Qorvo Q2 2022 Earnings Call Transcript

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Provided by Quartr
November 2, 2021

Key Takeaways

  • Record Q2 Results: Q2 revenue reached $1.255 billion, up 18% year‐over‐year, with non‐GAAP EPS of $3.42 and a 34.7% operating margin marking the fourth consecutive quarter above 33%.
  • Q3 Revenue Guidance Cut: December quarter revenue is guided to $1.09–1.12 billion, down 12% sequentially, reflecting supply constraints and softer demand, particularly in Asian smartphone markets.
  • Ongoing Supply Chain Disruptions: Industry‐wide material shortages and factory shutdowns in Southeast Asia continue to constrain production in both mobile and infrastructure segments, though improvements are expected by the March quarter.
  • Strategic Acquisition of United Silicon Carbide: The purchase of United Silicon Carbide expands Qorvo’s high‐voltage power semiconductor portfolio for EVs, charging stations and renewables, with accretion expected by end of fiscal 2023.
  • Broad 5G and Connectivity Momentum: Strong wins in 5G RF front ends across flagship and mass‐market smartphones, plus design wins in Wi-Fi 6E/7, ultra-wideband, small cells and defense, support an expected continuation of double-digit growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Qorvo Q2 2022
00:00 / 00:00

There are 15 speakers on the call.

Operator

Good day, and welcome to the Qorvo Inc. Q2 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Douglas Dilitto, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thanks very much, Todd. Hello, everybody, and welcome to Qorvo's fiscal 2022 Q2 earnings conference call. This call will include forward looking statements that involve risk factors Could cause our actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release published over

Speaker 2

to today as well as

Speaker 1

the risk factors associated with our business and our annual report on Form 10 ks filed with the Securities and Exchange Commission because these risk Factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non GAAP financial results. Over to provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact over to certain non cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non GAAP results. For a complete reconciliation of GAAP to non GAAP financial measures, please refer to our earnings release issued earlier today available on our website atqorvo.comunderinvestors.

Speaker 1

Joining us today are Bob Breckenworth, President and CEO Mark Murphy, Chief Financial Officer Eric Crevison, President of Qorvo's Mobile Products Group Philip Chesley, Incoming President of Qorvo's Infrastructure and Defense Products Group and James Klein, outgoing President over to Qorvo's Infrastructure and Defense Products Group as well as other members of Qorvo's management team. And with that, I'll turn the call over to Bob.

Speaker 3

Thank you, Doug, and welcome everyone to our call. The Qorvo team delivered an exceptional September quarter with revenue and EPS at all time highs. Strength during the quarter was broad based across customers and supported by new product launches. In mobile products, The multi year migration of 5 gs continues to drive RF content and integration trends. What began in top tier flagship phones is now playing out in the mass market, where the RF content increase is greater on a percent basis than in flagship devices.

Speaker 3

Qorvo enjoys broad exposure to mass market designs at customers like Honor, Oppo, Pixel, to Samsung, Vivo and Xiaomi. As a preferred supplier with leading products and a robust technology roadmap, Qorvo is well positioned as 5 gs devices and Android ecosystem contribute increasingly to the growth in the RF TAM. Over to the operator. In other connectivity markets, ultra wideband adoption in smartphones is serving as the infrastructure for a growing ecosystem of ultra wideband enabled devices. The opportunity set spans mobile, automotive and IoT markets, creating a strong foundation for growth over the coming years.

Speaker 3

In WiFi, the adoption of WiFi 6E And the performance limitations of smaller node CMOS integrated PAs are driving the migration to chip onboard FEMs and iFEMs like ours. In Wi Fi and other markets, Qorvo's products and technologies are at the forefront of multi year to upgrade cycles, enabling new ecosystems and use cases and transforming the user experience. Now let's look at some of the quarterly highlights in our end markets, starting with mobile. For Google, we commenced shipments of mid high and ultra high band pads, to antenna tuners and multiple connectivity solutions to support the ramp of their recently announced Pixel 6. For an upcoming Korea based 5 gs mass market smartphone platform.

Speaker 3

We received the first production orders for our mid high and ultra high band pads, to WiFi, FEMs and multiple high performance discrete solutions. In mobile WiFi, we secured a WiFi 6 FEM design wins with multiple top tier smartphone OEMs and began sampling Wi Fi 7 FEMs enabling higher data rates and improved performance. In ultra wideband, Qorvo is advancing technologies for a diverse ecosystem of proximity aware connected devices. We secured an ultra wideband design win to enable real time device tracking and other location aware applications in home mesh networks. And we were selected to supply ultra wideband solutions for enterprise access points as well.

Speaker 3

We also expanded our engagement with a leading provider of consumer IoT products across a broad set of connected home devices, including smart speakers, Point control fans and air conditioners. In automotive manufacturing, Qorvo was selected to supply ultra wideband over to our customers with concurrent connect technology to an automaker in Korea, streamlining automation and manufacturing. Over to the operator. In other connectivity markets, we began sampling a WiFi 6 Ifim covering 5.2 gigahertz in 5.6 gigahertz and featuring an integrated BAW filter. Qorvo's 5 gigahertz iFEMs enable higher capacity and improve efficiency and reduce form factor.

Speaker 3

In broadband, we begin sampling a triple output to DOCSIS 3.1 amplifier module supporting network upgrades for major cable operators in the U. S. And in Europe. In infrastructure, design win activity was strong across OEMs, including small cells and base stations. Wins included all of the RF transmit and receive path content, including BAW filters for 5 gs small cells at a major base station OEM.

