Skyworks Solutions Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2022

There are 12 speakers on the call.

Operator

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

Speaker 1

Thank you, Rachel. Good afternoon, everyone, and welcome to Skyworks' 1st fiscal quarter 2022 conference call. With me today are Liam Griffin, our Chairman, CEO and President and Chris Senesol, our Chief Financial Officer. Before we begin, I would like to remind everyone that our discussion Will include statements relating to future results and expectations that are or may be considered forward looking statements. Please refer to our earnings release And recent SEC filings, including our Annual Report on Form 10 ks, for information on certain risks that could cause will discuss include non GAAP financial measures consistent with our past practice.

Speaker 1

Please refer to our press release within the Investor Relations section Our company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Liam.

Speaker 2

Thanks, Mitch, and welcome, everyone. Skyworks delivered a strong start to the fiscal year, establishing all time quarterly records for revenue and free cash flow. Looking at the quarter in more detail, we delivered revenue of $1,510,000,000 Above consensus and up 15% sequentially, demonstrating the strength of our broadening product portfolio. Specifically, the mobile business grew 12% sequentially, driven by increasingly complex architectures in 5 gs phones at our largest customer And momentum across the Android ecosystem. In parallel, our broad markets business achieved a record 477,000,000 in the quarter, up 23% sequentially and 46% year over year.

Speaker 2

Our growth was fueled by both the continued adoption of our solutions across 5 gs, IoT, automotive and wireless infrastructure And an expanding set of new customers and markets from our recently acquired I and A business. Importantly, Skyworks continues to drive strong profit margins and exceptional cash flow. We achieved gross margin of 51.2 percent and operating margin of 38.8%. We posted earnings per share of $3.14 above consensus and up 20% sequentially. Finally, we generated record Q1 operating cash flow of $582,000,000 As our first quarter results illustrate, The growth trajectory we established in fiscal 2021 is extending into fiscal 2022.

Speaker 2

We continue to see deployments accelerating with 5 gs cellular subscriptions predicted to grow from $700,000,000 today To more than $4,400,000,000 by the year 2027. As connectivity becomes more vital to the ways we work, Educate and Play devices are increasingly integrating 5 gs with advanced WiFi, Precision GPS, Bluetooth, Zigbee and other wireless protocols, creating the seamless and ultrafast experience demanded by our customers. The rapid adoption of new wireless technologies enables a proliferating set of use cases with design wins spanning mobile and broad markets, Further bolstered by contributions from our recently completed acquisition. Specifically in mobile, We shipped Sky5 platforms across leading smartphone OEMs, including Samsung, Oppo, Vivo and Xiaomi among others. In enterprise and IoT, we supported Wi Fi access points at Siemens, powered NETGEAR's latest Wi Fi 6 And 6E Mesh System, partnered with British Telecom to launch 5 gs Home Routers, ramped WiFi 6 and 6C modules at Juniper Networks and TELUS and provided digital isolation solutions for GE Consumer Appliances.

Speaker 2

Moving to automotive. We leveraged Sky5 technology to enable telematics, security, driver assist And other advanced services at leading OEMs. We scaled volume production of timing and isolation products, enabling the leading EV manufacturers. And finally, across the infrastructure and industrial space, we captured design wins at Quicktell for enterprise M2M platforms, Delivered industrial IoT solutions to Itron, Honeywell and Thales, supporting smart energy and factory automation. We also expanded our position in timing applications at the top 5 data centers.

Speaker 2

And as markets evolve, we expect to deploy billions of wireless devices, capitalizing on a strong multiyear growth trend. Advances in cloud and edge computing, autonomous vehicles and factory automation, together with the emergence of the metaverse, We are intensifying the burden on existing networks, catalyzing demand for our highly integrated and customized platforms. From inception, Skyworks has been a driving force empowering the wireless network revolution, connecting people, places and things. We invested early and extensively to develop and fabricate cutting edge technology at massive scale. Today, we're a global leader providing the essential elements required to deliver the highest performance connectivity platforms in the industry, Producing billions of units, integrating core technology nodes, including gallium arsenide, Belkken Surface Acoustic Wave as well as the most advanced multi chip module test and assembly capabilities in the world.

