Q1 2024 Skyworks Solutions Inc Earnings Call

January 30, 2024

Operator: Good afternoon, and welcome to SkyWorks Solutions' First Quarter Fiscal Year 2024 Earnings Call. This call is being recorded.

Operator: At this time, I will turn the call over to Raji Gimp, Vice President of Investor Relations for Skyworks. Mr. Gill, please go ahead. Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' first fiscal quarter 2024 conference call. With me today is Liam Griffin, our chairman, chief executive officer, and president, and Kris Sennesael, Chief Financial Officer for SkyWorks. This call is being broadcast live over the web and can be accessed from the investor relations section of the company's website at skyworksinc.com. In addition, the company's prepared remarks will be made available on our website promptly after their conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for complete reconciliation to GAAP. With that, I'll turn the call over to Liam.

Rajvindra S. Gill: Thanks, Raji, and welcome, everyone. Skyworks continued to execute well during the first fiscal quarter of 2024. Despite a volatile macroeconomic environment, we delivered revenue of $1.202 billion. You can post an earnings per share of $1.97, and generated $775 million of operating cash. Pre-cash flow was also a record at $750,000, or a 63% free cash flow margin, which reflects strong working capital management and moderating cap

Liam K. Griffin: Let's review both near- and long-term secular trends in our end market. After two challenging years across the Android ecosystem... We see signs that the industry is stabilizing, excess supply conditions are abating, and inventory levels in the distribution channel and at the OEM level are normalized. Customers are starting to restock.

Liam K. Griffin: I'll be gradually as supply and demand dynamics improve and new phones are introduced into the market. Moreover, we've made strategic investments in product development, positioning us to compete for design wins and share gains, focusing on highly integrated platforms for the leading mobile OEM. We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover. Within broad markets, we see cross-currents, but many factors are moving in the right direction. In Consumer IoT, we believe that we are past the bottom as inventory levels in the channel have normalized, and demand signals are improving. Furthermore, we are executing on the upgrade cycle to Wi-Fi 6E and 7. We see significant design win momentum across our retail, carrier, and enterprise channels. These systems carry substantially higher prices because of the addition of the new 6 GHz band and the inclusion of BOSS filtering technology.

Liam K. Griffin: We expect wireless infrastructure and traditional data center will remain a headwind throughout 2020, as OEMs continue to digest the exercise. Despite this, we remain bullish on several new products, including major design wins in Ethernet for high bandwidth networks and 400GB and 800GB Optical Module Upgrades.

Liam K. Griffin: Wow. Automotive and industrial markets are experiencing a near-term inventory correction. However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle. Along with growing EV penetration, driving demand for our power isolation solutions. Taken together, we anticipate the December quarter represents the bottom in the broad market. There are several long-term secular growth dynamics that leverage our differentiated technology, including the proliferation of intelligent edge-connected IoT devices, Automotive Electrification and Advanced Safety, and AI-enabled work, driving the cloud and data center.

Liam K. Griffin: Each of these trends requires intricate connectivity engines underlying the need for speed, ultra-reliable, low-latency performance. In addition, 5G technology is expanding beyond the smartphone into more use cases in broad markets, including private cellular networks in factories and stadiums. Customer Premise Equipment, supporting Verizon and T-Mobile, and Multiband Automotive Telematics, and wearables, to name a few. We also remain bullish on the long-term RF content story in smart devices, coupled with growing 5G penetration. We see increasing levels of complexity in content, new generation. For example, 5G advanced is driving higher RF content, including the addition of satellite bands.

Liam K. Griffin: 4x4 MIMO on the downlink and uplink, higher band with more carrier aggregation, Upgrades to Wi-Fi and GPS, and other innovations. Lastly, we are energized about the prospect of generative AI migrating to the smart, sparking a potential major upgrade. As the performance bar rises every year to support AI-enabled phones, the complexity requirements of RF will continue to increase, driving the need for more integration, lower power consumption, a smaller footprint, and spectral efficiency.

Liam K. Griffin: 5G is the ideal standard for on-device AI applications, taking advantage of lower-latency, faster transmission and Harlan Sur. In addition, AI-enabled workloads are driving demand for high-speed connectivity, for Data-Intensive Infrastructure and Cloud Accelerating the Demand for High Precision Timing. Turning to our quarterly business highlights. We secured several design wins in infrastructure, including optical transport products with a major operator in India and Timing Devices for 5G Small Cells for Private Networks. We expanded the Wi-Fi design pipeline with Cisco's Enterprise Access Points, Lynx's TriBand Mesh Router, and TP-Lynx TriBand Gaming Router.

Liam K. Griffin: We increased design with momentum in automotive, including telematics, infotainment systems, and onboard chargers across the leading OEM. Lastly, an emerging IOT... We deliver next-generation smart energy, with Google's Nest Temperature Sensors and ITRON's residential gas. In summary, Skyworks delivered solid financial results despite a challenging macro environment. Our strong balance sheet, record cash flow, and profitability reflect our resilient business, Diverse customer base, and technology scale. With that, I will turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q2 of fiscal 2020. Thanks, Liam!

Kris Sennesael: Skyworks revenue for the first fiscal quarter of 2024 was $1,202,000,000, slightly above the midpoint of our output. Mobile was approximately 71% of total revenue, an increase of 7% sequentially, as we supported the ramp of new high-performance solutions at our largest customers. Android-related revenue with Google, Samsung, and the Chinese OEMs grew modestly sequentially. Brought markets were approximately 29% of total revenue, down 18% sequentially, mostly driven by some specific inventory corrections in wireless infrastructure, automotive, and industrial. Gross profit was $557 million, with gross margin at 46.4%, in line with expectations. Gross margin was down 70 basis points sequentially, driven by an unfavorable mix shift resulting from lower broad markets revenue. Also, during Q1, we reduced our internal inventory by $193 million to $927 million, well below our target of one billion. Additionally, operating expenses were $191 million below the low end of the guidance rate.

Kris Sennesael: Given our ongoing focus on managing discretionary expenses... while continuing to invest in our technology and product roles, he generated $366 million of operating income. This translates into an operating margin of 30.4%. We incurred $7 million of other expenses, and our effective tax rate was 11.7%, driving net income of $317 million and diluted earnings per share of $1.97, which is two cents above the guidance that we provided during the last earnings call. Skyward's business model continues to generate very strong cash flow; first fiscal quarter cash flow from operations increased to an all-time record of $775 million. Capital expenditures were reduced to $22 million, or less than 2% of revenue, resulting in an all-time record free cash flow of $753 million, or a 63% free cash flow margin. Strong profitability combined with great working capital management and lowering the capex intensity of the business drove the record cash flow number. Also, during fiscal Q1, we paid $109 million in dividends and repaid the remaining $300 million on our term loan.

Operator: While in broad markets, we anticipate modest growth off the December bottom as inventory levels are normalizing in certain entities. Cross-margin is projected to be in the range of 45 to 46%, reflecting our seasonally weakest period of the year. We anticipate margin expansion during the remainder of 2024, benefiting from our discipline, management of our manufacturing, and operational costs, both internal and external, along with higher factory utilization. We will also benefit from a favorable makeshift as our broad markets business recovers and accelerates. We expect operating expenses in the range of $193 to $197 million as we continue to make strategic investments in mobile and broad market. Below the line, we anticipate roughly $4 million in other expenses and an effective tax rate of $11.5 billion, and a diluted share count of approximately 161 million shares. Accordingly, at the midpoint of the revenue range of $1,045,000,000, we tend to deliver diluted earnings per share of $1.52.

Operator: Operator, let's open the line for questions. Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Matthew D. Ramsay: To withdraw your questions, you may press star 1-1 again. Given time constraints, please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question, coming from the line-up: Matt Ramsey with T.D.

Liam K. Griffin: Cowan, your line is open. Thank you very much. Good afternoon, guys. Liam, I wanted to ask a bit about the broad market trends, and it's obviously, as the name implies, a diverse business. I was, pleasantly, but I was a little bit surprised at the commentary that you had visibility for that business to be up so quickly, I guess, in March. It's been an inventory correction that's lasted a bit longer in some of your peers and in other companies, and we've seen industrial maybe get a little bit worse. So, I mean, if you could maybe expand, I know you did some in the prepared script, but if you could expand a little bit on maybe some of the individual end market trends that you're seeing in broad markets and maybe what the pace of this potential recovery starting from March and through the rest of the year could look like coming off the bottom, thanks. Sure, sure, absolutely.

Liam K. Griffin: You know, one of the interesting things here with our broad markets business is that there are so many opportunities that we haven't yet scaled. So if we look at the business, unlike some of the other mobile markets that are well-defined, there are still great opportunities. We look at the broad markets as more of an open-ended play for us. We're leveraging the technologies that we know how to work with. We have a great set of customers, and that continues to grow and expand. But yeah, I mean, the team has done a really good job.

Liam K. Griffin: This has been a tough year across the landscape, across semis. We're happy to deliver some positive results here today, and we do think there's a turn. Again, in that portfolio, it's very diverse, and mobile's a part of it, but the lion's share is really diversified products, with some really great names as well. And most of those broad market companies, we have a low share. There's still a tremendous amount of room to grow within those accounts, so I think those are some of the themes.

Liam K. Griffin: We've been working on this for quite a while and, you know, finally putting up some meaningful top line, leveraging that broad market. The other thing, we continue to remind our customers and even our investors, a lot of the stuff we do in-house, so we're able to craft and curate. Specialty products. We have our own fabs.

Liam K. Griffin: We do things a little bit differently, and I think that helps our outcome. Got it. Thank you for that. I guess as my follow-up, and this is going to be a theme that we talk about in the PC market, maybe this year and then into next year, and the smartphone market, as you alluded to, sort of AI, making its way into these products and potentially catalyzing a bit of an upgrade cycle. So I guess my question is, I mean, it's pretty straightforward for us to envision if you get air interface upgrades from 4G to 5G to what comes next, that that can expand the RF TAM pretty meaningfully for your smartphone business. Are you anticipating the growth potential from AI and smartphones to be primarily a unit driver for the market and, therefore, for your company, or are there things that you guys can do in AI-enabled phones Or are we sort of waiting for the next air interface before the content could possibly inflect for the TAM again? Thanks.

Liam K. Griffin: Yeah, I think it's a secular opportunity. This is a really unique period for us and in the industry. The way we look at it, you look at AI, and a lot of that is, you know, really intense servers, data centers, and that's extremely important. Then you take it down kind of to the middle ground, and then you're kind of in a different position.

Liam K. Griffin: But getting that to mobile is going to be a challenge, it's going to be a challenge, but it will happen. The consumer wants that. The consumer wants to have that computing power in their hand. And it's not there yet, but we really believe that it will come. And I think it's going to set up the industry for, you know, a whole range of new opportunities still using radio frequencies. I am really excited about it.

Liam K. Griffin: And again, we have the building blocks and the know-how to do really interesting things and do it account by account as well. Not everybody wants the same solution. But we really do believe that heavy compute power has got to get matched up with something in your hand. That handheld device has got to step up. It's got to grow. It's got to be faster, and it has lower latency.

Liam K. Griffin: And that's all good because those are problems that we can solve. Thank you. And our next question comes from the line-up: Kris Kesa with Wolf Research Alliance Open. Yes, thank you. Good evening.

Kris Sennesael: The first question is about the Android market right now. It sounds like that market has finally grown for you after several quarters of inventory correction. Can you speak to, you know, what your expectations are for that as you go through the year?

Liam K. Griffin: You know, I suppose at this point, the inventory correction is behind us, you know, what's your level of optimism about getting back to more normal growth rates in that part of the business? Yeah, Kris, yeah, you're right. It's been a little bit bumpy through the ecosystems here, but we see green shoots here popping up in Android. We know how to make these products.

Kris Sennesael: I think there was a little bit of a soft spot in the industry, but the newer phones are coming up with a little bit more technology. We like that, and we can broaden that base. So we are gonna, in the prepared remarks, we commented on that, and you should expect more growth in the Android ecosystem as we go forward. These are products that we can execute on in the pipeline right now and give us continuing strength going through 24 and 25. Okay, as a follow-up on gross margins, speak to your expectations, you know, as we proceed through the year. You know, one thing you mentioned. It sounded like your internal inventory was below target.

Kris Sennesael: Should we read that to mean utilization starts going higher? And, you know, what the effect of that will be on gross margins as we go through the year? Yes, Kris, so when you look at gross margins, right, we did 46.4% in Q1. We were still impacted there by underutilization, a little bit of a headwind from a mixed point of view as well, and that continues somewhat in the March quarter that we guided.

Kris Sennesael: But then when I look beyond the March quarter, we will see some really nice gross margin uplift for the remainder of the fiscal and the calendar year. Part of that is higher utilization because we will no longer have to focus on reducing inventory. That is behind us. We reduced inventory by almost 200 million in the December quarter.

Kris Sennesael: So there is maybe still a little bit of opportunity there, but we feel good about the inventory levels where they are right now. In addition to that, our broad markets business is going to grow faster than the mobile business, and so that gives us a little bit of a mixed tailwind as well. And then, in addition to that, we will really benefit from all the cost reductions that we've done over the last 12 months. We really focused on taking out structural parts of the cost structure.

Kris Sennesael: We focused on operational efficiencies, driving yield improvements and test time reductions. And in addition to internal costs, we have also started seeing some benefit from external costs. And so when you put it all together, we will see some nice gradual gross margin improvement after the March quarter. Thank you. And our next question comes from the line of Christopher Rolland with Susquehanna Yolana Sulpin. Hey guys.

Christopher Adam Jackson Rolland: Thank you for the question. I guess first of all, in broad markets, if you can, you gave some great color as to how you break those out into kind of sub-segments. I would love to know kind of what those look like, how they're trending.

Kris Sennesael: And then also, you know, you alluded to gross margin benefits as we move through the year. But I don't know if you can talk about the broad market's effect on gross margin as we move through the year. Yeah, so as it relates to broad markets, roughly 40-45% is IoT, more consumer IoT, right, where we provide connectivity solutions in tablets and wearables and PCs, your home connectivity with routers and all the access points that tap into that. In that market, there has been an inventory correction for multiple quarters, but we are getting towards the end of the inventory correction there. In addition to that, we see strong growth in that part of the market due to an uplift in content as we transition from Wi-Fi 6 into Wi-Fi 60 and 7 type solutions that have a substantially higher RF content of Skyworks Insight.

Kris Sennesael: The next 30-35% is infrastructure, cloud, data center, and enterprise networking. There is definitely an inventory correction going on in that part of the business that started in the December quarter and will continue for a couple quarters. Nevertheless, there as well, I think in that market, we're very well positioned with some key customers, including our timing solutions for data centers. And then the last part is 20-25% is automotive and industrial. There as well, I think we're well positioned, but you've heard it from many of our peers, there is an inventory correction going on. But I don't think it will be a long, drawn-out inventory correction. It's probably December, March, two quarters of inventory correction. And then again, we are very well positioned in that market, the connected car that will eventually become an autonomous car, as well as EV, where we are playing with our power isolation solutions. And so again, when you put it all together, December is the bottom for our markets.

Kris Sennesael: We start seeing some sequential growth in March and beyond. And as you know, those markets typically have a higher gross margin compared to broad markets. And that will help us to lift the gross margin. Thank you for that color, Kris.

Liam K. Griffin: Or are there other ways that you're leveraging infrastructure around AI as well? Yeah, largely through the infrastructure business that we have and some of the technology that we brought to market in our Silicon Labs deal, that's driving new vectors for us at SkyWorks, in the industrial markets and the data center markets, and it's a really vibrant growth source. And there's a lot of room to grow there as well. So, lots more to do, but we've been making some great progress in that area. Thank you. Our next question comes from the line of Edward Snyder with Charter Equity Research. Your line is open. Thank you very much.

Edward Snyder: I'd like to touch on, if we can, later this year, especially in mobile. It seems pretty clear at this point, given the largest customer scramble to get their thing done by 2025, that most all attention should be paid to the customer. The best way to put it... Martin Cavino, Linus George, Max Welgenkron, Matt Groese, Rick Gauvin, unintentionally Kahler But basically, I would expect in the fall, you're going to see more competition, and you already know it now I'm sure Qualcomm is going to talk about it a lot on Wednesday. So I'm trying to get a feel for the profile of your mobile business in the second half of the year. It sounds like it might be weaker than it is.

Liam K. Griffin: Quark on the share got to come out of some, , , , , , , , , , you can maybe characterize or just without getting into too much detail about what should we look at in terms of the mix in the second half. You already talked about broad markets being much stronger and mobile by implication. , , , , , , , , , , , , , , Is that mostly just organic growth or is there going to be some share loss or how do we think about that? Yeah, well, of course, you know, we're deeply engaged with mobile in all angles, right?

Liam K. Griffin: So we have a broad... Set of technologies that can be applicable to multiple customers, including larger ones. And that's our craft, you know, that's the largest part of our portfolio. We're growing across other markets, but certainly the know-how that we have in RF, and the vectors that we work on to gain market share and new innovations. Delighting our customers, opening current consumption, expanding the reach, doing a little bit more in the Android markets that we've kind of hinted at that we're going to continue to execute there, and still drive the best performance solutions that we can. Okay, maybe I could fall over a different angle here.

Liam K. Griffin: You're going to grow in Android. You've kind of been under-earning there for several years, I think on purpose, because you've done very well outside of that market. R&D is going up to, in order to address the products, product market, but margins are typically lower in that whole market, a lot more intense. One question, should we expect to see revenue growth in the second half? It's a little early, but revenue growth in the second half of the year, whether it's on inventory snapback or new products... and Roy, try to take up some of that slack. Kris, maybe you could articulate how you're going to offset the margin dilution of Android. U.S. Customs, of course, all mobile, but yeah, so yeah, we're with you on that. So there's a lot of opportunity for us to be more aggressive all across the Android ecosystem. It's not just China.

