Q3 2019 Earnings Call

Good afternoon, and welcome to Skyworks solution.

Third quarter and fiscal year 2019 earnings call.

This call is being recorded at this time I will turn the call over to Mitch <unk> Investor Relations.

For Skyworks Mr. Haws. Please go ahead.

Thank you operator, good afternoon, everyone and welcome to Skyworks third fiscal quarter of 2019 conference call.

With me today are Liam Griffin, our president and Chief Executive Officer.

And Chris satisfy all our Chief Financial Officer.

Before we begin I would like to remind everyone that our discussion today 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 FCC 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 to Liam.

Thanks, Mitch and welcome everyone.

Skyworks delivered solid financial results in Q3.

As the resiliency of our business model allowed us to maintain strong profitability and cash flow.

Looking at the quarter in more detail, we reported revenue of $767 million slightly above our guidance.

<unk> gross margin of 50.4%.

An operating margin of 33%.

While delivering earnings per share of $1.35 cents.

And our cash generation continues to be strong with operating cash flow of $950 million year to date.

Looking forward our design win pipeline is expanding as we capitalize on the ramp of Fiveg and wireless infrastructure smartphones and across I O P.

For example in wireless infrastructure Skyworks is now supporting a number of global Fiveg deployments.

Our solutions address both Fiveg macro base stations and small cell radios.

And we are ramping today with leading European and Japanese infrastructure Oems.

In addition, skyworks is enabling fiveg massive mimo base stations for a leading Korean customer.

Across the IOTV space.

We are gaining share in new emerging categories.

With recent wins that Facebook for their Oculus VR headset.

And with Vizio for their soundbars, leveraging our analog esso sees and cognitive wireless radios.

We also secured low power LTE cat M design wins with a leading module providers, including tell what Jim also you blocks in Sierra wireless.

And we are expanding our reach in the Wearables market, where we are populating devices that combine our cellular and Wi Fi technology.

We've also extended our Wi Fi leadership with several signature design wins in the last quarter.

Including Cisco, what their Wi Fi six solutions Directv for their over the top streaming devices as well as design wins with industry leaders such as Amazon nest in next year.

Finally in mobile for the coming wave of Fiveg phones, we deepened our engagements with key customers leveraging our unique suite of solutions to support launches that Samsung.

LG oppo vivo and others.

As these opportunities demonstrate that demand for advanced connectivity and the expansive nature of Fiveg are creating real time opportunities for skyworks.

With by GE now launched on four continents operators are seeing the compelling economics that fiveg services can bring.

And we expect momentum to continue build building into 2020 and beyond.

To be clear Fiveg is a technology not a product and we expect to performance gains in speed latency and network capacity to spawn a much broader ecosystem.

We're fiveg become the universal connector.

With the application scope going far beyond the smartphone fiveg is already driving new usage cases.

In emerging areas like industrial Aiotv autonomous transport smart cities and digital health.

For Skyworks. This is a tremendous opportunity as our scale and experience across multiple technology generations.

Position us to lead as Fiveg becomes a reality.

Our capital investments have enabled us to build highly specialized vertically integrated supply chain.

Capable of meeting the complex demands of the world's most innovative customers.

We continue to advance our filter capabilities.

Creating leadership positions and saw and TC saw and in Q3, we commenced volume production of bond enabled devices. These devices will be shipping this quarter.

Incorporating ball expands our Tam in mobile and positions us to support a wider array of customers markets and applications.

And in addition to Fiveg, our capabilities and broad markets have grown.

As we now serve an expanded set of global customers, including companies like Ford Continental LG, along with factory automation leaders, such as Bosch, Honeywell Siemens and GE.

Today, we generate nearly 1.1 billion in annual revenues from our broad market portfolio, that's a compound growth rate of 16% since 2013.

So in summary, Skyworks is at the forefront of ubiquitous connectivity leveraging our decades of experience world class scale and customer relationships. We are well positioned to continue executing on our vision of connecting everyone and everything all the time with that I will turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q4.

Thanks Liam.

Skyworks revenue for the third fiscal quarter of 2090 was 767 million that is $2 million above the midpoint of our June for updated guidance.

