Qorvo Q3 2022 Earnings Call Transcript

Participants

Corporate Executives

• Douglas DeLieto, Vice President, Investor Relations
• Robert Bruggeworth, President and Chief Executive Officer
• Mark Murphy, Chief Financial Officer
• Eric Creviston, President, Qorvo Mobile Products Group
• Philip Chessler, President, Qorvo Infrastructure and Defense Products Group

Analysts

• Toshiya Hari, The Goldman Sachs Group, Inc.
• Karl Ackerman, Cowen and Company
• Vivek Arya, Bank of America Co.
• Blayne Curtis, Barclays PLC
• Gary Mobley, Wells Fargo Securities
• Edward Snyder, Charter Equity Research
• Ambrish Srivastava, BMO Capital Markets
• Christopher Rolland, Susquehanna Bancshares, Inc.
• Rajvindra Gill, Needham and Company
• Alice Malik, Smith Barney Citigroup

Presentation

[Operator]

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

[Douglas DeLieto, Vice President, Investor Relations at Qorvo]

Thanks very much, Cody. Hello everybody and welcome to Qorvo's fiscal '22 third quarter earnings conference call. 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. 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 in our annual report on Form 10-K filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call we provide both GAAP and non-GAAP financial results.

We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact 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 primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today and available on our website at Qorvo.com under Investors.

Joining us today are Bob Bruggeworth, President and CEO; Mark Murphy, Chief Financial Officer; Philip 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.

And with that, I'll turn it over to Bob.

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

Thanks, Doug and welcome everyone to our call. Qorvo delivered fiscal third quarter results above the midpoint of the outlook we provided November 3rd on our earnings call. Demand during the quarter was broad based across markets, included multiple new product categories including 5G transient [Phonetic] diversity, Ultra-Wideband, Wi-Fi 6E and 7 power management and other power solutions.

In mobile products, Qorvo game content in flagship and mass market 5G devices. The fundamental challenges in increased complexity lifting 5G content are being driven by network efficiency and carry requirements for the device architectures. In addition to new 5G bands, requirements are increasing for carrier aggregation, band combinations in both the transmit and receive to maximize bandwidth to and from the device. These are long-term trends impacting 5G devices independent of tier.

In addition, new industrial designs like foldable phones are increasing RF challenges demanding more advanced antenna management systems. Lastly, because Qorvo smartphone portfolio includes cellular RF, ETP mix, Wi-Fi and emerging categories like Ultra-Wideband and MEMS-based sensors, Qorvo can participate broadly across OEMs, product tiers and chipset providers.

Qorvo offers a broad portfolio of key enabling technologies and Qorvo stands to benefit as connectivity continues to proliferate. More currently, Qorvo is leveraging the same competencies that placed us at the forefront of connectivity to grow in new markets. In IDP, revenue increased sequentially and growth was broad based across markets.

The integration of the United Silicon Carbide is proceeding well and enhancing our opportunities in higher voltage applications that demand maximum power efficiency. These include EVs, charging stations and renewable energy systems.

Now let's look at some of the quarterly highlights starting with Mobile. For a Korean-based smartphone OEM, we ramp shipments in support of flagship and mass market smartphone launches. We expanded customer sampling of highly integrated main path solutions as well as secondary transmit solutions, which increased content as these architectures are adopted more broadly.

In Ultra-Wideband, we achieved an important strategic milestone, supplying our first complete Ultra-Wideband solution in an Android smartphone. This speaks to the strength of our core technology and highlights the opportunity across the Android ecosystem. For industrial and enterprise applications. we introduced a fully integrated module combining our ultrawideband chipset with Nordic BLE solution to address a wide range of industrial and enterprise applications.

In Wi-fi, design activity continues to be robust. For mobile applications, we secured new Wi-Fi 7 chip on board reference design engagements and began customer sampling of Wi-Fi 7 FEMs offering superior performance and design flexibility.

For home and enterprise applications, we ran Wi-Fi 6E FEMs for mesh networks and released 5-gigahertz iFEMs with BAW filtering for tri-band applications. In cellular infrastructure, Qorvo was selected by base station OEM to supply 3.4 to 3.8 GHz, 8 Watt GaN power amplifier modules for massive MIMO 5G deployments in Europe.

