Skyworks Solutions Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2022

There are 12 speakers on the call.

Operator

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

Speaker 1

Thank you, Joanne. Good afternoon, everyone, and welcome to Skyworks' 3rd fiscal quarter 2022 conference call. With me today are Liam Griffin, our Chairman, Chief Executive Officer 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 press release and recent SEC filings, including our Annual Report on Form 10 ks for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today.

Speaker 1

Additionally, the results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call to Liam.

Speaker 2

Thanks, Mitch, and welcome, everyone. Skyworks delivered record 3rd quarter results with double digit year over year growth in revenue and non GAAP earnings per share, highlighting our resilient business model and disciplined execution With strong design win momentum across an expanding and diverse customer set, we are well positioned to drive sequential growth into the second half of the calendar year. Looking at the quarter in more detail, we delivered record Q3 revenue of $1,230,000,000 above consensus and up 10% compared to last year. Highlighting our content expansion in premium 5 gs enabled smartphones along with growth in automotive, data center and network infrastructure.

Speaker 3

We achieved gross margin of 51.2%.

Speaker 2

We posted earnings per share of $2.44 up 13% year over year. We have continued to return cash to shareholders through dividends and share repurchases. And today, we announced an 11% increase to our quarterly dividend. That marks our 8th consecutive year of dividend increases. In addition to generating solid results in a challenging macro environment, we are leveraging decades of targeted investments to drive a pipeline of design wins, scanning an array of market critical solutions.

Speaker 2

Specifically in mobile, We delivered Sky5 platforms to the leading smartphone OEMs, including launches at Google, Samsung and many others. Skyworks' technology leadership, innovation and scale has allowed us to continue to capture an outsized share of our mobile revenue from high performance 5 gs platforms. In Enterprise and IoT, we powered tri band access points at Cisco, We ramped Orange LiveBOG 6, Europe's 1st carrier grade 6E platform. We launched advanced solutions with Verizon Wi Fi and Bluetooth Technologies. In automotive, we achieved an all time record revenue in quarter And at this last quarter, as we executed on our vision to drive connectivity and lead the shift to electrification.

Speaker 2

During the quarter, we ramped next generation wireless and EV power technology across multiple top OEMs. We leverage our timing solutions with a market leading robo taxi and driverless vehicle provider. And finally, in Infrastructure and Industrial, we captured multiple design wins at European equipment and service providers, Fueling massive MIMO deployments. We delivered integrated timing solutions to the market leaders in data center and network infrastructure And we ship modules for high power industrial and IoT applications, supporting a prominent brand in smart energy. Moving forward, we see a continued expansion in data consumption, dependent on seamless, reliable and ubiquitous wireless connectivity.

Speaker 2

A few statistics illustrate this point. Global wireless data traffic is expected to grow at a 27% annual rate over the next 5 years. Machine to machine connections, the fastest growing IoT category will soon surpass 15,000,000,000 users. By 2,030, we expect 650,000,000 connected cars, each consuming 25 times the data that we see in today's smartphone. Over the past 2 decades, Skyworks has made critical investments to power this connectivity transformation, Addressing all key network technologies from cellular to advanced WiFi, enhanced GPS and Bluetooth among others.

Speaker 2

Capitalizing on both organic growth and strategic acquisitions, we are gaining momentum in high growth verticals, while at the same time diversifying our revenue and customer set. Looking ahead, our design win pipeline and unique in house are positioning us for continued outperformance. Leveraging decades of innovation, we deliver purpose built solutions Underpinned by in house gallium arsenide, temperature compensated soft filters, bulk acoustic waves technologies and customized packaging. With that, I will turn the call over to Chris

Speaker 3

for a discussion of Q3 and our Q4 outlook. Thanks Liam. During the 3rd fiscal quarter of 2022, Skyworks delivered record revenue of $1,230,000,000 an increase of 10% year over year. The growth was fueled by expanding our technology reach at the largest smartphone OEMs, including Samsung and Google, partially offset by soft demand from China customers, mainly as a result of the lockdowns early in the quarter. In addition, broad markets revenue was up 38% year over year as we continue to drive design wins and revenue with innovative solutions for 5 growing end markets, including automotive, industrial, data center and network infrastructure.