Speaker 2

Underpinned by this powerful foundation, we are leading the transition of 5 gs, inspiring a new era of unrivaled innovation. The strength of our balance sheet and consistent outperformance demonstrates the significant value of our vertically integrated model And the compelling advantages it delivers. Looking forward, we are committed to supporting the strategic investments in technology, Product development and world class manufacturing scale to further extend our market leadership. With that, I will turn the call over to Chris.

Speaker 3

Thanks, Liam. Skyworks' revenue for the 1st fiscal quarter of 2022 was 1,510,000,000 Up 15% sequentially, driven by continued strong demand across our entire portfolio. Gross profit in the Q1 was $773,000,000 resulting in a gross margin of 51.2%, Up 20 basis points sequentially. Operating expenses were $187,000,000 or 12.4 percent of revenue, Demonstrating leverage in our operating model while continuing our strategic investments in support of future growth. We generated $586,000,000 of operating income, translating into an operating margin of 38.8%, Up 160 basis points sequentially.

Speaker 3

We incurred $9,000,000 of other expenses, and our effective tax rate was 9.3%, Driving net income of $523,000,000 So strong revenue growth and execution on margins Gross diluted earnings per share of $3.14 up 20% sequentially. Turning to the balance sheet and cash flow. 1st fiscal quarter cash flow from operations was a Q1 record of 582,000,000 Capital expenditures were $96,000,000 resulting in an all time record free cash flow of 486,000,000 And a free cash flow margin of 32%, driven by strong profitability and great working capital management. In fact, inventory levels were reduced by 22 days to 103 days and receivables were reduced by 5 days to 47 days. In terms of capital allocation during the quarter, we paid $93,000,000 in dividends and repaid $50,000,000 of our term loan.

Speaker 3

And we repurchased 1,700,000 shares of our common stock for a total of 269,000,000 In summary, the Skyworks team continues to execute well, delivering strong profitability and rapid free cash flow in the December quarter. We have designed wins across our growing product portfolio and customer set, positioning us to outperform through 2022. Now let's move on to our outlook for Q2 of fiscal 2022. We expect to deliver double digit year over year revenue and earnings per share growth In the March quarter, specifically, we anticipate revenue between €1,300,000,000 and €1,360,000,000 At the midpoint of €1,330,000,000 revenue for the quarter is expected to increase 13.5% year over year. Gross margin is projected to be in the range of 50.75 percent to 51.25 percent.

Speaker 3

We expect operating expenses of approximately $186,000,000 to $188,000,000 Below the line, we anticipate roughly $10,000,000 in order and a tax rate of approximately 9.5%. We expect our diluted share count to be approximately 166,000,000 shares. Accordingly, at the midpoint of the revenue range, we intend to deliver diluted earnings per share of $2.62 An increase of 11% over Q2 of last year. And finally, given our strong cash flow and confidence in the business model, We will continue to focus on investing in our business, while returning cash to the shareholders through both share repurchases and dividends. And with that, I'll turn the call back over to Liam.

Speaker 2

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

Speaker 2

Operator, let's open the lines for questions.

Operator

Thank Thank you. Please standby while we compile the Q and A roster. Your first question comes from the line of Chris Caso with Raymond James. Sir, your line is open.

Speaker 4

Yes. Thank you. Good evening. I guess, so the first question, can you help us detailing the breakout of broad markets versus mobile in the quarter? And what your expectations are for those markets as we go forward into March?

Speaker 3

Yes, Chris. So as we indicated in the prepared remarks, we had very strong performance in growth markets. It was roughly 32% Of our total revenue compared to 22% last year. And so we saw very strong growth, 23% sequentially, 46% on a year over year basis and the growth was driven by ongoing strong demand for wireless Connectivity, especially as it relates to IoT Solutions. In addition to that, we have a strong contribution, all time record from The acquired business of the Infrastructure and Automotive business as well.

