思佳訊 (SWKS) 2004 Q2 法說會逐字稿

Good day and welcome to today's Skyworks Solutions second-quarter fiscal year 2004 earnings conference call.

At this time I'd like to turn the call over to Skywork's Senior Director of Investor Relations, Thomas Schiller.

Mr. Schiller, please go ahead.

Thank you, operator.

Good afternoon, everyone and welcome to Skyworks second fiscal quarter 2004 conference call.

With me today are Dave Aldrich, our President and Chief Executive Officer;

Allan Kline, our Chief Financial Officer;

Paul Vincent, our Vice President of Finance and Liam Griffin, our Vice President of Sales and Marketing.

Dave will begin today's call with a broad overview of our second-quarter business highlights followed by Allan's financial review and outlook.

We will then open the lines for your questions.

Please note that our comments today will include statements relating to future results that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those projected as a result of certain risks and uncertainties including, but not limited to those noted in our earnings release and those detailed from time to time in our SEC filings.

I would also like to remind everyone that the results we will discuss today are from the pro forma income statement before special items, consistent with the format we've used in the past.

Please refer to our press release within the Investor Relations area of our company Web site for a complete GAAP reconciliation.

I will now turn the call over to Dave for his comments on the quarter.

Thank you, Tom, and welcome, every one.

Today we announced our second fiscal quarter 2004 earnings, and I'm very pleased to report that Skyworks achieved record top and bottom line results exceeding our guidance and our consensus estimates.

Specifically we delivered quarterly revenues of $183m, up 5% sequentially despite seasonality in the wireless handset market.

We expanded our gross margins by 20 basis points on an aggregate basis and maintained wireless margins above 40%, even as we ramped several of our highly complex transmit front-end modules and single package radio solutions into volume production this quarter.

We reduced operating expenses as percentage of sales.

We improved our operating income by 18% sequentially and 226% year-over-year.

And we netted earnings per share of 5 cents a penny better than First Call estimates.

At the same time we gained power amplifier module market share with units up more than 10% sequentially and 40% on a year-over-year basis as our new line of iPAC PA designs gained market share at Motorola, Samsung and throughout Taiwan.

We delivered over 4 million of the industry's most highly integrated front-end module solutions, a product that we introduced just one quarter ago.

We scored Ningbo Bird, China's largest domestic handset supplier, as another significant customer with both front-end module and DCR design wins.

We delivered our 20 millionth direct conversion transceiver during the first two quarters of 2004, this nearly eclipsing total volume we shipped throughout all of 2003.

Keep in mind, we are now approaching the 50 million-unit mark for our single chip silicon DCR.

This was a product that we introduced just six short quarters ago.

We also ramped our first to market single package radio at two key ODMs, with additional design wins in the pipeline.

Finally we added Arima, one of the largest and fastest growing Taiwanese ODMs to our expanding list of complete cellular systems customers.

Our performance reflects the success of our core strategy, which is quite simply to develop and deliver best-in-class modules and radio-based solutions, to simplify our customers' design architectures, reducing their overall bill of material and speed their time to market, and finally, to address an increasing amount of semiconductor and software content in the process.

The bottom line is simply this.

We are able to reduce our customers' bill of materials while our revenue increases, a true win-win.

I would now like to outline some key elements behind last quarter's performance.

First, within our front-end module business area we grew our portfolio of power amplifier modules to nearly half a billion cumulative shipments this quarter with participation at all leading cellular handset suppliers.

At Motorola, Skyworks is an increasingly popular triplet series namely the, V-300, V-400 and 600 with our highly integrated transmit front-end solution.

Additionally we are in the C-550, one of the smallest and lightest camera phones to date and across almost all of their Idon handsets.

We are also gaining ground within Motorola's CDMA portfolio with an entry position in their T-300 and their V-710 handset series.

At Samsung we are now supporting a broad base of platforms.

We have power amplifiers across virtually all of their CDMA handsets.

We now have an increasing number of complete GPRS cellular systems, particularly as Samsung ramps their new P-510 family with our chipset.

