Qorvo Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2022

There are 16 speakers on the call.

Operator

Good day, and welcome to the Corvo, Inc. Q3 2022 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Douglas Dolito, Vice President and Investor Relations. Please go ahead.

Speaker 1

Thanks very much, Cody. Hello, everybody, and welcome to Qorvo's fiscal 2022 Q3 earnings President and CEO. This call will include forward looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. President. We encourage you to review the Safe Harbor statement contained in the earnings release published today as well as the risk factors associated with our business and our annual report on Form 10 ks filed with the SEC

Speaker 2

President and CEO of TD, because these risk factors

Speaker 1

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. President. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact President of 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 President of the Non GAAP Results.

Speaker 1

For a complete reconciliation of GAAP to non GAAP financial measures, please refer to our earnings release issued earlier today available on our website at President of Qorvo's Investors. Joining us today are Bob Bruggeworth, President and CEO Mark Murphy, Chief Financial Officer Phil Chesley, President of Qorvo's Infrastructure and Defense Products Group Eric Creviston, President of Qorvo's Mobile Products Group as well as other members of Qorvo's management team.

Speaker 3

President. Thanks, Doug, and welcome everyone to our call. Q4 delivered fiscal 3rd quarter results President, above the midpoint of the outlook we provided November 3 on our earnings call. Demand during the quarter was broad based across markets, President. Including multiple new product categories, including 5 gs Transmit Diversity, Ultra Wideband, WiFi 6E and 7, Power Management and Other Power Solutions.

Speaker 3

In Mobile Products, Qorvo gained content in flagship and Mass Market 5 gs Devices. The fundamental challenges and increased complexity lifting 5 gs content are being driven President. Requirements are increasing for carrier aggregation band combinations in both the transmit and receive to maximize bandwidth President. These are long term trends impacting 5 gs devices independent of TIER. President.

Speaker 3

In addition, new industrial designs like foldable phones are increasing RF challenges demanding more advanced Antenna Management Systems. Lastly, because Qorvo's smartphone portfolio includes cellular RF, ETP mix, WiFi and Emerging Categories like Ultra Wideband and MEMS Space Sensors, Qorvo can participate broadly across OEMs, product tiers and chipset providers. President. Qorvo offers a broad portfolio of key enabling technologies and Qorvo stands to benefit as connectivity continues to proliferate. President.

Speaker 3

More critically, Qorvo is leveraging the same competencies that placed us at the forefront of connectivity to grow in new markets. President of the IEP, revenue increased sequentially and growth was broad based across markets. President. The integration of United Silicon Carbide is proceeding well and enhancing our opportunities in higher voltage applications President. That demand maximum power efficiency.

Speaker 3

These include EVs, charging stations and renewable energy systems. President. Now let's look at some of the quarterly highlights, starting with mobile. For a Korean based smartphone OEM, we ramped shipments in support of flagship President and Mass Market Smartphone Launches. We expanded customer sampling of highly integrated main path solutions As well as secondary transmit solutions, which increase content as these architectures are adopted more broadly.

Speaker 3

In ultra wideband, President. We achieved an important strategic milestone, supplying our 1st complete ultra wideband solution in an Android smartphone. President. This speaks to the strength of our core technology and highlights the opportunity across the Android ecosystem. President.

Speaker 3

For industrial and enterprise applications, we introduced a fully integrated module combining our ultra wideband chipset With Nordic's BLE solution to address a wide range of industrial and enterprise applications. President. In WiFi, design activity continues to be robust. For mobile applications, we've secured new WiFi 7 President of the company's office, Chief onboard reference design engagement and began customer sampling of WiFi 7 FEMs offering superior performance and design flexibility. President.

Speaker 3

For Home and Enterprise Applications, we ramp WiFi 6eFEMs for mesh networks and released 5 gigahertz iFEMs President. With BAW filtering for Tri Band Applications. In cellular infrastructure, Qorvo was selected by a base station OEM President, to supply 3.4 to 3.8 gigahertz 8 watt GaN power amplifier modules for massive MIMO 5 gs deployments in Europe. President. We see infrastructure market strengthening in 2022 worldwide with significant growth in the rest of the world, excluding China.

Speaker 3

President. In automotive, Qorvo was selected to provide cellular V2X connectivity for a leading Europe based automotive OEM. President. In power, we secured design wins to supply silicon carbide on for onboard chargers and DC to DC converters President. In support of leading automotive OEMs in Europe and in Asia.

Speaker 3

Sales of Pfenex for video processors President. And solid state drives were strong as were sales of motor control solutions for battery powered tools. To expand our power franchise, President. We are combining our power management and silicon carbide technologies to deliver superior levels of power efficiency and high power applications. President.

Speaker 3

Our first products are for the defense industry and we are broadening the portfolio to serve additional markets including infrastructure and automotive. President. In Bio, we were awarded a $4,100,000 follow on contract with the NIH RADx initiative President, supporting a COVID flu combo assay and a COVID antigen pooling application. President. We also signed a channel partnership agreement for distribution in the U.