Speaker 3

We see infrastructure markets picking up in 2022 with Qorvo SAM growing year over year. Over to Samford Qorvo outside of China will post significant growth next year and support a strong double digit CAGR through 2025. In Aerospace and Defense, we expanded our product portfolio with an industry leading 125 watt S band power amplifier module and a 1.8 kilowatt L band radar pallet for commercial and defense radar applications. In RF based biotechnology testing, we received our first commercial orders and commence shipments over our Omnia Antigen Test platform. During the quarter, the NIH Radix Variant Task Force conducted an external study that demonstrated the performance of our Omnia antigen test platform in effectively detecting COVID variants, Including the Delta variant.

Speaker 3

Although this is a new market for us, we believe we bring a novel technology that offers unique in real value as the world moves to more testing protocols, including for flu AB and other seasonal pathogens. Our platform offers a unique combination of accuracy and speed at the point of care with improved process flow including to real time wireless delivery results. We have seen its benefits in our own operations as part of our protocol for our own internal testing. After the quarter closed, Qorvo acquired United Silicon Carbide, an innovator in silicon carbide power devices at a pioneer in Silicon Carbide JFETs. The combination will further differentiate Qorvo's power portfolio, Enabling more highly integrated power device solutions and expand our addressable market to include higher voltage applications that demand maximum power efficiency such as electric vehicles, charging stations and renewable energy systems.

Speaker 3

Over to Chris Streis and his team and look forward to helping them accelerate the growth in their business. Over to Qorvo, our ability to deliver more power, more efficiently and using less current helped put us at the center of the digital transformation. We are eager to expand these competencies as global markets move to electrification and renewable energy. Qorvo's technology portfolio is best in class. Our product position is strong.

Speaker 3

Our end market exposure is expanding And we are operating very well. Yes, we are seeing constraints and we are working closely with our customers and our partners. Mark will have more comments about the operating environment and we look forward to discussions during your question and answers. Big picture, we see the industry working through this as it always has. For Qorvo, we see a business with unique competencies to an expanding set of growth drivers and we expect a continuation of double digit growth over several years.

Speaker 3

Before handing the call over to Mark, I'm pleased to welcome Philip Chesley as President of Qorvo's Infrastructure and Defense Products Group. Philip has a proven track record growing global semiconductor businesses with experience in RF, Power, to data communications, automotive, industrial, aerospace and defense. We are very pleased Philip has joined Qorvo to lead our IDP team. I also want to thank James Klein. Since the formation of Qorvo, James and the team have more than doubled IDP revenue, while creating a recognized industry leader.

Speaker 3

We thank James for his many contributions to Qorvo and wish him the very best. James will remain with us through November to help ensure a smooth transition with the change in the IDT leadership. Over

Speaker 4

to Mark.

Speaker 5

Thanks, Bob, and good afternoon, everyone. In the September quarter, Qorvo delivered the strongest quarterly revenue and earnings in the company's history. Over to Qorvo's revenue for the fiscal year 2022 Q2 was 1,255,000,000 to $5,000,000 above the midpoint of our guidance and $195,000,000 or 18% higher than last year's September quarter.

Speaker 4

Over to you. When comparing September quarter numbers,

Speaker 5

recall that our fiscal year 2021 was a 53 week fiscal year over to you. And the September quarter last year was a 14 week quarter versus this fiscal year's more typical 13 week quarter. Mobile Products revenue of $996,000,000 was up 32% year over year on the continued growth of higher content to 5 gs Smartphones. Infrastructure and Defense Products revenue of $260,000,000 was slightly below to the operator to review our expectations due to reduced supply from outsourced assembly and test operations in Malaysia and elsewhere. Over to you.

Speaker 5

As expected, IDP was down year over year due primarily to last year's strong infrastructure build out and the 14 week quarter. We expect IDP to return to year over year growth in the December quarter and growth to accelerate in the March quarter. Non GAAP gross margin in the September quarter was 52.4%, above the midpoint of our guidance despite to supply chain disruptions that worsened through the quarter. Non GAAP operating expenses in the second quarter were less than expected at $222,000,000 or 17.7 percent of sales. The sequential and year over year increases in OpEx were driven by to the operator to discuss the financial results and financial results.

Speaker 5

Non GAAP operating income in the September quarter was $435,000,000 34.7 percent of sales. This was the 4th consecutive quarter of operating margin over 33%. Non GAAP net income in the 2nd quarter was to $385,000,000 and diluted earnings per share of $3.42 was $0.18 above the midpoint of our guidance. Cash flow from operations in the 2nd quarter was $245,000,000 Our working capital includes an increase in payables associated with a long term silicon supply agreement. The largest of these payments is a deposit, This agreement is a structured way to advance our differentiated technology position and simplify our long term planning.

Speaker 5

Furthermore, it's only one of a number of examples whereby Qorvo is building longer term and more collaborative partnerships to provide our customers supply assurance and meet their product and technology needs. Concurrently, our customer relationships are broadening and strengthening, allowing us to invest with more certainty.

Speaker 4

Over to you. As we have

Speaker 5

indicated previously, the challenges the industry is currently experiencing are driving more constructive and longer term relationships to the Q1 of 2019.

Speaker 4

The Q1 of 2019

Speaker 5

was $47,000,000 lower than expected on spend timing and an earlier than expected reimbursement for a portion of our government funded work on advanced packaging. Free cash flow was $198,000,000 and we repurchased to $223,000,000 of shares. Over the last two quarters, we've purchased $523,000,000 of shares, to Mr. President, which was 110% of our free cash flow. We continue to repurchase shares as our outlook is positive, over to our financial results.

