Skyworks Solutions Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2021

There are 10 speakers on the call.

Operator

Good afternoon, and welcome to Skyworks Solutions 4th Quarter and Fiscal Year 2021 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haas, Investor Relations for Skyworks. Mr. Haas, please go ahead.

Speaker 1

Thank you, Rachel. Good afternoon, everyone, and welcome to Skyworks' 4th fiscal quarter year end 2021 conference call. With me today are Liam Griffin, our Chairman, CEO and President and Chris Senesaw, our Chief Financial Officer. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward looking statements. Please refer to our earnings press release and recent SEC filings, including our Annual Report on Form 10 ks For information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today.

Speaker 1

Additionally, the results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our With that, I'll turn the call to Liam.

Speaker 2

Thanks, Mitch, and welcome, everyone. Before I touch on the 4th fiscal quarter results, I want to highlight the significant accomplishments That underpinned a record breaking year for Skyworks. First, total revenue grew $5,100,000,000 52% ahead of last year, representing an increase of over $1,700,000,000 We increased earnings per share to $10.50 up 71%. Operating cash flow Expanded to $1,800,000,000 an increase of 47%. And we completed a strategic and compelling acquisition, Immediately diversifying our product portfolio and expanding our market reach.

Speaker 2

Finally, with the investments we've made, Skyworks navigated a complex supply chain environment, leveraging world class manufacturing capabilities across strategic technologies. Now turning to Q4, where Skyworks delivered record performance. Revenues in our mobile and broad markets portfolios Both grew at double digit rates sequentially and year over year as we capitalized on broad based momentum fueled by demand for our unique Specifically, we delivered revenue of $1,310,000,000 Achieved gross margin of 51% and operating margin of 37.2%. We posted earnings per share of $2.62 Exceeding our guidance by $0.09 and generated strong operating cash flow totaling $398,000,000 in the quarter. The complexity inherent in 5 gs and the demand for highly integrated solutions were major catalysts in driving our performance.

Speaker 2

The momentum in global 5 gs carrier subscription is building with estimates of 580,000,000 users today, Expanding to more than 3,000,000,000 users by the end of 2025. As expected, smartphones are leading the early transition, But new innovative use cases are emerging from automotive and industrial IoT to enhanced virtual reality, Gaming and Telemedicine. Importantly, the power of 5 gs is increasingly being harnessed to drive sustainability efforts across industries worldwide, providing the wireless backbone to AI powered ecosystems, combining measurement, analysis For example, a major U. S. Manufacturer is combining wireless sensor enabled cameras With artificial intelligence to reduce chemical usage by 90%.

Speaker 2

And a European startup is deploying wireless climate sensors Looking ahead, 5 gs has the capacity to manage diverse connections across industries as it becomes the universal connector From the home to the office to the factory floor and to the farm, Skyworks is uniquely positioned to capitalize on this transformation With decades of connectivity leadership, the acceleration of 5 gs powered a broad set of use cases in Q4, With design wins encompassing the newest, most innovative smartphones and IoT devices as well as gains in wireless infrastructure. Specifically in mobile, we accelerated the reach of our Sky5 portfolio, powering the latest launches at leading Tier 1 smartphone OEMs, Supporting more than 20 platforms. In addition, we shipped Sky5 solutions across Samsung Galaxy's tablet portfolio. And in IoT, we continue to gain new customers and extend content. We delivered 5 gs CP connectivity solutions to Nokia.

Speaker 2

We partnered with Swisscom to launch their WiFi 6 GPON residential gateway. We ramp WiFi 6 and 6E platforms at NETGEAR and Cisco, launched connectivity in home security devices with Amazon, Ring and Comcast, And capture design wins at Garmin, supporting mobile fitness applications. In automotive, we supported autonomous driving systems with a market leading robo taxi platform and enabled advanced charge control unit systems for a Tier 1 European automotive OEM. Across the infrastructure markets, we provided Power isolation solutions to a strategic manufacturer of EV, including residential solar and energy storage systems. And we secured multiple design wins in next generation MIMO and small cell base station installations.