We also have iPAC GPRS PAs that are now designed into more than a dozen new handsets.

This is a new event for our company.

We're progressing on the design in of our DCRs and single package radios with Samsung.

Next, at LG, we are now within the vast majority of their CDMA phones, including the highly popular LX 5400 and BX 6000 models, along with the recently introduced V-15225 and the RD-2230 platform, the latter of which is targeting India.

On the GSM side we support their G-7100, their G-7050 and G-77 GPRS platforms.

On a side note we are very proud to have received their 2003 Best Quality Award for outstanding product and customer service.

We are just delighted with that achievement.

At Nokia we have more than doubled our business on a year-over-year basis ramping our CDMA power amplifier along with our RF subsystems, as they gain share at Verizon, Sprint and India's Reliance.

Finally with Sony Ericsson we are across their family of phones including the now PA-10, P-900 and Z-1010.

We are especially excited to be their PA supplier for the highly successful T-610 handset, which in February was voted best new handset by the GSM Association at the 3GSM World Congress.

As our increasing participation at the world's leading handset OEM exemplifies, we are winning a disproportionate number of new high-volume and in many cases higher value sockets.

Let me talk about now our second business area, our RF subsystems product line.

During this quarter we introduced the smallest single chip GSM/GPRS quad-band direct conversion transceiver, cutting external component requirements in half.

As a high volume producer of PA modules and direct conversion transceivers we are seeing increasing synergy between these leadership product lines, particularly as OEMs and ODMs demand bundled radio functionality.

For example, we recently scored complete RF section design wins at Banque (ph), at Chemai (ph), at Compow (ph) and LG, Ningbo Bird, Quanta and Siemens.

Please keep in mind that this more than doubles our content versus the sale of a stand-alone power amplifier module.

From this foundation we've now secured initial EDGE RF subsystem design wins with our single chip direct conversion transceiver plus EDGE PA module.

Our patent pending Polo Loop (ph) transmit architecture minimizes the number of external components required to build a mobile handset and interfaces with virtually all base band solutions on the market.

Further our single package radio solution continues to be well received.

You may recall this represents a fusion of Skyworks core capabilities, including leadership components, process technologies and packaging techniques.

The SPR quickly progressed from a conceptual design to type approval to volume production, and now several additional design wins are set to launch later this year.

Our third, within our cellular systems business, shipments of our complete chipset and software offering encompassing the RF, mixed signal, base band and protocol stack were up sequentially and on a year-over-year basis driven by ramps at first Codacom, this is our Korean ODM or Chinese OEM; at NEC, a top 10 handset supplier as they launch their N-910 family of phones using our complete chipset; at Panda, a top tier Chinese OEM; at Samsung, we have now ramped beyond the C-100 platform and within their P-510 series of phones; at Sowtec (ph), an exciting brand name within China, and at the Telcom, a leading European handset OEM supporting Telefonica in Europe and Latin America, along with several others.

During this current quarter we also launched our complete cellular system solution at CEC Telecom as they prepare to introduce several next-generation handset through China's most extensive distribution network.

Additionally at MiTech, we are at the heart of their 8390 Smartphone with our RF subsystem and base band processor along with protocol stack.

This is mated with Microsoft Windows mobile operating systems and Intel's XScale application processor.

We are quite excited about this design win.

I'm especially pleased to announce that we have now scored a significant win at Arima, our first cellular systems win at a leading Taiwanese ODM and an example of our unique ability to move customer stand-alone RF component to complete solutions.

Our complete architecture within Arima will enable a series of their offerings, which they in turn will offer to top 10 handset suppliers.

To further solidify our position as a leading system solutions provider and offer our growing roster of customers the advanced multi-media roadmaps they demand, during the quarter, we made a couple of changes.

We intensified our focus on a high performance product roadmap as we support the emergence of EDGE and Next Generation system requirements.

Furthermore, we consolidated our cellular system software design centers in order to speed our overall time to market with these new solutions and to simplify our development process.

As you may already know, the market is increasingly demanding voice sessions coupled with high performance multimedia applications.

