Operator:

Good afternoon and welcome to Skyworks Solutions Third Quarter Fiscal Year 2024 Earnings Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President of Investor Relations for Skyworks. Mr. Gill, please go ahead.

Liam Griffin:

Thanks, Raji and welcome, everyone. Skyworks delivered solid results for the third fiscal quarter of 2024. We posted revenue of $906 million, delivered earnings per share of $1.21 and generated free cash flow of $249 million. Revenue, gross margin and EPS met or were slightly above our prior guidance. Importantly, year-to-date free cash flow was $1.3 billion or 40% free cash flow margin which reflects strong working capital management and operational excellence. In mobile, we are seeing encouraging signs that inventory levels and order patterns are normalizing. We are energized about the prospects of generative AI, catalyzing a meaningful smartphone replacement cycle and driving higher levels of RF complexity. We expect new AI features will only be available on the latest next-generation smartphones, potentially fueling a multiyear upgrade cycle. We are uniquely positioned given our long-standing relationships with the leading smartphone OEMs, best-in-class RF technology and a global manufacturing footprint. In broad markets, we delivered 2 consecutive quarters of sequential growth since the December bottom and we anticipate modest growth for the balance of 2024. In edge IoT, where demand is improving, we have a strong design win funnel for WiFi 7 systems and we expect a healthy multiyear upgrade cycle given faster data transfer speeds and lower latency. In traditional data center and wireless infrastructure, inventory levels remain elevated which is prolonging the recovery as we continue to under-ship natural demand. However, once industry conditions stabilize, we expect end customers to replenish inventory back to normal levels. Lastly, in automotive and industrial, we are working through excess inventory levels but seeing signs of stabilization. We remain bullish on our design win pipeline across our power isolation, RF and digital broadcast solutions for the connected car and EV markets. Over the medium to long term, we believe generative AI will migrate to the edge. Most significantly, we believe the rollout of compelling AI applications will drive a smartphone replacement cycle, one that is currently the longest in history, standing at over 4 years. In edge IoT, AI-enabled devices increasingly incorporate machine learning to support language and computer vision models. Robust RF is critical to facilitate the continuous training to inference between device and cloud. Over time, automotive OEMs will train on big data in the cloud and screen software downloads through over-the-year updates, supporting higher levels of autonomy and vehicles. To facilitate these trends, OEMs need power and extremely fast RF connectivity. For next-generation data centers, complex workloads supporting large language models will propel upgrade cycles in switch, compute and optical networks. Over the medium to long term, Skyworks is well positioned with our high-performance timing solutions, targeting 800 gig and 1.6 terabit Ethernet switches in optical modules. Ultimately, our view is there will be a hybrid approach to AI computing, a combo of on-device and cloud-based. Data can be trained in the cloud and deployed to the edge for inference on new inputs. More complex AI tasks will be processed in the cloud and less complex on-device. In addition to these new usage cases, AI-enabled smartphones will further elevate the technological burden, resulting in premium for onboard space, requiring higher levels of integration in advanced packaging, energy efficiency translating to lower power consumption, low latency, pushing the boundary of signal integrity and higher throughput and connectivity upgrades with 5G advanced and 6G. These increased technological demands play to Skyworks' strengths, given our deep customer relationships, exceptional engineering talent and strong IP portfolio. Turning to our quarterly business highlights. We secured 5G content for premium Android smartphones, including Google Pixel 8a, Samsung Galaxy M and Oppo Reno12, among others. We supported the launches of WiFi 7 tri-band routers and access points with NETGEAR, TP-LINK and Cambium Networks. We accelerated our design win pipeline in automotive, including telematics, infotainment and CV2X. Despite a challenging demand environment, we continue to make strategic investments in our long-term growth areas, expand our customer base and diversify the reach of the business. With that, I will turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q4 of fiscal 2024.

Operator:

[Operator Instructions] And our first question coming from the line of Matt Ramsay with TD Cowen.

Liam Griffin:

Yes. Sure. This is Liam. So if we start to take a look at those markets, we are actually gaining some share and driving revenue. We're seeing opportunities in auto that have substantially been grown. We see the connected car as a significant opportunity for Skyworks. We already have meaningful design wins and I know we can do much more. We're looking at more and more opportunities in safety systems, driver assist. We talked a little bit about that. All those markets are actually doing quite well and we have a lot of room to grow. Then moving into some other markets that are quite powerful today are the WiFi cycles. We have a WiFi 7 upgrade today that is going really well. Very important technology, lots of volume coming. And certainly, an extension here as we get to more and more opportunities. Home enterprise, commercial, industrial, wearables, all of these markets fall into that category and have been really powerful for us and we expect that to continue. And further, we have some great opportunities in infrastructure, leveraging networking and cloud. We talked about 800 gig and 1.6 terabit speeds. A lot of really powerful vectors there that can come about here as we move into the next quarter.

Liam Griffin:

Yes. Look, I mean there's a lot of opportunity there. We are seeing stronger signals in demand for sure. We're starting to see that actually accelerate, leveraging some of the more unique products that we have within the Skyworks bench. So a lot of opportunity there. Our outlook looks very good as we look forward. The technologies that we're working on right now are really difficult. They're very, very challenging. It takes great companies and great people to make it happen. As you've heard many, many times, our labs-to-fabs approach really does work. There's a lot of customization as we start to grow into some of these new markets, mobile and others. So we feel really good about that. And I think there's an opportunity for us to continue to move forward. We're just beginning to now engage in AI and we see that in the phone. We definitely see that as a major, major catalyst for smartphones. And I'll tell you, I don't think there's a company that can do that better than Skyworks. So we look forward to the opportunity. We've got the key pieces in place and it's a time for us to just put up a little bit more revenue there.

Chris Caso:

The first question is on broad markets. And it seems like that revenue is just kind of bouncing along the bottom here. You mentioned expectations for some modest growth going forward. Can you speak to the different end markets within broad markets? I'd imagine that some of the consumer markets that corrected earlier are perhaps some of the ones that are coming out. But I know some of the industrial markets still have some inventory to go through. What's the stage of the inventory correction and kind of how much of that business is normalized? And how much of that still has customer inventory that needs to be burned through?

Chris Caso:

As a follow-up, I wanted to ask a question on gross margins. And I understand you're guiding up 50 basis points for the September quarter. I know that you've taken some cost-reduction actions, depreciation's coming down. What would you say is the trajectory for gross margins as perhaps some revenue comes back and utilization comes up? What's sort of the slope and the destination for the gross margins as those things occur?

Operator:

And our next question coming from the line of Timothy Arcuri with UBS.

Kris Sennesael:

Yes. So our largest customer in the June quarter was approximately 65% of total revenue. That was down sequentially, maybe a little bit more than normal seasonality and we explained that at the last earnings call, where we saw some buildup of inventory in March, April time frame. And so we pushed the brakes in June. But looking ahead now into September, we think the largest customer will be slightly above 65% of total revenue and it will be up on or about 20% sequentially, right, as we execute and support our large customer in ramping up new products that they are bringing to market.

Kris Sennesael:

Yes. So we only guide 1 quarter at a time and I would really stick with that. But yes, it's clear that we do expect further sequential growth going into the December quarter but we will guide next quarter on that.

Christopher Rolland:

You referred to some AI smartphones. And I think we all got excited about some new AI announcements this quarter, driving a refresh cycle. So I guess my first question is how much of this kind of acceleration or pull-in in the refresh cycle did you see or is in your September guidance? Did you see kind of the same excitement that we all kind of felt? Or do you think this is something really to play out December and onward as we move through time and new product launches?

Christopher Rolland:

My next question is around Android. So you talked about a couple of cool Android phones, Google, Samsung Galaxy M, Oppo. Can you point to any marquee sockets, either new areas that you're playing or big chunky sockets? And then just more generally, how would you describe the Android environment and kind of your outlook there and revenue contribution moving forward?

Operator:

And our next question coming from the line up Craig Ellis with B. Riley Securities.

Liam Griffin:

Yes. I think this is going to be a long, long run here and a successful run in the industry if the technologies come about the way that we see it. So we have some of this technology in place right now and we're able to capitalize on that. But this is going to -- Craig, this going to be a long-term cycle here, very meaningful, akin to the first 5G cycle in my expectation. But I think it's going to be much more powerful. The challenges are much more demanding, more challenging. Fortunately, for Skyworks, we can do a lot of this stuff in-house, very difficult but we can do it in-house and we can craft and curate account by account to get it right because we're not seeing one fits all here. This is going to be a customized platform when you get into AI and each customer has its own needs and specs. So it's early innings. The companies that are deeply involved are going to win. The customers that we pick are also going to be really important to us but we're looking forward to it. I think it's going to be a significant move in the industry and certainly for Skyworks.

Kris Sennesael:

Yes. So maybe first on the gross margins, I think I already answered that question, right? I think we're going to continue to see further gross margins improvement. Obviously, we've accelerated revenue growth. We will have better utilization in the factories and that will exponentially result in further gross margins improvements. That is very clear. As it relates to the financial output of this company, it's just outstanding, right? Just if you look at in the first 9 months of the fiscal year, we generated $1.3 billion of cash. That's a 40% free cash flow margin. I think that is outstanding in the semiconductor business compared to many of our peers and competitors. In addition to that, we have a strong balance sheet. We have almost $1.3 billion of cash on the balance sheet and only $1 billion of debt with -- which is cheap debt with long maturities. So we have a very strong position here that allows us to, on one hand, continue to invest in our business, in our technology and product road maps, continue to invest in our factories if and when needed. And so currently, the capital intensity of the business has come down a lot. But if and when needed, of course, we can make those investments as well to maintain our leadership position. And in addition to that, there's not going to be any hesitation. We are going to return all the excess cash flow back to the shareholders. And we do that consistently through our dividend program and our share buyback program. On the dividend program, we just announced a 3% increase up to $0.70 per share. Right now, that's translating into a 2.4% dividend yield. And as you noticed, in the June quarter, we restarted the buyback program. And so there's not going to be any hesitation to that. In addition to that, we still have optionality for M&A, right? But you know us, we're not going to do anything stupid. We're going to remain disciplined on that. And if there are no deals, we will return the cash flow.

Kevin Cassidy:

When you mentioned AI in the handsets and I understand the improvement that you'll get in content, what about AI is moving out into all types of robotics and IoT type of products? Do you have accelerated opportunities in that market, too?

Kevin Cassidy:

Okay, great. Just maybe as a hint is -- do you need more scalability to be able to service more customers?

Operator:

And our next question coming from the line of Quinn Bolton from Needham & Company.

Liam Griffin:

Yes, I hear you. We really can't go into specifics with that customer. But certainly, we have a great relationship. We're a trusted partner. There's a lot of opportunities that we can pursue but we just really can't get into any details here.

Kris Sennesael:

That's really hard to answer that question. I mean it really depends from end market to end market. As I said before, I think in consumer enterprise, most of the inventory correction is over. Automotive, industrial, you've heard it from peers and competitors. There's definitely some excess inventory that's being flushed out. And then if you look more at the infrastructure, networking, data center, there is still some excess inventory but the demand is definitely improving in those areas. And it will be a long recovery in those markets. So again, it really depends end market to end market. But again, when you look at our broad markets business, we're growing it sequentially for 3 quarters in a row and we'll start growing it on a year-over-year basis. And so there's definitely some good traction for Skyworks.

Thomas O'Malley:

Mine was just a broader industry dynamic on integration. A competitor at the recent analyst like kind of showed a slide with the mid- high-band socket integrating diversity receive over time in high-end Android. Can you talk about are you seeing the integration in some of the design wins that you're competing for today? And then could you just maybe speak to the fact is that only going to appear in high end markets? Do you see that across broad markets? Just where are you seeing the industry move to in terms of maybe silicon getting integrated into smaller duct space?

Thomas O'Malley:

Helpful. And then just more broadly, when you talk about AI proliferating to the edge, I think people have generally a good idea of how they see that playing out. But when it comes to AI in the smartphone, do you think you could talk specifically as to where you see the content uplift? Is that just additional bands? Is that additional filtering? Like can you just point to where you think in the near term you see additional content as it relates to AI in the smartphone?

Operator:

And, ladies and gentlemen, that concludes today's question-and-answer session. I will now hand the call back over to Mr. Griffin for any closing comments.

Operator:

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

Operator:

I would like to introduce Raji Gill, Vice President of Investor Relations for Skyworks.

Liam Griffin:

Thanks, Raji and welcome everyone. Skyworks posted solid results for the second fiscal quarter of 2024. We delivered revenue of $1.046 billion. We posted earnings per share of $1.55 and generated $300 million of operating cash flow, which reflects strong working capital management and operational excellence.

Kris Sennesael:

Thanks, Liam. Skyworks revenue for the second fiscal quarter of 2024 was $1.046 billion, slightly above the midpoint of our outlook. Mobile was approximately 66% of total revenue, down 19% sequentially. Broad markets were approximately 34% of total revenue, up 1% sequentially. Gross profit was $471 million with gross margin at 45%, in line with expectations. Gross margin was down 140 basis points sequentially reflecting our seasonally weakest period. Also during Q2, we further reduced our internal inventory by $91 million to $836 million, which reflects five consecutive quarters of reductions. Operating expenses were $192 million, below the low end of the guidance range, reflecting our disciplined focus on managing discretionary expenses while continuing to invest in our technology and product roadmaps. We generated $279 million of operating income, translating into an operating margin of 26.7%. We generated $4 million of other income and our effective tax rate was 11.3%, driving net income of $251 million and diluted earnings per share of $1.55, which is $0.03 above the guidance that we provided during the last earnings call. Despite the quarterly volatility, Skyworks business model generates strong cash flow. Second fiscal quarter cash flow from operations was $300 million. Capital expenditures were $28 million or less than 3% of revenue, resulting in a free cash flow of $273 million. We continue to drive robust cash flow through high levels of profitability, prudent working capital management and moderating CapEx. Also during fiscal Q2, we paid $109 million in dividends. Our cash balances grew to over $1.2 billion and we have $1 billion in debt. Our solid capital structure provides us with excellent flexibility and optionality. Now let's move on to our outlook for Q3 of fiscal 2024. We anticipate revenue of $900 million plus or minus 2%. We expect our mobile business to be down sequentially below normal seasonal patterns as excess inventory clears. In broad markets, we anticipate further modest sequential growth as inventory levels appear to be normalizing in certain end markets. Gross margin is projected to be in the range of 45% to 47%, improving 100 basis points sequentially at the midpoint. We anticipate gross margin expansion during the remainder of 2024, driven by our cost reduction actions, favorable mix shift and higher utilization rates. We expect operating expenses in the range of $192 million to $198 million as we continue to make strategic investments in mobile and broad markets to drive share gains and increase diversification. Below the line, we anticipate roughly $2 million in order income, an effective tax rate of 11.5%, and a diluted share count of approximately 161.5 million shares. Accordingly, at the midpoint of the revenue range of $900 million, we intend to deliver diluted earnings per share of $1.21. Operator, let's open the line for questions.

Chris Caso:

Yes, thank you. Good afternoon. I guess the first question with regard to the worse than seasonal mobile business, you speak about excess inventory. We've unfortunately been hearing excess inventory in mobile for some time. Could you give a few more details on that? And specifically, was this from the Android space or was it beyond the Android space?

Chris Caso:

Thank you for the clarification. I guess, as a follow-up, what does this mean for the second half of the year? And typically, you don't guide for the second half on this call, but do you expect those inventory headwinds to persist? Obviously, you have new product launches as you go to the second half, what does that mean for normal seasonality as you go through the second half of the year from these levels?

Chris Caso:

So does that suggest kind of a back to a normal revenue levels or I guess what you're saying is this is a very short-term issue in the June quarter?

Chris Caso:

Okay, thank you.

Matthew Ramsay:

Thank you very much. Good afternoon, everybody. Guys, I wanted to follow on to Chris' questions there on the mobile segment and is there any correlation at all that we should draw between, is this just a unit and inventory thing or is there any correlation we should draw to potentially expected content and programs that would launch later in the year? Is there a quarter of drawdown of inventory because maybe content has changed one way or the other or should we just not try to make that conclusion? Thanks.

Kris Sennesael:

Yes, and Matt, just to add a little bit more color there, and again, as you know, we can't really go into the specifics as it relates to the large customer, but we were able to partially offset the socket loss that Liam just talked about it with some additional content gains, including some new sockets that we don't have in the current version of the phone. And so, as a result, on a net-net, we expect the content to be down a little more than 10% compared to the current phone model, and that will start having an impact in the September quarter.

Liam Griffin:

Yes, I mean, this is not performance related. It's not technology related. In fact, the product has been a stalwart in the portfolio, so nothing like that. Just a unique situation. Can't get into all the details. We're looking forward. We are partners with our largest customer. We expect to do more work in the future and looking forward to that.

Operator:

Thank you. Our next question comes from Edward Snyder with Charter Equity Research. Your line is open.

Liam Griffin:

Yes Ed, unfortunately, I can't give you too much detail here, but as you know, we're striving to gain share in every sockets that we're addressing today, whether the largest customer or some of the other players. The technology's there. I mean, this is not a technology gap. This is really some commercial issues that were unique and we're getting through it and we expect to be able to turn up the revenue here as we go forward.

Liam Griffin:

Yes, Ed, great question. I'm glad you asked. So, as you know, if we think about the mobile phone today, which we can't live without. Right? Everybody needs it. So much activity on that device and it's an incredible, incredible product. But when you start to go into Generative AI, as you know, the compute power is going to be so, so high, the current consumption, all of that action is going to burn up your battery. So you've got to step up into a new set of solutions that we're working on right now that will be more power efficient that will be mark-to-market around mobility, but with Gen AI right in this rife zone. So we're really excited with that and we've been talking to the larger customers and players with that as well. We have the toolbox to create unique solutions across multiple customer sets. But if you think about it, the technology burden there is going to be so high. The amount of data back and forth from the handheld to the server is going to be immense. It's going to be very, very difficult. So I think it's going to narrow down the playing field in mobile for customers that you see, and then opportunities at Skyworks to really work with the best and brightest in our space to create elegant new solutions. So we're really looking forward to that and more to come.

Karl Ackerman:

Yes, thank you. I realize you've been moderating CapEx following a significant investment year in 2022, but CapEx is also down over 50% in the first half of 2024 relative to last year. And so I was curious, Kris, if you could give an updated view on your CapEx this year and how do we reconcile that outlook with your longer-term opportunities that you discussed in broad markets as well as 5G handsets?

Karl Ackerman:

Yes, I appreciate that. If I may sneak in another one, Kris you also mentioned about an expansion of gross margins in the second half. It sounds like broad markets is improving throughout the second half. It also sounds like gross margins have troughed in the March quarter. But perhaps could you just discuss some ways to which you can improve margins in the mobile business as volumes come back and perhaps could we also see 50% margins over the next couple of quarters and any thoughts on timing of that? Thank you.

Karl Ackerman:

Thank you.