Speaker 3

S. And submitted a clear waiver application to the FDA President, to expand deployment in point of care settings. In both mobile and IDP, Correvor is capturing diverse opportunities President. Supported by multiyearseculargrowthdrivers in 5 gs, IoT connectivity, defense and power. President.

Speaker 3

We are operating well in expanding the markets we serve, while investing to sustain product and technology leadership across our portfolio.

Speaker 4

President. Thanks, Bob, and good afternoon, everyone. Qorvo's revenue for the fiscal year President. 2022 Q3 was $1,114,000,000 $9,000,000 above the midpoint of our guidance. President.

Speaker 4

Mobile Products revenue of $848,000,000 was stronger than expected on higher flagship volumes. President. Infrastructure and Defense Products revenue was $266,000,000 with Infrastructure and Programmable Power Management up President and CEO of the Company. Non GAAP gross margin in the December quarter was 52.6%, President. 35 basis points above the midpoint of our guidance on better than expected mix and yields.

Speaker 4

This was the company's 5th consecutive quarter above President. Non GAAP operating expenses in the 3rd quarter were $214,000,000 President. Down $8,000,000 sequentially on lower incentive compensation and timing of development programs. President. Year over year OpEx was up over $20,000,000 on new product and technology investments, President, including recently acquired company OpEx, partially offset by lower incentive comp.

Speaker 4

President. Non GAAP operating income in the December quarter was $372,000,000 33.4 percent of sales. President. Non GAAP net income in the 3rd quarter was $330,000,000 and diluted earnings per share of 2.98 President. It was $0.23 above the midpoint of our guidance.

Speaker 4

Cash flow from operations in the Q3 was $117,000,000 President, reflecting payments associated with the long term supply agreement discussed on last quarter's call. President. As mentioned then, we believe supply agreements allow us to advance our differentiated technology position President and simplify our long term planning. Corvo is building longer term and more collaborative partnerships to provide our customers supply assurance President and CEO, and to address their product and technology needs. Capital expenditures in the December quarter were $50,000,000 President and remain concentrated in core areas such as BAW and Gas, where we enjoyed a differentiated position and see continued growth.

Speaker 4

President. Free cash flow was $67,000,000 and we repurchased $302,000,000 of shares during the quarter. President. We continue to repurchase shares based on our long term outlook, low leverage and other factors. President.

Speaker 4

Turning to the balance sheet. In December, Qorvo issued its first investment grade note. President. The proceeds from this $500,000,000 3 year note were used in part to retire our $195,000,000 term loan. President.

Speaker 4

As of the December quarter end, we had $2,000,000,000 of debt and $1,000,000,000 of cash. President. Our net debt to EBITDA increased to over half a turn. Now turning to our current quarter outlook. President.

Speaker 4

We expect revenue between $1,135,000,000 $1,165,000,000 President of

Speaker 2

the United States. Non GAAP gross margin of approximately

Speaker 4

52% and non GAAP diluted earnings per share of $2.94 President, at the midpoint of guidance. Our March quarter revenue outlook reflects an improving supply situation, President of the President. $1,150,000,000 at the midpoint is up 3% sequentially and 7% year over year. President. We expect mobile to be flat sequentially and up around 5% year over year on flagship and mass tier phone launches President and Content Gains and a more stable supply demand situation.

Speaker 4

We project IDP President, to return to year over year growth in the March quarter with broad based demand supporting revenues over $300,000,000 President. Our March quarter gross margin guide of approximately 52% results in full year fiscal 2022 outlook about President, to approximately $232,000,000 due to increased investment in core technologies and new capabilities, As well as early calendar year payroll effects. For the full fiscal year, our OpEx is projected to be just over 19% of President of Sales, down from close to 20% of sales last fiscal year. Below the operating income line, other expenses will President and CEO of the company's Board of Directors. We expect our non GAAP tax rate in the current quarter to be approximately 7 point President and the full year rate to be 8.2%.

Speaker 4

Capital expenditures are projected to be around President. We are still supply constrained in some areas and forecast to remain so beyond our fiscal year end. President. We continue to expand BAW and Gas capacity along with some assembly and test to support growth. President.

Speaker 4

In summary, our results exceeded the midpoint of our December quarter guide. President. Our March quarter guide is consistent with our previous comments, including sequential growth in the March quarter. President. At the midpoint of our current quarter guide, for fiscal year 2022, we expect revenue growth over 15% President and Operating Margin Over 33%.

Speaker 4

We project our full fiscal year EPS to be approximately $12.18 President, up 25% year over year. Looking beyond this fiscal year, Qorvo is well positioned President and CEO of the Board of Directors. President. As mentioned last quarter, looking at the business by end market highlights Qorvo's growth potential over the next several years. President.

Speaker 4

We expect solid growth on our advanced cellular products for smartphones. As 5 gs mix grows, President. On broader connectivity solutions, President. We expect strong double digit growth as connected devices increase and use cases proliferate. President.

Speaker 4

And finally, we expect Infrastructure, Defense and Power Markets to support double digit growth President. As 5 gs build outs picked up outside of China, defense spend mixes to higher performance electronics And requirements increase for Power Semi's to support electrification trends. Now Cody, would you please open the line for questions?