Speaker 3

So great execution In broad markets. On the flip side, of course, you have mobile, which was in the December quarter approximately 68% of revenue. It was up 12% sequentially. It was down 13% year over year, but you have to take into account the timing of the ramp of flagship, Especially last year, where you just to remember, the large customer was had a condensed ramp with a late launch In the late October, early November timeframe. This year, the launch was spread over the September December quarter, But great execution there as well in mobile.

Speaker 3

As it relates to the March quarter, we typically don't really guide By segment, but we just provided the guidance for the March quarter, which is up 13.5% year over year. We do expect both segments to grow double digit year over year, of course, stronger in growth markets than it is in mobile.

Speaker 4

Okay. Thank you. And just following on to some of the comments that you made With respect to seasonality, and last year, seasonality was skewed, as you said, because of the late launch of the But this year, there were also capacity constraints affecting your customers also. So as your largest Customers said that they weren't able to ship as much as they wanted in December quarter. How does that affect seasonality for the March quarter This year and does that have any implications for June as well if some of your customers perhaps are catching up with unfulfilled demand during the March quarter?

Speaker 3

Yes, Chris. So again, if you look at the guide we provided for March, down 12% sequentially, Up 13.5% year over year, but the down 12% sequentially is actually slightly better than normal seasonality If you compare to the last 5 years for the March quarter, as you probably remember from the call of our large customer, they left Revenue on the table in the December quarter and they're still trying to catch up and they see improvements going into the March quarter. Looking ahead for June, again, we only guide 1 quarter at a time. But sitting here today, I don't see any reason why June would not be in line with normal seasonality. So we do expect normal seasonality for the June quarter.

Speaker 3

Also keep in mind that June is just a transition quarter, right? We feel very strong based on our technology road map, the products, The design win momentum and the design wins that we have on the book right now, we feel very strong for further sequential growth Into the September December quarter, typically as you see with strong performance in the second half of the year.

Operator

Thank you. The next question comes from the line of Gary Mobley with Wells Fargo Securities. Sir, your line is open.

Speaker 5

Hey guys, thanks for taking my question. I'm going to pick up right where you left off Chris and ask specifically What you would classify or quantify as a typical June quarter over quarter seasonal Comp, focusing specifically on the mobile business and then I have a follow-up.

Speaker 3

Yes. So for the total company, if you look at the average of the last 5 years In June, we have been flat to down 5%. So call it an average 3%, 4% down sequentially In the June quarter. That's the average over the last 5 years.

Speaker 5

And that's mobile specifically, to be clear?

Speaker 3

That is mostly driven by mobile.

Speaker 5

Okay. All right. And then switching gears over to the broad markets business. I know that you have been capacity constrained for that business. And I presume given the that you delivered in the December quarter that's less of an issue or turned out to be less of an issue.

Speaker 5

So maybe if you can give us an update on where you stand with expanding To support the broad markets business, how the backlog is trending for that business in relationship to the improved supply? And that's it for me. Thank you.

Speaker 2

Yes, sure. This is Liam. Well, as noted in the prepared remarks, we had a record broad market Quarter, dollars 477,000,000 46 percent year over year. There's just a lot more for us to do in those areas, we are extending the reach of customers, new customers. We're driving more complex Cellular engines, IoT engines to our customer base also gained some traction, meaningful traction with the I and A portfolio So that's coming together.

Speaker 2

And there's so much opportunity in the broad markets business. And we're happy to see the numbers That we're discussing now, but the market pan there is substantial if you think about the scale and scope Of where we can take our products. So there's a lot of work to be done there, but we're really pleased with the effort. Our team is doing well. Having some new customers In our corner is always great and we're going to continue to drive in that way.

Speaker 2

So good stuff and a lot of good technical synergy as well. So most of these products do have a kind of a common core in some So it does help us drive through our supply chains very effectively, high velocity and leveraging that scale that we talk so much about.

Operator

Thank you. The next question comes from the line of Ambrish Shrivastava from BMO. Your line is open.

Speaker 4

Hi, thank you very much. Prior to the tight execution on the balance sheet and cash On the cash flow side, Chris, just a quick this is a housekeeping. What should we expect CapEx Should be for this year and then I had a quick follow-up, please.