Our third quarter revenue reflects the impact of the U.S. Bureau of industry and securities over the US Department of Commerce, placing why we technologies and certain of its affiliates on the entity list.

Skyworks sees all shipments to why we as of the date, while we was added to the entity list.

After an in depth review of the export that nutrition regulations and the scope of the entity list restrictions, we ultimately determine that we couldn't lawfully resume shipping certain products, which we did starting early July .

However, we expect the business Weve why wait to remain well below historical levels into the current quarter.

Third fiscal quarter non-GAAP gross profit was 386 million, resulting in a non-GAAP gross margin of 50.4%.

As noted in the financial statements.

Touched to our earnings release, we incurred a GAAP only nonrecurring charge of 67 million, primarily consisting of inventory related write downs due to the addition of why we do to be is entity list.

Operating expenses were 134 million better than our guidance and down slightly sequentially as we continue to effectively manage our operating expenses.

We generated 252 million operating income translating into an operating margin of 33%.

Third quarter effective tax rate was 8.2%. These grow net income of $234 million or one dollar and 35 cents of diluted earnings per share.

Turning to the balance sheet and cash flow.

Third fiscal quarter cash flow from operations was 209 million and for the first nine months.

Fiscal year.

Operating cash flow was $950 million.

Third fiscal quarter capital expenditures were 88 million redistributed 66 million in dividends and repurchased 1.2 million shares of our common stock for a total of $86 million.

During the first nine months of the fiscal year. We have returned approximately 710 million to shareholders via share repurchases and dividends and this represents a 112% of the free cash flow we've generated this year.

We ended the quarter with a cash and investment balance of just under 1 billion with no debt.

Now looking ahead to fiscal Q4.

We are on track to deliver sequential revenue and earnings growth in the September quarter, as we execute on strategic product ramps.

Specifically, we anticipate revenue in the range of 815 to 835 million or $825 million at the midpoint.

The revenue outlook assumes why were your revenue remains at nominal levels, given the uncertainty associated with ongoing trade related issues.

At the midpoint of the range revenue is expected to increase 8% sequentially. Despite significantly lower revenue to why we compared to the June quarter.

Excluding why we ended June and September quarters, we expect our revenue to increase 20% sequentially, reflecting strong seasonal ramps at our large customers as we demonstrate our expanding reach and ability to deliver complex and highly integrated solutions.

We expect gross margin in the range of 50% to 50.5% approximately flat compared to the June quarter. Despite the lower factory utilization associated with the reduced demand from why we.

We expect operating expenses of approximately 135 million as we continue to adjust our spending levels.

Below the line, we anticipate roughly 3.5 million and other income and an effective tax rate of approximately 8.5%.

We expect our diluted share count to be 172.5 million shares.

At the midpoint of 825 million in revenue, we plan to deliver diluted earnings per share of one dollar and 50 cents.

Finally today, we also announced a 16% increase in our quarterly dividends to 44 cents per share, reflecting our confidence cowards business model and sustainable cash generation capabilities and with that let me turn the call back to Liam.

Thanks, Chris.

As a proven technology leader, we are leveraging our sky five platform and systems expertise to enable the billions of connections between devices and the cloud.

Providing the underlying foundation for entirely new ecosystem and today's connected world.

Looking forward Skyworks is uniquely positioned with established leadership in growing markets and expansive an innovative set of Fiveg solutions.

Global scale and the deep customer relationships that are facilitating the mobile economy of tomorrow.

That concludes our prepared remarks, operator, let's open the line for questions.

Ladies and gentlemen, if you wish to ask a question Press Star then one on your Touchtone phone.

We will hear Tony getting you have been placed in Q you may move from getting in time, a pressing the pound key.

If you are using a speakerphone please pick up the handset for Preston the numbers.

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

Just a moment for the first question here.

Yeah. The question from line of feedback ARIA. Please go ahead.

Hi, Thank you for taking my question I actually had.

Two of them if I could first am I am curious how do you expect your largest customer to do.

In September .

Hold on a sequential and on an year on year basis.

I realize everyone in the industry is conservative on units, but I was hoping you could give us.

Your insights on content growth that can perhaps help offset some of that.

Unit conservatism, so to whatever extent you can if you could help us.