Speaker 3

Gross profit in the 2nd quarter was $631,000,000 resulting in a gross margin of 51.2%, up 60 basis points compared to Q3 of last year. Operating expenses were $191,000,000 slightly down on a sequential basis. We generated $440,000,000 of operating income, translating into an operating margin of 35.7%. We incurred $11,000,000 of other expense and our effective tax rate was 8.1%, driving net income of 394,000,000 Based on a further reduction of our weighted average share count to 161,500,000 shares, We achieved earnings per share of $2.44 exceeding consensus estimates and up 13% year over year. Turning to cash flow.

Speaker 3

Our 3rd fiscal quarter cash flow from operations was 214,000,000 Our capital expenditures were $125,000,000 In terms of capital allocation during the quarter, We returned $209,000,000 to shareholders, paying $90,000,000 in dividends and repurchasing 1,000,000 shares of our common stock for a total of 119,000,000. During the 1st 9 months of the fiscal year, Skyworks has returned more than $1,000,000,000 to shareholders through dividends and share repurchases, representing 129 percent of our free cash flow. In summary, the Skyworks team delivered another Solid quarter with Q3 revenue and earnings per share, while making the investments in our technology and product roadmaps to support future growth. Now let's move on to our outlook for Q4 of fiscal 2022. We expect to deliver double digit sequential revenue and earnings per share growth in the September quarter.

Speaker 3

Specifically, We anticipate revenue between $1,375,000,000 $1,425,000,000 At the midpoint of €1,400,000,000 revenue for the quarter is expected to increase 14% sequentially. This outlook takes into account the seasonal impact from major product launches, leveraging our technology leadership, deep customer engagements and world class in house manufacturing capabilities. Gross margin is projected to be in the range of 51% to 51.5%. We expect operating expenses of approximately $190,000,000 to $194,000,000 Below the line, we anticipate roughly $12,000,000 in other expense and a tax rate of approximately 9%. We expect our diluted share count to be approximately 161,000,000 shares.

Speaker 3

Accordingly, at the midpoint of the revenue range, we intend to deliver Diluted earnings per share of $2.90 an increase of 19% sequentially. Lastly, given our conviction in Skyworks' long term strategic outlook and consistent cash generation, We announced an 11% increase to our quarterly dividend to $0.62 per share. With that, I'll turn the call back over

Speaker 2

to Liam. Thanks, Chris. Skyworks' decades long investments are driving increasing opportunities across the market's fastest growing segments, fueling our momentum going into the second half of the calendar year. With our customer count doubling year over year in a broad markets portfolio, on page 4 $2,000,000,000 in annualized revenue, Our business is more diverse than ever. Finally, our consistently strong profitability, cash generation and diverse revenue streams Fund our ability to invest and win while returning cash to our shareholders.

Speaker 2

That concludes our prepared remarks. Operator, let's open the line for questions.

Operator

First question comes from Rajeev Gill at Needham and Company. Please go ahead.

Speaker 4

Yes. Thank you for taking my questions and congrats on managing providing good results through kind of a crazy cycle. Just a question on China. I know it's about 10% to 15% of your revenue, but wondering kind of what you're seeing in terms of the inventory situation there across the China handset OEMs. And just in general, if you can make a distinction on the premium level of handsets in the overall market versus Low to mid tier, how would you characterize the demand landscape there and the level of channel inventory in the market as you see it today?

Speaker 2

Sure. Yes, it's been certainly a challenging market in China and there's several factors that played out here, right? Of course, you had Lockdowns in some of the major provinces and across many of the factories that impeded demand even with the larger customers. And then you also had

Speaker 3

a group of folks that were just a

Speaker 2

little bit less prepared for the lockdowns as well. So if we look at The high end market, China is still a market where you can get some very, very strong activity tempered a bit By the lockdowns, which we think are going to abate rather quickly. But on the lower end, the OBX brands really hadn't So that was an area that was weak generally.

Speaker 5

But if you

Speaker 2

look at the way Skyworks has been positioned, Our aperture has been much more towards the mid to high tier. So our exposure to the OBX market has come down. In many cases, it was our position to do that and our choice to do it. At the same time, In parallel, we had tremendous gains with names like Google and some of our other flagship players, Samsung even doing quite well. So A lot going on there.

Speaker 2

China was definitely bumpy, but it's still a market that consumes the technology. And we do think that some of the manufacturing issues and supply chain problems are going to abate and we see even more of a tailwind.

