Operator:

Good day, and welcome to Qorvo, Inc. Earning Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Douglas DeLieto, Vice President, Investor Relations. Please go ahead.

Bob Bruggeworth:

Thanks, Doug, and welcome everyone to Qorvo's fiscal 2024 fourth quarter call. I'd like to begin by reminding our audience that we issued a press release last week announcing the date of our upcoming Qorvo 2024 Investor Day. The event will be held June 11. It will be webcast for all audiences and it will begin at 08:30 a.m. Eastern. Our last Investor Day was in 2018, and we're very excited to discuss in detail our expanded opportunities and our enthusiasm for the future. Across our businesses, Qorvo is at the forefront of global secular macro trends, including mobility, connectivity, electrification and datafication. These macro trends are enabling new applications and new user experiences, many of which are made accessible to you by the company's Qorvo supplies and the devices we enable. Our customers continually seek to improve key performance parameters such as power out, current consumed, talk time, battery life and time between charges. This is happening across our markets in aerospace and defense, automotive, consumer, infrastructure, industrial and enterprise. It is increasing customer focus on power efficiency, throughput, functional density, form factor and other areas where Qorvo delivers a significant competitive advantage. Complementing this, legacy technologies are transitioning to more advanced technologies like active electronic scanning systems, advanced power management, force sensing touch sensors, RF MEMS, and a range of system-on-a-chip and system-in-a-package solutions to improve performance and enhance functionality. Also, new connectivity protocols are being adopted across our businesses, including 5G advance, DOCSIS 4.0, Wi-Fi 6, 6E and 7, Matter and ultra-wideband. Qorvo is driving innovation to enable these trends, while expanding our capabilities and product offerings to target a growing set of opportunities. Now let's turn to the strategic highlights beginning with HPA. HPA returned to year-over-year growth in the March quarter, supported by strong sequential growth in defense and aerospace and continued improvement in end markets other than base station. In defense and aerospace, we're very pleased to have completed the acquisition of Anokiwave in the March quarter. The Anokiwave team brings robust capabilities and high-performance integrated silicon ICs for intelligent active array antennas. Their commercially proven portfolio includes, silicon beam-forming ICs and IF to RF conversion solutions which are complementary to our transmit/receive RF front ends for SATCOM, D&A, 5G and other beam-forming applications. Record annual and March quarterly revenue in D&A was driven by large defense programs and SATCOM growth. The D&A content opportunity for Qorvo is especially strong in phased array, where our solutions can enable transmit/receive elements. Phased array radars can contain hundreds, up to tens of thousands of transmit/receive elements per system, underscoring the multiplier effect for Qorvo. Adding to this, we are developing more highly integrated placements that combine Anokiwave solutions with our existing RF and power management IC portfolios. Design wins for the quarter spanned airborne and shipborne radars, SATCOM applications and solid-state PA products. We secured our first design win for BAW-based filter bank solution that enables new architectures for large defense customers. In low earth orbit SATCOM applications, we are engaged to supply multiple Qorvo products including LNAs, switches, mixers and BAW multiplexers to support ubiquitous, non-terrestrial connectivity. Turning to power management, we are investing to expand our reach in markets where Qorvo enjoys long-standing customer relationships such as consumer, D&A and mobile, while also targeting more fragmented and more diverse industrial markets. During the March quarter, we secured a motor control design win and a power tool platform with a leading manufacturer of residential and commercial lawn and garden products. We also secured new PMIC designs at new and existing solid-state drive customers. Looking more closely at power management opportunities in mobile, there are increasing requirements for compute and processing power in the device that are creating new growth vectors for Qorvo PMICs. The opportunity is significant in both volume and content, and we are able to leverage our exceptional customer and ecosystem relationships. Qorvo is a recognized leader, delivering RF solutions, addressing customer challenges related to efficiency, functional density and power consumption. Our RF power management portfolio includes envelope tracking, average power tracking. Beyond RF power management, there are incremental power management opportunities in the phone where Qorvo is leveraging our expertise to reduce current consumption, improve battery life and better accommodate more data-intensive use cases. We have very strong power management IP that can be extended across markets, making our PMIC portfolio an engine for diversification, growth and profitability. We are also extending our reach in broad markets by building out more ways to engage with existing and new customers, such as our recently launched QSPICE analog and mixed signal circuit design and simulation tool. QSPICE has gained quick traction with engineers by providing them measurable improvements in speed, functionality and reliability of circuit simulation. Since its launch, QSPICE has surpassed 20,000 unique downloads. In power devices, customers continue to transition from silicon to silicon carbide and design activity for Qorvo remained strong in our target markets. We continue to secure design wins for high-density server power supplies and added a second Tier 1 North American server OEM during the quarter. In infrastructure markets, Qorvo is leading the transition from DOCSIS 3.1 to DOCSIS 4.0 with a broad portfolio of products. DOCSIS 4.0 will increase the efficiency of existing infrastructure and significantly enhance the user experience. DOCSIS 4.0 will support download speeds of up to 10 gigabits per second and increase upload speeds by 4 times compared to DOCSIS 3.1 to 6 gigabits per second. In our base station business, customers continue to award Qorvo design wins, however, we expect the demand environment to remain weak. Longer-term, we are very pleased to have been selected by a European-based OEM to support their 6G development efforts. Turning to CSG, we are supporting increasing number of applications requiring the security and precision location awareness of our ultra-wideband solutions across mobile, consumer, automotive and other markets. In mobile, our ultra-wideband placements are among many Qorvo's solutions supplied to Samsung in support of their Galaxy S24 flagship brand. In consumer markets, recent wins include a robotic lawn mower that leverages Qorvo's ultra-wideband to provide the precision location accuracy required to enable this application. In automotive, customer engagements are expanding to enable a range of applications that leverage Qorvo's ultra-wideband radar capabilities. Automotive applications for ultra-wideband technology include secure access and digital key, as well as kick sensors and the reliable detection of both intrusion and occupancy. During the quarter, customer activity included an ultra-wideband design win enabling secure access for an EV manufacturer in North America. In other automotive applications, we were selected to supply automotive Wi-Fi 6E solutions in support of a different North American EV OEM. We were also selected to supply our V2X solution for an automotive OEM in Europe on a platform ramping in calendar '25. For an EV OEM in Asia, Qorvo was selected to enable their 5G network access device with six solutions, each of which contain our low-band, mid-high-band, ultra-high-band, diversity receive, average power tracker and high-performance BAW filtering. Production for this program begins this year and the win is noteworthy as this 5G reference design will be marketed to additional automotive OEMs and Tier 1s. For Wi-Fi markets, we continue to roll out new technologies and solutions. We are migrating our newest and most advanced BAW technology across our Wi-Fi portfolio. We launched 6 GHz Wi-Fi 7 filters using our next-generation BAW and we will soon launch Wi-Fi 7 iFEMs that combine our next-generation BAW with our PA, switch and LNA content in a single placement. We also ramped our newest Wi-Fi 7 long non-linear FEMs for a Tier 1 network operator in the US and we sampled next-generation, high-efficiency Wi-Fi 7 FEMs aligning with a leading mobile Wi-Fi chipset. Connected home applications, we began sampling our next-generation Matter SoC and we secured a design win with a leading network operator in the US to supply our BLE/Zigbee SoC to remote controls for home gateways. In force sensing touch sensors, we expanded our engagements in trackpads and other consumer applications. In ACG, Qorvo is unique in our opportunity to drive growth across major smartphone OEMs. Our largest opportunity remains dollar content gains at our largest customer. We have clearly invested to grow this account to represent a larger percentage of Qorvo's revenue and our continuing investments today reflect our confidence in our multi-year growth opportunity. Within the Android ecosystem, mass market smartphones are set to transition to 5G through the decade. We are the primary RF supplier to the Android ecosystem and our strong roadmap and multi-year collaboration positions us to benefit as the Android ecosystem continues to transition to 5G. During the quarter, Qorvo supported Galaxy S24 launch with our low-band, mid-high-band, ultra-high-band, secondary transmit and receive, tuning, Wi-Fi and ultra-wideband solutions. This highlights the strength of our portfolio and the breadth of our opportunity at Samsung and we are pleased to support them across their flagship and mass market 5G smartphones. For mass market Android 5G smartphones, we see strong pull for our recently launched low, mid, high-band PAD. Qorvo's LMH solution reduces surface area by 40% by combining in one placement the low, mid and high-band main PAD content traditionally offered in two placements. We have expanded customer engagements to include the top four China-based 5G Android OEMs and volume shipments are set to commence this calendar year. To broadly support all customers with best-in-class portfolios, we continue to advance new technologies across our products. We are proliferating our next-generation BAW technology across high-performance discrete and integrated solutions. We also recently released a next-generation LRT SAW process to complement our advanced BAW and SAW processes in select bands. The first module combining our LRT SAW and BAW filters will support a flagship launch later this summer. In summary, the increasing emphasis on throughput, efficiency and size in Qorvo's markets is growing the content opportunity and demand for better performing, smaller, more highly-integrated RF and power solutions. For customers in automotive, consumer, defense and aerospace, industrial and enterprise and broad markets, we are leveraging core strengths including our manufacturing scale, system-level expertise and advanced packaging capabilities to expand our RF and power product portfolios and deliver outsized growth. For customers in the mobile market, we are addressing new product categories and expanding our SAM across tiers from the flagship tier to the mass market 5G tier, to capture a growing percentage of the total opportunity. And with that, I'll hand it off to Grant.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Ruben Roy with Stifel.

Grant Brown:

Sure. Thanks for the question, Ruben. I'll start off with the June quarter guide overall and then we can get into the segments. The sequential decline in the June quarter revenue guidance primarily reflects the ramp patterns at our two largest customers at ACG. And then, within HPA, the seasonal timing of large defense programs and a slower rollout of DOCSIS 4.0 as we've talked about previously. ACG is expected to decline -- just to break it down, ACG is expected to decline in the high single digits in June. HPA will decline in the low double digits. And CSG is expected to be approximately flat. Looking back at ACG, we don't breakout customer percentages by quarter. But I mentioned in my prepared remarks that our largest customer represented approximately 46% of total fiscal '24 revenue, which was up from 37% in '23 and 33% in fiscal '22. So, follow that, those increases there increase our revenue exposure to the seasonal ramp patterns we have with our largest customers, and that's impacting the June quarter. Looking at HPA, it's a similar seasonal dynamic. We have successfully grown our revenue base in defense and aerospace, and this represents the largest percentage of HPA revenue and actually set a record in fiscal Q4. While we expect our D&A business to grow year-on-year in fiscal '25, program timing and seasonality is having an outsized impact on the sequential performance in June quarter, just given the relative size within HPA. Looking at gross margin, we expect a substantial improvement in September as we sell through all the high-cost inventory or the vast majority of it, I should say, in June and we continue to expect full year fiscal '25 gross margin will improve modestly over '24.

Grant Brown:

Sure. No change to our view on inventory -- channel inventory, especially within the Android area, it looks relatively clear. I think June will be the last quarter. We'll really be talking about the high-cost inventory and the underutilization impact associated with that. So that's maybe one change that we haven't spoken to in the past as far as timing goes. In terms of fiscal '25 in general, it's a little early to provide any detailed quarterly guidance. But absent any macro-related disruptions, we do expect to grow both revenue and gross margin modestly in fiscal '25 on a year-over-year full fiscal year basis. It's worth pointing out that given the timing of the content gains at our largest customer and the success in the defense market, as I mentioned earlier, our revenue seasonality will be more closely aligned to those annual ramp profiles. So that's clear in our Q1 guidance, but will also be included in our full fiscal year. In terms of the shape of revenue across fiscal '25, we do expect strong sequential growth in September, some modest sequential growth in December, and then that revenue profile will reflect the sequential growth in defense. That begins in September and even stronger in December. So, we may be slightly unlike fiscal '24, we'll have a bigger December than September is our current expectation because of the strength there in defense. On gross margins, we expect substantial improvement in September, as I mentioned, roughly flattish in December and then down slightly in March. So, again, a similar seasonal profile. Overall for the year, probably implied a full fiscal year gross margin for fiscal '25 in the mid-40%s.

Karl Ackerman:

Thank you. Grant, I want to follow-up to the gross margin question that you just spoke about. I guess, is the lower gross margin guide driven by seasonally stronger Android sales in June? And then, while gross margins increased in September, does that suggest Android is weaker in the second half? I ask because while your peer this evening said that China Android rose 40% year-over-year in the first half, there have been some conflicting data points on Android demand in the second half. So, if you could clarify that, that would be helpful.

Karl Ackerman:

Yeah, very clear. If I may just sneak a quick one. And you mentioned about recovery in defense. I was curious your thoughts on silicon carbide. I did not hear that -- any comments in your prepared script. I know that the industrial market is going through a downturn, but any thoughts on recovery of the silicon carbide business or whether the macro has influenced your own success in silicon carbide whether it's in industrial and/or defense? Thank you.

Operator:

Your next question comes from Edward Snyder with Charter Equity Research.

Edward Snyder:

Yeah. Sorry about that, guys. A couple of questions, if I could. Last quarter, we had some discussions about content growth and strength in the second half. I know you haven't guided that to this quarter at all. I just want to get an update, if possible, now that you've had a chance, most of those wins have been awarded and you're probably working on qualifying it? Any alteration at all in terms of how strong you think it'll be in the second half in terms of content or revenue growth without guiding? I'm just trying to get a feel for if anything's changed.

Edward Snyder:

Good. And then, you closed the Anokiwave deal and most folks, if you look at their product line, it's pretty much a carbon copy of everything you'd need for a millimeter wave to a mobile platform. And there's been some news of recently that there seem to be a win with that. Is that -- my impression was when that was first announced that it was going to be an infrastructure play. Does it have a mobile play to it? And how confident you are that it's going to gain any traction given how weak normal wave has been in the mobile business for a while?

Operator:

Your next question comes from Srini Pajjuri with Raymond James. Pardon me, your next question comes from Chris Caso with Wolfe Research.

Grant Brown:

Thanks for the question, Chris. It was for both.

Grant Brown:

Sure. So, from a capital intensity perspective, I still think that we'll be spending CapEx in and around that 5% target level. As we look out over time, it could vary based on capacity required to support customer demand, but that's our current target.

Srini Pajjuri:

Thank you. Bob, in your guidance for fiscal year revenue to be up modestly, obviously, you said previously that you expect your largest customer to grow year-on-year this year. So, the rest of the business, I'm just curious, given, I mean, we've been weak in broad market -- not broad market and non, I guess, smartphone segments for a while. They seem to be lumpy, but some of them are coming back. So, I'm just curious as to what's the outlook for the outside of your largest customer, what's causing you to be a bit more cautious here? It seems like you're kind of -- you're sounding a bit more cautious than last quarter. So, I'm just trying to understand what's giving you that pause?

Srini Pajjuri:

I was just wondering, I guess last quarter you definitely sounded a bit more confident about the next year or two at your largest customer. Looks like that hasn't changed. And given your view on your largest customer, I would have thought the fiscal year guidance would be up more than just modestly. So, I'm just trying to understand what's kind of giving you that pause outside of your largest customer.

Srini Pajjuri:

Thanks, Bob. If I may have a follow-up on gross margins. Grant, obviously, you're talking about improving gross margin in the second half of the fiscal year. I guess, how do we go from -- I think you're exiting the fiscal year, maybe in the high 40%s -- mid to high 40%s. How do you go from mid to high 40%s to the previous, I guess, peak levels of 52%, 53%? And what's the plan to -- I mean is it a function of revenue or are there any other initiatives that are in place to get us back to that gross margin level?

Operator:

Your next question comes from Thomas O'Malley with Barclays.

Grant Brown:

Sure. It's similar to fiscal '24. As I mentioned, we do expect, unlike fiscal '24, that we'll have a larger December than September and then down seasonally in March. So, in that regard, it's slightly different than what we saw in fiscal '24. But generally speaking, the September, December quarters will be our largest within the fiscal year.

Bob Bruggeworth:

June, most likely for -- hi, this is Bob. June most likely is going to be flat to up with the Android ecosystem. As you pointed out, we're coming off a big flagship ramp at our second largest customer with tremendous content. We're offsetting that with growth outside of them.

Christopher Rolland:

Hey, guys. Yeah, just working through that gross margin thing, we're talking about like 500 basis points or 600 basis points for September. Is that roughly the magnitude to get to that gross margin expansion we need?

Christopher Rolland:

Okay. Great. And I have no other questions. Thanks.

Peter Peng:

Hey, good afternoon. Thanks for taking my questions. Let me go back to that modest revenue growth. Are you expecting growth across all segments? Or are you expecting some decline in certain segments?

Peter Peng:

Got it. And thanks for that. That's helpful. And then, I think, last quarter, you talked about smartphone shipments, low single digits, and 5Gs kind of in that 10%-plus range. Has that view changed? And is that -- I guess, the full year guidance, is there just more conservatism there? So maybe if you can answer?

Operator:

Your next question comes from Tim Arcuri with UBS.

Bob Bruggeworth:

This is Bob. And what I can tell you is that we don't see any channel inventory between us and our largest customer. And the reason is pretty straightforward. We ship directly to their manufacturers. So, this has come up maybe a year or so ago, and now come up now, and we don't see anything like that.

Operator:

That concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Hello, and welcome to the Third Quarter 2024 Earnings Conference Call for Qorvo. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Doug DeLieto, Vice President, Investor Relations. Please go ahead.