Speaker 2

Moving ahead, we see a multiyear secular technology evolution with our aperture widening from smartphones To industrial, automotive and an expansive set of IoT devices. Skyworks is fueling this dramatic technological shift with our unique capabilities, integrating not only 5 gs, but increasingly with our other critical connectivity protocols, Including high performance WiFi, Bluetooth and Precision GPS. As these opportunities emerge, Skyworks is positioned to win. With the breadth and depth of our customer relationships established over 20 years, Our experience across multiple technology transitions and a dedicated and talented workforce that executed extraordinarily well during fiscal 2021. With that, I will turn the call over to Chris.

Speaker 3

Thanks, Liam. Skyworks' revenue for the 4th fiscal quarter of 2021 was EUR 1,311,000,000 Up 17% sequentially and up 37% year over year, driven by both Mobile Solutions and Broad Markets. Gross profit in the 4th quarter was $668,000,000 resulting in a gross margin of 51%, Up 40 basis points sequentially and 60 basis points year over year. Operating expenses were EUR 180,000,000 Or 13.8 percent of revenue, demonstrating leverage in our operating model while continuing our strategic investments in Support of future growth. We generated $488,000,000 of operating income, translating into an operating margin of 37 point We incurred $11,000,000 of other expenses, and our effective tax rate was 8%, Driving net income of $439,000,000 So top line momentum and execution on margins Drove diluted earnings per share of $2.62 ahead of consensus estimates.

Speaker 3

EPS grew 22% sequentially and increased 42% compared to Q4 of last year. Turning to the balance sheet and cash flow. 4th fiscal quarter cash flow from operations was $398,000,000 Capital expenditures were $263,000,000 and we paid $93,000,000 in dividends and repaid $250,000,000 of our term loan. Let's also review our record breaking full fiscal year performance. Revenue grew 52% to $5,100,000,000 adding over $1,700,000,000 in incremental revenue over fiscal 2020.

Speaker 3

Gross profit was $2,600,000,000 resulting in a gross margin of 50.9%. Operating income increased 73 percent to EUR 2,000,000,000 with an all time record operating margin of 38.2%, up 4.50 basis points from the prior year. Net income was $1,800,000,000 translating into $10.50 of diluted earnings per share, up 71% year over year. Cash flow from operations was up 47% to $1,800,000,000 And during fiscal 2021, we returned $536,000,000 of cash back to the shareholders with $340,000,000 in dividends and $196,000,000 in share buybacks, all during Q1 of fiscal 2021. Starting in Q2 of fiscal 2021, we temporarily suspended our share repurchase program in connection with the acquisition of the infrastructure and automotive business from Silicon Labs.

Speaker 3

Given the strength of our business And the progress we have made on integrating the acquisition and given the low leverage ratio of less than one turn, Going forward, we will, from time to time, consider share repurchases as part of our capital allocation strategy, depending on market conditions, And in addition to our dividend program and further term loan repayments. In summary, The Skyworks team executed exceptionally well, delivering record revenue, profitability and cash generation, While making the investments that advance our technology leadership and manufacturing footprint in order to drive long term profitable growth. Now let's move on to our outlook for Q1 of fiscal 2022. We expect to deliver another quarter of double digit Sequential revenue and earnings per share growth in the December quarter. Specifically, we anticipate revenue between 1.475 $1,525,000,000,000 At the midpoint of $1,500,000,000 revenue for the quarter is expected to increase 14% sequentially.

Speaker 3

Gross margin is projected to be in the range of 51% to 51.5%. We expect operating expenses of approximately $184,000,000 to $187,000,000 roughly $10,000,000 in other expense and a tax rate of approximately 9.5%. We expect our diluted share count to be approximately 167,500,000 shares. Accordingly, at the midpoint of the revenue range, We intend to deliver diluted earnings per share of $3.10 an increase of 18% sequentially. And with that, I'll turn the call back over to Liam.

Speaker 2

Thanks, Chris. Skyworks' record financial performance demonstrates our ability to capture robust demand Our execution has been powered and fortified by deep customer relationships, coupled with decades of investments, with a square focus on execution and best in class performance. Looking ahead, Skyworks will continue to strategically invest in next generation technologies and capital expansion, Positioning us for market leadership and sustainable growth as the transition of 5 gs and other advanced connectivity technologies accelerates. That concludes our prepared remarks. Operator, let's open the line for questions.

Speaker 2

Thank

Operator

you. Your first question comes from the line of Gary Mobley from Wells Fargo Securities. Please proceed with your question.