We need to provide the processing horsepower with the hardware and software hooks to enable these services.

Picture your phone two years from now.

You have voice and wireless data, while simultaneously being able to view your photo book, some level of streaming video and listening to music, all at the same time, and we intend to enable this class of service.

Finally, within our cellular infrastructure wireless data business, our base station portfolio consisting of linear transmit receivers, modulators, amplifiers and direct conversion mixers, is seeing strong demand driven by three factors.

First, large OEM contracts as China, India and South America deploy new networks and upgrade existing infrastructure; second, opportunities in developing nations for wireless local loop applications, and third, domestic and European carrier preparation for EDGE and 3G service rollouts.

With an existing customer base spanning Ericsson, Motorola and Nokia, we are well positioned to participate in the next phase of infrastructure build-outs.

We are also gaining significant traction at Samsung as they embark on CDMA infrastructure expansion in India and China.

Perhaps most encouraging we have had a positive book to bill ratio now for a couple of quarters with improving visibility and this follows, of course, a long market hiatus.

Meanwhile, we continue to expand our presence in wireless LANs.

During the quarter we shipped over 30 million switches and exceeded for the first time the $5m quarterly revenue mark with very strong backlog driven by our first high-volume wireless LAN front-end module orders.

Leveraging our power amplifier, switches, discreets and RF systems know-how, and vertically integrated manufacturing platform, we provide the very same cost and simplification benefits to wireless LAN providers as we do to our handset customers.

Our forward integration approach allows for customers to eliminate up to 40 components while quadrupling our addressable semiconductor content.

We're just getting started, just getting started in wireless LANs.

Let me briefly recap.

During the quarter we delivered record revenues and operating income ahead of guidance and consensus.

We maintained our wireless gross margins above 40% and increased operating profit by 18% sequentially and generated significant cash flow.

All the while expanding our presence at all tier-1 accounts scoring Ningbo Bird as a front-end module and DCR customer, added Arima to our roster of cellular systems customers and received our very first wireless LAN front-end module production orders.

In conclusion I’d just like to reiterate that we are quite pleased with the quarter's results, and to provide an overall perspective on our performance thus far, let me just say that when we launched Skyworks just seven short quarters ago it was with a clear mission to offer customers higher levels of integration, shorter design cycles, and lower bill of material, while raising the barriers of entry to our competitors.

With this quarter's results coupled with record backlog going into next quarter we are beginning to deliver on that promise.

I'll now turn the call over to Allan, our Chief Financial Officer, for his review.

Thanks, Dave.

Revenues for the second fiscal quarter were $183.5m, up 5% sequentially and 7% year-over-year, fueled by strong demand across the wireless businesses.

Revenues from assembly and test services activity were down sequentially to $10m, in line with our expectations.

Gross margin for the quarter was 40.4%, excluding the Mexicali assembly and tests.

On an aggregate basis gross margin was $70.3m or 30.3%, a 20 basis point sequential margin expansion.

Operating expenses increased slightly, but declined as a percent of sales allowing us to improve operating income by 18% sequentially and 226% on a year-over-year basis.

Interest expense for the quarter was $5.4m, offset by interest and other income of $300,000.

Our provision for foreign taxes was $400,000.

Net income was $7.6m or $0.05 a share, a penny better than consensus estimates.

Turning to the balance sheet.

We exited the quarter with cash and cash equivalents of $197m, up $60m from the prior period.

We generated $19m of cash flow from operations, invested $11m in capital as we procure additional equipment to meet increased demands for our portfolio of front-end modules and single package radios, offset by $8m of depreciation.

We improved our DSO metric by one week, and we delivered inventory returns of 6.3 times, reflecting higher inventories in support of our stronger June quarter bill plan.

Now, to our fiscal third-quarter financial outlook.

Based on strong order trends across the businesses, we expect to grow our top line by another 5% sequentially in the June quarter.

Assuming revenues of $192.5m, we anticipate that aggregate gross margins will expand to 38.5%.

