Q4 2025 Qorvo Inc Earnings Call
Good day and welcome to the Cold War, Inc. Fourth quarter 2025, four in these conference calls.
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Speaker Change: I would now like to turn the conference over to Douglas Toledo, Vice President of Investor Relations. Please go ahead.
Unidentified: Thanks, very much Hello, everyone and welcome to the Corvus fiscal 2025 fourth quarter earnings call. This.
Unidentified: This call will include forward looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe Harbor statement contained in the earnings release published today as well as the risk factors associated with our business in our annual report on Form 10-K filed with the SEC because these risk factors.
Unidentified: <unk> may affect our operations and financial results.
Unidentified: In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain noncash expenses or other items that may obscure trends in our underlying performance.
Unidentified: During our call our comments and comparisons to income statement items will be based primarily on non-GAAP results for complete reconciliation of GAAP to non-GAAP financial measures. Please refer to our earnings release issued earlier today available on our Investor Relations website at IR Dot Corvo dot com under financial releases.
Grant Brown: Joining us today are Bob <unk>, President and CEO Grant Brown, CFO, Dave Fullwood, Senior Vice President of sales and marketing Phillip Chesley President of high performance analog Eric Creviston, President of our connectivity and sensors group Frank Stewart President of our advanced cellular group as well as other members of <unk> management team.
Grant Brown: And with that I'll turn the call over to Bob.
Bob: Thanks, and welcome everyone to our call corridor delivered a strong March quarter with notable achievements in each of our operating segments in ACG, we supported a critical move phone launch by our largest customer.
Bob: <unk> content in this highly anticipated model includes an envelope tracking power management solution custom developed for this customer over multiple years in support of their internal baseband.
Bob: <unk> tracking roadmap represents a long term content growth opportunity for core vote, as our largest customers baseband shipments expand.
Bob: And HPA, we posted a record revenue quarter in our defense and aerospace business.
Bob: Strength was broad based and included applications, such as man and drone based airborne radar.
Bob: <unk> based radar Satcom, AWS and missile defense systems, and CST, we continue to increase our sales funnel of ultra wideband opportunities.
Bob: Our ultra wideband sales funnel for automotive has grown more than $500 million over the last 12 months and now exceeds $2 billion.
Bob: For fiscal year 2025, both CST and HPA grew revenue double digits.
Bob: As we think about the business broadly we are pleased to see the positive impact of our ongoing initiatives to improve performance our growth and margin targets are anchored in multiyear strategy focused on winning content with our largest customer.
Bob: Building on our core RF and power expertise to drive diversification through CST, and HPA and continuing to operate our business and manufacturing footprint in a disciplined and efficient manner.
Bob: Key growth levers include continued momentum in defense and aerospace expanse.
Bob: Expansion of our power management and ultra wideband businesses.
Bob: And sustained content growth in flagship and premium mobile devices.
Bob: On the margin side, we are executing a clear set of actions.
These include shifting away from legacy Android programs.
Grant Brown: Scaling high value products, and consolidating our manufacturing footprint and gas and in assembly and test as well as the closure of our facility in Costa Rica, which grant will discuss further in his remarks.
Speaker Change: These moves are already yielding benefits and position us well for the future success across our operating segments.
Speaker Change: Turning to our strategic highlights by market and the automotive market. We began sampling a fully integrated ultra wideband programmable SSD. This automotive qualified SSD addresses industry demand for highly accurate and reliable uwp technology and automotive applications such.
Speaker Change: Jess secure keyless entry.
Speaker Change: Trial presence detection kicks sensors and other precision short range radar applications.
Speaker Change: Also during the quarter, we significantly expanded our automotive connectivity footprint in Japan with a Wi Fi design win for the leading OEM and we expect first shipments to commence in calendar 2026.
Speaker Change: In consumer markets, we ramp production of our first power management IC design win for a wearable.
Speaker Change: This payment optimizes charging for a smartwatch launching later this year.
Speaker Change: Also supplied a global manufacturer of power tools and outdoor power equipment with first samples of our battery management.
Speaker Change: Leveraging embedded AI and machine learning algorithms to improve battery performance.
Speaker Change: In collaboration with Nordic semiconductor, we announced the availability of an <unk> compliant smart lock reference design that combines BLE and ultra wideband.
Speaker Change: The <unk> protocol is passed by industry leaders as I expect it to accelerate adoption by securing communication between smart locks and personal devices like smartphones and Wearables.
Speaker Change: Our reference design combines a corridor ultra wideband <unk> Soc and.
Speaker Change: Enabling critical functionality like precision location and secure transaction with Nordics multi protocol Soc.
Speaker Change: Leveraging AI trained algorithms and superior radar functionality enabled by our ultra wide band front end consumer applications, such as smart locks can establish and differentiate and use a direction of travel and their intent to enhance security safety and efficiency.
Speaker Change: We continue to support the migration Wi Fi seven with front end wins spanning multiple years and routers access points and extenders we.
Speaker Change: We also saw an increase in demand for our boss filters across 245, and six gigahertz for consumer and enterprise Wi Fi markets.
Speaker Change: Lastly, we have begun development for Wifi, eight front ends and alignment with market leading chipset providers.
Speaker Change: Turning to defense and aerospace, we achieved a record quarter and record fiscal year and DNA revenue.
Speaker Change: This is the third consecutive year of year over year revenue growth.
Speaker Change: <unk> is a leading supplier of high performance products and foundry services to the U S government defense primes, and other global defense and aerospace customers.
Speaker Change: The sales funnel for our defense and aerospace business currently exceeds $5 billion and.
Speaker Change: And we see a path to scale this business, both organically and inorganically to $1 billion annually.
Speaker Change: During the quarter Northrop Grumman recognized <unk> as one of their top supplier partners at their supplier Excellence Awards The award.