Speaker 4

Hey, guys. Thanks for taking my question. I wanted to start out just simply by asking about The revenue mix between broad markets and mobile not only for the quarter, but is embedded in your guidance.

Speaker 3

Yes, Gary. I'll start with that, and I'll provide some numbers and then Liam can provide some more Qualitative commentary. In Q4, the quarter the September quarter that we just closed, Broad markets was approximately 29% of total revenue. So that was basically up 31% on a year over year basis And up 13% sequentially. Also, I just want to point out on a full year basis, broad markets Was over $1,400,000,000 in revenue, growing at 45% on a year over year basis.

Speaker 3

So very strong performance In our broad markets business. On the flip side, of course, we had mobile in Q4 was 71% of our revenue, up 40% year over year And up 19% sequentially. So really strong execution there, of course, as we supported the ramp of new phone platforms at our largest customer. On a full year basis, just in mobile, We did more than 3 point or approximately $3,700,000,000 of revenue, up 55% on a year over year basis. Clearly, supported by the early adoption of 5 gs.

Speaker 3

And maybe, Liam, if you want to add something on broad markets.

Speaker 2

Yes. I mean to reiterate Chris' comments, we continue to catalyze our broad market portfolio, gaining customers, gaining content, Moving into new industries, the customer roster continues to get better and stronger. Names like Honeywell, names like Ford, Looking at some of the plays that we see in the infrastructure space with Nokia and others and plenty of room to grow from there. So Good work in broad markets. As Chris noted, we've got some substantial top line.

Speaker 2

We're going to continue to drive that. Our research and development folks are Driving innovation every day, not just in broad, but also deeply in mobile. And that recipe is working very well. In addition, the manufacturing assets That we have in the technology development that we put forth really gives us the flexibility to hit each and every one of those customers in a way that they want to see the products.

Speaker 4

Appreciate the color guys. Just my follow-up, I wanted to do sort of a welfare check on the I and A acquisition to Maybe perhaps ask if we can get an update on if it performed according to your expectation for the quarter, if it's performing Your expectation as we start the new fiscal year and then as well now that it will be a full year contributor, what the overall impact To the company's gross margins, maybe. Thank you.

Speaker 3

Yes, Gary. So we closed the acquisition of the infrastructure Automotive business of Silicon Labs on July 26. And so we had 2 out of the 3 months included into our September quarter. We are very excited and pleased with the acquisition. Again, I believe we paid a fair price for a Very talented group of people with great technology, a strong product lineup in some really high growth markets like electrical vehicles, The solar business, data center, data communication, 5 gs infrastructure and so on.

Speaker 3

So the business, since we've acquired it in the last 2 months in September, has performed really well, in line with our expectations. We are not going to break out every revenue of every subproduct line that we have in our portfolio. We will report the revenue contributions within our broad market segment. But again, the business is performing well. We are really happy with the acquisition, and we'll continue to drive further growth in that business as we explained at the time of the acquisition.

Speaker 3

Thanks

Operator

guys. Thank you. The next question comes from the line of Harsh Kumar from Piper Sandler. Please proceed with your question.

Speaker 5

Yes. Hey, guys. First of all, let me just congratulate you guys on some pretty solid results I wanted to follow-up on Gary's question earlier. You were gracious enough to give us a September breakdown, but May I trouble you to ask about how you think mobile versus broadband will perform in the December quarter? And then I've got a follow-up.

Speaker 3

Yes. So we just guided for total company at €1,500,000,000 which is up 14% sequentially. And we do see both mobile and broad markets growing at double digits sequentially, Probably a little bit stronger in mobile than in broad markets, but both at the double digit sequential growth.

Speaker 5

Okay, understood guys. And then, there's a lot of talk about China trends right now and There's a lot of mixed signals being given by the earnings that are coming out. I was hoping you could Liam, you could talk about what you what kind of trends you're seeing in Chinese market, if you're seeing any mix shift up or down either ways that may be benefiting you or not benefiting you, just curious what color you got In China.

Speaker 2

Sure, sure Harsh. Appreciate it. Yes, well, as you know, we've been a player in China for years and have been able to navigate the ecosystems And the platforms, regardless of baseband partnerships. And that continues. So we've got a great position with the OVX portfolios, Continuing to drive them up into the 5 gs lanes, which brings content up for us, The business has been very solid for us.