Speaker 5

Our free cash flow and ability to sustain investment in technology and growth is strong and our leverage remains low. On the balance sheet, cash and debt remained largely unchanged from the prior quarter at $1,200,000,000 $1,700,000,000 respectively. Over to the operator. In the December quarter, our cash is projected to decline following payments associated with the previously mentioned agreement over to our acquisition of United Silicon Carbide. Now turning to our current quarter outlook.

Speaker 5

We expect revenue between $1,090,000,000 $1,120,000,000 Non GAAP gross margin between 52% 52.5 percent. Non GAAP to diluted earnings per share of $2.75 at the midpoint of our guidance. Our December quarter revenue outlook reflects broad based challenges in supply impacting mobile and IDP And near term weakness in demand, principally in Asia. Starting with supply, over to the operator. We have several areas of constraint.

Speaker 5

Our external supply chain is still recovering from disruptions in September, including shutdowns in Southeast Asia. Beyond that, select materials, over to our operator. Products and production capacity remain tight. These are industry wide issues affecting all suppliers And our customers are challenged in producing matched sets for products. For example, in smartphones, Even where channel inventory for certain parts is healthy, customers lack silicon chips to produce phones.

Speaker 5

This in turn creates changes in demand that add to constraints on our own production as we work to adjust mix. Mix changes are part of our business, but in a normal environment, over to Qorvo can move swiftly to respond and capture demand. These supply driven gaps are making recent demand softness in select areas such as our Asia smartphone customers harder to quantify. We see the industry working through this situation with some supply effects beginning to moderate this quarter And supply demand alignment improving more broadly through the March quarter. Given these supply and demand effects, we now see IG smartphone volumes coming in below $550,000,000 in calendar 2021.

Speaker 5

Qorvo's December forecasted revenue of $1,105,000,000 at the midpoint It's down 12% sequentially and up slightly year over year. We forecast mobile revenue in the current quarter to be approximately to $830,000,000 at the midpoint, down 17% sequentially and flat year over year. In the March quarter, we expect mobile to be up slightly sequentially as a typical seasonal decline is offset by improved supply and demand. In IDP, we project revenue to increase in the December quarter to $275,000,000 and the segment to return to year over year growth. We expect IEP to be over $300,000,000 in the March quarter.

Speaker 5

Our December quarter gross margin guide of 52.25 percent at the midpoint is up versus the view we provided last quarter a more challenging supply demand environment than expected. We see our technology and product mix over to our operator and capital efficiency yielding a gross margin above 52% for the fiscal year. We expect the March quarter to be around 52%. We project non GAAP operating expenses to increase slightly in for the quarter to approximately $224,000,000 reflecting higher investments in core technologies and to expanding capabilities and new businesses, including the addition of the United Silicon Carbide team. We now project our current quarter and full year non GAAP tax rate to be between 8.5% 9%.

Speaker 5

Capital expenditures are projected to exceed $70,000,000 in the December quarter as we work to intersect demand and support long term supply agreements with multiple customers. Currently, we are supply constrained and project to remain so through our fiscal year end. We continue to expand BAW and gas capacity as well as biosensor production capacity to support our growth projections for fiscal 2023. In summary, We expect year over year revenue growth in the December quarter, though less than we had expected previously. The current supply challenges and near term demand weaknesses weakness are acute, but more temporary than durable.

Speaker 5

We expect supply effects to moderate starting this quarter and improved supply demand alignment early next calendar year. For full fiscal year 2022, we expect revenue growth over 15%, We expect revenue growth over 15%, gross margin over 52% to an operating margin of approximately 33%. Looking beyond this fiscal year, over to Qorvo's premium technology, product portfolio and operating capability to support 5 gs, WiFi, IoT, Defense, Power and other growth markets. Over to you. Overall, we are investing to grow mobile and IEP atorabovemarket.

Speaker 5

Looking at our business by end markets instead of to operating segments helps highlight the strength of our portfolio and market position. On advanced cellular RF front ends for smartphones, Qorvo's technology and product breadth is world class. We expect this part of Qorvo's business near $3,300,000,000 this fiscal year to deliver high single digit to low double digit growth as increasing RF complexity and integration trends support years of content over to our next question. Next, looking at other connectivity beyond cellular solutions for smartphones, over to Qorvo enjoys exposure across multiple wireless protocols and serves industrial automation, connected home, to Automotive and Other High Growth IoT Markets. This fiscal year, connectivity solutions spread across to our mobile and IDP segments combined to approximately $700,000,000 and can grow in the strong double digits.

Speaker 5

Finally, Defense, Infrastructure and Power Solutions support multiple long term secular growth drivers. Over to you. These include the multi year build out of 5 gs infrastructure, increasing semiconductor spend in defense and worldwide demand for power semis driven by megatrends like electrification. We expect to sustain long term double digit growth in this business from a base of over $600,000,000 this fiscal year. Our December quarter is off what we expected previously, but still guided up year over year as is our view of the March quarter.

Speaker 5

We expect the business to strengthen through the second half of our fiscal year and contribute to a record full year performance, to the operator to discuss the financial results, including earnings growth over 20%. Longer term, the outlook is bright. Over to Qorvo is exceptionally well positioned to deliver earnings and free cash flow growth, serving the large and growing need for more efficient power and greater connectivity. Now Todd, would you please open the line for questions?

Operator

Again to ask a question.