Speaker Change: Recognizing corvo for delivering U S based <unk> filter technologies that enhanced national security for the U S and our allies.
Speaker Change: We were also recognized by <unk> systems for being a critical supplier for airborne electronic warfare and commercial airborne Satcom applications.
Speaker Change: Looking at our defense business broadly governments around the world are allocating a higher percentage of GDP. The defense spending and corvo is critical to many of the highest priority programs.
Speaker Change: We view this as a multiyear tailwind to revenue and diversification.
Speaker Change: Also during the quarter, we launched next generation Silicon Ku band Satcom beam, former Ic's for phased array based satcom user terminals.
Speaker Change: There is robust demand for high speed reliable connectivity around the globe and our Satcom terminal market is expected to see very strong growth over the next several years.
Speaker Change: In industrial and enterprise markets customer demand continues to grow for core votes data Center power management Ics, we are leveraging our performance leadership in client ssds as we pivot to higher value SSD opportunities in enterprise and AI data centers.
Speaker Change: We also began sampling our next generation motor drive Soc for industrial applications.
Speaker Change: The motor drive SFC integrates our third generation microcontroller with our analog front end.
Speaker Change: <unk> pioneered arm based motor drives ssds over a decade ago and commercial availability of our newest offering is expected next year.
Speaker Change: The continued growing our power franchise and deliver added flexibility to customer designs. We expanded our power management portfolio to include a brushless DC motor driver with payers with a variety of Mcu's and is optimized.
Speaker Change: For a broad range of applications, including power and garden tools drones, Evs and E bikes.
Speaker Change: Also during the quarter customers leveraged our ultra wideband <unk> Soc.
Speaker Change: To develop a range of monitoring security and radar based sensing applications.
Speaker Change: <unk> fully integrated ultra low power SFC contains RF processing memory and onboard software and it's optimized to support a broad set of use cases.
Speaker Change: Radar based applications include intrusion detection gesture recognition vital sign monitoring and active monitoring and tracking of room occupancy.
Speaker Change: Turning to infrastructure.
Speaker Change: Inventories in our base station business has stabilized and our customer demand for our small signal portfolio has strengthened we are also in the early stages of DOCSIS four <unk> deployments, where corvo is a market leader.
Speaker Change: In our March quarter, we secured a new design win with a leading broadband supplier headquartered in Europe.
Speaker Change: In mobile we expanded our opportunity at our largest customer beyond discrete components like tuners and integrated placements such as ultra high band pads with the production ramp of our envelope tracking power management solutions.
Speaker Change: <unk> played a critical role in supporting this customer spring phone launch.
Speaker Change: Our <unk> solution is made with their internal baseband and this represents a key design win and a durable multiyear content opportunity.
Speaker Change: For our largest customer we're doing what we said during our Investor day.
Speaker Change: Which to invest more and win more for their upcoming fall launch we have been awarded design wins supporting greater than 10% year over year content growth and we are addressing additional content and future programs over multiple years.
Speaker Change: At our second largest smartphone customer <unk> design wins this year span our product portfolio.
We are broadly represented in flagship and mid tier smartphone launches ramping now and an additional programs launching throughout the year.
Speaker Change: Design wins in 2025 include low band <unk>.
Speaker Change: Mid high band and Ultra high band pads as well as mid high secondary transmit antenna tuning discrete filters and Wi Fi seven pence.
Speaker Change: We also secured Wi Fi seven design wins in support of multiple Android smartphone Oems and we are engaged on Wi Fi eight development with mobile Wi Fi chipset providers.
Speaker Change: For Android Oems based in China shipments during the quarter supported <unk> smartphones across submitted premium and flagship tiers. So we continue to ship mid tier design wins customers awarded the corvo prior to our pivot all five <unk> product development and ACG is focused exclusively.
Speaker Change: Thirdly on premium and flagship tiers.
Speaker Change: In summary.
Speaker Change: We're seeing the positive effects of the actions taken to improve our performance and HPA a portion of the savings from our strategic exits of base station pans and Silicon carbide is supporting growth in our defense and aerospace as well as our power management franchise.
Speaker Change: And CST, we're leveraging decades of leadership in RF solutions.
Exceptional customer relationships and our core R&D to broaden and accelerate growth in automotive connectivity nso's for ultra wideband <unk> matter.
Speaker Change: In ACG, we've expanded our product portfolio for our largest customer with the successful ramp of <unk> power management, and we expect to build upon this with greater than 10% year over year content growth in our largest customers 2025 fall launch and with that I'll turn the call over to Greg. Thanks, Bob.
Greg: Bob and good afternoon, everyone.
Speaker Change: We delivered solid results for the March quarter exceeding the midpoint of our guidance with revenue of $869 million and non-GAAP diluted earnings of $1 42 per share.
Speaker Change: Similarly, non-GAAP gross margin of 45, 9% and non-GAAP operating expenses of $247 million were also better than the midpoint of our guidance, reflecting continued cost discipline across Cogs and opex, including recent restructuring actions.
Speaker Change: In the March quarter, our largest customer represented approximately 43% of total revenue for the full year of fiscal 2025, our two largest customers represented 47% and 10% respectively.
Speaker Change: For fiscal 'twenty five in total we achieved revenue of $3 7 billion and.
Speaker Change: And non-GAAP gross margin of 45, 2% up approximately 70 basis points compared to fiscal 'twenty, four which is consistent with our commentary last year, when we guided to year over year improvement.
Speaker Change: On the balance sheet as of quarter end, we held approximately $1 billion in cash and equivalents. We currently have approximately $1 5 billion of long term debt remaining and no near term maturities.