Speaker 2

Now we know there's tremendous upside given the low base relatively in China Smart So we're certainly well positioned to navigate through that. We definitely have the technology that is needed to make that lift in China. And our numbers there continue to look very strong. So it's a great part of the portfolio. It definitely is an opportunity To kind of enrich the technology within those phones, they're still a little bit lighter than some of the flagships that we have in the U.

Speaker 2

S. But we have to know how to do it. The other thing about the China market is they want integration. They want labs to fats types of products. They want our applications engineers.

Speaker 2

They need people That can make the job easier for them and fulfill a smooth transition to the consumer. So all that stuff around the edges, That's our bread and butter. So we are a great advocate there and we're a great partner to those OEMs.

Speaker 5

Thank you, Liam.

Operator

Thank you. Your next question comes from the line of Timothy Arcuri from UBS. Please proceed with your question.

Speaker 4

Chris, now that the fiscal year is over, can you give us a sense of what your top customer was for fiscal 2021?

Speaker 3

Yes. The top customer came in at 59% of total revenue on a full year basis. By the way, in Q4, that was approximately the same, 59%, which is slightly up from the Q4 of fiscal 2020, which was at 56%. But of course, you have to take into account the timing of the launch of some of the new smartphone platforms there. This I mean, this is a big number, but it really underscores the deep customer engagement that we have with this customer.

Speaker 3

By the way, not only in their smartphone lineup, but almost in every other product that they have and that they sell, you will find Skyworks inside. Also in Q4, the quarter we just closed, the Skyworks team really executed well, supporting the launch and the ramp Of new smartphone platform that, yet again, for now almost 10 or 13 times in a row, We were able to obtain higher dollar content per form as witnessed by the teardowns that came out when the form came out. And you can see when you look at the teardowns, we really provided multiple high performance, very complex, highly integrated solutions, Multiple sockets in that form that include, in many cases, multiple best in class filters, including TC SAW and bulk acoustic wave Technology across the transmit chain, the receive chain as well as many other functionalities, including GPS And Wi Fi, of course. So great execution there by the team.

Speaker 4

Thanks a lot for that, Chris. I guess as my follow-up, There's kind of a lot of noise in the China market. I know that you don't have as much exposure to the domestic market or at least Chinese OEMs as some of your But there's some diverging data points. I mean end market sell through is not great, but definitely the high tier seems pretty tight. So Can you just talk about what you're seeing in China?

Speaker 4

Maybe you can have a distinction between sell in and sell through. Thanks.

Speaker 2

Yes. I mean the China market is important to us and we've played that quite well. We have great partnerships with all the leading brands. I think the key here And Chris kind of mentioned it. It's all about performance.

Speaker 2

It's not just it's not phone to phone. It's technology to technology. And you see very, very different technology And the higher end players in China where they are embracing the kinds of increasingly complex signals that Chris mentioned using bulk acoustic Using our TC SAW, using an integrated approach, Sky5 approach, in that side of the field, it's great And we have a tremendous opportunity. We're continuing to grow the content because the complexity is going up. The complexity is what's driving the content.

Speaker 2

So we're making that adoption happen rapidly depending independent of market conditions. And we're also trying to uplift the lower end. There's still a pretty high percentage of lower end phones in China that we want to uplift and bring them to full 5 gs capability. And in those cases, You could have a $2 to $3 content that could move to $4 to $5 and so there's pretty good leverage on that side. So you've got multiple market Focus is within China.

Speaker 2

We're able to address all of them from the highest to the most economical. And that's one of the strategies that's worked for And very often, the first phone that we may work with a customer, we'll have that customer for 5 to 10 years and continue to move the dial on content and performance as we So it's really a strategy around bringing the best technology to the customer and having that be enjoyed and

Operator

Thank you. Your next question comes from the line of Ambrish Srivastava from BMO. Please proceed with your question.

Speaker 6

Hi, thank you very much. Liam, we heard conflicting commentary yesterday from 2 of your peers. Just wondered your perspective On constraints and it's clearly seems like it's not impacted your business, but how has that trended? And more importantly, Given the very well publicized shortfall in one of the large customers, what does that mean for the March quarter seasonality? And then I had a follow-up for you, Chris.

Speaker 2

Okay. We'll try to unpack that one at a time. With respect to our ability to execute and deliver in cases maybe where some others were not able to do that, It's really about investments that we've made and investments that we made early. So if you let me indulge here for a minute, go back to where we were a year ago, We went from $3,300,000,000 to $5,100,000,000 in 1 year with no M and A. How do we do that?