At the same time, we're forecasting operating expenses of $59m to once again decline as a percent of sales.

In turn, we expect to further demonstrate our business model's leverage by improving operating profitability by roughly 15% sequentially.

To enhance our financial position by reducing debt and decreasing interest expense, we have notified the holder of our $45m 15% note that on May 12 we intend to call this debt at a conversion price of $7.87 per share.

This transaction will eliminate $45m of long-term debt, reduce our quarterly interest expense by $1.8m and be $0.01 cent accretive to earnings per share going forward.

Since this transaction is planned for mid-quarter, we suggest modeling $900,000 of interest expense savings from last quarter's level.

We also are guiding the foreign taxes for the quarter of roughly $600,000, and we suggest using the fully diluted base of approximately 155 million shares assuming conversion on May 12th.

That completes our prepared comments, and operator, we can open the line for questions.

Thank you. [OPERATOR INSTRUCTIONS].

Our first question is from Chris Caso, Schwab Soundview.

Good afternoon.

Nice quarter, guys.

In terms of the gross margins, could you perhaps take us through what the effect of the ramp in revenue is on gross margins, and then perhaps break that out by ramp in revenue and perhaps fab loading and change in mix for the quarter so we can dial in what the change is there?

OK.

Maybe Allan can hop in as well.

Let me see if I understand the question.

Our gross margin went up by 20 basis points, and quite frankly if you would peel at the onion here, we ramped during the quarter into high volume production, a single package radio, a transmit module that is quite complex as well as a product we call the Sky-500, which is a complete transmit chain.

These new products offer a new level of functionality to our customers, but also a degree of complexity in our production line and I'm quite pleased that even though we ramped all of them simultaneously, the yields ended the quarter quite high, the learning curve was steep and we were able to accrete margins, and we are quite prepared for next quarter and going into subsequent quarters with these products as they mature.

The second point I will make is that we still -- our contribution margins remain in the 50 to 70% range across all of our product lines.

So our strategy is to try to grab as much content per phone as we can, drive higher factory utilization and, thereby, accrete both our gross margin and below the line.

OK.

So it is safe to say looking forward on incremental revenue we should look at contribution 50 to 70% going forward?

How long do you think that continues?

That is variable contribution, remember.

As the volumes go up, we will absorb the fixed cost.

But there is also price erosion going on there in addition to our increased yields.

Our next question is from Cody Acree of Legg Mason.

Thanks.

Can you give a little more granularity into the revenue breakdown maybe by their interface or in product application?

You know, there would be PAs or single package radio?

Sure, we are about 70/30 GSM CDMA, could be a little lower than 70.

The second part was by product area?

Sure.

Our front-end modules are just a hair over 45%.

Our RF subsystems and cellular systems are, if you will, our silicon-based products are about 40% and infrastructure and data around 15%.

And how much today is the system solution, the system piece?

We don't break it down that way.

But the system, the way we think of the business, it was up sequentially, but the combination of the base band mixed signal and silicon RF was about again as I say 40% and up sequentially.

Thank you.

Our next question comes from Kalpesh Kapadia at Unterberg.

What was the turns business in March quarter, and how far are you booked for June, and what do you expect in terms of turns?

Our turns business was about 10%, and it should be less than that in the next quarter.

We're over 90% booked going into this quarter.

Our backlog is as high as it has been in the history of the company.

So is it, suffice it to say, you can have better than 193 million revenue if things progress?

Yes, but we have I think we've guided appropriately.

This next question from Earl Lum at CIBC.

Congratulations, gentlemen, on a great quarter.

Thank you.

A couple of quick questions.

With regard to you new customer, Ningbo Bird, can you talk about how many platforms you may have already secured with your front-end modules and DCR combination?

This is Liam.

Ningbo Bird, first of all, as you know, is the number one local brand in China.

So we are quite pleased to add them to our roster of accounts.

We today have about three phones in production with our single chip DCR and our transmit power amplifier module.

We absolutely expect to be able to expand that, and hopefully we pick up about 30 to 50% of their ongoing GPRS business.

Great.