Thomas O'Malley:

Hey, thanks for taking the question. Two parter here for Chris. In the March quarter could you give the percentage of revenue for your largest customer? And then just kind of following up on your comments related to March, you talked about some inventory work done at the customer. Could you to your best of your knowledge, try to describe whether that's existing inventory that's related to the current phone or do you think that is early stages of potentially working down the socket that may be associated with the next phone as well? Are they separate issues or could they potentially be related?

Thomas O'Malley:

Helpful and then just trying to parse out the pieces for June, you're kind of saying that mobile is down 20% to 25%. Even if you set kind of your largest customer in that range, you still need to see double digit declines on the Android side. So could you maybe describe what's happening in the Android business? I think some of your peers had talked about maybe a weaker Q2, but what are you seeing with those customers there? Thank you.

Operator:

Thank you. Our next question comes from Ruben Roy with Stifel. Your line is open.

Liam Griffin:

Yes, absolutely. So there's a lot of opportunity and growth that we're seeing in the broad markets. We've been doing a great job with the automotive segments, a lot of technology there, a lot of opportunity. We're growing that business. We continue to look at other players in the space doing quite well. Industrial markets are coming up for us right now. Solar markets are coming up. We're seeing some good action in PlayStation as well. So we've got kind of a consumer play there, but a lot of volume and a lot of content. So the portfolio is growing, it's diversifying and there's a lot more opportunity out there. We've been kind of focused more on some of the bigger names, but now we start to see a longer roster of opportunities that we can capture. And also just some of the technologies that we brought in from our MSSX lab deal is giving us more green shoots and opportunities as we look long.

Kris Sennesael:

Yes, it depends on which part of the broad markets you are looking at. If you look more at the consumer IoT, the edge IoT connectivity products, that has been improving for many quarters now. I think that market is getting stronger. We obviously have some strong technology transfer that is going on as we upgrade to Wi-Fi 6E, and 7 and bookings has been improving with a book-to-bill above one in that part of the market. When you look at infrastructure networking data center, that market has been, as you probably have heard from peers and competitors, a little bit soft. There is some inventory that needs to be cleared out. So we are under-shipping natural demand right now. It's going to take a couple of quarters for that business to really bounce back and in the meantime we have to clear out the inventory. And then automotive and industrial there again you've heard from peers and competitors, there is definitely in certain spots, some excess inventory that needs to be flushed out. Again for Skyworks, we're doing real reasonably well in that market, given just the product cycle, the ramp of connectivity in the car, the ramp with our power isolation for EV, we're doing well with our radio processor in the car. And so we are bucking the trend there a little bit in a tough environment.

Operator:

Thank you. Our next question comes from Timothy Arcuri with UBS. Your line is open.

Kris Sennesael:

Yes. Our China mobile revenue is still de minimis. It has been improving quarter after quarter, but still on a relatively low level. I mean, we have great relationship with Oppo, Vivo, Xiaomi, the three main players there. Design win momentum is picking up a little bit, but the overall end customer demand environment is still somewhat soft. I think that's the best way to characterize that. But again, I think over time, especially when I'm looking forward to fiscal 2025, we do expect to see some meaningful year-over-year growth in that business.

Peter Peng:

Hi. Thanks for taking my question. On the Android point, you talked about it approaching $100 million. I believe your previous peak was kind of closer to $200 million per quarter. As you kind of look out into 2025 and 2026, is there anything that precludes you to getting back to those kind of levels?

Liam Griffin:

And I'll just jump in on that. If you think about where we are with Android, we've got really strong engagement with Google and Samsung, high end players, a lot of volume. So it's not so much the Oppo, Vivo, Xiaomi for us, but it's more around the Samsung and Google players that right now are ramping very well.

Kris Sennesael:

Absolutely, absolutely. So currently it's only modest. Like in March it was 1% sequentially. In June we expect 2%, 3% sequentially, but then as we look out in the next couple of quarters, we do and expect an acceleration of that sequential growth getting back to initially modest year-over-year growth, but then translating into strong double digit year-over-year growth in our broad markets business.

Operator:

Thank you. Our next question comes from Cody Acree with The Benchmark Company. Your line is open.

Liam Griffin:

Yes, we're still not engaged with Huawei. But again, we will work the Android markets with some of the other players that we talked about. So but Huawei for now, I think, has really been kind of on the bench.

Liam Griffin:

Well, there are still just a couple things. I mean the product quality there that we look at is just not really up to, that's not for us, and still just very difficult environment in that marketplace.

Liam Griffin:

Yes. Great question. So, if you actually think about it right now, we've been really long in the tooth here with upgrades across the board in mobile, across the whole market. So without AI, the market is, we believe is going to inflect with resurgence of growth in terms of units. That's one part. But when you get into the AI side, we talked about it a little bit earlier, we're going to need to do some tremendous things in the smartphone world to actually catalyze what AI needs to do. There's going to be upgrades in servers, there's going to be upgrades on the device, and it's going to drive tremendous power. And power is really, really important. When you think about data center, you hear all these things from Nvidia. They're powered. They're powered to a server. Mobile is mobile or untethered. So the burden on technology in the smartphone world is really going to go up and it's going to narrow the playing field. And I love our chances. We've got a great business. We've got in-house technologies, great engineering, a long, long live set of solutions and know how that we built over the years. So we're really looking forward to it. I think we talked about it already. The smartphone market today already is kind of slowed down. It's turned for an upgrade right now. So the intersection between AI and smartphone growth could be really special. So we're looking forward to it. We have a lot of the key building blocks and our engineering teams know exactly what to do to turn this on. So we're definitely anticipating some upside here.

Liam Griffin:

Yes, I mean, there are more paths, uplink and downlink. You got carrier aggregation here, better filters that we do in-house, engaging in with Wi-Fi as well. And there's also going to be a range of new frequency bands as you move forward into those devices, so there's a lot to do. And just that technology alone is going to be amazing. But also the smartphone opportunity today with all those legacy phones that want to turn over to a new upgrade, I think are all going to come together, so we're looking forward to that. We're doing the technical work to make it happen, and we'll keep you posted.

Liam Griffin:

Sure.

Quinn Bolton:

Hey Liam and Kris, thanks for taking my question. I guess, I wanted to start; you opened the call kind of talking about the slower demand environment in March and April that's led to this inventory correction in the June quarter. But I guess I'm, I haven't heard you guys say that you've necessarily seen the end of that demand softness. And so what signals are you looking for? Have you already seen that give you confidence that this inventory correction is going to be limited to only the June quarter? Are you starting to see demand signals strengthen as you look past the June quarter?

Quinn Bolton:

Okay, so it sounds like the forecast from customers that lead you to believe it's largely limited to the June quarter.

Quinn Bolton:

Understood. And then I know it's sensitive, but just coming back to the socket loss at the large customer, it sounds like your think this may be sort of a near-term commercial issue. But I guess I just wanted to ask, do you think there's any read throughs from this that might signal a move to sort of a multi-sourcing strategy at that customer where they're looking to bring in additional suppliers across all sockets just for supplier diversity reasons or again, do you think it's kind of more limited to one year, one socket?

Quinn Bolton:

Thank you.

Liam Griffin:

Thanks, everyone, for participating in today's call. We will look forward to talking to you at upcoming investor conferences during the quarter. Thanks.

Operator:

Good afternoon, and welcome to Skyworks Solutions First Quarter Fiscal Year 2024 Earnings Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President, Investor Relations for Skyworks. Mr. Gill, please go ahead.

Liam Griffin:

Thanks, Raji, and welcome everyone. Skyworks continued to execute well during the first fiscal quarter of 2024 despite a volatile macroeconomic environment. We delivered revenue of $1.202 billion. We posted earnings per share of a $1.97, and generated $775 million of operating cash flow. Free cash flow was also a record at $753 million or a 63% free cash flow margin, which reflects strong working capital management and moderating CapEx intensity. Let's review both near and long-term secular trends in our end markets. After two challenging years across Android ecosystems, we see signs that the industry is stabilizing. Excess supply conditions are abating and inventory levels in the distribution channel and at the OEM level are normalizing. Customers are starting to restock inventory, albeit gradually as supply and demand dynamics improve and new phones are introduced into the market. Moreover, we've made strategic investments in product development, positioning us to compete for design wins and share gains focusing on highly integrated platforms for the leading mobile OEMs. We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover. Within broad markets, we see crosscurrents, but many factors are moving in the right direction. In consumer IoT, we believe that we are past the bottom, as inventory levels in the channel have normalized and demand signals are improving. Furthermore, we are executing on the upgrade cycle to WiFi 6E and 7. We see significant design win momentum across our retail, carrier, and enterprise channels. These systems carry substantially higher dollar content, because of the addition of the new 6 gigahertz band and the inclusion of BAW filtering technology. We expect wireless infrastructure and traditional data center will remain a headwind throughout 2024, as OEMs continue to digest excess inventory. Despite this, we remain bullish on several new product cycles, including major design wins in ethernet for high bandwidth networks and 400-gig and 800-gig optical module upgrades. Lastly, automotive and industrial markets are experiencing a near-term inventory correction. However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle, along with growing EV penetration, driving demand for our power isolation products. Taken together, we anticipate December quarter represents the bottom in the broad markets business. There are several long-term secular growth dynamics that leverage our differentiated technology, including the proliferation of intelligent edge connected IoT devices, automotive, electrification and advanced safety systems, and AI enabled workloads, driving cloud and data center upgrades. Each of these trends require intricate connectivity engines underlying the need for speed, ultra reliable low latency performance. In addition, 5G technology is expanding beyond the smartphone into more use cases in broad markets, including private cellular networks in factories and stadiums, customer premise equipment supporting Verizon and T-Mobile and multi-band, automotive, telematics, and wearables to name a few. We also remain bullish on the long-term RF content story in smartphones, coupled with growing 5G penetration, we see increasing levels of complexity and content with each new generation. For example, 5G Advanced is driving higher RF content, including the addition of satellite bands 4x4 MIMO on the downlink and uplink, higher bandwidth, more carrier aggregation, upgrades to WiFi and GPS and other innovations. Lastly, we are energized about the prospect of generative AI migrating to the smartphone, sparking a potential major upgrade cycle, as the performance bar rises every year to support AI enabled phones, the complexity requirements of RF will continue to increase driving the need for more integration, lower power consumption, smaller footprint, and spectral efficiency. 5G is the ideal standard for on-device AI applications as it takes advantage of lower latency, faster transmission speeds and higher frequency ranges. In addition, AI enabled workloads are driving demand for high speed connectivity for data intensive infrastructure and cloud upgrades, accelerating the demand for our high precision timing products. Turning to our quarterly business highlights, we secured several design wins in infrastructure, including optical transport products with a major operator in India, and timing devices for 5G small cells for private networks. We expanded the WiFi design pipeline with Cisco's enterprise access points, Linksys tri-band mesh router, and TP-link’s tri-band gaming router. We increased design win momentum in automotive, including telematics, infotainment systems, and onboard chargers across the leading OEMs. Lastly, in emerging IoT, we delivered next-generation smart energy solutions with Google's Nest temperature sensors and introns residential gas meters. In summary, Skyworks delivered solid financial results despite a challenging macro environment. Our strong balance sheet, record cash flow and profitability reflect our resilient business model, diverse customer base, and technology scale. With that, I will turn the call over to Kris for discussion of last quarter's performance and our outlook for Q2 of fiscal 2024.

Operator:

[Operator Instructions] And our first question coming from the line of Matt Ramsey with TD Cowen.

Liam Griffin :

Sure. Sure. Absolutely. One of the interesting things here with our broad markets business is that there's so many opportunities that we haven't yet scaled. So if we look at the business unlike some of the other mobile markets that are well defined and there's still great opportunities. We look at the broad markets as more of an open-ended play for us. We're leveraging the technologies that we know how to work with. We have a great set of customers and that continues to grow and expand. But yes, I mean, the team has done a really good job. This has been a tough year across the landscape across semis. We're happy to deliver some positive results here today, and we do think there's a turn. Again, in that portfolio, it's very diverse. And mobile is a part of it, but the lion's share is really diversified products. With some really great names as well. And most of those broad market companies, we have low share. There's still a tremendous amount of room to grow within those accounts. So I think those are some of the themes. We've been working on this for quite a while. And finally putting up some meaningful top line, leveraging that broad markets business. The other thing, we continue to remind our customers and even the investors, a lot of the stuff we do in-house. So we're able to craft and curate specialty products. We have our own fabs. We do things a little bit differently, and I think that helps our outcome.

Liam Griffin :

Yes, I think it's a secular opportunity. This is a really unique period for us and in the industry. The way we look at it, you look at AI and a lot of that is really intense servers data center, and that's extremely important. Then you take it down kind of to the middle ground and then you're kind of in a different position. But getting that to mobile is going to be a challenge. It's going to be a challenge, but it will happen. The consumer wants that. The consumer wants to have that compute power in their hand. And it's not there yet, but we really believe that it will come. And I think it's going to set up the industry for a whole range of new opportunities still carrying radio frequency. So really excited about it. And again, we have the building blocks and the know-how to do really interesting things and do it account by account as well. Not everybody wants the same solution. But we really do believe that heavy compute power has got to get matched up with something in your hand. That handheld device has got to step up. It's got to grow, it's going to be more -- it's going to need to be faster, lower latency. And that's all good because those are problems that we can solve.

Chris Caso:

First question is about the Android market right now. It sounds like that market has finally grown for you after several quarters of inventory correction. Can you speak to what your expectations are for that as you go through the year? I suppose at this point, the inventory correction is behind us. What's your level of optimism of getting back to more normal growth rates in that part of the business?

Chris Caso:

Okay. As a follow-up on gross margins, if you speak to your expectations as we proceed through the year. One thing you mentioned is it sounds like you're internal inventory was below target. Should we read that to mean utilization starts going higher? And what the effect on that will be on gross margins as we go through the year.

Operator:

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

Kris Sennesael:

Yes. So as it relates to broad markets, roughly 40%, 45% is IoT, more consumer IoT, right, where we provide connectivity solutions in tablets, in wearables and PCs, your home connectivity with routers and all the access points that tap into that. In that market, the inventing -- there has been an inventory correction for multiple quarters, but we are getting towards the end of the inventory correction there. In addition to that, we see strong growth in that part of the market due to an uplift in content as we transition from WiFi 6 into WiFi 6E and 7 type of solutions that has a substantially higher RF content of Skyworks inside. The next 30%, 35% is infrastructure, cloud, data center, enterprise networking. There is definitely an inventory correction going on in that part of the business that has started in the December quarter and will continue for a couple of quarters here. Nevertheless, that as well. I think in that market, we're very well-positioned with some key customers, including our timing solutions for data centers. And then the last part is 20%, 25% is automotive and industrial. There as well, I think we're well-positioned. But you've heard it from many of our peers, there is an inventory correction going on I don't think it will be a long drag-out inventory correction. It's probably December, March, two quarters of an inventory correction. And then again, we are very well-positioned in that market the connected car that eventually become an autonomous car as well as EV, where we play with our power resolution solutions. And so again, when you put it all together, December is the bottom for our broad markets. We start seeing some sequential growth in March and beyond. And as you know, yes, those markets typically have a higher gross margin compared to broad markets, and that will help us to lift the gross margin.

Liam Griffin :

Yes, largely through the infrastructure business that we have and some of the technology that we brought forth in our Silicon Labs deal, that's driving new vectors for us in the industrial markets and the data center markets, and it's a really vibrant growth source for us, and there's a lot of room to grow there as well. So lots more to do, but we've been making some great progress in that area.

Edward Snyder:

I'd like to touch on, if we could, later this year, especially in mobile, it seems pretty clear at this point, given your largest customer scrambled to get their thing done by 2025 that most all attention on that and that we're going to have kind of a -- I don't know the best way to put it, but basically, kind of on hold -- not on hold, but a repeat of what we've seen before, nothing -- not much new in the new one and the competition scrip. So basically, I would expect in the fall, you're going to see more competition or you already know it now. Sure Qualcomm going to talk about a lot on Wednesday. So I'm trying to get a feel for the profile of your mobile business in the second half of the year. It sounds like it might be weaker than we normally since Qualcomm share got to come out of somebody. If you could maybe characterize or just without getting into too much detail about what should we look at in terms of the mix in the second half you're already talking about broad markets being much stronger. The mobile by implication is going to be a little bit weaker. And is that mostly just organic growth? Or is there going to be some share loss? Or how do we think about that? And then I have a follow-up, please.

Edward Snyder:

Okay. Maybe I could follow up with a different angle here. You're going to grow in Android, you've kind of been under-earning there for several years. I think on purpose because you've done very well outside of that market. R&D is going up to in order to address the products yet because it's a different product market. But margins typically are lower in that whole market. Competition is a lot more intense one, should we expect to see revenue growth in the second half? It's a little early, but revenue growth the second half of the year, whether it's on an inventory snapback or new product wins in Android try to take up some of that slack. And then, Kris, maybe you could articulate how that -- how you're going to offset the margin, the natural margin dilution of Android over, say, the U.S. customer and then, of course, all mobile dilution against broad markets in the second half, if you could, please.

Kris Sennesael:

Yes, as it relates to gross margin, the gross margin profile of our mobile customers is on or about the same. And part of that is because now we are somewhat selective. We are not sliding down in the mid or low end of the market. We stay at the high end. We stay at the high-performance part. And in that part of the market, you compete based on performance. It's not a price competition. You compete based on performance. And again, that's why gross margins are somewhat the same in -- with all the customers in that segment.

Gary Mobley:

I want to start with a quick housekeeping question. What was the mix of revenue from your largest customer in the quarter?

Gary Mobley:

I want to ask Ed's previous question and perhaps a more direct way. Doing the math, it would indicate that your Android-related mobile customers are trending now at about a $400 million annualized rate or at least that was the case for the December quarter. But in the past, fiscal year '22, I believe that level is closer to $800 million. And so my question is, if we see a rebound in the Android market. And based on your design win footprint that you currently have today, can we expect that segment of your business to bounce back to the previous level?

Operator:

Our next question coming from the line Karl Ackerman with BNP Paribas.

Kris Sennesael:

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

Liam Griffin :

Yes. I mean the OVX players, we do some reasonable business there. We could probably do a little bit more on the Android side, but we really don't step down much further there. We're not in the low end at all. We could be, but I think we generate a better outcome for our customers and our shareholders to drive that mid and high end. So it's something we can do. But I think the way our business runs, I think, we're more accretive as a company going down the playbook that we have today.

Blake Friedman:

This is Blake Friedman on for Vivek. I just wanted to focus on OpEx, it seems spending has returned to levels seen prior to the industry downturn. So I was curious how we should think about the trajectory of OpEx for the remainder of the year.

Blake Friedman:

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

Operator:

And our next question coming from the line Thomas O'Malley with Barclays.

Kris Sennesael:

So no, it's not really tied to one of the businesses. But we have been bringing down the utilization of our factories in part because the revenue is down year-over-year, but also because we have been focusing on driving down the inventory, right? We are taking our medicine now. We're not just building inventory to protect the gross margin. Now it takes a little bit of time for those underutilization charges to hit the P&L. It goes through an inventory cycle, right? That's why you continue to see slightly down gross margins on a sequential basis into the March quarter. But again, we have confidence that March is the bottom in terms of gross margin, and you will start seeing gradual improvements after the March quarter.