Speaker 2

Well, we made those investments months months, 6 to 12 months before to ready ourselves to win and also knowing that we had the right customer set that appreciated the And so that worked great for us and we executed tremendously. So the upside of that is those Capital assets and those technology investments are there. They're out they're on the job today, but there's a lot more we need to do. So of course, We were nicked up a little bit here in the supply chain issues and shortages. But having our assets in house and you've heard me talk about this for a long time, Having those assets in house are strategic.

Speaker 2

It's critical. It's what customers want to see, all the way from gallium arsenide to packaging, assembly and test, TC SAW, Bulk Acoustic Wave, Standard SAW all of that. We can mix and match to put the right solution together. That is one of the reasons why our numbers here that we're talking about today, they're very strong. And certainly, we're experiencing the same market environment, But it was the ability to invest early, drive that cash flow, drive that performance to continue to do that And then bring those products to market in ways that are very flexible and having the ability to go from IoT to 5 gs To Bluetooth, to Wi Fi, whatever the connectivity protocol may be, we will have the technology execution vehicles within our company to execute for our customers.

Speaker 6

Sorry. And what about the seasonality for March?

Speaker 2

Yes. I mean, we're not going to get into March at this point. March tends to be a little bit of the soft spot in the year. I mean, that's been traditional, but We don't really have a guide here to March at this point.

Speaker 6

Got it. Got it. Okay. Thank you. Chris, I had A quick one and a longer one, sorry.

Speaker 6

The quick one is CapEx for this fiscal year. And really just looking at your cap intensity, I think it Back to what Liam just said, it's much higher than at least your closest peer. So should we expect it to stay in the high single digit, double digit? And then longer term, you now have a business that has a much bigger footprint of higher margin, broad diversified business So is it a time to revisit the long term margin target? And why should it not trend up versus what you have given us in the past?

Speaker 6

Thank you.

Speaker 3

Yes. So first of all, on the CapEx in fiscal 2021, CapEx was running on about 12% to revenue, which is somewhat in line with the last couple of years. We've been in that 10%, 12% And we're very fortunate that we did make the investments. I mean, as we just explained, we grew the revenue 50 more than 50% year over year if We would not have made the necessary investments in our manufacturing footprint. By the way, not only just expanding the capacity, but also adding New technology and improving the performance of our technology and our products, that was a very smart decision by the here proactively putting that capacity in place.

Speaker 3

And that's why, I mean, there is a lot of supply issues in the world, But it's not necessarily because of Skyworks. I mean, there is tightness and there are we're not perfect, Right. We the demand is higher than the supply, but Skyworks has compared to peers and competitors and other industry players Executed really well because we did not hesitate and put the CapEx in place. And again, this is just the beginning of a long 5 gs cycle, the beginning of Wi Fi upgrade, the beginning of proliferation of 5 gs outside of mobile Into growth markets, and so we are not going to hesitate that we are going to make the necessary investments to further continue and support the growth of the business. As it relates to gross margin, it's We did 51, so we were up 40 basis points sequentially, up 60 basis points year over year.

Speaker 3

I mean, we all wish it was higher, And the team will continue to work and drive it higher. But I've talked about that before. We are still facing COVID-nineteen headwinds. And yes, it is a tight supply constraint environment, and we are facing some input cost increases right now. Again, the team is handling it very well.

Speaker 3

We continue to drive further operational efficiencies. And when you put it all together, we have a path to further improve gross margins over time.

Speaker 6

Thank you, Chris.

Operator

Thank you. Your next question comes from the line of Chris Caso from Raymond James. Please proceed with your question.

Speaker 4

Yes, thank you. Good evening. The question is on the magnitude of the content And based on your guidance, it looks like second half mobile revenue is up about 9% year on year and Looking at the second half to normalize for the different product launches. But I guess the question is out of that 9%, is that all attributable The content, is there any kind of unit growth in there? Is there any unit decline baked in those numbers?

Speaker 4

I recognize that We're coming off some pretty exceptional content gains last year, but trying to gauge what they look like this year.