Speaker Change: We ended the quarter with a net inventory balance of $641 million. This represents a decrease of $15 million sequentially and a decrease of $70 million on a year over year basis.
Speaker Change: Turning to the cash flow statement in the fourth quarter, we generated operating cash flow of approximately $200 million and capex of $29 million, which resulted in free cash flow of $171 million for fiscal 'twenty five in total we generated free cash flow of $485 million.
Speaker Change: Returned over $350 million to shareholders via share repurchases and retired over $400 million of debt.
Speaker Change: Regarding our outlook for the current quarter.
We are providing forward looking quarterly guidance. Despite the continued uncertainty surrounding tariffs and broader macroeconomic conditions. Our view reflects numerous underlying assumptions, including those related to a dynamic global trade environment and ongoing supply chain challenges for reference and our June quarter guidance.
Speaker Change: We have assumed a direct tariff related impact of less than $1 million. This represents a historical run rate plus relevant new tariffs that will impact the quarter beyond the June quarter. If the 90 day pause is not extended relevant exemptions expire and other retaliatory tariffs become permanent we expect the dirt.
Speaker Change: Tariff impact could rise to high single digit millions per quarter in total across Cogs, opex and capex, while the timing and scope of these changes remain uncertain. We are actively monitoring the situation working closely with customers and taking action to mitigate the impact with that <unk>.
Speaker Change: <unk> our expectations for the June quarter are as follows revenue of approximately $775 million plus or minus $25 million non.
Speaker Change: non-GAAP gross margin between 42% and 44% and non-GAAP diluted EPS between <unk> 50.
Speaker Change: <unk> 75.
Speaker Change: As expressed during our previous call. The June quarter has multiple seasonal items to consider JD has the lowest seasonal quarter for our largest customer and we are on the other side of the galaxy ramped at Samsung.
Speaker Change: Like prior years, our DNA business will be down sequentially in June due to program timing. However, given the strength in bookings activity our expectations for revenue in the June quarter are higher than what we anticipated when we provided guidance last quarter.
Speaker Change: We project non-GAAP operating expenses in the June quarter to be approximately $250 million. This includes other operating expense of $1 million to $2 million associated with the residual portions of our digital transformation project and other related items.
Speaker Change: Below the operating income line nonoperating expense is expected to be between 10 and $12 million, reflecting interest paid on our fixed rate debt offset by interest income earned on our cash balances FX gains or losses, along with other items.
Speaker Change: Our non-GAAP tax rate for fiscal 'twenty six is expected to be between 18 and 19%. However, the impact of global minimum tax legislation for U S based companies under the New administration as well as changes to international tax policy remain uncertain.
Speaker Change: <unk> continues to execute on initiatives to improve revenue mix in gross margin with contributions anticipated from each business segment.
Speaker Change: Beginning with ACG, we expect to enhance margins and reduce variability as our portfolio management efforts and pricing strategies reduce our exposure to mass tier Android five <unk>.
Speaker Change: In HPA, the divestiture of our silicon carbide business as a margin accretive move as as the expected growth within DNA.
Speaker Change: <unk> gross margin will increase given the relocation of gas production to our high volume, Oregon site, and we expect operating margin will continue to improve as our Soc and automotive connectivity businesses scale.
Speaker Change: Additionally, we expect to expand gross margin and <unk> as we transition our uwp products at external foundries from 840 nanometer to a 22 nanometer production process.
Speaker Change: <unk> manufacturing strategy is to internally produce only the most differentiated elements of our products the geographically align production with customers and suppliers and leverage the scale capabilities and cost effectiveness of our outsourced partners.
Speaker Change: For reference over two thirds of our production costs are external.
Speaker Change: This includes procured raw materials wafers purchased from external foundries as well as packaging Assembly and test services provided by our <unk> partners, we continuously evaluate opportunities to reduce our capital intensity and product costs as another step in this direction, we have decided to close our facility in Costa Rica to further consolidate our.
Speaker Change: Footprint and move closer to our customers and external manufacturing partners.
Speaker Change: The complexity of our solutions, coupled with global RF compliance requirements and multi year design cycles require considerable collaboration with our customers.
Speaker Change: We are working closely with our customers and the team in Costa Rica to ensure a smooth transition and expect this action to be completed early next calendar year.
Speaker Change: Regarding operating expenses as a part of our ongoing efforts to drive operational efficiency and align our cost structure with long term strategic priorities, we executed a meaningful workforce reduction late last year. This action was primarily focused on our mass market Android business and the related corporate support functions and pair.
Speaker Change: Well, we streamlined our digital transformation efforts canceling elements of the project to ensure the scope aligns with the anticipated economic benefits. Finally, we sold our silicon carbide business, which will be accretive to both gross and operating margins in fiscal 'twenty six.
Speaker Change: We remain committed to optimizing our portfolio and regularly evaluate each of our investment areas, where businesses do not meet our financial or strategic objectives. We will continue to act decisively whether through divestiture or exit to focus our resources on core high performing areas.
Speaker Change: We're confident that the steps we are taking today across our product portfolio business segments at manufacturing footprint enable us to expand growth profitability and diversification, we're reducing capital intensity and focusing our internal production only where it differentiates our products the.
The benefits of these strategic actions will become increasingly evident as we advance through fiscal 'twenty six and into fiscal 'twenty seven.
Speaker Change: Before we open up the call for questions I'd like to reiterate that the purpose of today's call is to discuss our fourth quarter results and outlook. We appreciate you keeping your questions focused on those topics at this time. Please open the line for questions. Thank you.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
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Speaker Change: Good question all participants please restrict yourself to one question and one follow up.
Speaker Change: At this time, we will pause momentarily to assemble our Australia.
Speaker Change: Our first question comes from Thomas O'malley from Barclays. Please go ahead.
