Skyworks Solutions Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 13 speakers on the call.

Operator

Good afternoon, and welcome to Skyworks Third Quarter Fiscal 2023 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mr. Chris Senesel, Chief Financial Officer for Skyworks. Thank you.

Operator

Please go ahead.

Speaker 1

Thank you, Ina. Good afternoon, everyone, and welcome to SCA Works' 3rd fiscal quarter 2023 conference call. With me today is Liam Griffin, our Chairman, Chief Executive Officer and President. Before we begin, I would like to remind everyone that our discussions 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, 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. And with that, I'll turn the call over to Liam.

Speaker 2

Thanks, Chris, and welcome, everyone. The Skyworks team continued to execute well During the 3rd fiscal quarter, despite macro headwinds, delivering in line revenue along with solid profitability And strong cash flow. Specifically, we delivered revenue of $1,071,000,000,000 Posted earnings per share of $1.73 and generated $306,000,000 of operating cash flow. During the quarter, we continued to advance our technology roadmap and introduced new high performance connectivity and analog solutions, While supporting product launches at an expanding set of mobile and broad market customers. As a result, we expect double digit sequential revenue and earnings growth in the September quarter.

Speaker 2

Turning to our quarterly business highlights. In mobile and IoT, we secured 5 gs content for Android smartphones across all tiers. We delivered Sky5 platforms for broadband CPEs of leading North American carriers. We supported Wi Fi 7 launches of tri band routers for Netgear and TP Link and powered Bell's Wi Fi 6E home gateway. In addition, we continue to gain design win momentum with our 5 gigahertz cognitive wireless audio solutions, Supporting Samsung's Q Symphony Sound Bars.

Speaker 2

Across Infrastructure and Industrial, We enabled 5 gs small cell deployments with a top North American operator and ramped timing solutions for AI data centers at a leading cloud provider. In automotive, we continue to post double digit year over year Revenue growth while capturing design for telematics applications across a broad range of manufacturers. And we extended our engagements by leveraging our power isolation portfolio with a North American EV supplier. These highlights demonstrate Skyworks' technology leadership in mobile, while executing on a diversification strategy in high growth end markets. Additionally, several disruptive market trends are now unleashing new meaningful growth opportunities for Skyworks.

Speaker 2

For example, generative AI is proliferating on a global scale with rapid adoption, sparking Exponential growth in the amount of data access from the network edge to the cloud. In turn, this will further drive Complexity in wireless infrastructure networks as AI will require higher throughput, more secure connections, Lower latency and improved power management. Skyworks is uniquely positioned to benefit from these trends With our advanced integrated solutions, supporting wireless infrastructure, cellular connectivity for mobile devices, As well as other leading wireless protocols used in billions of IoT products. With that, I will turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q4.

Speaker 1

Thanks, Liam. Skyworks' revenue for the 3rd fiscal quarter of 2023 was $1,071,000,000 Slightly above the midpoint of our outlook. Mobile was approximately 59% of total revenue As these OEMs continue to reduce inventories. Broad markets were approximately 41% of total revenue, We have another strong contribution from the automotive, infrastructure and industrial markets. Gross profit was $509,000,000 resulting in a gross margin of 47.5 percent in line with expectations.

Speaker 1

Gross margin was down 3 70 basis points year over year, mostly driven by temporary factory underutilization as we right size our inventory levels. Operating expenses of 182,000,000 Declined 4% sequentially and year over year, given our ongoing focus on managing discretionary expenses. We generated $327,000,000 of operating income, translating into an operating margin of 30.5%. We incurred €8,000,000 of other expense and our effective tax rate was 13.2%, Driving net income of $276,000,000 and diluted earnings per share of $1.73 Exceeding the guidance that we provided during the last earnings call. Now turning to cash flow.