Liam Griffin :

Yes, sure. There's a lot there, but I think I get your point. So we definitely believe there's going to be more acceleration in revenue in the broad markets. We have a roster of incredible companies that we're serving right now for Cisco to Ford, Daimler, Nest, we talked about before Google Company. It's a very diverse set of products and customers in the broad markets portfolio, and that's what we like. Each one has their own vector. And we're continuing to nurture that and grow into that. And it also have a great opportunity on the sales side because we do have quite a bit of revenue in mobile. But the number of accounts that we haven't served yet is still very, very high, and that's a great opportunity for us to go after.

Quinn Bolton:

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

Quinn Bolton:

Okay. And then for Kris, you've kind of talked about the gross margin drivers. Potentially pretty quick recovery post the March bottom. I'm just kind of curious. Is there -- can you give us any sense how quickly can you get back to 50%? Is that something you think you can do in the calendar year ‘24? And does it require you to get to a certain revenue level to get rid of some of those underutilization charges or are things like product mix, a much bigger factor as well as the cost reductions you've taken to getting back to that 50%, so it tends to be maybe a little bit less driven by a certain revenue level? Just what's the best way to think about getting back to 50%?

Operator:

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

Operator:

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and welcome to the Skyworks Solutions Fourth Quarter Fiscal Year 2023 Earnings Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President, Investor Relations for Skyworks. Mr. Gill, please go ahead.

Liam Griffin:

Thanks, Raji, and welcome everyone. Despite macroeconomic headwinds and volatility, Skyworks executed well during the fourth fiscal quarter. We delivered revenue of $1,219 million, posted earnings per share of $2.20, and generated $366 million of operating cash flow. During fiscal 2023, free cash flow was well above $1.6 billion, which reflects our efficient business model despite a challenging macroenvironment. While excess supply conditions are modestly improving in the Android market, we continue to under ship to natural demand as the industry rebalances. Within broad markets, we see softer demand extending from consumer to certain durable sectors as customers adjust to normalize lead times and reduce excess inventory. After two years of unprecedented events due to COVID and historical supply chain shortages, the semiconductor industry is returning to a normal supply and demand balance. We are responding to these dynamics by actively managing our inventory levels, making strategic investments in growth areas, and diversifying the reach of our business. We are well positioned to capitalize when demand inflects from a technology and roadmap, manufacturing capacity and financial perspective. Over the medium to long term, we remain bullish on several sectors and trends. In our mobile business and our broad markets businesses, in mobile we see opportunities to expand RF content over the coming years. On the path to 6G, we anticipate RF content increases will be driven by additional bands, enabling satellite connectivity, growing usage of uplink carrier aggregation, further adoption of 4x4 MIMO, and other innovations in RF. Switching gears to broad markets, which accounted for approximately 37% of our total revenue in fiscal 2023. We expect to benefit from three long-term secular trends. First, the proliferation of intelligent IoT connected devices on the edge. Second, the rapid transition towards electrification and advanced safety in vehicles. And third, high speed connectivity for AI enabled data intensive infrastructure in cloud applications. Within IoT, we are excited about the upgrade cycle with Wi-Fi 6E and 7. Driving additional content as incremental higher frequency bands drive more stringent filter requirements, including the need for BAW. Wi-Fi 7 has several use cases, including 8K video screaming, immersive AR and VR, cloud gaming, industrial IoT and telemedicine. Shifting to automotive, Skyworks is well positioned to benefit from the electrification and adoption of advanced safety in vehicles. According to internal analysis and third party estimates, we expect RF automotive semiconductor TAM to reach $1 billion. Within automotive, we are focused on high growth segments and content opportunities, including power isolation chips for onboard chargers, powertrains, and battery management systems in EVs. Connectivity, such as cellular engines, Wi-Fi, Bluetooth, and GPS, in-vehicle infotainment systems, driven by digital radios, and lastly, ADAS solutions for autonomous driving. We have the experience and ability to execute at scale with some of the leading brands in the world. In addition, we believe AI can be a catalyst for more efficient wireless communication and could fuel the need for more complex and higher performance wireless solutions. Over time, we expect high performance smartphones will be a critical platform for advanced AI capabilities, and in turn could spark a major upgrade cycle. Furthermore, over the past two years, we've made significant investments in BAW technology and scale, which has led us to competitive differentiation. We've expanded our reach within the smartphone market, and today, nearly 50% of our mobile revenue is tied to BAW. That's more than double from last two years. Our BAW investment has also resulted in key design wins in our broad markets business, which represents more than 10% of our business. Wi-Fi 7 is a perfect example of BAW technology being a critical requirement for the new standard. Now, turning to our quarterly business highlights, we secured 5G design wins for premium Android smartphones, including Google, Samsung, and several models in the VOX ecosystem. We accelerated design wins in Wi-Fi, including NETGEAR’s Wi-Fi 7 mesh system, Linksys 6E tri-band mesh router and TP-Link’s quad-band Wi-Fi 7 router. We expanded our reach in automotive segments by winning several designs for onboard chargers, battery management systems, and digital broadcast products across the leading brands. And lastly, in emerging IoT, we enabled next-generation smart energy solutions with Trilliant and Samsara. In summary, Skyworks continues to deliver solid results despite a challenging macroenvironment. At the same time, our advanced technology and product roadmaps are aligned to long-term secular trends, further expanding and diversifying our customer base. Our strategic customer engagement, resilient business model, and experience will help us weather through this cycle's volatility. With that, I will turn the call over to Chris for discussion of last quarter's performance and our outlook for Q1 of fiscal 24.

Operator:

[Operator Instructions] Our first question comes from Chris Caso with Wolfe Research.

Kris Sennesael :

Yes, Chris. So you have it right. We do expect in the December quarter our mobile business to be up sequentially as we continue to execute to ramp with our largest customer and as we will continue to see some further modest improvement in the Android mobile part of the business as well. On the flip side, we have our broad market business which we expect to be down sequentially as we will continue the digestion of access inventory in the channel as well as at the end customer level.

Liam Griffin:

Sure Chris, this is Liam. There's actually kind of like two dynamics there. In the mobile business we absolutely know where the dollars are and where the opportunities are and we have eyes on all that and we'll continue to drive that portfolio very strong. On the other side, the broad markets business is still a wonderful opportunity for us but unfortunately going through the semiconductor cycle and the inventory issues that we just mentioned on the call here have been a bit of a problem. Now we know how to fix it. These products are all solid but they just slow down through the channel and I think in some cases, levels of distribution and another layer between the buy and sell position can sometimes mute some of the results. So we understand it. Some of that stuff we can just handle ourselves directly and also drive more and more opportunities broadly in those markets. There's a lot of opportunity, Chris. I mean it goes way beyond what you see today. Portfolio that we've been driving with I&A business, the automotive gains. We're in data center today just a really whole different set of broad markets opportunities, but we certainly have our teams working hard to execute and demonstrate that success.

Karl Ackerman:

Yes, thank you. I have two questions, please. First and foremost, if I could just narrow down on your Android opportunity. Media Tech earlier suggested that 5G units should grow double digits next year, certainly above overall smartphone unit expectations of maybe flat to up low singles next year. And I'm just curious to hear about some of the expanding opportunities you have with China Android OEMs. I mean, you kind of mentioned how that is picking up in the December quarter and I think going forward for you. So at the same time, Huawei I think is also coming back in the market. So I wanted to hear your perspective on what is your opportunity in China Android near-term, both in the summer quarter and then, secondarily, how does Huawei impact your TAM opportunity for the China Android ecosystem, both near-term and perhaps in calendar ‘24? Thank you.

Karl Ackerman:

Yes. Thanks, Liam. Kris, perhaps a question for you. You talked about the significant amount of free cash with the generation that you had just this upcoming this most recent quarter. Are you taking a step back? How are you and the management team thinking about M&A, longer term, just given the fact that valuations have come down across the space, in areas within your broad markets business. Just any commentary on that would be helpful as well. Thank you.

Operator:

Our next question comes from Ruben Roy with Stifel.

Liam Griffin:

Yes, that's a great question and I'm glad you brought it up. We talked a little bit through the prepared remarks, but our business and automotive is actually really moving well. We're growing the portfolio. We hadn't really been in that market at all two, three, four years ago. This is another kind of nod to the Silicon Labs transaction because they were significant in that piece. We continue to do very, very well. We rattled off a number of the brands and a number of the names that are in the industry and we have design wins. We're investing aggressively. We see that as an incredible opportunity for Skyworks and we're underweight. We have the technology to win, but we're not big enough yet and so we're continuing to grow. But I would say on a ballpark level, Chris, I mean we're in hundreds of millions of dollars in terms of automotive. So it’s not, relative to the scale of Skyworks, it's not a significant piece, but on an absolute basis, it's got some real opportunity to grow and we look forward to that.

Kris Sennesael :

Yes, Ruben, as you know, we are a not only a developer of world-class technology, we also manufacture most of that technology in-house, and that's a key differentiator. That's how we win at our largest customers being able to secure the supply. As you know, we do all our gallium arsenide power amplifiers in-house. We do all our filters, TC SAW, N BAW, in-house, and we do most of the very complex assembly and packaging and testing in-house. Some parts of the business, like the business we've acquired from I&A, and some other parts of the business is being outsourced, but the vast majority is in-house. And again, that's a key differentiator for us. Having said that, we for many years we have done major investments, expanding our capacity footprint. Currently, we are focusing more on driving operational efficiencies into that footprint that is creating additional capacity for us. And so going forward the capital intensity will be much lower. You saw last year it was on or above 4% revenue. Going forward we expect it to be in the mid-single digits as a percent to revenue. And so we have a tremendous amount of upside there that will further drive gross margin improvements and stronger free cash flow.

Matt Myers:

Hey guys, this is Matt Myers on for Chris. So you guys have talked historically about 10% annual content increases. So I was curious about how we should think about it from this past cycle. And then again looking into next year, do you think you can grow content another 10 %?

Matt Myers:

Got it, that's helpful. And then on gross margins, I know you guys have had gross margins hit from lower utilizations, but curious where utilization stand now versus 90 days ago. And where do you expect them to be in the next quarter? I would assume down again, given the gross margin guide down. And how are you guys thinking about your outlook for gross margin into next year?

Operator:

Our next question comes from Tim Arcuri with UBS.

Kris Sennesael :

Yes, the largest customer was in September was approximately 68% of total revenue on a full year basis, it was approximately 66% of total revenue. Keep in mind that the vast majority of that is for the smartphone, but we also have great content in every other device that that customer brings to the market.

Kris Sennesael :

Yes, so we're not going to guide to March, but directionally you think about it the right way, right? So, and you were referring just to mobile. This is not total Skyworks revenue, but yes, mobile is down in that 20% -25% sequentially in the March quarter from our top quarter, which is the December quarter. Yes, going normal seasonality.

Edward Snyder:

Thanks a lot. So, Liam, I mean, you're underrepresented in Android today. It happened for a while, but given the pricing for many of the modules that sell in Android, especially relative to your largest customer, why shouldn't we consider gains in the Android as an increased pressure on gross margin? Because I think it's widely understood that price competition is a bit more and performance is a bit less in the Android chain and it is at your largest customer. So, I'm just kidding. I feel we talk about diversification mobile. That's it. Then I have a follow-up.

Edward Snyder:

Yes, that's been our impression too. So then if I could, on your largest customer, you had fewer modules than you had last time, and I know that's not where all content is. Clearly, year-to-year, there's increases in existing modules. But we've done the chared and a lot of it, especially the largest modules, looked to be identical to last year. So one, did you see material increase in content in existing modules? If not two, I'm just trying to get a feel for where your content gains were in the latest round, and mostly to try to get a feel for what's going to happen in the future, because if you're kind of giving up a few modules to marauder, marauder mostly, I guess, why wouldn't that trend persist in the next year? Thanks.

Operator:

Our next question comes from Matt Ramsay with TD Cowen.

Liam Griffin:

Yes. No, I got you, I appreciate it. And I'm going to start with, I think it's going to get better for everybody in the industry. I really think that we're getting through it. But one of the things that's interesting, and I'm really glad that you threw the question here, with Skyworks, we obviously, we have an incredible franchise built around mobile technology and adjacent technologies. We'll continue to leverage that. And we're very profitable in those markets with our scale, with our execution, and our know-how. But I'll tell you what, we have, as I said, a tremendous opportunity to take the technology knowhow that we have, the scale that we have, and go into broader markets. So the automotive right now, maybe on a macro level slow, but for us, would not that be where it's going to be a problem. So when you're really big and you're a 30%, 40% share player, and you get knocked down, it's going to hurt you. But when you're going from 5%, 10%, 15% to 20%, growing up into the markets, like automotive, you look at Skyworks three or four years ago, we wouldn't talk about cars at all. And now they're a meaningful piece. Adding the I&A business from Silicon Labs is only fueled more opportunities for us. So there's a lot of opportunities like that. We've got design wins and data Center now. Didn't have that two, three years ago. The Wi-Fi portfolios are really strong right now. I think everybody in the industry is going to recognize that Wi-Fi 7 is going to be a catalyst for significant growth, enabling a lot of broad categories from consumer to industrial. So we're really excited about that. We have the technology to do that today. So I think the difference is you've got mobile, and we all understand it, and everyone on this call probably has a really good view on that technology and that market. But when you go to the broad markets, the real broad markets, there are so many different endpoints. We're trying to pick and choose the right ones, but the good news is we're not heavily concent-, other than mobile. There's not a lot of concentration, so you are getting big diversified technology play at Skyworks with scale, with technology knowhow, with the ability to hit the fastballs with the toughest customers. We can deploy that across multiple markets. If we're doing that today, but it's a long way from now on how we can get even better. Our teams are excited about that.

Liam Griffin:

Yes, well, it's one of those things that's off until it's on, right? So clearly, the dynamics, it feels like 10 years have happened in one, right? A lot of activity up and down, seeing some pretty wild swings with significant companies that are really strong players. So we are fortunate, and we've worked hard to get there to deliver the kind of cash performance that will put us in position to do the right kind of transactions. And as you know, at Skyworks, we're very, very picky. But I think in this case, honestly, I think there's more opportunities for M&A and the like than I've seen in a long time. This has been kind of a really interesting time in semiconductors and in other markets. And I think the stronger going to get stronger, and I think the weaker, probably not going to do as well. And I know what side we're going to be on. So it's an opportunity for us to take advantage, leverage the balance sheet, you look at the free cash flow margins that are sustainable. I mean, these aren't one quarter stats. And so yes, I mean, we will continue to be very, I will say picky, I guess, I've run some of these transactions because we know how good our company is. So but the opportunity to step up on that is definitely there.

Blake Friedman:

Hi, this is Blake Friedman on for Vivek. Thanks for taking my question. One of the questions on the China smartphone market. I know in the past it's been hard to precisely nail down share. [Inaudible] So how do you make that determination in the future on how many orders to fulfill? So there no inventory issues thereafter just walking us through that process would be helpful. Thanks.

Blake Friedman:

Got it. And then just following up as well, just kind of domestic competition within China. I guess maybe if you can walk us through how you've seen the developments there over the past two to three years, and maybe moving forward what you think domestic competition will be like, I guess two to three years from now.

Operator:

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

Operator:

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and welcome to Skyworks' Third Quarter Fiscal 2023 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mr. Kris Sennesael, Chief Financial Officer for Skyworks. Thank you. Please go ahead.

Liam Griffin :

Thanks, Kris, and welcome, everyone. The Skyworks team continued to execute well during the third fiscal quarter despite macro headwinds, delivering in line revenue, along with solid profitability and strong cash flow. Specifically, we delivered revenue of $1.071 billion, posted earnings per share of $1.73, and generated $306 million of operating cash flow. During the quarter, we continued to advance our technology roadmap and introduced new high-performance connectivity and analog solutions while supporting product launches at an expanding set of mobile and broad market customers. As a result, we expect double-digit sequential revenue and earnings growth in the September quarter. Turning to our quarterly business highlights. In mobile and IoT, we secured 5G content for Android smartphones across all tiers. We delivered Sky5 platforms for broadband CPEs of leading North American carriers. We supported Wi-Fi 7 launches, our tri-band routers for NETGEAR and TP-Link and Powered Bell's Wi-Fi 6E home gateway. In addition, we continue to gain design win momentum with our 5 gigahertz cognitive wireless audio solutions, supporting Samsung's Q-Symphony soundbars. Across infrastructure and industrial, we enabled 5G small cell deployments with a top North American operator and ramped timing solutions for AI data centers at a leading cloud provider. In automotive, we continue to post double-digit year-over-year revenue growth while capturing design for telematics applications across a broad range of manufacturers. And we extended our engagements by leveraging our power isolation portfolio with a North American EV supplier. These highlights demonstrate Skyworks' technology leadership in mobile, while executing on a diversification strategy in high-growth end markets. Additionally, several disruptive market trends are now unleashing new meaningful growth opportunities for Skyworks. For example, generative AI is proliferating on a global scale with rapid adoption, sparking exponential growth in the amount of data accessed from the network edge to the cloud. In turn, this will further drive complexity in wireless infrastructure networks as AI will require higher throughput, more secure connections, lower latency and improved power management. Skyworks is uniquely positioned to benefit from these trends with our advanced integrated solutions, supporting wireless infrastructure, cellular connectivity for mobile devices as well as other leading wireless protocols used in billions of IoT products. With that, I will turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q4.

Liam Griffin:

Thanks, Kris. Skyworks continues to deliver solid financial results despite a challenging macro environment. At the same time, we have further advanced our cutting-edge technologies and product road maps, targeting leading market segments that allow us to both expand and diversify our customer base. In addition, we are well positioned to benefit from powerful market trends, including the electrification and automation of vehicles, the expansion of the Internet of Things, the emergence of augmented and virtual reality and the rise of artificial intelligence, just to name a few. Looking ahead, we expect to capitalize on these opportunities and deliver growth in our highly profitable business with sustainable strong cash generation. Operator, let's open the lines for questions.

Harsh Kumar :

Congratulations, Liam, Kris and the Skyworks team. Solid results and very significant leverage in the September guide. My first question was regarding your largest customer who typically comes out with a new phone in the September time frame, Liam. Can you talk about your content at that new particular phone that might be coming out this time around?

Harsh Kumar :

That's fair enough. Liam, if I can ask about your gross margin, you're working through some inventory that's affecting your margins. But if I look -- let's just say I look forward, what would be some of the drivers that you have to improve your gross margins from where they are? Would they be more sort of industry dependent such as Android and sort of handset unit dependent? Or would there more be kind of Skyworks specific actions that would be bigger drivers of your gross margin?

Liam Griffin :

Yes. And in addition to that, Harsh, as you may know, on the plus side, if you look at the cash generation that we're putting forth, very, very strong results. We're looking at 30% to 35% free cash flow, and that's sustainable. So you've got the margin hit, which is basically underutilization, but all of that has been paid for. And we have now the upside opportunity with free cash flow.

