思佳訊 (SWKS) 2004 Q4 法說會逐字稿

Good afternoon and welcome to today's Skyworks Solutions fourth quarter fiscal year 2004 earnings call.

This call is being recorded.

At this time I will turn the call over to Mr. Thomas Schiller, Investor Relations for Skyworks.

Mr. Schiller, please go ahead.

Thank you, operator.

Good afternoon, everyone and welcome to Skyworks' fourth 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 VP of Finance, and Liam Griffin, our Vice President of Sales and Marketing.

Dave will begin today's call with a broad overview of our fourth fiscal quarter business highlights followed by Allen'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 and adversely 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 our pro forma income statements 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 website for complete reconciliation to GAAP.

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

Thank you, Tom.

Welcome, everyone.

Today we announced our fourth fiscal quarter 2004 earnings.

Once again I am very pleased to report solid results.

This marks the fourth consecutive quarter of improving top and bottom line performance and the tenth straight quarter in which we met or exceeded our guidance.

Our results clearly reflect the increasing market adoption of our highly integrated and differentiated products.

For the quarter, we grew quarterly revenues 45% on a year over year basis to an all time high of 218 million.

We demonstrated operating leverage with a 5% sequential revenue growth driving a 14% increase in operating income.

We delivered 12 cents of earnings per share.

We generated $28 million of cash flow from our operations, and we increased our cash balance to $215 million.

The bottom line that this was a record quarter of performance within a difficult market in which we have objectively, we believe, demonstrated significant market share gains.

Now for the fiscal year, incidentally our second full year as Skyworks, we grew our revenues 27% from 618 million to $784 million, highlighted by significant share gains with our iPAC PA front end module, single chip DCR transceiver, our single package radio, and our complete three chip cellular solution.

We achieved greater than a 20 fold increase in operating income, growing from $3 million in fiscal 2003 to over $64 million in fiscal 2004.

And we strengthened our balance sheet, retiring 45 million in debt to an accretive transaction.

Now let's discuss some of the key elements driving our last quarters performance.

In our power amplifier and front ends module business we saw continued sequential growth from our broad customer base with unit volumes up more than 75% on a year over year basis, compared to most estimates of 15 to 20% growth in the overall handset market for the same time frame.

Now, I can't emphasize this statistic enough.

While there seems to be a lot of debate across the industry surrounding share gains, we believe our results speak for themselves.

Now on an account by account basis our gains have primarily been driven by, first, the world's largest handset OEM.

We significantly increased our CDMA PA shipments sequentially to satisfy the majority of their next generation platforms, including popular models at Verizon Sprint as well as those targeted in India and China.

With Motorola, our front ends module which integrates our switch, filter, power amplifier functionality into one single package, is proliferating across their new line of GPRS phones including the V. 220, the V. 180, the V. 505 and their state-of-the-art razor V. three.

Additionally, we are expanding support for an increasing number of they are CDMA phones and continue to be the majority supplier for their family of I-DEN platforms, highlighted by their flagship I. 860.

Further we are ramping custom transmit modules to address a suite of three G. handsets starting with their A-1,000 series.

Let's turn to Samsung.

In addition to supplying our complete cellular systems solution, over the past six months we've been ramping our highly integrated iPAC GPRS power amplifier modules.

For instance, when Samsung set out to develop a handset that would work on North American CDMA networks and G. P. R. S. Networks oversees they came to Skyworks for power amplifiers.

And today we are at the heart of their A. 790 world phone.

Now our goal is quite simply to mirror or CDMA leadership position at Samsung with an edge in 3G.

Now, at LG, much like Samsung, we are increasingly satisfying a growing portion of their GPRS, edge and recently widebands CDMA phones and are supporting a suite of new handsets introduced in the U.S. by AT&T Singular with several more models in the pipeline.

We also continue to realize the gains from handsets sold by LG into India.

Finally, at Sony Ericson we are across a full range of handsets from high volume phones to advanced multimedia camera and gaming terminals.

Now in particular their V. 800, P. 910, K. 500 I. and S. 700 models.

In addition to these OEM gains our PA modules are supporting a range of platforms from other leading OEMs such as Kiasara(ph), N. E. C., MingoBird(ph)(ph), Panasonic, Sanyo, Siemens, and Z. T. E., as well as the world's leading OEMs including BanQ(ph)(ph), Chemay(ph)(ph), Compell(ph)(ph) and Quantum, to name a few.

Let me try to be clear here on the power amplifier and front end module business.

With roughly half of our company revenue generated by PAs and front ends modules in the September quarter, this segment generated north of $100 million.