Speaker 1

Skyworks' business model continues to deliver Very strong cash generation. 3rd fiscal quarter cash flow from operations was 306,000,000 And capital expenditures were $31,000,000 resulting in free cash flow of 274,000,000 In fact, for the 1st three quarters of the fiscal year, we've generated record free cash flow of 1,350,000,000 And record free cash flow margin of 38%. Also during fiscal Q3, we paid $99,000,000 in dividends And repaid $500,000,000 of our 2023 notes at maturity. Now let's move on to our outlook For Q4 of fiscal 2023, we expect to deliver double digit sequential revenue and earnings per share growth in the September quarter. Specifically, we anticipate revenue between $1,000,000,000 $190,000,000 And $1,240,000,000 At the midpoint of 1,215,000,000 Revenue for the quarter is expected to increase 13% sequentially.

Speaker 1

This outlook considers 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 47% to 48%, reflecting the cyclical impact of lower factory utilization while we are reducing our internal inventory. We expect operating expenses in the range of €178,000,000 to €182,000,000 down 6.5% year over year at the midpoint, As we continue to optimize operating efficiencies, while making the necessary investments in technology and product development To further enhance our leadership position in mobile and drive diversification and growth in our broad markets business. Below the line, we anticipate roughly €8,000,000 in other expense and an effective tax rate of 13.5% to 14%. We expect our diluted share count to be approximately 160,000,000 shares.

Speaker 1

Accordingly, At the midpoint of the revenue range of $1,215,000,000 we intend to deliver diluted earnings per share of $2.10 An increase of 21% sequentially. Lastly, given our conviction in SCOWORK's long term strategic outlook And consistent strong cash generation, we announced a 10% increase to our quarterly dividend to $0.68 per share. And with that, I'll turn the call back over to Liam.

Speaker 2

Thanks, Chris. Skyworks continues to deliver solid financial results despite a challenging macro environment. At the same time, we have further advanced our cutting edge technologies and product roadmaps, targeting leading market segments that allow us to both expand and diversify our customer base. In addition, we are well positioned to benefit from powerful market trends, including the electrification and automation of vehicles, The expansion of the Internet of Things, the emergence of augmented and virtual reality and the rise of artificial intelligence, Just to name a few. Looking ahead, we expect to capitalize on these opportunities and deliver growth in our highly profitable business with sustainable strong cash generation.

Speaker 2

Operator, let's open the lines for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. And your first question comes from the line of Harsh Kumar from Piper Sandler. Please go ahead.

Speaker 3

Thank you very much for the question. Congratulations, Liam, Chris and the Skyworks team. Solid results and very significant leverage in the September guide. My first question was regarding your largest customer who typically comes out with a new phone in the September timeframe, Liam. Can you talk about your content at that new particular phone that might be coming out this time around?

Speaker 2

Sure, Harsh. Of course, I can't give you All the granularities here, but obviously, our engagement and our technical vectors here continue to be sharp. We expect to be among the leaders with our largest customer. We have the know how. We have the breadth of technology.

Speaker 2

We have the people And the manufacturing capabilities to execute. So we look forward to that, but we really can't give any further guidance, Harsh, as you know. But we certainly feel like Our opportunities with our largest customer continue to be very quite large.

Speaker 3

That's fair enough. Liam, if I can ask about your gross Margin, you're working through some inventory that's affecting your margins. But if I look let's just say I look forward, What would be some of the drivers that you have to improve your gross margins from where they are? Would they be more so industry dependent such as Android And sort of handset unit dependent or would there more be Skyworks specific actions that would be bigger drivers of your gross margin?

Speaker 1

Yes, Harsh, I'll take that question. And so first of all, we delivered 47.5% In the June quarter, in line with expectations. And at the last earnings call, I indicated that gross margins were going to trend sideways for a couple of quarters. And so we just guided September 47% to 48%, Which is pretty much in line with what I said during the last earnings call. The main issue why gross margins are temporarily A little bit lower compared to the historical levels, which was in the low 50s is mainly because of the macro headwinds And the softer demand environment, especially as you indicated in the Android ecosystem, while those customers are Themselves reducing their internal inventory levels.

Speaker 1

And so as the business Over a couple of quarters, we'll eventually get back and stronger, especially in Android as well as our broad markets business. We will see further improvements in our gross margins. In addition to this as well, Harsh, As you know, we are also reducing our own inventory levels on the balance sheet. This is probably something Coward specific That will take a couple of quarters. That is also contributing to the underutilization.