Speaker 4

We'll take

Operator

our first question from Toshiya Hari with Goldman Sachs.

Speaker 6

Hi, guys. Good afternoon. Thanks so much for taking the question. I have 2, if I may. My first one is probably for Mark.

Speaker 6

The 17% sequential decline you're guiding to in your mobile business for December, it's probably hard, but can you sort of break that down into supply factors and demand factors to the extent possible. And then on the demand side, you talked about weakness in Asia, but if you can elaborate on that, that would be super helpful. And I got a quick follow-up.

Speaker 5

Sure. So, Toshiya, We decreased our December number about $150,000,000 as you can see. And about $135,000,000 of that was in mobile, where we went from roughly $965,000,000 to $830,000,000 in the December quarter. The balance of the decrease was IDP. IDP is the most straightforward.

Speaker 5

It's all supply in IDP. So just keep that in mind. Of the 135 roughly in mobile, Yes. As we characterize supply constraints, which is our suppliers not having supply for us, Our customers not having the chipsets thus not able to build their product and use our product. And then finally, our own internal constraints.

Speaker 5

We see up to $100,000,000 that we would characterize as supply related of that $135,000,000 The balance, so $35,000,000 we would view as net Demand. Some demand is up and we're able to intersect that, but some demand is clearly down and I think that's well publicized, particularly in parts of Asia. So broad brushstrokes were 3 quarters or less down on supply in mobile and 1 quarter or more related to demand. Now. If you add in IDP, which is all supply, then that proportion is stronger.

Speaker 5

So

Speaker 4

over to you.

Speaker 6

Great. Thanks for the color. And then as my follow-up, You guys talked quite a bit about having constructive longer term conversations with your customers. You also talked about to your long term silicon supply agreement. As you kind of compare and contrast the visibility you have today versus 3 years ago, 5 years ago.

Speaker 6

I mean, how would you characterize the key differences? I'm sure you've had long term agreements in the past, but how much bigger are they as a percentage of your backlog? And and how enforceable are they going forward relative to history? Thank you.

Speaker 2

Yes, Toshiya, this is Eric. I'll take that. I think One of the silver linings in this environment is how constructive the conversations have gotten in terms of much longer term. So not just 1 or even 2 years, but in some cases up to 3 years of discussions about how we're going to outline both our technology and supply roadmap to our customers' product roadmaps, their markets and what they expect to ship. And Of course, there's no crystal ball.

Speaker 2

It's not perfect, but at least we have ranges of alignment and sort of volume bars, windows and things like this that we can talk both to our customers and to our suppliers. And I think for suppliers, it's a great benefit to them and us to have more stability. And for our customers, of course, supply assurance is paramount and for us to have more confidence in our growth of the businesses It's of course very important as well. So it's a very different environment driven by all the factors we've talked about already on this call.

Speaker 7

Got it. Thank you.

Speaker 5

Thank you.

Operator

We'll take our next question from Vivek Arya of Bank of America.

Speaker 8

Thank you for taking my question. For the first one, I'm curious given the supply constraints in the industry, Does that change the competitive landscape in the RF side in some way as we look at next year? So for example, if one of your competitors can bundle their apps, processors and modems along with the RF side, do you think that gives them perhaps an advantage from a competitive perspective as we look at next year.

Speaker 2

Hey, Vicki, this is Eric. I don't think so. Technology decisions are still critical to enable next generation phones and best in class RF is still going to win in the front end section. So I don't think we're You're competing against people that have advantages of bundling across the boundary, if you will, from the apps and modem side to the RF side really. Over.

Speaker 2

And I think again just as in the last question with Toshiya, I think the long term visibility we have and kind of planning our technology roadmaps, we're getting no signs that there's any change, if you will, in terms of the bundling or the architectures that would change that.

Speaker 3

Vivek, this is Bob. Thanks for your question. I think the other Point that's interesting is that a lot of the things that our customers are waiting on are from some of those very people you mentioned. So I think we need to keep that in mind. It's not us.

Speaker 3

The primary reason is we have the parts, we can get the parts for them. They've been saying as we mentioned many times through last quarter as well as this quarter, the challenges our customers have with match sets or kitting whatever Vocabulary you want to use, that's been their bigger problem is in SoCs, not with RF front ends, at least not from us.

Speaker 8

Got it. And then on the acquisition that was announced, I was hoping you could give us some more color in terms of What is the right way to reflect that in the model? And our sense of the silicon carbide and the Power Semi spaces, of course, it's in front of a very large growth opportunity in autos and industrial and so forth. But it's a very to capital intensive space, right, and a number of the established players have margins well below your corporate average. So what's the right way to think about the strategy?

Speaker 8

And is it going to be accretive over time for you?

Speaker 5

Over. Yes. Let me take some of the financial elements, Vivek, and I'll turn it over to James. 1st of all, we're not in the capital intensive part. We're in the device manufacturing part.

Speaker 5

So that's the expertise and we're over to our leveraging our silicon carbide, GaN and silicon carbide knowledge and which will be an advantage here. So that's maybe first thing is realizing that this is these are things that we can foundry and source the material. There'll be more disclosure in our Q tomorrow, but it'll be over $200,000,000 that we're paying for United Silicon Carbide. And it is dilutive initially, but we expect that to be accretive maybe at the end of next fiscal year and we expect it to be a significant business for us several years out.

Speaker 9

Over to James?