Thomas O'malley: Hey, guys. Thanks for taking my question and congrats on the nice results.
Speaker Change: I wanted to ask about the commentary on content.
Speaker Change: Our largest smartphone customer obviously, that's a really nice forecast for the year could you talk about.
Speaker Change: Things that are driving that obviously you have an ETE chip that's coming into play, but also you would be concerned in like a broader environment that there may be pricing headwinds, maybe just broadly can you talk about your largest customers and if you're facing any sort of pricing squeeze over the next couple of quarters or if youre able to offset that in any way just want to understand the context there. Thank you.
Sure. Thanks, Thanks, Tom I think.
Speaker Change: We'll go ahead and lead Frank Stewart, who runs the business provide an answer to your question in Florida.
Speaker Change: Yes, hi.
Speaker Change: Maybe I'll start with the largest customers side of your question. So yes, we're really excited about the fall launch upcoming really proud of what the team accomplished in.
Speaker Change: Capturing content there across multiple product categories.
It covers things that you will antenna tuning and switches we've added filters. There we've continued to be strong and our ultra high band content.
Speaker Change: As we've talked about for the spring launch, we're going to enjoy some envelope tracking content in those models as well.
Speaker Change: David will talk about our fixed Goldman Samsung as well.
Speaker Change: And at the time, you asked about pricing theory to we've talked a lot about what's been going on in the last year and the challenges that we face there.
Speaker Change: So we've been exiting that part of the business.
Still seeing that in our premium flagship tier is about performance and Thats, where were competing and so like Bob mentioned on the call. We had some nice content in the in our.
Speaker Change: Galaxy 25 ramp still some phones coming in that platform that are yet to ramp and then we talked last quarter I think about our content in the second half flagships as kind of equipping fold. In addition type models and we had pretty low content last year. We said we were going to win that back and we had so we had less than $1.
Speaker Change: And last year, and we've got multiple dollars of content seem very similar to what we have in the 25 ramping in the second half of the year. So we feel pretty good about our position there.
Speaker Change: Super helpful. On the color just on the fiscal year, you guys had kind of previously talked about a little bit of a decline. So one side of things it sounds like you're seeing some real strength and then on the Android side, you're obviously being more strategic and where you invest.
Speaker Change: You look at like the cadence for the year, which is something that I think.
Speaker Change: There is a little difficult to kind of model and look at how fast should we be seeing Android fall off just because it looks like in the March quarter, you actually had a little bit of an uptick there is that is that.
Speaker Change: Last time buys and then how quickly is that going to fall off throughout the year.
Speaker Change: Thanks, Tom This is Bob actually we're going to see a little bit of an uptick this quarter in June which is typically consistent with the last three years, we typically see Android up as a percent of sales in our business and it's going to be up slightly in dollars, but it's going to it's going to.
Speaker Change: Depending on what new phones that are launched that were in and the decline in some of the mass tier phones are ramping down and we're also we're enjoying good business, we talked about some of the U S customers that being Google, Obviously, we're doing well there as they ramp Dave mentioned other phones. So it has all to do with the timing.
Speaker Change: With new phones, and how well they sell but it is going to decline year over year as we said, we're not backing away from that change.
Speaker Change: Thank you guys.
Speaker Change: Thank you.
Moderator: Our next question comes from harsh Kumar from Piper Sandler. Please go ahead.
Harsh Kumar: Yeah, Hey, guys. Congratulations also on very nice quarter and resolved Bob maybe you could clarify something for us.
Harsh Kumar: You mentioned that you Wanna EDI solution.
Harsh Kumar: On the internal baseband for our customer.
Harsh Kumar: Are you sharing this with somebody and then secondly, you also talked about sort of a nice double digit kind of content increase.
Harsh Kumar: So as the content increase coming because of the base brand is moving to other models or is it coming because you're also winning stuff across the board in other categories as well and then I will follow up yes.
Harsh Kumar: Yes footprint.
Harsh Kumar: I'll go and take the second question I mean, as Frank has already outlined we picked up some share in a number of different buckets. So we'll start there and ETP were sole source, we have been sole source.
Harsh Kumar: First the baseband started at Infineon that they use then it went to Intel announcement and toner modem. So we continue to be sole sourced.
Harsh Kumar: Highly iterative process that are very integral to work with the base band and as you know and I will just use Qualcomm as an example, they were very tightly coupled with our own ETP.
Harsh Kumar: And it's the same way with the space there.
Harsh Kumar: Yes.
Bob: Understood. Thank you and then Bob another clarification.
I guess curious what youre seeing with your largest customer there has been a lot of reports of pull forward companies and I don't blame them, but a lot of companies are doing stuff to avoid tariffs.
Bob: Curious if you if you are seeing that and you think your results are reflecting that and if that's the case when do you think you'll go back to normal or maybe youre not seeing it I'd just love to understand what's happening.
Speaker Change: I think one thing that people need to keep in mind here is they did launch a spring firm, which they typically don't.
Speaker Change: When you launch a new phone you typically produce more.
Speaker Change: So go ahead and stock your channels, so that you get ready for the sell through and we're expecting that to come down next quarter, which is typical when you launch a new phone so from that perspective, it's pretty normal.
Speaker Change: When I look at the overall business.
Speaker Change: Some things move in the quarter, some things move off the quarter kind of normal.
Harsh Kumar: So I'll stop there harsh I mean.
Harsh Kumar: We're not seeing anything massive moving one way or another.
Greg: Alright, Thanks, Greg.
Harsh Kumar: Okay.
Harsh Kumar: Yes, no I would reiterate that I think we've seen some modest activity. It's only notable in light of the tariff environment, but not meaningful in terms of dollars primarily smartphones generally.
Harsh Kumar: But nothing that suggest customers are overreacting.