Speaker 1

But once we get to the more normalized levels Of internal inventory, we will increase factory utilizations and ramp up the gross margins. I do expect the gross margins, again, over time gradually improve to the low 50s, and then we will continue to work it Towards our target model of 53%.

Speaker 2

Yes. And in addition to that, Harsh, as you may know, On the plus side, if you look at the cash generation that we're putting forth, very, very strong results. We're looking at 30% to 35% free cash flow, And that's sustainable. So you've got the margin hit, which is basically underutilization, but all of that has been paid for. And we have now the upside opportunity with free cash flow.

Operator

Thank you. And your next question comes from the line of Chris Caso from Wolfe Research. Please go ahead.

Speaker 4

Yes, thank you. I guess just to start a general market question. We've been going through an inventory correction here for a number of quarters. Looks like it will be the 4th quarter of double digit revenue declines on a year on year basis. So where do we stand now with that inventory correction At your customers, are we getting to the point where those customers are getting a bit back to normal?

Speaker 4

And what does that imply for the next couple

Speaker 2

Sure, Chris. Yes, I mean, we do feel that the bottom is here for most of the markets here that we address, And we should be seeing improving financials as we go forward. You can look at our guide today, it was pretty strong relative to the peers. But also the aperture that we have, not only with the larger players in mobile, which is certainly important and we're very well positioned, But the broad markets business continues to grow. We're doing a lot of good work in automotive.

Speaker 2

We're doing a lot of good work in data center, A wide range of customers that are engaged with us that are also going through their cycle, but What we're seeing now is a bit of a turn up. We think it's sustainable. I think it's been a tough cycle in semis and tech in general. But our view is a little bit more optimistic now than it was last quarter for sure.

Speaker 4

Okay. Thank you for that. Just a follow-up on perhaps China specifically, and that's an area where We've heard some more cautious commentary from one of your peers from some of your peers. Do you think that demand from your China customers Has also turned the corner, and what should we expect there? What are you seeing now and what should you be expect there?

Speaker 2

Yes. It's starting to turn up, Chris. It's not where we want it to be yet, but we've been very, very careful The way we're guiding and have been put kind of pretty low vectors on top line. So I don't think that we're going to be surprised at all at any So you look at that portfolio, it's still bumpy. But on the flip side, you have other markets in Android that are doing quite well.

Speaker 2

Samsung As an opportunity continue to grow, you got a few other players out there that are important. Google is another customer that is There's a lot of great opportunity in mobile and other products that we work with. But it does, like I said, it feels like what we're seeing And the dialogue we have with our end customers being more constructive.

Operator

Thank you. And your next question comes from the line of Matt Ramsay from TD Cowen. Please go ahead.

Speaker 5

Yes. Thank you very much. Good afternoon, guys. Maybe you could you guys report obviously the broad markets business and But there's a bunch of different end markets represented in there that I would imagine are seeing, one thing I think this semiconductor cycle that you are speaking about has taught us is that different parts of the industry have different cycles that are not In amplitude or X, Y axis trying to be lined up with each other and they're all over the place a bit. So maybe you could Break down what you're seeing in the broad markets business.

Speaker 5

I would assume maybe stronger in automotive, weaker in some consumer areas. But if Go through the different subsectors that would be really, really helpful. Thank you.

Speaker 2

Yes, sure. I'll give you as much as I can on that. So you mentioned automotive. That's a market that if you look back 2, 3 years ago at Skyworks, you'd see very, very little revenue at all. We're now Well above the $200,000,000 run rate.

Speaker 2

We expect that to accelerate substantially. A lot of great IP and technology that we brought forth with the Silicon Labs transaction and also a lot of really organic work inside of Skyworks To drive more opportunities within these vehicles. So that's going to be an important part of the business. It already is. If we look at some of these other new markets, cloud, for example, we've got design wins in that area now.