Robert Bruggeworth:

Thanks, Doug, and welcome everyone to Qorvo's fiscal 2024 third quarter call. I would like to start by complementing the team for delivering another solid quarter. The demand environment in the December quarter improved versus our November outlook, and this is reflected in our strong performance. Looking at our business from a high level, Qorvo is capitalizing on secular trends, including connectivity, sustainability, and electrification. These trends are playing out over many years and they are fueling the transition to new technologies and new standards like 5G advanced, WiFi 7, [indiscernible], DOCSIS 4.0, and others. As a result, customers across our businesses are increasingly seeking higher levels of efficiency and performance, where performance is measured in power out, talk time or time between charges. Qorvo is central to these transitions, and we are critical to enabling these capabilities. We leverage unique competitive strengths to supply our customers best-in-class solutions that enhance efficiency, increase throughput, and reduce form factor. We are a preferred supplier with leading products and a robust technology roadmap and we are positioned favorably for broad-based growth across our three operating segments. Now let’s turn to our strategic highlights, beginning with HPA. Customer demand in end-markets, excluding base station is improving and supports our view for a return to year-over-year growth in HPA in the March quarter. In defense and aerospace, we want an expanded radar design with a major DoD contractor and we received new standard product orders in support of several large domestic and international ground-based radar systems. We also enjoyed increasing demand for our solid-state PA products and for our switch filter bank products across multiple customers and programs. There are multi-year secular trends driving our D&A business, including the trend of one-to-many, and the transition of mechanical systems to active electronics scanning systems, both of which increased requirements for more advanced systems-level RF solutions. Earlier today, we announced the signing of a definitive agreement to acquire Boston-based Anokiwave. Anokiwave is a leading supplier of high-performance integrated silicon ICs for intelligent active array antennas. We are excited to have the Anokiwave team join Qorvo and expand our offerings for defense and aerospace, SATCOM, and 5G applications. In power management, we are extending our reach in markets where Qorvo enjoys a strong presence, such as wearables, and other consumer products. Our most recent award is a PMIC chipset with multiple placements for wearable and charger at a leading Android OEM. Complementing this, we begun to see a rebound in SSDs for PC and enterprise markets. We are continuing to expand upon our strong position, with an additional power management win in support of a leading manufacturer of laptops. Lastly, our recently launched QSPICE, circuit simulation software was honored as the design tool and development software product of the year, at the 2023 Elektra Awards. In power devices, we're shipping into power supplies for blockchain applications, and design activity in data center continues to be strong. We are also seeing increased activity in circuit protection, where our JFET technology brings unique advantages. In automotive, design activity remains strong, not only for onboard chargers, but also for other emerging applications and electric vehicles. In infrastructure, Qorvo is leading the DOCSIS 4.0 upgrade cycle. We commence volume shipments of our newest DOCSIS 4.0 hybrid power doubler in support of multiple cable OEMs. In the cellular base station market, inventories continue to be consumed and we expect demand conditions to remain soft through calendar year 2024. Turning to CSG customer activity for ultra-wideband is increasing in secure access automotive applications. We're also seeing new applications for ultra-wideband in automotive, including presence detection and other radar-based sensors. This momentum builds upon our recent wins in ultra-wideband, including an in-vehicle car access platform and a flagship Android smartphone launch. As we demonstrated at CES, we are actively involved in a wide array of enterprise and connected home solutions, leveraging [radar] (ph) and ultra-wideband for applications such as door locks, smart lighting, and indoor navigation. In force-sensing touch sensors, we received the first production orders for an automotive supplier in support of a leading career-based automotive OEM. We are seeing increasing traction across a growing set of customers and markets, including automotive, laptop trackpads, wearables, and smart home. In WiFi, design activity and collaboration remain strong across reference designs, customers, and operators. Within the Android ecosystem, the demand environment for mobile WiFi is improving with the normalization of Android channel inventories. In access points, WiFi 6 volumes continue to grow with certain provider rollouts in India. In WiFi 7, Qorvo secured design wins across operator, retail, enterprise, and mobile segments. In ACG, we commenced shipments in support of the spring 2024 flagship smartphone launch by the leading Android smartphone OEM. On our last earnings call, we highlighted our content gains in the flagship tier. In addition to the ultra-wideband, Qorvo content this year includes, the low band, mid-high-band, ultra-high band, secondary transmit and receive, tuning, and WiFi. We are ramping up now and building upon our momentum with a broad set of design wins in this customer's high-volume mass-market portfolio. Android mass-market smartphones are set to transition to 5G through the decade. In our collaboration with Android customers on their long-term product roadmaps positions Qorvo to be a primary beneficiary as these new 5G units [indiscernible]. To that end, Qorvo was recognized by the top four China-based Android 5G OEMs with 2023 awards for innovation, quality, supply, technology, and strategic partnership. To simplify 5G adoption and sustain our position as the leading global strategic supplier to Android OEMs, we continue to launch new architectures and new products that enhance performance and reduce form factors. During the quarter, we expanded customer sampling of our newly launched main path, LMH pad. This highly integrated solution is optimized for mass-market smartphones. It combines in a single placement, the low, mid, and high band main path content traditionally offered in two placements. This reduces surface area by 40%, simplifies design, and accelerates time to market. In addition to developing highly integrated solutions with increasing levels of functional density, we're also advancing technology in our high-performance discrete portfolio, including our BAW filters. During the quarter, we received purchase orders for discrete BAW filters using our recently released next-generation BAW technology. During the quarter we continue to bring channel inventories down and now our shipments are more closely aligned with end-market demand. We are also seeing incremental improvement in end-market demand in the Android ecosystem. For calendar 2024, we expect total smartphone units to grow in low single digits, with 5G units growing over 10%. To compete and win, we collaborate with customers on their three-year product roadmaps and we supply them industry-leading solutions. We enjoy our position as the preferred strategic RF supplier for all the customers we serve in the Android space, and we are very well positioned to benefit as their portfolios continue to transition to 5G. In summary, demand for Qorvo's products has improved, primarily due to our proactive efforts to align channel inventories with end-market demand and content gains on key customer programs. We are delivering customers industry-leading products and technologies, and design activity remains robust. This positions Qorvo favorably for continued strong content and durable long-term growth. And with that, let me hand the call over to Grant.

Operator:

Certainly. Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Toshiya Hari with Goldman Sachs. Please go ahead.

Robert Bruggeworth:

Toshiya, thanks for your question. And it does seem there's some reports last night have created some confusion about our business. So I think it's best I go ahead and address it now that you gave me the opportunity with your first question. Based on our known design wins and engagements with our largest customer, one of our competitors, I think, it's been named Qualcomm, we don't believe they're competing on any of the sockets we're engaged in, they did not win any sockets that we've been in, nor do we see them challenging our share in any of the sockets we're competing for or investing in at our largest customer. In fact, you can ask them. We're quite confident, they would tell you the same thing. Now specifically to ultra-high band, we've made it clear on past calls, it was a multi-source socket, and we were the only company that consistently won over the last three years. We've never had 100% share of the ultra-high band. In fact, you can look at teardowns of the latest iPhone and see Qorvo won the ultra-high band in the Pro and Pro Max models. I know, I've said and many of our teams said consistently that this is a performance driven customer and we're winning based on multi-year engagements, our technology investments, and clearly our product performance. And we expect to grow with our largest customer in FY 2025 and grow even more in FY 2026. I wish I could give you more specifics, but I think that answers your question, Toshiya.

Grant Brown:

Sure, Toshiya. Let me try and take all those in order. So the first one in terms of the impact from the underutilization charges, it's about half, maybe a little less than half of what we had previously reported. And as I pointed out, we'll be working through those higher cost inventories over the balance of this year and should clear them in the second half. So that should give you a sense of the timing there. There's a lot of moving factors that influence gross margin in addition to underutilization. So the timing of where something was built, when it was built, and then in any given period when it's sold. In the September quarter, for example, we had a relatively high percentage of product mix that was manufactured at external silicon foundries and then processed at third-party OSATs versus a higher percentage in the December and what we anticipate in March to be manufactured internally during prior periods of lower utilization. So there's this lag effect I described last quarter. The underutilization in past periods obviously conferred in the products sold in future periods. But beyond March, no change to our guidance of returning to 50% plus gross margin over time. We have line of sight to get there. Once we sell through the high-cost inventories, as I mentioned, it's encouraging on the utilization front as it's improving and will continue to execute on further productivity opportunities as well. I've commented in my prepared remarks that we expect to have worked through all of that as I mentioned in the second half and that'll clear the path for margins that reflect higher levels of factory utilization going forward.

Ruben Roy:

Thank you. Bob, first of all, on the unit assumptions that you have for the year, low single digits, I think you said for the total smartphone market and then 5G, 10% or so. How are you thinking about sort of non-China Android and China Android as you think about your mix going forward. It would seem like you're doing quite well, obviously, in Korea and elsewhere. Just wondering kind of where you think things shake out with China Android as you kind of progress through calendar 2024.

Ruben Roy:

That's great. Thank you for all that detail. Quick follow-up for Grant on the Luxshare commentary. How are you thinking, Grant, about sort of longer-term CapEx? Clearly, this is part of sort of the longer-term strategy around CapEx, but if you could speak to that. I know the deal is going to close first half of 2024, so maybe a little bit early, but has anything changed, I guess, with the strategy around CapEx and cash flow assumptions that you have as you think about sort of the next 12 to 18 months?

Operator:

Thank you. The next question comes from Edward Snyder with Charity -- I'm sorry, Charter Equity Research. Please go ahead.

Dave Fullwood:

Yes, this is Dave. It kind of depends. So when you -- Bob mentioned our low-mid-high, and so that's a combination of what used to be the mid-high band, which we generally enjoyed a pretty high share of that. And the low band, which we had good share, but we shared a lot of that with some other competitors. But when we integrate the low, mid, high altogether, obviously, we can pick up some content there overall as we support customers with that platform. You also have to look at the different SKU strategies that our customers have. So depending what markets they serve, there may be more or less filter content. So we work with them, as Bob mentioned and I mentioned as well, on their long-term road maps to help architect, to support their solutions across those different tiers. So whether they're doing a global SKU or they're doing regional SKUs, we can tier the product along with that to fit the need that they have there.

Robert Bruggeworth:

Yeah, and it's an interesting one. So we've been in the discrete filter market. It's just not been a huge business for us because we focus more on the modules, as you said. But it's a very good performing module. It is for 5G, not for Wi-Fi. And I like to use an example, as customers even in that tier of the market are paying for performance. They want the latest and greatest technology from us. And even on a very base product, like a discrete filter, they're still looking for performance. So we're pretty excited about those products.

Karl Ackerman:

Yes, thank you. Two, if I may. A question first for Grant. With shutdowns of your Florida facility, which I believe was historically SAW, and the sale of Farmers Branch, but also expansion of your Richardson facility, I guess, why wouldn't gross margins exceed 50% on a lower revenue base than the prior peak as 5G unit volume continue to grow from here?

Karl Ackerman:

Sure. Thanks for that, Grant. I guess, Bob, you also mentioned that 5G units would grow over 10% this calendar year. I'm curious if that is done predominantly in mid-range across maybe the China Android OEMs, or is that only from Korean and US OEMs? If you could give us some color on the constitution of the 5G unit growth in calendar 2024, that would be very helpful. Thank you.

Operator:

Thank you. The next question is from Srini Pajjuri with Raymond James. Please go ahead.

Grant Brown:

Sure. Hi, Srini, this is Grant, I'll take that question. We don't guide specifically by segment, but our views are incorporated in the total guidance. I will give a bit of color on each. In APG, we expect substantial year-on-year growth despite the typical sequential decline associated with our largest customers fall ramp, partially offsetting that seasonal decline is healthier channel inventories and improving smartphone unit demand in China, as well as the flagship launch by our largest Android customer. In HPA, we also expect year-over-year growth across all the businesses except base station. From a mixed perspective, the more capital intensive end markets we serve, such as base station and some others, including infrastructure, face headwinds due to the interest rate sensitivity of those customers and some of those larger build-outs. Consequently, defense and aerospace now represents over half of the HPA top line, making that segment a bit more sensitive to the timing of some of those defense programs quarter-to-quarter. In CSG, we also expect year-over-year growth in the March quarter, supported by our WiFi revenue, which we've talked about. It'll be up meaningfully from Q4 last fiscal year. And then slower than expected ramps in IoT-related areas are expected in March, probably persisting through the first half of 2024. Although the auto market appears to be weakening, in general, our secular opportunities there lie in the automotive connectivity areas which are supported by the growing adoption of 5G, WiFi, [indiscernible] and ultra-wideband. I think Dave commented on earlier. We've already announced some significant design wins there in CSG for automotive and smartphone. And we're targeting additional areas including industrial enterprise and smart home.

Grant Brown:

Sure. In terms of cash flow next quarter, as you point out, there's a few puts and takes. I would expect CapEx to be up. It's going to follow the level of support for the top line and our capacity additions there for our customers' demand. So I would expect that to be up in the March quarter, but remain on the year under our limit of around 5% well under. The monetization of our receivables is something that I expect will continue. That's been a significant tailwind last quarter, along with the reduction in inventory balances. So, now you're starting to see that come down as we're able to sell through inventories rather than purchase as much new material. So, that helps cash flow. Looking forward, as I've pointed out, rate and pace of our buyback will fluctuate. It's dependent this year on our maturing 2024 notes, which we'll look to take out by December, and then obviously we'll be continuing to grow throughout the calendar year and into fiscal 2025. So, overall, we should see some improvement, but on a quarter-to-quarter basis in March there's some additional items there.

Matthew Ramsay:

Thank you very much, guys. Good afternoon. I guess my question is trying to dovetail some expectations the market is increasingly having about AI adoption in clients or handset devices, particularly flagship ones, and dovetail that Bob with your commentary about visibility to maybe accelerating content gains for you with your large customer. And what I'm trying to understand a bit more is, you guys -- as AI, I guess, proliferates over the long term in the handset market, do you view that in and of itself as a driver of TAM or RF content for your company, or is it more that the resources in the phone are going to get jacked up a lot in terms of compute and memory, et cetera, and that puts additional constraints on RF where your company can distinguish itself through R&D and taking out things like cost and board space and power, et cetera. I'm just trying to figure out what you see driving the visibility of content as AI presumably comes into these devices.

Matthew Ramsay:

Got it. Thanks for the comments there. That's helpful. I guess as my follow-up, it's just a quick one. I know you guys didn't discuss financial terms or whatnot, but you did announce an acquisition today. Maybe you could give us a little context around the technologies that you're bringing in, the people that you're bringing in. Just any color there would be helpful. Thanks.

Operator:

Thank you. The next question is from Chris Caso with Wolfe Research. Please go ahead.

Grant Brown:

It's a little early to comment with any specificity on what would be our fiscal 2025 or the balance of this calendar year largely. But absent any macro-related disruptions, as I pointed out, we do expect to grow and improve our gross margins year-on-year. It's worth pointing out that given the content gains and success we're having in our largest customer and the success in our defense and aerospace areas, our revenue seasonality were closely aligned to those customer programs and ramp profiles. So, as we anticipate that quarterly profile or the shape of revenue across 2025, we expect it to look very similar to 2024. Beyond 2025, we're proactively investing, focusing on diversifying our business and pursuing substantial customer platforms where we have the technology to win and the customer engagement to justify that product development.

Grant Brown:

This is Grant, I'll take that one too. I would think of Qorvo's having a portfolio of diversified businesses that contribute to the revenue line. No change to our long-term growth metrics that we've commented on in the past. But if you decompose the business, about two-thirds of it is ACG, and this is primarily the smartphones and other cellular devices, including tablets and wearables, that we've largely commented on already. The other third of our revenues composed of our HPA and CSG businesses and HPA over half of that business is now defense and Aerospace and then CSG over half of that business is WiFi currently. It hasn't always been the case and HPA base station used to be significantly larger. Those have better than corporate gross margins typically, and so that's an area where we still have a lot of opportunity, but it's underrepresented in HPA at the time. Between HPA and CSG, there's smaller portfolio businesses that range from $25 million to $75 million annually or so, and they address market opportunities in a billion. So there's a lot of room to grow there, substantiating our comments on the strong double-digit growth rates. Our largest investments are aimed at very large customer programs, as I pointed out, in ACG for fiscal 2025 and beyond. We're looking to scale our defense and power franchises within HPA, and we're building our UWB and Matter business and CSG, and all combined, this collection of businesses brings the diversification and some financial resiliency, since they're rarely, if ever, all in phase. It's also interesting to note that in each of our operating segments, the largest businesses all benefit from our shared internal manufacturing capabilities. Our more nascent businesses rely on external capital, and over time, we expect to grow the less capital intensive simply because of the relative growth rates in those smaller businesses.

Thomas O'Malley:

Hey, good evening guys. Thanks for taking my question. I wanted to ask kind of a broader 30,000 foot view question on Huawei's entry into the Android market. Can you just talk about what your internal estimates are for Huawei smartphone penetration in calendar year 2024? And just how that impacts your outlook for Android, particularly as you get into the back half of the calendar year in 2024.

Dave Fullwood:

Yes, revenue is very low, near zero or at zero at this point with Huawei. But that's a good question. I think the performance of the phones that are out there, the newer ones, I think is pretty widely known. People have done performance evaluations and there's definitely some performance challenges on those phones. So we don't think that they could export them to other markets. They probably have a very difficult time getting carrier approval. So we think they're limited to China. And so, if you look at their performance to date, since the May 60 ramp, we think they did about $30 million in calendar year 2023. If you take the last four months of data and you start to project that forward, you can see an incremental 10 million to 20 million units added in CY 2024. So that's kind of how we're sizing it right now, and that's all built into our models.

Thomas O'Malley:

Helpful. And since that one wasn't your favorite, I can give you a bit of a layup now. But just if you look at the competitive environment in Android at the high end. Your competitor is talking about having a bit more capacity and maybe going after that market. Can you remind us of your competitive positioning there, particularly in BAW filters, and why existing customers go with you? And if they were to enter the market why you think that you'd keep the share profile that you have today? Thank you.

Thomas O'Malley:

The Android market.

Operator:

Thank you. This does conclude our question-and-answer session. I would like to turn the call back over to management for closing remarks.

Operator:

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Operator:

Welcome to the Qorvo Inc. Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, today's event is being recorded. I would now like to turn the conference over to Douglas DeLieto, Vice President of Investor Relations. Please go ahead.

Bob Bruggeworth:

Thanks, Doug, and welcome everyone to Qorvo's fiscal 2024 second quarter call. Revenue, margin and EPS were all above the high-end of our outlook provided during our August earnings call. Customer demand during the September quarter improved versus our August guidance. The primary driver was a large smartphone customer ramp. In addition, channel inventories of Qorvo components across the Android ecosystem continued to be consumed with OEMs indicating inventory levels are approaching historical norms. Channel inventory digestion is allowing Qorvo to ship more closely to end market demand, even as pockets of channel inventory remained in markets such as base station. We have worked closely with our customers to address inventories, while continuing to deliver highly-differentiated products. They have rewarded us with new opportunities and new design wins and this underpins our expectations for growth this year and beyond. Across our three operating segments, Qorvo enjoys multi-year technology upgrade cycles supported by global macro trends, including connectivity, sustainability and electrification. New protocols and new technologies are offering improved performance and enhanced functionality and Qorvo is critical in enabling these capabilities. This is playing out in aerospace and defense, automotive, base station, broadband, connected home, power devices, power management, smartphones, Wi-Fi and other markets. Where the performance is measured power out, data throughput, talk time, battery life or distance between charges, customers increasingly require higher levels of power efficiency, integration and functional density. To enable their future architectures and deliver successive improvements in our next-generation products, they rely on Qorvo's best-in-class technologies and solutions. In HPA, we are a strong beneficiary of the trends in our defense and aerospace business towards what we call one to many. Put simply, Qorvo's technologies are supporting higher customer volumes requiring more electronics and higher levels of integration. This applies to unmanned vehicles like drones, upgrades to existing radar systems, low earth orbit satellites and other applications. Lastly, we are leading the transition to DOCSIS 4.0, and broadband and we continue to deliver base station customers increasing levels of functional integration for their 5G massive-MIMO deployments. Looking at our power franchise, we offer a highly-differentiated solution with our silicon carbide JFET architecture. Our technology offers the lowest RDS(on) which translates into faster battery charging, longer battery life and lower current consumption for applications like EVs, solar inverters and data centers. These are relatively new markets for Qorvo that are early in the transition to silicon carbide and offer significant growth. We also offer a differentiated portfolio in power management, where our initial wins have been in SSDs, power tools and appliances and we are leveraging our unique IP to expand in the defense, infrastructure, smartphones, wearables and other markets. In CSG, new technologies are transforming user experiences in automotive, connected home, enterprise, industrial and other markets. Ultra-wideband is a critical focus area and we're very excited about recent developments. Ultra-wideband is in the very early innings of adoption and we are seeing exciting opportunities, giving expanded smartphone adoption, multiple in-vehicle placements and an array of new capabilities such as ranging and precision location for indoor navigation. Wi-Fi is another primary driver and the transition to Wi-Fi 6E and Wi-Fi 7 is very early-on. Wi-Fi 7 devices recently launched by Qorvo's customers are offering breakthrough advances in speed, latency and network capacity. Qorvo also offers components and full system solutions that incorporate Bluetooth Low Energy, Zigbee, Thread and now Matter. Matter is a recently launched technology overlay, essentially a common language that improves interoperability across smart home devices regardless of protocol or manufacturer. It is supported by iOS, Android and major smartphone platform providers and it's widely expected to simplify and accelerate the adoption of smart home devices. It is also early days for our force-sensing touch sensors. These are ultra-sensitive MEMS based sensors that enable new use cases and enhanced device functionality. We have broad engagements across automotive smart interiors, trackpads, true wireless headsets, smartphones, wearables and other consumer applications and our opportunities are expanding, as customers engage with our technology and develop new use cases. Looking at ACG, fewer than half of the Android smartphones this year will be 5G. Android 5G units are expected to grow in the low double-digits for several years. That's a big growth opportunity for Qorvo as we move from very little content in 4G phones to significant dollar content in 5G phones. Another driver is 5G Advanced which leverages new releases of the 5G standard. 5G Advanced smartphones will include additional transmit and receive and satellite bands favoring Qorvo's product and technology portfolio. 5G will migrate to 5G Advanced over time and bridge us to new development efforts and new content required to accommodate 6G frequency spectrum at the end of the decade. Big picture, Qorvo enjoys a range of opportunities supported by multi-year upgrade cycles. Many of these transitions are very early on and Qorvo is recognized by customers as a leading technology innovator. We've made great progress developing new technologies and winning customer designs. With that said, we want to make it clear that our end markets have not yet turned and our outlook does not contemplate a significant change in the macro-economic environment. The customer demand environment for Qorvo is more a reflection of strong design win activity and the early actions we took to improve channel inventory. When end markets recover, that will represent an additional driver of growth for Qorvo. Now, let's turn to some quarterly highlights. In defense and aerospace, we increased shipments of X-Band transmit and receive FEMs and secured first orders for our 50-watt PAs in support of new LAN-based C-band radar programs. We introduced the world's highest power Ku-band satellite communications amplifier, which enables an 80% size reduction and is optimized for multiple applications. We also received a large production order for recently launched cell-to-satellite solutions. These solutions incorporate advanced technologies from across our aerospace, base station and mobile portfolios to enable low-earth-orbit satellite connectivity. In infrastructure, we were selected by Tier-1 base station OEM to supply switch LNA modules for next-generation 5G massive MIMO radios. We also continue to lead DOCSIS 4.0 broadband upgrade cycle with production orders from multiple customers and broad-based design wins. For power management markets, we released QSPICE, a significant improvement over current industry offerings for analog and mixed-signal circuit design in simulation. QSPICE improves the speed, functionality and reliability of circuit simulation, extending the value Qorvo is providing designers. Since its launch, the tool has surpassed 15,000 unique downloads. In automotive applications, we were selected to support a major in-vehicle car access platform by a leading German automotive Tier-1. This multiyear program has a lifetime value over $250 million, marking a major milestone for our ultra-wideband portfolio. Within this program, Qorvo will supply ultra-wideband solutions for in-vehicle applications for a leading German automotive OEM. We also secured a design win from another leading German automotive Tier-1 to supply V2X solutions for communications platform launching this year. Lastly, we were selected to supply forced sensing touch sensors that enhance smart interior functionality and a recently launched EV from a Korean based automotive OEM. Complementing the large ultra-wideband win in automotive, Qorvo was selected by the leading Android smartphone OEM to supply ultra-wideband for their Spring 2024 flagship launch. It's worth noting that the ultra-wideband wins in automotive and Android markets are significant as these two customers represent the largest volume opportunities in their respective markets. To extend our reach, we're sampling ultra-wideband solutions across fleet management, logistics, agriculture and other applications, leveraging our precision location capabilities to advance operational efficiencies. In Wi-Fi, we secured multi-year design wins with Tier-1 network operators in US and in India. These wins support next-generation wireless infrastructure for retail, enterprise and home applications. Across the Android ecosystem, we increased shipments of our highly integrated modules in support of Android smartphones from the high tier through the mass market. Notably, we extended our strong share position with the leading Android smartphone OEM in their flagship smartphone. In addition to the ultra-wideband win, we are also selected to supply the low-band, mid-high band, ultra-high band, secondary transmit receive, tuning and Wi-Fi. Lastly, we expanded customer sampling of our recently launched mid-high band pad. Qorvo's newest integrated architecture leverages next-generation BAW and SAW technologies and advanced packaging to combine main path content with receive paths commonly included in the diverse receive modules. This and other highly integrated Qorvo architectures for the Android ecosystem, free board space and improve efficiency to support future 5G form factors and content like flip and fold architectures and transmit and receive non-terrestrial network connectivity. I want to thank the Qorvo team for continued operational excellence. We have moved aggressively to reduce channel inventories by securing broad-based customer design wins. In the December quarter, our outlook reflects the seasonal profile of a large smartphone customer ramp as well as healthier channel inventories across most markets. In the March quarter, we expect revenue to be more closely aligned with end-market demand. Longer-term, we expect revenue, growth and margin expansion and product mix favors our higher growth investment business. And with that, I'll hand the call off to Grant.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Tim Arcuri of UBS. Please go ahead.

Grant Brown:

Sure, I'll take that. This is Grant. Thanks for the question. There are a large number of factors that can influence gross margins such as revenue mix and input costs including utilization impacts. So I wouldn't think of it in terms of an absolute revenue level. Some products carry a higher gross margin than others due to the nature of that business or end market. For instance, looking at our base station product line, which is generally accretive to gross margins, but with base station demand weaker, coupled with the excess channel inventories we've been talking about there, this is currently a headwind to margin versus historical levels. Product mix can also impact gross margin based on where it's manufactured. As I mentioned in my prepared remarks, for instance, last quarter we shipped a higher portion of products that were manufactured at external silicon foundries and processed at third-party OSATs, and those products are not impacted by our internal factory utilization, which as we've mentioned, is running below historical averages. Aside from product mix, unit cost is the other half of the equation. It's a bit more complex given that input costs can affect gross margin on a lagging or leading basis. For example, historical underutilization will create higher unit costs in that inventory and as it's sold in future period, that impact lags. Alternatively, in anticipation of lower future demand, production volumes can be cut and utilization will fall. And in that sense, the impact tends to lead those anticipated changes in demand. So there's a number of factors that impact gross margin. I, again, wouldn't think of it in terms of an absolute revenue level, but rather a time of us to move through our high-cost inventory, return utilization levels back to normal, run the factories efficiently, and we'll be on a path back to 50% plus.

Operator:

The Next question comes from Gary Mobley of Wells Fargo Securities. Please go ahead.

Grant Brown:

Sure. I said that I think it will achieve 50% on a specific quarter before it achieves 50% across the whole year. And that's somewhat macro dependent and obviously the volumes will dictate at what levels we return to a utilization where that's possible.

Bob Bruggeworth:

Sure, Gary. I'll talk to -- at least the high level, just make sure we're clear on what we typically see in the fourth quarter, which as we've said all along, typical anymore isn't typical because it seems every time we're faced with something different from losing our second largest customer to COVID hits to various economic factors. What my comments were around is, given the current economic outlook, we're not expecting our markets to rebound. And as we work through all this general inventory that we talked about, we're going to hit the, what we think is the end market demand. Now, end market demand typically, and what we're forecasting now is -- what we see is our largest customer's rent continues to come down in March. We have a seasonal, usually the weakest quarter for our China Android business in March, and some of that is offset by a ramp at the largest Android customer that we have. So, as far as percentages go, I'm not going to call percentages, I'm just telling you that from our view, that's the dynamics that are driving most of our business. We -- Grant commented that our ACG business is growing year-over-year. Our CSG business will start growing this quarter and will be up in March. And really the lagging business for us is our HPA business and we've talked about what's going on there with primarily what used to be our largest business in the infrastructure side and we're not seeing that now. So when you integrate all that, we're still comfortable we're going to be up significantly in March year-over-year, and we're comfortable we're going to be up for the fiscal year ‘24 over ‘23. I don't know, Grant, if you want to add anything to that, while I’ve given all the moving pieces.

Operator:

The next question comes from Karl Ackerman of BNP Paribas. Please go ahead.

Grant Brown:

We won't comment on any customers within the quarter, but we'll sum it up on the 10-K. The only thing I'd say about 10% plus customers is that we did have more than one in the quarter.

Bob Bruggeworth:

I'll take the first part of that, Karl, and I'll let Dave take the second part since he was just recently in China. Actually, a large part of our growth for 5G Android is still at the largest Android manufacturer being Samsung. The second point I would like to make is, you're right, we do have China exposure in 5G, but most of that is actually in the export market for what they're trying to do to build their brands outside of China. So just keep those two facts in mind. Dave was just in China just a couple weeks ago, and I'll let him talk a little bit more about that and what [at least] (ph) we're seeing, talking to all of our customers there, along with your comment about Huawei.

Operator:

The next question comes from Toshiya Hari of Goldman Sachs. Please go ahead.

Bob Bruggeworth:

Dave, you want to handle that?

Toshiya Hari:

Got it. And then as a quick follow up outside of mobile, some of your broader analog peers have talked about signs of weakness or clear signs of weakness in industrial and parts of automotive. I think comms infra has been weak for a couple of quarters now. But I guess the question is, outside of mobile, what kind of trends are you seeing, and what sort of trajectory are you assuming as you sort of progress through the December quarter and go into March outside of mobile? Thank you.

Bob Bruggeworth:

What I'll add to that is in the cellular IoT market, actually we saw this turn about two quarters ago down. So with CSG coming back, as Grant pointed out, growing next quarter, that's -- we're not expecting the IoT -- cellular IoT business to come back. That's been down for us and we've been working through inventory in that segment as well. So I think that's been some commentary as well.

Operator:

The next question comes from Ruben Roy of Stifel. Please go ahead.

Bob Bruggeworth:

Sure. Thanks, Ruben. Extremely excited about what the team's accomplished and some big wins in ultra-wideband. One of the Android phone manufacturers, Google, we've been in for a couple generations now. So we've talked about that and that's -- you can get teardowns, I think from our comments who the next one is. What surprised us about ultra-wideband is, again, I think we said this a year ago or more than when we first acquired Decawave, that we were on the original platforms in our largest customers phones with the RF front-end for ultra-wideband. And what we believed was going to happen is it was going to take off in phones first and automotive second. What's actually happening is we're picking up a lot more in the automotive side and handset seems to be trailing it, at least in the adoption. Now, as you know, it takes a little bit longer to get to market in a car, so they're out winning platforms now and building those in. So our expectation is we're going to lead in design wins in automotive, but phones are going to come up fast. And Dave mentioned earlier in his comments that we're working with many of the other Chinese handset OEMs to introduce ultra-wideband. The thing I want to point out is in the Tier 1 German manufacturer that we won in, the current win is now to support a German Tier 1, but they will take that same platform to other US and other manufacturers around the world, that platform, plus we've been working with others on platforms that will also go into the automotive areas. So we see a lot of opportunity there. And placements in automotive can go from five or six up to nine or 10. So they can be big wins depending on how they adopt to use the ultra-wideband in a car. And it's more than just, ‘keyless entry.’ And I think that's what's really exciting about the opportunities there. So if I look at that and I look at handset, also a couple quarters ago we talked about ultra-wideband and access points -- Wi-Fi access points for indoor navigation, which is another exciting opportunity. And we're just seeing it now going into other types of products, we're working with various manufacturers, OEMs, for other things in your home that need that kind of technology. So we're very excited about the things that are going on there. Really appreciate your question.

Grant Brown:

Yeah, sure, and we usually have commented on our target around four turns. So high threes to four would be a pretty typical range for us to look to achieve.

Edward Snyder:

Thanks a lot. First, a housekeeping. Can you give us a percentage of revenue for each of the three businesses? Sorry, if I missed that. And then, Grant, if I take a look at your China revenue over the years, actually, it looks like if you exclude the arrow when you were over shipping and the arrow when you're under shipping, your average is probably close to $250 million to $300 million a quarter. And I know you did about $150 million last quarter. We haven't seen the [cadence] (ph) for September yet, but doesn't it suggest you're dealing with maybe $100 million, $150 million of inventory burn per quarter? I'm just trying to bracket those numbers.

Bob Bruggeworth:

All we'd add is we are still under-shipping to end demand best we can tell. But we're coming up near the end of it.

Bob Bruggeworth:

Yeah. We've been -- and maybe this will help -- as we bring it down, that means revenues do go up. I mean, it's not -- we haven't been shipping. So we've been up the last two quarters.

Edward Snyder:

When you said you saw the largest bookings in two years in the last quarter and normally those bookings are for what, a year out or so, I know it varies, but...

Edward Snyder:

Yeah.

Operator:

The next question comes from Srini Pajjuri of Raymond James. Please go ahead.

Bob Bruggeworth:

Because what I meant was from a demand perspective, in March, that's typically a seasonally low point for China. That's what I said.

Bob Bruggeworth:

What I also said is we've come -- we pretty much cleared out most of the inventory. So we are seeing growth, which is what I just said to Ed this quarter in our Android business in China.

Grant Brown:

Yeah. Maybe I'll restate what Bob had commented on earlier. Just in terms of next quarter, we do see growth in Android. But March, we do expect to see the typical decline there, which is on the other side of our largest customer's ramp and March is also historically a seasonally low point for handset sales in China. So those two factors are somewhat offset by the largest Android customer and their timing of phone launches, plus the fact that the channel is healthier. So with all that said, we do think it will be better than typically seasonal. But again, it's anyone's guess as to what seasonality means.

Srini Pajjuri:

Got it. Got it. Makes sense. And then this year has been in terms of the content expansion for you, Bob, it's been pretty impressive. And I think some of those content gains also came from share gains. So as you look out to the next six to 12 months, how are you feeling about, because I do get this question about sustainability of some of the content gains from this year. So if you could help us maybe to the extent you have visibility, how should we think about your content gains both in premium as well as in the mid-tier.

Operator:

The next question comes from Vivek Arya of Bank of America Securities. Please go ahead.

Bob Bruggeworth:

Thanks, Vivek. And I know I've said this before, but I'll remind you and the audience, we ship a majority of our parts that are not on the motherboard. So the timing of when we see the ramp is different than maybe you're talking about a baseband customer, I don't know. They're on the motherboard. A lot of what we have goes to the flex circuits. So they build those ahead of the motherboard. So our timing can be different. So I just want to make sure that. That's also, if it's the baseband customer, if you remember, they had an inventory build that they blamed at that customer. We didn't see that build. So therefore, we naturally follow the progression of the builds. They may have had a pause. And as you point out, the inventory will go down, then they would see a quick ramp up. So I can't comment on their business, but I can tell you the timing, we typically lead the ramp because of how much product we have on flex circuits, which is different than most of the products that are on the motherboard.

Vivek Arya:

Got it. Makes sense. And then on gross margins. So December, 43.5%, I guess, at midpoint. March, I guess, seem to be implying closer to 41%. And I think the explanation you're giving is that because these two quarters, you are using your internal high cost inventory. So does that impact get over by March as we start conceptually thinking about modeling gross margins from June onwards. What is that starting baseline that we should keep in mind? Is it low 40s? Is it mid-40s? I understand you're not going to give guidance for next year, but I just don't know how to think about what is normalized gross margins as we start thinking about your next fiscal year?

Operator:

The next session comes from Chris Caso of Wolfe Research. Please go ahead.

Grant Brown:

Sure. So obviously, we'd expect cash flow to improve materially given the improvement in the P&L. It's a bit of a lagging indicator as we collect receivables. So we should see that. I wouldn't expect anything different in terms of our guidance on CapEx at around 5% of sales or less. Again, that can fluctuate, of course, but I wouldn't expect too much difference there from a free cash flow perspective.

Dave Fullwood:

Yeah. I think from a capability standpoint, I mean, we don't see anything out of the norm. I mean there's certainly some key technology areas that they're definitely behind in. And so -- and I think if you look across the phone, even outside of the RF, there's probably a lot of areas that the technologies behind and maybe even up to years behind. So I think from a competitive environment, we don't see any big change just because of that Huawei phone ramp.

Blayne Curtis:

Hey, thanks for squeezing me in. And I apologize if you said this earlier. But in terms of the September quarter, mobile came in a bit better than you were expecting. I believe the expectation was that you weren't going to see much Android growth. Can you just clarify if that upside came from Android to your largest customer? And I don't know if you gave the percentage [of two 10%] (ph) customers? So are you willing to give those out?

Blayne Curtis:

Got you. And then I wanted to ask, just follow back up on that gross margins. I'm trying to understand, I guess, your mix has shifted dramatically to this largest customer, and I'm just trying to figure out if that, how much of an effect does that have on your gross margins, the customer mix versus the utilization of your fabs? Does that have any impact or not?

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Operator:

Greetings and welcome to Qorvo Inc. Q1 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas DeLieto, Vice President, Investor Relations. Thank you, Mr. DeLieto. You may begin.

Robert Bruggeworth:

Thanks, Doug, and welcome everyone to Qorvo's fiscal 2024 first quarter call. Revenue, margin and EPS were all above the midpoint of the outlook we provided on our May 3rd earnings call. End market demand in the June quarter was consistent with our expectations. Within the Android ecosystem, channel inventories continue to be consumed and Qorvo continue to undership to end market demand. We expect continued reduction in channel inventories in the September quarter and we see Android channel inventories normalizing by calendar year end. In other markets, relative strength in the areas like defense and aerospace and automotive was offset by inventory consumption across consumer markets and weak demand in 5G infrastructure. In some of these markets, we expect inventory consumption to extend into next year. Qorvo has worked diligently since last fall to aggressively drive down channel inventories in multiple markets while at the same time prioritizing new product development and securing customer designs. This has enabled us to drive growth in large customer programs and it positions Qorvo for incremental growth as end markets recover. As we have stated in the past, Qorvo's growth targets by segment or for strong double-digit growth in Connectivity and Sensors, double-digit growth in High-Performance Analog and mid-to-high single-digit growth in Advanced Cellular. Design wins during the quarter in HPA were diversified across customers and markets and included large defense programs extending multiple years. In Connectivity and Sensors, design activity span a variety of applications including highly-integrated IoT connectivity solutions, Wi-Fi 7 RF front ends and force-sensing touch sensors. We have a broad range of growth drivers in CSG and we are pleased with our increasing design activity in new growth areas like Sensors and ultra-wideband. Overtime, we see HPA and CSG contributing increasingly to growth, diversification and margin expansion. In Advanced Cellular, design activity continued to be favorable across all leading smartphone OEMs. We are growing our content and next-generation 5G smartphones at our largest customers and we are capturing new content in the Android ecosystem as 4G units transition to 5G and enter our SAM. In calendar 2023, approximately 45% of Android smartphones will be 5G and we expect Android 5G smartphone unit growth to post double-digit CAGR for several years. Now let's turn to some quarterly highlights. In automotive applications, Qorvo was selected by an automotive tier-one to supply ultra-wideband connectivity for upcoming EV launch by US-based manufacturer. We are pleased with this win and the growing content opportunity in automotive where the ultra-wideband content inside the car will typically include five to seven placements plus one placement in each key fob. We also secured touch sensor design wins enabling force level detection in a range of smart interior applications including center console, door panel, steering wheel and display. These are multiple design wins totaling multiple billions of dollars. In Automotive Connectivity, we were selected by a leading automotive antenna supplier to provide cellular V2X front end modules and BAW coexistence filters for use by a major European-based OEM. Lastly, we expanded our automotive footprint with an automotive radar design win to supply or receive amplifier for a major US-based automotive OEM. Qorvo's automotive opportunities include DC to DC converters, onboard chargers, smart interiors, RF front ends for 5G, Wi-Fi and V2X connectivity, radars and ultra-wideband secure car access for key fobs and in sidecars. In Wi-Fi, we secured several Wi-Fi 7 design wins with access point providers for our Wi-Fi 7 BAW filters enabling full coverage of 2.4 gigahertz, 5 gigahertz, and 6 gigahertz bands. We also began sampling tier-one customers for our next-generation Wi-Fi 7 FEMs which paired with multiple chipsets. In our Connectivity Systems business, we were among the first to achieve Matter 1.1 certification for our concurrent connect integrated solutions for gateways and devices. This expands our market opportunity and support of top smart home ecosystem customers whose installed base exceeds $150 million home networks. In silicon carbide, we booked a multi-million dollar customer order for silicon carbide power devices supporting AI servers in other data center applications. Design win funnel for Qorvo's silicon carbide power devices is increasing and we continue to expand our supply base to support our customers. In addition to the previously announced supply agreement with SK Siltron, we also have agreements in place with Wolfspeed and Coherent. For broadband applications, we extended our leadership in DOCSIS 4.0 with customer sampling of our 1.8 gigahertz hybrid power doubler. This solution delivers more RF power with lower-power consumption than competing solid-state solutions. In Cellular Infrastructure, we released a highly-integrated 3.4 gigahertz to 3.8 gigahertz, 8W PAM that simplifies 5G massive MIMO system design. We also began sampling the industry's first C-band discrete BAW band pass filter for 5G small cell radios. For defense communications, we began sampling the industry's first 2 gigahertz to 18 gigahertz transmit receive front end module, delivering 10W of transmit power. This highly-integrated wideband solution integrates the PA, switch, LNA and Limiter. It leverages Qorvo's advanced packaging and process technologies to maximize power efficiency in a miniaturized footprint. The form factor and functional density of our solution is especially critical given the trend in our defense and aerospace business of one-to-many. In addition to manned aircraft, there will be many more drones. In addition to large keyhole satellites, there will be many more LEO satellites. These future communication systems and system upgrades incorporate more electronics requiring greater integration across higher volumes. With smartphone OEMs, we began sampling Android smartphone customers, Qorvo's newest highly integrated PAD, which combines in a single placement below, mid and high-band main path functionality that is currently offered in two placements. This new architecture reduces surface area by 40% to meaningfully simplify design and decrease time-to-market for massive 5G phones. This follows on the heels of our announcement last quarter that we began sampling a mid, high-band PAD that combines the main path and diversity receive content for the mid and high bands. Both placements leverage a broad range of Qorvo process technologies, including our newest BAW and SAW filters. Lastly, we commenced customer sampling of our next-generation antenna tuners, which deliver best-in-class linearity, the industry's smallest solution size and compatible with all major chipsets. I want to thank the Qorvo team for continued operational excellence. We have made significant progress clearing channel inventories while developing new technologies and securing new design wins that enhance our customers' products and expand our addressable market. In the September quarter, our outlook primarily reflects new products ramping at our largest customer. Later in the year, we expect Android revenues to reflect a healthier channel in Qorvo's shipments that are more closely aligned with end-market demand. We are very encouraged by customer design activity we've seen so far this year, we expect revenue growth and margin expansion as product mix favors our high growth investment businesses and we are positioned for incremental growth as end markets recover. And with that I'll hand the call off to Grant.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Karl Ackerman with BNP Paribas. Please go ahead.

Grant Brown:

Sure. Thanks for the question, Karl. This is Grant. We currently do not believe the export ban will have a meaningful near-term impact. It took effect yesterday, as you know, but it was communicated well in advance and I credit our ops and sales team for acting quickly to access the supply needs and communicate with customers and suppliers, and ultimately for increasing our raw material coverage with our direct suppliers wherever needed but we have not observed any notable changes in our customers' behavior or supplier lead times. We remain in close contact with our suppliers and they have assured us of their ability to support our demands down to individual purchase orders on committed delivery dates. In terms of pricing, we had again, haven't seen anything abnormal there as of today.

Robert Bruggeworth:

Thanks, Karl. This is Bob. Appreciate the question. As you well know, the nice thing about automotive is when you win, you get great visibility for multiple years, unlike the smartphone industry where today we get a little bit of visibility, but you have to then earn it the following models, where in automotive, as you pointed out, you go out several years. We've got great visibility at this time, we're not sizing it, but I think based on the volume of opportunities that we shared in my prepared remarks plus in the press release, it is our expectations as you pointed out, as we move out into calendar year '25 and '26, it will become a much more meaningful part of our business. But as you pointed out, we're already participating in some of the automotive applications today. I will comment the electric vehicle manufacturers do seem to move a little bit more, a little bit faster than the traditional gas engine manufacturers, but we do look forward to continue to report our progress.

Ruben Roy:

Thank you. Bob, if I can follow up, right where you left off on auto. Can you talk about or characterize the types of automobiles where you're winning? Is it sort of flagship versions or flagship autos or mid-tier high end or across the board? And at this point, is there a way to think about content per auto in dollars?

Dave Fullwood:

Yes, and you can imagine some of these products that we're talking about, they're going to start in a higher tier of the auto from ultra wideband for the sensors that are going into the cockpit. Electric vehicles certainly are focused there, but even some of the higher-end gas-powered vehicles. And over time, we expect that to go down market. On some of the connectivity side there, that can go more broadly across the portfolio and the OEMs because there you're talking about connectivity within the vehicle, connectivity from vehicles outside of the vehicle. So some of those are more driven by the governments, and those requirements are going to be across all vehicles regardless of the tier where that model sits.

Grant Brown:

Sure, Ruben. Revenue by segment was $412 million for ACG, $140 million for HPA and $99 million for CSG. In ACG, our fiscal Q1 is the lowest seasonal point for those largest customers. But despite that, the top line for ACG was approximately flat or down about a percent or so. Both HPA and CSG saw sequential growth in the quarter, up 5% and 21% sequentially. As I commented in the prepared remarks, operating income was 11% just for ACG, 17% for HPA, and then negative 20% for CSG, which was a notable sequential improvement for CSG. We don't guide by segment, but looking out into September, the primary driver is the content gains at our largest customer within ACG. Revenue is not supported by existing inventory. It's built and shift in line with the seasonal ramp, so it's not burdened with those higher costs of some of the Android inventory, for example. So that benefits gross margin and has been factored into our, into our guidance.

Robert Bruggeworth:

Operator?

Robert Bruggeworth:

Operator, are you there?

Robert Bruggeworth:

Yes, please. Next question please.

Gary Mobley:

Hey, guys. Wasn't sure if was getting my question in. Good afternoon. I was observing that your first half of fiscal year '24 appears to be running about 3% above your -- your May commentary and -- or about $50 million. What's driving that minor variance and is there anything to call out that may be offsetting that?

Gary Mobley:

Got it. Thanks, Grant. And so you're guiding the September quarter revenue at about $1 billion dollars, which takes us back to a similar level to the June quarter of fiscal year '23 when gross margins were 450 basis points higher. And I presume the difference today is that you would, you just have too much inventory and you just can't fully utilize the manufacturing operations. But under -- my question is under what circumstances can we see a return to that 50% gross margin?

Operator:

Thank you. Next question comes from the line of Srini Pajjuri with Raymond James. Please go ahead.

Robert Bruggeworth:

Thanks, Srini, for your question. And we are getting pretty comfortable with the progress we're making, and as both Grant and I have commented, the team has done a great job of managing the inventory down, working with our customers, working with some of our distributors to do that, and our expectations are that we should be able to, by the end of the calendar year, things will normalize. And then, obviously, as that happens, we're not expecting end demand to change at all from where we are. In fact, as we sit here today reporting the most recent quarter, and we were a quarter ago, our numbers for units of Android phones, smartphones has not changed. So we think things are stabilizing some. Yes, the market's been down here a little bit up there, but overall. So as we look out into '24, calendar '24, fiscal '25 for us, we're not ready to make any calls on what's going to happen with the macro economy and things like that. But clearly, as we've come down to normalized inventories, that headwind turns into a tailwind. So we'll watch how that plays out.

Grant Brown:

Sure. We haven't commented beyond fiscal '24. So I won't do that here. But in our guidance, with a sequential drop in Q3, you start to see some improvement there. And then in Q4, again, you start to see even more improvement as we sell through some of the channel inventory. Now gross margin will be sequentially down in the sense that we're selling through some of that inventory, but we do expect to resynchronize utilization towards the end of our fiscal year and into fiscal '25. But we haven't commented specifically beyond that.

Vivek Arya:

Thank you for taking my question. Bob, you are sounding more confident about the top-line growth, but since the last time Qorvo reported, there has been kind of this pronounced slowdown in China. And even if the Android customer inventory might be getting cleaned up, your large customers still has China as an important end market. So, I'm curious that in the last call you suggested that December sales could be flattish, right, and March would be down just kind of seasonal, is that still the right way to think about December and March or do you think we should be reflecting any macro effects that we're seeing by way of sell-through and just consumer demand?

Vivek Arya:

Thanks, Grant. Very helpful. And then on gross margins -- Apologize if you had answered this before, but again from the last call I think you had mentioned December could be down 100, 150 basis points, and then March would be down another 200 to 300 basis points as you work through some of the higher priced component inventory. What would make that component inventory cost go down, right? I imagine there has been more inflation overtime. So I guess this is just a long-winded way of asking that as we start the next fiscal year, what is the right baseline of gross margins we should think about, is it that 43%, 44% level as you're exiting March, is at the average level that you have in this fiscal year? What is the right way to just think about the baseline level of gross margin as you enter the next fiscal year?

Operator:

Thank you. Next question comes from the line of Tim Arcuri with UBS. Please go ahead.

Grant Brown:

The iPhone refurbished market has been around for quite a long time. So at least when we model that coupled with everything else that we do in our normal research for phone usage, different segments, all those things that we feed into our model, we've taken all that into account for all the comments that we've made this evening, last quarter, the quarter before that and the quarter before that. So it's all in our calculus already.

Operator:

Thank you. Next question comes from the line of Matt Ramsay with TD Cowen and Company. Please go ahead.

Robert Bruggeworth:

Matt, thanks for the question. I don't believe there's any company in the USthat has a license to ship to Huawei for 5G phone. They become a very small customer of ours, so there's no real impact from that perspective. And as you pointed out, we'll see if they are successful or not, won't impact our business at this time.

Grant Brown:

Sure. This is Grant. Let me take -- Maybe the two-part question and then I'll ask Dave to step in if I miss anything. The question about the growth drivers. If you look at or think about the phases of growth that we're looking at right now, you could -- as we've commented on return to shipping and to end market demand is relatively near-term. Beyond that, we continue to work with our customers and believe that we'll benefit as the volume levels return. So beyond just shipping to end market demand, we should see some growth and return to normalcy over the coming years. And then maybe beyond that, even into the longer term, we should see the benefits from the investments we're making, that would be sort of beyond 5G, and you're looking into the migration to DOCSIS 4.0 within HPA, the one-to-many phenomenon bought commented on in defense and aerospace will continue within CSG, there's the move to WiFi 7 and among many other things that we're investing in and expect to see growth there. In the near term, inventory to that piece of the question, we are seeing pockets, which we've talked about before in base station and partially in WiFi in some consumer areas, which will take longer for us to work through versus Android. And Dave, I don't know if you have anything further.

Operator:

Thank you. Next question comes from the line of Christopher Rolland with Susquehanna. Please go ahead.

Grant Brown:

Sure, thanks, Chris. And I'm glad you asked the question actually on December. So when we made the comments to a flattish December, it was on our -- previously anchored to our last quarter guidance. So I would expect that right now, given that we're not anticipating significant growth in fiscal '24 that I'd pouch that with the comments we made last quarter, it could end up being slightly down to flattish. And then, of course, some seasonal decline in March. Potentially less than normal as we clear the channel. So, that question hadn't been asked. I'm glad you went there. In terms of EPS, I have given majority of the P&L but haven't commented specifically on -- on annual EPS relative to fiscal '23.

Grant Brown:

Yeah, you got that right. It's for power supply in the servers, and of course, AI and any kind of applications like that is going to drive demand there. So that's good for us, but yes, that's a strong market for us as we grow our silicon carbide business.

Edward Snyder:

Thank you, guys. Thanks a lot. Based on everything you've said here, a bit stronger than expected guidance in September and everything you said about Android, you're not expecting a rebound, et cetera. That suggests that the extra strength is coming from the content gains at your largest customer, and doesn't that imply, given your share and all that, that you're going to see, well, year-over-year in content is going to have to be up much more significantly at 40% overall, have I got that math right?

Edward Snyder:

Right. So that was my second question because you have been clear the content gains are kind of a mix of both. Share gains and new content. Does that mean that we will see you in sections, the RFP that we haven't seen in the past when we talk about new content or is it just additions to areas you've been very strong in previously? And how sticky do you feel the share gains will be over the next year or so, especially the ones that you're taking from other folks, just curious?

Edward Snyder:

Those areas that, you guys actually have been quite strong and they're expanding given all the new connectivity going on here makes sense. And we highlighted every antenna tuners. I think you're up like 12 to 15 in the last model, plus a couple of impedance tuners too. So that's generally what we're talking about in most of the gains?

Edward Snyder:

Great. Thank you, Bob.

Operator:

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

Operator:

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

Operator:

Greetings, and welcome to the Qorvo Incorporated Q4 2023 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas DeLieto, VP, Investor Relations. Thank you. You may begin.

Bob Bruggeworth:

Thanks, Doug, and welcome, everyone, to our call. Qorvo’s fourth quarter results were consistent with the outlook provided during our February 1st earnings call. Looking at our end markets, the quarter played out largely as expected, with lower end market demand in some markets, primarily those with consumer exposure and channel inventory consumption with the majority of that being in the Android ecosystem. We made significant progress clearing channel inventory. At the same time, we continued to introduce new products and secure new designs, positioning Qorvo to best support our customers as end markets recover. We are seeing increased strength in customer design activity across our businesses, and we are confident in our ability to grow. In High-Performance Analog, we enjoyed relative strength in power devices and defense markets, offset by our management markets with consumer exposure and inventory digestion at infrastructure OEM. We continue to enjoy broad-based multiyear design win activity that we see contributing to long-term growth. In our Connectivity and Sensors Group, relative stability in automotive during the quarter was offset by continued inventory draw-downs and weak end market demand for Wi-Fi enabled products and cellular IoT. Design activity was strong across a variety of applications, including smart home, precision location, indoor navigation, Automotive Connectivity, automotive smart interiors and enhanced human machine interfaces. In Advanced Cellular, total Android revenue was up sequentially on the strength of a large customer flagship ramp with record Qorvo content. We believe March was a low point for China-based Android quarterly revenue, and we expect total Android revenue will grow sequentially in June, while channel inventories continue to be consumed. Design activity during the quarter continued to be favorable across all leading smartphone OEMs. Now, let’s turn to some quarterly highlights. In High-Performance Analog, Qorvo was selected by an industry leader to supply cell-to-satellite solutions that combine a variety of technologies, including multiple RF components and BAW-based multiplexers. These solutions enabled low earth orbit based space-to-terrestrial connectivity, helping to provide cellular coverage in the hardest to reach geographies. We achieved a milestone with the delivery of our first prototype RF multi-chip modules to BAE Systems under the SHIP contract with the U.S. Department of Defense. Qorvo is leveraging our state-of-the-art production capabilities in our Richardson, Texas facility to advance heterogeneous packaging integration and enables significant savings in power, size, weight and cost. This early milestone showcases the speed and efficiency of our collaboration with our program partners. It is a critical first step towards the goal of reestablishing U.S. leadership in microelectronics and accelerating the modernization of microelectronic systems for next-generation phased array radars, unmanned vehicles and satellite communications. In our power device business, we booked a multimillion dollar follow-on silicon carbide inverter order for residential and industrial solar application. The Department of Energy forecasts solar power will make up more than half of new capacity in the U.S. in 2023, and the market for silicon carbide inverters is expected to achieve double-digit compound annual growth rate through 2026. This win complements our ongoing business in automotive charging applications and data centers. In our Connectivity and Sensors business, we were selected to supply ultra-wideband solutions across multiple verticals, including a next-generation smartwatch, supporting secure car access, Wi-Fi access points, enabling indoor navigation and an additional 2024 flagship Android smartphone. Of note, ultra-wideband design activity for in-car applications has ramped up significantly. We are a member of the Car Connectivity Consortium, and we are proud to be a contributor to the Digital Key Plus program for the Android ecosystem recently announced by BMW. With Digital Key Plus, BMW drivers with compatible smartphones can unlock or lock their car and start the engine without having the key and without removing the phone from their pocket. In Automotive Connectivity, we collaborated with automotive OEMs and leading third parties to advance smart antennas and next-generation shark fin architectures. We also expanded design engagements related to 5G network access devices with automotive Tier 1s. In sensors, we secured a design win to supply force-sensing touch sensors in support of a premium true wireless headset for a leading European OEM. The headset will leverage the ultra-sensitivity of Qorvo’s MEMS-based sensors to enable a new industrial design. In Wi-Fi, we secured our first Wi-Fi 7 BAW filter design win and we expanded sampling of our Wi-Fi solutions, enabling full coverage of 2.4, 5 and 6 gigahertz bands for smartphones and consumer and enterprise access points. In Advanced Cellular, we supported the ramp of a Korean-based smartphone OEM’s flagship smartphone with multiple Qorvo placements, including low band, mid-high band and ultra-high band pads as well as secondary transmit, tuning and Wi-Fi. We are pleased to support this customer broadly in their flagship tier, and we are seeing expanding opportunities as they migrate their mass market portfolio to integrated 5G solutions. Across the Android ecosystem, Qorvo was awarded broad-based design wins in support of flagship, mid-tier and mass market 5G devices at the top 5 Android smartphone OEMs. To support new designs, we shipped our first samples of our newest mid-high band pad to an Android OEM, addressing this customer’s most challenging performance and size requirements. This is the industry’s most highly integrated front-end placement. It combines main path and diversity receive content for the mid and high band. And as we said previously, this product integrates nearly 2 times the BAW filter content in a smaller footprint than existing main path only, mid-high band pad architectures. It leverages the reduced size and enhanced performance of our newest BAW and SAW filters. We expect the first smartphone featuring this solution to launch in calendar 2024. Across the business, we’re leveraging investments in best-in-class technologies, introduce differentiated products that delight our customers. We have many growth drivers in our portfolio and design activity has been strong. In HPA, design wins secured in the March order span a variety of applications in aerospace, battery management, defense radar, electric vehicles and renewable energy systems. In CSG, we secured new business in automotive connectivity, indoor navigation, smart home and wearables. In ACG, we enjoyed broad representation across all leading OEMs and we are increasing our content in the highest volume flagship phones. We believe we have room to grow at our largest customer, including BAW-based content, and we are a leading supplier to the Android ecosystem where the transition to 5G supports long-term content gains. Last year, approximately 40% of the roughly 920 million Android smartphones were 5G. And we see Android 5G smartphone unit growth achieving a double-digit CAGR for several years. Over time, we expect HPA and CSG to outpace the growth rate of ACG, increasing our total growth rate and driving leverage as mix increasingly favors our high-growth investment businesses. I want to thank the team for continued operational excellence. We are introducing new technologies and launching new products to align with the industry’s growth drivers and broaden our market exposure. We are seeing increasing strength in customer design activity across our businesses, and we expect improved financial performance supported by content gains and large customer programs. And with that, I’ll hand the call off to Grant.

Operator:

[Operator Instructions] Our first question comes from Toshiya Hari with Goldman Sachs.