Speaker 3

Yes. So CapEx The quarter was $96,000,000 which is somewhat light, but we don't really manage CapEx quarter by quarter. We will definitely continue to invest. This is still early stages in a multiyear 5 gs upgrade cycle, as Liam just explained, there's a lot of growth opportunities in growth markets. So we will continue to further invest in our manufacturing, adding more size and scale, but at the same time also Supporting the technology roadmaps, we have major success with both acoustic wave.

Speaker 3

And so we are the revenue of integrated devices that have BAW filters inside is growing very strong and we're supporting that. We're also making the necessary investments in Mexicali, In our back end operation, supporting advanced packaging and test. And so again, we have a lot of growth opportunity for us. We will support that. We will continue to expand the capacity and pay CapEx.

Speaker 4

Sorry, it's Chris. So just in terms of numbers, double digit, low double digit is the right number to be modeling?

Speaker 3

Double digit.

Speaker 4

For cash intensity? Okay. And then for my follow-up is, Liam, for you on the broad markets business. Now that you have included the Silica Lab business, what's the right way to think about the longer term, CAGR for this business? Thank you.

Speaker 2

Yes, absolutely. We definitely see great opportunity in that portfolio as it is right now. And so levering around that is a very substantial sales team from the core Skyworks still leveraging the I and A portfolio. We've done really well in the last couple of months of introducing the I and A products and technologies to Customers that we already have, proven customers that we do lots of business with, which is a great synergy for us. We are scaling operationally The majority of the portfolio and the I and A business had been more of a fabless play.

Speaker 2

Over time, we're going to bring that technology Under our own roof here at Skyworks and leverage the great scale that we have. So it's a lot of really interesting things that we're doing on the inside, inward looking, but there's tremendous opportunity The outbound side, so a lot of activity, great people. The spirit in the business there is very high And the opportunity that we have is tremendous. We really have a small piece of the total opportunity size that, that product line can bring. So I think We're excited about the opportunity.

Speaker 2

We'll continue to report on our results, but thus far, things have been going really well.

Operator

Thank you. The next question comes from the line of Blayne Curtis with Barclays. Sir, your line is open.

Speaker 6

Hey, thanks for taking my question. I assume Just wanted to follow back on the mobile side and just make sure I heard what you're saying, just because we've heard it from so many other companies. But In terms of the March seasonality, I mean, we've heard that the largest customer has been pulling more product and maybe has Less than a typical seasonal period, they're also launching a new phone that adds 5 gs. So that's all good. So I'm just trying to understand, Are you seeing that because you made comments that June should be normal.

Speaker 6

I think you've now had a couple companies talk about June being down more because March is I just want to just go back to that point and make sure I understand what you're saying.

Speaker 2

Sure, Blayne. This is Liam. Yes, I think what You may see here is relatively typical demand cycle, but then within that demand cycle, where is the technology and how do you grow that technology Even in constant units, right? So I mean, it won't be constant units, but if we have a baseline, some of the enthusiasm around our view going into June is really about design wins that we have squarely in our site, in some cases design wins that have been consummated that haven't shipped yet. So a lot of that is Skyworks specific.

Speaker 2

But the typical calendar fiscal cycles that we tend are still relatively in place, but I will tell you that the opportunity within the devices that we're serving and with the customers that we're serving, We're seeing growth potential there. And that's much more predictable for us because we know exactly what we're winning, we know Where that's going, we know how to prepare that operationally and still do that shoulder to shoulder with the leading customers. So we feel really good about it. The macro seasonality could be a little bit different, but we feel very confident in what we're going to do.

Speaker 7

And then just a question

Speaker 6

For Chris, I think when you bought the Silicon Labs business, you're going to retire debt quite quickly. I think You were actually pretty active on the buyback for December. So with the pullback in the stock, are you thinking about that differently? And I think you can talk about For the remainder of this fiscal year in terms of buybacks versus debt retirement?

Speaker 3

Yes, Blayne. So currently we have still $2,200,000,000 of debt on the balance sheet in addition to $1,000,000,000 of cash. So we feel really good about our liquidity position today. In terms of even gross debt, it's less than a turn Of EBITDA. And so given where the stock is trading today and where it was trading over the last 3 months, We have switched on the buybacks again, and we will continue to do so going forward.