Can you give us some color on a sequential and year on year growth at your largest customer.

Sure.

Well I mean, certainly comes down to units, but I will say that the skyworks team. All continues to work with all the most significant flagship phones and customers and we continue to do that this year.

And a number of very exciting design wins have been consummated with leading customers were really proud of what we've done we're continuing to expand the scope and the rate and the reach of the device count and the complexity of what we offer so we really can't predict how the unit curve will look but I can tell you that our ability to grow in game content, especially in highly complex high margin areas is something that will demonstrate will be very proud to show.

And as a follow up.

Liam as you start fiscal 20, I realize was that last year was a tough year for the industry.

With all the.

Of weakness and premium units and then the Wally band, but as you start fiscal 20, how should be just conceptually think about growth.

There's definitely benefits from the onset of Fiveg, but how material can it be and if you could just give us an overall look at how youre looking at Skyworks is overall growth.

Prospects for fiscal 20, thank you.

Yeah, I think 19 as you mentioned had been a difficult year for a number reasons saw there was some volatility early in our fiscal year. If that was kind of a macro issue and then we've had felt the effects of this way ban which has been pretty significant but we'll manage but I do think theres tremendous momentum and excitement around mobile today and around fiveg at a higher level. So we're starting to see the rollouts on the infrastructure side, we talked about that in prepared remarks, we're certainly working with all the customers that matter.

And helping them develop fiveg capabilities in their smartphone devices.

Oh, and we expect this to be an incredible catalyst for the industry as I said in the prepared remarks, Fiveg is really a universal connector. It as a technology, it's not a product it will populate multi market opportunities for us we have great great solutions to make that happen. So we're really excited about 2020 and beyond.

We also feel good in the near term right now, we just guided at 20% sequential quarter. If we net out the effects of while we which we really can't control today.

As we look into Q Q, our Q1, the December quarter, we see sequential growth coming again, so we feel bullish about that in the prospects of five year ahead.

Next question comes from the line of Craig Ellis with Bradley's VR. Please go ahead.

Yes, that's b. Riley.

Thanks for taking the question guys.

Let me just follow up on the last comment gets we'd look at the December quarter.

How should we think about normal seasonality to that business and and is the is the profile that you see right now.

One quarter out trending favorable versus that seasonality or two macro cross currents at play mean that you would expect to be below normal seasonality.

Well I think we will be able to all deliver a solid seasonal ramp Craig coming into our Q1 here at that in the back half of the calendar year and again. It is a number of customers involved here not just one but we feel good about the outlook during that timeframe. We have very good visibility by the way on with respect to that timing and we also have very good visibility on what we've consummated from a design perspective and the device.

The devices that we put forth and leading smartphone. So we feel good about coming through and then you have the balance of the year, we'll see how things go I think broad markets continues to be.

Strategic vector for us saw and despite some of the challenges that.

Were enduring right now with Wally we think a lot of that demand in time is going to get redistributed and we'll be able to take advantage of that.

Okay, and then for the follow up let me just get too.

Really clarification cleanups for Chris Chris can you give us the segment splits and then just on inventory days moved up pretty materially on hand was up about 5%. Despite the write down so how should we think about the company's ability to work down inventory and get it back into a normal level. Thanks guys.

Let me first give you to split so brought markets in Q3 was 37% of total revenue, which was up low single digits sequentially as well as year over year and you have to call of course keep in mind that in growth markets business was also impacted by the why we buy on some of the Y way revenue is accounted for in growth markets. The infrastructure part as well as some non mobile wireless connectivity solutions that we provide to walk away.

Again brought markets, it's running at more than $1.1 billion in annualized revenue and I think Liam talked in the prepared remarks about a lot of the strength that we see in that market segment with the launch of Lifesize six some of the wearable products automotive and and I will tell you in general and so so brought Marcus was 37% on the flip side mobile was 63%.

Which was down approximately 10% sequentially in our slowest seasonal quarter of the year and of course that segment was.

Impacted even more by the why ways shipment Bob.

So that's the split and then maybe on inventory.

Inventory ended June quarter.

Which again is our slowest seasonal quarter of the year.