We see infrastructure market strengthening in 2022 worldwide with significant growth in the rest of the world excluding China. In automotive, Qorvo was selected to provide cellular V2X connectivity for a leading Europe-based automotive OEMs. In power, we secured design wins to supply silicon carbide on for on-board chargers and DC to DC converters in support of leading automotive OEMs in Europe and in Asia. Sales of PMICs for video processors and solid-state drives were strong as were sales of motor control solutions for battery power tools. To expand our power franchise, we are combining our power management and silicon carbide technologies to deliver superior levels of power efficiency and high power applications.

Our first products are for the defense industry and we are broadening the portfolio to serve additional markets including infrastructure and automotive. In bio, we were awarded a $4.1 million follow-on contract with the NIH RADx Initiative supporting a COVID flu combo assay and a COVID antigen pooling [Phonetic] application. We also signed a channel partnership agreement for distribution in the US and submitted a CLIA waiver application to the FDA to expand deployment in point-of-care settings.

In both mobile and IDP, Qorvo is capturing diverse opportunities supported by multi-year secular growth drivers in 5G, IoT connectivity, defense and power. We are operating well and expanding the markets we serve while investing to sustain product and technology leadership across our portfolio.

With that, I'll hand the call over to Mark.

[Mark Murphy, Chief Financial Officer at Qorvo]

Thanks, Bob, and good afternoon everyone. Qorvo's revenue for the fiscal year 2022 third quarter was $1,114,000,000, $9 million above the midpoint of our guidance. Mobile products revenue of $848 million was stronger than expected on higher flagship volumes. Infrastructure and Defense Products revenue was $266 million with infrastructure and programmable power management up sequentially and year-over-year.

Non-GAAP gross margin in the December quarter was 52.6%, 35 basis points above the midpoint of our guidance on better than expected mix and yields. This was the company's fifth consecutive quarter above 52%. Non-GAAP operating expenses in the third quarter were $214 million, down $8 million sequentially on lower incentive compensation and timing of development programs.

Year-over-year opex was up over 20 -- was up $20 million on new product and technology investments including recently acquired company opex, partially offset by lower incentive comp. Non-GAAP operating income in the December quarter was $372 million and 33.4% of sales. Non-GAAP net income in the third quarter was $330 million and diluted earnings per share of $2.98 was $0.23 above the midpoint of our guidance. Cash flow from operations in the third quarter was $117 million reflecting payments associated with the long-term supply agreement discussed on last quarter's call.

As mentioned then, we believe supply agreements allow us to advance our differentiated technology position and simplify our long-term planning. Qorvo is building longer term and more collaborative partnerships to provide our customers supply assurance and to address their product and technology needs. Capital expenditures in the December quarter were $50 million and remain concentrated in core areas such as BAW and GaAs where we enjoy a differentiated position and see continued growth. Free cash flow was $67 million and we repurchased $302 million of shares during the quarter. We continue to repurchase shares based on our long-term outlook, low leverage and other factors.

Turning to the balance sheet in December. Qorvo issued its first investment grade note. The proceeds from this $500 million 3-year note were used in part to retire our $195 million term loan. As of the December quarter end, we had $2 billion of debt and $1 billion of cash. Our net debt to EBITDA increased to over half a turn.

Now turning to our current quarter outlook. We expect revenue between $1,135,000,000 and $1,165,000,000. Non-GAAP gross margin of approximately 52% and non-GAAP diluted earnings earnings per share of $2.94 at the midpoint of guidance. Our March quarter revenue outlook reflects an improving supply situation, high volume smartphone launches and stronger IDP volumes. Forecasted revenue of $1,150,000,000 at the midpoint is up 3% sequentially and 7% year-over-year. We expect mobile to be flat sequentially and up around 5% year-over-year on flagship and mass-tier phone launches and content gains and a more stable supply demand situation. We project IDP to return to year-over-year growth in the March quarter with broad-based demand supporting revenues over $300 million. Our March quarter gross margin guide of approximately 52% results in full year fiscal '22 outlook, about 30 basis points higher than last fiscal year. We project non-GAAP operating expenses to increase in the March quarter to approximately $232 million 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 sales, down from close to 20% of sales last fiscal year. Below the operating income line, other expenses will increase to approximately $17 million on the additional net debt. We project our non-GAAP tax rate in the current quarter to be approximately 7.5% and the full year rate to be 8,2%. Capital expenditures are projected to be around $55 million in the March quarter as we manage spend to intersect demand and support long-term supply agreements with multiple customers. We are still supply constrained in some areas and forecast to remain so beyond our fiscal year-end. We continue to expand BAW and GaAs capacity along with some assembly and test to support growth.