Then just a quick follow-up.

With regard to the transmit (inaudible) chains of LG, does that also include the PA so you essentially have a three-chip solution that you are shipping to them, and how many platforms do you have over there?

Absolutely.

When we speak of the transmit chain, the PA is absolutely included.

With LG the platforms are quite wide.

Obviously in CDMA we have maybe 15 to 20 or more phones.

Many of those actually are CDMA, PA and RF, and then on the GSM side, we are gaining share in PA coupled with our DCR.

So a very broad penetration in LG.

Our next question is from Dale Pfau at CIBC.

This is George Iwanyc for Dale.

Could you maybe address if you see inventory anywhere in the channel relative to handsets, and do you see any component shortages being a bottleneck right now?

We don't see handset build-up in inventory channel that is anything beyond normal.

I think the inventory in the channel is quite normal.

You may recall a couple of quarters ago that there was a stacking inventory condition in China.

That seems largely or entirely behind us.

And as far as the component, component supplies have been tight.

They were tight at some of the discreet component levels, boards and some packaging areas.

Fortunately for us, we assemble and test ourselves so we don't rely upon outside suppliers that much and we have capacity.

In addition we have got multiple sources of supply and pretty strong relationships with those critical component suppliers.

So, component supplies are tight, but they're not impacting our revenue in any measurable way.

OK.

Thank you.

Our next question comes from Pierre Maccagno at Needham & Company.

Hi, Dave and Allan.

Good quarter.

I have a question and a follow-up.

Can you talk a little bit about the dynamics at Samsung as Samsung is migrating from only GSM to GPRS?

I guess there is some migration there from the only GSM -- the handsets that were only GSM.

You provided the whole solution, and as they migrate to GPRS, I would imagine you are providing just the power amplifier, or are you also providing the whole solution there?

Well, the Samsung story we're pretty excited about.

Liam will help me answer this question, but you are right, Pierre.

You may recall that when Samsung made a rapid transition from GSM to GPRS our business in cellular systems dropped.

We now have recovered with the c-1000 series, and now we have launched the p-510, which is a platform from which there will be multiple SKUs derived.

So our GPRS SKUs are going up.

It is a complete cellular system.

So it is the same level of functionality.

We have maintained very high participation, the same very high participation we've had in the past with CDMA and power amplifiers.

I will let Liam talk about the GSM GPRS PAs, which is really a new event for us.

Pierre, let me give you a little more color here on what is happening in the GSM space, and what we're talking here is segments where we don't have base band, but we are going after the PA side of the equation.

In the last quarter, we ramped our overall power amplifier business with Samsung by roughly 18 to 20%.

We had initial launches of GSM Pas and a lot of CDMA.

As we move into the June quarter, we have backlog today that supports a 40% increase in power amplifiers at Samsung.

I will tell you that is largely driven by fresh gain in the GSM space.

Moving on our next question is from Sandy Harrison at Pacific Growth Equities.

Thanks a lot.

Good afternoon, guys.

Real quickly, you are reading more and more in the headlines today about the increased functionality of handsets and you read about all the different mixes at the OEMs and how they're battling with high-end, low-end, medium range and all that.

As far as the footprint and as far as your ability to offer a more integrated system, is that something that is helping you guys?

Is that something that is more OEM driven, or is that something that the ODMs are helping or both?

If you could just tie together the relationship between the greater functionality in handsets that seem to be driving this growth and how you guys participate in that?

OK.

Well, it is a complex issue.

But ihe fact is that, for example, when our customers began to add camera functionality our participation increased as our customers look for more multimedia and move to 2.5g and they are now going color screens with more functionality, you can imagine that card consumption is an enormous issue.

The performance of our radio bundled with our power amplifier gives just terrific, power handling, battery conservation performance.

So in the RF subsystem, the DCR, power amplifier, the more complex it gets, the more they need linearity, the more they need power handling efficiency, and we love it because it gives us an advantage, and all the while they are quite concerned about time to market, and the more complete the solution, it is more revenue for us and higher ASP.

But it gets them to market much more quickly.