Chris Caso:

I guess just to start, a general market question, when we've been going through an inventory correction here for a number of quarters. It looks like it be the fourth quarter of double-digit revenue declines on a year-on-year basis. So where do we stand now with that inventory correction at your customers? Are we getting to the point where those customers are getting a bit back to normal? And what does that imply for the next couple of quarters in terms of revenue outlook?

Chris Caso :

Okay. And just a follow-up on perhaps, China, specifically, and that's an area where we've heard some more cautious commentary from one of your peer -- from some of your peers. Do you think that demand from your China customers has also turned the corner? And what should we expect there? What are you seeing now? And what should you expect there?

Operator:

And your next question comes from the line of Matt Ramsay from TD Cohen.

Liam Griffin :

Yes, sure. I'll give you as much as I can on that. So you mentioned automotive. That's a market that if you look back two, three years ago at Skyworks, you'd see very, very little revenue at all. We're -- now we're well above the $200 million run rate. We expect that to accelerate substantially, a lot of great IP and technology that we brought forth with the Silicon Labs transaction. And also a lot of really organic work inside of Skyworks to drive more opportunities within these vehicles. So that's going to be an important part of the business. It already is. If we look at some of these other new markets, cloud, for example, we've got design wins in that area now. We're doing extremely well in an important category in Wi-Fi 6 and Wi-Fi 7. It's going to be a grower in the industry. I think it's going to be meaningful for the RF players with Skyworks being certainly at the top of the pack. And it's just a lot of general diversified products that we came in with the slab transaction that just very, very broadly, which has a number of design wins across multiple categories that's also growing. So good stuff there. Plenty of room to go. I mean all these markets that we're dealing with have pretty, very significant TAM opportunities for us to grow into. So we're excited about that. We've made a lot of strategic additions in our sales force as well to try to penetrate more of these new markets and create that diversification vector. So we feel good about it. And we're just going to have to -- you're going to have to see it in the numbers, but we're certainly driving to those outcomes and expect we can do it.

Kris Sennesael :

Yes. Thanks for that question. And so we can't control the macro, right? And we can control some of the softness in some of the end markets that everybody industry is going through, but we can control, of course, our own operating expenses and the investments that we make in the business. And there, again, we're not hesitating. We are going to continue to invest and play to win. But at the same time, we're going to continue. And Skyworks is pretty good at that, continue to focus on efficiencies and really spending the dollars where we get the biggest bang for the buck. And as you saw from the prepared remarks, we have been able to trim down a little bit the OpEx, again, without cutting into our key technology development and product road maps, just focusing on effectiveness and efficient processes. Some of that was also we reduced a little bit of the variable compensation because of the top environment that we play in. That will kick back a little bit as we start the new fiscal year in the December quarter. But overall, I feel good about the level of spending that we do in support of our growth.

Edward Snyder :

A couple of questions, if I could, please. First, there's been a lot of talk earlier this year that Skyworks is going to lose some share in Wi-Fi and the high-end handsets, not the CPE units or the stuff that goes into homes with handsets. And I guess there's some basis for that given how much content you have. I think you have and have had all the remote PAs for both 5-gigahertz and 2.5 as well as some flagship phones. Maybe you could provide a little color on that. Should we expect your share to moderate a little bit in the second half of this year? Do you feel like you're not giving up anything there given kind of your dominance of that space over the last several years, actually?

Edward Snyder :

Okay. And if I could, the transmit DRx module, which is quickly -- it already has become one of the most lucrative modules and some of the high-end phones out there. You guys kind of own that space, but it's been really clear in the last year or so, that the competition for that spot has increased dramatically. I think even Avago is now trying to get into that. I know Qorvo tried to fill a piece. Qualcomm's always talked about, et cetera. Incumbency has a lot of inertia with it. We've seen that year after year after year in iPhone. Is that still the case of this? Because the flip side of this, we haven't seen incumbency really help anybody in the ultra-high band. That shares bounced back and forth. You had some of it last year, Qorvo and Avago split it. This year, Qorvo is getting a little bit. So I'm just trying to get a feel for is incumbency worth more in the transmit diversity section, do you think -- and think you'll continue to dominate that spot?

Operator:

And your next question comes from the line of Vivek Arya from Bank of America.

Kris Sennesael :

Yes. So the largest customer in the June quarter was approximately 64% of total revenue when -- if you do the math correctly, you will see that's kind of flattish, slightly up, maybe 1% on a year-over-year basis, which clearly illustrates that we continue to win big with that large customer. And as you indicate, yes, we went with that customer, not just at the phone, but in every product that they have and every product that brought to the market and that they will bring to the market in the future. And so you will find not only Skyworks content in the iPhone, but you will also find it in the iPad and in the iMac and in the home part and in other products that it will bring to the market. And that's roughly on or about 15% of that revenue with the customer.

Kris Sennesael :

Yes. So currently, it's very low, right? As you point out, yes, China is less than 5% of our revenue. Samsung is less than 5% of our revenue. We still have Google, but also currently less than 5% of our revenue. As we all know, there is inventory overhang at most of those customers, they -- especially inventory overhang at the phone level that needs to be clear, it's improving. We see higher demand, higher bookings from those customers, but it's improving slowly. Eventually -- and it's hard to predict the timing, but towards the start of 2024 that will be done and then there will be tremendous upside for us because we continue to win designs with those customers. And again, as that business will start ramping again, we are well positioned.

Christopher Rolland :

Thanks for the question. I would love to get into inventory and DOIs and play into your gross margins and underutilization. You kind of hit on this, but would love a little bit more detail in terms of your outlook longer term. So ultimately, where do you guys want your DOIs to go? When do you think you can get there? And I believe the assumption should be gross margins would kind of hang around here for a while until you reach that level? Is that the correct assumption?

Christopher Rolland :

And perhaps one for Liam. You guys haven't emphasized at least on your call, your opportunity in BAW in some time. How are you guys feeling about that? I think you guys have done well, putting it into diversity receive. But would you expect some standalone BAW opportunities to kind of move the needle this year?

Operator:

And your next question comes from the line of Joe Moore from Morgan Stanley.

Liam Griffin :

Yes. It appears that Huawei is really off the shelf right now. So it's not even in the forecast. Having said that, there's still opportunity for the China market to grow. Kris mentioned it a little bit. We talked about the opportunity for Android to turn back up and you get the Oppo, Vivo, Xiaomi players. So there's a lot of opportunity there. But Huawei itself as it is at this stage, it's really a nonstarter, could change. But in today's environment, it's really not a customer that we're working with.

Srini Pajjuri:

Kris, you alluded to the December quarter growing as well. So given that we're coming off of a cyclical trough in Android, should we expect December to be somewhat about seasonal? If you can talk about directionally how you're thinking about December? That will be helpful.

Srini Pajjuri:

Okay. Got it. And then maybe for Liam. Liam, there has been some news about China banning gallium and the germanium exports. Just wondering, given a lot of your products you use those materials. Just wondering if there's any impact that you see in the short term on that.

Operator:

And your next question comes from the line of Karl Ackerman from BNP Paribas.

Kris Sennesael :

Yes. So obviously, September is a very strong mobile quarter, especially with the content that we have at our large customer and a big ramp that we have supported over the last 10 or 12 years. And so most of the sequential growth in the September quarter is coming from our mobile segment broad markets might be flat to slightly down a couple percent on a sequential basis for the reasons that you just mentioned, right, there is a little bit of inventory overhang in some of those end markets, very similar to what our peers and competitors have indicated over the last two weeks at their earnings calls. We are obviously not immune to that. Although, again, I think our broad markets business, we are -- as Liam indicated earlier, we are well positioned. There's a couple of spots, including automotive, right? That continues to grow double digit year-over-year. But overall, there's a little bit of inventory overhang that needs to be flushed out in the next couple of quarters. And then broad markets will start growing faster as well.

Kris Sennesael :

Yes. And maybe first, a clarification, right. A lot of the inventory overhang for -- as it relates to Skyworks is not in the distribution channel at the component level. We typically manage that proactively and try to keep inventory at the component level, at a healthy level. The issue is more that certain customers put components into products and then the products didn't fully sell through to the end customers at the level they were expecting. And so that needs to burn off. As I said, like it's probably going to take a couple of quarters. But to your point, yes, once that is done, business will come back and will probably come back stronger as we will transition from under shipping to potentially shipping in line with end customer demand, and that will, by its self, fuel the growth.

Ruben Roy :

Liam, when you went through the segments or the various units in the broad markets piece, you didn't talk about communications infrastructure. And I think that historically, if you look at core Skyworks and then you add on top some of the timing stuff that you got from the I&A acquisition, that was probably a decent chunk of the business. And so I was wondering if I'm right about that. And then secondly, if you can give us an update on what you're seeing. It sounds like that's a pretty tough market right now and not a lot of visibility rest of this year and maybe even into next year. So would love to kind of understand how you're thinking about that business.

Ruben Roy :

Okay. Okay. And then I guess just as a quick follow-up, Liam, kind of another high-level question around sort of the macro and how you weigh that against design activity. It sounds like things are going well in some of these new areas that you're addressing, auto. Obviously, Wi-Fi has a cycle coming up. But I mean, generally, outside of mobile, if you look at broad markets, how would you assess design activity sort of as you look into the second half of the year versus maybe this time last year?

Operator:

Thank you. Mr. Griffin, there are no further questions at this time. Please proceed.

Operator:

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.

Operator:

Good afternoon, and welcome to the Skyworks Solutions Second Quarter Fiscal Year 2023 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.

Liam Griffin:

Thanks, Mitch, and welcome everyone. The Skyworks team executed well in a challenging market environment, delivering second quarter revenue above consensus estimates with solid profitability and strong cash flow generation. Looking at Q2 in more detail, we delivered revenue of $1.153 billion. We drove gross margin of 50%, and operating margin of 33.5%. We posted earnings per share of $2.02 and we generated $412 million of operating cash flow. In addition to the financial results, we expanded our design-win pipeline, reflecting our success in diversifying our customer base and product portfolio. Across mobile and IoT, we delivered Sky5 platforms for Samsung's newly released smartphones, we launched WiFi 6E and WiFi 7 gateways for CommScope and ASUS, and we secured 5G content with a mobile computing leader. Across infrastructure and industrial, we enable small-cell deployments with the Japanese telecommunications company. We provided enhanced Power-over-Ethernet functionality to Cisco for their enterprise networks. We shipped programmable timing solutions to the top U.S. satellite provider and leveraged our expanding industrial product suite with the leader in smart meter technology. In automotive, we continue to post year-over-year revenue growth, while capturing EV onboard charging content with a top European supplier, and ramping digital radio products with a leading Korean OEM. These engagements highlight the increasingly diverse and expansive nature of our business, supporting the broadest array of customers and applications in our history. Several key market trends underscore the growth potential of advanced connectivity in the rapidly evolving EV industry. For example, WiFi continues to expand globally as the world's most affordable method of connecting the unconnected. Cisco forecast that number of hotspots worldwide to reach 600 million this year. And as a market leader, Skyworks is uniquely positioned to benefit as deployments expand and the shift to WiFi 7 drives increasing complexity. In addition, the average U.S. household today has more than 10 wirelessly connected devices. Each of these devices requires fast connections, low latency and efficient battery life. All enabled by our integrated solutions. Further, the market for electric vehicles is expected to expand four-fold by 2027, leveraging our power isolation platforms, which are becoming a leading choice for global EV manufacturers. Skyworks' success in enabling these major technology transitions is underpinned by increasing demand for our leading-edge systems solutions, differentiated by performance, integration, and most importantly, customer value. Moving forward, Skyworks is strategically equipped to capitalize on the rapidly changing connectivity landscape with an expanding set of customer relationships built over more than two decades, global scale and world class manufacturing capabilities, a seasoned and talented workforce with a proven record of execution across multiple semiconductor cycles, and an efficient cash flow engine that funds innovation while providing consistent cash return. With that, I will turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q3.

Liam Griffin:

Thanks, Kris. Skyworks has delivered solid results through the first half of our fiscal year, demonstrating strong profitability and record free cash flow generation. With deep customer engagements, underpinned by decades of technology investments in scale, Skyworks is well-equipped to lead and continue to outperform. Moving forward, the Skyworks team remains focused on driving operational efficiency while leveraging leading-edge technologies to capture opportunities across a dynamic market for connectivity. That concludes our prepared remarks. Operator, please open the line for questions.

Ambrish Srivastava:

Hi, thank you very much. Excuse me, Kris and Liam, you guys have spoiled us. I've to go back -- I don't know, eight, 10 years to see a four-handle on gross margin, and you have navigated through many quarters of sequential decline, even I'm going back 10 plus, 15, 20 and you have still been able to hold margins. So my first question is, what's going on on the margin front? Is it pricing, is it something structurally different this time versus now going back to last eight, 10 years?

Ambrish Srivastava:

And my -- just my follow-up is on the gross margin side -- inventory you're sitting at 185 days. And target level is 85, if I remember correctly, two years ago or three years ago, you had given that to us. So, if it has to come back to that level, then that headwind could sustain for more than a quarter, it could be a couple of quarters before inventory at least two, three quarters before it normalizes. Am I thinking about it the right way?

Operator:

Your next question comes from Blayne Curtis with Barclays. Please go ahead.

Kris Sennesael:

So the largest customer in March was approximately 64% of total revenue. And in terms of inventory, they manage their supply chain very well.

Liam Griffin:

Yeah. Blayne, I mean, we definitely continue to diversify the broad markets portfolio. It continues to be very strategic for us. We're capturing new design wins every month. Automotive has been strong, we've got a little bit more action going in WiFi 7 and also in some of the infrastructure market. So that business is looking really strong and also the contribution from the I&A portfolio continues to track well. So, still a lot of bright spots there. And the other side of the business, obviously, Kris mentioned, some of the unique headwinds in mobile, but there are also some really dynamic activities going on in the broad market space.

Vivek Arya:

Thanks for taking my question. I wanted to go back to where Skyworks is being the inventory issues. Because Liam and Chris, I remember you guys are very early [indiscernible] and prudent to recognize the weakness in the China market last year. So, I thought you had already taken care of the Android issue. And any new issues what come with your largest customer. So I just wanted to reconfirm that the weakness you're seeing right now is still Android and not at your largest customer?

Vivek Arya:

Got it. And finally, a follow-up. The fact that you are reducing factory utilization ahead of what is typically your strongest seasonal quarter, should we also be toning down our expectations of mid-teens plus kind of sequential growth that you usually have in September, given all these macro factors?

Operator:

Your next question comes from Karl Ackerman with BNP Paribas. Please go ahead.

Kris Sennesael:

So not in the Android ecosystem, we are still shipping below consumption, because they still are burning through excess inventory at the phone level.

Kris Sennesael:

Right. So this is -- as I've said before, this is a multiple-quarter event because it just takes time to -- for those underutilization charges to actually hit the income statement right. It goes through inventory turns until it hits your income statement. But we are seeing the soft demand environment in Android, it's improving, but slightly slower than expected. We are reducing inventory at the same time. And so, this is a multi-quarter event. In terms of excess and obsolete, we don't see any major risk, we've managed pretty well through that.

Operator:

Next question comes from Gary Mobley with Wells Fargo. Please go ahead.

Liam Griffin:

Yes. Yes. I mean we can't give you the specifics, but we absolutely aspire to drive a better position in the second half on continuing to cement new programs that we'll get into 2023 and 2024.

Kris Sennesael:

Yes. So we have been doing that. And you know at Skyworks we have been doing that consistently in the past. We add head count when needed in support of our technology and product road maps. And when things are getting tougher, we adjust. And we've made some downward adjustments in that area as well, of course, making sure that we can continue to support our major customers, our major programs. And it's really focusing on driving operational efficiencies and trying to trim down some discretionary spending. That's what we focus on.

Edward Snyder:

Thanks a lot. I'm a little confused, Liam. Maybe you could clear it up. Do you expect that [model] (ph) to see content up or down or flat in the second half of this year?

Edward Snyder:

Sorry, I'm just -- I'm not looking for revenue guidance at all because I just got all tangled up with macro and units and all that. I'm just looking at content in terms of new model releases year-over-year in the second half. Do you expect your content to be up? Or should we expect it to be flat or down?

Edward Snyder:

So in a fantasy world, the flat units year-over-year, no change at all? You would naturally expect to be higher in revenue to largest customer in the second half of the year?

Edward Snyder:

Perfect. Okay. And then on the Android, I know it's still kind of a mess. But there are some architectural changes going on at some of the flagship phones, even the low-end phones that are involved. I don't want to say integration, but more higher density modules that will show up probably in the next year or so. I know Skyworks has kind of avoided some of that competition in the past just because there was ASPs associated with it. But given that it kind of separates you from a lot of the domestic suppliers in China, is it like -- is it reasonable to assume that Skyworks would participate more aggressively in the Android food chain, say, in 5G smartphone with their entry or flagship in the next two years?

Operator:

Your next question comes from Harsh Kumar with Piper Sandler. Please go ahead.

Kris Sennesael:

Right. Harsh, we don't have a specific number on the number of excess inventory on the handset level. But it is a couple of quarters, right? And initially, we anticipated it to be a couple of quarters, but now it might be a couple of quarters more. And that's what we -- that's the feedback we are getting from the customers. That's the feedback that -- and remarks that we see by our peers and competitors.

Kris Sennesael:

Right. So our broad markets business will be slightly down on a sequential basis into the June quarter. Again, it's -- as Liam already talked about that, right, we see certain areas of strength in automotive, some of our industrial markets. But there is some inventory overhang in some of the more consumer enterprise-oriented markets, again, very similar to what has been mentioned by peers and competitors that play in this field.

Operator:

Your next question comes from Ruben Roy with Stifel. Please go ahead.

Liam Griffin:

Yes. Sure. Great question. As you know, we actually hadn't done much in automotive two, three years ago, and we're now really making great progress. So the good news there, there's a tremendous amount of new territory that we can cover in automotive. We've already won a number of platforms and programs with key OEMs, EV players, et cetera. The partnership with our I&A business has been a real catalyst there as well for us. So it's a fast-growing part of our portfolio. It has tremendous upside. We have low share relative to the pie. And that's going to make for pretty dynamic opportunities as we go forward. And it's definitely a grower for us this year. Despite all this inventory stuff we talked about, the auto market will definitely grow.

Liam Griffin:

Yes. Well, I mean, as you know, we've been focusing more high end, mid-tier, et cetera. But obviously, now the good news is that our customers want better performance. So we had been a little bit more cautious in engaging in some of the lower-end markets, but some of those products now and the appetite for connectivity is raised, which makes it much more profitable and more in the kind of down the alley for Skyworks. So you're going to see more opportunities for us emerge in the Android cycle. Samsung is doing a lot better. Google is a player now for us. We're doing a lot there, and obviously, the players in China. China has been a little tough, but I think that, that will come back and that will be another catalyst for us. So we know how to make all that stuff and the stuff is not new at all. We know exactly how to handle it. Automotive, again, is a new market that we're doing very well on. And I think we get through some of these macro headwinds, we'll be able to really kind of shine a light on some of these strategic design wins that we have.