Speaker 4

Appreciate that. My follow-up, last quarter you cited $50,000,000 push out related to your top customer As they were having challenges assembling final components given the lockdowns in China and Singapore. And to account for That last month in April, you attempted to kind of de risk the June quarter and guided it down 7% to 8% and you're kind of falling in that range. I'm wondering how you're thinking about the ramp in the September December quarters as your top customer is through that process and starts to launch new platforms with

Speaker 2

Sure. Are

Speaker 4

you still expecting a steep ramp? Thank you.

Speaker 2

Yes. So we have a lot more clarity on that side of the field. Again, we work with everyone, but we have a high degree A visibility in some of those premium brands. And we feel very good about that for two reasons. We think the appetite for the technologies continues to grow.

Speaker 2

The use cases Continue to grow around connectivity and mobility. And the market leaders are actually consolidating. So and we know who the market leaders are and we're very well positioned. So we're excited about that. We feel very good about Where our technologies are going, the breadth of our offering, driving some incredible technologies with our bulk acoustic wave, our Our packaging doing all of this in our amazing fabs admits a market where everyone's challenged with supply chain.

Speaker 2

So a lot of good work going on there. And we do expect strength as we go into the second half of

Speaker 3

the year really buoyed by some of these content gains that we've been Yes. And maybe Raj just to add there. So we just guided September up 14% sequentially. And obviously, that is more and higher in terms of sequential growth at the large customer Based on the known design wins that we are shipping today and we do expect further sequential growth Into the December quarter with that customer as well total Skyworks revenue.

Operator

Next question comes from Gary Mobley at Wells Fargo Securities. Please go ahead.

Speaker 2

Hey, guys. Thanks for taking my question. Could you share with us how big your largest customer was in the quarter? And were there any other greater than 10% customers in the quarter?

Speaker 3

Yes. So we have 2 plus 10% customers in the June quarter. Obviously, the large customer, which was Approximately 55% of total revenue. Just to compare last year in June that was 53%. So we've continued to execute very well with that.

Speaker 3

And then Samsung is yet again a plus 10% customer. Again, great execution, great design wins at their flagship level as well in the rest of their Our product lineup.

Speaker 2

Okay. So I know not all of your sales to your largest customers go into smartphones, but I think Dominant portion of it does. So kind of doing back of the envelope calculation in your mobile business, I presume your business with customers outside of that large customer is in the ballpark of what $90,000,000 to $100,000,000 For the quarter?

Speaker 3

$90,000,000 with the large customer in broad markets?

Speaker 2

What I'm trying to get What I'm trying to get to is trying to get a sense of how much of your mobile business is comprised of customers outside of your largest. Just trying to get a sense of maybe where you stand with respect to bottoming in the Android market and whatnot?

Speaker 3

Yes. No, the vast majority of our broad markets revenue is not related to the large customer, right? We have more than 6,000 customers spread over connectivity solutions, Automotive, which was an all time record revenue, industrial customers, we have our audio business, we have our Infrastructure networking business in there and that's now on a $2,000,000,000 annualized run rate. Yes. And I would just say in addition to the largest customer, we have several other significant ones we mentioned.

Speaker 3

Obviously Samsung very strong and even Google. So

Speaker 2

it's a balanced mix here.

Operator

Next question comes from Vivek Arya of Bank of America Securities. Please go ahead.

Speaker 6

Thanks for taking Liam or Chris, I'm curious how much of a year on year headwind has China Android been for June September. And does China Android bottom for you in December or March or when so just how much of a headwind year on year? Because when I look at your implied September mobile guidance, it still seems to be kind of flattish to down somewhat year on year. So I imagine that's the China Android headwinds, so how much is that? And when does China bottom for you?

Speaker 3

So As it relates to China, we definitely saw some softness from a demand point of view. That's very well documented. We have played it very carefully. Even in the December quarter, almost a year ago, we started pushing the brakes. We actually pushed the brakes really hard in March June.

Speaker 3

We did not want to end up with major inventory into the channel. We do expect relatively minor revenue in the September guide for the China customers. But we do expect beyond that of course that the demand will bounce back. You already started seeing that in the June numbers where they were Close to 29,000,000, 30,000,000 phones being sold in China. And so we do expect a bounce back, but That's not included in the September guidance.

