SWKS
#Thanks, <UNK>, and welcome, everyone
The Skyworks team delivered exceptional results in the December quarter
Let me begin with a few highlights
We achieved revenue of $914 million, up 9.4% sequentially and above our guidance range
We expanded gross margins to 51.2% and operating margins to 38.8%, illustrating strong operational execution and prudent expense management
We produced record earnings per share of $1.61, $0.03 better than our guidance and perhaps most importantly, we generated nearly $0.5 billion in cash flow from operations in the quarter, another record for Skyworks
In addition to our strong P&L and balance sheet performance, I am especially pleased with our design win execution, particularly at marquee customers
Of note, we secured SkyOne platform wins with multiple Tier 1 Sky OEMs, extended our leadership position in diversity received systems and secured a key win in our custom high band PAD portfolio
We ramped fully integrated fully integrated low, mid and high band solutions integrating SkyBlue technology for Huawei's Mate9 platform, their flagship phone
We launched multiple devices across Samsung's entire portfolio and gained momentum in China, with key wins at market leaders Oppo, Vivo, Meizu and Xiaomi
All of these wins were captured by resulting the growing complexity and performance requirements inherent in today's advanced mobile architectures
Specifically, we're seeing the continued shift to highly integrated transmit solutions, leveraging our core capabilities in gallium arsenide, temperature compensated SAW filtering and enhanced power management
In addition, we are benefiting from the rapid move toward carrier aggregation, a major catalyst in driving higher data rates with expanding bandwidth in both uplink and downlink transmission
In parallel, we continue to expand our opportunity by growing our content reach with new revolutionary diversity receive systems, specifically targeted at the most complex carrier aggregation challenges, as well as a growing suite of analog solutions from Wi-Fi, GPS, antenna tuning, signal conditioning and more
Now moving on to our broad markets portfolio and IOT
We expanded our design win pipeline to include wins with Netgear home security system, ARRIS cable modems as well as Comcast and Rogers with carrier-grade broadband gateways
In addition, we secured design win supporting the latest voice assistant technology from Amazon, Google and Microsoft
We also capitalized on the newest trend towards home Wi-Fi mesh networking, with key wins at Linksys, Ubiquiti Networks and other leading OEMs. And finally, we broadened our footprint across the automotive sector, leveraging the diverse array of wireless protocols supporting connected car applications, vehicle to vehicle communication and 4G telematics
In this past quarter, we were pleased to have consummated a strategic design win at a leading U.S
electric car OEM
Our Q1 results, strong outlook and design win momentum reflect solid tracks in spanning out mobile, IOT and broad market portfolio
The success we are demonstrating is part of a secular multiyear fee and we are still in the early innings
At a higher level, Skyworks is at the epicenter of a sea change in mobility
Our end markets are driving a substantial move from brick-and-mortar to a rapidly growing mobile economy
This trend places an unprecedented burden on analog RF and mix signal performance, vastly increasing the value and utility of our solutions
It's compelling to see how many different avenues mobile technology now supports, whether it's streaming 4K video, social media, mobile payment or rapidly evolving areas such as augmented reality, virtual assistance and the connected car
Popular apps including Facebook, Uber, Netflix YouTube, Spotify, and Wave, all share key characteristics
They require ultrafast, low latency highly secure and efficient connectivity, as well as location-based services
These challenging needs are invariably facilitated by an integrated Skyworks engine
Importantly, we uniquely support all the wireless protocols enabling these diverse applications including Wi-Fi, Bluetooth, ZigBee, GPS and LTE
Further 5G represents a massive growth opportunity for our industry and certainly for Skyworks
In fact, market projection suggest 5G data rates will approach 10X the speed of card 4G and LTE solutions
To put this in perspective, downloading a full-length HD movie in 3G took one day
In 4G, the same file took minutes
On a 5G network, this content will be downloaded in mere seconds
At the same time, the connected car is yet another catalyst that offers significant opportunity for Skyworks
Looking out over the next years, the amount of data that will be delivered to and from the car is estimated to be 5 to 10 times more than the bandwidth used by today's smartphone
For instance, by 2020, a single autonomous car is expected to consume 4,000 gigabits of data per day and real-time diagnostics, positioning, vehicle-to-vehicle communications and that's equivalent to the daily data consumed by more than 2,000 smartphone users in 2017. Skyworks is uniquely positioned to capitalize with solutions that solve all of these daunting connectivity challenges, setting the stage for outperformance across cars and new markets
With that, I will turn the call over to <UNK> for review of our financial results and Q2 outlook
Thank you, <UNK>
As our first quarter results and outlook illustrate, we are off to a strong start in fiscal 2017. We delivered solid revenue and earnings, set a record for EPS and quarterly cash flow, while guiding about March quarter consensus estimates
Our profitability and increasingly strong cash generation is allowing us to fund growth and deliver higher returns to our shareholders
In fact, the new $500 million share buyback authorization announced today reflects the confidence of both the executive team and our Board with respect to our strategic outlook