In summary, our result exceeded the midpoint of our December quarter guide. Our March quarter guide is consistent with our previous comments including sequential growth in the March quarter. At the midpoint of our current quarter guide for fiscal year '22, we expect revenue growth over 15% and operating margin over 33%. We project our full fiscal year EPS to be approximately $12.18, up 25% year-over-year.

Looking beyond this fiscal year, Qorvo is well-positioned to serve secular growth trends in activity and power and to deliver growth and earnings and free cash flow. As mentioned last quarter looking at the business by end market highlights Qorvo's growth potential over the next several years. We expect solid growth on our advanced cellular products for smartphones as 5G mix grows, RF complexity increases and content expands. On broader connectivity solutions, we expect strong double-digit growth as connected devices increase and use cases proliferate. And finally, we expect infrastructure, defense and power markets to support double-digit growth as 5G build-outs pick up outside of China. Defense spend mix is the higher performance in electronics and requirements increase for power semis to support electrification trends.

Now Cody, would you please open the line for questions.

Questions and Answers

[Operator]

Absolutely. Thank you. [Operator Instructions] We'll take our first question from Toshiya Hari with Goldman Sachs. Please, go ahead.

[Toshiya Hari, Analyst at The Goldman Sachs Group]

Hi guys, good afternoon and thank you so much for taking the question. I guess my first question is on the supply front. Mark, I think you mentioned that supply constraints to ease a little bit but you also noted that you expect supply constraints to kind of stay around 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 match set [Phonetic] 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.

[Mark Murphy, Chief Financial Officer at Qorvo]

Sure, I'll start and others can add. Yeah, during last quarter's call, Toshiya, we are in the midst of the most disruptive supply chain effects of the past two years. And these effects impacted and added further complexity to the demand picture. We provide the best view we could and we've seen it play out largely as expected. To your specific question on supply chain effects, they did moderate in the quarter and we expect the supply environment to continue to improve through this quarter and the calendar year. So yeah, specifically our businesses we're still seeing some chipset shortages and Wi-Fi which impacted that business. In the defense supply chain, there is still some disruption, COVID-related and then there is other pockets here and there but Toshiya, it did improve as we expected. And even though we expect some continued supply disruptions in the March quarter, we expect it to be less than the December quarter.

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

Toshiya, 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. 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.

[Toshiya Hari, Analyst at The Goldman Sachs Group]

That's great. Thank you so much for the context and then as my follow-up for the March quarter, I think the guidance you provided for both mobile and IDP is pretty consistent with what you had guided to three months ago. I'm guessing though the mix, particularly within mobile may have changed, may have evolved over the past three months. Can you speak to what you're seeing in sort of the respective regions in mobile in the U.S and Korea and broader China? How do you see those regions playing out? And as a quick follow-up to that, any sort of guidance on fiscal '23. I know it's early, Mark, but any revenue looks or gross margin guidance on fiscal '23 would be super helpful as well. Thank you.

[Eric Creviston, President, Qorvo Mobile Products Group at Qorvo]

Yeah. Toshiya, this is Eric, I'll start with the mix in mobile. No particular meaningful changes we expected when we had our earnings call last quarter that we would see strength in Korea due to a lot of new design wins on ramping platforms across mass tier and flagship as well, and those are playing out very consistent with our expectations. We did see a bit of mix shift within our China customer base. It's clear, looking back into December sell out data in the channel, there were some mix shift between them. So far really in this quarter, it's in moderate back to normal. So, really not any significant changes versus what we expected.