Harsh Kumar: In terms of pushing or sorry, excuse me push outs or pull ins.
Harsh Kumar: Every quarter, so nothing abnormal there.
Harsh Kumar: I appreciate it guys. Congrats again, thank you.
Harsh Kumar: Thank you harsh.
Harsh Kumar: Yes.
Harsh Kumar: Thank you.
Speaker Change: The next question comes from Chris Caso from Wolfe Research. Please go ahead.
Speaker Change: Yes. Thank you good evening I guess the first question is regarding some of your comments about the direct tariff impact.
Speaker Change: Things are on pause and you talked about high single digit millions can you.
Speaker Change: Detail a little bit more of what your assumptions are behind that what do you mean by that.
Speaker Change: And just in general.
Speaker Change: There's a lot of uncertainty with tariffs in the U S.
Speaker Change: There is some concern about.
Speaker Change: What tariffs may be charged and what might be pause going into China can you just kind of update us on your position and what your assumptions are right now.
Speaker Change: Hey, Chris This is Gregg let me, let me spend some time on this one because I think it's an important question.
The first part of it there.
Speaker Change: Eric.
Speaker Change: The assumptions themselves at least in the high single digit million.
Speaker Change: I wouldn't necessarily think of buses.
Speaker Change: Anticipating any twists and turns in the tariff environment, it's probably a knowable, but you could think of if all of the worst things that we know of today would work against us.
Speaker Change: That would be how we would size it it's an unlikely scenario, but wanted to highlight just in the Grand scheme of things how small the overall impact would be in and maybe on that front, how we think about the tariff environment. It does remain dynamic and unpredictable, but I can start there and then we could talk a little.
Speaker Change: About how we're managing it we've had mitigation measures in place for quite a number of years.
Speaker Change: Today, we continue to leverage those same tools, but again, it's situations fluid as we pointed out in my prepared remarks and in the June quarter, We've got about $1 million there are less than that and it represents a historical run rate plus some of the new tariffs that are relevant in the quarter.
Speaker Change: That's across all of Cogs, Opex and Capex, so, it's probably better than feared there.
Speaker Change: Complex is that what good they apply to how they're calculated and who pays them all depends on the countries involved the nature of the products and relevant commercial terms. So it's specific to any given company.
Speaker Change: Regardless, you should know that we're not disadvantaged due to our geographic presence.
Speaker Change: We have a hybrid manufacturing footprint multiple qualified flows in and a lot of flexibility in how we serve our customers, but that said, maybe a little bit of detail.
Speaker Change: Breaking into maybe four categories for you.
Speaker Change: First would be U S to U S, where a meaningful amount of our revenue comes from products that we manufacture in the U S. And then we sell to U S customers. Our defense business is a good example of that.
Speaker Change: It's sizable.
It has some exposure related to input costs, such as aluminum generally very little tariff exposure.
Speaker Change: The international to U S.
Speaker Change: In that case, there isn't much product that comes back into the U S. That's subject to tariffs. However, tariffs do increase the acquisition cost per factory equipment. So in that particular scenario the impact is largely capex related.
Speaker Change: And in international to international scenario.
Speaker Change: We generate revenue from products that are built and sold outside the U S. So for example, our tuners and ETP makes our fab that at non use silicon foundries, and then sold to international customers and contract manufacturers. So that's a good example of things that that are on that international to international exposure and then lastly, probably the most misunderstood is that the U S to international category.
Speaker Change: In this case, our integrated module business is a good example.
Speaker Change: We produce intermediate goods, such as wafers that contain our filters and ph at our U S facilities and then we ship those to bonded free trade zones once once in Asia or SaaS partners integrate.
Speaker Change: With a considerable amount of other content non U S components, such as laminates capacitors et cetera, the bill of material contained dozens and dozens of components and a substantially transformed those raw materials into some finished goods.
Speaker Change: So that when the part is actually built during assembly.
Speaker Change: That is where the.
Speaker Change: The substantial transformation occurs in the country of origin is designated so were actually made in China sold in China. If you will so there's no noticeable impact obviously the territories are complicated and we're managing it but I think it comes down to each company's particular circumstances, the overall impact being being generally small today.
Speaker Change: Obviously, there could be some broader demand related impacts but.
Speaker Change: Just in so far as the direct impacts I think that helps shape corvo is exposure for you we have a lot of options and flexibility and will continue to leverage those.
Speaker Change: That's very helpful and thank you very much for the detailed answer.
Speaker Change: For my follow up I guess I wanted to get to that the fiscal 'twenty six guidance and you had you had mentioned.
Speaker Change: And I guess, perhaps it wasn't guidance, but it was.
Speaker Change: Some indication of kind of flat revenue of 150 basis points gross margin expansion in the current environment.
Speaker Change: Is that still.
Speaker Change: A good model for us to follow.
Speaker Change: Sure I'll take that one too.
Speaker Change: It's probably worth reflecting on it I'm not going to restated here, what we said last quarter, but.
Speaker Change: But we didn't have overly ambitious forecast to begin with.
Speaker Change: So, we're making substantive changes to our business this year in fiscal 'twenty six.
Speaker Change: Our commentary is reflected that.
Speaker Change: We've removed base station Pam silica carbide business, we've sold or exited $150 million to $200 million worth of lower margin Android business. So we're making some substantive changes I mean, if you think of the drivers on the year DNA.
Speaker Change: DNA is arguably cyclical, but but far less correlated to the macro economy than than perhaps consumer related end markets are similarly, we're seeing the content that Frank talked about at our largest customer growing over 10% and added a new revenue category there with the ECP Mig so there's some secular trends here that we're still seeing that that helped buoy.
Speaker Change: Our perspective on the year.