It is a huge advantage for higher levels of integration.

As we talked about the cellular system side, we are increasing our focus on these multimedia hooks because our customers do want to go to EDGE.

They also want to run a simultaneous EDGE voice session with more and more and more multimedia functionality, and that is the focus of our cellular system business.

Right.

Can you talk about EDGE and the functionality of that?

Do you guys see EDGE accelerating from where we were a quarter ago, or is it on track?

What is your view on the EDGE market as we stand here today?

The EDGE market we certainly believe is important on the 2005 timeframe.

There will be some volume at end of the calendar year.

But we are well positioned for the ramps, and we don't believe there has been a material change in the last quarter.

Next question is from Tom Sepenzis with ThinkEquity Partners.

Sir, your line is open.

Please ask your question.

Sorry about that.

Congratulations on a great quarter.

Thank you, Tom.

I was just curious as to what your fully taxed rate would be and when you would expect to see that hit the model, when your NOLs will expire?

As you know, the NOL is about $170m, and the taxes for Q1 was $800,000 for the foreign and we actually brought that down this quarter.

It's going to run about 600 to 800 a quarter.

So we have got to use up the $170m NOL.

There will be -- as we get profitable, there will be some book accounting charges relating to reductions of goodwill.

But we will take them out in performance.

So really until we use up the $170m, you will just see the foreign tax of 600,000 to 800,000 a quarter in your model.

Great.

Thanks very much.

This next question is from James Faucette at Pacific Crest.

Thanks.

Just a few questions.

Can you give us any type of insight into how your customer mix has changed during the past quarter or two quarters?

Samsung traditionally has been one of your more important customers, and I imagine that continues to be the case.

But I am curious about maybe Motorola versus ODMs and some of the other names?

Well, Motorola and Samsung are both over 10% customers and they were both up sequentially.

Our business is high and has been growing with LG, Sony Ericsson, Nokia.

But you know there is a little bit of difference in our model.

We are pretty diversified across our customer base as well as ODMs and contract manufacturers.

So we more closely mirror the overall handset demographic, if you will, than most.

We're quite diversified.

James, I would also like to add that we are seeing very solid attraction in China specifically across multiple platforms and multiple product lines.

As we mentioned, Motorola -- we had a release on that earlier this week -- is definitely growing within our account base and also growing in content with some of the new phones that they have released.

Then on the infrastructure side, can you give a little bit of granularity, kind of how that business developed through the course of the quarter.

I mean I know you had some positive commentary, but maybe a little more specific if it was up sequentially or what you're seeing?

I think you mentioned you are seeing improved visibility there.

Can you elaborate on that?

Sure.

We've always been an infrastructure player here at Skyworks dating back to the alpha industry days, and we have had very good position with Ericsson, with Motorola, with Nokia.

As you know, those are all large accounts on the handset side.

So our sales team and our customer engagements have been strong.

We were pretty smart in keeping after that business during the downturn.

We had a lot of new design wins, and the revenue was a little bit slow to launch.

But in the last few quarters, as we mentioned, our visibility has improved, the book to bill has been up, and the revenue was grown.

It's probably up in the 10% to 15% sequential rate in the last few quarters, and we continue to gain share and we look for a strong second half.

I would like to add to that.

Within our infrastructure and wireless data business, which is from an operational standpoint, we have those business units combined.

We mentioned in our prepared comments that we achieved $5m in revenue in the wireless LAN space, and keep in mind, that is just with the switches.

We are on the reference design of most of the major players, we have 100 or more customer who make wireless LAN boxes and devices, and we now have introduced a product that more than quadruples our dollar content per wireless LAN device.

We're dealing with the very same customers and reference design partners.

I am quite excited about wireless LAN and ramping that quickly.

And moving on, Jane Ingbo (Ph) at Knowledge Kresbie (ph).

Hi, guys.

Congratulations.

I just had a quick question on CDMA side, the strength that you saw sequentially quarter-to-quarter.

I was wondering if that was a little bit lopsided between the PA side and the transceivers, or did you actually see a balance of growth?