Speaker 2

Yes, Chris. I mean, we certainly see the opportunity to again put forth greater content, greater value And it comes with technology, right? So I think our teams are constantly crafting and developing next generation solutions And also broadening the reach, so it isn't just a certain set of customers. It's a broader set of customers. And what we find is that there's just a tremendous need for performance, I mean performance is really what's going to drive this.

Speaker 2

And then performance really means that you've got to deliver the technology behind that. So We're spending a lot of money in that area, but strategically, we've got some great R and D folks in house that are crafty that know how to get stuff done And developing solutions for the next wave, right? Markets like Wi Fi 6 and 6E are also right now in a great position for growth as we move forward. And I think connectivity around Wi Fi is going to be great and will complement what we're doing in classic mobile device. So I think there's a lot of good stuff going on.

Speaker 2

The appetite with our customers is fantastic. I mean, there's no end to the ideas and the inquiries and the challenges that we're being asked to address, Which is great. I mean, I'd much rather talk about that than worry about supply chains. And I think on the supply chain side, we're doing quite well. But we really want to Continue to raise our bar with our technology and our R and D teams and our execution to bring customers the performance levels that they really need.

Speaker 4

Okay. Well, I was going to ask you a follow-up question on supply chain then. So, something you don't want to talk about. But With regard to some of the supply constraints and we've heard from many others in the industry that You weren't able to many have been able to ship everything that the customers wanted here in the second half of the year. Is that still happening With you folks, are you still constrained to the fact that you can't ship everything that customers ask for?

Speaker 4

And does that suggest that there's going to be some catch up In terms of your shipments as you go into the seasonally slower first half of the calendar year?

Speaker 2

Yes. I mean, it's a tricky On one hand, the fact that we have our own manufacturing assets allows us to be really close So we're not subject to these big overhangs where we're waiting and waiting and waiting and waiting for parts. We're making our parts. So we're largely an in house technology company with around the edges, we will use some fabless partners. So our exposure to that is much, much lower than others.

Speaker 2

Do we still have some effects? Of course, because it only takes 1 or 2 parts that could muck up A finished product, and everybody understands that. So it does create some wrinkles. But I would say that given the work that We've done at Skyworks for years and then more lately as we talked about as evidenced by the 3.3 to 5.1, the ability to stretch and scale the business It's a pretty good indicator of what our capabilities are. So I believe that we're going to do very, very well when we've got a tailwind and We're going to do well when it's a muddy field.

Speaker 2

We're capable of doing it either way. And again, a lot of that has to do with managing your own technologies, making those investments with your own people, your own teams and platforms that you know exactly where they're going to go. So that's kind of our strategy as we go I think that that's right. It's going to work very, very well for the future.

Speaker 7

Got it. Thank you.

Operator

Thank you. Your next question comes from the line of Edward Snyder from Charter Equity Research. Please proceed with your question.

Speaker 8

Thanks a lot. Chris, one of the standout parts that you landed your largest customer is the Transmit Diversity module, Which is a very rich part, uses BAW filters as well as I'm sure TC SAW. You've not had that before. I know it's one part among many, but Given the content in that part, I would expect the margins on that are going to be better than at least the average, if not The highest among that and given the customer, the unit volumes should be pretty high. Should we expect if we see more of those, not just But others as Samsung and those folks move to more of the sophisticated 5 gs features, that would be a significant Margin driver for you given the size of mobile and the size of these customers?

Speaker 3

So I assume you can understand. I can't discuss

Speaker 8

I'm looking for the trend. Because 5 gs, obviously, for the high end phones is now moving from basic connectivity to VAS, the more advanced connectivity, and part and parcel of that are going to be transmit DRX modules. And this is So as we see more of those in all phones, especially from you, should we expect margin to increase too?

Speaker 3

Yes. No, absolutely. And I've talked about that before, right? The largest contributor to our overall gross margin Our improvement strategy is to bring higher complexity, higher value added, more highly integrated parts That really enhances the performance of the product of our customer. And our customers understand that, that requires a lot of R That requires CapEx dollars to be invested and that requires a Certain value to be paid for that and that is how we have been driving the gross margin improvements for the last 20 years as we move from 2 gs to 3 gs to 4 gs, 4 gs and now to 5 gs and indeed adding more value to our products.

Speaker 3

You're absolutely right about that.

Speaker 8

Okay. Let me and then if I could, you've kind of been under earning a little bit at Samsung. They were lower than they were high single digit percentage revenue probably last quarter. I know they're on the way up here. Did they broach 10% this quarter?