[Mark Murphy, Chief Financial Officer at Qorvo]

And to share on the outlook beyond this fiscal year we'll plan to provide more on our fiscal '23 and the rest calendar '22 on our next earnings call. What we can say is based on what we guided. 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]

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

[Karl Ackerman, Analyst at Cowen and Company]

Yes, thank you. Good afternoon. Two questions if I may, first a clarification. May you comment on the overall revenue contribution, your largest customer contributed to in the quarter. And I have a follow-up.

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

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

[Karl Ackerman, Analyst at Cowen and Company]

Yeah, I tried my luck. I appreciate that. It's something--

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

Karl, give us -- Karl, you're consistent. It was--

[Karl Ackerman, Analyst at Cowen and Company]

That is true. Hey. On the guide, one of the concerns from investors is that capacity constraints may limit the adoption of 5G handsets this year. While you have less control over the number of 5G 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 that, that would be helpful. Thank you.

[Mark Murphy, Chief Financial Officer at Qorvo]

Yes. So the first part of it regarding chipset constraints affecting the amount of 5G, I think to the extent that there are chips that constraints in the modem side of the business, I would assume those suppliers are going to prioritize 5G and latest technologies. So, we doubt that's going to be a major factor. When we look at, for example, our China customer base they're still, well under half their shipments are 5G. So, they've got a lot of 4G shipments, especially in export market that will be more impacted probably than the 5G, I think. So yeah, looking forward, we were really pleased with the Pixel 6 launch. A lot of content that we talked about last quarter beginning in across integrated modules antenna control but also of course UWB, that's a great foothold for us, gets our software stack proven and that makes it a lot easier to go across the rest of the Android ecosystem and we are already talking about wins in the consumer home devices UWB, Xiomi for example with their connected home products and we're beginning to put the whole Android space together for UWB, so that's great. 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 transitioning to MEMS-based as we exit the the next fiscal year. So a lot of potential areas for strength throughout the year.

[Karl Ackerman, Analyst at Cowen and Company]

Thank you.

[Operator]

Thank you. You will hear next from Vivek Arya with Bank of America.

[Vivek Arya, Analyst at Bank of America]

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.

[Mark Murphy, Chief Financial Officer at Qorvo]

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

[Vivek Arya, Analyst at Bank of America]

Okay. And the follow-up to that, just clarification on inventory, if my model is right, it is up to, I think, over 114 days or so. I imagine the supply chain is tight everywhere but what's happening with your balance sheet inventory and how should we think about your -- the direction of that inventory? What that implies for utilization and its impact on gross margins over the next several quarters?

[Mark Murphy, Chief Financial Officer at Qorvo]

Sure. Vivek, and you're right on, it's about 115 day. So, as you point out, we ended the quarter at over 700 million of inventory. I think the first thing I would say is, this was in line with our forecast and when viewed historically it's high 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 its run over the past year and a half or so. We have clear line of sight in bringing it down. It's elevated for a number of reasons, including OLEDs for ramps that you're seeing now and sustained volumes and flagship and also content gains in flagship and mass-tier and the increases in IDP and there are other demand factors such as supply demand alignment in China had some share shifts there. But we're working through those. 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]

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

[Blayne Curtis, Analyst at Barclays]

Hey, thanks for taking my question. 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, talking about just a down. Maybe you could just talk about it. You have a lot more higher exposure to Android market. So, maybe without giving us an actual amount, can you maybe just talk about that Android market? Obviously there is new ramps in terms of new modems from some vendors that you should do well with. You're clearly growing in March. It may not be the same iOS story others are indicating. I'm just going to try to -- if you can walk us through the kind of moving pieces for June, that would be helpful.

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

Eric, you want to take it?

[Eric Creviston, President, Qorvo Mobile Products Group at Qorvo]

Yes.

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

I mean we have two parts to our business point. We have our IDP business and our mobile. So, I think we'll let Eric talk a little bit about the mobile side.