Grant Brown:

Thanks, Toshiya. I appreciate the question. This is Grant. In terms of the full year fiscal ‘24 guidance, based on our current view and barring any macroeconomic deterioration, right, we’re not forecasting a significant jump in handset unit sell-through. In fact, we actually believe smartphones to be down year-over-year, but 5G phones to be up in the 5% to 10% range. So, that underpins our overall fiscal ‘24 view for ACG. We do expect some growth in HPA and CSG as well, especially as the year progresses. But generally speaking, not a terribly aggressive back half of the year. That said, just walking through the quarters, margin will follow mix, as I pointed out in my prepared remarks. Although there is no change to our view of returning to 50% in the gross margin line, it’s unlikely in ‘24. If I take it quarter-by-quarter beyond the June quarter guidance, our fiscal Q2 in September, we would expect revenue to be up approximately 50% sequentially. Again, this is driven by strong content gains and to a large seasonal ramp. Gross margin will also be up in the neighborhood of approximately 400 basis points quarter-on-quarter as mix begins to favor some newer products, which are less burdened by those higher unit costs associated with underutilization. In the December quarter, our fiscal Q3, we expect revenue to be approximately flat and continuing off of September. Gross margin will be down 100 to 150 basis points as utilization begins to ramp down following that large seasonal ramp and mix begins to modestly shift to some of that higher cost inventory. And finally, in the March quarter, our fiscal Q4 of calendar year 2024, we expect Android to be a higher percent of our mix, but decline less than might be historic seasonality due to a clean channel and returning to shipping to end demand. However, gross margin will be down 200 to 300 basis points quarter-on-quarter as mix reflects that higher cost inventory. As I mentioned in the prepared remarks, beyond June, I gave some color around OpEx for the year, which would exclude Bio in the $240 million to $245 million per quarter, with some of the variability there related to product development spend and other items. Generally speaking, we have a good degree of confidence in content for our September period. And then as we clean the channel in the Android ecosystem in ACG, we feel comfortable of returning to shipping to end market demand. Tax rate is probably in that 13% to 15% range, consistent with the fiscal ‘23. And we believe share count will be approximately 100 million shares or less.

Gary Mobley:

Grant, thanks for that very explicit fiscal year ‘24 revenue guide. It’s quite helpful. But I wanted to ask about something one of your competitors was talking about this evening. That is some subseasonal shipments to their largest customer, I presume Apple, their modem-only customer. I’m wondering if that factors into your guidance or is factored into your guidance, what maybe some of the undercurrents going on there, how that made impact to you from a competitive standpoint or just from a customer-specific standpoint?

Gary Mobley:

Okay. Do you mind if I ask a follow-up?

Gary Mobley:

All right. So I guess the $64,000 question is what will the new normal look like with your Android customers, once they’re through draining their excess inventory? What’s your best feel based on design win traction? Do you think you can achieve a new revenue high at some point in the future in your Android customer base specifically?

Operator:

Our next question comes from Vivek Arya from Bank of America.

Bob Bruggeworth:

Yes. I think what’s interesting, Vivek, is, I mean, over time, we’ve done a pretty good job of holding in the areas that we’re winning nice share and growing, and as they add content in those areas, we’ve done well. So as we look out, we feel pretty good about things. And I even commented and Grant did as well that we believe we can continue to grow content at our largest customer, whether it be BAW-based or our discrete components that we sell there. So, we feel good about the outlook there for multiple years.

Bob Bruggeworth:

Yes. I think I answered this question last quarter, I believe, on a similar topic, and it was both. We’re gaining content through both share gains as well as, to your point, making the pie bigger. Both.

Karl Ackerman:

I guess, based on your comments on channel inventory realignment for Android, why wouldn’t channel inventory be aligned with sell-through by the end of the June quarter, given the further improvements that you’re seeing? And as you address that question, how would you characterize the inventory balances and timing of reaching normalized inventory in your infrastructure and IoT businesses?

Grant Brown:

Hey Karl, this is Grant. Let me jump in there. And maybe if I take it up a level. Our view on channel inventories is incorporated in our guide. So, our 50% increase in the September quarter is predicated largely on content gains. Sequentially, we would expect the channel to begin clearing and us to begin shipping to more normalized demand later in our fiscal year. Again, it doesn’t incorporate anything aggressive in terms of unit growth. This would be simply a return to what could be considered somewhat normal, and that would be incorporated in our guide. So, you can make at least the quantification of it based on that.

Edward Snyder:

You guys seem very confident about gains in the fall. Bob you said both share gains and new content. Maybe we do a little bit further down to the share gains aspect. Is this areas that you’ve not before because you guys tend to focus on specific areas, and there have been some kind of back and forth in a couple of slots, or is it going to be something completely new? And then, you mentioned kind of an all-in-one, mid-high band, DRx, et cetera. Watching that -- the channel has been looking at that for some time, it’s been attempted in the past, but there’s too constrained. It sounds like more Android guys are open to that. Question there is, all in one -- it gives you more defensible position because you’re one of the few companies that have actually built an all-in-one, but doesn’t it also compress the total ASP or the total revenue available versus selling separate modules? Can you give us a feeling on how that tradeoff works? And then, I had a follow-up, please.

Dave Fullwood:

Yes. Ed, you referred to it as an all-in-one. And what we talked about on the bullet there was a solution that combines the mid-high-band plus the diversity receive. So that diversity receive, that’s all new content for us. We don’t traditionally service that part of the phone. But in general, we’re supporting our customers, I think, with a very high performance, small size is what they’re looking for. So that’s creating a lot of value as well. So we don’t see it as an ASP issue. It’s a very high-performance small-sized solution that’s going to drive.

Grant Brown:

Sure, Ed. This is Grant. I’ll take the question. Quarter-on-quarter at a high level, our revenue outlook for fiscal ‘24 hasn’t changed. If anything, it’s actually improved. What has changed would be our current forecast of mix over the out years in that contract, right? As you understand, wafers aren’t fungible, once they’ve been fabricated and our demand profile is complex. The supply agreement covers multiple products, technologies, customers across multiple years. So, there’s a significant mix impact. Furthermore, we can’t order wafers for products that haven’t been defined yet. So there’s a timing element as well. But since we have to place those well in advance, we have to make sure we manage our inventory accordingly. And we’re comfortable with our current inventory based on forecasted demand. So, we’re applying our prepaid deposit, as you mentioned, to the wafers that we don’t believe we’d ultimately need. And we know there’d be continued variability in the mix over the remaining life of the agreement. It could be better, it could be worse. But this is something we analyze each quarter and we’re continuing to work with the supplier in that case to stay aligned.

Matt Ramsay:

Obviously, really appreciative of all the additional fiscal ‘24 detail and guidance color, and I know there’s content things that are happening. But I guess I just want to think about philosophically right now, giving all that additional detail and guidance on a per quarter basis all the way through the fiscal year. I mean, we -- a lot of us are listening to MediaTek commentary out of Asia. Just got off the Qualcomm call listening to their comments, where, certainly, it seems like a lot more uncertainty in the handset market all the way around at your largest customer in terms of volumes and in terms of the market recovery in China. So I guess the question I have is really just about the choice to give all that granular detail right now through the next four quarters and the level of confidence sort of underpinning those estimates, just given all that’s going on in the macro despite the content gains you have. Thanks.

Matt Ramsay:

As my follow-up, it’s great to see the inventory in Android coming down. I think you guys mentioned 20% reduction last quarter and then another 25% reduction now. So maybe just could you level set us on an absolute dollar terms or maybe a unit terms of where you see the inventory that needs to still be worked through in the Android community or how much of a drag is it still for another couple of quarters? If there’s any kind of quantification there, that would be helpful as we think about maybe modeling beyond the inventory burn over the next couple of quarters? Thanks.

Dave Fullwood:

No, I think they’re all good comments, Bob. And we did see that the Android sales, we think that bottomed in December and our sales into China bottomed in March. And so, as Bob said, we’ve still got some work to do to clear that inventory in the next couple of quarters, but we do see that improving already. Bookings are up. Customer demand is coming back. And so, it’s only a matter time at this point.

Ambrish Srivastava:

I actually had -- Matt asked a good question, just simply along those lines. On the gross margin side, Grant, is that largely a factor of utilization? Could you please quantify for us because -- and it’s not under your watch, but gross margin performance has been pretty volatile. So, just help us understand, is utilization at its lowest ever or in the recent past? And so, is that the biggest driving factor that gives you the confidence on the gross margin side?

Ambrish Srivastava:

Okay. Super helpful. And we all appreciate the details. Just real quick on the assumptions for the plus 50% Q-over-Q growth. Is that largely inventory normalizing -- because you pointed out that demand continues to be uncertain. Is that largely driven by some sense of normalization on the Android side and then the second factor being the content gains at your large customers? Is that the right way to think about it?

Operator:

The next question comes from Ruben Roy with Stifel.

Grant Brown:

Thanks for the question. I’ll take the first part. I’ll let Dave comment on pricing. In terms of our HPA and CSG businesses, we would expect to see strength in defense and power devices within our HPA business that will grow over the course of the year. And then in our CSG business, we’ll see growth in Wi-Fi business and then the other connectivity elements, including UWB. So a strong sense and confidence on those businesses given where they’re standing today and the growth trajectory over the year. Dave, if you don’t mind comment on pricing.

Grant Brown:

Ruben, maybe I’ll give you just a little bit more color here on the segment revenues in Q4, and then I’ll compare it to a year ago, just for reference. HPA in Q4 was $133 million in revenue, CSG was $82 million in revenue and ACG was $418 million. If you look back one year at the March quarter in our fiscal ‘22, HPA was $211 million, CSG was $179 million and ACG was $777 million. So as we get back to those levels of growth we would expect over time, we should see some forward progress throughout the fiscal ‘24 year.

Dave Fullwood:

Yes. I think your number is probably on the low side. If we look at the average smartphone, it’s much higher than that. But we see that pretty stable over time. I mean, of course, there’s going to be ASP erosion, but the conversion from 4G to 5G is going to be a big driver to offset that. And there’s also new content. Wi-Fi 7 is going to add new content. We talked about our BAW filters there, but also as you look backwards in time, in a lot of cases, Wi-Fi 5 and prior, there wasn’t even a FEM involved. And so Wi-Fi 6 and now Wi-Fi 7, there’s opportunities there for us with our FEMs and our Wi-Fi portfolio, and we’re well represented across all the reference designs there. And then even in 5G, there continues to be new capabilities, new requirements coming in 5G advanced. And that’s going to increase complexity, increasing the performance requirements. And in a lot of cases, there’s new content opportunities there as well. So, all that’s going to be easily enough to offset any ASP erosion that we see.

Srini Pajjuri:

Bob, just a question on China. I think you’re guiding for sequential growth in second quarter, June quarter. So, I’m just curious, it’s slightly more optimistic than what we heard from some of your peers. Is this driven by the smartphone side, or is it more non-smartphone business that you’re seeing, a little bit of a pickup there? In general, if you can talk about what you’re seeing in China because there’s been a lot of expectation? I think we’re still kind of not seeing a whole lot of pickup since the reopening. So, any comments there, I think, would be helpful.

Srini Pajjuri:

Got it. And thank you for that clarification. And then, Grant, on the gross margin, I know a lot of questions have been asked about utilization. If I take your, I guess, guidance, it looks like you’re going to exit the year in low-40s. So I’m just trying to bridge the gap between that and your long-term model. So, is it primarily utilization, or are there any other factors that are going to, I guess, help you get to that 50% plus levels?

Srini Pajjuri:

Okay. Is there any revenue level, Grant, that you think you need to get to before we see a 5 handle on the gross margin side?

Operator:

The next question comes from Atif Malik with Citi.

Grant Brown:

Sure. Well, as Bob pointed out, high degree of confidence in our content there. We’re fully supporting all of our customers, that one of course, as well. As we look forward, we’ve never guided to any particular customer as a percent of revenue. So, I’d hesitate to do that now. But as we mentioned, we do feel good about our positioning there. In terms of managing profitability going forward, as I pointed out in my prepared remarks, we are -- heavily investing in multiyear opportunities at multiple customers. And those R&D dollars are spent today for revenue in the out years. But we feel like we’re positioned to win. We have the technology in place to do so. And we’re confident in our development and the investments we’re making.

Grant Brown:

Yes. We think it’s a very strategic investment for Qorvo, right? It’s similar to a lot of the other compound work we do. We have a differentiated solution with our JFET technology. We have a lot of customer demand. And in terms of the investment there, I think it’s well placed. We do expect to grow significantly. And as you’ll see in the 10-K, we will be paying a contingent payment to the shareholders of United Silicon Carbide, which reflects a lot of success in that business that we’ve seen since we’ve taken it over.

Harlan Sur:

You guys are set to ramp into new smartphone models across your customers in the second half of this year. I appreciate the new and higher content gains. How are the pricing trends on like-for-like components on these new model ramps either versus prior generation or on a year-over-year basis?

Harlan Sur:

Okay. Perfect. I believe it’s spread across both, your HPA and Connectivity segments, but wanted to get your views on the broadband access markets, cable, fiber-to-the-home. On the infrastructure side, where are we in the DOCSIS 3.1 upgrade cycle? Seeing lots of activity on DOCSIS 4.0. On the gateway side, hearing Wi-Fi 7 home gateways may be starting next year. So, the team has multiple tailwinds here. What is the team’s sense on timing? And then more near term, like what’s the state of the access market’s demand wise? And are you guys also burning through excess inventories here?

Operator:

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Operator:

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Operator:

Greetings, and welcome to the Qorvo, Inc. Third Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas DeLieto, Vice President of Investor Relations. Thank you. You may begin.

Bob Bruggeworth:

Thanks, Doug, and welcome, everyone, to our call. Qorvo delivered fiscal third quarter revenue and EPS above the midpoint of our outlook provided during our November 2nd earnings call. In High-Performance Analog, quarterly revenue reflected year-over-year growth in defense, broadband and power. Our power business posted a strong quarter with robust design activity for our silicon carbide power devices. Offsetting this were power management markets with consumer exposure in infrastructure where customers are working down elevated inventory levels. In our Connectivity & Sensors Group, the quarter reflected lower end market demand and channel inventory consumption for Wi-Fi products partially offset by strength in automotive. Design activity was strong across customers and products, including ultra-wideband, matter and sensors. Use cases continue to proliferate their benefit from precision location, indoor navigation, seamless connectivity and enhanced human machine interfaces. Lastly, in Advanced Cellular, Qorvo participated broadly across customers’ portfolios. The macro environment weighed on overall smartphone volumes across customers, and revenue reflected channel inventory consumption within the Android ecosystem. Design activity continued to be strong across customers and product categories and supports year-over-year content gains at our largest customers. Now, let’s turn to some quarterly highlights. In High-Performance Analog, Qorvo began sampling a radar power solution that combines a high-voltage power conversion PMIC and silicon carbide power switches to control a GaN RF power amplifier. The solution reduces the size by up to 30% in D&A radar systems while expanding Qorvo’s content opportunity. We also expanded our SHIP state-of-the-art RF packaging contract with the U.S. government to develop multichip modules that combine digital optical devices with Qorvo’s mixed-signal RF. In aerospace, we delivered a multichip solution that includes Qorvo’s high-frequency BAW filter as well as a GaN PA for low orbit satellites and other applications. The solution supports cellular satellite links, and we have secured new designs. The opportunity for Qorvo is notable given the trend in defense and aerospace applications of one to many. That means rather than one jet, there will also be many drones; rather than one geo-satellite, there will also be many LEO satellites. At the same time, new capabilities are being added to existing platforms that require increased semiconductor content and higher density and more advanced packaging, all areas where Qorvo is strong and is investing to advance the technology. In cellular infrastructure, we commenced preproduction shipments of our first integrated PA modules, or PAMs, to a Tier 1 European infrastructure OEM for 5G massive-MIMO base stations. We also began sampling our next-generation PAM, which delivers market-leading efficiency for 5G massive-MIMO installations to the leading European infrastructure OEMs. For broadband infrastructure applications, we sampled a CATV power doubler amplifier that maintains linearity and extends bandwidth to enable higher throughput DOCSIS 4.0 capabilities with industry-leading power efficiency. Deployments of DOCSIS 4.0 are scheduled to begin this year and Qorvo is very well positioned as the industry leader. In CSG, we expanded our Wi-Fi content at a Korean-based smartphone OEM to include Wi-Fi 6E and Wi-Fi 7 designs and we ramped Wi-Fi 7 FEMs for access points and routers for our smart home ecosystem customer. We also commenced sampling 5 gigahertz and 6 gigahertz filters. These filters leverage Qorvo’s next-generation BAW process and enable worldwide Wi-Fi 7 frequency coverage. There is increase in customer interest related to multi-link operation, which is a key attribute of Wi-Fi 7 and enables higher throughput and lower latency. Lastly, we began volume shipments of MEMS-based sensors, enabling an enhanced HMI experience and true wireless stereo earbuds. Qorvo sensors were selected to replace legacy capacitive touch sensor technology. Design activity for sensors continues to be strong across markets, including automotive. We are working with leading automotive Tier 1s and have secured automotive smart interior design wins in more than 25 vehicles. In Advanced Cellular, we secured multiple design wins across Android OEMs in support of 2023 devices. During the quarter, we commenced the production ramp of multiple components for the leading Korea-based smartphone OEM’s flagship platform. We have increased our content significantly year-over-year. We are broadly serving this customer across our portfolio and continue to support the migration of their mass market phones to integrated 5G solutions. At a U.S.-based Android OEM, we were selected to supply multiple solutions, including ultra-wideband, antenna tuning and BAW-based antennaplexing in support of their 2023 smartphone launches. Lastly, Qorvo was recognized by multiple customers. We were presented with Honor’s 2022 Golden Supplier Award, and we received quality awards from Vivo for discrete switches and amplifiers and highly integrated solutions. Before handing the call off to Grant, I want to make a few high-level comments to frame our outlook, both in the near term and further out. At our largest two customers, we are very confident in our ability to grow year-over-year content, and that includes this year. In 2023, we expect growth in BAW-based content as well as other content growth. Equally important, we enjoy a range of opportunities across all of our customers in the future years. Qorvo is supporting the highest volume flagship phones while supplying integrated 5G solutions as mass market portfolios migrate to 5G. Fewer than half of the Android devices were 5G in 2022 and the migration of 5G is expected to extend over many years. We are unique in Advanced Cellular in the breadth of our customer exposure and in the depth of our product and technology offerings. Our long-term view of ACG continues to be mid- to high-single-digit growth driven by multiyear content gains. In particular, we see expanding market for our BAW technology. Productivity gains in our Richardson, Texas fab have enabled a doubling of our BAW output. We intend to put that to good use as we continue to capture designs and grow our BAW content in flagship phones. We expect the long-term growth rate of HPA and Connectivity and Sensors to outpace Advanced Cellular. Our view for HPA is double-digit growth. And in CSG, we expect growth in the strong double digits. Key growth areas supported by recent wins with silicon carbide devices in EVs and solar inverters, MEMS sensors and notebook track pads and automotive smart interiors and ultra wideband in automotive and Android devices. These and other investment businesses are securing new designs that extend our opportunity in large growth markets. In the near term, the team is performing exceptionally well while navigating extraordinary events. Factory loadings have been reduced, and we are bringing down channel inventories. We are also actively managing the expense line while sharpening our focus in support of targeted growth. We are working to accelerate revenue related to our Omnia BAW-based biosensors by exploring options for the associated Omnia test hardware, meaning the Omnia desktop test unit and cartridges that contain our BAW biosensors. The technology has been proven commercially, and we are engaged with a diverse set of customers. Qorvo remains at the forefront of connectivity, sustainability and electrification. We enjoy exceptional customer relationships, and we are a key enabler of future architectures. These architectures continue to favor higher levels of performance, integration and functional density to deliver the successive improvements in each market’s next-generation products. Our customers value Qorvo’s best-in-class products and technologies, and we are securing broad-based design wins in high-growth markets. As volumes recover, we are positioned to deliver long-term growth and robust free cash flow. And with that, I’ll hand the call off to Grant.