Speaker 2

Yes. And I'll just add one more comment is that the complexity and the performance notes are getting more and more difficult and more challenging, which is great for us. And that's what we want to see. So the more challenging, which is great for us and that's what we want to see. So there are some pockets in China that are very, very low end that are Not really interesting for us and that's fine.

Speaker 2

But we're building up a strong base in midyear and certainly leading the pack when it comes to the premium players.

Speaker 6

Got it. And for my follow-up, I wanted to ask about your balance sheet inventory. So I understand and appreciate the need, right, that your Customers have for supply assurance and you're making a very wide range of products. I get that. But when I look at inventory days, I think they're among the highest That we have seen.

Speaker 6

So how are you planning to manage utilization? And what impact if any will it have on your gross margins for the next handful of quarters.

Speaker 3

Yes. So Vivek, so we feel good about the business, right? And We just guided up 14% sequentially for September. We do expect further sequential growth into December And that is all based on known design wins with the large customer, with other mobile players and even within broad markets. And as you know, we always level load our factories.

Speaker 3

We have higher filter content in many of those New devices that we bring to market filters typically are built many weeks or months in advance of product shipments and that accumulated into higher inventory, but the inventory is fully in line with our expectations And will help us in support the steep ramp here in September December.

Operator

Next question comes from Harsh Kumar of Piper Jaffray. Please go ahead.

Speaker 7

Yes. Hey, guys. First of all, congratulations in a very tricky environment managing the business So, wow. We certainly appreciate it. Maybe I listed in the press release, but could you would you mind giving us the breakdown of The mobile business versus the broadband business in June?

Speaker 7

And the second part of that same question is, how do you see the I would suspect that mobile would be up in September given your largest customer or is that incorrect assumption?

Speaker 3

Yes. So the breakout was broad markets was 38% of our total revenue. It was up 38% year over year, so very strong performance there. Mobile was 62% of total revenue. It was slightly down

Speaker 7

On a

Speaker 3

year over year basis, despite the fact that we have strong performance at the large customer, strong performance with Samsung and Google, but offset With the softness that we just discussed in the China market and going forward Looking forward to the September quarter, obviously, that is a very strong mobile quarter as we execute On some of those launches with the large customer as well with many of our other customers, but We still expect our broad markets to be up double digit year over year in the September quarter. Yes. And remember that

Speaker 2

as we discussed at the beginning here, The lockdown dynamics and some of the supply chain volatility did put A little pressure on what would be a normal seasonal guide. So all those factors play together. We've much less exposure to China, which is very helpful. But these weren't issues that were related to demand. And the demand is there.

Speaker 2

The demand was there and it still is and we need to go execute on But some of the early lockdowns and the ripple effects there in supply chain added a little bit of nip talk

Speaker 7

Understood, Liam. And maybe for my follow-up question, Liam, one for you. So the 5 gs handsets went through a rapid period of growth and sort of feature addition and mode and band addition. Are you still seeing Very good content increase in the flagship mobile phones even at this point like the ones that are coming up maybe you can talk about. And maybe talk to us, Carliam, about some of the things that are driving that.

Speaker 7

Are the bands still being added? Or is it things like wireless, DRX? Just any color, we would appreciate that.

Speaker 2

Yes. I mean, there's a great deal of enhancements that come through the cycle with the leading players. And we have to back that up with great technology. And if you look at the CapEx that we've been delivering and one of the themes that we've been talking a lot about is the level of customization And basically crafting those technologies in house, right? You know that we're a rare breed that Manufacturers end to end from high end bulk acoustic waves, temperature compensated soft filtering, In house Gallium arsenide, in house customized assembly and test, all those vectors come together and allow us to do very unique things Customer by customer.

Speaker 2

So we're able to go after a much, much broader set of accounts when we have that level of customization and technology know how. So and That's one of the reasons why the mid to high tier really appreciates Skyworks, because we can do a lot of good work with those partners and really help lift their business with our teams beneath them under the wings here supplying the right kinds of technology. So it's a good partnership there for both sides.

Operator

Next question comes from Blayne Curtis at Barclays. Please go ahead.

Speaker 8

Hey, thanks for taking my question. I I just want to ask on the September guidance. 2 things. 1, you said broad markets will still be up double digits. I guess that doesn't give me an idea of Which direction it is sequentially?

Speaker 8

So you had the issues that I think you talked about supply chain in June. What's the outlook for broad markets in September?