Skyworks' systems level expertise, operational scale and deep customer engagement are enabling us to capitalize on the rapidly expanding mobile and IOT ecosystems, while positioning us for 5G leadership
That concludes our prepared remarks
Operator, let's set the lines up for questions
Question-and-Answer Session
For us right now, the market backdrop looks quite good and we continue to see an increasing push in mobile for higher complexity, higher performance and that for us as you know translates into opportunity
It's not all with one or two accounts
We're starting to see some great penetration with leaders in China
We mentioned Huawei, certainly large players in the U.S
, large players in Korea are all exhibiting that
And then in parallel and we talked about this for a while, but it's really coming together nicely that our broad business, our broad market portfolio continues to grow
Looking at a year-over-year basis, we're reporting a 10% to 15% year-over-year growth rate with that opportunity and that providers just another boost for us in terms of topline
It was slightly above 40%
Thanks, <UNK>
Sure <UNK>
What we're seeing is very good success in keeping pace with our core architecture SkyOne architecture, switching architectures, but we're now augmenting this with new technology and kind of what I call an expanding product reach doing great work in carrier aggregation, both uplink and downlink
We have some unique solutions that we really pioneered in the industry around downlink receipt side, addressing CA and the complexities
We're taking that kind of an engine and pushing that forward to names like Huawei and names like Samsung and some of the other China players
Our GPS technology is getting adopted now on a quite consistent basis
Wi-Fi has been moving to MIMO architectures in mobile and also in some of the broader markets
So, it's really quiet a mix and what I am really pleased about is our ability, our team's ability to look long at these challenges in mobile and then architect very unique solutions with customer’s hand-in-hand to finally deliver what makes Skyworks special
So, we see that trend continuing
Yeah absolutely
So first of all, I'm pleased with our execution in Q1 with gross margin coming in at 51.2%
Looking at Q2 obviously, this is a seasonality softer quarter with revenue down approximately $74 million, $75 million and so that you can see reflecting into the gross margin
Having said that, we are feeling ---+ we're very well positioned for further margin expansion in the second half of 2017 as we expect the next three quarters to see sequential revenue growth going forward
Yes, and let me add to that <UNK>
We were very confident that as <UNK> articulated, as we stepped through the second half fiscal and second half calendar year, you're going to see revenue and margin step up
So, we're committed to continuing that path
Sure, our growth and success outside of our largest customers has been outstanding
Huawei became the number two account for us this last quarter
They're going to continue to be one of our leaders
We have our customer in Korea, who will continue to grow significantly into 2017 and our largest customers will set up very well for us as well as we address some very complex architectures with compelling products
So, we feel really good about that on the mobile side
And then let me remind you that the broad market portfolio from the infrastructure to IOT to early stages of automotive, all look good and the staff there are double-digit year-over-year
Sure <UNK>
I think part of the driver there as you probably know is just really the upgrade cycle across the Board
So, you have your most developed accounts that will be moving up with higher levels of complexity, bringing in more complex EA architectures, maybe even going MIMO on the radio potentially that's out there
And then you have your value tier players that are moving up maybe at a higher rate percentagewise, but haven't quite hit the dollar value of the top tier
So, we address all of that
We're not a player that spends much time with the 2G or 3G market
So, the segments that we address, we think it is a double-digit tam opportunity
One of the things that we've been going at Skyworks is we continue to innovate and elevate our portfolio
So, these products today that we're selling and enjoying share gains, that just didn't exist three or four years ago
So, we're continuing to push the envelope
There is also a lot of technology that flows between mobile and IOT
Our very strong portfolio and Wi-Fi, we have a Bluetooth portable
We have a GPS portfolio
None of that is really part of the traditional RF TAM, but it matters
Our SkyBlue technology for power management is becoming more and more pivotal for us in design wins
So, it's really a broadening suite
In overall TAM, probably 10% to 12%, but I think we have some unique opportunities to address it in our portfolio
Yeah absolutely
So 5G is really going to be a game changer for the space
It could present up to 10 times the date rate that we see today in 4G
There are these three big themes when you look at 5G, you try to create a faster data pipe, lower latency, more efficient
It's about increasing bandwidth which is going to drive carrier aggregation of the click, higher modulation schemes that you're going from 256 QAM maybe to 1024 higher density as complexity
There is MIMO architectures that will scratch that pipe
All of these themes are very important and if you think about frequency for it <UNK>, if you move up to some of these higher frequencies in 5G, they are very often TDD modulation, so time division duplex and TDD requires band pass filtering
It doesn’t require duplex or so
We have a unique opportunity there to stretch our TC socket with only too higher frequencies in a TDD domain and gain additional share