Speaker Change: All that said, though we are repositioning the business for long term success of fiscal 'twenty six is really more about execution and margin improvement to create diversification opportunities outside of mobile where we are on track.
Speaker Change: We haven't seen anything that materially changes our forward view, but acknowledged that there are potential for indirect tariff impacts I mean in the meantime, we will just continue to issue quarter by quarter guidance.
Speaker Change: Incorporating all that we know at the time it is issued and executing on the things that are under our control to drive those financial results, we talked about last quarter.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Carl and common from BNP Paribas. Please go ahead.
Carl: Yes. Thank you I have two please.
First in your content growth with the largest customer coming from.
Carl: Your attach rate on their own baseband or Youre also seeing content on third party baseband as well kind of a follow up please.
Carl: Yes.
Frank Stewart: Hi, This is Frank again both.
Speaker Change: The team did a good job of succeeding on continents across the board. So I think we've been clear that when it comes to our ETP mix that is.
Speaker Change: Unique to the internal baseband, but the content that we captured all of the other product categories mentioned is broad based across both.
Speaker Change: Helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: And then second where are you on working through previously under absorbed inventory and do you foresee tariffs.
To impact your China based demand and I suppose if demand were to moderate as the margin associated with.
Speaker Change: The China baseband higher than corporate average so.
Speaker Change: Follow up on that would be great. Thank you.
Speaker Change: Well, we've actually made really good progress, bringing down our inventory overall, so very proud of that it's unlocking some free cash flow for us I think it's been a positive trend for us we didn't overbuild.
Speaker Change: We.
Speaker Change: Brought utilization down very quickly quite some number of quarters ago in order to react to it and we've worked through the inventory levels.
Speaker Change: Successfully so we don't see anything abnormal from an inventory perspective or expect there to be a noticeable impact at this point.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from screening by jewelry from Raymond James. Please go ahead.
Speaker Change: Thank you first a clarification and then I have a question on the clarification you talked about 150 to 200 million headwind from exiting to Android I think low end Android last quarter is that still on track or are you tracking better or worse.
Speaker Change: If you can clarify that then I have a question.
Speaker Change: Yeah. Thanks, Ronny it's on track.
Speaker Change: As we expected.
Speaker Change: Okay. Thank you and then Bob on the DNA It looks like the business has been fairing quite well in some of the trends that you highlighted make a lot of sense.
Speaker Change: You also talked about potentially getting to $1 billion annual run rate could you give us maybe some color as to where the business is today in terms of run rate.
Speaker Change: And then also in terms of product categories, and maybe geographic exposure. If you could give US you know because we don't we don't get a lot of details on this business. So I think in any color on the business would be helpful. In terms of the growth drivers. Thank you.
Speaker Change: Oh, sorry, this is a fill up buying.
Speaker Change: Dive into that a little bit as well so.
Speaker Change: I think.
Speaker Change: Kind of break down your question here, So I think yes.
Speaker Change: Bob said in his prepared remarks that we have over a $5 billion design win funnel right now and we size the business I believe it was last quarter or so at around $400 million.
Speaker Change: We when you look at our design win funnel. It really is broken pretty evenly between the big in market segments that we kind of client today.
Speaker Change: And if you look at that that radar com electronic warfare with our solid state technology that we have which is high power our app.
Speaker Change: <unk> space and satellite based comms.
Speaker Change: Satcom differentiating that between space based more ground based.
Speaker Change: Kind of Satcom terminal business.
Speaker Change: And as well as missile applications, whether that's traditional hypersonic so.
We touch a lot most of the most of the segment.
Speaker Change: In the in the DNA space so.
Speaker Change: When you look at.
Speaker Change: When you look at where we're winning.
Speaker Change: It's really driven around this big upgrade cycle that we've been seeing for a lot right and.
Speaker Change: We've talked about it at Investor day, where whether it's an old and.
Speaker Change: An older asset, whether that's a shift or a plane it needs upgraded radar capability.
Speaker Change: Whether it's a new system I mean, they just announced the <unk> 47, as an example, right and so that's going to require a lot of advanced radar platforms that.
Speaker Change: Is right technologies that.
Speaker Change: <unk> is what we provide so you look at that.
Speaker Change: The other thing I would say is that.
Speaker Change: The Dod.
Speaker Change: Hasnt approved.
Speaker Change: <unk> resolution right now for FY 'twenty five if.
Speaker Change: If you look at where that is focused that's focused on deterring China.
Speaker Change: Focus on hypersonic.
Speaker Change: Thats focused on alternative GPS, let's focus on Uavs, all segments, where we play and have wins and big programs that we can't we can't mention them all under contract like I can't give specifics.
Speaker Change: The other thing that gets me excited as well you look at the budget for FY 'twenty.
Speaker Change: Already are talking about $150 billion worth of additions over the next few years.
Speaker Change: To really beef up.
Speaker Change: Advanced technology platform here in the U S.
Speaker Change: And then I think one of the things that we have in size because it's relatively new you look at the foreign military sales and what's happening in Europe with there.
Speaker Change: Kind of rebuilding of their military capability.
Speaker Change: What I am hearing talked about.
Speaker Change: A one trillion opportunity upgrade over the next few years.
Speaker Change: Next five to 10 years as they do that so today we have.
Speaker Change: I would say.
Speaker Change: A meaningful percentage of our revenue in DNA Thats foreign military sale, we're engaged with every one of the key customers in Europe in particular, but not just Europe outside of Europe, as well and I think the last thing that I would see a lot of things I would leave you with one is that.
Speaker Change: The other area that I think is exciting as you see a lot of these what I'll call New Tech defense players I won't list them by name, but Theres a lot of new Silicon Valley entrants that are coming in and coming in with new technologies that they are trying to move faster than they ever have it and we have really strong.
Speaker Change: Yet.