Speaker 3

So as I just said September will still be up double digit year over year. It will actually be slightly down on a sequential basis. You have to keep in mind in broad markets that We continue to see very strong demand. In some cases, the demand is higher than the supply. That's the case in our audio business.

Speaker 3

That's the case in some of the automotive and infrastructure business that we have. In addition to that, we also continue to see Many of our customers still having kitting issues. They don't have the complete bomb. As a result of that, they don't need the scoured spots for now. But assuming that the ship shortage will get resolved over time, they will have to catch up and that will then further fuel the growth for SCALworks content as well.

Speaker 8

Okay. And then maybe just some comments on your own supply chain. I mean the fact that you're able to build that much Inventory, can you just talk about the constraints, if any, that you're still seeing on your business from a foundry and back end perspective?

Speaker 3

Yes. As I just said, in the vast majority of our business, we are able to supply to what our customers want, especially As it relates to the products and the vast majority of the products that we do in house, we have proactively invested In capacity and technology, in our gallium arsenide fabs, in our filter operation, in our back end operation, Where we struggle is on some of the smaller businesses that we have that are in the fabless business model We depend on foundries and or back end where in some cases we don't have enough capacity. We're working it. We're working it hard. We're making improvements.

Speaker 3

We're getting and securing more capacity to fulfill the strong demand that we have in some of those areas And we'll continue to work it. Yes. I'm just going to add.

Speaker 2

I mean, there's been a tremendous amount of technology investment in the portfolio. And a lot of that really is come through you could see in the CapEx line. So there's some really important things Blayne that we're doing that sort of under the hood so to speak, Really driving performance in bulk acoustic wave, which is a tough technology. We've improved the efficiency of our TC SAW Capabilities, we have as you know for years we've got customized gallium arsenide. It's a very unique technology in our app And we've been upgrading that at every cycle.

Speaker 2

So there's a lot of really interesting building blocks that go into the finished product here And the flexibility that we can bring. And I think it's one of the reasons why the discerning higher end customers really appreciate that. They have a voice and the decision with us. There's a lot of collaboration when we launch technologies and products. We can do a great deal of customization, Understanding where the carriers are going to be and where those phones will roam.

Speaker 2

So there's a lot going on. And it comes with the capital that we put forth. And I think it's an advantage right now. And despite the ups and downs in supply chain, I'd rather have that in our house so we can deal with it. We can make decisions.

Speaker 2

We have a voice And we can do the right thing for the customers.

Operator

Next question comes from Ambrish Srivastava at BMO. Please go ahead.

Speaker 9

Hi. Thank you. Chris, I just wanted to come back to the days of inventory And actually more importantly free cash flow. I know in the past you have said that inventory does go up in March June. So That's fine.

Speaker 9

That's consistent with your past comments. But I was looking at free cash flow to sales and I have to go back to We're all going back to many years past. As a percent of sales, it's really at a

Speaker 7

very low number. I had

Speaker 9

to go back to June 2018 to get that number. I get the change in working capital, but how should we think about the Trajectory of free cash flow and good to see that you raised your dividend, but I just want to understand if I'm not missing anything on the actual absolute Free cash flow number?

Speaker 3

Yes. Ambrish, so we can't manage the free cash flow quarter by quarter and I look at it more on a 12 month trailing basis or 12 month rolling forward basis. And our free cash flow now is in the mid-20s As a percent to revenue and based on further growth of the top line and further expansion of the profitability, We have line of sight to get to plus 30% free cash flow margin. And I think that's a pretty good number. Also taking into account what Liam just said, right, while we continue to invest in our technology roadmaps and our product roadmaps And continue to invest in our own factories that gives us a very strong competitive advantage to deliver high performance products to our customers.

Speaker 3

And I think that's a pretty darn good number. Again, I'm not concerned about the June free cash flow, which is indeed was a little bit muted because of the inventory build that we did fully supported by the known design wins and the revenue ramp that we will

Speaker 9

Got it, Chris. I understand. And I don't look at just in a quarterly basis. I just want to make sure I wasn't missing anything. Just a quick clarification on the December quarter, Lian.

Speaker 9

What's the right way to think about it? You did say you'll grow. Should we think seasonal, sub seasonal? How should we think about it for modeling purposes? Thank you.