Speaker 2

Dolito. Vice

Operator

President. We'll take our first question from Toshiya Hari with Goldman Sachs. Please go ahead.

Speaker 5

President. Hi, guys. Good afternoon and thank you so much for taking the question. I guess my first question is on the supply front. President.

Speaker 5

Mark, I think you mentioned that supply constraints eased a little bit, but you also noted that you expect supply constraints to kind of stay around President. Beyond the current quarter, can you kind of elaborate on what you saw in the quarter and what's embedded in guidance going forward? I think last quarter you talked about Gallium arsenide capacity constraints, which are internal to Qorvo and then also Matt said issues on the part of your customers. But if you can kind of describe What you're seeing from a supply perspective, that would be helpful.

Speaker 4

Sure. I'll start and others can add. President. Yes. During last quarter's call, Toshiya, we were in the midst of the most disruptive supply chain effects of the past 2 years.

Speaker 4

President. And these effects impacted and added further complexity to the demand picture. We provided the best view we could and President. We've seen it play out largely as expected. To your specific question on supply chain effects, President.

Speaker 4

They did moderate in the quarter and we expect the supply environment to continue to improve through this quarter and the calendar year. President. So, specifically on businesses, we're still seeing some chipset shortages in Wi Fi, Which impacted that business. In the defense supply chain, there's still some disruption, COVID related. President.

Speaker 4

And then there's other pockets here and there. But Toshiya, it did improve as we expected. And President. Even though we expect some continued supply disruptions in the March quarter, we expect it to be less than the December quarter.

Speaker 3

President. This is Bob. The only thing I'll add is we've made significant progress in bringing on our capacity in our gallium arsenide and we're in pretty good shape there. We've made good progress there. President.

Speaker 3

In our IDP business, some of the silicon supply in our connectivity business there along with some of our Power Management Systems business there. We still see tightness there. So that's been impacting us. But as Mark pointed out, we do expect things to improve through the quarter and throughout the year. President.

Speaker 5

Yes, that's great. Thank you so much for the context. And then as my follow-up, for the March quarter, President. I think the guidance you provided for both mobile and IDP is pretty consistent with what you had guided to 3 months ago. President.

Speaker 5

I'm guessing though the mix, particularly within mobile may have changed, may have evolved over the past 3 months. President. Can you speak to what you're seeing in sort of the respective regions in mobile in the U. S. And President.

Speaker 5

Korea and broader China, how you see those regions playing out? And as a quick follow-up to that, any sort of guidance on fiscal 2023? I know it's early, President. Mark, but any revenue looks or gross margin guidance on fiscal 2023 would be super helpful as well. Thank you.

Speaker 6

President. Yes. Toshiya, this is Eric. I'll start with the mix in mobile. No particular meaningful President.

Speaker 6

We expected when we had our earnings call last quarter that we would see strength in Korea President. Due to a lot of new design wins on ramping platforms across mass tier and in flagship as well and those are playing out President. Very consistent with our expectations. We did see a bit of mix shift within our China customer base. It's Clearly, looking back into the December sell out data in the channel, there was some mix shift between them.

Speaker 6

So far, we're early in this quarter, but it's beginning to moderate back President. So, really not any significant changes versus what we expected.

Speaker 4

President. Yes. Toshiya, on the outlook beyond this fiscal year, we'll plan to provide more on our fiscal 'twenty three and the rest President of the Board of Directors, on our next earnings call. What we can say is based on what we guided, President. We know this March 22 quarter is stronger than typical and that's based on the timing of phone launches, content gains and the profile of IDP demand.

Operator

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

Speaker 2

President. Yes, thank you. Good afternoon. Two questions, if I may. First a clarification, Vice.

Speaker 2

May you comment on the overall revenue contribution your largest customer contributed to in the quarter? And I have a follow-up.

Speaker 3

President. Carl, as you know, we don't report quarterly what we do with our largest customer. You'll find that when we report the K at the end of the year, we'll President. Clearly give you what our largest customer was.

Speaker 2

Yes. I try my luck. I appreciate that.

Speaker 3

Hey, Carl. Give us President. Hey, Carl, we're consistent though.

Speaker 4

That is true. Hey, on the guide, President. One of the

Speaker 2

concerns from investors is that capacity constraints may limit the adoption of 5 gs handsets this year. President. While you have less control over the number of 5 gs phones being sold, I was hoping you could discuss the content opportunities you see collectively from UWB Wins, Design Engagements across Android Mid Range as well as what sounds like share gains in Wi Fi for flagship devices. So if you could just discuss Vice President.

Speaker 6

Yes. So I guess the first part of it regarding chipset constraints affecting President. The amount of 5 gs, I think to the extent that there are chipset constraints in the modem side of the business, I would Assume those suppliers are going to prioritize 5 gs and latest technologies. So we doubt that's going to be a major factor. President.

Speaker 6

When we look at, for example, our China customer base, they're still well under half their shipments are 5 gs. President. They've got a lot of 4 gs shipments, especially in the export market that will be more impacted probably than the 5 gs, I think. So, yes, looking President. We're real pleased with the Pixel 6 launch and a lot of content that we talked about last quarter beginning President.