This implies nearly 40% worldwide market share which is up substantially from one year ago.

Now moving up the integration curve in our RF solutions product area we reached a significant milestone during the quarter by shipping over 100 million complete radio transceivers cumulatively.

Meanwhile our single package radio which shrinks the radio size by more than two-thirds infuses field proven leadership technology in a single chip multichip module is raising the integration bar even further.

Now we expect this complete RF solution to gain further ground in the coming year as ODMs and OEMs alike simplify their systems architecture.

Now special note during the quarter, we captured a very strategic design win with a key Taiwanese handset ODM in support of a tier one handset supplier.

This represents a substantial unit and revenue opportunity for Skyworks as it bundles both our iPAC power amplifier module with our single chip DCR. transceiver.

Now this marks our first foray in supporting this particular OEM on a GPRS basis.

We are very excited about that.

Now on our cellular systems business, it was equally strong during the quarter and led by Samsung, NOW, NEC, Sanyo, Lynn Novo, Arema(ph)(ph) and Mattelcom(ph)(ph), and a growing roster of OEMs and ODMs as they introduce a variety of new models from high volume platforms to mega pixel camera phones to wireless PDAs which are based on our comprehensive system.

This strengths effectively offset the pockets of inventory within China.

Further I'm quite pleased to report that last quarter we added yet another leading Japanese handset OEM who's phones are expected to launch early next year.

In fact, over the course of the past 12 months we've increased the number of ODMs, OEMs and design houses adopting our platform from a handful to now nearly 20.

Finally, in our infrastructure and wireless data business segment we've recently appointed Stan Swearingen.

To lead this effort and our products include linear transmit receivers, modulators, amplifiers, direct conversion mixers in addition to our rapidly emerging diversified analog product portfolio.

During the quarter we introduced the industry's most comprehensive RF sub-system for 3G and 4G wide band base stations, and recorded a front end module design win at Sony Ericson in support of machine to machine interfaces.

Additionally, we captured new sockets with our precision analog portfolio which addresses a range of medical, automotive and industrial applications.

Although this segment today represents less than 15% of revenues, we are quite excited about this business long-term prospect given the fact that these applications leverage Skyworks existing core technologies.

They are characterized by long design cycles and higher gross margins.

Just to be clear our strategy here is to augment our growing mobile handset business base with highly profitable analog products that leverage these core strengths.

Now as this business grows we look forward to providing you with updates.

Okay.

I would now like to turned discussion to our EDGE and 3G activities.

Just recently we recorded complete iPAC front end module design wins with tier one handset OEMs for new EDGE and wide band CDMA handsets.

We also received our first volume purchase order from a leading Korean handset OEM for a Helios EDGE radio solution, which integrates the entire RF section by bundling the power amplifier, the power amplifier controller, and the direct conversion transceiver utilizing our patent pending polar loop transmit modulation technique.

Let me talk a bit about polar loop.

This closed loop architecture has proven to be more robust and efficient, more reliable and easier for our customers to implement, relative to alternative solutions.

Specifically in real world conditions our closed loop architecture improves system ruggedness while compensating for temperature supply voltage and signal level variations.

We are now in the process of migrating our 30 radio customers to whom we've now shipped over 100 million units to Helios technology.

This evolutionary path Skyworks is providing from GPRS to EDGE to wideband CDMA makes for an easier transition, as compared to alternative roadmaps(ph) .

Let me be clear.

We are shipping Helios in volume production today.

Keep in mind, this migration from EDGE which is based on time division technology to wide band CDMA and UMTS is not trivial.

While today there exists two distinct technical tracks for handset suppliers, 3G networks are based on both CDMA and GSM technology.

Skyworks is able to effectively transverse both wireless protocol given our leadership position in each which extends from CDMA power amplifiers and complete 1X radio I solutions all the way up to comprehensive GSM and GPRS systems platforms.

Skyworks should be and will be a clear beneficiary as our customers transition to address wideband, CDMA, and UMTS applications that is leverage our front end leadership our silicon RF expertise, our power management and mixed-signal integration, our base bands protocol stack optimization as well as analog RF and digital skill sets.

With all of these key pieces under one roof today, Skyworks is uniquely positioned to do deliver simplified, yet highly differentiated products to accelerate our customers migration to 3G.

Okay.

To briefly recap, during the quarter we gained market share across the business and captured a higher degree of handset content.

We delivered all time high revenue of 45% year over year and 5% sequentially.

We strengthened our balance sheet with improved cycle times and as a result generating $28 million of cash flow from operations.

Stepping back a bit at a higher level many of you will recall that when we established Skyworks just over two years ago we set out to create a company focused on delivering breakthrough simplicity to our customer base.