Speaker 2

Yes, yes. I mean, it's still a little bit early, but I can tell you what moves the needle is the technology and what we're able to do to drive that And what we call is kind of really a technology reach. How do we create something more Impactful for the customers and we're doing that and it's not 1 or 2 parts. I mean the breadth of the technology and the reach Of our performance, the engineer to engineer lineup is awesome. The relationships are awesome with the largest customer.

Speaker 2

And we certainly feel good about execution and the opportunity for the second half of the year, very much so. And there's a lot of new Invention going on, so to speak, and a lot of technologies that are opening up that are providing even more revenue opportunity for Skyworks So we feel really good about that cycle. Great collaboration with the people that matter and getting in Again, shoulder to shoulder and our fabs together, a lot of really good work being done to ensure leadership at the high end. And we feel very good about that

Operator

Next question comes from Edward Snyder at Charter Equity Research. Please go ahead.

Speaker 8

Thanks a lot. Liam, When we step back and look at mobile from a holistic point of view, I would think from what we know of your product line and from what you said here that you're Much more exposed to high end models than mid tier. I know you're doing much in low end, no one does. But if you had to break it out, I mean, you're not big in China, you're big in you mentioned Samsung The flagship, I'm not sure if that means you're getting big gains in A Series. Of course, your largest customer is all high end.

Speaker 8

Just trying to get an idea if you could maybe bracket it for us. If you had a breakout mobile, would you say it's sixty-forty? I know it's an approximation, but just in general, sixty-forty high end to meet you or is it something closer to like 75%, 25%

Speaker 2

Yes. It's probably more 70% high end Ed. And what we're trying to do is actually take the low And bring them along towards a higher level of technology and performance. And as a result, there would be revenue for us and also great for the consumer that gives a better product. So Certainly, we our business, so to speak, the way I think about it is that we want to hit the fastball first, right?

Speaker 2

We want the 100 mile an hour And then from there, we can go downhill and take care of everybody else. But the DNA in our company is to go after the hard things And solve the hard problems and delight the customer, right? And sometimes the customer doesn't even realize the amount of work and energy Technology know how that comes through this, but ultimately it's a great solution that they get. And so that's the way we can do this. Now we like to start with the tough And then go downhill as I mentioned.

Speaker 2

And there's still a lot of really good work to do. We you now hear a lot of discussion about some other customers that we haven't talked about too Samsung, Google, there's many others in mobile and many others in connectivity that we can serve. So It's

Speaker 3

a model that's worked

Speaker 2

for us and it's all about customer performance and uplifting their product And their ability to drive to their consumer market. So it's always been a challenge for us, but we love that challenge and it makes what we

Speaker 8

Okay. And then given that, if I could, it seems clear from the report so far, our COVID report last night and TI and everybody else talking that in the low and the mid tier, they're getting hit a lot harder with weakness due to Very impacted. The recession now, obviously, is starting to take hold on that. It hasn't really hit the high end yet at all. But if it gets Worse, obviously, most people think that it will.

Speaker 8

In that kind of a profile, especially with regard to your largest customer, because it's kind of a unique relationship, When it comes time to start building new models, it's like the gate opens and you can ship as much as you want, but you have to true up in the end of the year. And I know the last time they had a business dislocation was many years ago of success. But I'm just trying to

Speaker 3

get a feel with this,

Speaker 8

When you normally would get indications that things are slowing down in

Speaker 2

that high end or Samsung's high end?

Speaker 8

Well, I mean, when the launch starts, you So I'm just Visibility wise, I know it looks good for a while. When do you think if there were a problem you'd foresee it?

Speaker 2

Yes. No, that's a good question. You know what is interesting Ed now is the curveball is the lockdown situation. So it's kind of an unusual thing. We all went through COVID and we knew what was going on there.

Speaker 2

It was just dark everywhere, right? There really wasn't any pockets of I think what's happening now is there's a little bit of a bifurcation. You've got those that played very hard in China On the OBX plan, I think that much more exposed to the downside. On the other hand, at Skyworks, we were continuing to raise mid and high end, which has been beneficial for us and more profitable. So it's kind of a tale of 2 different markets and different stories.

Speaker 2

So we want to pursue Opportunities globally across every account obviously, but the way our business has really kind of grown up here is like I said, The high end going down. We have opportunity to do more in some of the low end markets. It's really more of a choice for us Then a technical problem. We know how to do it. But we do think that the opportunities are Still looking very good.