Speaker 6

Across Integrated Modules, Intended Control, but also of course UWP. It's a great foothold for us, gets our software stack proven President. And that makes it a lot easier to go across the rest of the Android ecosystem. And we were already talking about wins in the consumer home devices for UWP, Xiaomi, for example, with their connected home products. And we're beginning to put the whole Android space together for UWB, so that's great.

Speaker 6

President. And then in addition to that, the integrated modules generally, power management, we definitely see both APT, Average Power Tracking and ETIC Power Management Systems getting a lot of traction from Qorvo. And then lastly, of course, our antenna control solutions continue to be strong, President. Transitioning to NIM based as NIMs based as we exit the next fiscal year. So a lot of potential areas President for strength throughout the year.

Speaker 4

Thank you.

Operator

Thank you. We'll hear next from Vivek Arya with Bank of America.

Speaker 7

President. Thanks for taking my questions. On the first one, just to clarify, I thought, Mark, you said That March is stronger than typical. So what does that say about June versus seasonal trends?

Speaker 4

President. Yes. Vivek, it's a good question. And as I answered the earlier question, We're going to refrain from talking about next fiscal year in any sort of detail until we finish this fiscal year. President.

Speaker 4

I think it's just in this environment, it's too early to call, yes, the June quarter. It really depends on volumes and President. Some of the supply situation that we've discussed earlier. And as you point out, given the strength of March, President. Yes, we may see a sequential decline in June, but again, it's too early to call.

Speaker 4

And in any case, we would expect a return to year over year growth in September If that were to happen. So, that's all I'll say at this point.

Speaker 7

I see. President. And the follow-up to that, just a clarification on inventory, if my model is right, it is up to, Vice President of

Speaker 8

Bank of America. I think over

Speaker 7

114 days or so. I imagine the supply chain is tight everywhere, but what's happening with your balance sheet inventory and how

Speaker 3

President. Should we think

Speaker 7

about your the direction of that inventory, what that implies for utilization and its impact on gross margins over the next several quarters.

Speaker 4

Sure, Vivek. And you're right on, it's about 115 days. So President. As you point out, we ended the quarter at over $700,000,000 of inventory. President.

Speaker 4

I think the first thing I would say is this was in line with our forecast. And when viewed historically, it's President. Hi, but it's within the range of experience that we've had. Having said that, given our focus on cash flow and capital returns and Risk Management, it's certainly higher than we want it to be and higher than it's run over the past year and a half or so. President.

Speaker 4

We have clear line of sight in bringing it down. It's elevated for a number of reasons, including build aheads for ramps that you're seeing now President and Sustained Volumes in Flagship and also content gains in Flagship and Mass Tier President. And the increases in IDP and there are other demand factors, such as supply demand alignment in China as some share shifts President. Yes, sir. But we're working through those.

Speaker 4

We understand why it's up. We forecasted it. We have a plan that Rolls off over the next few quarters and we expect more normal turns as we move through the year.

Operator

President. Thank you. We'll take our next question from Blayne Curtis with Barclays.

Speaker 9

Hey, thanks for taking my question. I'm President. I'm going to try again on June a little bit. I expect you don't want to give a number out. I guess Qualcomm just guided it down in June, Cirrus is talking about just President.

Speaker 9

Maybe you could just talk about you have a lot more higher exposure to Android market. So maybe, without giving us an actual amount, can you maybe just talk about President of the Android Market. Obviously, there's some new ramps in terms of new modems from some vendors that you should do well with. You're clearly growing in March. President.

Speaker 9

It may not be the same iOS story that others are indicating. I just kind of try to if you can walk us through the kind of moving pieces for June, that would be helpful.

Speaker 3

President. Eric, do you want to take it, Chuck? Yes. Because I mean, we have 2 parts to our business, Blayne. We have our IDP business and our mobile.

Speaker 3

So President. I think we'll let Eric talk a little bit about the mobile side.

Speaker 6

Yes. I think, yes, to your point, Blayne, the Android ecosystem is pretty exciting right now President. And growing especially growing exports, it's not just a China store by any means and high end products President from Google, for example, and Samsung, obviously, we believe it's going to be a very good story for us this year. President. And our alignment there, we'll start out you'll beginning to see the phones come to market.

Speaker 6

President. You'll see a portion of the content, I think, throughout the year, we'll continue to grow content as more devices move out from them. President. Yes, that will be a good story for us this year. And we mentioned Wi Fi earlier as well.

Speaker 6

Wi Fi President. Across the Android ecosystem has really opened up for us since you had a 6, 6e and 7, it's getting harder. President. The filtering is definitely getting harder and they're implementing it with chip onboard front end solutions instead of fully integrated modules. President.

Speaker 6

So that's a very good trend for us and we're seeing broad traction across Android with very complex Wi Fi front end modules now. President. All of that goes to what we think is going to be a good year for us in content growth in Android.

Speaker 9

President. Okay. I guess my follow-up, I did want to ask about the growth you're forecasting in IDP for March. President. I think the connectivity part of IDP has been kind of flat to down.