Liam K. Griffin: You get names like Google and Samsung. There are tremendous opportunities that We're built for this kind of stuff, and we have an end-to-end process that we continue to, on the floor, that really, really is the solution of choice as far as I know with our technology know-how and the ability to be flexible and customizable to each account. I think that's an asset for us, and I think we'll continue to drive that portfolio. Yeah, and as it relates to gross margin, the gross margin profile of our mobile customers is on or about the same, and part of that is because, you know, we are somewhat selective. We are not sliding down to the mid or low end of the market. We stay at the high end. We stay in the high performance part, and in that part of the market, you compete based on performance. It's not a price competition.

Kris Sennesael: You compete based on performance, and again, that's why gross margins are somewhat the same with all the customers in that sector. Thank you. And our next question coming from the lineup: Gary Mobley, Wells Fargo, Yelani Tharpin, Hi guys, thanks very much for taking my question. I'll just start out with a quick housekeeping question.

Gary Mobley: What was the mix of revenue from your largest customer in the quarter? The largest customer was approximately 73% of total revenue, which is high, obviously, because the December quarter is the top quarter with the largest customer. And given that the broad markets were bottoming out in December, you get to hold about 73%. And obviously, when you look forward on a full year basis, or even in March, it will be well below 73%.

Kris Sennesael: Okay, thank you, Kris. I want to ask Ed's previous question in perhaps a more direct way. Doing the math, it would indicate that your Android-related mobile customers are trending now at about a $400 million annualized rate, or at least that was the case for the December quarter. But in the past, fiscal year 22, I believe that level was closer to $800 million.

Gary Mobley: And so my question is, if we see a rebound in the Android market, and based on your design footprint that you currently have today, can we expect that segment of your business to bounce back to the previous level? Yeah, absolutely. You know, we've got, as I said, a lot of opportunity to go harder and stronger and more direct, and the Android ecosystem. We absolutely have the technology to make it work. We have to scale down. Thank you. And our next question coming from the line-up: Karl Ackerman with the BNP Paribasilanus Open. Yes, thank you.

Karl Ackerman: Two questions, if I may. On mobile, your largest customer is down on a seasonal basis in March, but at the same time, given your improving execution within Android, does Android grow sequentially in March? How do we think about that within mobile, please? And I have a follow-up. Yeah, Android is kind of flattish, slightly up and into March. Got it.

Kris Sennesael: Thanks. Thanks for that, Kris. At the same time, I do want to touch on mobile one more time. It's been asked in several different ways, but I guess I'll try it again.

Kris Sennesael: You know, you are less tied to China than peers, but are you seeing any changes to the competitive landscape in China? I ask because there are anecdotes supporting Chinese RF suppliers winning content in low-band saw and TC saw, but at the same time, as you indicated earlier, Kris, you're not necessarily competing in that particular area of the market. So if you could just highlight the competitive landscape of what you're seeing in China, that would be very helpful. Thank you. Yeah, I mean, the OVX players, you know; we do some reasonable business there. We could probably do a little bit more on the Android side, but we really don't step down much further there. We're not in the low end at all.

Liam K. Griffin: You know, we could be, but I think we generate a better outcome for our customers and our shareholders to drive that mid-90s. So it's something we can do, but I think the way our business runs, I think we're more creative as a company, going down the playbook that we have. Thank you. And our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Hi, this is Blake Freeman. I'm from Vivek.

Blake Freeman: Thanks for taking my question. I just wanted to focus on OPEX. The team's spending has returned to levels seen prior to the industry downturn, so I was curious how we should think about the trajectory of OPEX for the remainder of the year. Yeah, so as it relates to OPEX, I think we did a good job in the December quarter at 1.91. We are guiding with a little step up in March to 1.95. Keep in mind that this is the start of a new calendar year, and so you get a reset of the social charges, and some of that that kicks in.

Kris Sennesael: In addition to that, we are going to continue to invest in our technology and product roadmaps. We feel good about our position with our mobile players. As Liam articulated, we have plenty of opportunity in our broad markets, and we're going to continue to invest. Now, we're going to do it the Skyworks way.

Kris Sennesael: We focus on efficiency and effectiveness. We're not wasting any dollars here, but yeah, we're going to continue to invest, and so OPEX will continue to gradually move up in the remainder of the fiscal and calendar year.

Blake Freeman: And then kind of quickly circling back on some of your comments, I know the broad markets business is a key initiative for Skyworks, and just with the business kind of returning to this cash, cash positive level, and generating pretty strong cash flow, from here, just curious how you think about M&A and anything in particular you guys would look to add to the broad markets assets.

Kris Sennesael: First of all, the cash flow is outstanding, and it's definitely something that we focus on, and so we generate a ton of cash. As you have seen in the last couple of quarters, we have used that cash flow, of course, to continue to invest in the business. We pay our dividends every quarter, and we have been paying off the term loan that, as you probably know, had a variable interest rate and was getting a little expensive there. But we're done with that, and so, again, looking forward, we will continue to drive a very strong free cash flow. It's not going to be 63% every quarter.

Kris Sennesael: We feel we have a sustainable plus 30% free cash flow margin on a fiscal or calendar year basis. But that's generating a lot of cash, and of course, we want to put that cash to work. We have options.

Kris Sennesael: We can switch on the buybacks, or we can be active from an M&A point of view, and as you know, yes, we focus on becoming a more diverse company despite the fact that we like the mobile business, but we focus on becoming a more diverse company in part through organic investments in that business. But we have the optionality to accelerate that through M&A, and we're working on that. Thank you. And our next question comes from the line of Thomas O'Malley with Barclays. Your line is open.

Thomas O'malley: Hey, thanks for taking my questions, guys. I just wanted to understand the underutilization charges into the March quarter. Obviously, gross margins are being guided down slightly, but you're seeing broad markets step up. So that mix should help you.

Kris Sennesael: Where are you seeing more of those underutilization charges? Are those, on a percentage basis, coming more on the mobile side or more on the broad market side? So no, it's not really tied to one of the businesses, but we have been bringing down the utilization of our factories in part because revenue is down year over year, but also because we have been focusing on driving down the inventory, right? We are taking our medicine now.

Kris Sennesael: We're not just building inventory to protect the gross margin. Now, it takes a little bit of time for those underutilization charges to hit the P&L. It goes through an inventory cycle, right?

Kris Sennesael: That's why you continue to see slightly down gross margins on a sequential basis into the March quarter. But again, we have confidence that March is the bottom in terms of gross margin, and you will start seeing gradual improvements after the March quarter, helpful and then and then just on the moving pieces for the back half of the fiscal year sounds like android's getting better um typical seasonality on the on your largest customer side in mobile but i just want to get a a feel for what you guys kind of are looking at in terms of the re-acceleration of broad markets uh if you look at um march for your guidance kind of up slightly you're still down 20 year over year do you think that kind of exiting your fiscal year are you looking to kind of be growing year over year or just can you give us any kind of color on the pace of recovery there just because i know things are improving but just how quickly is something that i think is a little more difficult to to wrap our heads around thank you, Yeah, sure. There's a lot there, but I think I get your point.

Liam K. Griffin: And it's also a great opportunity on the sales side because we do have quite a bit of revenue from mobile. The number of accounts that we haven't served yet is still very, very high, and that's a great opportunity for us to go after. Thank you. And our last questioner in queue, coming from the line of Quinn Bolton with Needham, your line is open.

Quinn Bolton: Hey guys, thanks for taking my question. There were a couple of questions on the call that seem to be alluding to perhaps you guys may be losing content at your largest customer in the second half of the year, and I haven't heard you guys specifically address that. Can you give us any thoughts as you look at the second half, how you're feeling content-wise at that largest customer? And then I've got a follow-on question for Kris on the gross margin. Yeah, I think, you know, we have a great position with our largest customer. Nothing really is concerning at that point. And we know exactly who we are and who they are.

Liam K. Griffin: And we have a great partnership, and we'll continue to drive success. Okay, and then for Kris, you know, you've kind of talked about the gross margin drivers, you know, and potentially a pretty quick recovery post the March bottom. I'm just kind of curious, you know, is there any sense, can you give us any sense of how quickly you can get back to 50%? Is that something you think you can do in the calendar year 24?

Kris Sennesael: And does it require you to get to a certain revenue level to get rid of some of those underutilization charges or things like product mix, a much bigger factor, as well as the cost reductions you've taken to get back to that 50%? So it tends to be maybe a little bit less driven by a certain revenue level, just what's the best way to think about getting back to 50%. Yeah, I mean, we guide only one quarter at a time, and there's a reason for that, right?

Kris Sennesael: There are a lot of puts and takes that go into the equation. But again, we have confidence that the March 45-46 guide is the bottom. We'll start seeing gradual improvements from there. We obviously want to get as fast as we can back to 50%, right? And then once we get back to 50%, we're not going to stop there. Our long-term target model calls for 53% gross margin, and we believe we can do that. There is no structural impairment in the business that will prevent us from doing that.

Kris Sennesael: But obviously, yes, we need revenue growth, and we need to get better factory utilization. That, in combination with all the cost efficiencies internally and externally that we have been working on and will continue to work on, gives us the conviction that we will get back to 50% in a reasonable amount of time, and then we're going to keep driving it towards our target model of 53%. But we'll provide an update on a quarter-by-quarter basis. Thank you. And ladies and gentlemen, that concludes today's question and answer session. I'll now turn the call back over to Mr. Griffin for any closing comments.

Liam K. Griffin: Thank you all for joining. Look forward to seeing you at upcoming conferences. Thanks. Ladies and gentlemen this concludes today's conference call. We thank you for your participation. You may now disconnect. ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? and welcome to SkyWorks Solutions First Quarter Fiscal Year 2024 Earnings Call. This call is being recorded.

Rajvindra S. Gill: At this time, I will turn the call over to Raji Gimp, Vice President of Investor Relations for Skyworks. Mr. Gill, please go ahead. Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' first fiscal quarter 2024 conference call. With me today is Liam Griffin, our chairman, chief executive officer, and president, and Kris Sennesael, Chief Financial Officer for SkyWorks. This call is being broadcast live over the web and can be accessed from the investor relations section of the company's website at skyworksinc.com.

Liam K. Griffin: In addition, the company's prepared remarks will be made available on our website promptly after their conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release in the investor relations section of our company website for complete reconciliation to GAAP. With that, I'll turn the call over to Liam.

Liam K. Griffin: Thanks, Raji, and welcome, everyone. Skyworks continued to execute well during the first fiscal quarter of 2024. Despite a volatile macroeconomic environment, we delivered revenue of $1.202 billion, posted earnings per share of $1.97, and generated $775 million of operating cash.

Liam K. Griffin: Pre-cash flow was also a record at $750,000, or 63% free cash flow margin, which reflects strong working capital management and moderating capex. Now, let's review both near- and long-term secular trends in our end market. After two challenging years across the Android ecosystem... We see signs that the industry is stabilizing. Excess supply conditions are abating, and inventory levels in the distribution channel and at the OEM level are normalized. Customers are starting to restock.

Liam K. Griffin: I'll be gradually as supply and demand dynamics improve and new phones are introduced into the market. Moreover, we've made strategic investments in product development, positioning us to compete for design wins and share gains, focusing on highly integrated platforms for the leading mobile OEM. We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover. Within broad markets, we see cross-currents, but many factors are moving in the right direction. In consumer IoT, we believe that we are past the bottom as inventory levels in the channel have normalized, and demand signals are improving. Furthermore, we are executing on the upgrade cycle to Wi-Fi 6E and 7. We see significant design win momentum across our retail, carrier, and enterprise channels. These systems carry substantially higher prices because of the addition of the new 6 GHz band and the inclusion of BOSS filtering technology.

Liam K. Griffin: We expect wireless infrastructure and traditional data center will remain a headwind throughout 2021, as OEMs continue to digest the exercise. Despite this, we remain bullish on several new products, including major design wins in Ethernet for high bandwidth networks and the 400 gigabit and 800 gig optical module upgrade.

Liam K. Griffin: Wow. Automotive and industrial markets are experiencing a near-term inventory correction. However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle, along with growing EV penetration, driving demand for our power isolation. Taken together, we anticipate the December quarter represents the bottom in the broad market. There are several long-term secular growth dynamics that leverage our differentiated technology, including the proliferation of intelligent edge-connected IoT devices. Automotive Electrification and Advanced Safety, and AI-enabled work, driving the cloud and data center.

Liam K. Griffin: Each of these trends requires intricate connectivity engines underlying the need for speed, ultra-reliable, low-latency performance. In addition, 5G technology is expanding beyond the smartphone into more use cases in broad markets, including private cellular networks in factories and stadiums. Customer Premise Equipment, supporting Verizon and T-Mobile, and Multiband Automotive Telematics, and wearables, to name a few. We also remain bullish on the long-term RF content story in smart... Coupled with growing 5G penetration... We see increasing levels of complexity in content, new generation. For example, 5G advanced is driving higher RF content, including the addition of satellite bands.

Liam K. Griffin: 4x4 MIMO on the downlink and uplink, higher band more carrier aggregation upgrades to Wi-Fi and GPS, and other innovations. Lastly, we are energized about the prospect of generative AI migrating to the smartphone, sparking a potential major upgrade. As the performance bar rises every year to support AI-enabled phones, the complexity requirements of RF will continue to increase, driving the need for more integration, lower power consumption, a smaller footprint, and spectral efficiency.

Liam K. Griffin: 5G is the ideal standard for on-device AI applications, taking advantage of lower latency, faster transmission, and Harlan Sur. In addition, AI-enabled workloads are driving demand for high-speed connectivity for Data Intensive Infrastructure and Cloud Accelerating the Demand for High Precision Timing. Turning to our quarterly business, we secured several design wins in infrastructure, including optical transport products with a major operator in, and Timing Devices for 5G We expanded the Wi-Fi design pipeline with Cisco's Enterprise Access Points, Lynx's TriBand Mesh Router, and TP-Lynx's TriBand Gaming... We increased design with momentum in automotive, including telematics, infotainment systems, and onboard chargers across the leading OEM. Lastly, an emerging IOT... We deliver next-generation smart energy with Google's Nest temperature sensors and IT In summary, Skyworks delivered solid financial results despite a challenging macro environment. Our strong balance sheet, record cash flow, and profitability reflect our resilient business, diverse customer base, and technology scale. With that, I will turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q2 of fiscal 2020. Thanks, Liam!

Kris Sennesael: Skyworks revenue for the first fiscal quarter of 2024 was $1,202,000,000, slightly above the midpoint of our output. Mobile was approximately 71% of total revenue, an increase of 7% sequentially, as we supported the ramp of new high-performance solutions at our largest customers. Android-related revenue with Google, Samsung, and the Chinese OEMs grew modestly sequentially. Brought markets were approximately 29% of total revenue, down 18% sequentially, mostly driven by some specific inventory corrections in wireless infrastructure, automotive, and industrial. Gross profit was $557 million, with gross margin at 46.4%, in line with expectations. Gross margin was down 70 basis points sequentially, driven by an unfavorable mix shift resulting from lower broad markets revenue. Also, during Q1, we reduced our internal inventory by $193 million to $927 million, well below our target of $1 billion. Additionally, operating expenses were $191 million below the low end of the guidance rate.

Kris Sennesael: Given our ongoing focus on managing discretionary expenses... while continuing to invest in our technology and product rollout, he generated $366 million of operating income, translating it to an operating margin of 30.4%. We incurred $7 million of other expenses, and our effective tax rate was 11.7%, driving net income of $317 million and diluted earnings per share of $1.97, which is two cents above the guidance that we provided during the last earnings call. Skyward's business model continues to generate very strong cash flow; first fiscal quarter cash flow from operations increased to an all-time record of $775 million. Capital expenditures were reduced to $22 million, or less than 2% of revenue, resulting in an all-time record free cash flow of $753 million, or a 63% free cash flow margin. Strong profitability combined with great working capital management and lowering the capex intensity of the business drove the record cash flow number. Also, during fiscal Q1, we paid $109 million in dividends and repaid the remaining $300 million on our return loan.

Kris Sennesael: We ended the quarter with over $1 billion in cash and investment and one billion in debt, creating a net positive cash position and an optimal capital structure providing us with superior flexibility and optionality. Now, let's move on to our outlook for Q2 of Fiscal 2024. We anticipate revenue between $1 billion and $20 million and $1 billion and $70 million. We expect our mobile business to be seasonalally down, consistent with historical patterns. While in broad markets, we anticipate modest growth off the December bottom as inventory levels are normalizing in certain entities. Cross-margin is projected to be in the range of 45 to 46 percent, reflecting our seasonally weakest period of the year.

Kris Sennesael: We anticipate margin expansion during the remainder of 2024, benefiting from our discipline, management of our manufacturing, and operational costs, both internal and external, along with higher factory utilization. We will also benefit from a favorable mix shift as our broad markets business recovers and accelerates. We expect operating expenses in the range of $193 to $197 million as we continue to make strategic investments in mobile and broad market. Below the line, we anticipate roughly $4 million in other expenses and an effective tax rate of $11.5 million, and a diluted share count of approximately 161 million shares. Accordingly, at the midpoint of the revenue range of $1,045,000,000, we tend to deliver diluted earnings per share of $1.52.

Operator: To withdraw your questions, you may press star 1-1 again. Given time constraints, please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question, coming from the line-up: Matt Ramsey with T.D.

Matthew D. Ramsay: Cowan, your line is open. Thank you very much. Good afternoon, guys. Liam, I wanted to ask a bit about the broad market trends, and it's obviously, as the name implies, a diverse business. I was pleasantly surprised, but I was a little bit surprised at the commentary that you had visibility for that business to be up so quickly, I guess, in March. It's been an inventory correction that's lasted a bit longer in some of your peers and in other companies, and we've seen industrial maybe get a little bit worse. So, I mean, if you could maybe expand, I know you did some in the prepared script, but if you could expand a little bit on maybe some of the individual end market trends that you're seeing in broad markets and maybe what the pace of this potential recovery starting from March and through the rest of the year could look like coming off the bottom, thanks. Sure, sure, absolutely.

Liam K. Griffin: You know, one of the interesting things here with our broad markets business is that there are so many opportunities that we haven't yet scaled. So if we look at the business, unlike some of the other mobile markets that are well-defined, there's still a great opportunity. We look at the broad markets as more of an open-ended play for us. We're leveraging the technologies that we know how to work with. We have a great set of customers, and that continues to grow and expand. But yeah, I mean, the team has done a really good job.