Operator:

[Operator Instructions] And our first question is from Toshiya Hari with Goldman Sachs.

Dave Fullwood:

Yes. This is Dave. I’ll answer that one. So first, we’re not going to comment on the iOS side of the inventories. And Grant already mentioned the Android. I think when we look at the overall channel inventories and when we refer to channel inventories, we’re talking about all of our components that are out, whether they’re in our distributors or at the end customers. And so, on balance, overall, it’s down about 20% across the entire business, not just within the Android ecosystem. If you look just within our distribution channel, it’s down about a third in the December quarter. But as Grant mentioned, we still have a ways to go in there. So we expect to continue reducing that across this quarter and then into the early part of FY24.

Bob Bruggeworth:

Sure. Toshiya, thanks for the question. I’ll touch on margins here, and I’ll try to cover all of it, both in Q3 and then looking beyond that into fiscal ‘24. For fiscal ‘23, the primary driver of gross margin continued to be under utilization and inventory-related charges. In Q3, it accounted for about 920 basis points of headwind or in that neighborhood, and it’s expected to remain there in the March quarter, hence the flat gross margin guidance. Inflation across direct costs were approximately 80 basis points in Q3 and again, expected to remain there in Q4. As we stated earlier, in Q3, there was a supplier quality issue representing approximately 30 basis points of headwind in our Q3 period. So kind of walking through that pareto, you can see the dominant factor is clearly underutilization. To your question about getting back to 50%, it’s unlikely in fiscal ‘24, although it depends on your view of the macro economy and a number of other variables. However, underutilization creates a lingering impact due to timing. And so, as volumes fall, those inventory balances will reflect higher per unit costs. And simply put fewer units moving through a fixed cost factory collect more cost per unit. So, we saw this heading into the December quarter, and it will carry forward into fiscal ‘24. The rate at which that high-cost inventory flows through the P&L will obviously depend on variables like our future utilization or product mix including a ramp of revenue over the course of fiscal ‘24, but -- although the precise timing is uncertain, the reduction in channel inventories is very encouraging, and it’s a necessary first step. If I do look out over the course of fiscal ‘24, I could see potentially that 920 basis points of margin get cut in half, again, subject to your view of the revenue trajectory throughout the year.

Karl Ackerman:

I was hoping you could discuss a little bit more commentary regarding your outlook. You certainly gave much commentary across the P&L for March. But within that outlook, could you discuss the order of magnitude decline between your segments? I’m just trying to have a better understanding of what’s occurring, I guess, in the legacy IDP segment, which appears driven by some maybe some inventory overhang within Wi-Fi, IoT and maybe telecom infrastructure. And then as you address that question, what are your assumptions for your mobile revenue in China in the March quarter, which I believe was guided to 10% in December?

Karl Ackerman:

Understood. I guess, just -- maybe just to follow up on that with regard to the China Android OEMs. It sounds like they came a little bit better. Should that remain at a similar level of revenue on a mixed basis in March? It sounds like it’s going to be improving. And I guess, to the extent you could talk about the recovery process or how you see the recovery process for the balance of the year, I guess the question I would like to understand is, given some of the new -- the opportunity in premium-tier Android flagships you’ve announced this -- today, it’s certainly great to hear. But I guess, if you could discuss the level of confidence you have in demand returning for mid-tier handsets, the balance of the year, would be super helpful because I ask because two very large Korean memory OEMs this week indicated the smartphone market could bifurcate between good demand for flagships, you have weaker demand for lower mid-tier models. And so if you could just kind of comment on, I suppose, the production approach and your design approach for those markets, if they do bifurcate, it would be very helpful. Thank you.

Dave Fullwood:

Yes. So, as Bob mentioned in his remarks as well, we’re seeing really nice content growth in the premium tier. So, we’re well represented there. And of course, we’ve always been well represented in the mass tier year as well, 5G. And so there’s still a lot of room to go in terms of conversion to 5G. So the rate and pace of that may not be as quickly as we would have liked, but it’s still a lot in front of us. So we expect to see that mass here still moving to 5G over time.

Gary Mobley:

I want to start by asking for some clarification on what Grant just mentioned regarding the sequential revenue comps and year-over-year growth looking into the first half of next calendar year. Was that in reference to CSG or the business overall?

Gary Mobley:

Okay. Thank you for that. And any change in view on the purchase commitments from your foundry and suppliers? Are you -- do you anticipate utilizing all those commitments, or might we be looking at some additional write-downs there just given the dynamics?

Operator:

And our next question is from Edward Snyder with Charter Equity Research.

Bob Bruggeworth:

Hi Ed, thanks for the question. As far as the Chinese competitors, they’ve always been there. We’ve always seen them. I think what is overriding everything is the highly integrated modules that require premium filter performance, particularly for those that are being exported as well as for -- within the China consumer market. So, we still feel very good about our position there with our integrated modules, whether it’s ultra high-band. What we’re doing, obviously, with mid-high as well as the work that we’ve done, improved significantly the performance and cost in our SAW filters for low pads. So we feel real good about how that’s positioned. And from a pricing perspective, we haven’t seen significant changes there, Ed. I think there are some areas we’re actually raising prices. In some areas, yes, there’s a little bit of competition, but we always have that. So, we haven’t really seen a change in the market.

Bob Bruggeworth:

Yes. Thanks, Ed. I’ll take the MEMS and let Dave speak a little bit more about your comments about the standard products that we’ve been selling that are highly integrated -- integrating in all the filters. As far as MEMs goes, we’re still very early on in that, Ed. As far as the RF MEMs go, as you know, we’ve been working on that through the acquisition of Cavendish Kinetics and really just beginning to roll that out. And yes, they are paying for that. We don’t expect that to go broadly and replace all of our antenna tuners. It gets you a DB or so. And people that are willing to pay for it will pay for that. That technology is -- costs a little bit more per function. But you get -- you pick up a significant improvement in the performance. And then second, we’re also -- our pressure sensor MEMs, we’re doing extremely well there. I commented in my opening comments about being in over 25 different vehicles. So people are starting to implement and track pads across -- all of the major OEMs are now looking at it, we’re engaged with them. We’re just seeing that proliferate in the watches and various other devices. So, it’s very early on also in its life cycle. So, we feel real good about that. And I’ll let Dave speak a little bit about your question about some of the Korean manufacturers and what we’re seeing there.

Operator:

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

Grant Brown:

Hey Vivek. Thanks. This is Grant. I’ll take your question. Yes, you’ve got it in terms of gross margin, and the answer on inventory is rather simple, right? As that inventory begins to get sold and flow through cost of goods sold, it will drag with it those higher costs per unit associated with underutilization. So, I would expect the inventories to trend down over time, subject to normal seasonal ramps at large customers where we do have to build inventory in advance of those sales. So over time, it will come down, again, offset by some of those growth-oriented builds that we do at seasonal periods of the year.

Grant Brown:

Yes. They’re not necessarily sequential. They can happen simultaneously depending on the level of demand. Although you’re correct, I think the first stage of that would be a reduction in the channel inventories, increase in order activity from our customers pulling through our inventory, along with, as I said, the offset and builds for large customer ramps, but they’re happening somewhat simultaneously, not perfectly sequentially.

Bob Bruggeworth:

Part of the questions we can’t answer, but I will tell you that the -- it is both content and share gains at our largest customers -- our largest two customers.

Bob Bruggeworth:

Can be and some are, some aren’t. So, we’ll see.

Blayne Curtis:

Maybe I just want to start, you’ve been kind of giving how large your largest customer or 10% customers are. Just trying to get a starting point for some of these moving pieces in December.

Blayne Curtis:

Got you. And then I guess, following up on Vivek’s question, just sort of trying to gauge the magnitude of these content wins you’re speaking to. You talked about being able to double capacity at Richardson, I’m assuming you have given the pullback in Android, some excess capacity already. So, I’m just kind of curious the time frame in terms of doubling that capacity if you have that on your horizon.

Operator:

Our next question is from Matt Ramsay with Cowen.

Grant Brown:

Yes. No changes to our primary competitors. And to the earlier follow-on regarding the capacity at Richardson, that is something that we can do over time, not necessarily this year. But that’s something that we have the ability to do in subsequent years to add on to the effective capacity there at Richardson. But again, I just want to make sure that’s clear that we do have to take steps, add equipment, et cetera, in order to make that possible. It will be in the out years, but it’s really a comment around Farmers Branch and supporting the ability for us to do that in the future given our ability to sell the Farmers Branch facility.

Bob Bruggeworth:

Yes. And I think that’s pretty well known. We’ve seen inventory build up there, and that’s certainly been impactful to our infrastructure business. And it will take some time, we think, for that to bleed off throughout the year. So, it’s probably similar, but may even take longer than what we’ll see in mobile.

Rajvindra Gill:

I just wanted to break down the commentary about September and December and March, if I could. So just the commentary about significant sequential growth in September off the flat June. What’s driving that commentary is seasonally September is higher, but can you maybe frame it in terms of relative seasonal patterns? Is this also be aided by more of a significant rebuild by these customers plus share gains? Just any commentary around qualitatively, what’s specifically driving the September commentary? And then December and March being up year-over-year, obviously, December and March of -- December of 2022 and March of 2023 are relatively easy compares in terms of the revenue. So, just kind of thoughts around December and March would be helpful. Thank you.

Rajvindra Gill:

Got it. And for my follow-up, regarding your conversations with the Chinese OEMs and the Korean OEMs, what is the kind of expectation as it stands today in terms of their customer forecast for calendar ‘23 going into calendar ‘24? Obviously, calendar ‘22 was kind of a horrific year in terms of units. Are the forecasts relatively conservative off that very challenging 2022, are some OEMs more aggressive in their forecast plans. There’s more capacity coming online for a variety of different smartphone components. Does that enable new product ramps? Just any commentary in terms of what the customer feedback is and forecast. Thank you.

Dave Fullwood:

Yes, sure. So, the customer sentiment and their forecast is very cautious. And I think until -- we’ve seen some early signs of life in China and the smartphone sell-through. First few weeks of January were promising, but we need to see a couple of months of that. I think our customers do as well before they really start to gain confidence there. So right now, the purchase order patterns, their forecasts remain very cautious through the rest of the calendar year. Does that answer your question?

Operator:

Our next question is from Chris Caso with Credit Suisse (sic) [Raymond James].

Bob Bruggeworth:

Sure. So, we don’t guide specifically to the balance sheet or cash flow, but I’ll try to give a little bit of color on the drivers. So, having now collected on sales in prior quarters, our cash flow will likely start to follow the path of the P&L, obviously. As we look forward, we still expect to generate free cash flow, and CapEx should be in the 5% to 7% range of sales, representing discipline there and some reduced CapEx intensity as we move forward, having invested in our facilities over the prior years, and looking forward, will be largely capacity driven as we see demand and obviously, improvements in our performance and technology required. But generally speaking, I’d be looking for the cash flow to follow P&L.

Grant Brown:

Yes, it definitely varies. So, the infrastructure business is probably going to be slower to recover. We’ve got Wi-Fi, a lot of that’s consumer-facing. That is probably very similar to what we see in the smartphone space, but some of that’s also more operator and enterprise-driven. And so, we saw that occur a little bit later. So that will probably take a little bit longer to recover. And then our power management business as well, it’s very consumer-facing with power tools and solid-state drives and other types of devices like that that are more consumer-oriented. So, they’ll go probably very similar to the way the smartphone market goes.

Harsh Kumar:

I wanted to ask about an earlier question that was asked about December growth and March growth. I know you said year-over-year -- the question was asked in reference to year-over-year. But did you mean to say that or is it possible that those businesses -- given the falloff in revenues and units, is it possible that those business could -- your businesses could also work sequentially in this time frame, or will they follow a seasonal pattern?

Harsh Kumar:

No, no, fiscal ‘24.

Harsh Kumar:

That’s fair. And then I wanted to ask about your gross margins. Your revenues came down for the guidance for March, but your margins are kind of hanging in there. You mentioned a couple of things, small things, the 80 basis points and 30 basis points issues. But what’s the reason why your margins are able to hang in here?

Operator:

And our next question is from Joe Moore with Morgan Stanley.

Bob Bruggeworth:

Thanks, Joe. And actually, with some of the capacity freeing up, we’re not seeing the increases that I know we saw some of that earlier last year, last calendar year, earlier in the year, so we’re not seeing it. In some cases, to your point, we have been able to pass that on to our customers. And again, as we’ve always said, pricing set by the competition, if we all raise prices, we all get an increase; we all don’t, we don’t get an increase. So we’ve been able to pass some of that along. But as Grant pointed out, the inflation is impacting us in our COGS, about 80 bps. So we’re not able to pass it all along, but there’s other inflation in there, not just foundry parts.

Atif Malik:

I have one clarification and one question. When you guys talk about channel inventories to normalize later this calendar year, are you talking about China Android or total Android or total smartphone?

Atif Malik:

But, when are you expecting China Android inventories to normalize?

Atif Malik:

Understood. And then, is it possible to break out or comment on how big the silicon carbide power device business is as a percentage of HPA sales?

Operator:

And our next question is from Ambrish Srivastava with BMO Capital Markets.

Bob Bruggeworth:

Yes. I think that’s a great question, Ambrish. The issue always is when you look at your days of inventory in the channel, you have to understand what’s the sell-out. And so far, and I think I said this last quarter as well, when we work with our customers and we go through all the math, they reduce their production, we reduce ours. And unfortunately, their sell-out has been lower. So, you have to look at it. Now again, Dave’s mentioned a couple of times on the call, the first three weeks so far in January, at least we can speak to the data that we get, and I think all of you get, the actual sell-out is up, and that’s a good sign. But we’re not going to get into the game of naming numbers like this because it all depends on the future output of what they sell out. So, we’ve got a little ways to go. That’s why I think we’re being careful on our comments around June, but we feel very good about September. So, we roughly think it’s in that time frame.

Bob Bruggeworth:

Well, we’ve got different parts of the business. In the Wi-Fi area, it’s going to follow because we’re in a lot of the Android phones with our Wi-Fi products, it will follow more of what I said for the handsets. Then Wi-Fi that’s in some of the retail and some of the industrial applications, things like that, that may take a little bit longer. We don’t always get a good read there. It’s a smaller part of our market, not as much data is published. But I think on the infrastructure side, what Dave talked about, that is going to take a little bit longer. The area of our power management that goes into the SSDs, and that’s a call on the PC market. So, you guys follow that. We’ll see how that goes. So it’s going to be all different ones. But the major part of our business is the handsets, as you know. And I think we’re giving you as much color as we can as we project forward.

Bob Bruggeworth:

We want to thank everyone for joining us on today’s call. We look forward to speaking with you at upcoming investor events this quarter. Thanks again. Hope you have a good night. Thank you.

Operator:

Greetings, and welcome to the Qorvo Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas DeLieto, Vice President of Investor Relations. Please go ahead.

Bob Bruggeworth:

Thanks, Doug, and welcome, everyone, to our call. Qorvo delivered fiscal second quarter revenue and EPS above the midpoint of the outlook provided during our August 3 earnings call. As we indicated on our call, Qorvo's business is now organized into three segments

Operator:

[Operator Instructions] Your first question comes from Toshiya Hari with Goldman Sachs.

Bob Bruggeworth:

Sure. Thanks for the question. I'll take that one. The China-based revenue in the quarter was down approximately 20% quarter-on-quarter and about 45% year-on-year, just to put it into perspective. Looking forward, as we commented in the prepared remarks, we're looking at that Android-based China revenue down to approximately 10% of the overall revenue for Qorvo. So a substantial decline both quarter-over-quarter and year-over-year.

Grant Brown :

Sure. Related to gross margin, as you pointed out, it's heavily influenced by both mix and the utilization impact. Currently, the dominant headwind is the underutilization, which is generating over 700 basis points of headwind. So we have a clear path back to 50% gross margins beyond that utilization impact from the demand that we're seeing today. We don't typically report utilization by factory, but I think it would be a meaningful metric just to cover very quickly by location. As an example, for instance, if we look at utilization in Germany, it supports our broadband business, which has actually seen some strength. So the utilization there is doing okay and the migrations to the new DOCSIS standard is helping support that factory in the volumes. Alternatively, if you look at our North Carolina Gas fab, for instance, it's running very low levels of utilization, which impacts our margin in the WiFi business for CSG. Larger sites like Oregon and Texas are also underutilized given the unit volumes we're seeing from customers as they work through the inventories and the soft demand environment and similarly, our assembly and test operations in China remain underloaded as well. All of this underutilization creates costs that go unabsorbed into a higher inventory volume and negatively impacts the margin. I would expect that to resolve as volumes return and we'll have a clear path back to 50% as that factory mix and volumes both return. In terms of margin, there's obviously a lot of moving parts there and other factors, but the underutilization is the primary one.

Gary Mobley :

I want to pick up on the last line of questioning. And you seem to insinuate that there is a path back to 50% gross margin when these underutilization charges sort of work their way through. But is there a natural resolution or path to the situation or might management have to make some decisions on in terms of defensive realignment with the manufacturing footprint?

Gary Mobley :

Okay. I appreciate the comment that China Android handset OEMs might represent only $70 million to $75 million of your December quarter outlook. And I presume the Android handset customer base overall would represent somewhere between $200 million to $250 million in the same quarter and assuming that, that is the bottom, I'm curious to know how does the other portion of the business trend looking out into the March quarter?

Operator:

Next question comes from Vivek Arya with Bank of America.

Grant Brown :

Thanks for the question, Vivek. This is Grant. Let me take the first part, and then I'll let Bob address your second question. I mean, first and foremost, we won't guide into March formally, but we did comment on the Android-based revenue, which we do expect to be up in the March quarter. And then in terms of our largest customer, seasonally, you would expect that to be down. So there's some offsetting effects there. We'll have to see how that plays out. The rest of the business, we expect to be approximately flat to slightly up in certain different areas.

Vivek Arya :

Very helpful. And maybe for my follow-up. I think on the last call, you had highlighted $110 million charge, if I recall correctly. I was curious what happened to that? Was it paid? Was it negotiated? Any other charges we should be aware of? And is there any obsolescence risk on the inventory that you have?

Operator:

Your next question comes from Karl Ackerman with BNP Paribas.

Bob Bruggeworth:

Eric is not here. But Dave, representing our sales and marketing, will address your question, if that's all right.

Karl Ackerman:

Got it. Understood. Maybe just to switch gears, if I could. Certainly somebody away from mobile. You did mention that silicon carbide agreement today. I was hoping you could quantify the size and/or capability of revenue you could support with your silicon carbide offering now that you signed this long-term supply agreement with SK Siltron, and/or the rest of your suppliers?

Operator:

Next question comes from Tim Arcuri with UBS.

Grant Brown :

We did cover the China revenue, the percent of sales and the percentage that it will be down both quarter-on-quarter and year-on-year, which are substantial. In terms of the inventory and the time it will take the process through the inventory, we haven't made a formal statement about that, but we have commented that Android-based revenue in China is expected to be up in the March quarter. We haven't provided formal guidance, but we do expect to see some increase in March.