Speaker 10

Yes. This is James. So as you stated, we like the aspect that it gets us into to several fast growing markets like electric vehicles, industrial power, and data centers, maybe in longer term even in things like circuit protection. We see it in current year expanding our adjustable market by almost $1,000,000,000 And we think that certainly continues to grow at a high growth rate as we go over the next several years. We do believe that we have to leading performance in efficiency and in die size.

Speaker 10

So we think when we compare those differentiated type capabilities With our existing power management capabilities, we really do believe we have the ability to continue to grow and scale the business.

Speaker 4

Thank you.

Operator

Thank you. Our next question comes from Blayne Curtis of Barclays.

Speaker 7

Hey, good afternoon. Thanks for taking my question. I just want to go back on the supply issues. If you look at the shipments from the 2 major modem companies. I guess they're up and you're seeing a correction.

Speaker 8

So just kind

Speaker 7

of curious, there's a couple of ways that could happen. Just kind of curious, if now in retrospect, did you ship more RF than maybe modems in the first half of the year and that has to correct? Or kind of curious to hear thoughts on that. I know you probably haven't seen Qualcomm's guide, but that MediaTek, they're not seeing as sharp of a decline in December. Just kind of thoughts between the disconnect there?

Speaker 2

Hey, Blaine, this is Eric. It's, yes, it's a good question. And I think to a certain extent, there's some of that. And I think a lot of it comes down to mix as well. I think we did a good job of responding to customer demand.

Speaker 2

Now we still have several parts where we're on allocation as well and chasing and behind of as we talked about, but for the most part, we did a pretty good job of satisfying customer demand. But What happens is as the mix shifts, I mean, they're essentially picking every baseband ship they can get regardless of which RF is on. So Yes. It could be that net net we shipped a bit ahead up to this point.

Speaker 7

Okay. And then just from your perspective, Ryan.

Speaker 5

Go ahead. Well, I was just going to add Blaine that listen, we're disappointed with the December guide, but I think it's also to reinforce our commitment to keep the channel healthy and give you a guide best we see on the supply demand fronts. But it's never easy, but admittedly it's more difficult than usual environment right now. I do think it's important with this adjustment to step back, not lose sight of how good a business we've got. For this fiscal year, we called down, but that was and we missed, but that's a There was an aged consensus that clearly the supply environment worsened through the quarter, particularly in mid to late September and then these publicized weakness and demand emerged.

Speaker 5

We see things improving. We think December is as bad as it gets for us and we see improving in March and broadly. We had given a guidance range of 15% to 20%. And with this 2.5% adjustment For the year, we're down at the lower end of that range. So we're still in the range that we had provided.

Speaker 5

Yes. Listen, our gross margin outlook is intact around 52%. OpEx is in control and we're investing in the future of the business. That's both traditional parts of the business and newer parts of the business. And in the end, we're taking EPS roughly a dime above $12 to roughly a dime below $12 And Yes, there is a bit of a correction there, but I would say it's the right thing for us to do.

Speaker 5

If we look into next year and beyond, we're just Yes, feel great about our position. Premium Technology and Products, serving attractive end markets growing double digits and we expect to grow double digits. We're operating well, sustaining margins over 52%, to expanding operating margins. So lots to talk about in the positive beyond this quarter.

Speaker 7

Thanks. And I guess when you look at your supply constraints on your business, I mean you did grow inventory in to September with that level of sales. So I guess I'm looking at now sales down teens. So I guess I'm kind of wondering, I guess, Does the supply situation get that bad between September, December or is there another factor there? I'm just trying to understand those moving pieces.

Speaker 5

No. We're it did get worse in mid to late September, Blaine, for sure. And that's what we've tried to explain. And first, it was the supply environment, which has been tough for a year and a half, Almost 2 years now. The supply environment got worse.

Speaker 5

And then demand over the past 3 weeks or so has deteriorated. But Our work and some of that inventory is just again, it's mix match of sets and so forth like that. Over to you. But having said that, our inventories are okay. I mean, our turns are at the high end of to historical range.

Speaker 5

And even with the slowdown, the turns will be within the normal historical range. Over to you. So we yes, this is why we're dealing with this now. And again, we think it's a short term issue that we work through and are in better shape in the March quarter. Thanks.

Operator

Thank you. We'll take our next question from Karl Ackerman with Cowen and Company.

Speaker 11

Yes, thank you. For your December quarter outlook. Are the bottlenecks you described at least for mobile, are they concentrated in the Android ecosystem? And then if I may, just as a follow-up, if you could highlight whether the growth trajectory of Android into December is better or worse than your guide of down 17 for mobile. That would be very helpful.

Speaker 11

Thank you.

Speaker 2

Yes. Carl, this is Eric. I don't think we can break them up between ecosystems like that and give any more color given the concentration of the ecosystem.

Speaker 11

Okay. If I may then, just going back to this acquisition you've made in Silicon Carbide. I understand that most of United States products are aimed at to high voltage server and general industrial power supplies where you have some pretty good customer overlap today. By. Could you discuss your plan go to market for United Stick and whether they have existing relationships with Tier 1 automotive OEMs?

Speaker 11

Thank you.

Speaker 10

Yes. So today you're right. I mean it's predominantly it's I would say on the lower voltage scale And it's in power supplies around automotive and data center applications. If you look at how we plan to take the business on a go forward basis, Certainly, we'll use our channels to expand substantially. As you know, we've got a broad base into the automotive and in many other places like the defense market will be able to take this technology over the long term.

Speaker 10

We'll also be scaling the technology up in voltage, which will allow us to enter other parts of the automotive space, motor controls and things like that on a go forward basis. Over to

Speaker 4

you.