Liam K. Griffin: We've been working on this for quite a while and are finally putting up some meaningful top line, leveraging that broad market. The other thing, you know, we continue to remind our customers and even our investors about a lot of the stuff we do in-house, so we're able to craft and curate. Specialty products. We have our own fabs.

Liam K. Griffin: We do things a little bit differently, and I think that helps our outcome. Got it. Thank you for that. I guess as my follow-up, and this is going to be a theme that we talk about in the PC market, maybe this year and then into next year, and the smartphone market, as you alluded to, sort of AI, making its way into these products and potentially catalyzing a bit of an upgrade cycle. So I guess my question is, I mean, it's pretty straightforward for us to imagine that if you get air interface upgrades from 4G to 5G to what comes next, that that can expand the RF TAM pretty meaningfully for your smartphone business. Are you anticipating the growth potential from AI and smartphones to be primarily a unit driver for the market and, therefore, for your company, or are there things that you guys can do in AI-enabled Thanks.

Liam K. Griffin: Yeah, I think it's a secular opportunity. This is a really unique period for us and in the industry. The way we look at it, you look at AI, and a lot of that is really intense servers, data centers, and that's extremely important. Then you take it down kind of to the middle ground, and then you're kind of in a different position. But getting that to mobile is going to be a challenge. It's going to be a challenge, but it will happen.

Liam K. Griffin: The consumer wants that. The consumer wants to have that computing power in their hand. And it's not there yet, but we really believe that it will come. And I think it's going to set up the industry for a whole range of new opportunities still using radio frequencies. So I'm really excited about it.

Kris Sennesael: And again, we have the building blocks and the know-how to do really interesting things and do it account by account as well. Not everybody wants the same solution. But we really do believe that heavy compute power has got to get matched up with something in your hand. That handheld device has got to step up. It's got to grow. It's got to be faster, and it has lower latency.

Liam K. Griffin: My first question is about the Android market right now. It sounds like that market has finally grown for you after several quarters of inventory correction. Can you speak to, you know, what your expectations are for that as you go through the year? You know, I suppose at this point, the inventory correction is behind us. What's your level of optimism about getting back to more normal growth rates in that part of the business? Yeah, Kris, yeah, you're right. It's been a little bit bumpy through the ecosystems here, but we see green shoots here popping up in Android. We know how to make these products.

Kris Sennesael: I think there was a little bit of a soft spot in the industry, but the newer phones are coming up with a little bit more technology. We like that, and we can broaden that base. So we are gonna, in the prepared remarks, we commented on that, and you should expect more growth in the Android ecosystem as we go forward. These are products that we can execute on in the pipeline right now and give us continuing strength going through 24 and 25. Okay, as a follow-up on gross margins, speak to your expectations as we proceed through the year. One thing you mentioned sounds like your internal inventory was below target. Should we read that to mean utilization starts going higher?

Kris Sennesael: And, you know, what the effect of that will be on gross margins as we go through the year. Yes, Kris. So I'm really, when you look at gross margins, right, we did 46.4% in Q1, we were still impacted there by underutilization, a little bit of a headwind from a mixed point of view as well. And that continues somewhat in the March quarter that we guided for. But then when I look beyond the March quarter, we will see some really nice gross margin uplift in the remainder of the fiscal and the calendar year. Part of that is higher utilization because we will no longer have to focus on reducing inventory. That is behind us. We reduced our inventory by almost $200 million in the December quarter.

Kris Sennesael: There is maybe still a little bit of opportunity there, but we feel good about the inventory levels where they are right now. In addition to that, our broad markets business is going to grow faster than the mobile business. And so that gives us a little bit of a mixed tailwind as well. And then, in addition to that, we will really benefit from all the cost reductions that we've done over the last 12 months. We really focused on taking out structural parts of the cost structure.

Kris Sennesael: And then also, you know, you alluded to gross margin benefits as we move through the year. But I don't know if you can talk about the broad market's effect on gross margin as we move through the year. Yeah, so as it relates to broad markets, roughly 40-45% is IoT, more consumer IoT, right, where we provide connectivity solutions in tablets and wearables and PCs, your home connectivity with routers and all the access points that tap into that. In that market, there has been an inventory correction for multiple quarters, but we are getting towards the end of the inventory correction there. In addition to that, we see strong growth in that part of the market due to an uplift in content as we transition from Wi-Fi 6 to Wi-Fi 6E and 7 type of solutions that have a substantially higher RF content of Skyworks Insight.

Kris Sennesael: And then again, we are very well positioned in that market, the connected car that will eventually become an autonomous car, as well as EV, where we play with our power isolation solutions. And so again, when you put it all together, December is the bottom for our markets. We start seeing some sequential growth in March and beyond. And as you know, those markets typically have a higher gross margin compared to broad markets, and that will help us to lift the gross margin. Thank you for that color, Kris.

Kris Sennesael: You guys have already talked about AI smartphones, but you also called out AI-enabled workloads driving cloud and data center upgrades. You also talked about 800 gigabytes and this being an opportunity for you. Is that all related to your timing business from your acquisition, or are there other ways that you're leveraging infrastructure around AI as well? Yeah, largely through the infrastructure business that we have and some of the technology that we brought forth in our Silicon Labs deal, that's driving new vectors for us at SkyWorks, in the industrial markets and the data center markets, and it's a really vibrant growth source. And there's a lot of room to grow there as well. So lots more to do, but we've been made. Thank you. Great progress on that. Thank you. Our next question comes from the line of Edward Snyder with Charter Equity Research. Your line is open. Thank you very much.

Edward Snyder: I'd like to touch on, if we could, later this year, especially in mobile. It seems pretty clear at this point, given the largest customer scramble to get their thing done by 2025, that most all attention... is, That's the best way to put it. So I'm trying to get a feel for the profile of your mobile business during the second half of the year. It sounds like it might be weaker than it is.

Liam K. Griffin: Quark on the share got to come out of some, you can maybe characterize or just without getting into too much detail about what we should look at in terms of the mix in the second half. You already talked about broad markets being much stronger than mobile by implication. Is that mostly just organic growth, or is there going to be some share loss, or how do we think about that? Yeah, well, you know, we're deeply engaged with mobile and all and all angles, right? So we have a broad set of technologies that can be applied to multiple customers, including larger ones. And that's our craft, you know; that's the largest part of our portfolio.

Liam K. Griffin: We're growing across other markets, but certainly the know-how that we have in RF, http://www.youtube.com.uk, and the vectors that we... We're all over it at every angle, and we're continuing to grow, work on market share, and innovate. Delighting our customers, lowering current consumption, expanding the reach, doing a little bit more in the Android markets that we've kind of hinted at that we're going to continue to execute there, and still driving the best performance solutions that we can. Okay, maybe I could fall on a different angle here.

Liam K. Griffin: You're going to grow in Android. You've kind of been under-earning there for several years, I think on purpose, because you've done very well outside of that market. R&D is going up to address the product, product market, but margins are typically lower in that whole market, a lot more intense. One question, should we expect to see revenue growth in the second half? It's a little early, but revenue growth in the second half of the year, whether it's on inventory snapback or new products, and Roy, try to take up some of that slack. Kris, maybe you could articulate how you're going to offset the margin dilution of Android... U.S. Customs, of course, all mobile.

Liam K. Griffin: Yeah, so yeah, we're with you on that. So there's a lot of opportunity for us to be more aggressive across the Android ecosystem. It's not just China.

Liam K. Griffin: You get names like Google and Samsung. There are tremendous opportunities that We're built for this kind of stuff, and we have an end-to-end process that we continue to improve and refine at every turn. It helps our customers. It helps our gross margin, and our utilization. We have incredible factories, homegrown stock that we have here at Irvine. It is the solution of choice as far as I know, with our technology know-how and the ability to be flexible and customizable to each account.

Liam K. Griffin: I think that's an asset for us, and I think we'll continue to drive that portfolio. Yeah, and as it relates to gross margin, the gross margin profile of our mobile customers is on or about the same, and part of that is because, you know, we are somewhat selective. We are not sliding down to the mid or low end of the market. We stay at the high end. We stay in the high performance part, and in that part of the market, you compete based on performance. It's not a price competition.

Gary Mobley: Your line is open. Hi guys, thanks very much for taking my question. I want to start out with a quick housekeeping question.

Kris Sennesael: What was the mix of revenue from your largest customer in the quarter? The largest customer was approximately 73% of total revenue, which is high, obviously, because the December quarter is the top quarter with the largest customer. And given that the markets were bottoming out in December, you get to keep about 73%. Obviously, when you look forward on a full year basis, or even in March, it will be well below 73%.

Liam K. Griffin: And so my question is, if we see a rebound in the Android market, and based on your design footprint that you currently have today, can we expect that segment of your business to bounce back to the previous level? Yeah, absolutely. You know, we've got, as I said, a lot of opportunity to go harder and stronger and more direct with the Android ecosystem. We absolutely have the technology to make it work.

Liam K. Griffin: We have to scale, we are. Thank you. And our next question coming from the line-up is Karl Ackerman with BNP Paribasil on this open.

Karl Ackerman: Yes, thank you. Two questions if I may. On mobile, your largest customer is down on a seasonal basis in March, but at the same time, given your improving execution within Android, does Android grow sequentially in March? How do we think about that within mobile, please? And I have a follow-up. Yeah, Android was just kind of flattish, flattish slightly up and into more.

Kris Sennesael: Got it. Thanks. Thanks for that, Kris. At the same time, I do want to touch on mobile one more time. It's been asked in several different ways, but I guess I'll try it again.

Liam K. Griffin: You know, we could be, but I think we generate, you know, a better outcome for our customers and our shareholders to drive that mid. So it's something we can do, but I think the way our business runs, I think we're more creative as a company, going down the playbook that we have. Thank you. And our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Hi, this is Blake Freeman. I'm from Vivek.

Blake Freeman: I know the broad markets business is a key initiative for Skyworks, and just with the business kind of returning to this cash, cash positive level, and generating pretty strong cash flow from here. Just curious how you think about M&A and anything in particular you guys would look to add to the broad markets assets. Yeah, first of all, the cash flow is outstanding, and it's definitely something that we focus on, and so we generate a ton of cash. As you have seen in the last couple of quarters, we have used that cash flow, of course, to continue to invest in the business. We pay our dividends every quarter, and we have been paying off the term loan that, as you probably know, had a variable interest rate and was getting a little expensive there, but we're done with that. And so now, again, looking forward, we will continue to drive a very strong free cash flow. It's not going to be 63% every quarter.

Kris Sennesael: We feel we have a sustainable plus 30% free cash flow margin on a fiscal or calendar year basis, but that's generating a lot of cash. And, of course, we want to put that cash to work. We have options.

Kris Sennesael: We can switch on the buybacks, or we can be active from an M&A point of view. And as you know, yes, we focus on becoming a more diverse company, despite the fact that we like the mobile business, but we focus on becoming a more diverse company, in part through organic investments in that business. But we have the optionality to accelerate that through M&A, and we're working on that. Thank you. And our next question comes from the line of Thomas O'Malley with Barclays. Your line is open.

Kris Sennesael: Are those, on a percentage basis, coming more on the mobile side or more on the broad market side? So, no, it's not really tied to one of the businesses, but we have been bringing down the utilization of our factories in part because revenue is down year over year, but also because we have been focusing on driving down the inventory, right? We are taking our medicine now.

Kris Sennesael: That's why you continue to see slightly down gross margins on a sequential basis into the March quarter. But again, we have confidence that March is the bottom in terms of gross margin, and you will start seeing gradual improvements after the March quarter, helpful and then and then just on the moving pieces for the back half of the fiscal year sounds like android's getting better um typical seasonality on the on your largest customer side in mobile but i just want to get a a feel for what you guys kind of are looking at in terms of the re-acceleration of broad markets uh if you look at um march for your guidance kind of up slightly you're still down 20 percent year over year do you think that kind of exiting your fiscal year are you looking to kind of be growing year over year or just can you give us any kind of color on the pace of recovery there just because i know things are improving but just how quickly is something that i think is a little more difficult to to wrap our heads around thank you, Yeah, sure. There's a lot there, but I think I get your point.

Liam K. Griffin: So we definitely believe there's going to be more acceleration in revenue in the broad markets. We have, you know, a roster of incredible companies that we're serving right now, from Cisco to Ford, Daimler, Nest, we talked about before, Google companies. It's a very diverse set of products and customers in the broad markets portfolio. And that's what we like; each one has its own vector, and we do have quite a bit of revenue in mobile. The number of accounts that we haven't served yet is still very, very high, and that's a great opportunity for us to go after. Thank you. And our last questioner in queue, coming from the line of Quinn Bolton, Whitney Ham, your line is open.

Quinn Bolton: Hey guys, thanks for taking my question. There have been a couple of questions on the call that seem to be alluding to perhaps you guys may be losing content at your largest customer in the second half of the year, and I haven't heard you guys specifically address that. Can you give us any thoughts as you look at the second half, how you're feeling content-wise at that largest customer? And then I've got a follow-on question for Kris on the gross margin. Yeah, I think, you know, we have a great position with our largest customer. Nothing really is concerning at that point. And we know exactly who we are and who they are.

Liam K. Griffin: And we have a great partnership, and we'll continue to drive success. Okay, and then for Kris, you know, you've kind of talked about the gross margin drivers, you know, potentially pretty quick recovery post the March bottom. I'm just kind of curious, you know, is there any sense, can you give us any sense of how quickly you can get back to 50%? Is that something you think you can do in the calendar year 24?

Kris Sennesael: And does it require you to get to a certain revenue level to get rid of some of those underutilization charges? Or are things like product mix a much bigger factor, as well as the cost reductions you've taken to get back to that 50%? So it tends to be maybe a little bit less driven by a certain revenue level. Just, just what's the best way to think about getting back to 50%? Yeah, I mean, we guide only one quarter at a time, and there's a reason for that, right? There are a lot of puts and takes that go into the equation.

Kris Sennesael: But again, we have confidence that the March 45-46 guide is the bottom, and we will start seeing gradual improvements from there. We obviously want to get as fast as we can back to 50%, right? And then once we get back to 50%, we're not going to stop there. Our long-term target model calls for 53% gross margin, and we believe we can do that. There is no structural impairment in the business that will prevent us from doing that.

Liam K. Griffin: Thank you. And, ladies and gentlemen, that concludes today's question and answer session. I'll now turn the call back over to Mr. Griffin for any closing comments. Thank you all for joining us. I look forward to seeing you at upcoming conferences. Thanks. Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

Vice President of Investor Relations for Sky works.

Good afternoon.

Welcome to Sky work solutions first quarter fiscal year, 'twenty 'twenty four earnings call.

Mr. Gill. Please go ahead.

Thank you operator, good afternoon, everyone and welcome to Sky works first fiscal quarter 2024 conference call with me today is Liam Griffin, our chairman Chief Executive Officer and President.

This call is being recorded.

At this time I will turn the call over to Richard Kim Vice President of Investor Relations for Sky works.

Richard Kim: Gil Please go ahead.

And Chris <unk>, Chief Financial Officer for Sky works.

Richard Kim: Thank you operator, good afternoon, everyone and welcome to Sky works first fiscal quarter 2024 conference call.

This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at Sky Works, Inc. Dot Com. In addition, the company's prepared remarks will be made available on our website promptly after their conclusion during the call.

Richard Kim: With me today is Liam Griffin, our chairman Chief Executive Officer and President.

And Chris <unk>, Chief Financial Officer for Sky works.

Richard Kim: This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at Sky works E. Dot Com. In addition, the company's prepared remarks will be made available on our website promptly after the conclusion during the call.

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

Please refer to our earnings press release, and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today.

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

Richard Kim: Please refer to our earnings press release, and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today.

Additionally, the results and guidance, we will discuss include non-GAAP financial measures consistent with our past practice.

Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP with that I will turn the call over to Liam.

Richard Kim: Additionally, the results and guidance, we will discuss include non-GAAP financial measures consistent with our past practice. Please.

Thanks, Roger and welcome everyone Sky works continued to execute well during the first fiscal quarter of 2024.

Richard Kim: Refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP with that I'll turn the call over to Liam.

Despite a volatile macroeconomic environment.

We delivered revenue of $1 $2 2 billion.

Liam K. Griffin: Thanks, Rajiv and welcome everyone Sky works continued to execute well during the first fiscal quarter of 2024.

Posted earnings per share of $1 97.

And generated $775 million of operating cash flow.

Liam K. Griffin: Despite a volatile macroeconomic environment.

Free cash flow was also a record at $753 million or 63% free cash flow margin.

Liam K. Griffin: We delivered revenue of $1 2 billion.

Liam K. Griffin: Posted earnings per share of $1 97.

Which reflects strong working capital management and moderating capex intensity.

Liam K. Griffin: And generated $775 million of operating cash flow.

Free cash flow was also a record at $753 million or 63% free cash flow margin.

Let's review, both near and long term secular trends in our end markets.

After two challenging years across Android ecosystems, we see signs that the industry is stabilizing.

Liam K. Griffin: Which reflects strong working capital management and moderating capex intensity.

Excess supply conditions are abating and inventory levels in the distribution channel and at the OEM level are normalizing.

Let's review, both near and long term secular trends in our end markets.

Liam K. Griffin: After two challenging years across Android ecosystems.

Customers are starting to restock inventory.

Liam K. Griffin: See signs that the industry is stabilizing.

Albeit gradually as supply and demand dynamics improve and new phones are introduced into the market.

Liam K. Griffin: Excess supply conditions are abating and inventory levels in the distribution channel.

Liam K. Griffin: At the OEM level are normalizing.

Moreover, we've made strategic investments in product development positioning us to compete for design wins and share gains focusing on highly integrated platforms with our leading mobile Oems.

Liam K. Griffin: Customers are starting to restock inventory.

Liam K. Griffin: Albeit gradually as supply and demand dynamics improve and new phones are introduced into the market.

Liam K. Griffin: Moreover, we've made strategic investments in product development positioning us to compete for design wins and share gains focusing on highly integrated platforms with our leading mobile Oems.

We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover.

Within broad markets, we see crosscurrents, but many factors are moving in the right direction.