Sure, <UNK>
Yes, the growth should span across our larger customers
It should also span across kind of what I would consider a value Tier portfolio, the Oppo and Vivo and maybe to a lesser extent Meizu and Xiaomi moving up
Huawei, we mentioned today is now a clear number two customer for us
They have really stepped up in terms of the content, the richness of content and the reach of technology, providing opportunity for us to deliver mid-band, high-band, low-band solutions, power management, diversity receive, addressed CA uplink and downlink
So, we see a great opportunity with the value tier moving up and then the high tier actually increasing their content
Those are the important themes
And then the additional in parallel opportunities in broad markets continue to span and we expect double-digit growth there for the foreseeable future
Yes, sure
Both sides of the equation there are critical for us
Certainly, flagship phones and what we're seeing there is really a great opportunity ---+ actually we're really happy about it as we talked a lot about this technology and this ecosystem within mobile and that tremendous ecosystem, all these great applications that we enjoy driving change in hardware and it's happening
And each year every customer has different cycles, but every success of generation of smartphone technology that we address has had increasing burden, increasing challenge and increasing opportunity for Skyworks
That's what drives the content for us
We've also been able to push our reach
We're moving the areas within this technology, new areas to enjoy further gain
So, we feel really good about that trend continuing
Our teams are doing a phenomenal job right now with the most critical customers, with the smartest people on the customer end and in Skyworks to make sure that that happens
So, that's going to be big part of the story
But in parallel you hit on the other key point
There's a tremendous volume of mid value tier players producing smartphones today that haven't yet enjoyed that big step up in performance
And if you look at Huawei as a case study, we've worked with them for many, many years and had a great relationship and been involving just about every platform and the big swing for us is when finally, the technology and PAD technology in power management ad Wi-Fi and some of these complex system were adopted the revenue accelerated
There's a value tier today that's significant that hasn’t yet made that movement
We're going to work very closely to make that happen with them
Sure
Well, China all in for us is about 25% of revenue and it’s not just mobile
We have a pretty strong infrastructure position in China across Huawei, across ZTE and others
The mobile business is strong and then there is some other broad market portfolios there
So, it’s about 20%, 25% of the revenues there and what was the second part of the question?
Thank you
With respect to the M&A element there, just to remind everyone, we are very focused on our core franchising connectivity
It's a significant market
There is a great deal of investment going forward there that has turned to be profitable for us and fruitful for us
But at the same time, we do evaluate M&A opportunities
We look at a lot of potential transactions
We have a very high bar with our financial consideration on that end
But we keep an open mind
We announced the 500 million shares repurchase program here today and we certainly have the opportunity if the right deal comes about to exercise an M&A transaction
Yes absolutely, it's really about our ability to outperform on design wins that were consummated kind of in the middle of the prior year and now flowing forward
So, we were really excited about that the content reach again is expanding
We’re engaging more and more with fully integrated SkyOne Solutions rather than power amplifiers and filter separated
The carrier aggregation products that we put forward and diversity received are quite compelling in the market and then again, the roster of IOT accounts that we’re bringing forward continues to grow and the content within those applications where maybe we had ---+ we started with a single Wi-Fi device
Now we have 3x3 devices
We’re embedding GPS more and more
We got Bluetooth opportunity
So, the whole spectrum is expanded
And as we look at March, we feel very good about our guidance there as <UNK> indicated
Backlog coverage is solid
We’re fully booked and it’s a very balanced quarter as well
Yes, sure, sure, great question
Well as know, when we go to market, our strategy is to sell a system solution
So, it input to output performance
So, it incorporates our highly customized and curated gallium arsenide technology, unique filtering technology, SOI packaging, testing
The whole engine is really a Skyworks signature and within that engine, we select the best process and the in best technology to deliver what our customers want and outperform technically
So, this is not the first high band win
We have been clocking and clicking design wins here for a while
This one was meaningful for us
It did move us up to some higher frequencies above 3 gigahertz and let me also remind you and I answered the question earlier that in some of these domains, there is a need for a TDD Time Division Duplexing versus FDD, Frequency Division and that can change the technology curve and the selection as well
So, it will continue to grow in that space
We’ll continue to grow in mid band
We’ll continue to move our TC technology up higher and continue to lead in low band as well
Sure, well let me start with you mentioned carrier aggregation
We have an incredible portfolio in carrier aggregation
It nothing to do with BAW
We can use TC-SAW
We can use other capabilities, organic capabilities and we're a market leader there without question