Operator

Thank you. We'll take our next question from Gary Mobley with Wells Fargo Securities.

Speaker 12

Hey guys, thanks for taking my question. I wanted to pick up with some line of questioning on the acquisition. James, your core competency historically in widebandgap semiconductor materials, correct me if I'm wrong, has been in GaN Power or I'm sorry, GaN RF. And United Silken Carbide's core competency, of course, in certain carbide and the company has always outsourced manufacturing to X Fab. And so my question is the plan to eventually bring in the manufacturing internally leveraging some of the to Qorvo's historical widebandgap processing capabilities.

Speaker 12

And then related to trying to penetrate the automotive market, it has been important so far for car OEMs to align with silicon carbide providers that are vertically stacked with bowls, materials and power devices for supply chain security. And so my question is, is it a matter of strategy, is that the intent long term for this business?

Speaker 10

Let me take the second one first. Certainly, we'll use our very large and strong supply chain to make sure we supply that. And of course, we have expertise also in very high power packaging. So we'll combine that with the power control that we have from the Active Semiconductor acquisition that's been a couple of years ago now. And we really intend to take this business much more into a module play where we'll have that integrated capability.

Speaker 10

And of course, we'll use our supply chain to make sure we've got stable of raw material and the ability to manufacture the wafers and things like that. As far as moving inside, we'll certainly As we go over the period scale in the business, we're going to take a hard look at what makes sense and what doesn't make sense. I think there's parts of that process that maybe we'll adapt well to some of our internal capabilities and some that may be a bit more

Speaker 2

of a challenge. And

Speaker 10

I think we'll just look at that as we go through the next several years as we scale to see what makes the most economic sense go forward basis. Yes. Thank you. And

Speaker 7

correct me if

Speaker 12

I'm using the wrong term here, but the

Speaker 3

Sorry, Gary, the question.

Operator

I'd like to go to the next question.

Speaker 3

Sure.

Operator

Next question comes from Edward Snyder with Charter Equity Research.

Speaker 9

Thanks very much. Eric, it's clear that Qualcomm is gaining some share in the low and mid high in the low in China and Samsung's to mass market. How can you be sure that some of your demand weakness is in share loss in a few slots in that area? I know they don't participate as much in tuning, but I was trying And then Mark, I'm really puzzled by the Sic Power acquisition. Buying wafers from pre and foundry through Xfab will work if it would seem if it's like the industrial market or more of a diversified analog.

Speaker 9

Over to you. But you face a huge disadvantage in scale against ST Infineon and especially Wolfspeed's new foundry in New York. Over to you. So I'm just curious, where do you see this going? What levers do you think you can pull or lever do you have for this new acquisition to get you into EV, because it isn't going to be cost.

Speaker 9

And given the size of the fab and the fact that there'll be Fabbing on wafers, you can't even get the 200 millimeter wafers. You're going to be facing a big issue in terms of scale too. So I'm just trying to get a little bit more clarity on what markets you're

Speaker 2

to. Okay. I'll start with the question about over to share and how we can be certain about our share gains or losses. And it's fairly straightforward for us. I I don't think there's a phone platform of any significance that we don't have content on.

Speaker 2

So we know exactly how many phones every model are being built. And so we know exactly what our share is. We do all the teardowns and figure out what all the other slots are if we don't already know. And it's easily attractable. And I can assure you, it's Not a share issue at all.

Speaker 2

In fact, we're excited as we exit the December quarter and go into March, I think we've got some very nice content pickups with Samsung in particular, new platforms that we're really happy about that tailwind. But right now to your question, I think We're quite certain of our share position, especially against Qualcomm or frankly any RF supplier.

Speaker 10

Ed, this is James. I'll take on the acquisition Question. So for us that the technology benefit there is low loss and therefore smaller die size. We agree, competitive market, but we are sort of the high end performance side of that side of the market. So it's going to take it's going to take that customer set that's really, really looking for a high performance part.

Speaker 10

Now go forward basis, we'll take both the power management things that We have in the prior acquisition and our packaging capability, it will move more into a module space. And again, we'll do that selectively where we see parts of the market that are really going to be driven by performance. So we're not trying to take on the world.

Speaker 9

So you're going to be high performance application specific in the module side of it, but you did mention EVs quite

Speaker 10

a bit and all EVs you've built into big modules for Well, there'll be high performance applications in that space as well.

Speaker 9

And I hate to see you go.

Speaker 8

I know it's time

Speaker 9

to retire. Everybody's got that time, but I'll miss coming down and bugging you. Before we get off and push off into the prairie, I had a question about your 5 gs, you guided or the guide for IDP was outside of China, you're going to expect to see growth given how pervasive China was for the 5 gs infrastructure business and how it's not coming back and the U. S. Looks to be a lot more skittish about.

Speaker 9

Over to you. What's the long term next year on 5 gs for IDP, will you get back to the point where the 5 gs MIMO stuff, is it parity where you were in China or do you expect that to be a longer haul? Thanks.

Speaker 10

Yes. I think on 5 gs specific, over. I suspect it will be a bit of a longer haul, but I will tell you that I'm really pleased with the progress we've made. We've had Wins significant wins outside of China. In that MIMO space, we began getting out our first integrated modules or what we call PAM's to Power and Fire modules and really pleased with those wins and the performance that we have there.

Speaker 10

If you do look at our The core the IDP business minus the infrastructure side, this year will grow north of 20%. So it really is the story for us It is just the lack of deployments going on in China. If you look at that base station business outside of China, It's actually growing way up over 30%. So it really is a story for us about slowdown in China is the IDP to the next question and answer session. The rest of it, the rest of the business is doing very, very well.