Operator

Thank you. The next question comes from the line of Edward Snyder with Charter Equity Research. Sir, your line is

Speaker 8

Thanks a lot. A couple if I could. So Liam, Skyworks traditionally has been very strong in WiFi, the 2.4 gig Section, I think you own when they use external amps, but that's always been shipped in the phone business into a SIP, a system in a package from a router or somebody else But it looks like now finally the Android ecosystem is moving to more of an RF module architecture And where they'll break out the RF separately. So I kind of understand what that means from a content point of view, especially with WiFi 6E. But it poses a problem, does it?

Speaker 8

I mean, because now in addition to the amps, you've got to have the best filters. 2.4 uses a tough ball filter and Wi Fi 6, he will use a tough ball filter. So 1, are you seeing the shift of modules in WiFi finally? And 2, Does it represent any difference in content opportunity for you? Does it go up?

Speaker 8

Does it go down? Does it stay the same? How do you characterize Skyworks' Positioning if the Edvard world moves in mass to this new architecture? And I have a follow-up.

Speaker 2

Yes. No, that's a good question. I think I don't know if everybody followed that, but I know where you are. So the bottom line on that, which is great, we have an outstanding position in WiFi today. Just let me make that clear, very substantial.

Speaker 2

And it's been going great. But there has been improvements in technology and demand for higher speeds and higher performance. And in those cases, bulk acoustic wave is a critical element within the WiFi system. So we have ramped WiFi, we have ramped our bulk acoustic wave technology obviously in smartphones with a lot of work, a lot of investment and That's been going great. And now we're seeing that move into WiFi.

Speaker 2

And we have design wins now that capture bulk acoustic wave within a WiFi Multiple customers. So it's another vector of growth for Skyworks. And that a lot of that is in the broad market side, and it's very diverse. It's certainly we love our handset business, but you've got a handful of customers. When you get into the connectivity nodes around Wi Fi and other cases, You have a broadening there.

Speaker 2

So we're in good position there and in a great position also now to start to lever up Bulk Acoustic Wave beyond the mobile phone.

Speaker 8

So it's safe to say you're shipping a coexist BAW filter at 2.4 gig, which is one of the reasons thought you even started the ball to protect your white business.

Speaker 2

Yes, we do have those today and we're going to continue to go higher in frequency as we

Speaker 8

Okay. Then if I could, you did very well on flagship phones last round. You're now finally moving the transmitter into the diversity section and you landed Which is a big coup. So two questions if I could. What does the content opportunity look like in that area because it tends you tend to really dominate the diversity section and of course the low bands too.

Speaker 8

But now that they've already added that, are we going to see any bigger kickers or We got most of what we need there. And then how does this play out with everybody else, Samsung and the Chinese OEMs? 1, when do you think they'll move to the transmitter and DRX? And 2, do you think the same dynamic competitively will play out where you're going to kind of sweep that out and push We're also like Murata out of it like you did on the flagships.

Speaker 2

Yes, yes. So on the higher end, the opportunity there, we talked about driving higher Filtering in moving up the data rate, going to 6E, all that's working. But then if you go down to the mid tier, there's tremendous opportunity because there's still the vast majority of phones in the Android world and some of the markets in China Are just now stepping up with the higher performing filters and they get great performance return for that. So we're doing a lot of work And shoulder to shoulder design in work with customers to make sure they see the merits of this technology and the performance upside that they gain for A couple of incremental dollars. So I think there's a great opportunity there.

Speaker 2

Coming from the low base too, so that's not It isn't just a simple upgrade cycle. It's coming from very low base to mid to higher end, and we'll continue to work along that curve. The know how that you build in mobile and in RF translates very well. So all the hard work and the engineering talent that we have at Skyworks that's been Working on flagship phones for years years. They know how to scale when it goes into Wi Fi and some of these other wireless technologies.

Speaker 2

We look forward to leveraging that skill set as we meet with new customers.

Operator

Thank you. The next question comes from the line of Craig Ellis with B. Riley Securities. Sir, your line is open.