Speaker 8

And more importantly, if I look into the next couple of quarters, especially beginning of next year, Should we expect you to continue to gain ground here or will mix, because I know they're favoring more of the lower end products at this point, will mix kind of hold a lid on it for the Short term and then we just look for out periods maybe late next year or so to see further gains.

Speaker 3

Yes. So, Ed, so they were not A 10% customer, but you are right, they are up to the right. So the trend is the business is growing sequentially as well as year over year. As we as Liam pointed out before, we have great design win momentum With them, as you can see in some of the teardowns as well, with some very rich complex parts in their Phone lineup and by the way, not similar to with the large customer, not only in their phone lineup, but many of their other devices that they sell that Have wireless connectivity embedded as well.

Speaker 8

And if I could maybe a final one, Liam, for you. It's no secret that Qualcomm is getting some share in the low end China phones low band. They've led some of those even got a mid high band. There's a lot of chatter in the chain anyway that it's kind of a combination of things. The performance of low band filters has Proved certainly, but also as we saw yesterday, the shortages in ships has given them even greater leverage and kind of compelling some of the Smaller OEMs are the low end of the bigger OEMs to use some of their RF products.

Speaker 8

How do you see that shaking out for your Share in China short term and maybe you could comment on the long term trend with that. Do you think it will be sticky given the supply and the modem? Or once supply chain eases up, we'll get a reversion back to the mean?

Speaker 2

Yes. I think there's a lot of In China, we've been in the market, the OBX portfolios and the Android portfolios for quite a while. It seems like over the last year or so, the larger One of the things that is really advantageous for Skyworks and we talked about the technologies and the in house capacity and scale, It's going to help us quite a bit in China because in China as you know, the content is not as rich as it is in some of the higher end phones, but there's a tremendous opportunity to lift that Content. And a lot of that comes down to the technical know how and demonstrating what a couple of dollars of incremental content can do to the user experience, to the performance of the connected devices and it's significant. And I think those that are deeply in this industry know that.

Speaker 2

So we have to do a little bit of engagement there to continue to demonstrate with our customers what performance can really mean to the user. And we're getting very, very good response to that and that's going to drive our content because you got to have a catalyst to get that content up there. And I think when users can see The performance levels that really are right there in front of them. You just need to embrace it. There's an opportunity for them to see a much better and gain a much And we do that with many, many other customers with much higher end performance marks.

Speaker 2

We know how to do it. We have great application engineers that can work across each baseband as well. So there's a lot to do there and I think it's one of the markets or one of the areas in the market that still has a tremendous opportunity of growth despite Some of the things that we're talking about in supply chains.

Speaker 8

Great. Thanks.

Speaker 2

Sure.

Operator

Thank you. The next question comes from the line of Toshiya Hari from Goldman Sachs. Please proceed with your question. Toshiya, your line is open.

Speaker 3

Let's move to the

Operator

next question. Rishi, if you're on mute, please unmute your line.

Speaker 1

Rachel, go ahead and go to the next question.

Operator

Okay. No problem. Our next question comes from the line of Blayne Curtis from Barclays. Please proceed with your question.

Speaker 9

Hey, thanks for taking my question.

Speaker 3

I just want to follow-up on

Speaker 9

the broad markets. I guess I was a little bit confused. So The business is up about $40,000,000 I think the acquisition adds more than double that. So I guess I didn't hear from you what's weak. Is it Supply issue, I think if I had it right, I think Wi Fi might have been a little weak in June and I think you were looking for it to come back.

Speaker 9

So, irrespective of what's weak and then I guess you're forecasting it to rebound in December. What's driving that?

Speaker 3

Yes. Blaine, you're absolutely right. I mean, there are when Liam talked about The tightness in the supply chain, it's especially more so in the broad markets business. By the way, not only because Skyworks is not able to supply, but the issue of full bill of materials or kitting issues, right? Some of our Customers are struggling to get parts from peers and competitors or other players in the industry.

Speaker 3

And so as a result of that, they don't necessarily need the Skyworks parts right now. They will need them later. So that, I think, was driving most of that in broad markets. But again, looking ahead to December and then beyond, we do assume that some of the tightness in the supply gets That they will get to full bill of materials and that, of course, also Skyworks can resolve some of the tightness in its own supply chain, and that will further drive revenue growth in broad markets. Because if you look at it overall high level, There is very strong demand for connectivity in a broad set of products.