Speaker 10

And hey, on your comment about my retirement, I want to say a few words. First of all, I really wanted to thank the Qorvo team for all the work over this past decade or so. They've done just an absolutely tremendous job, and we've been able to accomplish a tremendous amount. I also want to thank Bob for all of his leadership in building Qorvo. I have a lot of pride associated with the company that we've built, and I want to thank Bob for, I guess, guiding us through that, maybe dragging us, but I want to thank you very much.

Speaker 10

And third, I want to thank Philip for accepting the to lead the IDP team. I'm really confident that he's going to do a great job in the future with the organization. So I want to thank him for joining us.

Speaker 3

Thanks, James.

Speaker 13

Thanks, Ken.

Operator

Thank you. We'll take our next question from Christopher Rolland of Susquehanna.

Speaker 13

Thanks for the question, guys. I did want to kind of go back to Blaine's earlier question. So Qualcomm did post some very impressive to RFFC numbers. They're now at about $1,200,000,000 a quarter and probably going up from there. And they actually said that their supply constraints were lessening and had been better than initially expected.

Speaker 13

So over to you. I did want to circle back on the differences between you and them and what you're seeing here in December. I think you guys did say it could be a timing, it Could be an inventory issue, but I'd really love to flush the rest out over to Gary. Is there a difference tied to more MediaTek modem centric customers or to different OEM customers here. Is there anything else that would mark the difference between the 2?

Speaker 3

Hey, Chris, this is Bob. And I'll make a few comments and obviously let Eric add some color. But without seeing what they over to you. Understood. It's a little bit difficult.

Speaker 3

But I believe in that number you gave, there is the millimeter wave front ends that they do sell to our mutually largest customer. And if they broke that out, that probably would be helpful. And Yes, we do see them out there. We don't see them on any MediaTek platforms, that's for sure. But we sit alongside them.

Speaker 3

They don't have the entire RF at the same customers as Eric already outlined. So I think we've got a pretty good handle on what's going on. Yes, they have more RF content, I would say, at our largest customer. That's a fact. So that could be part of it easily.

Speaker 3

But Eric, if you I

Speaker 2

think there's anything that I may have missed. No, just maybe the distinction. I'm not saying Qualcomm's not doing well. They've got some drivers, of course. I I think my response to Ed is that I know it's not at our expense.

Speaker 2

So we're not losing share to them was the question.

Speaker 13

Yes. Thank you for that. And indeed, the millimeter wave is a big portion for sure. And then I did want to switch to M and A for a second and congrats on the acquisition.

Speaker 9

It's this,

Speaker 13

Unionsilicon United Silicone Dari and Decawave. These do appear to be somewhat niche businesses.

Speaker 8

And I

Speaker 13

guess my question is, do you guys have a desire for to more broad based businesses or even a catalog business, whether it's analog or microcontroller or mixed signal, something like that. And what is your desire to move in that direction?

Speaker 3

Well, let me start with Chris. I appreciate the question. And I think we've said before, we'll never telegraph The areas that we want to go after, that's for sure. I think Eric would probably take exception and I'll let him talk about it. The call ultra wideband and niche is Probably a different view than what we have, that's for sure.

Speaker 3

We think that is a nice growth area. And I'll let Eric speak to that because I think what we Demonstrated with the bullets in our press release and my own comments, I think this is proliferating a lot greater than what most people thought. Over to Eric?

Speaker 2

Yes. Maybe to kind of take a step towards your question. I think we're always looking for opportunities that allow us to leverage our scale in mobile And then use that same technology at an unfair advantage everywhere else in smaller markets, right? I mean, that's what an advantage we have with our corporate structure. So UWB fits that perfectly.

Speaker 2

The mobile phone itself, of course, is going to drive billions of units. But around that, there'll be 5, 6, 7 things to talk to those billions of units, right? So the whole Connected Home ecosystem and so forth, it will be a major franchise over time And continuing to expand into industrial some of the things we talked about in the press release, there's industrial things like auto manufacturing autos themselves. So certainly not a niche business to Bob's point and we're thrilled with the progress that we're making with ultra wideband today.

Speaker 5

Yes. And I would Hi, this is Mark. I would just add that we're looking at this several years out and they're most definitely not to niche businesses at that point. I mean, the TAM that we see associated with the $1,600,000,000 or so acquisitions that we've done over the last several years, not including this recent $200,000,000 plus on United Silicon Carbide. We see that TAM at about $5,000,000,000 We see that TAM doubling to $10,000,000,000 or more over the next several years.

Speaker 5

So, we expect these businesses to be material and enjoy that growth, which is significant. And that's not including Biotechnologies.

Speaker 13

Very good points. Thanks a lot and congrats on the acquisition.

Speaker 3

Thanks, Chris.

Operator

Thank you. We'll take our next question from Rajvindra Gill with Needham and Company.

Speaker 3

Raj?

Operator

Sorry, our next question comes from Rajvindra Gill with Needham and Company.

Speaker 14

Hi, guys. Can you hear me? Yes. Great. This is Dennis on for Raji.

Speaker 14

So I just wanted to ask you guys a question regarding the comments you made about mass market handsets and the content increases. Could you provide some more color please about what you're seeing? How much of a difference you're seeing in percent? I think you'd mentioned that it was higher versus the high end kind of 5 gs handsets. Can you guys please talk a little bit more detail about that?