Speaker 9

Yes. Thanks for taking the questions and congratulations on the nice quarter and cash flow. I wanted to start with an operational question. So Clearly, we've got a very strong demand environment out there right now. And Chris, it sounds like you expect the business to be seasonally strong In the back half of the year.

Speaker 9

So can you just talk a little bit about how you plan to manage Manufacturing loadings as we go through the calendar first and second quarter or your fiscal second, third quarters, Should we expect to see that you'll build inventory to put yourself in a position or for whatever reason, would inventory Stay at a relatively lower level here.

Speaker 3

Yes, Craig. I mean, we do that every year because we do have some large seasonal swings In our business, right, we have typically strong sequential growth in September, December and then down in March and kind of flattish to Slightly down in June. That's the seasonal pattern. We, of course, trying to maximize factory utilization and drive efficient use of our capital equipment. And so we are always level loading as much as we can.

Speaker 3

It's not perfect. That's why you also see some seasonal fluctuations in the gross margins there as well. But we definitely will try to maximize that. Also, in this business, The design wins, we know them way ahead, right? So we know what we win.

Speaker 3

We know the product. We can Start building to a certain extent ahead of it, and we do that every year.

Speaker 9

Yes. Got it. That's helpful. And then I'll flip one over to Liam. Liam, I think there's a general view out there that this year will be a year for Some around 40% growth in the smartphone market, really as we ship a lot more mid range 5 gs smartphones.

Speaker 9

So I know you just talked about some of the things you're excited about on the Android ecosystem, but is it possible to put Quantification around the degree of content gain that's left at that tier of the market? And beyond that tier, what's still possible for Skyworks?

Speaker 2

Sure, sure. Yes, I mean, we have 2 vectors, right? We have kind of the mid tier moving up and then you have the premium devices Really stepping up with high performance. And both of those portfolios have been great for us. And I think Our ability, the years years of time and investment and shoulder to shoulder engineer work, We basically follow the lead with our customers, so we're very flexible.

Speaker 2

We can go to the highest end and we can also bring companies that haven't engaged And get them on board. And so that continues to grow. And the merits of mobility and wireless connectivity, everyone on this call knows how important So there's a lot of opportunity there. And then if you move out of smartphones, Craig, we had a question on that a few minutes ago. We just we're really excited by The potential for proliferating connectivity everywhere, right?

Speaker 2

You're hearing more about M2M. You're hearing more about automotive. These are real. These are real markets right now. There's Wi Fi opportunity.

Speaker 2

It could be cellular. All of these end markets Have great promise for us beyond just the mobile phone and the technologies that we have and the in house scale that we have really creates flexibility. So we don't have a one stop shop. We can be very crafty and configurable with our customer Depending on the application. So there's a lot of really interesting design wins that we have that really come about with customer problems and Our engineers huddling together to solve it.

Speaker 2

So it's really cool to see. And you're going to see more and more growth around that. But still, The connectivity vector is the primary element here to make it all work.

Operator

Thank you. The next question comes from the line of Brett Simpson with Arete Research. Sir, your line is open.

Speaker 10

Yes, thanks very much. Maybe 2 big picture questions, maybe for Liam. First, just Android as a market opportunity for Skyworks. I guess your mobile business is much more Skewed towards iOS, historically. But if I look at Android, we probably look at about $1,000,000,000 of revenue for Skyworks every year and there's more than 1,000,000,000 Shipping for Android.

Speaker 10

So you're getting sort of less than $1 today of RF content on average. And I guess just moving to 5 gs and more modules, can you perhaps just talk about the opportunity that you see ahead of yourselves In terms of getting more strategic with customers or where you think you can really start to sort of grow your Average content per unit in the Android ecosystem? Thanks.

Speaker 2

Sure, sure. That's a great question. Yes, and you're right. I think there's a lot more opportunity In Android now for us to go get. And it's really about an education opportunity for Working with these customers, we're demonstrating what a little bit of incremental Content can do in terms of the end user's experience.