Speaker 3

If you look at Automotive, industrial, some consumer type of applications, There is very strong demand, and we don't see that slowing down.

Speaker 9

Great. And then can I ask A similar question on the mobile side? I mean given the Apple revenue that you reported, it's not perfect math, but it does seem like Android is down in September, maybe Double digits and I'm just kind of curious if I had that math right. Is it similar issue with kitting or something else? And I guess For December, the whole group should be the whole mobile group should be up double digits as you said, but I was just kind of curious if Android would be part of that Given it was down in September.

Speaker 3

No, that has been for the last 5 years that I have been with the company, right? When In September December, when the large customer launches their new platforms, they have priority in the supply chain, not only with Skyworth, but with many of the peers and competitors. And so Android understands that, and they're not going to put up a fight For supply with the large North American customer, especially this year when it's very tight, even more so than in the last 5 years, You will see some seasonal fluctuations there, absolutely.

Operator

Thank you. Our final question comes from the line of Karl Ackerman from Cowen and Company. Please proceed with your question.

Speaker 7

Yes, thank you. I wanted to focus on your broad markets business, if I may. You now do have a more diversified products within broad markets, through the integration of Slab's Auto Industrial Business. I was hoping you could describe whether the acquisition It is performing in line with your initial expectations. And if you could peel back the onion and discuss some of the opportunities you are Thank you for your timing, power isolation and Wi Fi products.

Speaker 3

Yes. I'll start. And as I said before, yes, The I and A business, we've now 2 months under our belt in September quarter and 1 month more here in the December quarter. It's We are really excited about that acquisition and great people, great technology, great product, great customer relationships, High growth markets and the business is doing really well. By the way, it's a far plus business model, as you know.

Speaker 3

So there's definitely some tightness from a supply point of view. The demand is bigger than the supply, But there, the team as well is working on creating more supply and bringing on more supply. And so It's working out well.

Speaker 2

Yes. And let me add to that. I mean, there's a tremendous diversity diversification lever here With the I and A business from SLAP, I mean there's tremendous opportunity in the technologies. We have scale That is just incredible compared to the size that had been there before. So we are working Very closely on the strategic technologies within the I and A portfolio.

Speaker 2

We're seeing some great, great opportunities there. And we're going to bring a lot of that stuff in house into our sites, into our factories and streamline. We're also going to do some strong And a cross pollination, the sales team to make sure that we understand exactly where the opportunities are and the scale plays are. And I think there's a lot that can be done there. There's great technology there.

Speaker 2

We Need to bring it to the right customers and raise the game. The supply chain issues kind of hit that portfolio a little bit harder than others, but it doesn't take us off our track. And the technologies that we acquired are outstanding and we're going to cultivate and grow those technologies with customers for sure.

Speaker 7

I appreciate that. For my follow-up, if I may, I know this has been asked several times, so I've tried and asked it a different way. You Suggested that mobile will grow double digits next quarter. I'm curious if that reflects some moderation of mobile products within China. And I ask because it seems that some of the demand in China has pushed from December into March.

Speaker 7

And I'm curious if you would endorse that view. Simply put, is Say supply issue, is this a demand issue? And how would you see that being rectified over the next few quarters? Thank you.

Speaker 3

So when you look at the data, the demand for 5 gs phones in China continues to be very strong. There's no question about that. I'm not talking here about 4 gs, 3 gs or 2 gs phones. I'm talking about 5 gs phones. Demand in China continues to be very strong.

Speaker 3

And there's multiple suppliers. Of course, the large North American customer supplies into China and is doing really well there. And there, of course, there's the Android players as well. Now as I said before, there is seasonality to that business. And September December are not the strongest seasonal quarters for that business because a lot of the supply goes to the large North American customer.

Speaker 3

But you typically see somewhat of a rebound into the March quarter as well with Chinese New Year being part of that March quarter, And we expect that to play out this year as well.

Speaker 7

Thank you very much.

Operator

Thank you. Ladies and gentlemen, that concludes today's question and answer session. I'll now turn the call back over to Mr. Greason for closing comments?

Speaker 2

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

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Earnings Conference Call
Skyworks Solutions Q4 2021
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