[Eric Creviston, President, Qorvo Mobile Products Group at Qorvo]

Yes, I think to your point, Blayne, the Android ecosystem is pretty exciting right now and in growing especially growing exports is not just a China story by any means and high-end products from Google for example and in Samsung obviously we believe is going to be a very good story for us this year and our alignment there. We'll start out, you'll see -- beginning to see the phones come to market, you'll see a portion of the content. I think throughout the year we'll continue to grow content and as more devices move out from them. So, that will be a good story for us this year and we mentioned Wi-Fi earlier as well, Wi-Fi across the Android ecosystem has really opened up for us, since IoT 6, 6E and 7 it's getting harder, the filtering is definitely getting harder and they are implementing with chip on board front-end solutions instead of fully integrated modules. 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. So, all of that goes to what we think is going to be a good year for us in content growth in Android.

[Blayne Curtis, Analyst at Barclays]

Okay. I guess in my follow up, I just going to ask about the growth you're forecasting in IDP for March. I think the connectivity part of IDP has been kind of flat to down. So, I know supply has been a big issue. Can you talk about the drivers for that double-digit sequential growth for IDP for March?

[Philip Chessler, President, Qorvo Infrastructure and Defense Products Group at Qorvo]

Blayne, this is Philip. Yeah. So we are seeing really strong demand in most of our end markets. If you look at the cellular infrastructure side of the business, what you see is really the deployments moving into the US and into Europe. 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 space business again, you know, we continue to see big programs coming in, that were positioned well on. And so we are excited about what that business looks like going forward. 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 and we've got to blend [Phonetic] those two together. We feel that we have a real strong advantage both from a technology and product side on the United Silicon Carbide side but also as we put the silicon side of power and create system level solutions for our customers, we see a lot of opportunities for expansion in that market as well. So, we feel we're positioned well and we like where we are right now.

[Mark Murphy, Chief Financial Officer at Qorvo]

Yeah, Blayne. I would just add as Philip said the growth is broad-based and virtually, every business line and 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'23.

[Operator]

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

[Gary Mobley, Analyst at Wells Fargo Securities]

Hi everyone, thanks for taking my question. Wanted to go back to the next question and double click on the inventory, the inventory topic. Our -- the days of inventory are primarily because of you anticipating some good growth in fiscal year '23 or is it up in relationship to some of your long-term supply agreements and maybe you can give us a little more detail on how you plan to roll up that inventory.

[Mark Murphy, Chief Financial Officer at Qorvo]

Sure, Gary. It's not related to supply agreements. It's a combination of one, to support the growth that's in front of us and we've talked about the flagship and mass tier and and the success we've had there and the strong, the atypical growth profile you see here in March. So, there are absolutely demand factors. There is a demand realignment in China and we've all seen that. We feel great about our position in China and over time, you know, on the other side of that 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 -- 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 and yeah, and then we'll provide you more guidance in the next earnings call.

[Gary Mobley, Analyst at Wells Fargo Securities]

Okay. It's 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 an annualized revenue run rate perhaps exit fiscal year '22 and then on Ultra-Wideband, is there an opportunity here in the automotive market. I know there hasn't necessarily been a big end market for you, but should we think about UWB as being primarily smartphone centric for Qorvo?

[Philip Chessler, President, Qorvo Infrastructure and Defense Products Group at Qorvo]

So, yeah, this is Philip. So, yeah so Gary I'll take this. So in terms of United Silicon Carbide. I don't think we are giving out a specific kind of revenue numbers on that business, but I can tell you that the number of opportunities that we see coming in to our sales funnel is impressive. And we feel like we have a real significant opportunity there. When you think about the world as we electrify as we go towards more carbon-neutral system, energy efficiency is one of the key factors that's driving that, right? And with that drives this power need to look at compound semi-type solutions and really that's in our wheelhouse at Qorvo. That's what we do and so we feel really good about that business and the opportunities continue to scale. On UWB, I'm going to pass that maybe to Eric.

[Eric Creviston, President, Qorvo Mobile Products Group at Qorvo]

Yeah, sure. We -- when we did the acquisition with Decawave, I know one of the key markets we talked about was automotive and that certainly hasn't changed. There is no question that next generation [Indecipherable] will be UWB-based and that will grow throughout the years, up to 7 UWB points in each car plus one on each fab [Phonetic]. So it's going to be, it's going to be a great market. In terms of units, of course, it's a couple of hundred million dollars a year, sort of automotive units. So, for us, anchoring in the handset is super exciting when you look at the 1 billion to 1.5 billion handsets available and anywhere from 3 to 5 accessories for each one 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. There is a lot of activity in the standards bodies [Phonetic] now. Everybody is on board. It's clearly happening,. So, that's a broad area. We also -- we mentioned one of our strategic highlights was around a module combining our UWB with the Nordic BLE and targeting a completely different segment which is sort of enterprise and industrial IoT applications and there's 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, it's -- there's a lot of leverage in our core technology development and need to be both in the software and in the hardware.