Liam K. Griffin: We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover.

And consumer Iot, we believe that we are past the bottom as inventory levels in the channel have normalized and demand signals are improving.

Liam K. Griffin: Within broad markets, we see crosscurrents, but many factors are moving in the right direction.

Furthermore, we are executing on the upgrade cycle to Wi Fi six and seven.

Liam K. Griffin: And consumer Iot, we believe that we are past the bottom as inventory levels in the channel have normalized and demand signals are improving.

We see significant design win momentum across our retail carrier and enterprise channels.

These systems carry substantially higher dollar content.

Liam K. Griffin: Furthermore, we are executing on the upgrade cycle to Wi Fi six and seven.

Because of the addition of the new six gigahertz band and the inclusion of boss filtering technology.

Liam K. Griffin: We see significant design win momentum across our retail carrier and enterprise channels.

We expect wireless infrastructure and traditional data centers will remain a headwind throughout 2024 as Oems continue to digest excess inventory.

Liam K. Griffin: These systems carry substantially higher dollar content.

Liam K. Griffin: Because of the addition of the new six gigahertz band and the inclusion of ball filtering technology.

Despite this we remain bullish on several new product cycles, including major design wins in Ethernet for high bandwidth networks.

Liam K. Griffin: We expect wireless infrastructure and traditional data center will remain a headwind throughout 2024 as Oems continue to digest excess inventory.

And 400 gig and 800 gig optical module upgrades.

Liam K. Griffin: Despite this we remain bullish on several new product cycles, including major design wins in Ethernet for high bandwidth networks.

Lastly, automotive and industrial markets are experiencing a near term inventory correction.

However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle.

And 400 gig and 800 gig optical module upgrades.

Liam K. Griffin: Lastly, automotive and industrial markets are experiencing a near term inventory correction.

Along with growing EV penetration driving demand for our power isolation products.

Liam K. Griffin: However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle.

Taken together, we anticipate December quarter represents the bottom in the broad markets business.

There are several long term secular growth dynamics that leverage our differentiated technology.

Liam K. Griffin: Along with growing EV penetration driving demand for our power isolation products.

Including the proliferation of intelligent edge connected Iot devices are.

Liam K. Griffin: Taken together, we anticipate December quarter represents the bottom in the broad markets business.

Automotive electrification and advanced safety systems, and AI enabled workloads driving cloud and data center upgrades.

Liam K. Griffin: There are several long term secular growth dynamics that leverage our differentiated technology.

Liam K. Griffin: Including the proliferation of intelligent edge connected Iot devices.

Each of these trends require intricate connectivity engines underlying the need for speed ultra reliable low latency performance.

Liam K. Griffin: Automotive electrification and advanced safety systems, and AI enabled workloads driving cloud and data center upgrades.

In addition, five G technology is expanding beyond the smartphone into more use cases and broad markets.

Liam K. Griffin: Each of these trends requiring intricate connectivity engines underlying the need for speed ultra reliable low latency performance.

Including private cellular networks and factories in stadiums.

Customer premise equipment, supporting Verizon and T mobile.

Liam K. Griffin: In addition, <unk> technology is expanding beyond the smartphone into more use cases and broad markets.

And multi band automotive telematics.

And Wearables to name a few.

Liam K. Griffin: Including private cellular networks and factories in stadiums.

We also remain bullish on the long term RF content story in smartphones.

Liam K. Griffin: Customer premise equipment, supporting Verizon and T mobile.

Coupled with growing <unk> penetration.

Liam K. Griffin: And multi band automotive telematics.

We see increasing levels of complexity and content with each new generation.

Liam K. Griffin: And Wearables to name a few.

Liam K. Griffin: We also remain bullish on the long term RF content story in smartphones.

Yes.

For example, <unk> advanced is driving higher RF content, including the addition of satellite vans.

Liam K. Griffin: Coupled with growing <unk> penetration.

Liam K. Griffin: We see increasing levels of complexity and content with each new generation.

Four by four Mimo on the downlink and uplink higher bandwidth.

Liam K. Griffin: Yes.

More carrier aggregation upgrades to Wi Fi and GPS and other innovations.

Liam K. Griffin: For example, <unk> advanced is driving higher RF content, including the addition of satellite Vance.

Lastly, we are energized about the prospect of generative AI migrating to the smartphone.

Liam K. Griffin: Four by four Mimo on the downlink and uplink higher bandwidth.

Parking a potential major upgrade cycle.

Liam K. Griffin: More carrier aggregation upgrades to Wi Fi and GPS and other innovations.

As the performance bar rises every year to support AI enabled phones. The complexity requirements of RF will continue to increase driving the need for more integration lower power consumption smaller footprint and spectral efficiency.

Liam K. Griffin: Lastly, we are energized about the prospect of generative AI migrating to the smartphone.

Liam K. Griffin: Parking a potential major upgrade cycle.

Liam K. Griffin: As the performance bar rises every year to support AI enabled phones. The complexity requirements of RF will continued to increase driving the need for more integration lower power consumption smaller footprint and spectral efficiency.

<unk> is the ideal standard for on device AI applications as it takes advantage of lower latency faster transmission speeds and higher frequency ranges.

In addition, AI enabled workloads are driving demand for high speed connectivity for data intensive infrastructure and cloud up rates accelerating the demand for our high precision timing products.

Liam K. Griffin: <unk> is the ideal standard for on device AI applications as it takes advantage of lower latency faster transmission speeds and higher frequency ranges.

Turning to our quarterly business highlights.

Liam K. Griffin: In addition, AI enabled workloads are driving demand for high speed connectivity for data intensive infrastructure and cloud up rates accelerating the demand for our high precision timing products.

We secured several design wins and infrastructure, including optical transport products with a major operator in India and.

And timing devices for <unk> small cells for private networks.

Liam K. Griffin: Turning to our quarterly business highlights.

We expanded the Wi Fi design pipeline with Cisco's enterprise access points Linksys Tri band mesh router and TP links Tri band gaming router.

Liam K. Griffin: We secured several design wins and infrastructure, including optical transport products with a major operator in India and.

Liam K. Griffin: And timing devices for <unk> small cells for private networks.

We increased design win momentum in automotive, including telematics infotainment systems and onboard chargers across the leading Oems.

Liam K. Griffin: We expanded the Wi Fi design pipeline with Cisco's enterprise access points lengths is tri band mesh router and TP links Tri band gaming router.

Lastly, an emerging Iot, we delivered next generation Smart energy solutions with Google's nest temperature sensors, and <unk> residential gas meters.

Liam K. Griffin: We increased design win momentum in automotive, including telematics infotainment systems and onboard chargers across the leading Oems.

In summary, Sky works delivered solid financial results, despite a challenging macro environment.

Liam K. Griffin: Lastly, an emerging Iot, we delivered next generation Smart energy solutions with Google's nest temperature sensors, and <unk> residential gas meters.

Our strong balance sheet record cash flow and profitability reflect our resilient business model diverse customer base and technology scale.

In summary, Sky works delivered solid financial results, despite a challenging macro environment.

With that I will turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q2 of fiscal 2024.

Liam K. Griffin: Our strong balance sheet record cash flow and profitability reflect our resilient business model diverse customer base and technology scale.

Thanks Liam.

<unk> revenue for the first fiscal quarter of 2024 was $1 billion and 202 million slightly above the midpoint of our outlook.

Liam K. Griffin: With that I will turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q2 of fiscal 2024.

Mobile was approximately 71% of total revenue an increase of 7% sequentially as we supported the ramp of new high performance solutions at our largest customer.

Speaker Change: Thanks Liam.

Chris: <unk> revenue for the first fiscal quarter of 2024 was $1 billion and 202 million slightly above the midpoint of our outlook.

Android related revenue with Google Samsung and the Chinese Oems grew modestly sequentially.

Chris: Mobile was approximately 71% of total revenue an increase of 7% sequentially as we supported the ramp of new high performance solutions at our largest customer.

Broad markets were approximately 29% of total revenue down 18% sequentially, mostly driven by some specific inventory corrections and wireless infrastructure automotive and industrial.

Chris: Android related revenue with Google Samsung and the Chinese Oems grew modestly sequentially.

Chris: Broad markets were approximately 29% of total revenue down 18% sequentially, mostly driven by some specific inventory corrections and wireless infrastructure automotive and industrial.

Gross profit was 557 million with gross margin of 46, 4% in line with expectations.

Gross margin was down 70 basis points sequentially, driven by an unfavorable mix shift, resulting from lower growth markets revenue.

Chris: Gross profit was 557 million with gross margin of 46, 4% in line with expectations.

Also during Q1, we reduced our internal inventory by 193 million to $927 million well below our target of 1 billion.

Gross margin was down 70 basis points sequentially, driven by an unfavorable mix shift, resulting from lower growth markets revenue.

Operating expenses were 191 million below the low end of the guidance range given our ongoing focus on managing discretionary expenses, while continuing to invest in our technology and product Roadmaps.

Chris: Also during Q1, we reduced our internal inventories by 193 million to $927 million well below our target of $1 billion.

Chris: Operating expenses were.

We generated $366 million of operating income translating into an operating margin of 34%.

Chris: 191 million below the low end of the guidance range, given our ongoing focus on managing discretionary expenses, while continuing to invest in our technology and product Roadmaps.

We incurred $7 million of other expense and our effective tax rate was 11, 7% driving net income of $317 million and diluted earnings per share of $1 97.

Chris: We generated $366 million of operating income translating into an operating margin of 34%.

Chris: We incurred $7 million of other expense and our effective tax rate was 11, 7% driving net income of 317 million and diluted earnings per share of $1 97.

Which is <unk> <unk> above the guidance that we provided during the last earnings call.

<unk> business model continues to generate very strong cash flow.

First fiscal quarter cash flow from operations increased to an all time record of $775 million.

Chris: Which is <unk> <unk> above the guidance that we provided during the last earnings call.

Capital expenditures were reduced from $22 million or less than 2% of revenue.

Chris: Skywards business model continues to generate very strong cash flow.

<unk> in an all time record free cash flow of $753 million or 63% free cash flow margin.

Chris: First fiscal quarter cash flow from operations increased to an all time record of $775 million.

Strong profitability combined with great working capital management, and lowering the capex intensity of the business drove the record cash flow numbers.

Chris: Capital expenditures were reduced from $22 million or less than 2% of revenue, resulting in an all time record free cash flow of $753 million or 63% free cash flow margin.

Also during fiscal Q1 repaid $109 million in dividends and repaid the remaining $300 million on our term loan.

Chris: Strong profitability combined with great working capital management, and lowering the capex intensity of the business drove the record cash flow numbers.

We ended the quarter with over $1 billion in cash and investments and $1 billion in depth, creating a net positive cash position and an optimal capital structure, providing us with superior flexibility and optionality.

Chris: Also during fiscal Q1 repaid $109 million in dividends and repaid the remaining $300 million on our term loan.

Chris: We ended the quarter with over $1 billion in cash and investments.

Now, let's move on to our outlook for Q2 fiscal 2024, we.

Chris: And $1 billion in depth, creating a net positive cash position and an optimal capital structure, providing us with superior flexibility and optionality.

We anticipate revenue between $1.020 billion and $1 billion and $70 million.

We expect our mobile business to be seasonally down consistent with historical patterns.

Speaker Change: Now, let's move on to our outlook for Q2 of fiscal 2024.

While in broad markets, we anticipate modest growth off the December both of them.

Speaker Change: We anticipate revenue between $1.020 billion and $1 billion and $70 million.

As inventory levels are normalizing and certain end markets.

Speaker Change: We expect our mobile business to be seasonally down consistent with historical patterns.

Gross margin is projected to be in the range of 45% to 46%, reflecting our seasonally weakest period of the year.

And broad markets, we anticipate modest growth of the December quarter.

We anticipate margin expansion during the remainder of 2024 benefiting from our disciplined management of our manufacturing and operational cost structure, both internal and external.

Speaker Change: As inventory levels are normalizing and certain end markets.

Speaker Change: Gross margin is projected to be in the range of 45% to 46%, reflecting our seasonally weakest period of the year.

Along with higher factory utilization rates.

Speaker Change: We anticipate margin expansion during the remainder of 2024 benefiting from our disciplined management of our manufacturing and operational cost structure, both internal and external.

We'll also benefit from a favorable mix shift as our broad markets business recovers and accelerates.

We expect operating expenses in the range of $193 million to $197 million as we continued to make strategic investments in mobile and broad markets to drive share gains and increased diversification.

Speaker Change: Along with higher factory utilization rates.

Speaker Change: We will also benefit from a favorable mix shift as our broad markets business recovers and accelerates.

Speaker Change: We expect operating expenses in the range of $193 million to $197 million.

Below the line, we anticipate roughly $4 million in other expense and an effective tax rate of 11, 5%.

Speaker Change: As we continue to make strategic investments in mobile and broad markets to drive share gains and increased diversification.

And a diluted share count of approximately 161 million shares accordingly at the midpoint of the revenue range of $1 billion and 45 million, we intend to deliver diluted earnings per share of $1.52.

Speaker Change: Below the line, we anticipate roughly $4 million in other expense and an effective tax rate of 11, 5% and.

Speaker Change: And a diluted share count of approximately 161 million shares.

Operator, let's open the line for questions.

Speaker Change: Accordingly at the midpoint of the revenue range of $1 billion and $45 million, we intend to deliver diluted earnings per share of $1.52.

Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced.

A question you May press Star one again.

Operator, let's open the line for questions.

Given time constraints, please limit yourself to one question and one follow up.

Speaker Change: Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question you May Press Star one again.

Please standby, we will be combined the Q&A roster.

And our first question.

Coming from the line of.

Speaker Change: Given time constraints, please limit yourself to one question and one follow up.

Matt Ramsey with Cowen Your line is now open.

Speaker Change: Please standby, we will be combined Q&A roster.

Thank you very much good afternoon guys.

Liam I wanted to ask a bit about the broad market trends and it's obviously.

Speaker Change: And our first question.

Speaker Change: Coming from the line of.

Speaker Change: Matt Ramsey with Cowen Your line is open.

As the name implies a diverse business.

Uh huh.

I'm pleasantly, but I was a little bit surprised at the commentary that you had visibility for that business to be up so quickly I got the March it's been an inventory correction that lasted a bit longer and in some of your peers and then other.

Thank you very much good afternoon guys.

Matthew D. Ramsay: Liam I wanted to ask a bit about the broad market trends and it's obviously.

Matthew D. Ramsay: As the name implies a diverse business.

I am pleasantly.

Matthew D. Ramsay: Pleasantly, but I was a little bit surprised at the commentary that you had visibility for that business to be up so quickly I got the March it's been an inventory correction that lasted a bit longer.

The company then we've seen industrial maybe get a little bit worse. So I mean, if you could maybe expand I know you did some in the prepared script, but if you could expand a little bit on maybe some of the individual end market trends, you're seeing in broad markets.

Matthew D. Ramsay: And some of your peers and then other.

Maybe what the pace of potential recovery, starting from March and through the rest of the year could look like coming off the bottom. Thanks sure sure absolutely one of the interesting things here with our broad markets business is that there's so many opportunities that we havent yet scaled so if we look at that business. Unlike some of the other mobile mark.

Matthew D. Ramsay: The company then we've seen industrial maybe get a little bit worse. So I mean, if you could maybe expand I know you did some in the prepared script, but if you could expand a little bit on maybe some of the individual end market trends, you're seeing in broad markets.

Matthew D. Ramsay: Maybe what the pace of potential recovery, starting from March and through the rest of the year could look like coming off the Bob.

Kits that are at our well defined and there's still great opportunities.

Speaker Change: Sure sure absolutely.

We look at the broad markets as more of an open ended play for US we're leveraging the technologies that we know how to work with what.

Speaker Change: All of the interesting things here with our broad markets business is that there is so many opportunities that we havent yet scaled.

We have a great set of customers and that continues to grow and expand.

Speaker Change: So if we look at the business. Unlike some of the other mobile markets that are that are well defined and there's still great opportunities.

But yes, I mean, the team has done a really good job. This has been a tough year across the across the landscape across semis.

Speaker Change: We look at the broad markets as more of an open ended play for US we're leveraging the technologies that we know how to work with.

We're happy to to deliver some positive results here today and we do think there is a turn.

Speaker Change: Have a great set of customers and that continues to grow and expand.

Again in that portfolio, it's very diverse and mobile as a part of it but the lion's share is really diversified products.

Speaker Change: Yes, I mean, the team has done a really good job. This has been a tough year across the across the landscape across semis.

With some really great names as well.

Speaker Change: We're happy to deliver some positive results here today and we do think there is a turn.

And most of those broad market companies, we have low share there's still a tremendous amount of room to grow within those accounts. So I think those are some of the themes. We've been working on this for quite a while and.

Speaker Change: And that portfolio, it's very diverse and mobile as a part of it but the lion's share is really diversified products.

Finally, putting up some meaningful topline leveraging that broad markets business. The other thing.

With some really great names as well and most of those broad market companies, we have low share there's still a tremendous amount of room to grow within those accounts. So I think those are some of the themes. We've been working on this for quite a while and.

We continue to remind our customers and even the investors a lot of the stuff. We do in house, So we're able to craft and cure rate specialty products, we have our own fabs.

Speaker Change: Finally, putting up some meaningful topline leveraging that broad markets business. The other thing.

We do things a little bit differently, and I think that helps our outcome.

Speaker Change: We continue to remind our customers and even the investors a lot of the stuff. We do in house, So we're able to craft and cure rate specialty products, we have our own fabs.

Got it. Thank you could I guess as my follow up and this is gonna be.

Somatic that we talk about in the PC market, maybe this year and then into next year in the smartphone market as you alluded to sort of AI.

We do things a little bit differently, and I think that helps our outcome.

Its way into these products potentially catalyzing a bit of an upgrade cycle. So I guess my question is I mean, it's pretty.

Speaker Change: Got it. Thank you for that I guess as my follow up and this is going to be.

Speaker Change: Somatic that we talk about in the PC market, maybe this year and then into next year in the smartphone market as you alluded to sort of AI.

Great Board for us to envision if you'd get air interface upgrades from <unk> to what comes next.

Making its way into these products potentially.