Harlan Sur:

Good afternoon. Thanks for taking my question. On broad markets, I think 90 days ago, you guys had anticipated driving full year growth in this segment. But as you just mentioned, you've got dynamics in the consumer IoT market. I think even data center enterprise, telco markets have continued to soften a bit here. So does the team still believe that they can drive full year growth in broad markets?

Harlan Sur:

Perfect. And then the team has done a great job proliferating your filter technology. I think last year, I think the team drove about 45% BAW filter attached to your mobile revenues, right? Given the design win pipeline for this year on new model launches in the second half, where do you see that attach rate moving to?

Operator:

Your next question comes from Kevin Cassidy with Rosenblatt Securities. Please go ahead.

Kris Sennesael:

Yes. So a lot of it will depend on how strong the business will bounce back. And once we start seeing -- we already see it, right, some of recovery in the Android market. Once that gets stronger in combination then, of course, will continue to grow our broad markets business, as we just indicated, and doing well with our largest customer, we will start ramping up the factory utilizations. But as I said earlier, it's a couple of quarters and then that will bounce back.

Liam Griffin:

No. The equipment is there. I mean, we basically -- we know how to handle that, the capital, the scale, all that's ready to go. This is just more of a demand issue, but we know how to handle it. And there's going to be a tremendous amount of activity that will go through those cycles and go through those factories leveraging that capital, which is in great position and has a tremendous opportunity over the next several years to populate not only smartphones, as we said, but other bulk acoustic wave type of engine.

Matt Ramsay:

Thank you very much, guys. Good afternoon. I guess for my first question, some of your peer companies that also have some pretty high revenue exposure to your largest customer talked about a dynamic of maybe them buying a bit more early in this calendar year, pulling in some of their own inventory purchases and leaving a bit of air pocket before things ramp in the back half. Are you guys -- is some of the stuff reflected in the guidance that type of dynamic? Or am I -- or is it more lean toward Android as you've mentioned in some of your prepared comments? Thanks.

Matt Ramsay:

Got it. I guess, Kris, I wanted to ask a longer-term thing as my follow-up, and it's on free cash flow. You mentioned that some of the utilization charge, things that are going to happen in the short term with the factories are not cash flow hits. But given the dynamics in the business, could you talk a little bit about how -- are there any specific floors of free cash flow that you're managing to in terms of a free cash flow percentage? And just how do you think you plan to manage the business over the next two, three years on a cash flow basis? I think that would be helpful. Thanks.

Operator:

There are no further questions at this time. Please proceed.

Operator:

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Operator:

Good afternoon, and welcome to the Skyworks Solutions First Quarter Fiscal Year 2023 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.

Liam Griffin :

Thanks, Mitch, and welcome, everyone. Skyworks delivered solid first fiscal quarter results with revenue exceeding consensus estimates, strong profitability and record cash flow performance. Looking at Q1 in more detail. We delivered revenue of $1.329 billion, drove gross margin of 51.5% and operating margin of 37%. We posted earnings per share of $2.59 and we generated $773 million of operating cash flow, a quarterly record for Skyworks. In addition to the solid financial results, we expanded our design win pipeline in several emerging high-growth segments. In IoT, we extended our broadening technology portfolio across a growing customer base. We partnered with AT&T to launch their first WiFi 6 gateways, unveiled the industry's first WiFi 7 networking system with TP-Link and leveraged our advanced connectivity portfolio to support 6 gigahertz fixed wireless access points at Cambium Networks. Across infrastructure and industrial markets, we integrated Power-over-Ethernet functionality in Cisco modular switches for enterprise networks. We ramp timing platforms to meet high precision and speed requirements for the leading data centers. And we delivered frequency generation and clock distribution technology for 5G massive MIMO deployments. In automotive, we achieved our sixth consecutive quarter of record revenue, strengthening our EV design win pipeline with onboard charger content at a Japanese automotive supplier. And securing design wins for digital radio platforms with a top European OEM. Moving forward, the rapid expansion of mobile network traffic, advances in cloud and edge computing, IoT and the electrification of vehicles are major trends that drive complexity and demand for our highly integrated and customized solutions. A few highlights underscore these remarks. Wireless connections continue to proliferate with mobile network traffic doubling over the past two years. Market estimates project over 25 billion IoT devices to be installed by 2027. The automotive industry is undergoing a revolutionary shift towards electrification of autonomous vehicles with EVs projected to make up over 30% of the U.S. market by 2030. Skyworks is well positioned to capture growth upon these opportunities in transformative markets, leveraging key technologies, human capital and significant scale. Collaborating with our partners and customers, we are leveraging key technologies from PC soft to high-performance bulk acoustic wave filtering, gallium arsenide and state-of-the-art packaging. These skills and capabilities position Skyworks to play a leading role in this fast evolving, rapidly growing landscape. With that, I will now turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q2.

Liam Griffin :

Thanks, Kris. Skyworks delivered solid first quarter results, demonstrating strong profitability and record free cash flow generation. Importantly, our technology-centric operational scale and expanding set of innovative solutions are fueling a robust design win pipeline, positioning Skyworks to continue to outperform. Despite a challenging macro environment, Skyworks remains well positioned with the most diverse customer and solution set in our history, a technically seasoned and talented workforce, a strong balance sheet and predictable cash generation underpinning our ability to fund future opportunities while returning cash to our shareholders. That concludes our prepared remarks.

Operator:

[Operator Instructions] Your first question comes from the line of Ambrish Srivastava from BMO Capital Markets.

Liam Griffin :

Sure. Yes. This is Liam. Of course, at Skyworks, we're a very operational-centric and technology company together. And a lot of our products, the lion's share of our products are done in-house in our own fabs and our own assembly and test locations. So we have really good eyes and ears on the balances here whether it be inventory on our sites or even with our partners. So we are very, very careful to ensure that we are aligning our revenue with natural demand. We always want to be right on step with our customers. I think our teams have done an incredible job. There are markets today right now that -- there has been some excess inventory, and we're just -- we're letting that bleed down. And our exposure there is extremely small. Some of the markets in China are a little bit more volatile. But in those cases, we have very little exposure. So I think it's important to note that we can control our ship and our products, working with the best customers out there, lots of great communication with our customers as well. So everybody is on the same page, and we feel really good about that. And I think it's something we'll continue to work through and be well positioned for the back half of the year.

Operator:

Your next question comes from the line of Blayne Curtis from Barclays.

Kris Sennesael :

Yes. So as it relates to the large customer revenue with that large customer was approximately 68% of total revenue. That clearly demonstrates great execution by the team supporting that large customer in the ramp of their new phone lineup. We have some great content in that phone, some really high-performance complex devices, many of those devices leveraging our bulk acoustic wave filtering. And so I think we did really well in the December quarter despite the fact that, as you know, the large customer talked about that, they were somewhat supply constrained due to some COVID-related issues in China. But the team here executed really well in December with that customer.

Blayne Curtis :

And then I wanted to ask you on broad markets. Whether you think that business would be up in March as part of the guidance? And then I know you had a record I&A quarter in September. Just kind of curious how that business is doing trajectory-wise?

Operator:

Your next question comes from the line of Gary Mobley from Wells Fargo.

Liam Griffin :

Yes. I think we are engaged with all of the relatives and meaningful applications. And I think if you're referring to Satcom, is that right?

Liam Griffin :

Yes, sure. Absolutely. So we have the technology, the IP and kind of the building blocks to make that work. It's an early -- it's still early in the global market, but it's definitely an opportunity to bring more scale to units. And so we definitely are -- we're engaged, we're involved. We have the technologies to make some of these work. We also have the partnerships with the companies that can do some of the -- kind of the groundwork to have that network evolve. And it would be a great opportunity for a company like Skyworks. We have many of the building blocks. We understand in the radio frequency space deeply and in the Satcom world as well. So it's an evolving opportunity, and we'll definitely be at the table we are today, but more upside to come as the markets evolve.

Kris Sennesael :

Yes, Gary. As indicated before, we have been managing this proactively for many quarters right now. And we are adjusting our factory loadings all the time, depending on the demand that we see. And of course, the earlier you do that, the more attractive you are, the more you can take the time to, of course, accordingly adjust your cost structure, taking out cost where needed. While at the same time, of course, continue to work on operational efficiencies, yield improvements and so on. We've done that with our internal factories. We've done that with our third-party purchases and vendors as well. Having an open dialogue, making sure we have, on one hand, enough capacity in place, but at the same time, not overcommitting as well. And I think the team has executed pretty well on that.

Toshiya Hari :

Liam, I was hoping you could provide a little bit more context, a little bit more color around your broad markets business. I think you talked about record revenue in your automotive business and strength across comms and the industrial end market as well. But specifically, I was hoping you could size those individual buckets within broad markets in calendar '22 where you landed from a revenue standpoint across those key end markets? And how you're thinking about the forward? And on the forward, I guess, the commentary on automotive from most of your peers continues to be pretty bullish and pretty positive. But there are signs of moderation in comms and industrial. So I was hoping to hear what you're seeing in those markets as well.

Toshiya Hari :

Got it. And then as a quick follow-up, one for Chris on gross margin. In the December quarter, your margins came in in-line. They were up a little bit both sequentially and year-over-year despite revenue declining both sequentially and year-over-year. So curious what were some of the positive offsets in December? And then more importantly, for the March quarter, you're guiding gross margins down, I guess, roughly 100 basis points, give or take. I mean is that primarily revenue or something else going on?

Operator:

Your next question comes from the line of Matt Ramsay from Cowen.

Liam Griffin :

Sure. Sure. This is Liam. The good news here is the broad market portfolio is very diverse, extremely diverse. And it's leading towards a lot of great opportunity in many different end markets. So we have a pretty decent play there. And our teams on the operational side are highly sophisticated, we have our own supply chains. We do most of our stuff in-house. So we have a really good read on inventories are and where they should be. And I think we're managing it quite well. There's certainly some pockets of inventory out there, but really nothing that's going to impede the progress of the business. I think the really cool thing is the number of new customers that we're bringing in. And there's a mix issue when you're doing kind of the $10,000 and $20,000 accounts versus the $1 million accounts that you may have in some of the smartphone space. So a little bit of a different play. But the diversification, the margin profiles are outstanding. And like you know, Skyworks is an operator. We do just about everything in-house. And the ability to do that also includes great supply chain management, our sales teams being online, understanding where distribution plays versus direct, there's a lot of angles there that we can control. It's not easy, but it's the way we work this business. And I think we're starting to really see the benefits there in broad market and the diversification. We've talked about a few major new segments like automotive. Automotive is really tough. You've got to get certification. You got to prove your ability to execute in challenging environments. There's a lot there. We've done all that work. And we've really kind of flexed our muscles in some of the tough cases in mobile over the years, but those -- the efforts there and the knowledge that we've built is applicable for so many other markets. So we look forward to it. There's always going to be a couple of bumps and a few wrinkles, but the diversification is playing well. The customer set is growing. And the lion's share of our top tier customers are really accounts and companies that matter. So we're looking forward to more as we go forward.

Kris Sennesael :

Yes. No, we -- our broad markets business, as you know, it's a $2 billion -- on or about $2 billion business on an annual basis. And despite some of those macroeconomic headwinds and challenges and somewhat softer demand and maybe a little bit of inventory correction that is going on, we do believe that we can grow our broad markets business this year. And I'm not going to repeat what Liam just said, but we have strong design win momentum. We play in some high-growth markets with some really key technologies. And based on all of that, we do believe we can grow our broad markets business.

Edward Snyder :

Sounds like you're doing very well at your largest customers and you plan to do well again this year. But a real quick question about Samsung and first of all, did they broach 10% this quarter? More importantly, both in Samsung and in China, you've kind of missed a falling knife there because you don't really participate very much at all. I know that Samsung is converting over to modules in the masters, et cetera. What are your prospects for, let's say, revenue growth because everything is going to be content growth, specifically at Samsung this year because phone demand slowing for them, the ASPs in their flagship are way below where they were when they were doing a custom design. I know that the flip side is true for the master, but you don't play bigger than master. So I'm trying to get a better profile of what you think seriously could occur this year, calendar year '22 at Samsung given all the different moving parts and the fact that luckily you weren't playing much there at all in the last year or two. And then if you maybe you could break that down between flagship and master, what you think about each of those prospects, that would be helpful. And then I had a follow-up, please.

Liam Griffin :

Yes. I mean it's -- look, Samsung is a major player in the industry, and I think they got banged up a bit here in the cycle as did some other Android players. So we've been working through that, Ed. And the irony is like we've actually got some pretty good content in those phones. And so we look forward for the inventory to get cleared and we'll be up and to the right in terms of our business there. But I think some of that is just the volatility that the semiconductor industry and even beyond, I mean, the technology industry is going through and trying to sort through ways to get back on their feet, so to speak. And we're very focused on our own inventory and our own supply chain. So we have eyes and ears. We never want it too hot or too cold. We want to be able to deliver what the customers want. We stepped back a bit on Android as the inventory levels were building in the channel. We didn't want any part of that. Samsung is a great, great customer. Just having some bumps, we're going to work with them and ensure that we can do everything we can to help not only on the technology side, but even on the fulfillment side. So I think that's a temporary blip, honestly, I think Samsung is going to continue to do very well. They're a significant company with a lot of technology and the markets in Korea are very dynamic in cell phones and technologies that we make are vital and viewed as a really critical asset for a person there. So we think that's going to flow over and we'll start to see more accretive revenue in the second half.

Liam Griffin :

Yes. No, that's great. That's great. I mean you know the business and you know the technology. So the nice thing here is I felt like some of the technologies were ready to go, but the market wasn't there, right? The appetite, the consumer appetite or the customer appetite wasn't really jumping all over this technology. But now you're starting to see, as we get more and more nodes and we're starting to get more efficient in delivering high-speed data and it's just becoming an opportunity for us now for -- at a more broad level. And I think you're going to see a small set of players of which we're going to be one, of course, that can do what needs to be done with these incredible customers. I mean the customers today, it's changed so much from a standard cell phone that needs the requirements, the current consumption, the ability to run globally, it's becoming more and more complex, and we love that. That's exactly what we want to see. We want to solve the tough problems. You know from the technology side, and this stuff is not easy, right? When you're bringing in all these disparate technologies into one simple module, apparently simple, right? It's really hard to do. And it's one of the things that our teams here at Skyworks love to do, our technologists, our operational team, all the way to sales. And so we love that opportunity. We love that complexity and the more use cases that emerge are great for us.

Operator:

Your next question comes from the line of Chris Caso from Credit Suisse.

Kris Sennesael :

Yes. I think that's fair. December was low. March will continue to remain low as especially China, Vivo, Xiaomi and to a certain extent, Samsung as well are still going through this inventory burn-off process. But then I think we will start seeing some improvements in the June quarter and then for sure, in the back half of calendar year 2023.

Liam Griffin :

Yes. I would -- definitely, Chris, we're expecting double-digit top line in the broad markets for sure, mid-level top line, and we should be in the teens, I believe, given what we can do, what our products look like and obviously, when the air gets cleaned, the markets will be stronger. I think we're going to be in great shape. And then even on the mobile side, there's a lot of invention and unique technologies that are being brought up in mobile that people haven't really seen yet, but the best customers in the world know what they're doing, and there's a lot of incredible opportunity. For the right types of technologies and the technologies that we make are those technologies. So I think we're going to have a nice combination with, again, our strength in mobile, which is a disciplined approach. We know what we're doing. We're working with the right people. It's not easy. We've made great steps in capital. A lot of our CapEx is behind us right now. It's another key point. We talked about the free cash flow on the call already. And then the diversification theme, Chris, is really playing nicely. You heard questions about satellite, for example, you look at the broad markets. Think about our hundreds of millions of dollars of automotive revenue that we didn't have three or four years ago. So we are -- we have really core technologies that we can take across a broad set of mobile and connected devices, but this is an extrapolation now of new applications. That is really driving the business. And you're going to see more and more of that as we go through it. It's unfortunate right now that the market is just -- we're all in kind of a bit of a slowdown here as we’re emerging, but we've got great stock that's ready to go and design wins that have been cemented, and those will roll out in the second half of the year for sure.

Karl Ackerman :

Two questions, if I may. First, I know you have little exposure to China Android right now. But one of the investor concerns is that you may have lost content and so perhaps you won't receive as much of a snapback as some of your peers when China demand eventually recovers. I was hoping you could address why those concerns might not be warranted? I have a follow-up.

Karl Ackerman :

Very clear, Liam. Kris, if I may, a question for you, more of a simple one, I suppose, but what's driving the big step down in CapEx in December? And I'm curious if this implies anything for content as we think about calendar '23.

Liam Griffin :

Yes. Just to reiterate that, the capital base that we have, okay, is -- it took a long time to get to this scale. We did a tremendous amount of work, brick-and-mortar, site level in our own facilities, and it positions us now for kind of a downhill run from CapEx. We still have great technology, great equipment, but it's brand new, right? So we spent that money over the last four or five years, strategically to build up a competency in bulk acoustic wave and other filter technologies, very, very difficult stuff. It's not available in the merchant market. So it was a make versus buy approach. We did the make. And so we developed solutions that are purpose-built for Skyworks and purpose-built for our customers. The great news is the capital is up and running. It's humming along. And sure, there'll be incremental CapEx spend over the next several years, but it won't be at the level that you look back in the last three or four because now those investments are in-house, at scale and running.

Brett Simpson :

Liam, I wanted to get your perspective on new 3GPP Release 17 and also WiFi 7 using 6 gigahertz. And when it comes to these upgrades, when do you think they're going to ramp more broadly, particularly in smartphones and consumer devices? And then just maybe from a business perspective, how should we think about the overall RF content when you start to scale up WiFi 7 and Release 17 5G versus today's devices. It seems to be quite big architecture changes. So I was just curious how you think about this and the extent to which Skyworks could benefit.

Brett Simpson :

And is there a meaningful step-up in content, Liam just -- I mean, WiFi 7,for example, I think 6 gigs and quite a lot of changes on the modulation side and the MIMO side. So I'm assuming this should be a fairly healthy step-up in IF content base. I don't know if there's any numbers you can sort of here with us on the upgrade to WiFi 7.

Brett Simpson :

And maybe just one quick one for Kris. Just on the BAW filter, CapEx moderating. Can you talk a bit more about where the capacity for BAW looks today? And how should we think about Skyworks addressing 6 gigahertz with your BAW technology? And are you able to address that going forward?

Operator:

Your next question comes from the line of Harsh Kumar from Piper Sandler.