Enabling reductions in part counts, parts count, form factors, bills of material and time to market ,while at the same time delivering operational leverage and growth in excess of the overall market.

We believe our performance reflects our successful execution to this plan.

To reiterate our core strategy, is to, first, leverage our product capability breath and depth to support our customers with innovation, innovative solutions, to create a competitive advantage by raising the integration bar.

Now, remember the more highly integrated our solutions become the easier it is for our customers to implement and the more difficult, therefore, it becomes for our peers to compete.

We are increasing our total dollar content per handset even in the face of ASP declines.

And we are continually driving towards our long-term operating model of 45% gross margin and 15% operating margin.

Looking back over 2004, I would be remiss if I didn't mention the hard work, the dedication of the Skyworks team.

I'm just extremely proud of how our organization moved from completing the merger integration to focusing and streamlining our operation while simultaneously supporting our customers.

We are on our way to realizing our vision of becoming the premiere supplier of wireless semi-conductor solutions.

I will now turn the call over to Allen for his financial review.

Allen.

Thanks, Dave.

Revenue for the fourth fiscal quarter was 218 million, up 5% sequentially and 45% year over year, fueled by strong demand across the business, as Dave described.

Gross margin for the quarter was 40.2%.

We are pleased with our performance this past quarter as we decreased inventories $7 million, driving turns to 6.6 times.

Our improvement in inventory turns is driven by a decrease in cycle times and a reduction in lead times.

This metric demonstrates operational agility, and not only enhances our financial position but more importantly, benefits our customers time to market.

We are convinced that operational agility is a competitive advantage at Skyworks and we are all very, very passionate in about this.

As we outlined last quarter our results also include the reclassification of certain administrative and engineering costs, previously recorded as cost of sales that are now included in operating expenses.

You can find historical statements reflecting this reclassification for the past eight quarters on our IR website following this call.

Operating expenses increased to $66 million driven partly by the reclassification, as well as higher sales commissions, annual incentives, which are associated with higher revenues and higher operating income, and legal expenses related to our intellectual property.

Despite the sequential dollar increase, operating expenses continued to decline as a percent of sales, allowing to us improve operating income to a record $21.2 million.

And that's up 14% sequentially on a 5% revenue increase.

Interest expense for the quarter was 3.6 million, this was offset by interest and other income of half a million dollars and there was a $1.3 million tax credit relating to a reduction of our foreign taxes.

A brief word on this tax benefit.

As you know from our past provisions for income taxes we have been providing 600,000 per quarter for foreign taxes.

However, Mexico recently suspended it's national corporate income tax,reducing our effective foreign taxes.

Accordingly, we adjusted the provision in the fourth quarter resulting in a $1.3 million foreign income tax credit.

In turn, net income for the fourth quarter was 19.4 million or 12 cents per share.

Excluding the tax benefit earnings per share would have been 11 cents and in line with expectations.

I want to comment on our balance sheet.

Our cash and cash equivalent increased to $215 million.

Of note, Dave mentioned we generated $28 million of cash flow from operations.

We invested $17 million in capital equipment.

We had 10 million of depreciation.

We improved our DSO metric by three days.

And we increased our inventory turns, as I mentioned, from 5.8 to 6.6.

Now to our first quarter financial outlook for '05.

For the first quarter of '05 we expect share gains and are increasing content per handset to more than offset the market softness in China, enabling modest revenue growth.

Assuming revenues of $220 million, we anticipate expanding gross margins to 40.5% with operating expenses declining again, as a percent of sales driving a 10% sequential improvement in operating profitability.

Below the line we are forecasting interest expense of 3.2 million, and taxes of 400,000 on a base of approximately 159 million shares.

Keep in mind that as we make further progress during the year and our results continue to improve the fully diluted computation of earnings per share will start to include the impact of the converts.

In summary, we delivered another record quarter with crisp execution, strong design activity, setting the stage for an even brighter 2005.

Now, before we conclude the call, I would like to make one more forward-looking statement.

We do not want to offend any of our constituents outside of the New England area but we are forecasting the Boston Red Sox to win the 2004 World Series.

As you know with Safe Harbor, actual results may differ materially as a result of certain risks and uncertainties.

But we hope not.

That completes our prepared comments.

Jamie, let's open the lines for Q&A.

Thank you, sir. (operator instructions) We will take our first question from Jeremy Buntin from Thomas Weisel Partners.

Thank you very much.

Could we just talk about the situation in China and various aspects of it, one, what you currently believe your exposure is from China in terms of sales to ODMs, OEMs in China and in terms of what your exposure to the China domestics end market is.