Speaker 2

We're doing Extremely well and an important category in Wi Fi 6 and Wi Fi 7. It's going to be a grower in the industry. I think it's going to be Meaningful for the RF players with Skyworks being certainly at the top of the pack. And it's just a lot of general The Versa 5 products that we came in with the Slab transaction that just very, very broadly, Which has a number of design wins across multiple categories that's also growing. So Good stuff there.

Speaker 2

Plenty of room to go. I mean, all these markets that we're dealing with have pretty, pretty significant TAM opportunities for us to grow into. We're excited about that. We've made a lot of strategic additions in our sales force as well to try to penetrate more of these new markets and create that diversification vector. We feel good about it.

Speaker 2

And we're just going to have to you're going to have to see it in the numbers, but we're certainly driving to those outcomes and expect we can do it.

Speaker 5

Thank you for the detail there. Just as my follow-up, Chris, maybe you could talk a little bit about your view into OpEx in the next few quarters. I think it was A hair below where we had modeled it anyway and with some of the gross margin pressure given the utilization, maybe that makes sense, but there's a lot of opportunity ahead for you guys as well, particularly in the broad market, you have to invest in. So if you could just kind of level set up on the next few quarters on the OpEx line, that would be helpful.

Speaker 1

Yes. Thanks for that question. And so we can't control the macro, right? And we can't control some of the softness In some of the end markets that everybody industry is going through, but we can't control, of course, Our own operating expenses and the investments that we make in the business and there again, we're not hesitating. We are going to continue to invest And play to win, but at the same time, we're going to continue and Skyworks is pretty good at that, continue to focus on efficiencies And really spending the dollars where we get the biggest bang for the buck.

Speaker 1

And as you saw from the prepared remarks, we have been able to Trim down a little bit the OpEx, again without cutting into our key Technology developments and product roadmaps, just focusing on effectiveness and efficient processes. Some of that was also we reduced a little bit of the variable compensation because of the The tough environment that we play in, that will kick back a little bit as we start the new fiscal year in the December quarter. But overall, we I feel good about the level of spending that we do in support of our growth.

Operator

Thank you. And your next question comes from the line of Edward Snyder from Charter Equity Research. Please go ahead.

Speaker 6

Thanks a lot. A couple of questions if I could please. First, there was a lot of talk earlier this year that SkyWest is going to lose some share in WiFi in the high end handsets, Not the CPE units or the stuff that goes into homes with handsets. And I guess there's some basis for that given How much content you have? I think you have and have had all the remote PAs for both 5 gigas and 2.5 as well as some LMAs and some flagship phones.

Speaker 6

Maybe you could provide a little color on that. Should we expect your share to moderate a little bit in second half This year, do you feel like you're not giving up anything there given kind of your dominance of that space over the last several years actually?

Speaker 2

Yes. Ed, that has been a stalwart within the business. And the Wi Fi cycle is very strong. We have great position, 6, And going into WiFi 7, I mean, you know these technologies, they're not easy and there's a big leap between those two cycles. But we're in great shape.

Speaker 2

There's certainly a tremendous amount of consumer activity that hasn't been consummated. Wi Fi is a really important technology. I think everybody knows that, and it's used in so many different applications that we try to really deliver the best solutions. And that's been very powerful for us and our customers like the technology and I think we've got a great opportunity over the next several years.

Speaker 6

Okay. If I could, the Transmit DRX module, which is quickly already has Become one of the most lucrative modules in some of the high end phones out there. You guys kind of own that space, but it's been really clear in the last year or so that the competition for that Spot has increased dramatically. I think even Avago is now trying to get into that. I know Corvo is trying to feel a piece, Qualcomm's always talked about, etcetera.

Speaker 6

Incumbency has a lot of inertia with it. We've seen that year after year after year on iPhone. Is that still the case

Speaker 7

of this? Because The flip side

Speaker 6

of this, we haven't seen incumbency really help anybody in the ultra high band that shares bounce back and forth. You had some of it last year Qorvo and The Vago split it. This year, Corvo is getting a little bit. So I'm just trying to get a feel for is incumbency worth more in the Transmit diversity section, do you think? And Think you'll continue to dominate that spot?