Speaker Change: With those with those customers and so I think thats big for a last thing I would say and again I'm, saying this because we don't get to talk about this a lot.
Speaker Change: Is that a lot.
Speaker Change: To remind everyone corvid is really unique in the space.
Speaker Change: We have all most of the key RF technology onshore that are needed for these platforms one of Afghan whether that's gas beam, forming through our <unk> acquisition BARF filters low frequency high frequency high power solid-state Tas, which are critical for electronic warfare applications.
Speaker Change: And we have that advanced our packaging and I can't think of a single other company out there that has all of that in one place.
Speaker Change: And I think Thats why you see such.
Speaker Change: Excitement around it in our funnel really accelerating over the last.
Speaker Change: A year or so.
Speaker Change: Thanks, Phil so any detail I appreciate it.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from Edward Snyder from Charter equity Research. Please go ahead.
Edward Snyder: Thanks, a lot Greg.
Edward Snyder: Based on the number you just gave for your largest customer with fiscal year looks like you were flat year over year and total total revenue, we can toggle different unit volumes et cetera, but it kind of speaks to maybe I know you've got some content gains.
Edward Snyder: On the last fall's phone, but it doesn't seem like you've got a lot of boost from that.
Edward Snyder: Spring phone so one I wanted to get your feeling on where the content gains materially unit volumes. This week or why are we seeing kind of flat and then secondarily on based on our even our care down it looks like your content might have been a bit light without <unk>. It would have been light on the on the spring fall with ETP makes it looks about even maybe maybe still a little bit down is that a correct.
Edward Snyder: And as that is the is that the baseline we should expect from eternal modem phone.
Edward Snyder: For next for this year or next year.
Edward Snyder: And then I have a follow up.
Edward Snyder: Yes. This is Frank maybe let me take the last one with respect to the <unk> that was just released maybe I could clarify that.
Speaker Change: That is definitely what I would consider one of their consumer skus and we've got different content across different fluid types, but for a consumer SKU for corvo that was actually a pretty good bone for us, we're pretty happy with our dollar content there.
Speaker Change: So maybe that's the first clarification and I'll, let you do your follow on question, but I've got some more thoughts for you then I'm guessing more correlated.
Speaker Change: Okay and then.
Speaker Change: And in terms of tariffs.
Speaker Change: <unk> had several module houses and correct me if I'm wrong, but in your latest filings you had module Assembly in Costa Rica, Korea, Germany, and China closed Costa Rica, as a consolidator I understand that's an old Franklin facility.
Speaker Change: Does that mean.
Speaker Change: Most of this stuff will shift to Asia or are you going to try a distributor how youre working that business because that seems to be a critical factor in determining where the tariffs are going to wind up at the end.
Speaker Change: And this is Bob I want to make sure. We're clear what was done in Costa Rica was really the.
Speaker Change: Filter technologies, there are final, we'll call backend packaging, there, which have been shipped to our module manufacturers, whether they're in China or Vietnam or wherever they are in the world. So we are moving now to Asia and in Germany that doesn't build modules.
Speaker Change: That builds product for us the CATV line amplifiers, which is nothing like anything in mobile so I just want to make sure. We're clear on those factories do not build modules Costa Rica, nor Germany.
Speaker Change: And maybe just to follow up on your question regarding Asia, we have multiple flows for a number of these.
Speaker Change: Products as well as multiple partners that we can use so depending on the optimal structure and we'll work that with our with our suppliers and partners. We have a lot of options and flexibility as it relates to tariffs.
Speaker Change: Yes.
Frank Stewart: If I could this is Frank I was going to circle back to answer might have been your broader question.
Frank Stewart: Maybe to give as much color as I can at our largest customer there is actually multiple product types.
Frank Stewart: There's two suppliers that share content.
Frank Stewart: When they service that customer and corvo.
Frank Stewart: For example, our antenna tuning maybe just to clarify on that topic corridor was actually share that antenna tuning content with the with.
Speaker Change: With another supplier for a number of years actually going all the way back to 2020.
Speaker Change: It's the same situation we have for ultra high band, it's a similar situation where you have for discrete filters were corvo is sheer content with some other supplier for multiple generations. So if you think within that environment. So within that environment that we've been in for multiple years as we said before <unk> is on track to capture.
Speaker Change: Greater than 10% content upside in this year. This fall model. So that's something we're really excited about and then when you look forward, we see a similar environment going forward that I've just described.
Speaker Change: In that environment, we're excited about the additional.
Speaker Change: Content that we're working to gain there.
And it's very difficult to predict because of the lack of newness. This year next year in terms of having two phones and that sort of thing too with your 10% content increase year over year can you just maybe give us a little bit of idea of how that.
Speaker Change: What's the assumption you're using in terms of the split between internal versus Qualcomm in the fall.
Speaker Change: That drives you that that number.
Speaker Change: Yes. This is Bob unusual line when we get to this places we don't comment on future architectures, obviously, we know it because we have to build too, but it's not something we can comment on here.
Okay. Thanks, guys.
Speaker Change: Thanks.
Thank you.
Speaker Change: The next question comes from the line of Gary Mobley from Loop capital. Please go ahead.
Gary Mobley: Hey, guys.
Speaker Change: <unk> has been addressed at the desk here.
Speaker Change: Do you still feel comfortable with the HPA ESG businesses growing.
Speaker Change: Double digit percent and disappear.
Speaker Change: Within those two segments.
Speaker Change: Much business would you characterize as maybe being classically cyclical or.
Speaker Change: Subject to ebbs and flows.
Speaker Change: Distribution and customer inventory on that specific prior you've seen any sort of green shoots in terms of quarter end.
Speaker Change: Backlog till.