Liam Griffin :

Yes, yes. Good question. Well, we've always been -- we'll work with anybody that needs our technology. We'll partner with anyone. So there really isn't any bias around where we're going to go in our markets. But China has been a challenge, I think, for ourselves and the peers in the U.S. here. And you think about even back to the Huawei situation with Huawei shutting down, that was a big business for a lot of companies in our space. It's been a volatile market operationally and some of that is COVID and all kinds of things going on. But the technologies and the work that we're doing is applicable for anybody, right? There's no reason why -- I mean the China opportunity is as good as any opportunity. But unfortunately, there had been some inventory here that we've all talked about, not specific to Skyworks, but just in general, where the markets kind of got out of sync and created a bit of an inventory overhang. And that kind of weighs on the sector, I would say. But turning it back to Skyworks, you've heard us talk about our operational efficiencies and our know-how and labs, the fabs approach. It's not -- those aren't just words. That's how we run this business. So we're very keen on what we're doing with our customers. We want to be great partners, but we also want to stay in sync with the market, right? That's really important for us. And this is just a case like that now. I think we've got a situation in China where that was in the inventory. There were some lockdowns. There were a lot of things that would impede the natural flow of revenue and engagement. And that's kind of where that market is. So we're standing ready to step back in. We have the -- it's not a technology issue. It's not even a gross margin issue really. It's about managing inventory and making sure that we're delivering to the right cadence. That's what we want to be able to do. So having said that, long dialogue, I would tell you that we think things will get better. Things will get better as the markets start to really kind of recover. And the technologies that we have are really good and we can populate just about anything out there with the solution suite that we have. So there's really -- at this point, the bad news is flushed out for us and the opportunity to grow into those markets and deliver incremental growth is right there. So we're looking forward to making that happen. And I think things are starting to warm up a little bit already. So we feel good about that as we exit.

Liam Griffin :

Yes. I mean, sure, we can take the business and the technologies. I mean every market has its own flavor and there's different technology nodes, higher or lower to more complex, and we're able to scale through all of it. So I would say that over time, the markets are going to get -- the markets are actually going to embrace higher levels of technology. I think a lot of the stuff that we're talking about right now, two, three years today is going to be much harder, much more difficult and companies like Skyworks, I think, will have an incremental advantage. So I think you've got a China market that solved some macro things that weren't specific to mobile. But as we wake up here and the markets start to recover, the technologies have not sat by on the sidelines. The technologies have gotten more complex and more challenging and more powerful for the users. So the one thing I would say is in the China market, have they been able to catch up with that technology? I'm not quite sure it's there. But I know that we can do that with the partners. So it's not a technology gap with us. It's not a revenue issue. It's really getting the China market to get back on their feet and then get that partnership where it should be, where it's in a natural supply and demand view. And I think we can do that. And we have no reason why we wouldn't want to do more business in China. But all those things that I mentioned, need to kind of clear up a little bit before the markets and the opportunity for us is what we want to see.

Kris Sennesael :

So Harsh, I'll take the cash flow question first, and then I'll turn it back to Liam. Very happy with the very strong cash flow and free cash flow, obviously, in December. I would say three elements. Our world-class profitability level, 37% operating margin, not a lot of companies and tax base doing that. Secondly, yes, great working capital management, although a good guy and a bad guy, right? Inventory is still somewhat elevated. We will work it down over time. But we definitely had strong collections in the December quarter, which is a little bit of a onetime item. And then thirdly, as we discussed earlier, some moderate CapEx in December and going forward. And the combination of those three, delivered strong cash flow, and we'll continue to deliver strong cash flow. And then I'll turn it to Liam on the other question.

Operator:

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

Operator:

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and welcome to Skyworks Solutions Fourth Quarter Fiscal Year 2022 Earnings Call. This call is being recorded. At this time, I'd like to turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.

Liam Griffin:

Thanks, Mitch, and welcome, everyone. Before reviewing the fourth fiscal quarter results, I want to highlight the significant accomplishments that underpinned another year of record financial performance for Skyworks. Specifically, for fiscal 2022, we generated a record $5.5 billion in revenue, a 7% year-over-year increase. We achieved a record $2 billion in revenue for our broad markets, up 37% year-over-year, representing 36% of total revenue. We drove earnings per share to a record of $11.24, and we returned $1.3 billion to shareholders through dividends and share repurchases. Now turning to the September quarter. Our diversified portfolio and expanding set of customers drove record Q4 performance. We delivered revenue of $1.4 billion, a Q4 record and above consensus estimates. We achieved gross margin of 51.3% and operating margin of 37.6%. And we posted earnings per share of $3.02, exceeding our guidance by $0.12. In addition to the record financial results, we continued building a foundation for long-term growth, with strong operational execution and design win momentum. In mobile, we delivered integrated platforms to the leading 5G smartphone OEMs, including flagship and mid-tier launches at Google, Samsung and others. In IoT, we continue to gain new customers and extend the content. We partnered with Vodafone to launch the UK's first Wi-Fi 6E platform. We shipped into tri-band platforms for Frontier Communications, and we launched connectivity solutions with Amazon, supporting their Wi-Fi 6 Power over Ethernet access points. Across the infrastructure and industrial markets, we provided programmable timing solutions for a leading optical transport OEM, simplifying 400G capacity in data centers and telco networks. We captured new infrastructure wins at Samsung, enabling service providers to expand mid-band capacity and coverage. And we delivered comprehensive timing technologies, delivered to a leading O-RAN small cell provider. In automotive, we achieved another record of quarterly results, with revenue strength highlighting our connectivity and power isolation portfolio. We secured digital radio platforms with a global EV leader, as well as a top European luxury brand. We developed onboard charging solutions for a leading Korean OEM, and we received a key supplier award from Schneider Electric, highlighting the capabilities of our power isolation portfolio. Moving forward, mobility, the shift to the cloud and the electrification of automobiles are all key catalysts driving demand for our unique solutions. The value and utility of mobile data continues to grow, with estimates of 750 million mobile subscribers being added by 2027. In parallel, global cloud revenues are expected to reach $1 trillion by 2028, representing an annual growth rate of 16%. And by 2030, an estimated 96% of new vehicles will feature onboard connectivity and nearly 25 of those vehicles will be electric. Each of these trends require complex connectivity engines, underpinning the need for high-speed, ultra-reliable, low latency performance. Skyworks is uniquely positioned to craft faster, smaller and more efficient form factors, seamlessly integrating and customizing for an expanding set of customers, end markets and applications. As these opportunities emerge, Skyworks is poised to win, with a talented team that has executed extraordinarily well in the face of macroeconomic and geopolitical headwinds. With our market-leading profitability and scale, we are leveraging strategic technologies from high-performance filters to custom gallium arsenide and advanced packaging, while elevating performance for a coveted set of diverse customers. With that, I will turn the call over to Kris.

Liam Griffin:

Thanks, Kris. As our record financials demonstrate, our portfolio is powering an increasingly broad set of applications across the market's most essential and fast and growing -- fastest growing segments. Our proven execution and deep customer partnerships position Skyworks to outperform. Moving forward, our revenue diversification, profitability and cash generation will fuel long-term growth, while increasing shareholder returns through dividends and share buybacks. That concludes our prepared remarks. Operator, let's open the line to questions.

Harsh Kumar:

Yes. Hey, guys. Liam, Kris and team, first of all, congratulations. These are amazing results compared to the rest of the people in the industry. Liam and Kris, you talked about macro when you talked about the guide. I wanted to understand how much of a function China and inventory problems in China is, part of the decline for the December quarter, or is US a part of that as well? And then, most folks are indicating that China is pretty off. I'd be curious about what -- how your business is doing in China. So any color you have there would be appreciated. And then, I've got a follow-up?

Harsh Kumar:

Thanks, Liam. And then for my follow-up, the question that we're already getting from investors is that, everybody else is sort of hurting in the industry relative to you guys. So the question that we're getting is, maybe, as we start to look past December, do you think that the flush in China, for at least Skyworks, is largely contained in the December quarter, or do you think it's possible that China gets materially worse for you as you look into the March and maybe even the June quarter?

Kris Sennesael:

Yes. And maybe I would add there that December for China is definitely the low point. It can’t get much lower than that. The question is, when does it switch back on? Is it in March? We expect some of it to start in March or the following quarter. But, again, in December, it's completely derisked. It can’t get much lower than that.

Matt Ramsay:

Yes. Thank you very much, guys. Good afternoon. And I guess for my first question, Liam, maybe you could talk to me about the non-mobile business and the trends there? I know there'll be a lot of questions around inventory corrections and whatnot in the smartphone market, in China and with your largest customer, but I wanted to focus on the broad markets business, because it's a bit more diverse. Maybe you could kind of walk us through the different sort of subsegments of that collection of businesses, the stuff that you acquired, the core Skyworks business. And if there's any puts and takes on where you're seeing weakness? I know there's some folks that across consumer devices, there's certainly some weakness. There's been hints at the start of some weakness in industrial, you guys are exposed to data center where -- and wireless, where there's some different trends in different markets. But if you could just kind of walk through the puts and takes there and what you expect that broad markets business to do in the guidance on a sequential basis, that would be really helpful? Thank you.

Matt Ramsay:

Got it. Thank you for that, Liam. Just as my follow-up, Kris, a quick clarification in the guide for December, up, down, flat for broad markets. And I guess my second question is, we were talking to the folks at Qualcomm last night, they have a pretty good view of the global smart mobile market given their breadth. And they talked about weakness in mid-tier Android in China, which has been there for a while, sort of expanding to weakness globally and moving into higher tiers of the market, including the premium tier, with customers wanting to hold less inventory basically across the board in smartphone. Is that something that you guys are observing in sort of the premium tier of the market as well? Thank you.

Operator:

All right. Next, we'll go to Raji Gill with Needham & Company. Your line is open.

Kris Sennesael:

Yes. So there's two parts to the business, right? So, there is the large customer and then is Android. Within Android, there are two large players as well. There is China, basically Oppo, Vivo, Xiaomi and then there is Samsung. We definitely have been derisking China for the last couple of quarters, given the COVID-19 lockdowns and the well-documented softness in end customer demand in the China market. But there is also a Korean player in Android where we have been doing really well. We have seen very strong year-over-year revenue growth in fiscal 2022 with that customer. However, that customer is also not immune to some of the softness on the global demand, including some of the European markets. And so, that -- it's very well documented as well there. There is some inventory overhang at that customer and that's definitely having an impact on our December guide.

Raji Gill:

Yes. Thank you for that. And just for my follow-up, just a question on the inventory, both kind of internal inventory as well as inventory in the channel. So if I look at the absolute dollar inventory, it's up about almost 30% on a year-over-year basis relative to revenue growth of 7%. So number one, I just wanted to get understanding of how you're managing internal inventory? And then, how would you characterize, I guess, smartphone channel inventory or any inventory in the broad market? That would be helpful. Thank you.

Operator:

And next, we'll go to Gary Mobley with Wells Fargo Securities. Your line is open.

Kris Sennesael:

Yes. So our largest customer in the September quarter was approximately 63% of our business. So great execution by the team here, reporting the launch of our largest customer, new products that translated into a 30% sequential growth or a 14% year-over-year growth. I know, there is always a lot of question about is Skyworks game content or not. While those numbers clearly illustrate that we had a major uplift in content in the new products that have been launched by our large customer.

Kris Sennesael:

No. That was the only plus 10% customer in the quarter.

Kris Sennesael:

I think the biggest culprit is definitely an inventory overhang in Android, right? In China -- I'm talking at the phone level, not necessarily at the component level. China with Oppo, Vivo, Xiaomi and then more, recently as well with our Korean customer. That is definitely the main culprit here.

Amber Srivastava:

Hi. Thank you very much. What is the percent of the China Android business for you now, Kris?

Liam Griffin:

Yes. And that being, largely -- we're talking about China here. Obviously, we have other Android players that are continuing to drive solutions and have some -- I think some really good opportunities that will flow through the year.

Kris Sennesael:

So in fiscal 2022, we did $489 million, $490 million of CapEx, which was 9% to revenue. So we definitely will continue to invest in the business, but we also will do that in a smart way. And given some of the demand softness that we experience now, we definitely are going to manage our CapEx accordingly.

Blayne Curtis:

Hey, guys. Thanks for taking my question. I just wanted to ask you, on March, and I know you don't want to guide March probably, but just the moving pieces, obviously, big misses from Qorvo and Qualcomm, but they did both highlight content games at Samsung. That seems to be the one offset for March. So I guess it's two part. How do you feel about your content and growth at that customer? And then if you can, just more thoughts as to the two moving pieces, should the box inventory, I guess, zero, you're shipping basically nothing, but should the Korean inventory situation be done by then? And I guess, your prospects for growth kind of with new business there?

Blayne Curtis:

Thanks. And then, I just wanted to go to Matt's question on broad markets and the moving pieces, because obviously, consumer Wi-Fi sounds very weak, maybe service provider and more mixed. And then, you tell me, I guess, I'm curious the direction that the Silicon Labs business is, because I know they were shorted for a while and have more in terms of exposure, maybe more industrial communications and such. So just thoughts on those kind of moving pieces, as to what drove the beat? And then you're not seeing much of a dip in December. Are you seeing weakness in one area and its offset, or are you just not seeing much weakness?

Operator:

Okay. Next we'll go to Karl Ackerman with BNP Paribas. Your line is open.

Liam Griffin:

Yes. I mean, there's some gains with kind of unfreezing that backlog. But the truth is, it's really new design wins and new opportunities. And I know we've said it before in other calls, but the organization is really melting now into a period where we've got great technology. We have engagements with customers on both sides, the SLAB side and obviously the core Skyworks, and the business development is going really well. The revenue is growing better than we thought actually, and we continue to see more and more opportunities for growth. And also, you've got pretty solid margins in that portfolio as well. So it's going really well. A lot more to do. I would bet hard on data center and automotive here and that portfolio, that's starting to really ramp. But it's been a great transaction, and there's a lot more to go from there.

Liam Griffin:

Yes. I mean -- so I'll give you an example. We're dealing with companies like AWS and Google Cloud and data center. That wasn't there a year or two ago. We didn't have that business. We come around and look at automotive, power isolation, really critical technologies. We didn't have those a year ago or two years ago. There's a lot of great stuff going on in the infrastructure markets that we have had a position in, but now we're expanding. And you get deeper into the automotive space, there's just an amazing set of technologies that require wireless and/or high-performance semiconductor products, and that's what we do really well. It also helps us, as we start to move further and further into autonomous, where high-speed connectivity, wireless high-speed connectivity, is absolutely critical. We all know that. So it is really a -- it's a dovetail between great customer engagement, technology and also really diversified end markets that are growing. So we're excited about it. And like I said, we've been outperforming on that transaction. We're putting more investment into that portfolio, because it's returning phenomenally. And there have been some sticky spots with supply chain, and you mentioned that in your question, that was one of the things that would drag a bit, and I think we're getting through it. But it's a different business where Skyworks is a little bit more of a big game hunter approach, and that's fine. But the I&A portfolio is much broader. And with the support and funding from the larger Skyworks, I think there's just incredible things that we can do competitively, and we're looking forward to that. Operator

Kris Sennesael:

Yes, Tim, I think we probably will have to take that offline and go into a deeper dive there. I think you have to take into account that part of the large customer revenue is in broad markets, as we sell many of our solutions into other devices than their phones, and I think that's part of the reconciliation there. But again, the business, as I said before, with the large customer is strong. It was strong in September and continue to be relatively strong in December, as we execute with content gains in the new form lineup and continue to support their ramp.

Kris Sennesael:

Tim, so this is a very volatile environment. There is macroeconomic headwinds. There is a war going on in Europe. There is COVID flares. So we're going to stick to guiding one quarter at a time. But, I mean, some of the elements that you mentioned there, of course, could potentially have an impact on the March quarter. We discussed before, it will depend to a certain extent on how the inventory at the phone level gets resolved and when some of that Android business start picking up again.

Operator:

And next, we'll go to Edward Snyder with Charter Equity Research. Your line is now open.

Liam Griffin:

Yes, yes. Good question and I appreciate that. Yes, I mean, you've heard me say it before, we like to take the fast ball early, right? So we try to really capitalize on the most challenging opportunities and then kind of go downhill, and that's what we've been doing. And we really do our best work in the higher-end, most challenging environments and our design teams are exceptional, and they really enjoy this -- again, they like the hunt as well. So you're going to see us to -- I appreciate your visibility on what we've done already, which is pretty solid and more to go. But our design teams and our engineers are fired up. They want to take more. We're going to try to grow the portfolio with the largest customer, but also with many, many others outside the largest customers. So as you know, performance wins, complexity, resolution wins, having the ability to put that all together and make it look really easy, that's what we try to do, and hopefully, that trend will continue.

Kris Sennesael:

Yes. So, first, yes, you did a great job at the teardowns and your conclusion of content gains in excess of 10% is absolutely true.

Blake Friedman:

This is Blake Friedman on Vivek Arya. So just a quick question on your large Korean customer. I know one of your peers last night also highlighted various design wins there. So just curious, from your perspective, if you're seeing an overall expansion of the TAM at this customer or if you believe you're seeing share gains in any way?

Blake Friedman:

Great. And then, just kind of a follow-up to that, maybe more at a higher level outside of the unit we test, more on the content side. At this point with 5G penetration, being about like 55%, 60% of the overall market and your largest customer mostly transitioned to a full 5G suite. I was just kind of hoping you could talk about the future content opportunities as the cycle matures, and more importantly, from generation to generation, what the -- on average maybe the expected content growth should be?

Operator:

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

Operator:

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good afternoon, and welcome to Skyworks Solutions Third Quarter Fiscal Year 2022 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.

Liam Griffin:

Thanks Mitch, and welcome everyone. Skyworks delivered record third quarter results with double-digit year-over-year growth and revenue and non-GAAP earnings per share, highlighting our resilient business model and disciplined execution. With strong design win momentum across an expanding and diverse customer set, we are well positioned to drive sequential growth into the second half of the calendar year. Looking at the quarter in more detail, we delivered record Q3 revenue of $1.23 billion, above consensus and up 10% compared to last year. Highlighting our content expansion in premium 5G enabled smartphones along with growth in automotive, data center and network infrastructure. We achieved gross margin of 51.2%. We posted earnings per share of $2.44, up 13% year-over-year. We have continued to return cash to shareholders through dividends and share repurchases. And today, we announced an 11% increase to our quarterly dividend that marks our eighth consecutive year of dividend increases. In addition to generating solid results in a challenging macro environment, we are leveraging decades of targeted investments to drive a pipeline of design wins, spanning an array of market critical solutions. Specifically in mobile, we delivered Sky5 platforms to the leading smartphone OEMs, including launches at Google, Samsung and many others. Skyworks Technology leadership, innovation and scale has allowed us to continue to capture an outsize share of our mobile revenue from high performance 5G platforms. In Enterprise and IoT, we powered tri-band access points at Cisco, ramped Orange Livebox 6, Europe's first carrier-grade 6E platform. We launched advanced solutions with Verizon for integrated WiFi and cellular gateways and supported Google's newest Pixel Watch with our cellular GPS, WiFi and Bluetooth technologies. In automotive, we achieved an all-time record revenue and quarterly – at this last quarter. As we executed on our vision to drive connectivity and lead the ship to electrification. During the quarter, we ramped next-generation wireless and EV power technology across multiple top OEMs. We leverage our timing solutions with a market leading robo taxi and driverless vehicle provider. And finally, in infrastructure and industrial, we captured multiple design wins at European equipment and service providers, fueling massive MIMO deployments. We delivered integrated timing solutions to the market leaders and data center, and network infrastructure. And we ship modules for high power industrial and IoT applications, supporting a prominent brand and smart energy. Moving forward, we see a continued expansion in data consumption, dependent on seamless, reliable and ubiquitous wireless connectivity. A few statistics illustrate this point. Global wireless data traffic is expected to grow at a 27% annual rate over the next five years. Machine to machine connections, the fastest growing IoT category will soon surpass 15 billion users. By 2030, we expect 650 million connected cars each consuming 25 times the data that we see in today's smartphone. Over the past two decades, Skyworks has made critical investments to power this connectivity transformation. Addressing all key network technologies from cellular to advanced-WiFi, enhanced GPS and Bluetooth among others. Capitalizing on both organic growth and strategic acquisitions, we are gaining momentum in high growth verticals, while at the same time, diversifying our revenue and customer set. Looking ahead, our design win pipeline and unique in-house capabilities are positioning us for continued outperformance. Leveraging decades of innovation, we deliver purpose-built solutions underpinned by in-house gallium arsenide temperature, temperature-compensated SAW filters, bulk acoustic wave technologies and customized packaging. With that, I will turn the call over to Kris for discussion of Q3 and our Q4 outlook.