[Operator]

Thank you. Now move on to our next question from Edward Snyder with Charter Equity Research. Please go ahead.

[Edward Snyder, Analyst at Charter Equity Research]

Thanks a lot. I've got a couple. Mark, it's clear there is a large overshoot on shipments to the Chinese OEMs. Last year you guys were shipping everything you could get your hands on, I guess in March and June, and then we had an overshoot. It was reflected in last quarter's guide, in this quarter's inventory. I know you don't have hubbed [Phonetic] inventory with any of the Chinese. So your visibility into what's actually happening there is very limited, but you've already got a quarter now underneath you belt. What do you -- given that one quarter and the burn rate is going on, what you see now, when do you think you'll get more back to a normal inventory level and your shipments into China will start reflecting really sell out versus what we've seen so far, which is will take everything that can get. And then, Eric, if I could given the big changes in Samsung's full business with Broadcom out now and they move to modules in the mass-tier, can we expect Samsung will break the 10% revenue level for Qorvo this calendar year and it's kind of a sub-question, given all these shifts who do you think you're taking share from especially in the mass-tier given that was more of a qausi discrete design, you're gaining there. Who do you take it from and then I have one for IDP?

[Mark Murphy, Chief Financial Officer at Qorvo]

So I'll start and then Eric can even add more color on the China channel but I think we've got better visibility than you may think and we're certainly monitoring it very closely. There are actually some positive signs in the December quarter. Sell through is decent. We've been looking at the phone and phone inventories and they're actually very healthy. So, it's just a matter of some of the components, kind of working its way through and we've got an eye on how that will play out 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 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 on our position serving it. So, we'll work through this over the next couple of quarters and being I think in decent shape by sometime in the summer.

[Eric Creviston, President, Qorvo Mobile Products Group at Qorvo]

And regarding Samsung, it's a broad family of products. As I touched on earlier, there is a lot of the bar content and I think you'll see this kind of starting out in flagship and expanding towards, excuse me, starting out more mass tier and expanding to our flagship as the year progresses with heavy bar [Phonetic] content but also like the power management aspect is also very, very significant and antenna tuning, which we've always been quite strong, that will continue to be strong and then Wi-Fi, as we've been mentioning the chip on board trend. So, I'm not going to speak specifically to who we're taking share from but we are -- it's not any one thing, it's a broad product portfolio alignment, which has been in the works with Samsung for some time. It's good to see it finally come to fruition.

[Edward Snyder, Analyst at Charter Equity Research]

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

[Eric Creviston, President, Qorvo Mobile Products Group at Qorvo]

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

[Operator]

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

[Ambrish Srivastava, Analyst at BMO Capital Markets]

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 your point [Phonetic] of delivering double digit my model almost froze. I had to go back to 2018, when you actually had single digit free cash flow to sales number. 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 parts for free cash flow to sales being 6 odd percent versus the double-digit that you've been posting for several quarters.

[Mark Murphy, Chief Financial Officer at Qorvo]

Now that you've got it, Ambrish. It's, as I talked about last quarter, we signed this long-term agreement which 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 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. And then as numbers have noted, our inventories were up. So excluding these two effects, we have what is our normal very strong free cash flow generation and and we've talked about the nature of both of those. And so I would expect free cash flow this year to still end up near $900 million and then I would expect next year to grow.

[Ambrish Srivastava, Analyst at BMO Capital Markets]

Got it. I had a quick follow-up on inventory, Mark. I just want to make sure I understood. When you're talking about there has been realignment, we are all aware of that. My head does not understand 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, Huawei, and then everybody else was kind of grab that market share. So, that's been one shift. The other is also been some sort 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 inventories?