Speaker 2

There's a lot of demand that was not shipped with these issues in China. Some of these lockdowns really pinched Some supply chain areas that are still not unclogged today. And that's real. I mean, we can measure that in our hubs and we have very good visibility on where that demand is. So It definitely gives us some color and some positive view on where we see the second half can go and maybe there's a delay delays that go further into the second the early part of next year as well.

Speaker 2

So there's a lot going on there. The nuance being this supply chain wrinkle, not COVID related necessarily, but the hard lockdown that we saw at the end of the quarter. So it kind of mixes all together, but we still feel really good about the opportunity. And of course, we have great communication with our customers. So we're always in sync with what they need.

Operator

Next question comes from Swamy Pajjuri at SMBC Nikko Securities. Please go ahead.

Speaker 5

Thank you. I have a question on broad markets. Liam, obviously, it's growing nicely on a year on year basis, but sequentially it was down almost 10% and then you're guiding down for another sequential decline in an environment which seems pretty stable, especially on the consumer side. You have a lot of secular drivers like Wi Fi, IoT, etcetera. So I'm just curious as to what Headwind is for that business in the short term.

Speaker 5

And then along the same lines, Some of that business is probably still sourced from external foundries and obviously the costs have been increasing. Have you implemented any pricing actions to kind of offset those cost increases. And if you can talk about where we are in that cycle in terms of the pricing actions that will be Thank you.

Speaker 2

Yes. Well, very good question. Yes, certainly the challenges in the broader market in the broad markets business, We can see more of an impact there with supply chain issues. So we don't have kind of The clarity that you have in a mobile device is very, very we know exactly where we're going and where it's headed. Broad markets is more diverse.

Speaker 2

It goes to multiple customers. We're actually a broader set of technology. So if we and it ties back to your question on supply chain. So if you think about broad markets, it wasn't a demand constraint. It was a supply chain constraint.

Speaker 2

That's an area less so in mobile, but more so in broad market that we saw that. And with respect to pricing, We did take some action in pricing that was necessary. We do everything we can to keep our customers healthy and strong, But together as partners, it was required that we had to raise our prices a little bit and that was fine. And I think that was healthy. But we do feel like the opportunity in broad markets is still a really strong part of our portfolio, lots of opportunities.

Speaker 2

We We talked about the growth rate 38% year over year revenue in broad markets. That's outstanding. And there's still a lot of stuff out there that we haven't hit. It's a huge pool of broad market opportunities that await us as we go forward. A lot of great things that are not at all Tagged into our mobile business, a lot of unique markets, unique customers that are on their own vector in terms of top line.

Speaker 2

So looking forward to that.

Speaker 5

Got it. Thank

Speaker 9

you.

Operator

Next question comes from Melissa Fairbanks at Raymond James. Please go ahead.

Speaker 10

Hi, guys. Thanks very much. I'm just maybe as a follow-up to that, just wondering how much pricing inflation has played into your overall revenue growth versus say unit volumes or just mix trending higher? And then as a follow-up, I know this is one of your favorite questions. What should we expect in terms of generational content growth going forward?

Speaker 10

Where does content begin to max out? Are we even close to that?

Speaker 3

So on the pricing, as Liam just explained, right, so in certain parts of our broad market business, especially which is Based on the fab plus foundry model, we've experienced some input cost increases and we've been passing that on to our That is a relatively small part of the overall Skyworks business. So I think that answers your first question.

Speaker 2

Yes. Yes. And with respect to content and content reach, we've most of us here at the table here have been in this market for quite And we do see incremental opportunities year after year after year. But I think what's changing now is that the If you think about Skyworks, it isn't just mobility. Mobility is great and wireless technologies are great.

Speaker 2

But what's different right now Is the customer set and the application set that we're playing in. We talked today about data center. We talked about electric vehicles Much more on the infrastructure side. We have high performance audio. We have technology nodes that were not available to us 2, 3 years ago and we created these new technologies, bulk acoustic waves, etcetera, in house with our own tech with our own people and our own capital.

Speaker 2

So I guess what I would say to you is think about connectivity at large and think about the markets that require this, It's a mobile phone of course, but IoT, industrial, healthcare, business to business, all these interesting end markets We rely very much on the kind of technologies that we bring. So we're looking forward to that. We'd love to give you guys more info Around that factor, but we certainly see pools of opportunity that Skyworks and Skyworks Technologies can address.

Speaker 10

Excellent. Thanks very much.