Speaker 2

So there's a lot more of a drive there. We absolutely it's not a technical hurdle for us. Mean, we know how to do it. It's more around how do we craft a solution that provides the technology And the performance and does it at a price point and a cost point for us where it makes a lot of sense. And that's happening now because as you start to see 5 gs really accelerate, to really get the performance that's been promised and desired, you've got to put in more content, you've got to put in more filtering that we talked about already in the call.

Speaker 2

You need to raise the performance of Your gallium arsenide technologies, you've got to bring them in. You've got to look at your packaging and test and the coexistence issues that happen when you have more and more These technologies in a single application, whether the application is a phone or something else. So there's a lot there. A couple of things I would say in the last Several months, we've been doing much, much better at the higher end of Android. Customers like Samsung have been very strong.

Speaker 2

These are on the new platforms. These are on the highest performing new platforms that they're offering. And then we're going to bring along the Oppo, Vivo, Xiaomi Players, in aggregate today, those are still very significant for us. But the content opportunity from today's baseline And where it could go over the next 2 to 3 years is quite substantial. So the point that you made at the beginning is definitely well taken.

Speaker 2

So that's how we see that. And we've got great inroads right now on products that will they have a little bit of a different Cycle than some of the larger U. S. Players, but you should see a lot more content from Skyworks and Android products going into the second half of the year and into 2023.

Speaker 10

Great. Maybe just a follow-up, Liam, on Ed's question on WiFi. I guess, There's something like over 4,000,000,000 units of WiFi that ship every year. And I'd just love to understand the RF Tom or the opportunity set that you see, especially with the transition to 6E and some of the changes that we're going to see and how this is packaged up. But I guess we could expect PCs and routers and smartphones and TVs to move quite aggressively towards 6E over the next sort of year or 2.

Speaker 10

But Is there anything you can share with us in terms of your strategy and how you plan to address this? Because I guess this transition should be Quite positive for RF players like Skyworks has done very well traditionally in the WiFi space.

Speaker 2

Yes. No, that's a great point. So the appetite for high end WiFi has really accelerated and you can see the use case Opportunity everywhere now, right? You do consumer products all the way to the super high end, you have Wi Fi, whether it's So that's all going to move in the right direction for us. And so one of the things that will happen as we move along The curve in WiFi, it will actually create a cycle not unlike what you see in mobile where content grows And then content continues to move as the application and the burden on the technology rises, right?

Speaker 2

The more important the higher the speed, The more efficient it needs to be, that's going to require better technology on the semiconductor and the filtering side. So that plays together very, very well for Skyworks. Think about us as kind of the mid to high tier player, but we can step into that low end of the market too. But we are seeing a lift when you start to look at 6 and 6E in WiFi. There's bulk acoustic wave filters there that we've already talked about on this call, but very, very important in the higher end WiFi.

Speaker 2

And not today very highly populated. It's a cycle there that is on the upswing and it's still early. And we have to know how to do it. So the wonderful thing there is we have the key elements to get it done. Similar elements that we would have in a high end smartphone, but positioned and scaled and configured in a way To deliver Wi Fi signals versus cellular.

Speaker 2

So there's a lot of opportunity there and it plays into core technologies that we have in house. So That's a really good question and it is a key element in our strategy in broad market Just to do more and raise the bar there on overall WiFi performance.

Operator

Thank you. The next question comes from the line of Tristan Gerra with Baird. Sir, your line is open.

Speaker 11

Hi, good afternoon. So you've talked about the strength and opportunities in the Android ecosystem. A few years ago, you really had a greenfield of opportunities in the 3 to 6 gigahertz range, Notably, you're a key customer. So how should we look at the competitive landscape now with Welcome to the recently announced Ultrabo RS in the sub-seventy gig range, MediaTek also getting in that segment. So it feels like that 3 to 6 gig segment is where you've gained significant share a few years ago starting to get more crowded.

Speaker 11

And I'm wondering whether there could be ramifications of that, including in the Android ecosystem.