If you could give us a little more detail on that, that would be appreciated.

Jane, we don't get down to that level of detail.

But, as we see, the business was up.

I think we talked about power amplifiers being up 40% on a year-over-year basis.

This new iPAC design is doing very, very well, but again the DCR ramp is very, very significant, as well.

Great.

I guess I was wondering, and I hate to throw this sort of question at you guys, but given that you guys are obviously putting up some very good results here, I wanted to ask you if, in the past month or so, if you seen any changes in booking activity or anything at all in terms of people readjusting inventory levels et cetera, just would love the most up-to-date information if possible?

Jane, actually what we have seen has been quite positive.

We had a very strong quarter as we discussed here, and early indications for the June quarter from a bookings perspective look very bright.

Next question from Jeff Kvaal of Lehman Brothers.

Hi.

Thanks very much.

I was wondering is you would share with us what we should be expecting for your relationship with Samsung on the CDMA side over the next several quarters?

Thanks very much.

Well, Samsung CDMA that had been our bread and butter business coupled with our GSM systems.

We feel very good about our traction.

Our PA share is in the 80% to 90% range.

We do have some opportunities to expand in CDMA RF side, and there are some other things that we are looking at relative to switching and new product off-shoots in that area.

So we look to be well positioned in CDMA with Samsung and will participate in their growth.

We're the only company that has a CDMA power amplifier and complete RF system solution.

So that is where we've begun to see increased dialer content per phone and Samsung is no different.

We are taking our PA penetration, which is in the 60% range, and migrating those customers just as quickly as we can to include an RF system, thereby more than doubling our dollar content per phone.

That is our strategy at Samsung and LG and around the world.

OK.

It may be that in some models you may share that business a little bit, but you are getting a higher dollar content per phone overall so the business should remain strong in the second half?

If your implication is, have we lost share in CDMA, I would say there's no evidence of that.

I think we have maintained our CDMA, PA share and we are beginning to add RF.

This question is from Jeremy Bunting at Thomas Wiesel Partners.

Thank you.

You just gave the split screen, front-end DCR systems and then other.

Could you give us a sense of how the gross margin, first of all, for each of those groups splits out?

Jeremy, we don't give detail the gross margin by business unit other than for assembly and test.

OK.

Second question then, in terms of your group DCR with system revenues, are you able to tell us how many DCR products are sold in conjunction with the base line products?

Well, it's a good question.

Let me answer it this way.

Maybe Liam you could help me.

We shipped 20 million DCRs year-to-date, about 50 million in total in the last six quarters, and it started June of a year ago at 500,000 to over 10 million.

And every time we sell a base band mixed signal solution it has our DCR, every single time.

Right, and that would be incremental to the 20 million.

Our next question comes from Sereny Padury (Ph) with Merrill Lynch.

Thank you, just a quick question on your fab utilization -- excuse me, your manufacturing utilization and also you can talk about your back-end utilization, thanks.

The fab utilization and overall utilization was 75% to 80%.

OK and I guess you mentioned that you were looking for opportunities to fill the fab.

Does it mean that you will be more aggressive in terms of your pricing going forward, or are you anticipating any change to your pricing strategy at this point?

No, and we have some capacity in the fab, but a lot of our capital expenditures are equipment not bricks and mortar.

Let me be clear.

When we talk about price erosion, the price erosion is most acute on the single function power amplifier.

We believe we have the highest yield and the lowest cost structure.

So we will fight that battle all day long.

But the average ASP at Skyworks is increasing sequentially by virtue of the fact that we are migrating our customers from a PA to a transmit module, a transmit module coupled with a DCR, a DCR and a transmit module integrated into a single package radio.

That is something that we can uniquely do.

Yes, there is ASP price pressure, but our ASP is increasing.

And this question is from Ambrish Srivastava at Harris Nesbitt Gerard.

Hi, guys.

Good quarter.

A question on the break-up between front-end DCR as well as the complete solution, Dave.

If memory serves me correctly, then for the last several quarters this mix has stayed the same, 45/40.