Speaker 2

Sure. Looking at the RF content and as 5 gs proliferates down, we've said there's like $5 to $7 increase from 4 gs Advanced Pro, for example, up to the 5 gs. And what we said previously is what's interesting is we see that 5 $7 consistent as the phones go down. So on a high tier phone, high tier smartphone, you might be looking at $30 to $35 RFOM, You're adding $5 to $7 to that. That's a good growth.

Speaker 2

But as you go down into the mid tier, you're adding that $5 to $7 on top of maybe $13 or $10 in some cases, right? So I think that was like the interesting kind of content growth story as you go down. Some of the fundamental RF challenges in In 5 gs that drive a lot of complexity around filtering and multi band, multi mode operation, receive diversity requirements going up, transmit diversity coming and so forth. All of that are to diversity coming and so forth. All of that are sort of independent of tier because they're not a lot of them aren't driven specifically by consumer features and things that you see.

Speaker 2

It's driven just as much by sort of network infrastructure efficiency in economies driven by the providers the carriers. Over to you.

Speaker 4

So I

Speaker 2

think that's the essence of the comments you made in the past that you're asking about.

Speaker 5

Yes, that was perfect. Thank you.

Speaker 9

And then for my follow-up, I just wanted to ask

Speaker 14

you regarding the gross margins. So you had mentioned that kind of gross margins are holding up well this quarter despite Can you discuss the key drivers of this resilience in the gross margins please?

Speaker 5

We've covered that at length in previous calls and it's the same factors which is Yes, what we had hoped would happen. So we have premium products and those allow us to price to better and compete where we most want to compete. We've maintained the utilization of our factory network. We continue to drive productivity programs aggressively. And it's these and other factors that have contributed to the gross margin quantum improvement and then the consistency we're seeing.

Speaker 14

Appreciate it. Thank you.

Operator

Thank you. We'll take our last question from Ambrish Srivastava of BMO Capital Markets.

Speaker 4

Over to Ian. I had a question on the demand side. What are your assumptions for the Asia market in

Speaker 13

the March

Speaker 4

quarter? Are you assuming a snapback or what is embedded in your guide for what you think about over to Mark. And then you made a comment on holding back to keep the channel healthy. Can you talk a little bit about give us some color on what the channel inventory looks like? And for my follow-up, Mark, given all the tightness, you have kept cap intensity very low for a while.

Speaker 4

Does that change in fiscal to 23. Thank

Speaker 2

you. Right, Ebru. So first of all, looking at the mobile market, you asked about Asia Specifically in March, I mean, clearly, I think as you saw from our guide, this is not a normal year, right? We're booking seasonality in our projection in March going up. I think that there's no normality here to the seasonality.

Speaker 2

So we're expecting that it will be roughly in line growing a bit over December quarter most likely.

Speaker 4

And the channel inventory?

Speaker 2

Sorry, the channel inventory. Over to you. Yes. That also varies dramatically by part numbers as we talked about. We have some where we're back up to healthy levels for sure, others that we're still absolutely hand them out there or even constrained on in some cases.

Speaker 2

So there's a wide range. But over. We've been saying I think over the past quarter or 2 that we're beginning to see channel inventories begin to get healthier and in some parts we've definitely gotten there and that's where we're making sure that we don't over ship into the channel to Mark's point.

Speaker 5

And Ambrish on your over to you. Yes, Ambrish.

Speaker 4

Go ahead. Sorry, go ahead, Mark. Go ahead, please. Sorry. Go ahead.

Speaker 5

I was going to ask your CapEx question, but if you had a follow-up.

Speaker 4

I did have a follow on. Eric, we've heard the memory guys talk about bills at the in the box complex. Is that specific to the memory guys? Or are you seeing that kind of manifest in your business as well?

Speaker 2

Inventory, did you say at Vox, vivopochamis, is what you said?

Speaker 4

Yes, yes. Because the memory guys have called that out without taking the names that they've talked about and the desire to take share.

Speaker 2

Well, one thing which I don't think we've touched on this call yet, we do see very, very lean inventories in the finished goods channel. To in terms of phone inventory in the channel from Evolphe and Xiaomi, we don't see pretty tight discipline there. We don't see overbuilds in phone inventory building up. I'm not sure if you're asking that or whether they're building up a stockpile of memory chips. I don't know.

Speaker 2

I can't comment on that.

Speaker 8

Well, I would

Speaker 2

ask the component side, if

Speaker 4

you saw anything on the component side that yes, sorry.

Speaker 2

I see. No, no, I don't yes, I don't think they're Intentionally doing that, they're dealing with mix shifts due to supply changes week to week, which basebands they can get depending on which phones they can ship. So Yes. So I think that's the key factor.

Speaker 5

And then, Ambrish, on your CapEx question, it's still Our long term goal to keep our capital intensity as low as we can as we grow and stay around that mid single digits as a percent of sales. Now that will move a bit up and down as we're going through various investment cycles, but that's the long term goal. I do think it's important to call out that Yes. Our CapEx is staying at sustained levels and through this weaker period in December because we see on the other side of it and it's We're only talking the March quarter where we see things riding. We see next year as being a good year.

Speaker 5

And Yes, we need to invest capacity to realize that growth potential.

Speaker 4

Got it. Thank you.

Operator

Thank you. At this time, I'd like to turn the call back to management for closing remarks.

Speaker 4

We want

Speaker 3

to thank everyone for joining us today. We look forward to speaking with you again at upcoming investor conferences. Thanks again and have a good night.

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