Liam Griffin:

Thanks Kris. Skyworks decades long investments are driving increasing opportunities across the market's fastest growing segments. Fueling our momentum going into the second half of the calendar year, with our customer count doubling year-over-year in a broad markets portfolio on pace for $2 billion in annualized revenue, our business is more diverse than ever. Finally, our consistently strong profitability, cash generation and diverse revenue streams fund our ability to invest and win while returning cash to our shareholders. That concludes our prepared remarks. Operator, let's open the line for questions.

Raji Gill:

Yes. Thank you for taking my questions and congrats on managing, providing good results through a kind of a crazy cycle. Just a question on China. I know it's about 10% to 15% of your revenue, but wondering kind of what you're seeing in terms of the inventory situation there across the China handset OEMs? And just in general, if you can make a distinction on the premium level of handsets in the overall market versus low-to-mid tier, how would you characterize the demand landscape there and the level of channel inventory in the market as you see it today?

Raji Gill:

Appreciate that. For my follow-up, last quarter that you cited $50 million push out related to your top customer as they were having challenges, assembling final components given the lockdowns in China and in Singapore. And to account for that last month in April, you attempt to kind of de-risk the June quarter and guided it down 7% to 8%, and you're kind of falling in that range. Wondering how you're thinking about the ramp in the September and December quarters as your top customer is through that process and starts to launch new platforms with your content.

Raji Gill:

Are you still expecting a steep ramp? Thank you.

Kris Sennesael:

Yeah. Maybe Raj just to add there. So we just guided September up 14% sequentially and obviously that is more and higher in terms of sequential growth at the large customer, based on the known design wins that we are shipping today and we do expect further sequential growth into the December quarter with that customer as well total Skyworks revenue.

Gary Mobley:

Hey guys, thanks for taking my question. Could you share with us how big your largest customer was in the quarter and were there any other greater than 10% customers in the quarter?

Gary Mobley :

Okay. So I know not all of your sales to your largest customers go into smartphones, but I think dominant portion of it does. And so kind of doing back of the envelope calculation in your mobile business, I presume your business with customers outside that that large customer is in the ballpark of what $90 million to $100 million for the quarter?

Gary Mobley :

What I'm trying to get to is trying to get a sense of how much of your mobile business is comprised of customers outside of your largest. And just trying to get a sense of maybe where you stand with respect to bottom in the Android market and whatnot?

Kris Sennesael:

Yeah, and I would just say, in addition to the largest customer, we have several other significant ones. We mentioned, obviously Samsung, very strong and even Google. So it's a balanced mix here.

Vivek Arya:

Thanks for taking my question. Liam or Kris, I'm curious how much of a year-on-year headwind has China Android been for June and September, and does China Android bottom for you in December or March or when? So just how much of a headwind year-on-year, because when I look at your implied September mobile guidance, it still seems to be kind of flattish to down somewhat year-on-year. So I imagine that's the China Android headwind. So how much is that? And when does China bottom for you?

Kris Sennesael:

Yeah. And I'll just add one more comment is that the complexity in the performance nodes are getting more and more difficult and more challenging, which is great for us. And that's what we want to see. So there are some pockets in China that are very, very low-end, that are not really interesting for us and that's fine. But we're building up a strong base in mid-tier and certainly leading the pack when it comes to the premium players.

Kris Sennesael:

Yeah, so Vivek, so we feel good about the business, right? And we just guided up 14% sequentially for September. We do expect further sequential growth into December and that is all based on known design wins with the large customer, with other mobile players and even within broad markets. And as you know, we always level load our factories. We have higher filter content in many of those new devices that we bring to market. Filters typically are built many weeks or months in advance of product shipments and that accumulated into higher inventory, but the inventory is fully in line with our expectations and will help us in support the steep ramp here in September and December.

Harsh Kumar:

Yeah. Hey guys, first of all congratulations in a very tricky environment managing the business so well. We certainly appreciate it. Maybe I missed it in the press release, but could you – would you mind giving us a breakdown of the mobile business versus the broadband business in June? And the second part of that same question is how do you see the trends in September? I would suspect that mobile would be up in September given the largest customer or is that incorrect assumption?

Liam Griffin:

Yeah. And remember that, as we discussed at the beginning here the lockdown dynamics and some of the supply chain volatility did put a little pressure on what would be a normal seasonal guide. So all those factors played together, we had much less exposure to China, which is very helpful, but these weren't issues that were related to demand. I mean, the demand is there. The demand was there and it still is. And we need to go execute on that, but some of the early lockdowns in, the ripple effects there in supply chain added a little bit of nip-tuck to the quarter.

Liam Griffin:

Yeah. I mean, there's a great deal of enhancements that come through the cycle with the leading players and we have to back that up with great technology. And if you look at CapEx that we've been delivering and one of the themes that we've been talking a lot about is the level of customization and basically crafting those technologies in-house, right? We're a rare breed that that manufactures end-to-end from high-end bulk acoustic wave, temperature compensated soft filtering, in-house gallium arsenide, in-house customized assembly and test all those vectors come together and allow us to do very unique things customer-by-customer. So we're able to go after a much, much broader set of accounts when we have that level of customization and technology knowhow. And that's one of the reasons why the mid-to-high tier really appreciates Skyworks, because we can do a lot of good work with those partners and really help lift their business with our teams beneath them under the wings here, supplying the right kinds of technology. So it's a good partnership there for both sides.

Blayne Curtis:

Hey thanks for taking my question. I just want to ask on September guidance. Two things, one, you said broad markets would still be of double digit, I guess that doesn't give me an idea of which direction it is sequentially. So you had the issues that I think you talked about supply chain in June, what's the outlook for broad markets in September?

Blayne Curtis:

Okay. And then maybe just some comments on your own supply chain. I mean, the fact that you're able to build that much inventory. Can you just talk about the constraints, if any, that you're still seeing on your business from a foundry and backend perspective?

Liam Griffin:

Yeah. And I'm just going to add. I mean, there's been a tremendous amount of technology investment in the portfolio. And a lot of that really has come through, you can see in the CapEx line. So with some really important things playing that, we're doing that sort of are under the hood so to speak, really driving performance in bulk acoustic wave, which is a tough technology. We've improved the efficiency of our TC-SAW capabilities. We have – as you know, for years, we've had customized gallium arsenide. It's a very unique technology in RF, and we've been upgrading that at every cycle. So there's a lot of really interesting building blocks that go into the finished product here and the flexibility that we can bring. I think it's one of the reasons why the discerning higher end customers really appreciate that they have a voice in the decision with us. There's a lot of collaboration when we launch technologies and products, we can do a great deal of customization, understanding where the carriers are going to be and where those phones will roll. So there's a lot going on and it comes with the capital that we put forth. And I think it's an advantage right now. And despite the ups and downs in supply chain, I'd rather have that in our house that we can deal with it. We can make decisions, we have a voice and we can do the right thing for the customers.

Ambrish Srivastava:

Thank you. Kris, I just wanted to come back to the days of inventory and actually more importantly, free cash flow. I know in the past you have said that inventory does go up in March and June. So that's fine. That's consistent with your past comments, but I was looking at free cash flow to sales and I had to go back to, we're all going back to many years past. As a percent of sales, it's really at a very low number. And I had to go back to June 2018 to get that number. I get the change in working capital, but how should we think about the trajectory of free cash flow and good to see that you raised your dividend, but I just want to understand if I'm not missing anything on the actual absolute free cash flow number.

Ambrish Srivastava:

Got it, Kris. I understand. And I don't look at just on a quarterly basis. I just want to make sure I wasn't missing anything. Just a quick clarification on the December quarterly, what's the rate for, to think about it. You did say you'll grow, should we think seasonal, sub-seasonal, or how should we think about it for modeling purposes? Thank you.

Operator:

Next question comes from Edward Snyder at Charter Equity Research. Please go ahead.

Liam Griffin:

Yes, it's probably more 70% high end, Ed. And what we're trying to do is actually take the low end and bring them along towards a higher level of technology and performance. And as a result, it would be revenue for us and also great for the consumer that gets a better product. So certainly, we – our business, the way I think about it is that we want to hit the fastball first, right. We want the hundred mile an hour pitch. And then from there, we can go downhill and take care of everybody else. But the DNA in our company is to go after the hard things and solve the hard problems and delight the customer, right. And sometimes, the customer doesn't even realize the amount of work and energy and technology know-how that comes through this, but ultimately it's a great solution that they get. And so that's the way we can do this. Now, we like to start with the tough problems and then go downhill, as I mentioned. And there's still a lot of really good work to do. You now hear, a lot of discussion about some other customers that we haven't talked about too much, Samsung, Google, there's many others in mobile and many others in connectivity that we can serve. So it's a model that's worked for us and it's all about customer, customer performance and uplifting their product and their ability to drive to their consumer market. So it's always been a challenge for us, but we love that challenge and it makes what we do really matter for us here at Skyworks.

Liam Griffin:

Yes, no, that's a good question. You know what it's interesting, Ed, now is the curve ball is the lockdown situation. So it's kind of an unusual thing. We all went through COVID and we knew what was going on there and it was just dark everywhere, right. There really wasn't any pockets of opportunity. I think what's happening now is just a little bit of a bifurcation. You've got those that played very hard in China and the OVX land. I think that much more exposed to the downside. On the other hand, at Skyworks, we were continuing to raise mid and high end, which has been beneficial for us and more profitable. So it's kind of a tale of two different markets and different stories. We want to pursue opportunities globally across every account, obviously. But the way our business has really kind of grown up here is, like I said, the high end going down, we have opportunity to do more in some of the low end markets. It's really more of a choice for us than a technical problem. We know how to do it, but we do think that the opportunities are still looking very good. There's a lot of demand that was not shift, with these issues in China. Some of these lockdowns really pinched some supply chain areas that still not unplugged today. And that's real. I mean, we can measure that in our hubs and we have very good visibility on where that demand is. So it definitely gives us some color and some positive view on where we see the second half can go and maybe there's a delay, with delays that go further into the second – the early part of next year as well. So there's a lot going on there, the nuance being this supply chain wrinkle, not COVID related necessarily, but the hard lockdown that we saw at the end of the quarter. So it kind of mixes all together, but we still feel really good about the opportunity. And of course, we have great communication with our customers. So we're always in sync with what they need.

Srini Pajjuri:

Thank you. I have a question on broad markets, Liam, obviously it's growing nicely on a year-on-year basis, but sequentially, it was down almost to 10%. And then you're guiding down for another sequential decline, environment, which seems pretty stable. Especially on the consumer side, you have a lot of secular drivers like WiFi, IoT, et cetera. So I'm just curious as to what the headwind is for that business in the short-term. And then along the same lines, some of that business is probably still sourced from external foundries and obviously the costs have been increasing. Have you implemented any pricing actions to kind of offset those cost increases and if you can talk about where we are in that cycle in terms of the pricing actions, that'll be helpful. Thank you.

Srini Pajjuri:

Got it. Thank you.

Melissa Fairbanks:

Hi guys. Thanks very much. And just maybe as a follow up to that, just wondering how much pricing inflation has played into your overall revenue growth versus say unit volumes or just mix trending higher. And then as a follow up, I know this is one of your favorite questions. What should we expect in terms of generational content growth going forward? Where does content begin to max out? Are we even close to that?

Liam Griffin:

Yes. And with respect to content and content reach, we thought most of us here at the table here have been in this market for quite some time. And we do see incremental opportunities year after year after year. But I think what's changing now is that the, if you think about Skyworks, it isn't just mobility. Mobility is great and wireless technologies are great, but what's different right now is the customer set and the application set that we're playing in. We talked today about data center. We talked about electric vehicles much more in the infrastructure side. We have high performance audio. We have technology nodes that were not available to us two, three years ago. And we created these new technologies, bulk acoustic waves, et cetera, in house with our own people and our own capital. So I guess what I would say to you is, think about connectivity at large and think about the markets that require this, right. It's a mobile phone of course, but IoT, industrial, healthcare, business to business. All these interesting end markets rely very much on the kind of technologies that we bring. So we're looking forward to that. We we'd love to give you guys more info around that vector, but we certainly see pools of opportunity that Skyworks and Skyworks Technologies can address.

Liam Griffin:

Thank you.

Matt Ramsay:

Good afternoon. Thanks very much guys. I wanted to ask a couple of questions about the acquisitions of the I&A business and sort of how that's playing out. So the first one is on the timing segment, I guess the thesis there was, there was some really good timing technologies at the Silicon Labs, and you guys were going to add scale to those in the telco market, in the switching market, and then maybe into cloud over time. And I just – there's some big server disruptions that are going on in the cloud space. And I wonder if you might give me a little bit of an update as to how that thesis on the timing side is playing out there and what you're seeing. And then I have a follow up on the automotive market. Thank you.

Liam Griffin:

Yes, so certainly great opportunities coming out of our – what we call MSF portfolio, which was the I&A business of SLAB, really pleased with not only the products, but with the people in the execution. So all good, markets like data center right now are really critical for the timing solutions that we have very high performance timing solutions and growing that. With additional investments from the larger core of Skyworks, we're also looking at a lot of EV work coming out of that portfolio as well. The I&A team had some great technology there that we're scaling. And I think it's a case where you've got super technology in great performance and great engineering talent. And now it's really going to be about scale, right. It's really going to be about scale. So one of the things that we do very well at Skyworks, you've heard that from us, we’re vertically integrated. We do a lot of hardcore manufacturing, technology development in-house, but we also do very, very well in high scale, big dollar markets. And it sounds easy to say, but there's a lot of work behind that. And if you look at our business and the kind of the way that we talk to our customers and markets and the way we communicate to investors. We really are a company that looks at markets that can really move the dial. We've got some of these here. These are coming up, they're growing right now for us, it's early stage, but the tough part is getting the technology right. And the team and MSF from Silicon Labs have gotten it right. So it's about scaling now and driving our sales and marketing teams further and capturing a great deal of opportunity that we haven't seen. So we're excited about it. And we'll certainly give you more color in the next call.

Liam Griffin:

Yes. There's a lot of interesting nodes that come together here in the EV side. You've got certainly technology coming through wireless, wireless nodes and 5G. We've got a lot of EV accounts right now that are being developed that we have design wins in now. And there's going to be a lot of investment that we put forth. And certainly when you go further into EV, connectivity and wireless connectivity is going to be pivotal, it's going to be one of the most critical elements in the whole process. And just think about from a safety perspective, from a latency perspective, there's going to be a lot of technology development that hasn't yet come through around electric vehicles, autonomous vehicles in that whole specter. So we're looking forward to it. But like I said, we've got a beachhead with our partners in Texas here. And we also have some great, great engineering minds and knowhow across the greater Skyworks team to turn that into big dollars as we move forward. So it's going to be one of the bigger markets going forward for sure. And it is a market that absolutely needs high performance, low latency, high quality solutions. And those are the kind of things that we like to do. And we we've already been working with many, many players in the EV space. Many of those customers don't want to have the conversations publicly about what we do. So we will respect that, but please note that we're deeply involved in the development and we're putting a great deal of investment into that part of the market.

Liam Griffin:

Thank you all for participating on today's call. We look forward to talking to you at upcoming investor conferences. Thank you.

Operator:

Good afternoon and welcome to Skyworks Solutions Second Quarter Fiscal Year 2022 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.

Liam Griffin:

Thanks, Mitch and welcome everyone. Despite a challenging macro backdrop, I am pleased to report that Skyworks delivered record second quarter results, with double-digit year-over-year growth in both revenue and earnings per share. We continue to benefit from a broad and diverse product portfolio. And with an expanding set of customers in high growth markets, we are well-positioned to outperform in the current environment. Looking at the quarter in more detail, we delivered record Q2 revenue of $1.34 billion, above consensus and up 14% compared to last year, highlighting both our growing content within Tier 1 mobile and the increasing diversification of our customer base and technology reach. In fact, our broad market revenue rose to a record $523 million in the quarter, up 10% sequentially and 36% year-over-year. In addition, we continue to drive solid profit margins, exceptional cash flow and consistent cash returns. We achieved gross margin of 51.2% and operating margin of 36.8%. We posted earnings per share of $2.63, up 11% year-over-year. We generated operating cash flow of $393 million and we returned $509 million to shareholders through dividends and share repurchases. Our strong results this quarter were driven by a vast expansion of use cases from content-rich smartphones to complex IoT devices, to innovative solutions for the automotive markets, industrial and infrastructure. Specifically in mobile, we supported the top 5 OEMs with our Sky5 architectures, including flagship models from Google, Samsung and other Tier 1s. In parallel, we leverage our in-house temperature compensated SAW, BAW and gallium arsenide technologies, to extend the reach across further content opportunities in 5G. In Enterprise and IoT, we powered Comcast’s latest WiFi 6E residential gateways, partnered with T-Mobile for their integrated 5G fixed wireless access service. We debut the industry’s first WiFi 6E gaming router featuring ultrafast quad-band performance. And we embedded Sky5 technology in rugged mobile computing devices for industrial-grade factory automation. In automotive, we are executing on our vision to lead the global transition while accelerating the shift to electrification trends that pave the way for cleaner and more efficient autonomous transport. Over the past quarter, we enabled next-generation wireless technologies across multiple leading OEMs. Further, our power isolation portfolio continued to gain momentum, with the global EV market leaders. And finally, in infrastructure and in industrial, we captured milestone design wins at Tier 1 equipment and service providers for 5G macro and small cell deployments. We ramped high performance clock solutions at used network systems, supporting LEO satellite networking and we extended the reach of our cutting-edge timing portfolio across the leading fiber backhaul and data center equipment providers. Moving forward, ubiquitous connectivity, cloud computing and the massive shift to EVs are fundamentally reshaping the way we live. As complexity intensifies, with billions of intelligent edge compute nodes that demand for high-speed ultra-reliable, low-latency solutions is accelerating. Skyworks is uniquely positioned to engineer and seamlessly integrate these advancements to increasingly smaller, more efficient form factors, purpose-built and customized for specific end markets and applications. Lastly, our business aperture and market reach have never been broader as we scale investments in core and new technologies. We are pioneering the breakthroughs in RF, signal processing, power isolation, timing, audio, among others, propelling our diversification and growth into the future. With that, I will turn the call over to Kris.