Edward Snyder :

I want to dig into the -- you mentioned the mid-high band that combines with the transmit and the DRx into a single module and a smaller footprint than what we had previously for the mid-high band. I'm assuming your performance has allowed you to reduce the size and addition of a few other things. Is this the new Phase 7E module that I think a lot of your -- especially your Android customers have been kind of clamoring for to try to reduce the footprint and maybe even the cost to them of the RFFE or is this done for a particular customer so any guidance or any color you can provide on how widespread the attraction of that part might be would be helpful to start with and then I have a followup.

Edward Snyder :

Great. And then a follow-up. I mean, your inventory problems appeared last year at this time pretty much. And I know it's impossible to tell it's difficult to even understand how much inventory relative to demand and seems to have happened subsequently to that to make things worse. But we've now gone for 12 months and it's not getting better, it's getting worse. So what point or is there a point where you start writing off some of this inventory? Or is it all standard product. They'll sell just as well in the 2024 phones as it did or targeted for last year's and this year's fall. So I'm just trying to get a grasp of how long you're going to go with it before or is it just selling through?

Edward Snyder :

And if I could follow up on one more, is on your largest customer, it might be a bright spot. Certainly, it looked like it from the report for the first quarter et cetera. Is your content up or down or flat relative, just generally speaking, to where it was last year?

Operator:

Your next question comes from Matt Ramsay with Cowen.

David Fullwood :

Sure. This is Dave. So I mean I think that's natural, right? Anytime you get into this type of environment, people are going to start to reduce their inventories because the demand is not growing. So I think that's a natural reaction. And sure, we see some of those similar trends. But I also want to mention that we have a pretty close relationship with all our customers. They forecasted a lot of this business, they placed purchase orders. So we're working with each of them to kind of work through the inventory, whether it's sitting in our factory or sitting in our distribution channel or obviously sitting in our customers' shelves. We work through that with them on a case-by-case basis to make sure that, that inventory gets consumed. So in those cases, they're often willing to take more inventory on their shelf to heal those problems.

Matthew Ramsay :

Thanks for Bob, that was pretty consistent with the messaging from San Diego as well. As my follow-up, Grant, I know this new segmentation and you guys talked about the historicals being disclosed when the Q comes out. But in the guidance that you've provided for December, if you could talk maybe a little bit more specifically about the new segment directionally, that would be helpful.

Operator:

Next question comes from Ambrish Srivastava with BMO.

Grant Brown :

Yes, sure. So it's relatively new. But putting all the pieces together, I would expect it to be profitable. We're going to drive that business, both in terms of the top line to increase the scale, so it can absorb the cost structure that it's got as well as looking at the utilization in the factories. So it's building a lot of WiFi parts that come out of our Greensboro fab, which is highly underutilized at the moment. So it's constrained in that regard from an overall unit perspective.

Bob Bruggeworth:

So is your question on China based Android or including our other customers that are Android based.

Bob Bruggeworth:

I can't speak to Android specifically off the cuff, but I can tell you that our China-based business as a percent of total revenue was approaching 50% at the peak. A good portion of which was Android.

Blayne Curtis :

And I guess a little repetitive, everybody has bounced around tonight, so I apologize. But obviously, Android needs substantial correction. I was just kind of curious on that other customer. There's been a lot of concerns, but I haven't seen anything concrete in this guide that is down sharply, have you changed the way you're looking at that customer baked in any conservatism. Obviously, there's manufacturing issues that's in the news as well as concerns about their annual cuts.

Blayne Curtis :

And then you made the comment that Android is up in March. Obviously, Samsung always has their ramp then and a good quarter for that customer. Would you still expect the VOX to be correcting inventory? Or is the comment that Android is up in March because you're through that inventory and even the VOX could be up?

Operator:

Next question Christopher Rolland with Susquehanna.

Grant Brown :

Sure, I'll take this one. Good question. And it's definitely a content game for us. We've never had the low band on their flagship model before. As Bob mentioned, in some of their master 5G phones last -- this past year, we did get some of the low-band sockets, but this is new for us in the flagship. So this will actually be the highest content we've ever had in that phone model. So we're pretty excited about that starting early next year. As far as additional content, it's hard to say. I think it's consistent with what we said in the past. I will say there's one area that I think is another exciting opportunity for us as we move into WiFi 7. There's been a lot of cases in WiFi 6, where the PA that's integrated in the SoC is sometimes good enough performance and they don't need an external fab. But we don't see that happening in WiFi 7. So we've got great WiFi FEM socket win on a major Asia-based chipset platform provider on their reference design with our fans. So we're really excited about that. That's definitely going to be a growth opportunity as forward.

Grant Brown :

Sure. We commented that we think it will be approximately 600 million units now for calendar '22, so down approximately 25 million units coming out of December.

Rajvindra Gill :

And again, I joined late as well, so I apologize if this question was asked. When we're looking at calendar '23 in terms of the overall market, I'm just curious to see how -- what the Chinese handset customers are thinking about a recovery year looks like in calendar 2023. The designs for phones are six to nine months in the future. So I'm just wondering, is there any feedback that maybe you could provide of what a recovery year could look like in calendar '23 off a 600 million kind of 5G market this year? Any thoughts on that?

Rajvindra Gill :

Got it. Understood. And for my follow-up, last quarter, you were cutting utilization to kind of stoke the inventory burn. I don't believe you quantified it. You might have quantified it on this call. But I'm just curious, how are you thinking about ramping down the utilization rate at your internal fab and kind of what the impact would be on the margin front.

Operator:

Your next question comes from Vijay Rakesh with Mizuho.

Grant Brown :

Yes. Let me clarify that a bit on aggregate. We're not commenting on the March quarter in terms of whether it would show growth. But on a customer basis, seasonally, we would expect our largest customer to be down. We do expect Android based business to be up, and there will be some offset between those two that were not forecasting at this point publicly. And the rest of our businesses are expected to be approximately flat with some specific strength on the areas Bob touched on earlier.

Grant Brown :

Yes. I'm sorry, was the question referring to China or…?

Eric Creviston :

Yes. It's hard to put a number on it because it varies by market and even by customer and product area. In some cases, we have customers that are reasonably healthy in terms of the inventory they're carrying. And others, they've got a lot of inventory that they've got to work through and then in some cases, we have distributors in between that is kind of a mixed bag as well.

Operator:

Thank you. I would like to turn the floor back to management for closing remarks.

Operator:

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

Operator:

Good day, everyone. And welcome to the Qorvo Inc. Q1 2023 Conference Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Douglas DeLieto, Vice President of Investor Relations. Please go ahead, sir.

Bob Bruggeworth:

Thanks Doug, and welcome everyone to our call. Qorvo delivered fiscal first quarter revenue and EPS above the midpoint of the outlook provided on our May 4th earnings call. In IDP, June revenue was broad based across markets with strength in power, defense and infrastructure. The diverse markets served by IDP are exposed to an expanding list of long-term drivers, including enterprise, smart home, automotive connectivity, electric vehicles, battery powered tools, infrastructure, and defense radar, and comms. In Mobile Products, June revenue was diversified across customers and product categories. Qorvo grew year-over-year excluding China based customers while securing noteworthy design wins and content gains across customers and high volume platforms. Qorvo is exceptionally well positioned in cellular applications with a long-term outlook supported by growing content and integration trends. Now let's look at some of the quarterly highlights. In ultra-wideband, we completed MFi certification of interoperability of our ultra-wideband solutions with the Apple U1 chip used in supported iPhones and Apple Watch models. This will enable developers to create innovative new products and accessories that interact seamlessly with their environment, leveraging the full power and precision of UWB technology provided by Qorvo. In MEMS-based sensors, Qorvo commenced shipments of force sensors, which enhance industrial design and improve trackpad uniformity and reliability in a recently launched consumer laptop. The content opportunity and trackpad applications typically includes four MEMS sensors. For Matter-enabled applications, we launched a new development kit for gateway and connected devices. Qorvo’s Matter solutions streamline commercial development of smart home applications, including home hubs, mesh lighting, security, speakers, and other connectivity and sensing applications. In automotive connectivity, we secure WiFi 6 design wins for an infotainment system at General Motors. We also validated WiFi 6 placements on a reference design for a car automotive WiFi chipset supplier. In biosensors, we obtained FDA emergency use authorization of our Omnia diagnostic test platform using BAW technology for COVID antigen detection. This expands upon the previous EUA to include the significantly larger point of care testing market outside of labs, such as physician offices, urgent care, retail pharmacies, employee health testing, and other locations that operate under CLIA waiver. In power management, we rewarded our first design wins to supply enterprise class PMICs for data center applications. This achievement includes multiple customers and builds upon our strength in consumer applications. Our power management offerings leverage a unique architecture that delivers measurable innovation and value, and that is helping to extend power management into other markets, including defense. In automotive power applications, Qorvo was recognized with an innovation award from American Axle & Manufacturing for superior efficiency using our silicon carbide devices in power conversion applications. We also secured a silicon carbide win with a leading solar inverter manufacturer, serving the U.S. and Europe, expanding beyond our position and residential energy storage. In defense and aerospace, we are recognized by Raytheon Technologies with their premier award for performance and overall excellence in both collaboration and technology and innovation. We also initiated a strategic alliance with a large U.S. defense prime for package development and assembly, leveraging our advanced microwave module assembly facility in Richardson, Texas. In mobile products, we expanded our content at a Korean based OEM with the first shipments of our low band pads to this customer. We also commence the volume ramp of the industry's first complete main path solution for Phase 7 LE supporting multiple mass market programs at Honor. Qorvo’s RF fusion for Phase 7 LE enables broader operator coverage and reduces implementation area in customer devices. For U.S. based Android OEM, we ramp shipments of our mid-high band PAD, antennaplexer with integrated LNA, ultra-high brand DRx, antenna tuners, and ultra-wideband solution in support of an upcoming smartphone launch. Both the ultra high-band DRx and the antennaplexer with LNA represent new product categories for Qorvo. Lastly, we received our first production order for MEMS-based antenna solutions in support of a high end gaming smartphone. These are the first volume commercial orders of our MEMS antenna solutions, which increased efficiency and improved throughput. Before turning the call over to Grant, I'm pleased to announce a new organizational structure, Qorvo is now organized into three segments

Operator:

Thank you. [Operator Instructions] And we’ll take our first question from Matt Ramsay with Cowen.

Grant Brown:

Yes, Matt, I think you got it. It all starts with those macroeconomic events that we mentioned that are impacting everyone, right? For Qorvo, as you pointed out, the important driver there is the 5G phones in the areas that you mentioned. Earlier this year, we set up a $750 million in calendar 2022 and then revised that in May to between $650 million and $675 million, where the revenue impact to us was approximately $250 million in the June and September quarters. Since then, as you mentioned, the macroeconomic environment has worsened. Android-based customers that pulled back and the channel inventories have grown. So now, we see fewer 5G units in calendar 2022 as overall demand continues to reflect those macro pressures. In total for Qorvo, I touched on it in my prepared remarks, but the weakness that we saw there implies a fiscal second half is down approximately 10% from the first half. But that said, we currently expect the December quarter to be the low point for our Android-based business. I realize that’s a lot of detail there to hit your question, but I hope that provides some context around the margin guidance of 48% for the full fiscal year. I really want to be clear, right? We’re taking active steps to improve our inventory position and lowering utilization in order to align with the demand.

Grant Brown:

Yes, sure. In terms of the charge itself, right, maybe I’ll start there and then I’ll talk about the GAAP-only treatment. But the charge itself, I think we’ve appropriately accounted for the impact both present and future. As you mentioned, it represents about $110 million charge and touches all the elements of that long-term supply agreement that share the same root cause, right? The existing material and the incoming material, the deposit – purchase commitment liability that, more directly to your question represents the view of the impact over the remaining life of the agreement. We actually continue to place POs with the supplier for material that supports our current order levels, and we’re working with them to negotiate the terms of that agreement. Based on that, we determined it wasn’t representative of our ongoing business and decided that it wasn’t going to fall into our non-GAAP cost of goods sold.

Vivek Arya:

Thanks for taking my question. I’m curious to get your sense for the remaining amount of RF component inventory among your Android customers. So I appreciate that you have given a high-level outlook for the second half of the fiscal year, and you mentioned December could be the bottom. So is it based on the expectation this all clears up in December? Because March tends to be seasonally weaker. So are you saying March is going to be above December? I’m just curious how to think through the trajectory and think through how much inventory is still left in the channel.

Bob Bruggeworth:

Yes. Vivek, this is Bob. I’ll just add a little color there. I mean, clearly, our customers are continuing to order from us, and we’re continuing to ship to them, and we’re making adjustments. But when we said it’s the Android ecosystem is what’s bottoming in December, it’s coming back up in March, but I mean not to the levels it have been. So we still have ways to go there, just to be clear.

Bob Bruggeworth:

Yes. I think, first of all, a little bit of a different view on this year is a little bit different from the perspective of their end market. I think we all expected at the beginning of the calendar year that the China market itself for 5G would grow very nicely as well as their export market for 5G, particularly in the Southeast Asia as well as into Eastern Europe and Europe. As you well know, things kind of changed with all the lockdowns within China. They have trouble even making phones, let alone people going out and buying phones. So that kind of shifted pretty significantly. And then when you layer on top of that the war in Ukraine, which starts to impact some of our Chinese-based customers, someone like Samsung, who Europe is one of their larger markets, clearly, what’s going on there, the slowdown that we’re seeing. So a little bit different dynamics. But I think what is important it is that I think we’ve got a good handle on this. I don’t think anybody was able to forecast the lasting impacts of COVID and the lockdowns. Now with that said, with the three business segments we have, it is our goal, if you look at how we laid out the growth rates for each one of these, we will over time significantly improve the diversification of our business outside of handsets in general. And that’s one of the things we’re setting out to do. What we’ve done is to accelerate our growth and accelerate the development of technologies and new products for other markets. So that’s some of the steps we’re taking. But I think this year is a little bit different than what we’ve seen in the past out of our Chinese customers. Thank you.

Gary Mobley:

Hey, guys. Thanks for taking the question. So much of the discussion so far is focused on the mobile-related business, but maybe if you can give us an update on your view on how IDP is trending from both a demand perspective and supply perspective?

Gary Mobley:

Okay. And so I presume the resiliency that you’re seeing in your September quarter primarily relates to an iOS build or product cycle, but maybe the Android weakness is really manifesting and can’t be disguised in the December quarter. So my question is, what does that Android business bottom out at as a percentage of revenue in the December quarter? Just trying to think about the base off which it bounces.

Eric Creviston:

Yes, this is Eric. We’ve got – it’s an interesting dynamic because the team has done a great job actually of capturing design wins in Android, and we’re launching a couple of major flagship phones, beginning to ramp in the December quarter and into March. And so we’ve got great content and share gains there. The only question is units, right? And that’s going to be about the rate and pace of this inventory turn down, which is pretty hard to predict. So we’ve got a strong tailwind in terms of content and share gains, but just a massive headwind right now in digesting the channel inventory.

Blayne Curtis:

Yes. Thanks for taking my questions. I had two. Just for the September quarter. I know you’re going to guide for the new segments, which we don’t have. But just any color – because obviously, you’re talking about this weak second half of the fiscal year, but then you’re growing in September. I think in the press release you called out better defense and power, but I was wondering if there’s any other moving pieces you can steer us to for September.

Blayne Curtis:

And then I just wanted to ask you in terms of the – obviously, the chip stack needs to be fully fine. But just kind of curious, as you take a longer-term view, you’re starting to talk more about defense. I’m just kind of curious if you can have any thoughts as to what that could mean for Qorvo.

Bob Bruggeworth:

I’ll add to that, Blayne. We’re also a trusted foundry I want to remind the group for filters, GaN and high-performance gas products that support everything that Philip said. So I think we’re going to be able to participate in that. And it’s yet to be defined the actual process and the allocations and things like that. But as we continue to learn, we’ve been very active in the CHIPS Act.

Toshiya Hari:

Hi, good afternoon. Thank you so much for taking the question. I had a follow-up question on inventory going forward. You talked about taking action here. Can you remind us how you would characterize normal inventory on your balance sheet, whether it be in dollars or days? And where do you expect to be exiting the calendar year or the fiscal year given some of the actions that you talked about?

Toshiya Hari:

Got it. And then my second one is more of a clarification. You talked about the second half being down 10% half over half. Was that fiscal or calendar? And was it down 10% for the entire company, which is for mobile?

Operator:

Thank you. Moving on to Edward Snyder of Charter Equity Research.

Grant Brown:

Yes. Let me start with the inventory, Ed. So obviously, we have a robust process. We go through every quarter, right? And if there was anything in excess or obviously lead at quarter end, we would have taken the charge inside the quarter. But I mean, to put that into a bit more context, right, if you set aside the charges related to the long-term silicon supply agreement and look at EV on a non-GAAP basis, we recorded double the normal inventory reserves on our mobile business in Q1. So we are actively reviewing our inventory and taking action there from a reserve standpoint. In terms of obsolescence, I don’t know, Eric, do you want to comment on architectures?

Operator:

And moving on to Ambrish Srivastava with BMO.

Grant Brown:

No, I wouldn't make that conclusion. If you look at the charge itself, there is a purchase commitment liability that stretches far into the future, right? The length of the contract. And so that entire charge would be coming out in the quarter. And that's certainly not reflective of our operating business this quarter. Generally speaking, the situations that led to the charge are also not indicative of our business, right? The time in which we had originally signed it, there was a massive silicon shortage. And today we're seeing a significant draw down in demand due to some very large impactful macroeconomic factors. So neither of those things are reflective of our business and management's view, and we have excluded it for that reason.

Ambrish Srivastava:

Right. And that's why I asked over multi-years. Should we assume that there's a chunk of pen that has gone away, but I guess I understand it's a combination of supply demand. I just had a quick follow-up and I just want to make sure I got this right. When you talked about channel inventory, did channel inventory grow in the quarter, so is the trending continuing to trend higher? And then are you revising down your 5G units estimate, because you had revised it down prior quarter. I just wanted to know where you stand on those two fronts. Thank you.

Operator:

And next we'll hear from Raji Gill with Needham & Company.

Grant Brown:

Yeah, sure. So in terms of the back half, I mean to average into the 48%, I would say, probably 47% is maybe a better estimate to start with. I know that will lead you a little bit ahead of a 48%, right? And so, there's some error in that forecast, because we typically only provide a quarter guidance, it's looking out longer. But in terms of the utilization, if you look at what we had said last quarter our gross margin should have been approximately flat to ticking up marginally and the delta between that and what I'm talking about today is almost entirely utilization based. So this is a conscious decision on our part to lower utilization and response to demand and adjust our inventory balances.

Grant Brown:

Yeah, sure. So to put that into perspective, our China-based customers were down approximately 45% plus on a year-over-year basis. So that provides some context to the number, right. And that's all in relation to the macroeconomic factors we talked about, with the war in Ukraine, the COVID mitigation efforts especially, and I just mentioned, around China, it's the largest producer and consumer of 5G phones. So this had obviously a sizable impact on our top line, as we experience the inventory correction, we expect in the second half of our fiscal year.

Operator:

Thank you. Harsh Kumar with Piper Sandler has our next question.

Bob Bruggeworth:

Yeah, let me take that one. I think, it is more or less mid-30% typically as a percentage of overall sales and probably bottom out around 20% of our overall sales.

Bob Bruggeworth:

Yeah, if you look at our guidance for the September quarter, that does include the impact of us throttling down utilization.

Chris Rolland:

Hey guys, thanks for the question. And this one's probably for Grant. So sorry, back to the charge again, if I understand it correctly, this is $110 million charge and it represents stuff that you did, I guess, in the past, but also charges that you took in the future. Is there any way to kind of break that up between the two and does this go, were you thinking there are cuts all the way to 2025 or is this just near term? Any other details there in terms of past versus future would be great?