And also in terms of your system chipsets sales is to.

Jeremy, this is Liam.

In respect to China as outlined in prior calls we've actually been seeing increasing level of penetration with our complete systems chipset solution primarily to some of the second and third teart ODMs although there have been some strong companies emerging such as Lenovo.

As outlined in Dave's opening comments we are seeing a bit of softness as we enter the December quarter ,and specifically those accounts an few other accounts.

We are modeling our 220 million guidance with a discount into our China business.

So your modeling the tier 2 and tier 3 for being weak in your Q1?

Correct.

Are those primarily for sales within the domestic China?

Primarily, correct.

There are a few that could ODM outside of country but the majority of that business would be mainland China.

We will take our next question from John Lau with Banc of America Securities.

There has been a lot of concern with regards to one of your top customers on inventory impact.

I was wondering if you can address that and who are your 10% customers this quarter?

Thank you.

Our 10% customers are Samsung and Motorola.

And I think that, and I think that Liam can chime in as well.

We are seeing in the quarter, Liam commented on the position that we have with second and third tiers within China.

We have seen in the aggregate some softening of our business with Samsung.

We are looking at relatively modest Q over Q decline in revenue.

I think that's driven primarily by some inventory that they are looking to reduce during the quarter.

I think a more modest projection of total unit volumes on the handset side.

I think we are being impact a bit less than some because we have a pretty big footprint with this customer and we have some products, new products that are ramping.

So, the net effects are down somewhat but not terribly dramatic.

We will go next to Cody Acree with Legg Mason.

Outside of Samsung and maybe outside of China could you talk about what you do see as generally the health of the overall handset market and what, given this normal or given this seasonality, what are you seeing as your improving dollar content per phone here during the fourth quarter?

Okay.

Well, with respect to the market we do see the general market probably to indicate an upward trends of about 10% in total handset volume.

If you look at the consensus, the guidance of the major OEMs I think you're going to get a number in that range.

We feel good about that.

Our exposure is solid across the board.

We talked about Samsung.

We talked about China.

When you net those out the business looks pretty strong.

I think also when you look back to the last year when the market was down seasonally in March we were up.

This last quarter we guided up.

We achieved up.

So, we are moving, although modestly higher in December, we are moving from a base that was an increase in September over June.

So, I think if you take the trend quarter over quarter in spite of some correction we see at our top customers as well as with the second tiers of China the modest growth, we feel pretty good about relative to the overall industry performance in September versus our own performance.

Our next question comes from Randy Abrams with Credit Suisse First Boston.

Good afternoon.

I was wondering if you could talk about lead times and the order of visibility you are getting from some of your O. D. M. and Asian customers, and (inaudible) kind of increased ability for you to deliver on faster lead times, I was wondering if you can talk about how quick you can turn business.

Yeah, well, we really don't provide too much color about order patterns, but certainly we've been able to invest in our facilities as indicated, the 17 million of recent CapEx, and we found that one of the reasons why we take share quite frankly is our ability to execute operationally.

And, we have in the past been able to reduce our lead times and we will continue to do that in December and there will be some level of turns business expected within the quarter.

Our goal is to continually improve, we call operational agility but manufacturing cycle times, lead times throughout the process.

And probably the best metric is inventory turns where we are now pushing seven times, we believe we will take this business close to ten.

That's a direct result of again our ability to ramp up, ramp down, support our customers with changing demand profiles and I think that's a real important competitive weapon in this environment.

And to follow up.

If you could talk about Motorola.

Do you have any opportunity to win some of that business as they transition to EDGE, I wanted to see how quickly you think Motorola does migrate to EDGE?

And to expand on it it sounds like WCDMA you are picking up business there can you talk about the magnitude of that?

Motorola continues to be one of the strongest customers also in aggregate revenue and also ingrowth rates.

We feel very good about that continuing.

We continue to lead Motorola in GPRS and we've been doing that for quite sometime and we see no change in fact possibly some share gains over the next two quarters.

We've expanded our suite of CDMA wins including the V- 710, the Idon business, I-860 and a few other phones, so the base business is very strong and growing.

We are actively pursuing EDGE opportunities right now and hopefully we will be able to provide a more positive update going forward.

And then in wideband CDMA ,we've been able to win a suite of new 3G phones with some transmit front ends modules that are in production and shipping in December.

Our expectation is we are going to have majority share of wide band CDMA, maintain majority on GPRS and Idon, penetrate CDMA and we will participate in '05 in EDGE based platforms as they move from the current very first generation to subsequent generations throughout '05, and we are engaged today to do that with Motorola.