That can expand the RF Tam pretty meaningfully for your smartphone business our U S.

Catalyzing a bit of an upgrade cycle. So I guess my question is I mean, it's pretty.

Anticipating the growth potential from AI in smartphones to be.

Speaker Change: Straightforward for us to envision if you get air interface upgrades from <unk> to what comes back that can expand the RF Tam pretty meaningfully for your smartphone business our U S.

Primarily a unit driver for the market and therefore for your company are there things that you guys can do in AI enabled phones that could meaningfully change the content.

Speaker Change: Anticipating the growth potential from AI in smartphones to be.

Or are we sort of weighting toward the next day air interface before the content could possibly inflect, where the Tam again, yes.

Primarily a unit driver for the market and therefore for your company are there things that you guys can do in AI enabled phone that could meaningfully change the content.

Yes, I think it's a secular opportunity. This is a really unique period for us and in the industry.

The way we look at it you look at AI and a lot of that is really intense servers data center and that's extremely important.

Speaker Change: Or are we sort of weighting toward the next day air interface before the content could possibly inflect for the Tam again, yes.

Speaker Change: Yes, I think it's a secular opportunity. This is a really unique period for us and in the industry.

Then you take it down to the middle ground.

And then you're kind of in a different position, but getting that's a mobile it's going to be a challenge it's going to be a challenge, but it will happen the consumer wants that the consumer wants to have that compute power in their hand, and it's not there yet, but we really believe that it will come.

Speaker Change: The way we look at it you look at AI and a lot of that is really intense servers data center and that's extremely important.

Speaker Change: Then you take it down kind of to the middle ground.

Speaker Change: And then you're kind of in a different position, but getting that's a mobile it's going to be a challenge it's going to be a challenge, but it will happen the consumer wants that the consumer wants to have that compute power in their hand, and it's not there yet, but we really believe that it will come.

And I think it's going to set up the industry for.

A whole range of new opportunities still carrying radiofrequency, so really excited about it and again, we have the building blocks and that know how to do really interesting things and do it account by account as well not everybody wants the same solution.

Speaker Change: And I think it's going to set up the industry for a whole range of new opportunities still carrying radiofrequency. So really excited about it and again, we have the building blocks and that know how to do really interesting things and do it account by account as well not everybody wants the same solution.

We really do believe that.

Heavy compute power.

Got to get matched up with something in your hand that handheld devices got a step up it's got to grow it's going to be more it's got it needs to be faster lower latency.

And Thats all good because those are problems that we can solve.

Speaker Change: But we really do believe that heavy compute power is kind of get matched up with something in your hand that handheld devices got a step up it's got to grow it's going to be more it's got it needs to be faster lower latency.

Yeah.

Thank you and our next question coming from the line of Chris.

Chris <unk> with Wolfe Research your line is open.

Yes. Thank you. Good evening first question is about the Android market right now it sounds like.

Speaker Change: And Thats all good because those are problems that we can solve.

Speaker Change: Thank you and our next question coming from the line of Chris.

That market.

Finally grown for you after several quarters of inventory correction.

Speaker Change: Chris <unk> with Wolfe Research your line is open.

Can you speak to what your expectations are for that as you go through the year.

Yes. Thank you. Good evening first question is about the Android market right now it sounds like.

I suppose at this point the inventory correction is behind us whats your level of optimism of getting back to more normal growth rates in that part of the business.

Chris: That market.

Chris: Has finally grown for you after several quarters of inventory correction.

Chris: Can you speak to what your expectations are for that as you go through the year.

Yes, Chris.

Yes, you are right, it's been a little bit bumpy through the ecosystem here, but we see.

Chris: I suppose at this point the inventory correction is behind us whats your level of optimism of getting back to a more normal growth rates in that part of the business.

Green shoots here popping up in Android, we know how to make these products I think the there was a little bit of a soft spot there in the industry.

Speaker Change: Yes, Chris.

The newer phones are coming up with a little bit more technology, we like that and we can broaden that base. So we are going to.

Speaker Change: Yes, youre right its been a little bit bumpy through the ecosystem here, but we see.

Speaker Change: Green shoots here popping up in Android.

Our prepared remarks, we commented on that.

How to make these products I think there was a little bit of a soft spot there in the industry.

And you should expect more growth in the Android ecosystem as we go forward. These are products that we can execute two in the pipeline right now and give us.

Speaker Change: The newer phones are coming up with a little bit more technology, we like that and we can broaden that base. So we are going to.

Continuing strength getting going through 'twenty four 'twenty five.

Speaker Change: Our prepared remarks, we commented on that and you should expect more growth in the Android ecosystem. As we go forward. These are products that we can execute two in the pipeline right now and give us.

Yeah.

Okay as a follow up on gross margin I can speak to your expectations.

As we proceed through the year one thing you mentioned it sounded like your internal inventory was below target should.

Speaker Change: Continuing strength getting it going through 'twenty four 'twenty five.

Should we read that to mean utilization starts going higher and what the effect on that will be on gross margins as we go through the year.

Speaker Change: Okay as a follow up on gross margin I can speak to your expectations.

Speaker Change: As we proceed through the year one thing you mentioned it sounded like your internal inventory was below target should.

Yes, Chris.

<unk>.

So.

I am really.

Speaker Change: Should we read that to mean utilization starts going higher and what the effect on that will be on gross margins as we go through the year.

When you look at gross margins right, we did 46, 4% in Q1.

We still impacted there by under utilization a little bit of a headwind from a mix point of view as well.

Speaker Change: Yes, Chris.

Speaker Change: <unk>.

Speaker Change: So.

Speaker Change: I am really.

That continues somewhat.

Chris: When you look at gross margins right, we did 46, 4% in Q1.

In the March quarter that we guide, but then when I look beyond the March quarter.

We still impacted there by under utilization a little bit of a headwind from a mix point of view as well.

We will see some really nice gross margin uplift in the remainder of the fiscal and the calendar year.

Chris: That continues somewhat.

Part of that is higher utilization, because we will no longer have to focus on a reduction of inventory.

Chris: In the March quarter that we guided but then when I look beyond the March quarter.

Chris: We will see some really nice gross margin uplift in the remainder of the fiscal and the calendar year.

That is behind US, we reduced inventory by almost $200 million in the December quarter that is maybe still a little bit of opportunity there but.

Chris: Part of that is higher utilization, because we will no longer have to focus on the reduction of inventory.

But we feel good about the inventory levels, where they are right. Now in addition to that our broad markets business is going.

That is behind us we reduced the inventory by almost $200 million in the December quarter. So it is maybe still a little bit opportunity there but.

Grow faster than the mobile business and so that gives us a little bit of <unk>.

Our mix tailwind as well and then in addition to that we will really benefit from all the cost reductions that we've done over the last 12 months, we've really focused on taking out structural parts of the cost structure, we focused on operational efficiencies driving yield.

Chris: <unk>.

Chris: But we feel good about the inventory levels, where they are right. Now in addition to that our broad markets business is going.

Chris: Grow faster than the mobile business and so that gives us a little bit of.

Chris: Mix tailwind as well and then in addition to that we will really benefit from all the cost reductions that we've done over the last 12 months, we've really focused on taking out structural part of the cost structure, we focused on operational efficiencies driving yield.

Improvements in test time reductions and in addition to internal cost. We also start seeing some benefit from external costs and so when you put it altogether, we will see some nice gradual gross margin improvement.

Chris: Improvements in test time reductions and in addition to internal cost. We also start seeing some benefit from external costs and so when you put it altogether, we will see some nice gradual gross margin improvement.

After the March quarter.

Thank you.

And our next question coming from the line of Christopher Rolland with Sig.

Susquehanna Your line is now open.

Hey, guys. Thanks.

Thank you for the question I guess first of all in broad markets.

Chris: After the March quarter.

Speaker Change: Thank you.

Our next question coming from the line of Christopher Rolland with Susquehanna.

You had some great color as to how you break those out into kind of sub segments.

Susquehanna Your line is now open.

Would love to know kind of what those look like how they're trending.

Hey, guys. Thank.

Christopher Adam Jackson Rolland: Thank you for the question I guess first of all in broad markets.

And then also you alluded to the gross margin benefits as we move through the year I don't know if you can talk to the <unk>.

Christopher Adam Jackson Rolland: You had some great color as to how you break those out into kind of sub segments.

Broad markets effect on gross margin as we move through the year.

Christopher Adam Jackson Rolland: Would love to know kind of what those look like how they are trending.

Yes so.

It relates to broad markets, roughly 40%, 45% is Iot more consumer Iot right, where we provide connectivity solutions.

Susquehanna: And then also you alluded to the gross margin benefits as we move through the year I don't know if you can talk to the <unk>.

Susquehanna: Broad markets effect on gross margin as we move through the year.

Speaker Change: Yes so.

In tablets, and Wearables and Pcs.

It relates to broad markets, roughly 40%, 45% is Iot more consumer Iot right, where we provide connectivity solutions.

Your home connectivity with routers and all of the access points desktop into that.

In that market.

The incentive.

Speaker Change: In tablets, and Wearables and Pcs.

There has been an inventory correction for multiple quarters, but we are getting towards the end of the inventory correction. There. In addition to that we see strong growth in that part of the market due to an uplift in content as we transitioned from Wi Fi six into Wi Fi six and seven type of solutions that hasnt.

Speaker Change: Your home connectivity with routers and all the access points that up into that.

In that market.

Speaker Change: The incentive.

Speaker Change: There has been an inventory correction for multiple quarters, but we are getting towards the end of the inventory correction. There. In addition to that we see strong growth in that part of the market due to an uplift in content as we transition from Wi Fi six into Wi Fi six and seven type of solutions that hasnt.

Substantially higher RF content of Sky works inside the next 30% to 35% is infrastructure cloud data center.

Enterprise networking.

That is definitely an inventory correction going on in the in that part of the business that has started in the December quarter and will continue for a couple of quarters here.

Speaker Change: Substantially higher RF content of Sky works in sight.

Speaker Change: 30% to 35% is infrastructure cloud data center.

Speaker Change: Enterprise networking.

Nevertheless that as well I think in that market, we are very well positioned with some key customers.

Speaker Change: There is definitely an inventory correction going on in <unk>.

And that part of the business that has started in the December quarter and will continue for a couple of quarters here.

Including our timing solutions.

For data centers and then the last part is 20%, 25% is automotive and industrial.

Speaker Change: Nevertheless that as well I think in that market, we are very well positioned with some key customers.

There is well I think we are well positioned but.

You've heard it from many of our peers. There is an inventory correction going on I don't think it will be a long drag out inventory correction, it's probably December March two quarters.

Including our timing solutions.

Speaker Change: For data centers and then the last part is 20%, 25% is automotive and industrial.

Speaker Change: There is well I think we are well positioned but.

Open inventory correction.

Speaker Change: You've heard it from many of our peers. There is an inventory correction going on I don't think it will be a long drag out inventory correction, it's probably December March two quarters.

And then again, we are very well positioned in that market. The connected car that eventually become an autonomous score.

As well as EV, where we play with our powered resolution solutions and so again when you put it altogether December is the bottom for our broad markets. We start seeing some sequential growth in March and beyond.

Speaker Change: Open inventory correction.

Speaker Change: And then again, we are very well positioned in that market. The connected car that eventually become an autonomous score.

As you know those markets typically have a higher gross margin compared to broad markets.

Speaker Change: As well as EV, where we play with our tower resolution solutions and so again when you put it altogether.

And that will help us to lift to gross margin.

But at the bottom for our broad markets, we start seeing some sequential growth in March and beyond and as you know.

Thank you for that color Chris.

You guys already talked about AI smartphones, but also you called out AI enabled workloads driving cloud and data center upgrades you also talked about 800 gig.

Speaker Change: So yes, those markets typically have a higher gross margin compared to broad markets.

Speaker Change: And that will help us to lift the gross margin.

Speaker Change: Thank you for that color Chris.

And this being an opportunity for you is that is that all related to your timing business.

Speaker Change: You guys already talked about AI smartphones, but also you called out AI enabled workloads driving cloud and data center upgrades you also talked about 800 gig.

From from your acquisition or are there other ways that youre leveraging infrastructure around AI as well.

Yes, largely through while the infrastructure business that we have and some of the technology that we brought forth in our silicon lab scale.

Speaker Change: And that's being an opportunity for you is that is that all related to your timing business.

Speaker Change: From Premier acquisition or are there other ways that youre leveraging infrastructure around AI as well.

That's driving new vectors for us at Sky works.

And the industrial markets in the data center markets and it's really.

Speaker Change: Yes, largely through what the infrastructure business that we have and some of the technology that we brought forth in our silicon labs deal.

<unk> growth growth source for us and there's a lot of room to grow there as well so lots more to do but we've been making some great progress in that area.

Speaker Change: That's driving new vectors for us at Sky works in.

Speaker Change: In the industrial markets in the data center markets and its really your vibe.

Yeah.

Thank you and our next question coming from the line of Edward Snyder with Charter equity Research. Your line is now open.

Speaker Change: Vibrant growth growth source for us and there's a lot of room to grow there as well so lots more to do but we've been making some great progress in that area.

Thank you very much.

I'd like to touch on if we could.

Later, this year, especially in mobile.

Speaker Change: Thank you.

Speaker Change: Next question coming from the line of Edward Snyder with Charter equity Research. Your line is now open.

It seems pretty clear at this point given your largest customer scrambled to get their thing done by June 25.

Most all attention is all of that and that we're going to have kind of a.

Edward Snyder: Thank you very much.

I'd like to touch on if we could later this year, especially in mobile.

I don't know that's the way to put it but basically.

Kind of on hold not on hold but.

Edward Snyder: It seems pretty clear at this point given your largest customer scramble to get their thing done by 225 that most all attention is all of that and that we're gonna have kind of a.

What we've seen before not nothing not much new in the new one and the competition squib. So basically I would expect in the fall you're going to see more competition are you already now you already know it now should walk up is going to talk about it a lot of Wednesday.

Edward Snyder: I don't know that's the way to put it but basically.

Edward Snyder: Kind of on hold not on hold but.

So I'm trying to get a feel for the profile of your mobile business in the second half of the year. It sounds like it might be weaker than we normally seen since glaucoma sure go to come out of somebody.

Edward Snyder: Peter what we've seen before not nothing not much new in the new one and the competition script. So basically I would expect in the fall you're going to see more competition are you already now you already know it now.

Edward Snyder: Chicago is going to talk about it a lot of Wednesday.

If you could maybe characterize or just you know without getting into too much detail about what should we look at in terms of the mix in the second half you're already talking about broad markets being much stronger mobile by application is going to be a little bit weaker.

Speaker Change: I'm trying to get a feel for the profile of your mobile business in the second half of the year. It sounds like it might be weaker than we normally seen since glaucoma sure got to come out of somebody.

And is that mostly just organic growth or is going to be some share loss or how do we think about that and then I have a follow up please.

Speaker Change:

Speaker Change: If you could maybe characterize or just you know without getting into too much detail about what should we look at in terms of the mix in the second half you're already talking about broad markets being much stronger than most.

Yes, well of course, we're deeply engaged with mobile at all at all angles right. So we have a broad.

Speaker Change: By application is going to be little bit weaker.

Speaker Change: And is that mostly just organic growth or it's going to be some share loss or how do we think about that and then I have a follow up please.

Set of technologies that are applicable to multiple customers, including the largest.

And that's our craft lighten up the largest part of our portfolio, we're growing across other markets, but certainly the knowhow that we have in RF.

Speaker Change: Yes, well of course, we're deeply engaged with mobile and all in all angles right. So we have a broad.

The ability to do things in house as you know.

Speaker Change: Set of technologies that are applicable to multiple customers, including the largest.

And the vectors that we put forth to drive this company. So we're all over it at every angle and we're continuing to work on market share and new innovations delighting our customers opening current consumption.

Speaker Change: And that's our craft.

Speaker Change: The largest part of our portfolio, we're growing across other markets, but certainly the knowhow that we have in RF.

Speaker Change: The ability to do things in house as you know.

Spanning the reach doing a little bit more on the Android markets that we've kind of hinted around that we're going to continue to execute there and still drive the best performance solutions that we can.

Speaker Change: And the vectors that we put forth to drive this company. So we're all over it at every angle and we're continuing to work on market share and new innovations delighting, our customers offering current consumption.

Okay, maybe I can forward a different angle here, you're going to grow in Android you've kind of been under earning there for several years I think on purpose because you've done very well outside of that market. Our R&D is going up to in order to address the products you have different product market, but margins typically are lower in that whole market.

Speaker Change: Expanding the reach doing a little bit more on the Android markets that we've kind of hinted around that we're going to continue to execute there and still drive the best performance solutions that we can.

Speaker Change: Okay, maybe I can forward a different angle here, you're going to grow in an Android you've kind of been under earning there for several years I think on purpose, because you've done very well outside of that market.

Our competition is a lot more tense one should we expect to see revenue growth in the second half is a little early but.

Speaker Change: R&D is going up to in order to address the products, yet because different product market, but margins typically are lower in that whole market.

Revenue up second half of the year, whether it's on inventory snapback or a new product wins and Android tried to pick up some of that slack and then Chris maybe you could articulate how that how you're going to offset the margin. The natural margin dilution of enjoyed over to the U S customer and then of course all mobile.

Speaker Change: Competition is a lot more tense one should we expect to see revenue growth in the second half, it's a little early but.

Speaker Change: Revenue in the second half of the year, whether it's on inventory snapback or new product wins, and Android tried to pick up some of that slack and then Chris maybe you could articulate how that how you're going to offset the margin the natural margin dilution of Android over to the U S customer and then of course all mobile.

Solution against broad markets in the second half if you could please.

Yes, so yes, we're with you on that so there's a lot of opportunity for us to be more aggressive.

Across the Android ecosystem, it's not just China, and you're getting names like Google and Samsung the tremendous opportunities that we can drive.

Dilution against broad markets in the second half if you could please thanks.

We're built for this kind of stuff and we have an end to end process that we continue to improve and refine at every turn and it helps our customers that helps our gross margin our utilization we have incredible factories homegrown stuff that we have here in Irvine.