[Mark Murphy, Chief Financial Officer at Qorvo]

No. And if there were risk, we would have written stuff off in the quarter. Our view and Eric can expand on this, 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 so that's one factor and then concurrently, you have a demand factor where you have both a realignment amongst OEMs in China and some share shift associated with that. It will shake itself out here and it's ongoing and no matter what scenario plays out we think we're fine. 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 pickup in lockdown. So there is probably that factor. Though we're not as concerned with that because end phone demand is actually pretty lean. So, I think, Ambrish, it's just a case of this will settle out. We've got agreements in place, we've got firm orders, we have line of sight on the inventory working down and I believe we'll be in a good spot in several months.

[Ambrish Srivastava, Analyst at BMO Capital Markets]

Got it, thanks. Thanks for all the clarifications.

[Operator]

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

[Christopher Rolland, Analyst at Susquehanna Bancshares]

Hi guys, thanks for the question. I think last call you guys mentioned that maybe you are opening up Farmers Branch again. Just wanted to confirm that was happening, that that's ramping and where might utilizations go there as we move through the year?

[Eric Creviston, President, Qorvo Mobile Products Group at Qorvo]

That's a good, it's a good question Chris. And of course we're continuously looking as to whether we need investment or not. And yes, there has been some reduction in loadings because 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 '23.

[Christopher Rolland, Analyst at Susquehanna Bancshares]

Great. And secondly Qualcomm, I think has an ultra bar product coming maybe working in the parts of your market there. I know you guys really haven't seen a too much there so far but have you seen a little bit more over the past few quarters. And would you expect, are you preparing for more competition in '22. Thanks.

[Mark Murphy, Chief Financial Officer at Qorvo]

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 pushing hard to advance our technology and already sampling 7 gigahertz by integrating a lot of it in the modules which we're shipping soon. And then as we've talked on many times, it's not just about what frequency, you can get to at the filter, it's about how well you can combine them working in multiplexing and combining multiple technologies together in the same module and there is a lot of complexity going on. So, but there is, 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 the capability.

[Operator]

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

[Rajvindra Gill, Analyst at Needham and Company]

Thank you for taking my questions. I appreciate it. The gross margins continue to be resilient in a challenging environment. I think last quarter you mentioned that you were benefiting from premium products, better pricing power and maintaining utilization of your factory network. Wondering how to think about margins as you migrate to a better demand-supply dynamic throughout the year and also, a little bit more about the pricing situation, as you kind of move upstream with respect to your products.

[Mark Murphy, Chief Financial Officer at Qorvo]

Yeah, I'll start. Yeah, we've been talking about the 52% level for several quarters and GM, gross margin is going to move around quarter-to-quarter of course, based on yeah, customer, product mix, business mix, yields, factory loadings, price and other factors. Yeah, we do believe that the current business set up of the products we've got, our footprint, productivity efforts and so forth support this 52% level but we are definitely working to improve that over time. I think all I can say is we're going to try and do the same things we've been doing, applying that same discipline of investing in the technology to maintain leadership, actively managing the portfolio where we're and producing products where we're valued most. 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 is pockets of inflation 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.

[Rajvindra Gill, Analyst at Needham and Company]

Great. And and for my follow-up, you had mentioned that you expect 5G infrastructure build-outs to begin to kind of reaccelerate throughout the year outside of China. I wonder if you could elaborate further in terms of what you're seeing specifically which region and you are very successful in China with the penetration of your GaN base stations and your dominance in GaN technology. So, I want to get a sense when you're thinking about the build out outside of China, how that is affecting your can IDP business and kind of your market share position in GaN?

[Philip Chessler, President, Qorvo Infrastructure and Defense Products Group at Qorvo]

Hi, this is a Philip. I'll take that question. So, when we look at the overall market this year, this calendar year what we see is kind of China being similar to what it was in last calendar year but really where we see most of the real deployments and growth is in Europe and in America and we've spent a tremendous amount of time and energy creating a family of technologies and products that really are kind of optimized for those markets. We see our GaN technology is a critical piece of that. Same with the kind of our small signal product families that we have and so we like how we're positioned and we right now if you were to look at kind of backlog and where things are in that business we're excited about that. So, hopefully that answers your question Rajvind.