Speaker 2

Yes, I would look at it at a high level, not necessarily any one specific customer, but Performance wins and flexibility wins and supply chain wins and having incredible people on our team That can work shoulder to shoulder in the lab to create amazing outcomes. And I think that really is what differentiates us. And It's not just talk. I mean these are real actions. The people in our fabs, our factories were using our own technologies Whether it's BAW, TC saw, all those recipes are really homegrown.

Speaker 2

I think it makes it unique for us. Our customers love it because they have a voice in the product. And if there's any fine tuning or tweaking, technically, we could do it. So we love that. And some of those products that you mentioned, you know Probably more than anybody.

Speaker 2

These are really, really hard products, really difficult with demanding customers. But if you're able to handle that and hit that fastball, It's great for the customer and it's great for the supplier like us. So we're looking forward to more of that. We love challenges and we're ready to do more.

Operator

Thank you. And your next question comes from the line of Vivek Arya from Bank of America. Please go ahead.

Speaker 8

Hi, this is Blake Friedman on for Vivek. Thanks for taking my question. I might have missed it in the prepared remarks, but I was hoping you could provide What percent of revenue came from your largest customer? And in addition to that, if you're able to quantify the percentage of your broad market sales that comes from this largest customer, that would be helpful. Thanks.

Speaker 1

Yes. So the largest customer in the June quarter was approximately 64% of total revenue. If you do the math correctly, you will see that's kind of flattish, slightly up, Maybe 1% on a year over year basis, which clearly illustrate that we continue to win big With that large customer. And as you indicate, yes, we win with that customer not just at the firm, but in every Product that they have and every product that they brought to the market and that they will bring to the market in the future. And so You will find not only Skyworks content in the iPhone, but you will also find it in the iPad and in the Imac and in The home part and in other products that it will bring to the market.

Speaker 1

And that's roughly On or about 15% of that revenue with the customer.

Speaker 8

Got it. Helpful. And then just maybe a longer term question Thinking about the recovery of certain aspects of the business. I know you derisked your China Android exposure early into the cycle. I believe they only account for 5% Of sales or so?

Speaker 8

So as the market normalizes, I'm just trying to get a perspective on how we should think about your long term China and broader exposure in terms of total revenue?

Speaker 1

Yes. So currently, it's very low, As you point out, yes, China is less than 5% of our revenue. Samsung is less than 5% of our revenue. We still have Google, but also currently less than 5% of our revenue. As we all know, there is inventory overhang at most of those customers.

Speaker 1

They Especially inventory overhang at the phone level, that needs to be clear. It's improving. We see higher demand, higher bookings from those customers, but it's improving slowly. Eventually, and it's hard to predict the timing, but towards the start of 2024, That will be done and then there will be tremendous upside for us because we continue to win Designs with those customers. And again, as that business will start ramping again, we are well positioned.

Operator

Thank you. And your next question comes from the line of Christopher Rolland from Susquehanna. Please go ahead.

Speaker 9

Hey guys, thanks for the question. I would love to get into inventory and DOIs and How they play into your gross margins and underutilization? You kind of hit on this, but would love A little bit more detail in terms of your outlook longer term. So ultimately, where do you guys want your DOIs To go, when do you think you can get there? And I believe the assumption should be gross margins would kind Hang around here for a while until you reach that level.

Speaker 9

Is that the correct assumption? Thanks.

Speaker 1

So first on inventory, we had now 2 consecutive quarters where inventory came down slightly in absolute dollars Despite the fact that this was our 2 slowest seasonal quarters, Looking forward to September December with much stronger revenue and a strong sequential revenue growth into September And further into December, we will continue to substantially bring down Inventory in absolute doors and of course on higher revenue as well in terms of days of inventory. The target is to try to get inventory on or about $1,000,000,000 or slightly below that. And But to your point, it will take a couple of quarters for us to be able to do that. And so the gross margin will trend sideways for a couple of quarters Until we get through this inventory reduction on our side and until of course the overall business starts picking up again As we discussed with Android, the large customer, stronger tailwinds in the broad markets business, and And then the gross margin will start picking up again.