It was up 25 million dollar days of inventory were up 13 days to 139 days and so during our seasonally slowest quarter of the year here, we definitely have been level loading our factories in order to drive efficient usage of our capital equipment and all of it of course in support of the new product ramps that we have with our key customers and we're we talked about it we see a 20% sequential growth.

Into the September quarter, excluding went away and then even further growth into the December quarter.

And so we.

In the September and December quarters, we do expect the days of inventory to come down.

As we will consume some of that inventory and.

Going forward I do expect inventory to.

Fluctuate between a 110 days to 140 days, depending on where we are in the seasonal cycle and so that is slightly higher than historical levels, but you have to keep in mind that what was it four or five years ago. None of the filters, we were making in house, we will purchase from third parties and maybe two years ago. We go to roughly 50% of the filters in house by now we are getting close to 95% of the filters in house and so Thats, obviously is driving some higher levels of inventory, but but again inventory is fully in line with what we expected and days of inventory will come down in the September and December quarter.

Next question comes from the line of Craig Hettenbach with Morgan Stanley . Please go ahead.

Yes. Thank you leave us as we think about Fiveg from a design perspective any color in terms of the traction you're seeing on the smartphone side and then also just a rough estimate of how that's playing out and dollar content and the initial wave.

Sure Craig absolutely well, we see all an expanding opportunity in fiveg in a number of areas. There's there's just.

A great deal of complexity that needs to be resolved in the system.

Our customers are looking for integration and kind of cohesive solution. So platforms like sky five that we develop our perfect solutions for these customers. They are configurable. All we can resolve a lot of that complexity and we also have to deal with the challenge of backward compatibility and to Fourg and Threeg. So if you look at a fiveg enabled phone you're going to have fiveg bands in Fiveg technology, but you're also going to need to be interoperable with fourg and Threeg authors of physical device is a physical challenge in the design of the phones are theres a battle for current consumption and coexistence within the device a lot of complexity that we're working on today with our customers were lining up with.

The critical baseband providers as well so our solutions can be somewhat agnostic around the basemat ecosystem.

And adding some of the technologies that we've developed in house, the Drs technologies will be even more vital in fiveg. All we've got to ultra high band devices that were shipping we got bought technology that we just commenced shipping now that we spoke about so we're in very very good position, but I will tell you that fiveg is difficult it's challenging.

And our customers are reaching out to partners that they trust and partners that have been here and Thats, what we want to be one of those partners that help our customers be successful.

Got it and then just as a follow up update on I've never I know when you bought them I mean in terms of the context of.

That works, having a much larger platform bigger customers. How are you seeing that play through in terms of design work that they're doing a are you able to leverage that in terms of some of the momentum for new designs that are.

Sure Craig Thats, a great question and that portfolio is doing very well for us one of the designs that we mentioned in the opening remarks was powered by have near or they've got some very slick Esso see technology that we're leveraging certainly some great performance in audio but overall right now were very pleased with what we've seen from that acquisition is fully integrated with Skyworks. So we're able to take advantage of a larger sales and marketing organization and a little more strength on the operational side, but so far its looking very good appreciate that.

Our next question comes from the line of Chris Caso with Raymond James. Please go ahead.

Yes. Thank you good evening.

Just a question on on wall way and just trying to get a little more color on what you had said.

From from the pre announcement earlier in the quarter.

It seems that you took out about 60 million out of what you said was a 12% customer in the quarter, which would kind of workout to maybe you know sort of $40 million of remaining shipments to walk away in the June quarter, I guess, where do I understand that that those shipments.

Our core minimal as you go into the September quarter, and therefore, that's the sequential headwind that youre up.

That you're facing and then maybe just maybe as a follow on that others are it seems like every every company has had some difference in terms of what they can and can't ship to walk away.

Some folks are also applying for some licenses for additional shipments gives us some more color on on on what you can and can't ship and the potential for being able to ship more.

Yeah, Chris So maybe I'll provide some more color on why we saw in Q3 why waste revenue was slightly above 10% of overall level of total revenue and that was all shipped prior to the ban being effective we didnt ship offer the ban was effective and as you know we did adjust our guidance and we took out roughly $60 million of revenue when we updated the guidance. So definitely in Q3. It said the stronger seasonal quarter typically for a while away and so we did expect actually more revenue than what we've seen in the first half of the fiscal year.