Looking now, there are opportunities where a higher frequency, high performance BAW filtering makes a lot of sense, but we don’t sell discrete devices
So, our plan is to try to create the best engine, the best complete sub system that meets our customer's needs
In many cases, we can do it with our organic technology
We do have a path foundry partners to bring in BAW within our modules if needed
Our TC-SAW capabilities continue to improve and if you look at spectrum, the most crowded spectrum is in the lower frequency bands
700 meg up to 1.1 gig, very, very crowded
TC-SAW capabilities are ideal
Bulk acoustic wave can’t play at those lower frequencies and anywhere some frequencies that are very high with extremely high performance needs where BAW’s critical
So, we’re not hindered by any of that
I think we feel very comfortable with our outlook
We have a lot of great technology choices
And if you look across the peer group, there are some players in our space that don’t in-house gallium arsenide
They go to foundry partners
So, it's not uncommon to have a few points of technology where you outsource in partner and we do that on occasion, but invariably, we use our own organic products
Sure, sure well let me start with the organic product line
So, we have a really strong competitive left in with our TC-SAW facility, SAW Japan as you may remember, this came about through our joint venture with Panasonic, which is now wholly owned entity with Skyworks
And we have capacity to do about 3 billion units of TC-SAW per year and we have room right now
We're not a full utilization, but we have a really strong pipeline going forward that’s going to enjoy the benefit of those filters
If you look at what we can do, it's just really again, it depends on the customers' need, it depends on whether you are in a frequency duplexing domain or a time division duplexing domain
There is nuisances there and so we try to match the best complete system with the customer need
We do have BAW, we're completely aware of BAW acoustic wave technology and what it can and can't do
We have strong partners right now that we can bring it in on a foundry basis
We continue to look within the walls of our company to do it organically or construct devices that are just as competitive organically
Some of that is TDD
What I'll tell you today we enjoy a robust opportunity with the filtering we have today augmented by our gallium arsenide or switching our packaging and our complete systems focus
Sure, sure, well, China of course is a meaningful growth driver for Skyworks
I mentioned earlier on the call it's about 25% of our revenue all in
And it's a market that consumes and exports, right
We have a lot of Tier 1 players that are moving up and inside Huawei and then it's an export market as well and we can enjoy both sides of that
One of the things that has helped us in China is having a strong baseband partnerships, very tight coupling with Hisilicon captive to Huawei today
Also, a lengthy relationship with MediaTek and MediaTek is really in route now to move towards higher levels of integration adopting SkyOne like structures from Skyworks that's a big pop and names like Oppo and Vivo continue to look strong for us
We don't do much at all with the 3G and 2G white box markets
So, our revenue is really driven around the market leaders
And I'll tell you that right now Huawei is the one that's really stepping up in content and the others are moving along that curve
So, I think there is going to be some upgrade opportunities within 4G with some of the mid and value tier players within China
Right and that's China as well, so that's global in China specifically
Yes, the facility has several innings of opportunity ahead
It continues to be competitive weapon
And we've got our growing list of customers and expanding set of new frequencies that we're going to be addressing
So, it continues to be an important weapon
I believe right now if we look at our outlook, we'll probably be okay for capacity for a bit, but just depends on how big our designs wins are here going into the second half
But I think that the factory is running well, increasing number of customers enjoying that benefit and the demand signal for integration ---+ intergraded duplex's, integrated filtering for us has been tremendous
Yes, no, I appreciate that and you're right
I think we weathered a bit of storm here in '16 and most of the clouds there have abated and it's not just market shares
We’re gaining share, we’re creating new content
We’re expanding in IOT and in broad markets and its meaningful and its sustainable
We’re confident that the second half for us should be a double-digit growth rate year-over-year
We think we’ll have strength going into the next fiscal year as well just given our outlook and our design wins that we've secured recently
So, we feel good about it
Again, there is room to go on the margin line
We’re going to work that
The demand side let's say, looks very good and more diversified I should add
Right
Tony and also GPS, GPS has really been prolific here over the last two or three quarters and forward-looking outlook as more and more devices now location services matter, highly precise locations matter
And we have some really unique things that we do in our Mexicali factory to shield and kind of manage the complexity of GPS and the size requirement
So, that continues to roll out and it’s a big driver in IOT
So, we have attachment across mobile, but the number of IOT nodes that we could lever with GPS I think is quite compelling and that's in other case where we're just starting to rack up the design wins
We have really good technology
It takes advantage of some of the core IP that we have in the amplifiers that we have today in cellular and trying to design and shape those for other applications
Sure
Yes, the broad markets in IOT space should be up about 10% to 12% roughly