Speaker 9

Thank you, Chris. And perhaps one for Liam. You guys haven't emphasized, at least on your call, your opportunity in BAW in some time. How are you guys feeling about I think you guys have done well putting it into diversity receive, but would you expect some standalone opportunities To kind of move the needle this year. Thanks.

Speaker 2

Yes, absolutely. We have certainly The most significant customers are in very good shape and a lot of great development shoulder to shoulder work and that's been going well. But there's also BAW deployments in other markets that we can dive into, even in some of these Access Points and Routers and Infrastructure Products. Think of BAW as a technology, not a product. So it's a very difficult And also the manufacturing scale and the technology there as well is very unique and there's just a few companies that can do it.

Speaker 2

But the aperture around bulk acoustic wave filtering is really strategic. It's hard to do and It doesn't have to be handset only, as you mentioned. And we do have a number of examples, even in Wi Fi and some other markets So, and infrastructure. So, it's a key technology. Not a lot of companies do it.

Speaker 2

There's certainly folks on this call that are listening to peers that do it, but it's not an easy job. But I think our teams have worked really well and the aperture that we have is quite wide. We continue to bring on more accounts. We also You do a really good job of adopting of getting our customers to adopt the higher levels of performance that you get in bulk So some of that is demonstrated in products, and usually in the more difficult and challenging operating conditions, Ball really makes sense and we're quite good at executing there.

Operator

Thank you. And your next question comes from the line of Joe Moore from Morgan Stanley. Please go ahead.

Speaker 10

Great. Thank you. I wonder if you could address Any long term ramifications from Huawei potentially coming back with its own 5 gs solution? Does that Create long term opportunity for you? Does that create a risk to your existing Chinese customers?

Speaker 10

Just anything that we should think about how that affects Skyworks?

Speaker 2

Yes. It appears that Huawei is really off the shelf right now. So it's not even in the forecast. Having said that, there's still opportunity for the China market to grow. Chris mentioned it a little bit.

Speaker 2

We talked about the opportunity for Android to turn back up and you got the Oppo, Vivo, Xiaomi players. So there's a lot of opportunity there, but Huawei itself as it is At this stage, it's really a nonstarter, could change. But in today's environment, it's really not a customer that we're working with.

Speaker 3

Great. Thank you.

Operator

Thank you. And your next question comes from the line of Srini

Speaker 11

Chris, you alluded to the December quarter Growing as well. So given that we are coming off of a cyclical trough in Android, should we expect December to be somewhat about seasonal? If you can talk about directionally how you're About December, that will be helpful.

Speaker 1

Yes. As you know, we only guide 1 quarter at a time, and so I'm going to Stick to that, but directionally, yes, we do expect December to be up sequentially Following normal seasonal sequential growth patterns that we've experienced in the past.

Speaker 11

Okay, got it. And then maybe for Liam. Liam, there has been some news about China banning gallium and germanium Sports, just wondering given a lot of your products you use those materials, just wondering if there's any impact that you see in the short term on that?

Speaker 2

Yes. We saw the note there, and I will tell you there's really No risk for us right now. We understand those materials. We've been using them for a while. And our teams have looked deeply at this Looked at the opportunity and we should be fine.

Speaker 2

I wouldn't worry about it. We've assessed it. There's very little risk to the business. We're experts in these solutions and the materials behind it. So it's not in our view, it is not something to worry about.

Speaker 11

Thank you.

Operator

Thank you. And your next question comes from the line of Karl Ackerman from BNP Paribas. Please go ahead.

Speaker 7

Yes, thank you. I know seasonality is a bit thrown out the window in this current down cycle. But I was hoping you might be able to comment, Chris, on the Outlook between mobile and broad markets in September, particularly broad markets. Broad markets is usually up, but I think We're going through a little bit of excess inventory. So if you could just highlight perhaps your outlook between mobile and broad market for September that would be quite helpful.