[Operator]

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

[Alice Malik, Analyst at Smith Barney Citigroup]

Thank you for taking my questions. 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, are you seeing similar demand or supply impact or no because the March quarter is in line with what you were thinking last year.

[Mark Murphy, Chief Financial Officer at Qorvo]

Yeah. Last last earnings call, we broke it out with the specificity we could, and it is -- the March quarter is playing out as we expected. I will say that there is, there are both supply factors still, there are demand factors still and that balance is probably more equally distributed now than it was then. It's certainly a predominantly a supply issue then but we still have both and it's reflected in our guidance.

[Alice Malik, Analyst at Smith Barney Citigroup]

Great. And then another question on supply. If you're expecting supply to improve through the rest of the year, does that lower your competitor's ability to bundle RF front end to add stocks as the supply eases?

[Mark Murphy, Chief Financial Officer at Qorvo]

I'm not sure there is a direct correlation to that necessarily. It's -- a lot of things are going into the customer's buying behavior. There are certain times when there are bundling factors, of course, but I don't think this is necessarily a main theme. I mean it's a broad market and we're selling across many different basebands and so, yeah, it's a bigger picture than that I think.

[Operator]

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

[Edward Snyder, Analyst at Charter Equity Research]

Thank you very much. I had a question on IDP. I have to say I'm a bit confused by your sourcing carbide power business. I know you have acquired United but maybe you could articulate what the strategy is here. Again, I get -- I understood what you're doing it again. You're a huge supplier in defense. That's a US based business really with US based suppliers. What used to be your biggest competitor, Cree's going to drop by the wave side [Phonetic] Wolfspeed now 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 the face 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 be twice as much as they're paying and they are addressing this market on a scale and a cost-wise that even ST Micro and ON are going to have a problem with. So, is it that you're selling sick power into niche markets and want to diversify away from them. I don't understand the marketing game of this at all, because you're going to be an under-scale player purchasing materials from the guys who're producing the devices on a scale that you can't compete with. So maybe you could articulate what do you think this is going to do for Qorvo? How does it fit in with your your model in the long term? Thanks.

[Mark Murphy, Chief Financial Officer at Qorvo]

There is a lot in there.

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

Probably we should just go home now.

[Edward Snyder, Analyst at Charter Equity Research]

Just tick what you want to answer in that whole.

[Mark Murphy, Chief Financial Officer at Qorvo]

In 5 minutes. I don't know if I give you all that but--

[Edward Snyder, Analyst at Charter Equity Research]

And then I have a follow-up.

[Mark Murphy, Chief Financial Officer at Qorvo]

So, look, I think that when we look at the business, okay, and we look at it from a capability perspective what we like about our silicon carbide technology is one, we have a leadership position inefficiency in the specific areas that drive that efficiency and I think that's important and I think that capability is why you see the business having quite a bit of traction. I mean you can see in the release. There is announcements about on board charging wins in automotive in DC to DC. I think the other piece to it is that when you look at the technology that we have, we can generate about twice the revenue per wafer silicon carbide wafer than our competition can't. So we-- because of that advantage we feel like we have the ability to use more of a foundry model as opposed to an in-house model right now. And when you look at specifically the silicon carbide substrate supply, what we see is more and more investment in that area and we see more and more entrants coming into that space, which we think will make that more competitive over time. So, I mean those are some of the economic dynamics that we see, okay? I would also say that again, silicon carbide is in our wheelhouse. We hired a compound semiconductor company, alright? We have a lot of those relationships. So I hear you. I understand your view but we think there's a real opportunity there for us and the market, 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, if you look at IT infrastructure, you look at other areas it's still a very, 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 we, we feel like we've made, we have a better shot at it than you've given us credit for but that's short and sweet and I guess one last thing I've been an executive in the power business, in analog and I've been doing this for 25 plus years and I think there's something there. I really do. I'm excited about it and I think it can be a meaningful franchise for us here at Qorvo.

[Edward Snyder, Analyst at Charter Equity Research]

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 additional or closing remarks.

[Robert Bruggeworth, President and Chief Executive Officer at Qorvo]

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

[Operator]

[Operator Closing Remarks]