And.

And so looking forward to.

In Q4, we do expect.

Very minimal revenue with them.

We are so we can legally ship certain products, but the demand single that we get from why wait is actually very low we expect revenue to be probably below $10 million in.

In Q4, and I believe we will add something yes, I mean, just to be clear so Chris I mean, when when the band came out we stop shipping.

So that's kind of the difference between what we've done I know other other competitors may play out differently, but thats, how we played it.

Are we still feel very good about the business. We have today net of walk away if wall way comes back that's great, but the guidance that we provided with a 20% sequential netting out walk away in Q3, and Q4, I think says a lot about the organic business and a read into what we can do.

All right. That's very helpful color. Thank you for that just as a follow up what are the longer term implications here and.

I guess for for one do you feel like as as as Fiveg comes out next year, you'll be able to ship components to it so while a fiveg phones.

Under the current rules and if there are still restrictions.

We've been hearing for for some time that the highly integrated solutions by by yourselves and other U.S. manufacturers really necessary to enable fiveg phones.

Or other alternatives in other words are there.

Potential for if this this situation doesn't get resolved.

Some of these opportunities will just disappear for the long term.

Yes, Thats a great question the way I look at it is and you are right I mean, the technologies that we provide and I know you understand is a very very complex. We're not a discrete component player. We havent been that company for years. So the kind of things that we offer to two companies like while we are very very complex and very hard to displace.

Having said all that I don't think this is going to stop Fiveg I think there could be certainly some challenges in China.

Specifically around Fiveg and access to technologies, but I think from a global perspective.

The the power of the Fiveg catalyst here and the investments and the opportunities for for for connectivity are just so powerful that thats going to continue could there be a bit of a pause on levered with the China issue sure, but I don't think it's going to stop the industry globally from executing on this vision of moving up into Fiveg in the latency and speed and benefits that are provided so and we'll stay with that and the other thing here is that the demand can move around.

If some companies or regions are impaired yeah, it'll hurt in the short term, but overall I think that that revenue in that opportunity can get redistributed and we'll be right there for that as well.

Next question comes from the line of Blayne Curtis with Barclays. Please go ahead.

Hey, guys. This is Tom O'malley on for Blayne Curtis.

My first one is around the China handset business outside of all way.

Some of the the industry through this earnings periods of talks about how always looking internally in China, and maybe taking some share there and that could affect you guys. How do you guys view that market right now and are you seeing that trend play out where no other tier one players in tier two players are ceding some market share.

Yes, that's a great question no. We've had we had a good position with while we but we've also had a very strong position with oppo vivo and xiaomi and so far.

You know the business there has been it has been promising and been kind of on track.

Still still developing some interesting new solutions for those but those customers as well and.

We've been able to walk build those partnerships over year, so that part of the China ecosystem at this point looks pretty good.

Great and then my second one is more maintenance can you guys give us the percentage of your largest customer in June you guys have been pretty helpful about that in the past.

Yes so.

In June the largest customer was.

Well over 40% of total revenue.

Again, the June quarter is somewhat of the slower seasonal quarter, there and as we ramp with a large customer in Q4, obviously depth.

That will go up.

Yes, and obviously with some of the wall way revenue out of the pie. The all the ratios gets skewed a little bit as well.

Question comes from the line of Karl Ackerman with Cowen. Please go ahead.

Good afternoon gentlemen.

If I may I'd like to follow back up on me.

Previous question so.

Sure China based smartphone customer is seeing very strong domestic growth through the June quarter, given nationalistic support. So I'm curious does your outlook for the September quarter and beyond.

Contemplate ramifications of that proceed nationalism to your mobile opportunity at other smartphone Oems, where you have higher content and follow up.

Yes to the extent that we can yes, we you know we feel we've talked about some of the other players in China and the demand outlook. There looks steady all we've talked about while weighing the issues that we have right here that could get resolved, but it gets resolved we're right back in.

But were still very aggressive in gaining success in design wins globally across across the board. The only exception right. Now is the is the what we situation where we're kind of stuck.

All but beyond that we're active we're developing solutions were gaining design wins and as we mentioned some of the prior question is that the products that we make are not commodities. They're not interchangeable are they are very complex custom commodities are custom devices that are necessary for fiveg and even higher end fourg networks.