Speaker 1

Yes. So obviously September is a very strong mobile quarter, especially with The content that we have at our large customer and a big ramp that we Have supported over the last 10 or 12 years. And so most of the sequential growth in the September The quarter is coming from our mobile segment. Broad markets might be flat to slightly down a couple percent On a sequential basis, for the reasons that you just mentioned, right, there is a little bit of inventory overhang in some of those end markets, Very similar to what our peers and competitors have indicated over the last two weeks at their earnings calls. We are Obviously not immune to that, although again I think our broad markets business we are as Liam indicated earlier, we are well positioned.

Speaker 1

There's a couple of spots, including automotive, right, that continues to grow double digit year over year. But overall, There's a little bit of inventory overhang that needs to be flushed out in the next couple of quarters, and then broad markets will start growing faster as well.

Speaker 7

Got it. Thank you for that. I guess maybe just to follow-up on

Speaker 12

that, if I may.

Speaker 7

If you could just speak Broadly to how your inventory looks outside of the handset business. Again, it sounds like we have some Inventory depletion that is still needed to reoccur, but the flip side of that argument then is how do you refill the channel once The channel is depleted, perhaps that exits, perhaps it's more clean channel exiting the year. Just any thoughts into 2024 or at a higher level in terms of how you look at broad markets once this inventory overhang abates? Thank you.

Speaker 1

Yes. And maybe first a clarification, right? A lot of the inventory overhang As it relates to Skyworks, it's not in the distribution channel at the component level. We typically manage that proactively and try to keep inventory at a component level at a healthy level. The issue is more that certain customers put components into products and then the products didn't fully Sell through to the end customers at a level they were expecting.

Speaker 1

And so that needs to burn off. As I said, like it's Probably going to take a couple of quarters. But to your point, yes, once that is done, business will come back and will probably come back

Operator

Thank you. And your last question comes from the line of Ruben Roy from Stifel Nicolaus. Please go ahead.

Speaker 12

Thank you. Liam, when you went through the segments or the various units in the broad markets piece, You didn't talk about communications infrastructure. And I think that historically, if you look at Core Skyworks and then you add on top Some of the timing stuff that you got from the I and A acquisition, that was probably a decent chunk of the business. And so I was wondering if I'm right about that. And then Secondly, if you can give us an update on what you're seeing.

Speaker 12

It sounds like that's a pretty tough market right now and not a lot of visibility, rest of this year and maybe even So I would love to kind of understand how you're thinking about that business.

Speaker 2

Yes. No, great question. Actually, I should have given that answer already. No, we actually have meaningful numbers in the infrastructure side. And actually in the last quarter, we actually had a record And the infrastructure side.

Speaker 2

So with all the other CHOP that we see in handsets and some of the consumer products, the infrastructure business is actually Quite strong. There's a lot of room for us to grow into that portfolio. We have very good relationships. And the infrastructure industry tends to be a little bit cyclical. And we're starting to see more opportunity there now.

Speaker 2

Some of that is just moving further up in 5 gs and other markets And even some of the upgrades that we see in Wi Fi and technologies like that. So they're all important to us, but infrastructure is still very solid and we expect that to be a driver

Speaker 12

Okay. And then I guess just as a quick follow-up Liam, kind of another high level question around sort of the macro and how you weigh that against design activity. It Sounds like things are going well in some of these new areas that you're addressing auto. Obviously, Wi Fi has a cycle coming up. But I mean generally, Outside of mobile, if you look at broader broad markets, how would you assess design activity sort of as you look into the second half of the year versus maybe this time last year?

Speaker 2

Yes. I tell you, it's really getting better. The design win activity is better. The customer engagements and And discussions that we're having are getting better and more forward looking. The portfolio is broader than it ever has been.

Speaker 2

We've got a lot more talent in the organization. Operationally, we've gone through some cyclical hits here with We talked about CapEx, but that's turning into a cash flow play right now that's going to really drive the business and allow us to put forth More powerful investments. So we feel good about it. And I think the pieces can really drive a great 2024. We're getting through these quarters right now.

Speaker 2

The business is starting to improve, and we expect to have double digit performance as we go forward.

Operator

Thank you. Mr. Griffin, there are no further questions at this time. Please proceed.

Speaker 2

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

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you.

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Earnings Conference Call
Skyworks Solutions Q3 2023
00:00 / 00:00