Chris: Yes, so yes, we're with you on that so there's a lot of opportunity for us to be more aggressive.

Chris: Across the Android ecosystem, it's not just China, you got names like Google and Samsung the tremendous opportunities that we can drive.

Chris: We're built for this kind of stuff and we have an end to end process that we continue to.

Really really is.

The solution of choice as far as I know.

Chris: To improve and refine at every turn and it helps our customers that helps our gross margin our utilization we have incredible factories homegrown stuff that we have here in Irvine that.

With our technology know, how and they build and the ability to be flexible and customizable to each account.

I think thats, an asset for us and I think we'll continue to drive that portfolio yes.

Chris: Really really is.

As it relates to gross margin the gross margin profile of our mobile customers. It is on or about the same.

Chris: The solution of choice as far as I know.

Chris: Our technology know, how and they build and the ability to be flexible and customizable to each account.

And part of that is.

Because you know we are somewhat selective we are not sliding down in the mid or low end of the market.

Chris: I think thats, an asset for us and I think we'll continue to drive that portfolio yes.

As it relates to gross margin the gross margin profile of our mobile customers is on or about the same.

We stay at the high end, we stay at the high performance booked and in that part of the market you compete based on performance, it's not a price.

Chris: And part of that is.

Chris: Because you know we are somewhat selective we are not sliding down in the mid or low end of the market.

Competition, you compete based on performance and again, that's why gross margins are somewhat the same in with all the customers in that segment.

Chris: We stay at the high end, we stay at the high performance parked and in that part of the markets you compete based on performance, it's not a price.

Yes.

Thank you.

Our next question coming from the line up.

Chris: Competition, you compete based on performance and again, that's why gross margins are somewhat the same in with all the customers in that segment.

Gary Mobley with Wells Fargo. Your line is now open.

Hi, guys. Thanks, very much for taking my question.

Scott with a quick housekeeping question.

Chris: Yes.

Speaker Change: Thank you.

What's the mix of revenue from your largest customer in the quarter.

Speaker Change: Our next question coming from the line of.

Speaker Change: Gary Mobley with Wells Fargo. Your line is now open.

The largest customer was approximately 73% of total revenue.

Gary Mobley: Hey, guys. Thanks, very much for taking my question.

Which is high.

Gary Mobley: Scott with a quick housekeeping question.

Obviously, because the December quarter.

Gary Mobley: What's the mix of revenue from your largest customer in the quarter.

Top quarter with the largest customers.

Gary Mobley: The largest customer was approximately 73% of total revenue.

And given the broad markets.

Was bottoming out in December.

You'll get to on or about 73%, obviously when you look forward on a full year basis or even in March.

Speaker Change: Which is high.

Speaker Change: Obviously, because the December quarter.

Speaker Change: Top quarter with the largest customers.

Speaker Change: And given that the broad markets was bottoming out in December.

It will be well below the 73%.

Okay. Thank you Chris what's the.

Ask a previous question and perhaps a more direct way.

Speaker Change: Get to own or about 73%, obviously when you look forward on a full year basis or even in March.

Doing the math.

Indicate that your Android related mobile customers are trending now at about a $400 million annualized rate or at least that was the case for the December quarter, but.

It will be well below the 73%.

Speaker Change: Okay. Thank you Chris.

Speaker Change: Ask a.

Speaker Change: Previous question and perhaps a more direct way.

In the past fiscal year 'twenty, two I believe that level is closer to $800 million.

Speaker Change: Doing the math would indicate that your Android related mobile customers are trending now at about a $400 million annualized rate or at least that was the case for the December quarter, but.

My question is if we see a rebound in the Android market.

Based on your design win footprint that you currently have today can we expect that that segment of your business to bounce back to the previous level.

Speaker Change: In the past fiscal year 'twenty, two I believe that level is closer to $800 million.

Speaker Change: So my question is if we see a rebound in the Android market.

Yes, absolutely.

As I said, a lot of opportunity to go harder and stronger and more direct.

Speaker Change: Based on your design win footprint that you currently have today can we expect that that segment of the beer business to bounce back to the previous level.

In the Android ecosystem, we absolutely have the technology to make it work we have to we have to scale manufacturing scale and know how to get it done so.

Yes, absolutely.

Speaker Change: We've got as I said, a lot of opportunity to go harder and stronger and more direct.

I mean, there's certainly a play for us there and I think we'll take advantage.

Okay.

In the Android ecosystem, we absolutely have the technology to make it work we have to we have to scale manufacturing scale I know how to get it done so.

Yeah.

Thank you.

And our next question coming from the line.

Ackerman with BNP Paribas. Your line is now open.

Speaker Change: Yes, I mean, there's certainly a play for us there and I think we'll take advantage.

Yes. Thank you two questions if I may.

Speaker Change: Okay.

On mobile your largest customer is down on a seasonal basis in March but at the same time, given your improving execution within Android does Android grow sequentially in March how do we think about that within mobile police and I have a follow up.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line.

Speaker Change: Ackerman with BNP Paribas. Your line is now open.

Ackerman: Yes. Thank you two questions if I may.

Ackerman: On mobile your largest customer is down on a seasonal basis in March but yeah.

Yes, Android is kind of flattish flattish slightly up and into March.

Ackerman: At the same time, given your improving execution within Android does Android grow sequentially in March how do we think about that within mobile police and I have a follow up.

Got it.

Thanks, Thanks for that Chris.

At the same time I do want to touch on mobile one more time, it's been asked in several different ways, but I guess I'll try it.

Yes, Android just kind of flattish flattish slightly up and into March.

Again.

Less tied to China than peers.

But are you seeing any changes to the.

Speaker Change: Got it.

Speaker Change: Thanks, Thanks for that Chris.

Competitive landscape in China, I ask because there are anecdotes supporting China, RF suppliers winning content.

Speaker Change: At the same time I do want to touch on mobile one more time, it's been asked in several different ways, but I guess I'll try.

Speaker Change: Again, you are less tied to China than peers.

And low band saw and TC saw but at the same time indicated earlier, Chris Youre not necessarily competing in that particular area of the market. So if you can just highlight the clinical landscape and what you're seeing in China that would be very helpful. Thank you.

Speaker Change: But are you seeing any changes to the <unk>.

Speaker Change: Competitive landscape in China, I asked because there are anecdotes supporting China, RF suppliers, winning content in and low band saw and TC saw but at the same time indicated earlier, Chris Youre not necessarily competing in that particular area of the market. So maybe you can just highlight the competitive landscape and what youre seeing in China that would be very helpful. Thank you.

Yes, I mean, the <unk> players, we do some reasonable business there, we could probably do a little bit more on the Android side, but we really don't step down.

Much further there we're not in the low end at all.

We could be but I think we generate a better outcome for our customers and our shareholders to drive that mid high end.

Chris: Yes, I mean, the <unk> players, we do some reasonable business there, we could probably do a little bit more on the Android side, but we really don't step down.

So it's something we can do but I think the way our business runs I think were more accretive as a company going down the playbook that we have today.

Chris: Much further there we're not in the low end at all.

We could be but I think we generate a better outcome for our customers and our shareholders to drive that mid high end.

Thank you and our next question coming from the line of Vivek Arya with Bank of America Securities. Your line is open.

Chris: So it's something we can do but I think the way our business runs I think even more accretive as a company going down the playbook that we have today.

Hi, This is Blake criminal onto the back thanks for taking my question I just wanted to focus on Opex spending has returned to levels seen prior to the industry downturn. So I was curious how we should think about the trajectory of opex through the remainder of the year.

Chris: Thank you and our next question coming from the line of Vivek.

Chris: Vivek Arya with Bank of America Securities. Your line is open.

Yes, so as it relates to Opex.

Vivek Arya: Hi, This is Blake criminal answer Vivek. Thanks for taking my question.

I think we did a good job.

Vivek Arya: Just wanted to focus on Opex spending has returned to levels seen prior to the industry downturn. So I was curious how we should think about the trajectory of opex for the remainder of the year.

The December quarter at 191.

We are guiding a little step up in March to 195 keep in mind that this is the start of a new calendar year, and so you get a reset of the social charges and some of that kicks in.

Vivek Arya: Yes, so as it relates to Opex.

Speaker Change: I think we did a good job.

Speaker Change: The December quarter.

Speaker Change: <unk> hundred 91, we are guiding a little step up in March to 195 keep in mind that this is the start of a new calendar year, and so you get a reset of social charges and some of that kicks in in.

In addition to that we are going to continue to invest in our technology and product Roadmaps we.

We feel good about our position.

Our mobile players as Liam articulated we have plenty of opportunity in our broad markets and we're going to continue to invest we're going to do it to Scott works way, we we focus on efficiency and effectiveness.

Speaker Change: Addition to that we are going to continue to invest in our technology and product Roadmaps.

Speaker Change: We feel good about our position.

Speaker Change: Our mobile players as Liam articulated we have plenty of opportunity in our broad markets.

Wasting any dollars here and so but again, we're going to continue to invest and so opex will continue to gradually move up.

Speaker Change: And we're going to continue to invest we're going to do it to Scott works way, we focus on the efficiency and effectiveness.

In the remainder of the fiscal and calendar year.

Speaker Change: Wasting any dollars here.

Got it and then kind of quickly circling back on some of your comments.

Speaker Change: So, but again, we're going to continue to invest and so opex will continue to gradually move up.

The broad markets business is a key initiative for Sky works and just what the business kind of returning.

Speaker Change: <unk>.

Speaker Change: In the remainder of the fiscal and calendar year.

Cash cash positive level.

Generating pretty strong cash flow.

Speaker Change: Got it and then kind of quickly circling back on some of your comments.

From here I'm, just curious how you think about M&A than anything in particular, you guys, but.

Our broad markets business is a key initiative for Skywards and just what the business kind of returning.

Look to add to the broad markets.

Asset.

Yes.

Speaker Change: Cash cash positive level.

First of all the cash flow is outstanding and it's there.

Generally pretty strong cash flow from.

Definitely something that we focus on them, so we generate a ton of cash.

Speaker Change: From here I'm, just curious how you think about M&A than anything.

Speaker Change: In particular, you guys. Good luck.

Speaker Change: To add to the broad markets.

As you.

We have seen in the last couple of quarters, we have used that cash flow of course to continue to invest into business, we pay our dividends.

Speaker Change: Asset.

Speaker Change: Yes.

Speaker Change: First of all the cash flow is outstanding and it's there.

Speaker Change: Definitely something that we focus on them, so we generate a ton of cash.

Every quarter.

We have been paying off the term loan.

Speaker Change: As you.

We have seen in the last couple of quarters, we have used our cash flow of course to continue to invest in the business, we pay our dividend.

As you probably know how they probably all below interest rate and was getting a little expensive gas.

But we are done with that and so now again looking forward. We have we will continue to drive a very strong free cash flow, it's not going to be every quarter, 63%. We feel we have a sustainable plus 30% free cash flow margin on a fiscal or calendar year basis, but that's generating a lot of cash.

Speaker Change: Every quarter.

Speaker Change: We have been paying off the term loan.

Speaker Change: As you probably know how they probably all below interest rate and was getting a little expensive gas.

But we are done with that and so now again looking forward. We have we will continue to drive a very strong free cash flow, it's not going to be every quarter, 63%. We we feel we have a sustainable plus 30% free cash flow margin on a fiscal or calendar year basis, but that's generating a lot of cash.

And of course, we want to we want to put our cash to work. We have we have optionality we can.

Switch on the buybacks or we can be.

Active from an M&A point of view and as you know we.

Speaker Change: And of course, we want to we want to put our cash to work.

Yes, we focus on becoming a more diverse company. Despite the fact that we liked the mobile business, but we focus on becoming a more diverse company in part through organic investments in the business, but we have the optionality to accelerate that through M&A and we're working at.

Speaker Change: We have we have optionality we can.

Speaker Change: Switch on the buybacks or we can be.

Speaker Change: Active from an M&A point of view and as you know we.

Speaker Change: Yes, we focus on becoming a more diverse company. Despite the fact that we like the mobile business, but we focus on becoming a more diverse company in part through organic investments in the business, but we have the optionality to accelerate that through M&A.

Thank you.

And our next question coming from the line of Tom.

Thomas O'malley with Barclays. Your line is now open.

Hey, Thanks for taking my questions guys I just wanted to understand the underutilization charges.

Speaker Change: And we're working to.

Into the March quarter, obviously gross margins being guided down slightly but youre seeing broad market step up so that mix should help you where are you seeing more of those underutilization charges are those.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of <unk>.

Speaker Change: Thomas O'malley with Barclays. Your line is now open.

Thomas O'malley: Hey, Thanks for taking my questions guys I just wanted to understand the underutilization charges.

Percentage basis is coming more on the mobile side or more on the broad market side.

Thomas O'malley: Into the March quarter, obviously gross margin is being guided down slightly but youre seeing broad market step up so that mix should help you where are you seeing more of those underutilization charges are those.

So no it's not really tied to one of the businesses booked.

We have been bringing down the utilization of our factories in part because the revenue is down year over year, but also because we have been focusing on driving down the inventory right. We are taking our medicine now with not just building inventory to protect the gross margin now it takes a little bit of time for <unk>.

Thomas O'malley: Percentage basis coming more on the mobile side or more on the broad market side.

Thomas O'malley: No, it's not really tied to one of the businesses, but we.

Thomas O'malley: We have been bringing down the utilization of our factories in part because the revenue is down year over year, but also because we have been focusing on driving down the inventory right. We are taking our medicine now with not just building inventory to protect the gross margin now it takes a little bit of time for those into.

Those individualization charges to hit the P&L. It goes through an inventory cycle right. That's why you continue to see slightly down gross margin on a sequential basis into the March quarter, but again, we have confidence that March is the bottom in terms of gross margin and you will start seeing grudge.

Thomas O'malley: Utilization charges to hit the P&L. It goes through an inventory cycle right. That's why you continue to see slightly down gross margin on a sequential basis into the March quarter, but again, we have confidence that March is the bottom.

<unk> improvements.

After the March quarter.

Helpful. And then and then just on the moving pieces for the back half of the fiscal year. It sounds like Android is getting better.

Typical seasonality on the on your largest customer side in mobile, but I just wanted to get US a feel for what you guys kind of are looking at in terms of the reacceleration of broad market. If you look at March for your guidance kind of up slightly youre still down 20% year over year do you think that kind of exiting your fiscal year or are you looking to kind of be <unk>.

In terms of gross margin and then you will start seeing gradual improvements.

Thomas O'malley: After the March quarter.

Speaker Change: Helpful. And then just on the moving pieces for the back half of the fiscal year. It sounds like Android is getting better.

Speaker Change: Typical seasonality on the on your largest customer side in mobile, but I just wanted to get a feel for what you guys kind of are looking at in terms of the reacceleration of broad markets. If you will.

Growing year over year, just can you give us any kind of color on the pace of recovery. There just because I know things are improving but just how quickly is something that I think is a little more difficult to wrap our heads around thank you.

Speaker Change: Look at <unk>.

Speaker Change: March for your guidance kind of up slightly youre still down 20% year over year do you think that kind of exiting your fiscal year or are you looking to kind of be growing year over year. Just can you give us any kind of color on the pace of recovery. There just because I know things are improving but just how quickly is something that I think is a little more difficult to wrap our heads around thank you.

Yes, sure there's a lot there, but I think I get your point. So we definitely believe there's going to be more acceleration in revenue in the broad markets.

Our roster of incredible companies that we're serving right now from a Cisco to afford Daimler Neste, we talked about before Google Company.

Speaker Change: Yes, sure there's a lot there, but I think I get your point. So we definitely believe there's going to be more acceleration of revenue in the broad markets.

It's a very diverse set of products and customers in the broad market portfolio.

Speaker Change: Our roster of incredible companies that we're serving right now from a Cisco to afford.

And Thats, what we like each one has their own vector.

And we're continuing to nurture that and grow into that and it's also a great opportunity on the sales side, because we do have quite a bit of revenue in mobile but.

Speaker Change: Sandler Neste, we talked about before Google Company.

A very diverse set of products and customers in the broad markets portfolio and.

The number of accounts that we haven't served yet.

Speaker Change: And that's what we like each one has their own vector.

<unk> very very high and that's a great opportunity for us to go after.

Speaker Change: And we're continuing to nurture that and grow into that and it's also a great opportunity on the sales side, because we do have quite a bit of revenue in mobile but.

Thank you.

And our last question on queue coming from the line of Quinn Bolton with Needham. Your line is now open.

Speaker Change: The number of accounts that we haven't served yet.

Speaker Change: <unk> very very high and that's a great opportunity for us to go after.

Hey, guys. Thanks for taking my question.

It's been a couple of questions on the call, but that seem to be alluding to perhaps you guys may be losing content at your largest customer in the second half of the year and I haven't heard you guys. Specifically address that can you give us any thoughts as you look to the second half how you're feeling content wise at that largest customer and then I've got a follow on for Chris on that on the gross margins.

Speaker Change: Thank you.

Speaker Change: And our last question on queue coming from the line of Quinn Bolton with Needham. Your line is now open.

Quinn Bolton: Hey, guys. Thanks for taking my question.

Quinn Bolton: It's been a couple of questions on the call, but that seem to be alluding to perhaps you guys may be losing content at your largest customer in the second half of the year and I haven't heard you guys. Specifically address that can you give us any thoughts as you look into the second half how you're feeling content wise at that largest customer and then I've got a follow on for Chris on that on the gross margins.

Yes, I think we are we have a great position with our largest customer.

Nothing really is concerning on that point I mean, we know exactly who we are and who they are and we have great partnerships.

And we will continue to drive success.

Speaker Change: Yes, I think we are we have a great position with our largest customer.

Okay, and then for Chris you know you've kind of talked about the gross margin drivers.

Speaker Change: Nothing really is concerning on that point I mean, we know exactly who we are and who they are and we have great partnerships.

Potentially pretty quick recovery.

The March bottom I'm, just kind of curious is there can you give us any sense. How quickly can you get back to 50% is that something you think you can do in the calendar year 'twenty four and does it require you to get to a certain revenue level to get rid of some of those underutilization charges or are things like.

Speaker Change: And we will continue to drive success.