That's helpful. As my follow up in your prepared comments you discussed early shipments of eliminate X products.

What's your view on the competitive landscape on 11, A.X. given recent M&A in the space and how do you see the adoption of 11 A.X. within enterprise access points and consumer applications over the next few quarters. Thank you.

Sure well Elevenax right now is probably it's an early stage, but it's definitely the technology that did that you want to be in for Wi Fi for higher speed Wi Fi. So the elevenx engines that we have today are doing quite well, we know we need some of the design wins that we had Cisco is one for example.

And what we do is we have great partnerships with some of the FSC players.

So we are able to.

Basically you calibrate our solutions with the FSC providers and together kind of take advantage of the overall market and liver lever those solutions broadly, where we'll see partnerships similar to what we do with with basement partnerships.

We also have really good technology and Wi Fi we've been in a market leader.

From the beginning in Wi Fi and been able to take the solutions up over the last several years, so at the higher higher higher and higher and higher performance levels.

All the customer reach that we mentioned continues to expand in Wi Fi has been.

A pretty big catalyst in our broad market portfolio and Thats a portfolio. We mentioned has been growing at about 15% CAGR. So there's a lot of BAW strength in that outlook in that portfolio.

And we're seeing more and more customers and applications adopt 11 am still early innings for 11 X, but I think we're very well positioned for that.

And next question comes from the line of Edward Snyder with charter equity. Please go ahead.

Thanks, a lot limb there's lot of talk about Fiveg, but I'd love to give more specific especially go to headsets other than the ultra high band pad and maybe band 41 at this stage, maybe we could throw in if you want Ben 71 other than those three areas are you seeing any fiveg content.

In phones today I know its going to expect you to do millimeter wave today and are you working on that with the with your largest Oems. Thanks.

Well there are elements of Fiveg and certain company launches add up this fall, but you're right. I mean, fiveg is really going to be more of a 2020 release I think in the market there will be some.

Some phones that we'll have some capabilities, but the real upside to Fiveg is more of a 2020 and beyond opportunity and we're well positioned for that with our sky five platform all.

We've got a really unique portfolio of devices that.

Can be harmonized and customized depending on the vans and depending on the carrier and depending on.

The needs of the OEM. So I think we look good there, but but you're right I mean to Fiveg opportunity is more of a 2020 plate. We are working now on the design wins that will support that 2020 and beyond launch of course, so and just to be clear you see so participating the millimeter wave set in qualcomm's only game in town that part's atrocious terms of performance wise.

And so if your large OEM your largest customers where they want to fuel the phone using that product and they don't want to suffer the battery life problems. The problems. We're already seeing now they're going to have to do something other than the Cmos are you working on something now and using qualcomm's control the base spend would impede you from winning a slot if you were.

Well I mean, we certainly see millimeter wave as another opportunity in mobile here as we go to Fiveg theres opportunity on the infrastructure side.

An opportunity on the handheld side. So we're looking at both.

I don't believe we're going to be impeded by any base band and Weve been interoperable across the board here for years and years of all customers, including our largest line. So we'll we'll ensure that we are able to be flexible there, but those technologies.

I don't think they're going to be widespread early on but overtime millimeter wave could be a catalyst in the industry again infrastructure in and within the handset and we'll continue to work on those opportunities.

Next question comes from the line of harsh Kumar with Piper Jaffray. Please go ahead.

Yeah, Hey, guys first of all congratulations on commercial bus upturns.

Had a quick one on that for you.

I think your largest customer is widely speculated to have their fiveg phone of next year.

How would you rate the readiness of your ball portfolio.

And then as a follow up to that for example in like a Skype solution that you mentioned in your press release, how much of the bars internally versus externally sourced.

Yes, so great questions off and I think what you're going to see as kind of a a blending in of the technology over time. When you look at Sky five any corporation and Bob we're going to start to see that really roll off roll up as we move out we are delivering solutions now this quarter that I mentioned and what you're going to see now is the the BAW technology that were.

Delivering is organic or that the technologies that we mentioned in the prepared remarks about shipping this quarter. Those are organic solutions their bar enabled devices in a system level solution of Skype level solutions are not discrete filters are integrated with other elements.