Speaker 9

So I I know supply has been a big issue. Can you talk about the drivers for that double digit sequential growth For IDP for Marsh.

Speaker 10

Blaine, this is Philip. Yes, so we are seeing really President. Strong demand in most of our end markets. If you look at the cellular infrastructure side of the business, President. What you see is really the deployments moving into the U.

Speaker 10

S. And into Europe. President. We are strongly positioned in those segments and so we're seeing some of those tailwinds. When you look at our Defense Business, Defense and Aerospace Business.

Speaker 10

Again, we continue to see big programs President. Coming in that we're positioned well on. And so we are excited about what that business looks like going forward. President. And then on Power, we continue to see a lot of strength both on the Programmable Power Management side of the business, But also on the United Silicon Carbide side of the business.

Speaker 10

And we President. Kind of lump those 2 together. We feel that we have a real strong advantage, both from a technology and product side on the United Silicon Carbide side, President. But also as we put the silicon side of power and create system level solutions for our customers, President. We see a lot of opportunities for SAM expansion in that market as well.

Speaker 10

So we feel we're positioned well and we like where we are right now.

Speaker 4

President. Yes, Blaine, I would just add that, as Philip said, the growth is broad based and President. Virtually every business line in IDP is up sequentially and year over year. The exception is Wi Fi and that's related to Some of the chipset issues we talked about earlier, but we expect that business to pick up in FY 2023.

Operator

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

Speaker 11

President. Hi, everyone. Thanks for taking the question. I wanted to go back to the next question and double click on the inventory topic. President.

Speaker 11

The days of inventory up primarily because of you anticipating some good growth President. In fiscal year 'twenty three or is it up in relationship to some of your long term supply agreements? President. And maybe you can give us a little more detail on how you plan to roll off that inventory.

Speaker 4

President. Sure, Gary. It's not related to the supply agreements. It's a combination of President. Want to support the growth that's in front of us and we've talked about the flagship in MastEAR And the success we've had there and the strong the atypical growth profile you see here in March.

Speaker 4

President. So there are absolutely demand factors. Yes. There's a demand realignment in China, and we've all seen that. President.

Speaker 4

We feel great about our position in China. And over time, President. On the other side, our alignment, we're in a great position and we've got agreements in place that will support The demand and working down that inventory. So we've got a good plan. We've got President.

Speaker 4

Yes. The guidance I've given before on our target 52% gross margin, that is Still something we adhere to and we're working to expand off that. President. Yes. And then we'll provide you more guidance in the next earnings call.

Speaker 11

Okay. As my follow-up, I wanted to ask about some of the emerging revenue opportunities, perhaps on the silicon carbide side. Can you give us a sense of where you may be on Vice President. Annualized revenue run rate, could we perhaps exit fiscal year 2022? And then on ultra wideband, President.

Speaker 11

Is there an opportunity here in the automotive end market? I know that hasn't necessarily been a big end market for you, but should we think about EWB as being primarily smartphone Electric for Qorvo.

Speaker 10

So, yes, this is Philip. So, yes, so Gary, I'll take that. So, President. In terms of United Silica Carbide, I don't think we are giving out specific kind of revenue numbers on that business. But President.

Speaker 10

I can tell you that the number of opportunities that we see coming in to our sales funnel President. It's impressive. And we feel like we have a real significant opportunity there. When you think about President. The world as we electrify, as we go towards more carbon neutral systems, energy efficiency is one of the key Factors that's driving that, right?

Speaker 10

And with that drives this power need to look at compound semi Vice Solutions. And really that's in our wheelhouse at Cordova, right? That's what we do. And so we feel really good about that business and President. The opportunities continue to scale.

Speaker 10

On UWB, I'm going to pass that over maybe to Eric.

Speaker 6

Yes, sure. We when we did the acquisition of Decouave, I know one of the Board. Key markets we talked about was automotive and that certainly hasn't changed. There's no question that next generation key files will be EWB based and President. That will grow throughout the years, up to 7 new WB points in each car, plus 1 in each key fob.

Speaker 6

So it's going to be a great market. In terms of units, President. Of course. It's a couple of 100,000,000 a year sort of automotive units. So for us anchoring in the handset President.

Speaker 6

It's super exciting when you look at the 1,000,000,000 to 1,500,000,000 handsets available and anywhere from 3 to 5 accessories for each one President. Before we even start talking about connected home things. So it's going to take some time for a new technology like this to roll out. President. There's a lot of activity in the standards bodies now.

Speaker 6

Everybody's on board. It's clearly happening. So that's a broad area. President. We also we mentioned one of our strategic highlights was around a module combining our UWB with the Nordic BLE President.

Speaker 6

And targeting a completely different segment, which is sort of enterprise and industrial IoT applications. And there's President. Hundreds of use cases for these sorts of devices around the enterprise for asset tracking and also in industrial applications for Similarly, asset tracking and other things like tags. But so it's a broad it's really a broad, broad market in applications, Really based on a very similar radio architecture. So President.

Speaker 6

There's a lot of leverage in our core technology development in E2B, both in the software and in the hardware. President.