Speaker Change: Okay, and then for Chris you've kind of talked about the gross margin drivers.

Speaker Change: Potentially pretty quick recovery.

Speaker Change: The March bottom I'm, just kind of curious is there can you give us any sense. How quickly can you get back to 50% is that something you think you can do in the calendar year 'twenty four and does it require you to get to a certain revenue level to get rid of some of those underutilization charges or are things like.

Product mix, a much bigger factor.

As well as the cost reductions.

Taken.

Getting back to that 50% so it tends to be maybe a little bit less driven.

By a certain revenue level, just just what's the best way to think about getting back to 50%.

Speaker Change: Product mix, a much bigger factor.

Yeah I mean.

Speaker Change: As well as the cost reductions.

We guide only one quarter at a time and there's a reason for it is right. There is a lot of puts and takes that go into the equation, but but.

Speaker Change: Taken.

Speaker Change: Getting back to that 50% so it tends to be maybe a little bit less driven.

Speaker Change: By a certain revenue level, just what's the best way to think about getting back to 50%.

Again, we have confidence that March $45 46 is the bottom we will start seeing gradual improvements from there. We obviously want to get as fast as we can back to the 50%.

Speaker Change: Yes, I mean.

We guide only one quarter at a time and there's a reason for it is right. There is a lot of puts and takes that go into the equation, but.

And then once we get back to the 50%, we're not going to stop there our long term target model calls for 53% gross margin and we believe we can do that.

Speaker Change: Again, we have confidence.

March $45 46 is the bottom we will start seeing gradual improvements from there, we obviously want to get as fast as we can back to the 50%.

The there is no structural impediments in the business that will prevent us, but obviously, yes, we need.

Speaker Change: And then once we get back to the 50%, we're not going to stop there our long term target model calls for 53% gross margin and we believe we can do that.

Revenue growth and we need to get better factory utilization that in combination with older cost efficiencies internally and externally that we have been working on and will continue to work on gives us the conviction that we will get back to the 50 in a reasonable amount of time and then we're going to keep driving it to work.

There is no structural impediments in the business that will prevent us, but obviously, yes, we need.

Speaker Change: Revenue growth and we need to get better factory utilization that in combination with older cost efficiencies internally and externally that we have been working on and will continue to work on.

Our target model of 53, but we will provide an update on a quarter by quarter basis.

Yeah.

Speaker Change: Is the conviction that we will get back to the 50 in a reasonable amount of time and then we're going to keep driving it towards our target model of 53, but we will provide an update on a quarter by quarter basis.

Thank you.

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

Thank you all for joining look forward to seeing you at upcoming conferences.

Speaker Change: Okay.

Speaker Change: Thank you.

Liam K. Griffin: Ladies and gentlemen that concludes today's question and answer session I will now turn the call back over to Mr. Griffin for any closing comments.

Ladies and gentlemen, this concludes today's conference call we.

We thank you for your participation you may now disconnect.

Thank you all for joining look forward to seeing you at upcoming conferences.

Liam K. Griffin: Okay.

Liam K. Griffin: Ladies and gentlemen, this concludes today's conference call.

Speaker Change: We thank you for your participation you may now disconnect.

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Speaker Change: Good afternoon.

Speaker Change: Welcome to Skylark solutions first quarter fiscal year 2024 earnings call.

This call is being recorded.

At this time I will turn the call over to Rodrigo <unk>, Vice President of Investor Relations for Sky works.

Rodrigo: Please go ahead.

Rodrigo: Thank you operator, good afternoon, everyone and welcome to <unk> first fiscal quarter 2024 conference call.

Rodrigo: With me today is Liam Griffin, our chairman Chief Executive Officer and President.

Rodrigo: Chris <unk>, Chief Financial Officer for Sky works.

Speaker Change: This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website as Skywards E. Dot Com. In addition, the Companys prepared remarks will be made available on our website promptly after their conclusion during the call.

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

Speaker Change: Please refer to our earnings press release, and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. Additionally.

Speaker Change: Additionally, the results and guidance, we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for complete reconciliation to GAAP with that I will turn the call over to Liam.

Liam K. Griffin: Rajiv and welcome everyone.

Speaker Change: <unk> continued to execute well during the first fiscal quarter of 2024.

Speaker Change: Despite a volatile macroeconomic environment.

Speaker Change: We delivered revenue of $1 $2 2 billion.

Speaker Change: We posted earnings per share of $1 97.

Speaker Change: And generated $775 million of operating cash flow.

Speaker Change: Free cash flow was also a record at $753 million or 63% free cash flow margin.

Speaker Change: Which reflects strong working capital management and moderating capex intensity.

Speaker Change: Let's review, both near and long term secular trends in our end markets.

Speaker Change: After two challenging years across Android ecosystems, we see signs that the industry is stabilizing.

Speaker Change: Excess supply conditions are abating and inventory levels in the distribution channel and at the OEM level are normalizing.

Customers are starting to restock inventory.

Speaker Change: Albeit gradually as supply and demand dynamics improve and new phones are introduced into the market.

Speaker Change: Moreover, we've made strategic investments in product development positioning us to compete for design wins and share gains focusing on highly integrated platforms with our leading mobile Oems.

Speaker Change: We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover.

Speaker Change: Within broad markets, we see crosscurrents, but many factors are moving in the right direction.

Speaker Change: And consumer Iot, we believe that we are past the bottom as inventory levels in the channel have normalized and demand signals are improving.

Speaker Change: Furthermore, we are executing on the upgrade cycle to Wi Fi six and seven.

Speaker Change: We see significant design win momentum across our retail carrier and enterprise channels.

Speaker Change: These systems carry substantially higher dollar content.

Speaker Change: Because of the addition of the new six gigahertz band and the inclusion of boss filtering technology.

Speaker Change: We expect wireless infrastructure and traditional data center will remain a headwind throughout 2024.

Speaker Change: Oems continue to digest excess inventory.

Speaker Change: Despite this we remain bullish on several new product cycles, including major design wins in Ethernet for high bandwidth networks.

Speaker Change: And 400 gig and 800 gig optical module upgrades.

Lastly, <unk>.

Speaker Change: Automotive and industrial markets are experiencing a near term inventory correction.

However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle.

Speaker Change: Along with growing EV penetration driving demand for our power isolation products.

Speaker Change: Taken together, we anticipate December quarter represents the bottom in the broad markets business.

Speaker Change: There are several long term secular growth dynamics that leverage our differentiated technology.

Speaker Change: Including the proliferation of intelligent edge connected Iot devices, automotive electrification and advanced safety systems, and AI enabled workloads driving cloud and data center upgrades.

Each of these trends requiring inter kit connectivity engines underlying the need for speed ultra reliable low latency performance.

Speaker Change: In addition, <unk> technology is expanding beyond the smartphone and.

Speaker Change: Some more use cases and broad markets.

Speaker Change: Including private cellular networks and factories in stadiums.

Speaker Change: Customer premise equipment, supporting Verizon and T mobile.

Speaker Change: And multi band automotive telematics.

Speaker Change: And Wearables to name a few.

Speaker Change: We also remain bullish on the long term RF content story, and smart balance coupled with growing <unk> penetration.

Speaker Change: We see increasing levels of complexity and content with each new generation.

Speaker Change: For example, <unk> advanced is driving higher RF content, including the addition of satellite Vance.

Speaker Change: <unk> by four mimo on the downlink and uplink higher bandwidth.

Speaker Change: More carrier aggregation upgrades to Wi Fi and GPS and other innovations.

Speaker Change: Lastly, we are energized about the prospect of generative AI migrating to the smartphone sparking a potential major upgrade cycle.

Speaker Change: As the performance bar rises every year to support AI enabled phones, the complexity requirements of RF will continue to increase.

Speaker Change: Driving the need for more integration lower power consumption smaller footprint and spectral efficiency.

<unk> is the ideal standard for on device AI applications as it takes advantage of lower latency faster transmission speeds and higher frequency ranges.

Speaker Change: In addition, AI enabled workloads are driving demand for high speed connectivity for data intensive infrastructure and cloud up rates accelerating the demand for our high precision timing products.

Speaker Change: Turning to our quarterly business highlights.

Speaker Change: We secured several design wins and infrastructure, including optical transport products with a major operator in India and.

Speaker Change: And timing devices for <unk> small cells for private networks.

Speaker Change: We expanded the Wi Fi design pipeline with Cisco's enterprise access points Linksys Tri band mesh router and TP lengths Tri band gaming router.

Speaker Change: We increased design win momentum in automotive, including telematics infotainment systems and onboard chargers across the leading Oems.

Speaker Change: Lastly, an emerging Iot, we delivered next generation Smart energy solutions with Google's nest temperature sensors, and <unk> residential gas meters.

Speaker Change: In summary, Sky works delivered solid financial results, despite a challenging macro environment.

Speaker Change: Our strong balance sheet record cash flow and profitability reflect our resilient business model diverse customer base and technology scale.

Speaker Change: With that I will turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q2 of fiscal 2024.

Chris: Thanks Liam.

Chris: <unk> revenue for the first fiscal quarter of 2024 was $1 billion and 202 million slightly above the midpoint of our outlook.

Chris: Mobile was approximately 71% of total revenue an increase of 7% sequentially as we supported the ramp of new high performance solutions at our largest customer.

Chris: <unk> related revenue with Google Samsung and the Chinese Oems grew modestly sequentially.

Broad markets were approximately 29% of total revenue down 18% sequentially, mostly driven by some specific inventory corrections and wireless infrastructure automotive and industrial.

Chris: Gross profit was 557 million with gross margin at 46, 4% in line with expectations.

Chris: Gross margin was down 70 basis points sequentially, driven by an unfavorable mix shift, resulting from lower growth markets revenue.

Chris: Also during Q1, we reduced our internal inventory by 193 million to $927 million well below our target of $1 billion.

Chris: Operating expenses were one.

Chris: 191 million below the low end of the guidance range, given our ongoing focus on managing discretionary expenses, while continuing to invest in our technology and product Roadmaps.

Chris: We generated $366 million of operating income translating into an operating margin of 34%.

Chris: We incurred $7 million of other expense and that would affect the tax rate was 11, 7% driving net income of $317 million and diluted earnings per share of $1 97.

Chris: Which is <unk> <unk> above the guidance that we provided during the last earnings call.

Chris: Skywards business model continues to generate very strong cash flow.

Chris: First fiscal quarter cash flow from operations increased to an all time record of $775 million.

Chris: Capital expenditures were reduced from $22 million or less than 2% of revenue.

Chris: Results in an all time record free cash flow of $753 million or 63% free cash flow margin.

Chris: Strong profitability combined with great working capital management, and lowering the capex intensity of the business drove the record cash flow numbers.

Chris: Also during fiscal Q1 repaid $109 million in dividends and repaid the remaining $300 million on our term loan.

Chris: We ended the quarter with over $1 billion in cash and investments and $1 billion in depth, creating a net positive cash position and an optimal capital structure, providing us with superior flexibility and optionality.

Speaker Change: Now, let's move on to our outlook for Q2 of fiscal 2024.

Speaker Change: We anticipate revenue between $1 billion, and $20 million and $1 billion and $70 million.

Speaker Change: We expect our mobile business to be seasonally down gross system with historical patterns.

Speaker Change: While in broad markets, we anticipate modest growth of the December quarter as inventory levels are normalizing and certain end markets.

Speaker Change: Gross margin is projected to be in the range of 45% to 46%, reflecting our seasonally weakest period of the year.

Speaker Change: Along with higher factory utilization rates.

Speaker Change: We'll also benefit from a favorable mix shift as our broad markets business recovers and accelerates.

Speaker Change: We expect operating expenses in the range of $193 million to $197 million as we continued to make strategic investments in mobile and broad markets to drive share gains and increased diversification.

Speaker Change: Below the line, we anticipate roughly $4 million in other expense and an effective tax rate of 11, 5%.

Speaker Change: And a diluted share count of approximately 161 million shares accordingly at the midpoint of the revenue range of $1 billion and 45 million.

Speaker Change: <unk> to deliver diluted earnings per share of $1.52.

Speaker Change: Operator, let's open the line for questions.

Speaker Change: Given time constraints, please limit yourself to one question and one follow up.

Speaker Change: Please standby will be compile the Q&A roster.

Speaker Change: And our first question.

Speaker Change: Coming from the line of.

Speaker Change: Matt Ramsey with Cowen Your line is open.

Matthew D. Ramsay: Thank you very much good afternoon guys.

Matthew D. Ramsay: Liam I wanted to ask.

Matthew D. Ramsay: About the broad market trends and it's obviously.

Matthew D. Ramsay: As the name applies a diverse business.

I was.

Matthew D. Ramsay: And some of your peers and then other.

Matthew D. Ramsay: Maybe what the pace of that potential recovery, starting from March and through the rest of the year could look like coming off the bottom. Thanks sure sure absolutely.

Matthew D. Ramsay: One of the interesting things here with our broad markets business is that there's so many opportunities that we havent yet scaled. So if we look at that business. Unlike some of the other mobile markets that are at our well defined and there's still great opportunities.

Speaker Change: We look at the broad market as more of an open ended play for US we're leveraging the technologies that we know how to work with.

Speaker Change: We have a great set of customers and that continues to grow and expand.

But yes, I mean, the team has done a really good job. This has been a tough year across the across the landscape across semis.

Speaker Change: We're happy to deliver some positive results here today and we do think there is a turn.

Speaker Change: Again in that portfolio, it's very diverse.

Speaker Change: Mobile is a part of it but the lion's share is really diversified products.

Speaker Change: With some really great names as well.

Speaker Change: And most of those broad market companies, we have low share there's still a tremendous amount of room to grow within those accounts. So I think those are some of the themes. We've been working on this for quite a while and.

Speaker Change: Finally, putting up some meaningful topline leveraging that broad markets business. The other thing.

Speaker Change: We continue to remind our customers and even the investors I wanted to stuff. We do in house, So we're able to craft and cure rate specialty products, we have our own fabs.

Speaker Change: We do things a little bit differently, and I think that helps our outcome.

Speaker Change: Got it. Thank you for that I guess as my follow up and this is going to be.

Speaker Change: Somatic that we talk about in the PC market, maybe this year and then into next year in the smartphone market as you alluded to sort of AI.

Speaker Change: Its way into these products potentially.

Speaker Change: Catalyzing a bit of an upgrade cycle. So I guess my question is I mean, it's pretty.

Speaker Change: Straightforward for us to envision if youll get air interface upgrades from <unk> to what comes back that can expand the RF Tam pretty meaningfully for your smartphone business our U S.

Anticipating the growth potential from AI in smartphones to be.

Speaker Change: Primarily a unit driver for the market and therefore for your company are there things that you guys can do in AI enabled phones that could meaningfully change the content.

Speaker Change: Or are we sort of weighting toward the next day air interface before the content could possibly inflect, where the Tam again, yes.

Speaker Change: Yes, I think it's a secular opportunity. This is a really unique period for us and in the industry.

Speaker Change: The way we look at it you look at AI and a lot of that is really intense servers data center and that's extremely important.

Speaker Change: Then you take it down to the middle ground.

Speaker Change: And then you're kind of in a different position, but getting that mobile is going to be a challenge it's going to be a challenge, but it will happen the consumer wants that the consumer wants to have that compute power in their hand, and it's not there yet, but we really believe that it will come.

Speaker Change: But we really do believe that heavy compute power is kind of get matched up with something in your hand that handheld devices got a step up but it's got to grow what is going to be more it's got it needs to be faster lower latency.

Speaker Change: And Thats all good because those are problems that we can solve.

Speaker Change: Yeah.

Speaker Change: Thank you and our next question coming from the line of Chris.

Speaker Change: Chris Caso with Wolfe Research your line is now open.

Christopher Adam Jackson Rolland: Yes. Thank you. Good evening first question is about the Android market right now it sounds like.

Christopher Adam Jackson Rolland: That market.

Christopher Adam Jackson Rolland: Finally grown for you after several quarters of inventory correction.

Christopher Adam Jackson Rolland: Can you speak to what your expectations are for that as you go through the year.

Christopher Adam Jackson Rolland: I suppose at this point the inventory correction is behind us whats your level of optimism of getting back to more normal growth rates in that part of the business.

Speaker Change: Yes, Chris.

Christopher Adam Jackson Rolland: Yes, you are right, it's been a little bit bumpy through the ecosystem here, but we see.

Christopher Adam Jackson Rolland: Green shoots here popping up in Android, we know how to make these products I think there was a little bit of a soft spot there in the industry.

The newer phones are coming up with a little bit more technology, we like that and we can broaden that base. So we are going to.

Christopher Adam Jackson Rolland: The prepared remarks, we commented on that.

Christopher Adam Jackson Rolland: And you should expect more growth in the Android ecosystem as we go forward. These are products that we can execute two in the pipeline right now and give us.

Christopher Adam Jackson Rolland: Continuing strength getting going through 'twenty four 'twenty five.

Christopher Adam Jackson Rolland: Okay.

Speaker Change: Okay as a follow up on gross margins speak to your expectations.

Speaker Change: As we proceed through the year one thing you mentioned it sounded like your internal inventory was below target should.

Speaker Change: Should we read that to mean utilization starts going higher and what the effect on that will be on gross margins as we go through the year.

Speaker Change: Yes, Chris.

Speaker Change: <unk>.

Speaker Change: So.

Speaker Change: <unk>.

Christopher Adam Jackson Rolland: I am really.

Christopher Adam Jackson Rolland: When you look at gross margins right, we did 46, 4% in Q1.

Christopher Adam Jackson Rolland: We still impacted there by under utilization a little bit of a headwind from a mix point of view as well and that continues somewhat.

Christopher Adam Jackson Rolland: In the March quarter that we guided but then when I look beyond the March quarter.

Christopher Adam Jackson Rolland: We will see some really nice gross margin uplift in the remainder of the fiscal and the calendar year.

Christopher Adam Jackson Rolland: Part of that is higher utilization, because we will no longer have to focus on a reduction of inventory.

Christopher Adam Jackson Rolland: That is behind us we reduced the inventory by almost $200 million in the December quarter that is maybe still a little bit of opportunity there but.