Is this fortuitous, or are you managing your business in a certain way, and more importantly going forward, how should we expect the mix to change?

Thanks.

Well, it's not we're managing it in a certain way.

It just has been the growth of the overall business.

We have a pretty strong growth charter or a very strong growth charter for each one of our respective business units, and I'm pleased that the business unit, general managers, along with our sales applications and marketing teams are meeting those -- by and large, meeting those goals.

So going forward we have a very high growth charter for each and every one of those three businesses.

Now cellular infrastructure tends to be a bit more lumpy because it depends upon big contracts and it is a bit more cyclical.

But that business in conjunction with wireless LAN is growing, as well.

So I think that the fact that the mix has stayed relatively constant is purely coincidental, but it reflects our desire to grow all three.

What's the ODM, OEM mix, Dave?

20, maybe a little north of 20% in ODM.

And we have a follow-up from Kalpesh Kapadia at Unterberg.

Hi, Dave.

If I look at your top two customers, Motorola and Samsung, they grew in excess of 15% from December to March, and you know, clearly your growth was slightly less than that.

Can you explain the variances?

Did you grow faster in December, or are you going to grow faster in June?

We're going to grow in June, and we intend to grow in September with these customers.

At Motorola we have clearly taken share because we are now delivering the complete transmit module, and that is replacing where we participated really in some cases at the switch level or at a much narrower base (inaudible) PA.

Of course, we for the first time added CDMA PA.

So that wasn't the domain of our company.

In the past, our relationship with Motorola was GSM, exclusively (inaudible).

We are now penetrating CDMA, and we expect that to expand, as well.

At Samsung, it is a similar story.

Those PA design wins are brand new.

Our cellular system business was sequentially up at Samsung.

So I don't know how to respond other than that, Kalpesh.

So you would be able to grow faster in second half in the market?

Yes.

We'll go back to Pierre Maccagno at Needham and Company.

I have a question and a follow-up.

Could you tell us about the breakdown between assembly and test for the foreign and also for the guidance?

The second one, regarding the wireless LAN.

Are you supplying power to suppliers at this point?

If not, are you planning to?

On the assembly and test, that was 10m for the quarter, down from 11 and we're expecting around 9.5 to 10m for the third quarter.

On the wireless LAN opportunity, as Dave mentioned earlier, our position thus far has been 90% or higher single chip gallium arsenide switches that support 802.11B, 11A and BG.

We are moving into this wireless LAN front-end module.

Now that product is very similar to the transmit module that we discussed on the GPRS side of our business.

We start with a power amplifier.

We bring in gas switches that are Skyworks organic.

We bring in LNEs (ph), (inaudible), a number of discreets and passes, package that up uniquely at our own facility, assemble and test it in Mexico, and deliver it to the very same chip-set customers and ODMs in Asia.

That's our game plan.

From an ASP perspective, where the switch may be in the 15 to 20 cent range, the module is over a dollar per unit.

Justin, I think we have time for one more question.

James Faucette at Pacific Crest.

I just wanted to ask a quick follow-up regarding the infrastructure.

You said that your book to bill looked good.

Was that above one during the quarter?

Absolutely, James.

The other question just related to CDMA.

It seems like -- it's not a huge portion of your business, but the RF solution for CDMA seems to be a nice kicker right now.

I guess are you ready for the transition as customers start to go to new 6000 series family chipsets from Qualcomm, or what do you need to do from a product development standpoint there?

Good question.

We are aligned with the MSM 6000.

We will have our products available for that, and we are sampling customers today, some of the same customers that have launched our original series.

So you are correct.

It has been a strong opportunity for us.

It's reflected in our numbers now, and you will see it in the second half.

That is all the time we have for questions today.

I will now turn the call back over to you.

Thank you so very much for listening.

This concludes our conference call for today.

On behalf of the entire Skyworks team, thank you for your participation this afternoon, and we look forward to updating you on our performance next quarter.

Thank you and that does conclude today’s conference call.

Thank you all for your participation.

You may now disconnect from the line.