Operator

Thank you. We'll now move on to our next question from Edward Snyder with Charter Equity Research. Please go ahead.

Speaker 6

President. Thanks a lot. I've got

Speaker 12

a couple. Mark, it's clear there's a large overshoot on shipments to the Chinese OEMs last year. You guys were shipping everything you get your hands on, I guess, in March June President. And then we had an overshoot. It was reflected in last quarter's guide and this quarter's inventory.

Speaker 12

I know you don't have hubbed inventory with any of the Chinese, so your visibility into what's There is very limited, but you've already got a quarter now underneath your belt. What do you given that 1 quarter and what the burn rates going on, President. What you see now with the when do you think you'll get more back to a normal inventory level and your shipments into China President. We'll start reflecting really sell out versus what we've seen so far, which is just they'll take everything they can get. And then Eric, if I could, Given the big changes in Samsung's phone business with Broadcom out now and then move to modules in the mass tier, can we expect President.

Speaker 12

Samsung will break the 10% revenue level for Qorvo this calendar year. And as kind of a sub question, President. Given all these shifts, who do you think you're taking share from, especially in the last year, given that was more of a quasi discrete design, you're gaining there, who do you take it from? And then I have one for

Speaker 4

President. So Ed, I'll start and then Eric can even add more color on the China channel. But President. Yes, I think we've got better visibility than you may think, and we're certainly monitoring it very closely. President.

Speaker 4

There were actually some positive signs in the December quarter, sell through is decent. We've been looking at the phone and phone inventories and President. They're actually very healthy. So it's just a matter of some of the components kind of working its way through, President. And we've got an eye on how that will play out.

Speaker 4

And we're certainly minding the channel and adjusting our own Manufacturing as a result. We've also got these long term agreements and that's going to that's As intended, helpful in managing the process. I cannot Overstate how excited we are about the market long term. So, we're optimistic about that growth, the exports that they do and then Board, so they do and on our position serving it. So we'll work through this over the next couple of quarters and be in, I think, in decent shape

Speaker 6

Vice President. And regarding Samsung, it's President. It's a broad family of products as I touched on earlier. There's a lot of BAW content, and I think you'll see us kind of starting out in Vice President. Starting out in more mass tier and expanding toward flagship as the year progresses with heavy BAW content.

Speaker 6

President. But also the power management aspect is also very significant. And antenna tuning, which we've always been quite President. That will continue to be strong. And then Wi Fi, as we've been mentioning, the chip onboard trend.

Speaker 6

So I'm not going to speak specifically to who we're President. But we're it's not any one thing. It's a broad product portfolio alignment, which has been in the works with Samsung President. For some time, it's good to see it finally come to fruition.

Speaker 12

You think you'll break 10% with Samsung this year, calendar year?

Speaker 2

President.

Speaker 4

We had 2 10% customers in the quarter, but that's all I'd say.

Operator

President. Thank you. We'll now move on to our next question from Ambrish Srivastava with BMO.

Speaker 8

Hi, Mark. I wanted to come back to The cash flow statement and balance sheet again. Your free cash flow as a percent of sales and you have spoiled us delivering double digit for My model almost froze. I had to go back to 2018, when you actually had a single digit free cash flow to sales number. President.

Speaker 8

So I get the inventory increase and then payables went down quite a bit as well after shooting up the quarter before. Is that kind of related to the obligations that you talked about or securing supply in advance? I just wanted to make sure I understood all the moving for free cash flow to sales being 6 odd percent versus the double digit that you've been posting for several quarters.

Speaker 4

President. You've got it, Ambrish. It's as I talked about last quarter, we signed this long term agreement, which President. Had a considerable payment to make, which we made in the December quarter. And so as you pointed out, there was the increase in payables, President.

Speaker 4

Which I mentioned last quarter and then we paid that out in the December quarter and that was disclosed in the Q filing as well. President. And then as a number have noted, our inventories were up. So excluding these two effects, we have what is President. Our normal very strong free cash flow generation and we've talked about the nature of both of those.

Speaker 4

And so I would expect free cash flow this year to still end up near $900,000,000 and then I would expect it next year to grow.

Speaker 8

President. Got it. I had a quick follow-up on inventory, Mark. See, I just want to make sure I understood. When you're talking about this being realignment, we are aware of that.

Speaker 8

My head is not in the sand, but I want to make sure I understand what you're talking about. You're talking about customer change from what was Lot of shipments, well, a big market share to Huawei and then everybody else was trying to grab that market share. So that's been one shift. The other is also being Some sort of kind of like a bifurcation in low end versus high end. Is that what you're referring to or is there something else and is there a risk of A write down coming on the inventory side.

Speaker 4

No. No. No. And if there were a risk, we would have written stuff off President and the quarter. Our view and Eric can expand on this.

Speaker 4

President. I'll bring it back to our last call. We had a substantial dislocation in supply And created pockets of components in the supply chain. And President. Yes, that's one factor.

Speaker 4

And then concurrently, you have a demand factor where you have both President. A realignment amongst OEMs in China and some share shift associated with that, President. It will shake itself out here and it's ongoing. And no matter what scenario plays out, we think we're fine. President.

