yes. Thank you.

<unk> is regarding capex and cash flow and.

Both on a shorter term.

Standpoint on how you.

How do you plan to manage that as we still burning off inventory here and then.

Longer term and kind of were hearing from you is that it.

It sounds like from a capacity standpoint.

May be set for a little bit so what can we expect there can we expect that as.

The market normalizes and this inventory.

It starts to head Burns off and had some benefits to revenue that we see that flow through or for cash flow performance.

Sure. So we don't guide specifically to the balance sheet, our cash flow, but I'll try to give a little bit of color on the drivers. So.

Having.

Now collected on sales in prior quarters, our cash flow will likely start to follow the path of the <unk>.

<unk> obviously.

We will be largely capacity driven as we see demand and obviously improvements in our performance and technology.

Required but.

Generally speaking.

<unk>.

I'd be looking for for the cash flow to follow P&L.

Got it okay just to follow on and again a lot of discussion has been on the on the cellular portion.

For the non handset part of the business.

I guess, what I heard is some of the infrastructure.

Products that theres still some inventory to burn off but what what would just say more generally.

It would be the inventory situation for the non handset part of the business. It was a situation where.

Compared to the cellular business or.

Whats the view that most of those businesses as you proceed through the year.

Yes, it definitely varies so the infrastructure business is probably going to be slower to recover.

We've got Wi Fi a lot of that consumer facing probably very similar to what we see in the smartphone space, but some of that's also more operator and enterprise driven.

And so we saw that occur a little bit later, so that will probably take a little bit longer to recover and then our power our power management business as well as very consumer facing.

Power tools and solid state drive and other types of devices like that that are more consumer oriented.

<unk>, probably be very similar to the way the smartphone market.

Okay. Thank you.

Thank you and our next question is from harsh Kumar with Piper Sandler. Please proceed with your question yes.

Yeah, Hey, guys I wanted to ask about another question that was asked about December growth March growth.

I know you said year over year or the question was asked in reference to year over year.

You mean to say that in or is it possible that those businesses given the falloff in revenues and units is it possible that those business group says could your businesses could also grow sequentially in those timeframe, although they follow a seasonal pattern.

Are you, referring to our fiscal 'twenty four or <unk>.

Just announced in December and this March.

Fiscal 'twenty fiscal.

And believe that it'll be above fiscal 'twenty three.

That's fair.

And then I wanted to ask about your gross margins.

Media revenues came down so the guidance for March but your margins.

Hanging in there you mentioned a couple of things small things dropped 80 basis points and 30 basis points issues.

But what's the what's the reason why our margins are able to hang in here.

I think generally speaking if I look back over the productivity gains that we've made over multiple years, we're still seeing those.

In our margins today, even though the volumes arent in the factories.

900, plus basis points of headwind from Underutilization is significant I don't want to understate that.

But in terms of productivity and the work that our operational teams have done.

Is really speaking to the strength of those gains and our ability to hold margins at 40%.

Fair enough guys Thats it from me. Thank you.

Thanks Marcy.

Thank you and our next question is from Joe Moore with Morgan Stanley . Please proceed with your question.

Great. Thank you.

Can you talk about the changes to your foundry agreements can you just speak generally to the cost of our foundry wafers do you see that continuing to rise.

And if so are you able to pass that through to your customers and if the reverse is do you anticipate having to pass declines onto your customers. Thank you.

Thanks, Joe.

Actually with some of the capacity freeing up we're not seeing the increases.

So we saw some of that earlier last year.

Calendar year earlier in the year. So we're not seeing it in some cases to your point, we have been able to pass that onto our customers and then again as we've always said pricing set by the competition. We're all raised prices. We all get an increase we all know we don't get an increase.

So we've been able to pass some of that along but as Greg pointed out the employee inflation is impacting us and our Cogs about 80 bps. So we're not able to pass it all along but theres other inflation and theyre not just foundry parts.

Alright, Thank you very much.

Thanks, Joe.

Thank you and our next question is from Keith Murray with.

Please proceed with your question.

Well, we're talking about total smartphone inventory spec, but even some of the other markets that we mentioned earlier in one of the previous questions.

Goddamn receipt, we see elevated inventories not just in smartphones, we see it in a lot of the other markets as well.

But when are you expecting that China Android.

Inventories to normalize.

And all depends on how well the phone sell through in the end market like I said January .

Early indications in January it's improving.

If that continues through February March and into calendar Q2, then of course, the inventory is going to be burned off much more quickly, but we're not we're not forecasting that we'd want to go in and see that sustained before we get too excited about that.

Understood and then is it possible to break out our comment on how big the silicon carbide power device business.

Is it as a percentage of <unk>.

<unk> scale.

Yes, we havent given that information what I can tell you is we're very pleased with the acquisition.

I think when we I know when we file our Q Youll see why I say that.

But it's been a tremendous acquisition, but I'm sorry, we haven't sized it it's probably bigger than what most people think and small into what some other people.

Well, we haven't given any of that revenue out yet, but we're very pleased with it it's it's profitable and it's doing a fine job.

Thanks, Paul.

Thank you.

Okay.

And our next question is from Bruce.

With BMO capital markets. Please proceed with your question.

Hi, Thank you I just had one posting growth thanks.

Thanks for providing that down 20%.

Comment.

I'm just traveling with how does it help us.

And I ask.

With the investments to what are we talking about I'll be talking days months.

What is normal level, and I know, it's harder and be more diversified areas, but in the <unk>.

Hudson said, you should be able to kind of quantify and tell us.

Alright at the peak it was X weeks X months and here we are.

Then we think.

There is some kind of normal pattern. This was what normal looks like.

Yes, I think Thats a great question <unk>. The issue always is when you look at your days of inventory in the channel you have to understand what's the sell out and so far and I think I said this last quarter as well when we work with our customers when they go through all the math they will reduce their production, we reduce ours and unfortunately the cell.

<unk> has been lower.

So.

You have to look at it again, Dave mentioned, a couple of times on the call, but first three weeks so far in January at least at least we can speak to the data that we get and I think all of you did.

The actual sell out is up and Thats a good sign but we're not going to get into the game of naming numbers like this because it all depends on the future output of what they sell out. So we've got a little ways to go that's why I think we're being careful on card comments around June but we feel very good about September . So we roughly think it's in that timeframe.

So.

Inventory came up by September .

As you said.

Take longer.

Guess at this point is by December that should clean up is that right.

We've got different parts of the business and the Wi Fi area, it's going to follow because we're in a lot of the Android phones with our Wi Fi product that will follow more of what I said for the handset and Wi Fi that's in some of the retail and some of the.

The area of RF power management that goes into the Ssds and that's a call on the PC market. So you guys follow that.

We'll see how that goes so it's going to be all different ones, but the major part of our business is the handsets as you know I think we're giving you as much color as we can as we project forward.

Got it appreciate it thank you guys.

Thank you.

There are no further questions at this time I would like to turn the floor back over to management for closing comments.

We want to thank everyone for joining us on today's call. We look forward to speaking with you at upcoming Investor events. This quarter. Thanks again hope you have a good night. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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