Chris Rolland:

Okay. I thought I was look looking at something, I don't know if it was the 10-Q that was talking about $1.4 billion to 2025. So in terms of the charge that you did take what –like what percent of those wafers or dollars of that $1.4 billion would that represent?

Operator:

Thank you. Next. We'll hear from Harlan Sur of J.P. Morgan.

Bob Bruggeworth:

We're not guiding at all to utilization. It's a complicated function of which products and which factories in our network are loaded with a given mix for our customers in any particular time period. It's not something that we typically provide any color on.

Harlan Sur:

Okay. Thanks for that. And then it looks like you guys have revisal looking at your guys 10-K and comparing to the 10-Q, so on the purchase commitment exiting the March quarter over a multiyear period of time, I think you guys had about $2 billion in purchase commitments, $900 million for this fiscal year. Obviously that's being revised lower. You took the $110 million charge, looks like you guys revised the value in terms of timing. I'm just wondering, was there also renegotiation of the pricing on that committed supply on this?

Bob Bruggeworth:

Let's just compare last K or last Q with what. We didn’t issue the K yet.

Bob Bruggeworth:

Yes. So why should always comparing.

Tim Arcuri:

Thanks a lot. I wanted to also ask about this charge. So just in the continuum of all the agreements you have, it seems relatively small and specific to one particular agreement. Yes, you were saying that it’s because demand is broadly lower. So I’m wondering is the conclusion maybe that there’s a design win that you thought you’d get that you didn’t get. And that’s why this particular agreement is being revised down. I would think that if it’s because demand broadly is softer, that you’d be revising multiple agreements down.

Philip Chesley:

Also want to add that we are currently negotiating this and just keep that in mind as we cover this. But again, it’s the Android ecosystem weakness that we’ve been talking about.

Grant Brown:

Yes. It’s the best place I’d point you to would be K for our largest customers. We don’t report them on a quarterly basis.

Srini Pajjuri:

Thank you, Grant. Pretty solid free cash flow number, despite lower GAAP, I guess, net income. If you could just help us reconcile that. And then the bigger question is maybe for Bob. Bob given, the inventory correction and also the macro uncertainty. How should we think about your CapEx going forward? I mean, I know these are longer-term decisions, but I’m just curious if there’s any change to your CapEx plans?

Bob Bruggeworth:

So I think the follow-on to answer your question longer term, we’re not making any change in our CapEx. We believe that this too shall pass the world will return to growth. Predicting when is everyone’s pointed out will be a challenge. But from our macro view while also point out we continue to make great progress and I’ll use some of our broad filters as an example where we have made tremendous progress over the last three or four years to be able to double the capacity by actually reducing our [indiscernible]. And we continue to work on those things. So when you get a downturn like this, we continue to work on those things. We don’t stop any of that engineering work to improve our productivity. So over time, yes, we’re going to be able to as Grant pointed out, continue to expand our business, while running at a very low CapEx compared to what we historically won brand years ago.

Brett Simpson:

Yes. Thanks very much. Bob, I wanted to ask a bit more about IDP and the growth that you see in next few quarters. You’ve been delivering double-digit revenue growth after a difficult prior fiscal year. And maybe within IDP, just the defense opportunity that you see in front of you. We’ve seen some big contracts being awarded to some of your customers like Raytheon and Lockheed Martin for things like stingers and javelins. And there seems to be a big reboot in munition builds that has to happen in the defense part of the business. So to what extent are you seeing a benefit from this and any more details you can sort of share with us on your outlook for defense and aerospace in particular, that’d be very helpful? Thanks.

Philip Chesley:

Thanks, Brett. I think I appreciate the question. I think when you look at our defense business, there are a lot of real strong tailwinds that we see occurring. And that goes from our GaN process technologies as defense space moves in the radar segments from LD Moss to GaN. We’re well positioned there. We see it both at our foundry. We see it in our standard product business in defense as well. So this isn’t just a story of what’s happening in the geopolitical environment today. This is really, there’s some long-term drivers of growth in that business. We’re also doing SAM expansion. We’re looking to build this business, our defense business into an RF and analog play. We’ve moved some of our power management technology into that market as well as our chip program, which does the advanced packaging that we have in Texas. We’re seeing a lot of really good opportunities in that space. So I think that defense with the increased semiconductor spin in the RF side, the SAM expansion that we’re doing with our chip program as well as what we’re doing in some of the other analog segments, it has a lot of positive challenge right now.

Vijay Rakesh:

Yes. Hi, thanks guys. Just quickly on the – I know you mentioned the December quarter bottom just wondering as you look at that wouldn’t it be kind of we are already hearing high RF inventory and high handset inventory, but wouldn’t be a challenge for the China handset guys, especially with the head of an iPhone ramp to kind of run through their inventory

Vijay Rakesh:

Got it. And then, obviously there’s also some of the domestic China RF suppliers who seem to be gaining share on the 5G handset side. Can you, is that a challenge or is that factoring into some of the outlook that you see are seeing?

Vijay Rakesh:

Thank you. Moving on to Atif Malik with Citi.

Eric Creviston:

Yes, it’s an interesting question. I’m not sure there’s any particular correlation other than to your point when we were constrained, it created opportunities for others that’s a good point. And we’re certainly coming out of that constrained environment. But at the end of the day, it’s about who’s got the best products, right. And it’s product by product and handset by handset, the decisions are being made. We’ve got a very competitive product portfolio, a strong R&D pipeline, incredibly talented team working on these things. And we think we’ve got every reason to believe that the gains and share that we’ve been enjoying, especially in Android we want to continue.

Operator:

We want to thank everyone for their questions and we will conclude the conference at this time. We’ll turn the conference back over to management for any additional or closing remarks.

Operator:

That does conclude today’s conference. Thank you for your participation. You may now disconnect.

Operator:

Good day, everyone, and welcome to the Qorvo, Inc. Fourth Quarter 2022 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Douglas DeLieto, Vice President of Investor Relations. Please go ahead, sir.

Bob Bruggeworth:

Thanks Doug, and welcome, everyone, to our call. Qorvo delivered fiscal fourth quarter results above the midpoint of our outlook we provided on February 2nd earnings call. Demand drivers were broad-based across end markets, including 5G, IoT connectivity, defense, and power. Both Mobile Products and IDP grew year-over-year and sequentially. In Mobile Products, revenue was diversified across customers and supported by content and integration trends. Of note, Qorvo more than doubled revenue year-over-year at Samsung with growth across multiple product categories. We also expect content gains as the year progresses across on Honor smartphone portfolio with opportunities spanning multiple products and technologies. In IDP, revenue was broad-based across markets and included our newly added high-voltage silicon carbide solutions. We were pleased to see IDP return to year-over-year growth, driven by infrastructure, power management, and other markets. IDP enjoys an increasing number of long-term drivers in growth markets, including automotive connectivity and electrification, defense radar and comms, power management, comms infrastructure, and others. Now, let's look at some of the quarterly highlights. In Mobile Products, we increased shipments to Samsung for mass tier and flagship 5G smartphone programs. Qorvo products included RF Fusion, WiFi 6E FEMs, antenna control solutions, and RF power management ICs. We were recognized by Honor as their only core strategic supplier in the RF category, and we received the first production orders for our next-generation RF Fusion solutions. At multiple China-based smartphone OEMs, we secured design wins covering a range of products, including complete main path and secondary transmit solutions supporting multiple basebands. In ultra-wideband, we were selected by an existing ultra-wideband customer to supply our first system in a package, or SIP, for multiple upcoming smartphone models. Our ultra-wideband SIP strengthens our product portfolio and offers customers a complete solution that integrates our SoC, RF front-end and software. Qorvo's ultra-wideband offerings received a higher percentage of FCC certifications last year than competing solutions, and design activity this year has been robust. In automotive sensors, we received a design win to supply MEMS-based touch sensor solutions for smart interiors at one of the largest US based automotive OEMs. Moving to IDP. In power devices, we continue to see strong design-in activity as silicon carbide technology expands across multiple markets. During the quarter, we received a multimillion dollar order for a new silicon carbide power device solution for circuit protection and EV charging stations. In power management ICs, we achieved another quarter of sequential and year-over-year revenue growth, driven by solid state drives and motor control solutions for power tools. In automotive connectivity, we received our first design win for a highly integrated V2X FEM, enhancing performance and extending range in the short thin application for a leading European based automotive OEM. In infrastructure, the business returned to year-over-year growth and we secure design wins from multiple leading OEMs for massive MIMO small signal applications supporting C-band deployments in the US. In Wi-Fi, we sampled our first wall-based Wi-Fi 6E filter, reducing form factors for CPE tri-band mesh networks. We also began ramping the industry's first enterprise wideband FEM covering both Wi-Fi 6 and 6E for enterprise CPE customers. This new FEM enables configurability in RF chain management, increasing capacity and maximizing throughput. In low-power connectivity markets, we secured design wins for a multi-protocol, low-power wireless SoC, integrating BLE, Zigbee and Thread. These wins enable remote control applications for our leading Korea-based TV OEM and leading US based MSO. In support of the matter connectivity protocol, we expanded customer engagements with retail and service providers to integrate matter into Wi-Fi gateways. Matter is an open and universal smarthome protocol expected to simplify and accelerate the adoption of seamless and reliable wireless connectivity. In both mobile and IDP, Qorvo's markets are supported by multiple long-term secular trends related to connectivity, electrification, sustainability and our increasingly digital lives. The Qorvo team continues to do a fantastic job supporting customers, while adjusting the challenges related to the war in Ukraine, supply constraints and COVID lockdowns in China. While challenges persist, they are temporary in nature and not structural. Qorvo remains laser focused on the opportunities ahead, introducing new technologies, launching best-in-class products, entering new markets and expanding our customer engagements. As an example, take Samsung, where we had previously been underrepresented and where we -- where the combined opportunity extends for years. Of note, our customer diversification in mobile is unmatched and affords Qorvo an expanding set of opportunities as 5G continues to grow. Adding to that, an increasing percentage of Qorvo's revenue exposure is to higher growth end markets. These include IoT connectivity, power management, power conversion, and defense, all of which are forecast to grow long term in the double-digits. So, while we navigate these challenges, our current views suggest June is the bottom with sequential growth in revenue resuming in September. I'm proud of how the team is staying focused, advancing technology and supporting our growth. With that, I'll now turn it over to Grant Brown, who I'm pleased has accepted the role of Interim CFO. Grant has been with Qorvo for many years, most recently as Treasurer. Before that, Grant led our tax and FP&A departments as well as other management roles. He has been a key contributor to Qorvo's growth and he has extensive knowledge of our business. I am confident, Grant, the finance and IT teams will continue to execute on Qorvo's ongoing financial and strategic priorities. And with that, I'm glad to hand it over to Grant.

Operator:

Thank you. [Operator Instructions] Our first question will come from Harlan Sur with JPMorgan.

Grant Brown:

This is Grant. I'll take that one. Yes. Thanks for the question. Given the temporary issues you mentioned and as we already discussed, we're -- limiting visibility across the industry prevent a precise view of timing. And so given the inventories and the situation in China related to the COVID lockdowns, we're not providing any longer term guidance until the continuing uncertainty around the world clears. Thank you.

Bob Bruggeworth:

Eric, do you want to talk about and you guys talk about the business and--

Eric Creviston:

Yes, yes. This is Eric. I'll start. Yes, I think we're very confident and pleased with the content gains that we're seeing and we're broadly diversified across all customers adopting our fully integrated portfolio of RF solutions and more and more WiFi content coming in and advanced tuners. So, the portfolio we've put together over the past several years is really maturing nicely. And so when we look at the second half of the calendar year, there's no content gain issues at all. There's content. It's really come down to how many units end up getting sold through, especially at 5G where, of course, the RF content is greater on just resolving all the issues today with getting materials and also getting consumers, especially in China, back to buying phones right now. So, lockdowns are really affecting end market demand. So, -- and of course, that's as we said, pretty hazy and hard to predict the second half. But content-wise, we're very pleased with the design wins we have now.

Grant Brown:

That's great. So let me tackle the gross margin piece of the question. We ended the year on a pretty strong note having achieved a 52% gross margin in Q4. Sequentially, June is typically our low point. So the decrease there is very much anticipated as we see a shift to some lower margin mix within mobile. But beyond June, I certainly expect that mix to improve throughout the year, but be tempered somewhat by lower utilization as we balance that customer demand and manage our inventory. Factory utilization will respond accordingly and likely leave some fixed costs unabsorbed. But once the near-term issues aside, there is no change to the long-term dynamics around margins. Certainly, our products are highly differentiated, and our customers value the performance advantages we help them achieve. From a cost perspective, the multiyear productivity gains that we've achieved still remain, and those benefits will be increasingly evident as volumes return.

Toshiya Hari:

Great. Thanks so much for taking the questions. I had two as well. My first one is on your business in China. I think based on your filings, China was about one-quarter of revenue in the December quarter. Curious how big or how small that region was in the March quarter and what you're assuming for June. And I guess, most importantly, what your thoughts are into the back half as your customer base recovers from these lows. And you've talked about some of the wins at Honor, so if you can kind of speak to that as well, that would be great.

Eric Creviston:

Yes, similar to what I said previously. Great relationships and very long-term roadmaps together, they're helping to drive our roadmap. We're responding to that. And as Bob mentioned earlier as well, great to see Honor coming back as well. They've kind of worked through the inventory that they inherited from Huawei beginning to now move to best-in-class integrated solutions. And we've got great relationships there. We've known those guys for years since they were in Huawei. So, really pleased to be bringing them back their business in the second half of the year. And notably, they'll be the launch RF Fusion. So, they're starting with the best and latest and greatest technology from Qorvo. And so that will definitely be a tailwind in the second half for China.

Grant Brown:

Sure. Let me take that one. As you pointed out, we ended the quarter with about 118 days' worth of inventory, which is near the high end of our range, around 81 to 125 days historically. So, as we look to work down the balance, we'll do so over time. But as you pointed out, while the supply and demand challenges persist, our inventory is expected to remain elevated. It is important to consider, however, that we understand why it's up and we have visibility into the demand that will consume it. In terms of your question specifically, I might try to answer it by comparing raw material and WIP. As you'll see when we file our K, those will be up, but they're based on our firm orders and supported our largest customers' demand. Certainly beyond that, you'll see increases in our inventory related to supporting our new acquisitions in some growth areas such as power and defense, so healthy growth on the inventory side there. I think Bob touched on already the channel inventories in China, so I won't.

Operator:

Our next question will come from Blayne Curtis from Barclays.

Philip Chesley:

Yeah. So Blaine, this is Philip. So I think, when you look at the flat guidance, I wouldn't take that directionally in terms of the rest of the year. We continue to see strong demand. I think that we still do have some supply challenges in IDP. And some of that is really regulating what we can ship in the Q1 time frame. So I think that's probably the biggest story in terms of that number and that flat quarter-over-quarter guidance.

Eric Creviston:

Yeah. So on gross margin throughout the year, we expect it to increase and improve as the mix over the balance of the year. Yields have been very good and -- across the year. And as we look forward, we will have some utilization that will leave some fixed costs unabsorbed in the factories, and so that will weigh against the mix improvement over the course of the year. But certainly, we expect it to trend up.

Joe Moore:

Great. Thank you. I wanted to ask in terms of the thinking about the full year for mobile products, and again, I know you're not guiding beyond June, but just to sort of understand the dynamics. Understanding that 5G handsets are lower than you thought, they're still up well north of 100 million units since last year. You've talked about good content gains. Like I would think you would get pretty good growth out of mobile products with that dynamic, assuming handsets are only down slightly. Is there something I'm missing in that in terms of connecting inventory from last year, inventory from this year, as this is very back-end loaded? Just again, I'm not looking for guidance. I'm just trying to understand what the drivers are of the full year and making sure I understand them. Thank you.

Joe Moore:

Okay. Thank you.

Edward Snyder:

Thanks. Eric, it sounds like most of your problems in China primarily, if not exclusively, demand-driven, right, versus lack of supply? And if not, how would you split those up between the two? And Philip was defense your largest segment again this period? And then I have a follow-up. Thanks.

Philip Chesley:

Ed, this is Philip. So, we don't disclose individual segments, but I will say that defense came in very, very strong, healthy and it has a very healthy backlog to it. But it's not the only business. We see a strong backlog, as I mentioned in our power management business. We see strong backlog in our WiFi business, automotive. It's pretty much most segments, we see strong growth. And so I think as we look forward, it will be a fun battle between which ends up being the biggest segment over this coming year.

Grant Brown:

Well, Ed, three questions, I think if I understood them all, but I think Eric will go first right.

Bob Bruggeworth:

Ed, in your question on size of Samsung, we did have two 10% customers. You also read indicate that we had two for the year, and I think you'll see who it was. I think you've got a good feel for our business, Ed. So, I'll let Grant talk to you about Farmers Branch.

Operator:

And our next question will come from Timothy Arcuri with UBS.

Bob Bruggeworth:

Yeah, it will be in the K. It will be in the K.

Eric Creviston:

Yeah. I don't -- frankly, I'm not sure there is such a thing as normal seasonality anymore, honestly. I mean, we don't have the repeatable ramp patterns that we used to have. And we have so many -- such a diversified customer base and seeing people move in integrated modules, but timing of large product ramps that can impact it significantly. We have some products that are built in subassemblies that they can go on to main boards, which affects the timing ahead of the ramp. There's just too many variables. So I can't really comment on what normal seasonality in September means anymore.

Matt Ramsay:

Thank you very much. Good afternoon and thanks for taking my question. I had a follow-up question on Samsung. It sounds like the Galaxy 22 going forward, there may be a fairly significant shift from the in-house baseband toward San Diego. And I wonder -- it was interesting to juxtapose that against the commentary that you guys made. My understanding, at least from the San Diego crew is that they're pulling a decent amount of RF attach with that new share that they're getting. Maybe you could address your relative position in content on the internal baseband platform and the one at Qualcomm going forward in the Galaxy S22 given the change there? Thank you.

Matt Ramsay:

Got it. No. Thanks. I appreciate the sensitivity there. As my follow-up, I was interested to hear, I guess, more expanded commentary in the script about some of the different IoT protocols around Zigbee, Thread matter. And I wonder, like -- could you give us a little bit of flavor? I mean, we all follow what's going on in 5G because of the big numbers per unit, but what the sort of RF content and the connectivity content trends are in that IoT market just from a content per unit. It's a very diverse space, but just trying to understand the TAM growth there and the content per unit growth at some of these new protocols rollout? Thank you very much.

Eric Creviston:

Yes. Yes. Looking at it from our perspective with ultra-wideband coming in as well, it's a key enabler to a lot of these IoT ecosystems. And when you look they are actually getting quite meaningful. Several of these verticals, whether it's access points either in the enterprise or in the home, as well as kind of wearable applications, which affect your interface with the IoT wearables for the audio and then also just all the compute platforms, and each of these can be hundreds of millions of units. So, when you put them together, you're looking at a market that's quickly approaching mobile in terms of scale. And we think ultra-wideband is going to be a key enabler for various reasons. I mean the precise location will add all kinds of feature sets to a lot of these ecosystems and the way they interact with each other. But also, it's a very low-latency high data rate connection, and that's got a lot of applications in smart home. You want to reduce latency for gaming applications, for example, or audio applications. So, I think across all of Qorvo, we've got a lot of pieces of the puzzle coming together in what is emerging as a very large market.