Speaker 2

Yes. I mean, we're actually in a pretty significant growth path With the bulk acoustic wave filtering technology that would populate the 3 to 6 gig range, we also have Great deal of know how and complexity on both transmit and receive and also the way to Integrate the complexity around that. So when you're dealing with the high end smartphones that would demand that kind of performance, you've got to have The isolation you've got to have, the form fit and factor to integrate all of that because you're going to carry all of the existing 4 gs, 5 gs Stuff around it and then you have to populate when you get to 3 to 6 gig, there's going to be some additional filtering. And that has to all be Coexisting in a way that makes perfect sense within the device itself, current consumption, etcetera, size and scale. So we know how to do that.

Speaker 2

There's absolutely no GAAP et al. And we are populating 3 to 6 gig now. And as we mentioned, Our BAW filter technology is very robust, extremely competitive in populating some of the most iconic highest performing phones today. So that same recipe can scale across Android, can go to the highest end, Smartphones can find itself in applications that are not mobile applications like automotive, for example. So we have the keys for that.

Speaker 2

So that's something to work on. The market in some cases is just starting to demand this technology. In some cases, the market has been behind the technology. But now we're starting to see the intersection with the high performance technology and the needs of the consumer in the market together. And I think that's where things really are going to accelerate.

Speaker 11

Okay, great. And then as a quick follow-up, obviously, you have opportunities for content increases And share gains, how do you look at the inventory situation in China at smartphone OEMs? And is that something we should get concerned over the next few quarters?

Speaker 6

Yes.

Speaker 2

For us, we don't see anything I mean, there's some bumpiness there, but not in the portfolios that we're Driving right now. We keep a very, very lean view of our products. And Chris mentioned it in terms of our Days of inventory, etcetera, we're very we're not a big distribution play. We're kind of like we go direct. So we have a very clear view of where The demand is where the products are.

Speaker 2

And for the most part, things have been kind of short in terms of supply chain, which has limited Some of our customers and create some imbalance. I think some of that's getting ironed out now. With Skyworks, as you know, we the Lion share of our business is done in house. We have our own gallium arsenide technology. We have our own TC saw, standard saw, bulk acoustic wave, Assembly and test, all that stuff is in house.

Speaker 2

So we're able to execute extremely well even if the conditions are choppy out there And the supply chain, so there can be some movement around that, but we feel very good about our ability to execute in that way.

Operator

Thank you. The next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Sir, your line is open.

Speaker 7

Thank you. Thanks for taking my question. I'm just we're getting a lot of information around input costs going up and I wonder how you're controlling that. It looks like even your OpEx stays kind of flat next quarter, but also just for all your manufacturing. How are you controlling input costs and what's the outlook for the rest of the year?

Speaker 3

Yes, Kevin. I mean, this is not a Skyworks specific Ishu, there's definitely some input costs increases. But as Liam just said, I mean, we control a lot of our own Supply chain, and we have most of the supply chain is actually in house. Now we still do buy some third party Materials and we have seen some increases there as well. But you look at the gross margins, I mean, we have been able to slightly improve our gross margins, in part Because we do have also a dynamic pricing policy, and that means we increase or decrease prices Well, we can depending on our competitive landscape and depending on certain increases or decreases in our cost structure as well.

Speaker 7

Okay, great. And just a reminder on the I and A business that you just acquired, What's the manufacturing strategy with that for the longer term?

Speaker 2

Yes. I mean, right now, we are still operating in kind of the fabless play, although still leveraging our teams in a way that's very cohesive. But there's definitely operational scale advantages with Bringing some of the core technologies from the INA Slab Business in the core Skyworks facilities. I mean, I think that's We don't. I mean, that's something we're working on right now and it is 100% in our control.

Speaker 2

We don't need help from it. We know exactly what we need to do. We just need to get it done and it will do a lot of things because it will open up the portfolio greatly. There will be more scale To drive the products and there's also, as I said earlier, a great synergy with the technologies that we have today and They can dovetail with the I and A business, but also the very, very large roster of customers that the Slab I and A business has That we can generate and engage our customers today with them. So there's going to be some great synergy there, upside synergy around revenue And also synergy around operations.

Speaker 2

So looking forward to seeing that more as we pursue the business longer. Thank you all for participating on today's call. We look forward to talking to you at upcoming investor events. Thank you.

Operator

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.

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Earnings Conference Call
Skyworks Solutions Q1 2022
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