Speaker 4

I would say a third factor has been over the past few months there probably has been some Macro effect to end consumer demand and pick up and lock down. So there's probably that factor though, though we're not as concerned President. With that, because end phone demand is actually pretty lean. So, I think, Ambrish, it's just a case of President. This will settle out.

Speaker 4

We've got agreements in place. We've got firm orders. We have line of sight On the inventory working down and believe we'll be in a good spot in several months.

Speaker 8

Got it. Thanks for all the clarifications.

Operator

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

Speaker 13

Hi, guys. Thanks for the question. Vice. I think last call you guys mentioned that maybe you were opening up Farmers Branch again. Just wanted to confirm that was happening, that that's ramping and President.

Speaker 13

Where might utilizations go there as we move through the year?

Speaker 4

That's a good question, Chris. And of course, we're Continuously looking as to whether we need investment or not. And there has been some reduction in loadings because President. Obviously, we've got some inventories and we're rightsizing the factories. But in the case of Farmers Branch, yes, we are Still planning to turn that on and utilize that in fiscal 2023.

Speaker 13

President. Great. And secondly, Qualcomm, I think, has an ultra BAW product coming, Vice. Maybe working in the parts of your market there. I know you guys really haven't seen too much there so far, but President.

Speaker 13

Have you seen a little bit more over the past few quarters? And would you expect are you preparing for more competition in 2022? Thanks.

Speaker 6

President. Well, we haven't seen a lot, frankly, at this point. And so I can't comment on competitiveness and so forth. I think we're continuing head down, President. To advance our technology and already sampling 7 gigahertz BAW and integrating a lot of it into modules, which will be shipping soon.

Speaker 6

President. And then as we've talked about many times, it's not just about what frequency you can get to with the filter, it's about how well you can combine them President. Working in multiplexing and combining multiple FITR technologies together in the same module. And there's a lot of complexity going on. So President.

Speaker 6

It's a very valuable and key part of the communications market. So there's going to be a lot of people investing in it and trying to build capability.

Speaker 9

President. Thank

Operator

you. We'll take our next question from Raji Gill with Needham and Company. President.

Speaker 14

Yes. Thank you for taking my questions. I appreciate it. The gross margins continue to be resilient in a challenging environment. President.

Speaker 14

I think last quarter you mentioned that you were benefiting from premium products, better pricing power and maintaining utilization of your factoring network. President. Wondering how to think about margins as you migrate to a better demand supply President of the Americas. And

Speaker 8

also, we'd love to hear a little

Speaker 14

bit more about the pricing situation as you kind of Move upstream with respect to your products.

Speaker 4

Yes, Ravi, I'll start. President. Yes. We've been talking about this 52% level for several quarters. And President.

Speaker 4

GM, gross margin is going to move around quarter to quarter, of course, based on customer product mix, business mix, yields, President of Factory Loadings, Price and Other Factors. We do believe that the current business setup of The products we've got, our footprint, productivity efforts and so forth support this 52% level. But President. We are definitely working to improve that over time. I think President.

Speaker 4

All I can say is we're going to try and do the same things we've been doing, applying that same discipline of Yes, investing in the technology to maintain leadership, actively managing the portfolio, where we're and President of the Company. I would add that some of the new areas we've talked about today, power, defense, UWB, they all have favorable Gross Margin Profiles. We're driving productivity. That's especially important in this period where there's pockets of inflation. President.

Speaker 4

And then we the last question about Farmers Branch. We're always looking for ways to make sure we're supporting the business in the most capital efficient way and that should hopefully allow us to sustain and expand from here.

Speaker 14

President. Great. And for my follow-up, you had mentioned that you expect 5 gs infrastructure build outs President. Begin to kind of reaccelerate throughout the year outside of China. President.

Speaker 14

Wondering if you could elaborate further in terms of what you're seeing specifically, which region. And you were very successful in China with the penetration of your GaN base stations President and your dominance in GaN Technology. So I want to get a sense when you're thinking about the build outs outside of China, CEO. How that is affecting your kind of IDP business and kind of your market share position in GaN?

Speaker 10

This is Phil. I'll take that question. So President. When we look at the overall market this calendar year, what we see is kind of China being similar to what it was President. In last calendar year, but really where we see most of the real deployments in growth President.

Speaker 10

He's in Europe and in America. And we've spent a tremendous amount of time and energy President. Creating a family of technologies and products that really are kind of optimized for those markets. We see our GaN technology President. A critical piece to that, same with kind of our small signal product families that we have.

Speaker 10

And so we like how we're positioned. President. And we right now, if you were to look at kind of backlog and where things are in that business, President. We're excited about that. So hopefully that answers your question, Raji.

Operator

President. Thank you. We'll take our next question from Adis Malik with Citi.

Speaker 15

Thank you for taking my President. And Mark, I hate to beat you on the China demand realignment commentary, but when you guided the December quarter last year, You broke out the supply impact as well as the demand impact. And my question is for the March quarter guide, President. Are you seeing similar demand or supply impact or no because March quarter is in line with what you were thinking last year?