Christopher Adam Jackson Rolland: But we feel good about the inventory levels, where they are right. Now in addition to that our broad markets business is going.

Christopher Adam Jackson Rolland: Grow faster than the mobile business and so that gives us a little bit of <unk>.

Christopher Adam Jackson Rolland: Mix tailwind as well and then in addition to that we will really benefit from all the cost reductions that we've done over the last 12 months, we've really focused on taking out structural parts of the cost structure, we focused on operational efficiencies driving yielded.

Christopher Adam Jackson Rolland: <unk> and test time reductions.

Christopher Adam Jackson Rolland: And in addition to internal cost we also start seeing some benefit from external costs and so when you put it altogether, we will see some nice gradual gross margin improvement.

Christopher Adam Jackson Rolland: After the March quarter.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Christopher Rolland with Susquehanna.

Christopher Adam Jackson Rolland: Susquehanna Your line is now open.

Christopher Adam Jackson Rolland: Hey, guys. Thank.

Christopher Adam Jackson Rolland: Thank you for the question I guess first of all in broad markets.

Christopher Adam Jackson Rolland: You had some great color as to how you break those out into kind of sub segments.

Christopher Adam Jackson Rolland: Would love to know kind of what those look like how they're trending.

Susquehanna: And then also you alluded to the gross margin benefits as we move through the year I don't know if you can talk to the.

Susquehanna: Broad markets effect on gross margin as we move through the year.

Susquehanna: Yes, so as it relates to broad markets, roughly 40%, 45% is Iot more consumer Iot right, where we provide connectivity solutions.

Susquehanna: In tablets and Wearables Npcs.

Susquehanna: Your home connectivity with routers and all the access points desktop into that.

Susquehanna: <unk> market the incentive.

Susquehanna: There has been an inventory correction for multiple quarters, but we are getting towards the end of the inventory correction that in addition to that we see strong growth in that part of the market due to an uplift in content as we transition from Wi Fi six into Wi Fi six and seven type of solutions that hasnt.

Susquehanna: Substantially higher RF content of Sky works inside the.

Susquehanna: 30%, 35% is infrastructure cloud data center.

Susquehanna: Enterprise networking.

Susquehanna: That is definitely an inventory correction going on in that part of the business that has started in the December quarter and will continue for a couple of quarters here.

Susquehanna: Nevertheless that as well I think in that market, we are very well positioned with some key customers.

Susquehanna: Including our timing solutions.

Susquehanna: For data centers and then the last part is 20%, 25% is automotive and industrial.

Susquehanna: There is well I think we are well positioned but.

Susquehanna: You've heard it from many of our peers. There is an inventory correction going on I don't think it will be a long drag out inventory correction, it's probably December March two quarters over the inventory correction.

Susquehanna: And then again, we are very well positioned in that market. The connected car that eventually become an autonomous score.

Susquehanna: As well as EV, where we play with our power reservation solutions and so again when you put it altogether December is the bottom for our broad markets. We start seeing some sequential growth in March and beyond.

Susquehanna: As you know those markets typically have a higher gross margin compared to broad markets.

Susquehanna: And that will help us to lift the gross margin.

Speaker Change: Thank you for that color Chris.

Speaker Change: You guys already talked about AI smartphones, but also you called out AI enabled workloads driving cloud and data center upgrades you also talked about 800 gig.

Speaker Change: And this being an opportunity for you is that is that all related to your timing business.

Speaker Change: From from your acquisition or are there other ways that youre leveraging infrastructure around AI as well.

Speaker Change: Yes, largely through while the infrastructure business that we have and some of the technology that we brought forth in our Silicon lab steel.

Speaker Change: That's driving new vectors for us at Sky works.

Speaker Change: And the industrial markets in the data center markets and it's really.

Speaker Change: Hybrid growth growth source for us.

There's a lot of room to grow there as well so lots more to do but we've made some making some great progress in that area.

Okay.

Speaker Change: Thank you and our next.

Speaker Change: Question coming from the line of Edward Snyder with Charter equity Research. Your line is now open.

Edward Snyder: Thank you very much.

Edward Snyder: To touch on if we could.

Edward Snyder: Later, this year, especially in mobile.

Edward Snyder: It seems pretty clear at this point, given you're just customer scrambled to get their thing done by 225 that most all attention is all of that and that we're going to have kind of a.

Edward Snyder: I don't know that's way to put it but basically.

Edward Snyder: Kind of on hold not on hold but.

Edward Snyder: Speed of what we've seen before nothing not much new in the new one and the competition squib. So basically I would expect in the fall you're going to see more competition are you already now you already know it now.

Edward Snyder: Qualcomm is going to talk about it a lot of Wednesday.

Speaker Change: If you could maybe characterize or just.

Speaker Change: Getting into too much detail about what should we look at in terms of the mix in the second half you're already talking about broad markets being much stronger than most.

Speaker Change: By application is going to be a little bit weaker.

Speaker Change: And is that mostly just the organic growth or it's going to be some share loss or how do we think about that and then I have a follow up please.

Speaker Change: Yes, well of course, we're deeply engaged with mobile at all at all angles right. So we have a broad.

Set of technologies that are applicable to multiple customers, including the largest.

Speaker Change: And Thats our craft.

The largest part of our portfolio, we're growing across other markets, but certainly the knowhow that we have in RF.

The ability to do things in house as you know.

Speaker Change: And the vectors that we put forth to drive this company. So we're all over it at every angle and we are continuing to work on market share and new innovations delighting, our customers often incurring consumption.

Speaker Change: Okay, maybe I can forward a different angle here, you're going to grow in Android you've kind of been under earning there for several years I think on purpose, because you've done very well outside of that market.

Speaker Change: R&D is going up to in order to address the products you have different product market, but margins typically are lower in that whole market.

Speaker Change: Competition is a lot more tense one should we expect to see revenue growth in the second half is a little early but.

Second half of the year, whether it's on inventory snapback or new product wins and <unk>.

Speaker Change: Android tried to pick up some of that slack and then Chris maybe you could articulate how that how you're going to offset the margin the natural margin dilution of Android over to the U S customer and then of course all mobile.

Speaker Change: Elution against broad markets in the second half if you could please thanks.

Christopher Adam Jackson Rolland: Yes, so yes, we're with you on that so there's a lot of opportunity for us to be more aggressive.

Christopher Adam Jackson Rolland: Across the Android ecosystem, it's not just China, and you're getting names like Google and Samsung the tremendous opportunities that we can drive.

We're built for this kind of stuff and we have an end to end process that we continue to.

Christopher Adam Jackson Rolland: To improve and refine at every turn and it helps our customers that helps our gross margin our utilization we have incredible factories homegrown stuff that we have here in Irvine.

Christopher Adam Jackson Rolland: Really really is.

The solution of choice as far as Idaho.

Christopher Adam Jackson Rolland: With our technology know how on the build and the ability to be flexible and customizable to each account.

Christopher Adam Jackson Rolland: I think thats, an asset for us and I think we will continue to drive that portfolio yes.

Christopher Adam Jackson Rolland: As it relates to gross margin the gross margin profile of our mobile customers. It is on or about the same.

Christopher Adam Jackson Rolland: And part of that is because you know we are somewhat selective we are not sliding down in the mid or low end of the market.

Christopher Adam Jackson Rolland: We stay at the high end, we stay at the high performance parts and in that part of the markets you compete based on performance, it's not a price.

Christopher Adam Jackson Rolland: Competition, you compete based on performance and again, that's why gross margins are somewhat the same in all of the customers in that segment.

Christopher Adam Jackson Rolland: Okay.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of.

Speaker Change: Gary Mobley with Wells Fargo. Your line is now open.

Gary Mobley: Hi, guys. Thanks, very much for taking my question.

Gary Mobley: Scott with a quick housekeeping question.

Gary Mobley: What's the mix of revenue from your largest customer in the quarter.

The largest customer was approximately 73% of total revenue.

Speaker Change: Which is high.

Speaker Change: Obviously, because the December quarter.

Speaker Change: Top quarter with the largest customers.

Speaker Change: And given that the broad markets.

Speaker Change: Was bottoming out in December.

You'll get to own or about 73%, obviously when you look forward on a full year basis or even in March.

Speaker Change: It will be well below the 73%.

Okay. Thank you Chris.

Speaker Change: Ask.

Speaker Change: Previous question and perhaps a more direct way.

Speaker Change: Doing the math.

Speaker Change: Indicate that your Android related mobile customers are trending now at about a $400 million annualized rate or at least that was the case for the December quarter, but.

Speaker Change: In the past fiscal year 'twenty, two I believe that level is closer to $800 million.

Speaker Change: My question is if we see a rebound in the Android market.

Speaker Change: Based on your design win footprint that you currently have today can we expect that that segment of the beer business to bounce back to the previous level.

Yes, absolutely.

Speaker Change: As I said, a lot of opportunity to go harder and stronger and more direct.

Speaker Change: In the Android ecosystem.

Speaker Change: We absolutely have the technology to make it work we have to we have to scale manufacturing scale and know how to get it done so.

Speaker Change: Yes, I mean, there's certainly a play for us there and I think we'll take advantage.

Speaker Change: Okay.

Okay.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of.

Speaker Change: Ackerman with BNP Paribas. Your line is now open.

Ackerman: Yes. Thank you two questions if I may.

On mobile your largest customer is down on a seasonal basis in March but.

Ackerman: At the same time, given your improving execution within Android does Android grow sequentially in March how do we think about that within mobile police and I have a follow up.

Ackerman: Yes, Android is kind of flattish flattish slightly up and into March.

Speaker Change: Got it.

Speaker Change: Thanks, Thanks for that Chris.

Speaker Change: At the same time I do want to touch on mobile one more time, it's been asked in several different ways, but I guess I'll try it.

Speaker Change: Again, you are less tied to China than peers.

Speaker Change: But are you seeing any changes to the.

Speaker Change: Competitive landscape in China, I ask because there are anecdotes supporting China, RF suppliers, winning content and low band saw and TC saw but at the same time indicated earlier, Chris Youre not necessarily competing in that particular area of the market. So if you could just highlight the clinical landscape and what youre seeing in China that would be very helpful. Thank you.

Speaker Change: Yes, I mean, the <unk> players, we do we do some reasonable business there, we could probably do a little bit more on the Android side, but we really don't step down.

Speaker Change: Much further there we're not in the low end at all.

Speaker Change: We could be but I think we generate a better outcome for our customers and our shareholders to drive that mid high end.

Speaker Change: So it's something we can do but I think the way our business runs I think were more accretive as a company going down the playbook that we have today.

Speaker Change: Thank you and our next question coming from the line of.

Speaker Change: Vivek Arya with Bank of America Securities. Your line is now open.

Speaker Change: Hi, This is Blake I'll turn it back thanks for taking my question.

Blake: Wanted to focus on Opex spending has returned to levels seen prior to the industry downturn. So I was curious how we should think about the trajectory of opex through the remainder of the year.

Speaker Change: Yes, so as it relates to Opex.

I think we did a good job.

Speaker Change #100: The December quarter at 191, we are guiding with a little step up in March to 195 keep in mind that this is the start of a new calendar year, and so you get a reset of the social charges and some of that kicks in.

Speaker Change #100: In addition to that we are going to continue to invest in our technology and product Roadmaps.

Speaker Change #100: <unk>.

Speaker Change #100: We feel good about our position.

Speaker Change #100: Our mobile players as Liam articulated we have plenty of opportunity in our broad markets.

Speaker Change #100: And we're going to continue to invest we're going to do it to Scott works way, we we focus on the efficiency and effectiveness.

Speaker Change #100: Wasting any dollars here and so but.

Speaker Change #100: We're going to continue to invest and so opex will continue to gradually move up.

Speaker Change #100: <unk>.

Speaker Change #100: In the remainder of the fiscal and calendar year.

Got it and then kind of quickly circling back on some of your comments.

Speaker Change #100: Broad markets business is a key initiative for Skywards and just what the business kind of returning.

Speaker Change #100: Cash cash positive level.

Speaker Change #100: Writing pretty strong cash flow.

Speaker Change #101: From here I'm, just curious how you think about M&A and anything in particular, you guys, but.

Speaker Change #101: Look to add to the broad markets.

Speaker Change #101: Asset.

Speaker Change #102: Yes first of all the cash flow is outstanding and it's definitely something that we focus on them. So we generate a ton of cash.

Speaker Change #102: As you.

Speaker Change #102: We have seen in the last couple of quarters, we have to use that cash flow of course to continue to invest into business, we pay our dividends every quarter.

Speaker Change #102: We have been paying off the term loan.

Speaker Change #102: As you probably know how they probably all below interest rate and was getting a little expensive gas.

Speaker Change #102: But we are done with that and so now again looking forward. We have we will continue to drive a very strong free cash flow, it's not going to be every quarter, 63%. We feel we have a sustainable plus 30% free cash flow margin on a fiscal or calendar year basis, but that's generating a lot of cash.

Speaker Change #102: And of course, we want to we want to put our cash to work. We have we have optionality we can.

Speaker Change #102: Switch on the buybacks or we can be.

Speaker Change #102: Active from an M&A point of view and as you know we.

Speaker Change #102: Yes, we focus on becoming a more diverse company. Despite the fact that we like the mobile business, but we focus on becoming a more diverse company in part through organic investments in the business, but we have the optionality to accelerate that through M&A.

And we're working at.

Speaker Change #103: Thank you.

Speaker Change #103: And our next question coming from the line of Tom.

Speaker Change #103: Thomas O'malley with Barclays. Your line is now open.

Hey, Thanks for taking my questions guys I just wanted to understand the underutilization charges.

Thomas O'malley: Into the March quarter, obviously gross margins being guided down slightly but youre seeing broad market step up so that mix should help you where are you seeing more of those underutilization charges are those.

Thomas O'malley: Percentage basis coming more on the mobile side or more on the broad market side.

So no it's not really tied to one of the businesses but.

Thomas O'malley: Those underutilization charges to hit the P&L. It goes through an inventory cycle right. That's why you continue to see slightly down gross margin on a sequential basis into the March quarter, but again, we have confidence that March is the bottom in terms of gross margin and you will start seeing graduate.

Thomas O'malley: <unk> improvements.

Thomas O'malley: After the March quarter.

Speaker Change #104: Helpful. And then and then just on the moving pieces for the back half of the fiscal year. It sounds like Android is getting better.

Typical seasonality on the on your largest customer sided mobile, but I just wanted to get US a feel for what you guys kind of are looking at in terms of the reacceleration of broad market. If you look at March for your guidance kind of up slightly youre still down 20% year over year do you think that kind of exiting your fiscal year or are you looking to kind of be.

Speaker Change #104: Growing year over year, just can you give us any kind of color on the pace of recovery. There just because I know things are improving but just how quickly is something that I think is a little more difficult to wrap our heads around thank you.

Speaker Change #105: Yes, sure there is a lot there, but I think I get your point. So we definitely believe there's going to be more acceleration in revenue in the broad markets.

Speaker Change #106: Our roster of incredible companies that we're serving right now from a Cisco to afford Dabbler Nast, we talked about before Google Company.

Speaker Change #106: It's a very diverse set of products and customers in the broad markets portfolio.

Speaker Change #106: And Thats, what we like each one has their own vector.

Speaker Change #106: And we're continuing to nurture that and grow into that and it's also a great opportunity on the sales side, because we do have quite a bit of revenue in mobile but.

Speaker Change #106: The number of accounts that we haven't solved yet.

Speaker Change #106: <unk> very very high and Thats, a great opportunity for us to go after.

Speaker Change #107: Thank you.

And our last question in queue coming from the line of Quinn Bolton with Needham. Your line is now open.

Quinn Bolton: Hey, guys. Thanks for taking my question.

Quinn Bolton: It's been a couple of questions on the call, but seem to be alluding to perhaps you guys may be losing content at your largest customer in the second half of the year and I haven't heard you guys. Specifically address that can you give us any thoughts as you look into the second half how youre feeling content wise at that largest customer and then I've got a follow on for Chris on that on the gross margins.

Yes, I think we are we have a great position with our largest customer.

Quinn Bolton: Nothing really is concerning on that point I mean, we know exactly who we are and who they are and we have great partnerships.

Quinn Bolton: And we will continue to drive success.

Quinn Bolton: Okay, and then for Chris you've kind of talked about the gross margin drivers.

Quinn Bolton: Potentially pretty quick recovery.

Quinn Bolton: The March bottom I'm, just kind of curious is there can you give us any sense. How quickly can you get back to 50% is that something you think you can do in the calendar year 'twenty four and does it require you to get to a certain revenue level to get rid of some of those underutilization charges or are things like.

Quinn Bolton: Product mix, a much bigger factor as well as the cost reductions you have to.

Quinn Bolton: Taken to getting back to that 50%. So it tends to be maybe a little bit less driven.

Quinn Bolton: By a certain revenue level, just what's the best way to think about getting back to 50%.

Quinn Bolton: Yes.

Quinn Bolton: We guide only one quarter at a time and there's a reason for that is right. There is a lot of puts and takes that go into the equation, but but again, we have confidence that March $45 46 at the bottom we will start seeing gradual improvements from there, we obviously want to get as fast as.

Quinn Bolton: We can back to the 50%.

And then once we get back to the 50%, we're not going to stop that our long term target model calls for 53% gross margin and we believe we can do that.

Quinn Bolton: The there is no structural impediments in the business that will prevent us, but obviously, yes, we need.

Quinn Bolton: Revenue growth and we need to get better factory utilization that in combination with older cost efficiencies internally and externally that we have been working on and will continue to work on keepers. The conviction that we will get back to the 50 in a reasonable amount of time and then we're going to keep driving it to work.

Quinn Bolton: Our target model of 53, but we will provide an update on a quarter by quarter basis.

Quinn Bolton: Yeah.

Speaker Change #108: Thank you.

Liam K. Griffin: Ladies and gentlemen that concludes today's question and answer session I will now turn the call back over to Mr. Griffin for any closing comments.

Griffin: Thank you all for joining look forward to seeing you at upcoming conferences.

Griffin: Yeah.

Speaker Change #110: Ladies and gentlemen, this concludes today's conference call.

Speaker Change #111: We thank you for your participation you may now disconnect.

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