Speaker 2

Thank you.

Operator

Your final question comes from the of Matt Ramsay at Cowen. Please go ahead.

Speaker 11

Good afternoon. Thanks very much guys. I wanted to ask a couple of questions

Speaker 2

About the

Speaker 11

acquisition of the I and A business and sort of how that's Playing out. So the first one is on the timing segment. I guess the thesis there was there was some really good timing technologies at Silicon Labs and you guys We're going to add scale to those in the telco market, in the switching market and then maybe into cloud over time. And I just there's some big server disruptions that are going on in the cloud space. And I wonder if you might give me a little bit of an update as to how that thesis on the timing side is playing out And what you're seeing?

Speaker 11

And then I have a follow-up on the automotive market. Thank you.

Speaker 3

Yes. Matt, let me just start high level. And I've said before we're not breaking out every sub product line. But let me tell you that we're very pleased with the performance of the Acquired business is exceeding our expectations by a lot, both from a revenue, gross Margin and operating margin point of view. And there is still a lot of opportunities that we are working on.

Speaker 3

Keep in mind that again that business If supply constrained, the demand currently is a lot higher than what we are able to supply, but despite all of that Exceeding our expectations. And so I'll turn it over to Liam to answer your question on timing.

Speaker 2

Yes. So certainly great opportunities coming out of our And what we call MSS portfolio, which was the I and A business of Slab. Really pleased with not only the products, but with the people and the So all good. Markets like data center right now are really critical for the timing solutions that we have very high performance solutions and growing that with additional investments from the larger core of Skyworks. We're also looking at a lot of EV work coming out of that portfolio as well.

Speaker 2

The INA team has some great technology there that we're I think it's a case where you've got super technology and great performance and great engineering talent. And now it's really going to be about scale, right? It's really going to be

Speaker 6

about scale. So one of

Speaker 2

the things that we do very well at Skyworks, you heard that from us. We're Burgundy Integrated, we do a lot of hardcore manufacturing technology development in house, but we also do very, very well in high scale big dollar markets. It sounds easy to say, but there's a lot of work behind that. And if you look at our business The way that we talk to our customers and markets and the way we communicate to investors, we really are a company that looks at markets that can really move the dial. We've got some of these here.

Speaker 2

These are coming up. They're growing right now for us. It's early stage, but the tough part is getting the technology You're right. And the team in MSS and from Silicon Labs have gotten it right. So it's about scaling now and driving our sales and marketing teams further and capturing a great deal of opportunity that we haven't seen.

Speaker 2

So we're excited about it and we'll certainly give you more color in the next call.

Speaker 11

Thanks for that guys. As my follow-up, I'm going to ask, I was kind of intrigued with some of the automotive announcements. A lot of the call here is focused on handsets. But I guess the question on the automotive space for you guys is, the opportunities that you're seeing, how would you characterize them in terms of split And in terms of sort of the competitive landscape across cellular, Wi Fi, B2B, B2X, There's RF opportunities in a lot of different domains in automotive that are different than the handset market. So I'd just Be interested in where you're seeing the traction and what the competitive landscape looks like?

Speaker 2

Yes. There's a lot of Interesting notes that come together here in the EV side. You've got certainly technology coming through Wireless nodes and 5 gs. We've got a lot of EV accounts right now that are being developed that we have design wins in now. And There's going to be a lot of investment that we put forth.

Speaker 2

And certainly when you go further into EV, Connectivity and wireless connectivity is going to be pivotal. It's going to be one of the most critical elements in the whole process. And just think about From a safety perspective, from a latency perspective, there's going to be a lot of technology development that hasn't yet come through around electric vehicles, autonomous vehicles and that whole spectra. So we're looking forward to it. But like I said, we've got a beachhead with our partners in Texas here And we also have some great, great engineering minds and know how across the Greater Skyworks team to turn that into big dollars So it's going to be one of the bigger markets going forward for sure.

Speaker 2

And it is a market that absolutely needs High performance, low latency, high quality solutions and those are the kind of things that we like to do. And we've already been working with Many, many players in the EV space, many of those customers don't want to have Conversations publicly about what we do, so we will respect that. But please note that we're deeply involved And the development and we're putting a great deal of investment into that part of the market.

Operator

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

Speaker 2

Thank you all for participating on today's call. We look forward to talking to you at upcoming investor conferences. 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 Q3 2022
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