And its skyworks organic stuff, we've been working on this for years.

And just to do a quick commercial on our filter business. We're doing 10 billion temperature compensated saw filters a year art would do in hundreds of millions of devices and our Mexicali site. We've got a Singapore location. That's also driving some very sophisticated package and test. So we have all of the critical supply chain elements to make it work we've been very conservative about talking about ball, but now we're there and we're delivering and we and we expect it to be the beginning of some real real significant opportunities as fiveg moves along and the complexity of mobile phone continues go up.

Hey, Thanks for the color Liam and then for my follow up a west coast competitors, namely Qualcomm Secondly, talks about there being some kind of a benefit and them, having a fiveg based man and tying their eyes to it first of all.

Do you see any validity in that statement and then secondly, do you run into them as far as design wins, our competition is concerned in fiveg.

Sure well, we all we compete with lots of companies lots of companies. So and we're used to that I think it's healthy.

And we've done our best to.

Garner the lion's share of design wins in areas that we can play so we're not at all concerned about that that's a normal thing, but I will say that in most cases, we've got very collaborative basement providers that work with us and understand that ultimately the work that we're doing a semiconductor providers is to try to make our customers products. The best So thats the way we look at it. So we're working shoulder to shoulder with base band partners endeavoring to produce tremendous phone for our customers and tremendous technology, we're going to continue to do that and it's made US who we are at Skyworks is a lot of really interesting things happening in fiveg, a lot of very very difficult challenges to resolve.

We got great people on our side, we get great partnerships with most of the baseband players and ecosystems, there and we'll be able to deliver the products that our customers want.

Our last question comes from the line of Shawn Harrison with Longbow Research. Please go ahead.

Hi, Thanks for taking my questions.

Mainly a focus for Chris your capital intensity is running about 12% of sales year to date.

How do you see that tracking in the fourth quarter and then into next year, considering all the fiveg launches that will be coming up.

Yeah, you are right. So capex is running.

In the 12% range through revenue right now and of course, we.

We'll have to take into account to reduce demand single through why way as we look at the factory Utilizations and capex into that.

Now on the flip side of course, we will continue to make the necessary investments to advance the technology.

And to increase our capabilities in part in our backend operation, but also as Liam just talked about.

Especially in our field operation not necessarily expanding capacity, but upgrading and making our technology more robust in TC saw and then of course as we execute on our ball Ram and get more and more ball integrated products.

Out there we will have to expand our ball.

Filter technology and capacity as well.

Going forward I expect capex to maybe trend below 10% of revenue.

But.

There is a lot of elements that play into that.

And then second is a follow up I think you mentioned theres some under the under utilization drag because of the Wawa weakness I was hoping you could maybe quantify what the impact is at least here in the near term from from that drag on gross margin.

Yes, so gross margin in Q3 came in at 50.4% and we guided Q4 now the September quarter to 50% to 50.5% so flat to maybe slightly down and so first of all I think we continue to execute very well on driving higher value audits and higher complex products.

Into into the market and the and Thats typically translate into higher gross margin and we continue to execute really well on cost reductions and operational efficiencies as well and we do have a little bit of a mix benefit having said that the additional flyway to the entity list.

And strongly reduced demand single from Y way is becoming somewhat of a headwind for gross margins and gross margin expansion.

Just I mean, why we was running on on about 15% of total revenue.

And most of that product was running through our fabs.

From then follow ups.

The Bakken far up in some of our filter fabs as well and so so that's kind of utilization is becoming a little bit of a headwind.

We of course.

We'll see how the whole why we situation plays out and what the future demand will be and of course, we will not hesitate in the near term to take the necessary actions to take out as much cost as we can having said that of course.

I mean, we continue to produce very strong operating margins, well above 30% and very strong EBITDA margins.

On on about 45% and.

And that will definitely remain one of our main focus items.

Ladies and gentlemen that does conclude todays question and answer session I'm not turn the call over back to.

Mr Griffin.

For any closing comments. Please go ahead.

Thank you and thank you all for participating on today's call. We look forward to seeing you at upcoming investor conferences and other events during the quarter. Thank you.

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

Yes.

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