If mobile is not typically bullish here in the March quarter, we do have unique customer dynamic where some customers in fact are up even within mobile and that’s all about content
So, it’s not a particularly unusual signal
One of the reasons why we’re doing better than seasonal is just again a higher growth rate in the broad space and also with one of our larger customers in Korea content step up, which also provides a sequential gain in revenue
Sure, sure
We’ll take a shot at that
Well, the broad market opportunity is more unbounded right
There is really kind of an infinite set of customers that we're addressing and moving the dial across the Board whether it be just adding the new applications and new customers
And then even within IoT, there's a content opportunity where the customers and consumers they get used to a low range technology want to augment it perhaps with higher-end solutions maybe they had MIMO and Wi-Fi or maybe they go from a wearable technology that is just Wi-Fi and then it stretches to LTE
So, there is an action there that I think has tremendous upside and really the market continues to expand
In mobile, mobile is more characterized
I know there's a lot of detail on the unit count
There is a lot of detail on customer innovation, interaction, but what is missed in mobile is again this tremendous economy that relies upon the hardware and relies upon the kind of technology that we offer and so what we see there and it’s been increasing, is a continued push for performance-oriented solutions and every year there is a different requirement, there is a different opportunity for us to expand upon may be its frequency bands, may be its bringing in new opportunity for us to expand upon maybe it's frequency bands, maybe it's brining in new technologies
We talked about Wi-Fi and GPS there happening, they're happening in some cases
Diversity we see as a new solution for Skyworks
So, all that continues to move and then we have this major 5G upgrade cycle on the horizon
It's a few years out, but Skyworks will be very well positioned there and when that does occur, you will have the backward compatibility for 4G and 3G
So, you'll basically have some duplication of content or some enrichment in content without the legacy going away
So, there is a lot of things on the horizon if you look out
Again, the near term looks good
We talked about it, but if you think long about where the markets are headed and the continuous demand for mobile technology and mobile data and the economy that we've been speaking out far, it looks promising
They're contributing, but there's a long way to go in terms of the adoption
While we've talked a lot about, they're embracing this technology now and it's been great for them, it's been great for us and I think it's going to propel their business with the performance driven product, a number of products and we're seeing that move up a bit
MediaTek is a partner of ours
We're working with them and their reference designs to continue to bring integration to the masses in China
Some of the value Tier players Oppo and Vivo for example are moving along that curve, but they're still not to where we expect them to be
So, that's a continuous process and that doesn’t mean units have to go up
That's really the content and again there is a big, big opportunity for us value tier moving up to mid-level and high levels of performance and bringing the kind of technology that we have into their products
Sure
I think the highest growth categories are really around the connected home high-speed access points and routers
You got these HD cameras
We have design wins with the whole Google net suite
We have design wins with the Netgear, Linksys, Ubiquiti, Wi-Fi mesh
That continues to roll and the content in some of these access points and routers and gateways could be very high, can be double-digit content
A lot of it is Wi-Fi and there are some other switching technology as well
We're then taking that and spanning out into a variety of newer opportunities early innings with products like drones and we have designs there
Automotive, we think could be a phenomenal catalyst for us for semiconductors in general and for Skyworks
If you think about what really matters in an autonomous car, the connectivity piece right
We have cars today
We're all driving cars, but connectivity is going to really matter
So, in order to make that market work, we're going to need very aggressive 5G solutions, massively expanded data pipe for both the transmit and downlink
All of that's going to be incredible opportunity for us and broad markets are that's going to be out there a few years
Cellular infrastructure has been a market we've enjoyed for a while
It's not the fastest growing market
It's solid from a market perspective and we have a number of players there that we're engaged with and that also will go through a 5G upgrade cycle
We have within the portfolio
It's not a significant piece, but it does play in some of the infrastructure markets
It plays in some optical products
We have a little bit of business there, but we monitor the right technology for the application and for the customer need
The gallium arsenide technology that we have as you know we have two very significant fabs are really highly customized and curated gas solutions that proliferate our portfolio
We do have some opportunities with foundry partners to bring in SOI and some other variance around the semiconductor space
And we had access again as needed
So, it's not a mission critical technology
It may play a little further out here in 5G, but at this point it's on our radar screen and it's an opportunity
Thank you, operator and thank you all for participating on today's call
We look forward to seeing you at upcoming investor conferences and other events during the quarter