Speaker 4

Yes. We at last earnings call, President. Yes, we broke it out with the specificity we could. And it is the March quarter is playing out as we expected. President.

Speaker 4

I will say that there is there are both supply factors still, there are demand factors still. President. And that balance is probably more equally distributed now than it was then. President. It was certainly a predominantly a supply issue then, but we still have both and Yes, it's reflected in our guidance.

Speaker 15

Great. And then another question on supply. If you're expecting supply to PRU for the rest of the year. Does that lower your competitors' ability to bundle RF front ends to apps processor as the supply eases.

Speaker 6

President. I'm not sure there's a direct correlation to that necessarily. I mean, there's President. A lot of things are going to the customers buying behavior. There are certain times when there are bundling factors, of course, President.

Speaker 6

But I don't think this is necessarily a main theme of it. I mean, it's a broad market and President. We're selling across many different basebands. And so, yes, it's a bigger picture than that, I think.

Operator

President. Thank you. We'll now take a follow-up from Edward Snyder with Charter Equity Research.

Speaker 12

President. Thank you very much. I had a question on IDP. I have to say I'm a bit confused by your silicon carbide power business at all. I know you guys acquired President.

Speaker 12

I did. But maybe you could articulate what the strategy is here. Again, I get and I understand what you're doing with the GaN, you're a huge supplier in defense. President. That's a U.

Speaker 12

S. Based business really with U. S. Based suppliers. What used to be your biggest competitor, Cree's kind of dropped by the wayside, Wolf's now.

Speaker 12

But on Silicon Power, it's the other way around at this point. They're about to build turn on their new New York fab, which will make them the largest silicon carbide device power manufacturer on Vice of the Earth and their cost basis is 50% lower than anybody else. So you're buying wafers from them more likely, maybe one of the folks and you're going to pay twice as much as they're paying and they're addressing this market, on a scale and a cost wise that President. Even STMicro and ON are going to have a problem with. So is it that you're selling sick power into Niche Markets, they want to diversify away from them.

Speaker 12

I don't understand the marketing game of this at all because you're going to be an under scale player purchasing materials the guys who are producing the devices on a scale that you can't compete with. So maybe you can articulate what you think this is going to do for Qorvo? How does it fit in with

Speaker 2

President.

Speaker 12

Well, Ed, there's

Speaker 4

a lot there. No, you

Speaker 3

should just go home now.

Speaker 12

President. There's a long time. You can take your shoes. Just pick what you want to answer in

Speaker 4

that order.

Speaker 6

In 5 minutes, I don't know if I could get through all of that.

Speaker 12

President. And then I have a follow-up.

Speaker 10

So Ed, look, I think that President. When we look at the business, okay, and we look at it from a capability perspective, what we like about our silicon carbide technology President. As one, we have a leadership position in efficiency in the specific technical areas that drive that efficiency. President. And I think that's important.

Speaker 10

And I think that capability is why you see the business having quite a bit of traction. President. You can see in the release, there's announcements about onboard charging wins in automotive and DC to DC. President. I think the other piece to it is that when you look at the technology that we have, we can generate President.

Speaker 10

About twice the revenue per wafer, silicon carbide wafer than our competition can. So we because of that advantage, President. We feel like we have the ability to use a more of a foundry model as opposed Vice President of the Board of Directors. An in house model right now. And when you look at specifically the silicon carbide substrate supply, President.

Speaker 10

What we see is more and more investment in that area and we see more and more President. Entrance coming into that space, which we think will make that more competitive over time. So, I President. Those are some of the economic dynamics that we see, okay. I would also say that, again, President.

Speaker 10

Silicon carbide is in our wheelhouse. We are a compound semiconductor company, right? We have a lot of those relationships. President. I hear you.

Speaker 10

I understand your view, but we think there's a real opportunity there for us. And President. Let's just talk a little bit about the market. It's a very, very large market. And even what you may be calling niche and I would assume maybe you're talking outside of automotive, President.

Speaker 10

You look at IT infrastructure, you look at other areas, it's still a very large opportunity. And So we feel like we have the opportunity to build a meaningful franchise. And then when you combine that with our programmable power management, Where I can build systems, I can put that into module capability, which is at the core of what we do. President. We feel like maybe we have a better shot at it than you're giving us credit for right now.

Speaker 10

But that's short and sweet. President. And I guess one last thing. I've been an executive in the Power business and analog and I've been doing President for 25 plus years. And I think there's something there.

Speaker 10

I really do. I'm excited about it. And I think it can be a meaningful franchise for

Speaker 6

us here at Qorvo.

Speaker 12

President. Great. Thanks.

Operator

Thank you. And that does conclude today's question and answer session. I'd like to turn the conference back over to management for any for closing remarks.

Speaker 3

We want to thank everyone for joining us today. We look forward to speaking with you again at upcoming investor conferences. President. Thanks again. Hope you have a great night.

Speaker 3

Thank you.

Operator

Thank you. And that does conclude today's conference. Thank you all for your participation.

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Earnings Conference Call
Qorvo Q3 2022
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