Speaker Change: Gary you were pretty choppy, let me first start with I believe your first question was our outlook for HPA and <unk> growing double digits. This year the answer is yes.
Speaker Change: Second part I'm not sure we totally understood we're not counting on any inventory builds or anything like that our customers. This is we're in the right places Philips done a great job talking about DNA I'll, let Eric talk a little bit about CSD, and where you're seeing growth this year, but the sure sure. So in <unk> of course.
Speaker Change: The largest revenue segment today is on Wi Fi in particular high performance Wi Fi transitioning six to seven already beginning R&D on eight so I don't discount dollar content growth just as we've seen in multiple generations of cellular and RF.
Speaker Change: I think that's moving at a pretty high velocity silver filling channel right to demand and demand is moving out for new base stations.
Speaker Change: Wifi access points for industrial and enterprise and so forth. So that's one of the largest segment is certainly growth opportunity with content and then of course most of the investments going into the Soc business in the sensor business today.
Speaker Change: The Soc business, we're looking at BLA matter as well as ultra wide band.
Speaker Change: Both experiencing.
Speaker Change: Really rapid growth on a relative to our average.
Speaker Change: Been particularly excited actually about the matter growth opportunity, we're not the first in that space, but we've got some unique capability, we're bringing to it and design traction and even volume ramping is going going very well ultra wide band of course, we are a leader in technology there.
Speaker Change: Automotive has gotten very very strong for us in terms of design in.
Speaker Change: It takes quite a while of course to get that production revenue, but once we do we'll be running for many years in that.
Speaker Change: We are engaged across a number of very large opportunities and it's going very well in auto but then also ultra wideband I think we're leading in the other applications in particular connected home.
Speaker Change: Applications, we've got a lot of opportunity there and also in and other sort of lighting applications. As we mentioned with matter so really across the board a lot of opportunities driving these new technologies. The wheels are just beginning to spin and pick up momentum here.
Speaker Change: Eric.
Speaker Change: Our location in real time location services, we talk about that ramping to that is ramping now and it takes time, it's not a market things around development that will start to build on itself as we have previous fiscal year and into the next couple of years.
Grant Brown: Thank you for that and grant just a quick follow up.
Grant Brown: Are you still expecting opex to Hopkins $15 million per quarter level for the balance of fiscal year 'twenty.
Grant Brown: 26.
Speaker Change: I think youre, referring to maybe our guidance for the year quarterly for Opex at $250 million, we still believe that's a reasonable threshold plus or minus two 3% maybe.
There is seasonal impacts there is potentially other other items in there I would call out the weakness in the U S. Dollar is one that works against us and so far as our Opex.
Speaker Change: Again not necessarily meaningful.
Speaker Change: On a normal basis, but should it continue to weaken significantly that could add to opex.
Speaker Change: Other seasonal factors, but generally that's a good working assumption as the baseline.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
The next question comes from Timothy Arcuri from UBS. Please go ahead.
Speaker Change: Thank you this is Joe <unk> on for Tim.
Speaker Change: Just wanted to ask about tariffs impact and you mentioned taking steps to limit.
Speaker Change: Impact.
Speaker Change: Can you talk about exactly what is it that youre doing.
Speaker Change: We know you're in benefit from our free zones in China, but what exactly are you doing to limit okay.
Speaker Change: Yeah.
Speaker Change: Yes, sure so I mean.
Speaker Change: We have a pretty experienced team right. I mean, you go all the way back to Huawei <unk> band and there is similar dynamics in play there we successfully navigated those challenges before them.
Speaker Change: We identified the.
Speaker Change: The same solutions that are being used and have been for quite some time will continue to use so we'll optimize around those we have flexibility in our supply chain. We have alternate second sources and collaborating with customers on their mitigation strategies in the locations, where they they work and produce their own products, but at the end of the day I think it really comes down to the country of origin.
Speaker Change: Question right I mean, we have a substantial transformation in the parts. When they are built assembled and tested in China and sold to Chinese Oems or contract manufacturers. So there is a.
Speaker Change: Think probably misunderstood, but a really key element of whats.
Speaker Change: Whats going on here.
Speaker Change: Got it Okay and then just one quick one I just wanted to double click again on the on demand program.
Speaker Change: <unk> made previously on the call.
Speaker Change: The context to your guidance, so how much of that demand into the June quarter, and European could be related to Paris.
Speaker Change: This is Graeme let me, let me take that one I think I think what you're alluding to maybe some pull ins related to tariff activity I mean like we had commented we've seen modest activity. It's only notable in light of the tariff discussion, but it's not meaningful in terms of dollars, it's largely smartphones.
Speaker Change: And we're not seeing any customers overreacting, pushing or excuse me pull ins and push outs occur every quarter. So it's relatively normal on David.
Speaker Change: I can sense and why on that too in particular some of our customers in China of course initially when all this stuff gets announced it creates a bit of pack and people just don't understand how things are going to work right and so regeneron calls and we kind of work through our supply chain their supply chain and what are the real risks and whether they can be mitigated or not.
Speaker Change: And so I can tell you that a lot of activity died down right as people really start and understand the situation really understand with grant described in terms of our country of origin is determined.
Speaker Change: All that activity kind of starts to fade away and so then.
Speaker Change: The motivation to.
Speaker Change: Change their demand profile goes away as well, so thats kind of what we're seeing play out.
Speaker Change: Yes.
Speaker Change: Thanks, guys very helpful.
Speaker Change: Thank you.
Speaker Change: So let's take that as the last question for today and this concludes our question and answer session I would now like to turn the conference back over to the management for closing remarks.
Speaker Change: Well, thank everyone for joining us on today's call. We appreciate your interest we look forward to speaking with many of you at our upcoming Investor events. Thanks, again hope you have a great evening.
Speaker Change: Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Sure.