Liam Griffin:

Thanks, Chris. Despite macro headwinds and supply chain disruptions, Skyworks remains squarely focused on delivering above-market growth across a diversified set of applications and end markets. Capitalizing on in-house technologies, scale and strategic customer relationships, we look forward to generating continued increases in revenue, earnings, profitability and free cash flow. Finally, our efficient balance sheet and consistent cash generation provide a formidable platform for long-term growth as we invest for the future and deliver premium returns to our shareholders. Operator, that concludes our prepared remarks, so open the lines for questions.

Timothy Arcuri:

Hi, thanks a lot. So Kris, I just had a question around the dynamics in the quarter. Revenue was pretty much in line, but the mix was much different. Broad markets was supposed to be flattish and it was actually up a lot and mobile was supposed to be a little better than normal seasonal on the easier comp from your large customer, given some of their issues with respect to the supply chain. But in fact, mobile was much weaker and broad markets was much better. So I guess the question is one, what happened in the quarter? And two, can you give us a sense of what the split will be between mobile and broad markets that’s assumed for the June guidance? Thanks.

Timothy Arcuri:

Thank you. And then can you give us what the percent of revenue was for your largest customer in March? Thanks.

Operator:

Thank you. And our next question comes from the line of Chris Caso with Raymond James. Please go ahead.

Liam Griffin:

Sure, Chris. This is Liam. Clearly, there has been some disruption around COVID and specifically in China. It happens to be a very, very strategic for back end assembly and test for a number of our customers, including some of the bigger ones. So for the most part, that’s where the inflection was, trying to manage through that dynamic with pretty stark walk-downs and operational sites. So for Skyworks, obviously, the things that we do internally, we are continuing to execute with our filtering technology, our gallium arsenide, our in-house assembly and test. But again, it all comes down to your customer set. So we are doing the work today with some great companies, helping everybody get back on track in terms of demand. It is not a lack of demand issue at all, it really is a supply chain issue and every company has their own elements, whether it’s at a chip level or it’s at the back end assembly and test. So that’s kind of what’s going on. We certainly think that this is going to abate as we go forward. It’s not a long-term issue. We have great partnerships with the customers that we’re leaning into. We’re helping them, and we expect things to get a lot better as we get through the next few months.

Chris Caso:

Thank you. As a follow-up, I’ll ask on gross margins. And we’ve been kind of hovering around this 51% plus or minus for a bit of a while. I know last year, you said there were some pandemic-related costs that were persisting. And I presume into June, some of the impact is persisting again, just kind of on a lower revenue base. What’s the prospect for getting the gross margins a bit higher? What’s your expectations for gross margin progress as we go through the year from here?

Operator:

Thank you. And our next question comes from the line of Blayne Curtis with Barclays. Please go ahead.

Kris Sennesael:

So broad market was $523 million in March, which was up 10% sequentially and up 36% year-over-year, and we do expect further sequential growth in June that translate into a very similar year-over-year growth as well.

Liam Griffin:

Yes. So I mean, overall market, as Kris mentioned, I’m going to get to mobile in a second. But really, we’re also really excited about what we’re doing in broad markets and the numbers we just reiterated $523 million in the quarter with a lot of momentum going forward. So just on the broad market story, things are looking very strong, very diverse, new customers, new end markets and growth in technology. So that’s one important lever. On the mobile side, we’re actually continuing to do very well. We were somewhat surprised that the continued COVID restrictions came down. It’s not a case, honestly, where there is a demand issue. This is really about chain. We know the customers that we’re working with, and we’re extremely close in terms of the dynamics of where products need to be and when they need to be there and we feel very good about that, and that will drive our business forward into the second half on the mobile end. We also have made incredible strides with Samsung. And there is a customer that – they are a great company, but we haven’t done that much with them. A lot of it had to do with just technology. We’re trying to go a high end and a lot of the opportunities there were a little bit more lower market. And we now moved up big time within that account. And so we have three of the most important companies in mobile right now, all with very good share and outlooks going into the second half of the year around new technologies and more around 5G, but also a lot of things that are coming up in the IoT side, looking at things even in WiFi that have all really stepped up. So we feel really good about the business right now. These lockdowns came in a little bit late for us. And so it was a bit of a surprise, but we wanted to do the appropriate thing and reflect that in our guidance, but we feel very good about the second half of the year. We know the products that we’ve designed into. We know what our content looks like. And we’re looking forward to fulfill that demand when sky is clear a little bit and demonstrate that through earnings.

Ambrish Srivastava:

Hi, thank you very much. I just wanted to come back to the – it’s always trying to figure out as well as I’m sure you guys whether it’s demand versus supply-related issues. But the China market has been in sunk for quite some time, Liam. So is there a point that you’re seeing there, okay? This is not just supply? And what we’re hearing is that the China handset guys have an over index exposure to the European market in Eastern European in particular? Is that causing concern to you? And kind of related to that, how big is the China market geo-wise for Skyworks?

Kris Sennesael:

And so Ambrish. So the total Chinese customers for total Skyworks is on or about 11%. Actually, in broad markets that’s slightly higher. That means in mobile, it’s less than 10% of revenue coming from the Chinese mobile customers.

Ambrish Srivastava:

May I ask a quick follow-up, please? On the broad markets business, I don’t think I’ve heard you guys talk about it. Has extended lead times really impacted this business at all? And I asked because there is a concern that all of us have is that is the demand real or not? And when you’re guiding for 30%, 40% kind of growth year-over-year, that again begs the question, how much of that is because of lead times at setting out. Thank you.

Operator:

Our next question comes from the line of Matt Ramsay with Cowen. Your line is open.

Liam Griffin:

Yes. Excellent. I’m really glad you asked that question. So at a very high level, the transaction with the I&A portfolio has been great. I mean we are really excited. It’s doing better than we expected. And it’s also had to endorse some supply chain issues because they are more granular around outsourced fabless players. But the great news is actually – literally, line-by-line, you just mentioned are things that we’re working hard on. Timing is a very, very interesting, attractive market and there is not many players that are going after it. The portfolio within I&A is very strong. It’s very capable. It’s got a great technology edge. And what we really need is for those great things to be matched up with significant powerhouses the industry companies that can scale with it. So we’re working on that. Again, the technology is there. This is about taking devices and technologies that already been honed in and have been diversified tremendously, but we also need to get scale, right? So we’re working on that, making good strides, teams doing well. Isolation – power isolation, specifically in automotive is a big, big market. And here again, leveraging some of the relationships that we have at Skyworks and some of the scale opportunities that we can bring to end customers, we’re making really good progress on that end. Data center is another market that they have, supercool technology and just need more muscle to try to get it out more sales folks, more marketing people, more people, boots on the ground, leveraging customers that we already have, great customers that can put tremendous scale and have those customers meet the technologies that were in the I&A portfolio. So we’re really excited about it. I think Kris mentioned it already. We’re ahead of our expectations so far, early innings, but I really, really feel great about that deal and the team really driving behind it. So look forward to more things on that end. But again, broad markets at a high level. These are big numbers we’re talking about now. We just – we put over a $500 million print. We’re creating tremendous diversification. It’s a $2 billion run rate. This is not Skyworks 3 years ago. We were at 3.3% in 2020. We’re in the mid $5.6 billion level now with a much more diversified portfolio. So we’re looking forward to reflecting that in our valuation and delighting our customers.

Liam Griffin:

Yes. I mean on the modem side, the baseband processor, we don’t make that product, but we have technologies that will wrap around just about anybody’s baseband, whether it’s friend or foe. So we’re agnostic to that. And our customers are really going to make the decisions that they need to make to get the best performance. So, you could very well see a high-content device populated with a lot of very unique Skyworks Solutions that are all in-house, custom crafted, not fabless, done in-house in our building, in our factories with people that live and breathe wireless. And those same applications could have a baseband from Qualcomm or someone else. So, we live with that all the time. But the interesting thing is with baseband, you have got a single kind of monolithic high-performance device. When you think about what’s happening in a mobile phone today as we move into 5G and beyond, the number of connected things, the content, the size of the semiconductor devices thinking about filtering all the way from TC-SAW to Bulk Acoustic Wave, leveraging gallium arsenide. There is a lot of complexity. And it’s not done by any one company. So, I think if you look at the number of nodes that we address within mobile, it’s really, really high and diverse. So, there are some cornerstone pieces, of course, in every device. But our solutions are gaining a lot of share and the flexibility that we have, given that in-house fabrication and assembly and test and in-house filtering. So, we can do a lot of things that are a little more crafted unique, customer-centric approach, I would say and it served us well. So, there is room for more than one or two players in a high-end mobile device, but we feel really good about it. And I will say that we have been in this industry – I have been this in a long time, and I am really excited about the appreciation that our customers see and the technology that we can bring. And it’s actually very clearly demonstrated with the leading brands. And oftentimes, the mid-tier players, they want to get better, they want their technology better, and they come to us to try to help them make that leap. So, we feel good about that side.

Edward Snyder:

Thanks a lot. You seem to be pretty excited this year about the content gains in mobile, especially in the second half of this year. I was just wanted to dig into that a little bit. Should we expect similar gains in dual connectivity because that seemed to be a big growth last year, maybe fewer bands being added and more content for the bands you have? And to the extent that a millimeter wave comes out of phones, it sounds like the rumblings, maybe not for this year, maybe for the next year, does that have much of an impact on Skyworks’ content? And then I have a follow-up, please.

Edward Snyder:

And then for my follow-up, if I could. You brought 10% on Samsung this quarter. I am sure it will drop below that in your big ramp for your largest customer in the second half of this year. But one, do you expect it to be 10% for the year overall? And then secondarily and may be more importantly the big change going on here, because it was pretty small. You were down to 3% to 4% of revenue at one point in the last year or so. and now you are back above 10%. Is this largely due to their shift to modules in the mass tier, or are you also seeing – and to the extent that it is, how far into that program, do you expect your, I mean that’s a very big product line, so it’s going to take several years to penetrate. How much more runway do you have in the shift to modules in the master, if that’s where your content gain is? And maybe you could scale for us, how much of it is due to maybe a better content growth in the flagship, too? Thanks.

Operator:

Thank you. And your next question comes from the line with Gary Mobley with Wells Fargo. Please go ahead.

Kris Sennesael:

Yes, I think, Gary, that’s not about right. If you look at – we guided down sequentially 6% to 10%, 8% at the midpoint. I think if you look at average historical sequential declines, it’s in the 3% to 5% range. And so the only difference here is really the fact that our large customer as well as some other customers, right, are leaving revenue on the table in the June quarter, specifically because of the COVID-related lockdowns in April. You have heard from many of those customers that the situation has improved since then, and the factories are reopening, and they are going to try to work hard to fulfill that strong end customer demand that they see. But it’s going to be hard to make that all up in the June quarter.

Kris Sennesael:

Yes. It’s something that we look at it day-by-day, week-by-week, $418 million in the March quarter was an all-time record. We have never spent more than that amount in one given quarter. We still have some firepower there, and we definitely are continuing to generate strong free cash flow. And we will use that cash flow to, of course, continue to pay the dividend, and there is room for improvement there as well and to use it for share buybacks.

Operator:

Your next question comes from the line of Harsh Kumar with Piper Sandler. Please go ahead.

Liam Griffin:

Okay. Alright. Harsh, I will try to start from the beginning here. Well, certainly, the China situation, there is a lot of factors, right. I mean the overarching factor right now is really just the final stages of assembly and test, where you see Foxconn, Pegatron – that is China is where the lion’s share of technology assembly and test and outbound, it’s the biggest hub in the world. So, many, many companies go through that hub, in multiple factories, multiple technologies. So, that’s just – that is a macro China situation that I think will get better. There is not too much we can do right now. And therefore, we had to lower guidance based on the risk and conservatively take our numbers down. But if you look at where we see things coming out, the appetite for the technology is still very, very robust. This is not – I don’t think that it’s going to be a major, major hit to the industry at all. I think we are going to get through it. It’s well understood. We know the parts of the equation that we manage our teams are all over technologies. Our fabs are working great. Our filter fabs are up and running. We are doing well here on the COVID side in the U.S., of course, you know that. But there are still some bumps. And I think that those bumps will be smoothed out in a matter of months. And we will do everything we can to make that happen. And meanwhile, we have also within China have kind of stepped up a little bit more towards the mid to higher end tier within mobile within China. So, we are starting to see a little bit more consumption in China, but not necessarily with the China brands. So, some of the China brands are rolling off a little bit, but some of the major brands, the top three are actually gaining. And that’s been a very important vector for us and it’s something that we anticipated where the smaller companies really need to step up and do more or they are going to follow by the wayside and the top three majors are going to continue to drive. So, that’s the dynamic that is in play. And that’s actually positive for us, quite frankly, because we are seeing more and more names like a Samsung that are stepping up and driving technology and working with Skyworks and others to try to really make that happen. So, that’s a positive for us rather than how do we make a lower cost bill of materials. And then your last comment with respect to largest customers generically here, so I will just say this. We have a very powerful relationship with very strategic customers, and we respect that every day. It is extremely important. It’s not just the people side, which is great. It’s also the technology and collaboration and the trust and the execution. And that comes with great people, but also comes with investments in the assets and know-how around the portfolio and understanding the nuances between the carriers and the manufacturers and all of the drill systems that we work with. And the way that works is it’s a partnership where we can provide great technology to make our customers better. That’s the initiative, that’s what we want to be able to do. And we have been able to do that with some really important high bar players, and we love it. And I think that’s going to change. And with respect to modem changes, not going to be a problem, we have worked with top-tier customers with Qualcomm on the modem, with Intel on the modem, with MediaTek on the modem that we are agnostic, and we have to be. We would not be able to run the business the way we do if we didn’t have that flexibility. We have talked a little bit about that before, but just to reiterate, Skyworks’ ability shoulder-to-shoulder, engineer-to-engineer, we know how to solve problems. We know how to create success with our customers and that’s the culture of our business. So, that’s not going to change. But I appreciate that was actually a good question just to really kind of cover some of the nuances around the real dynamics behind the technology. And we don’t take any of that for granted. And every day, we just want to make our customers happier.

Liam Griffin:

Thank you all for participating in today’s call. We look forward to seeing you at upcoming investor conferences. Thank you.

Operator:

Good afternoon, and welcome to Skyworks Solutions' First Quarter Fiscal Year 2022 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.

Liam Griffin:

Thanks, Mitch, and welcome, everyone. Skyworks delivered a strong start to the fiscal year, establishing all-time quarterly records for revenue and free cash flow. Looking at the quarter in more detail. We delivered revenue of $1.51 billion, above consensus and up 15% sequentially, demonstrating the strength of our broadening product portfolio. Specifically, the mobile business grew 12% sequentially, driven by increasingly complex architectures in 5G phones at our largest customer and momentum across the Android ecosystem. In parallel, our broad markets business achieved a record $477 million in the quarter, up 23% sequentially and 46% year-over-year. Our growth was fueled by both the continued adoption of our solutions across 5G, IoT, automotive and wireless infrastructure, and an expanding set of new customers and markets from our recently acquired I&A business. Importantly, Skyworks continues to drive strong profit margins and exceptional cash flow. We achieved gross margin of 51.2% and operating margin of 38.8%. We posted earnings per share of $3.14, above consensus and up 20% sequentially. Finally, we generated record Q1 operating cash flow of $582 million. As our first quarter results illustrate, the growth trajectory we established in fiscal 2021 is extending into fiscal 2022. We continue to see deployments accelerating with 5G cellular subscriptions predicted to grow from 700 million today to more than 4.4 billion by the year 2027. As connectivity becomes more vital to the ways we work, educate and play, devices are increasingly integrating 5G with advanced WiFi, precision GPS, Bluetooth, Zigbee and other wireless protocols, creating the seamless and ultrafast experience demanded by our customers. The rapid adoption of new wireless technologies enables a proliferating set of use cases with design wins spanning mobile and broad markets, further bolstered by contributions from our recently completed acquisition. Specifically in mobile, we shipped Sky5 platforms across leading smartphone OEMs, including Samsung, Oppo, Vivo and Xiaomi, among others. In enterprise and IoT, we supported WiFi access points at Siemens, powered NETGEAR's latest WiFi 6 and 6E mesh system, partnered with British Telecom to launch 5G home routers, ramped WiFi 6 and 6E modules at Juniper Networks and Telus, and provided digital isolation solutions for GE Consumer Appliances. Moving to automotive. We leverage Sky5 technology to enable telematics, security, driver assist and other advanced services at leading OEMs. We scaled volume production of timing and isolation products, enabling the leading EV manufacturers. And finally, across the infrastructure and industrial space, we captured design wins at Quectel for enterprise M2M platforms, delivered industrial IoT solutions to Itron, Honeywell and Thales, supporting smart energy and factory automation. We also expanded our position in timing applications at the top 5 data centers. And as markets evolve, we expect to deploy billions of wireless devices, capitalizing on a strong multiyear growth trend. Advances in cloud and edge computing, autonomous vehicles and factory automation, together with the emergence of the Metaverse, we are intensifying the burden on existing networks, catalyzing demand for our highly integrated and customized platforms. From inception, Skyworks has been a driving force empowering the wireless network revolution, connecting people, places and things. We invested early and extensively to develop and fabricate cutting-edge technology at massive scale. Today, we're a global leader providing the essential elements required to deliver the highest performance connectivity platforms in the industry, producing billions of units, integrating core technology nodes, including gallium arsenide, bulk and surface acoustic wave, as well as the most advanced multi-chip module test and assembly capabilities in the world. Underpinned by this powerful foundation, we are leading the transition of 5G, inspiring a new era of unrivaled innovation. The strength of our balance sheet and consistent outperformance demonstrates the significant value of our vertically integrated model and the compelling advantages it delivers. Looking forward, we are committed to supporting the strategic investments in technology, product development and world-class manufacturing scale to further extend our market leadership. With that, I will turn the call over to Kris.

Liam Griffin:

Thanks, Kris. Despite macro challenges in supply chain specific headwinds, Skyworks delivered excellent first quarter results, underscoring the increasingly diverse composition of our customer base and extending our track record of strong profitability and robust free cash flow generation. This strong performance and outlook reflect our critical position within the wireless ecosystem and how complexity favors Skyworks with its vast IP, deep customer relationships, differentiated manufacturing capabilities and market-leading solutions. The momentum established in Q1 positions Skyworks for another year of record revenue and earnings. That concludes our prepared remarks. Operator, let's open the lines for questions.