We'll go next to Pierre MacCagno with Needham.

Hi Dave and Allan.

Could you give idea for your migration to helios how much cheaper is that solution compared to the cellular system.

How much cheaper in terms of cost or price?

Price to the customer.

We don't get into pricing of the product but this Helios solution is a completely integrated radio, as well as front end technology.

So I'm not sure I understand the nature of the question.

But when we, when we look at the bottom cost to provide all of that functionality, that is everything from the baseband interface to the antenna, I mean the transceiver and so on, so forth, it is north of $10.

Let's call it $12.

The total solution for helios, let's call it the $8 range, is significantly cheaper for our customers not only in terms of bottom cost but in terms of their ability to populate the broad with fewer moving parts.

So we get much higher dollar content per phone than selling just a VCR or VCR and PA, our customers get a much lower bottom with fewer product inserts on the production line and they love it and obviously we love it.

So don't think of it as a dollar reduction in ASP, it's a dollar content increase for Skyworks, it's a dollar reduction in bottom cost for our customer.

But compared to your previous solution that was not a single chip what was it $15, wasn't it something like that?

The helios is not a base bands solution.

Helios starts at the baseband interface and moves between baseband and the antenna.

Thank you.

We will go next to Blaine Carroll with Oppenheimer & Company.

Yes, thank you, Allen, I agree with your Red Sox comment.

I appreciate that.

That you.

A couple of questions.

First of all I think you went into the quarter 90% booked which would assume that you got 10% turns during the quarter.

Did you have any push outs or cancellations, and is that the level of turns that you would expect in the December quarter as well?

We said in Q4 we came into that quarter 90% booked and had the turns and that's about where we were this quarter.

Okay.

And you had no cancellations or push outs?

We had, there's a lot of moving parts but I think what's going on in China is well publicized.

The situation with Samsung, we talked about.

Meanwhile, we are experiencing everything from aggressive pull in to schedules ramping to changes in forecast.

The net effect is we were 90% booked and achieved that sort of historical signature of 10% turns business.

We expect this quarter to look about that same.

Okay.

Then, Dave, you were asked earlier about the dollar content per phone?

Yes.

I didn't hear your answer on that.

I don't think you answered it.

The dollar content per phone is increasing.

And we expect an increase in '05 over '04 as it did in '04 over '03.

The example of the question that was asked was helios, and helios moves our dollar contents from 5or $6 to $8 for the complete radio bundled amplifier front end, and it allows our customers to spend about $4 less moving from 12 to 8, but it gives us more dollar content.

That's a win win, that's a basis upon which we created Skyworks.

We will take our next question from Brian Modoff from Deutsche Bank.

A question back on helios, in looking at full loop versus fuller modulation, where is the savings, is it more in ease of integration, is there an improvement in transceiver sensitivity, what's the advantage you have in competing against your competitors with that product?

Well, we've developed both opened and closed loop architectures, and so this isn't a real debate from point of view of one is better than the other.

Let me tell you what our customers are seeing today and what we see.

That is that when you move from the design lab and the production floor to the, to the real world where you've got varying signal strength and battery voltage level changes and so on, in the open loop architecture it's very, very hard to control the performance of the PA to (indiscernible) and sort of correct for those changes real time.

In a closed loop architecture we essentially go out and sense those changes in the environment and then it's automatically compensated for in the radio, or in the phone.

So, from that standpoint when it moves from the, from the theoretical to the actual world conditions it's much easier to, to move from production line to the field with fewer problems and it's very little calibration that needs to be done in the product line.

I will remind you as we talked about in our prepared comments we just passed the 100 million unit marks for D.C.

R.s or for transceivers in our company.

That's 100 million units.

So, our customers know and I think appreciate what we can do for an integrated transceiver and we are migrating them to this technology but it isn't closed loop as being per se better.

It is the case that it is more robust today and will, we have developed both.

Looking at your WCDMA opportunities, where do you see -- when do you see having this kind of product available for that?

It's available now and shipping now.

We've got -- we've got, let's see, that's a simple answer, the products are available and they are beginning to ship.

We will take our things from Sean Slayton with SG Cowen.

Hi, gentlemen, good afternoon.

Could you speak a bit more about the complete solution, the antenna through baseband solution?

Can you talk more about the sales dynamic there?

I'm interested, do you lead exclusively with price, or do you demonstrate that there's a lower total cost of ownership?

And what's the expected response of maybe the more, the more modular, the guys who are providing a more modular solution in that regard?

And I have a quick follow up.

Thanks.

Sure.

Our real engagement model is based upon the completeness of our solution, number one, the level of integration that we provide, and just, just field service, a heck of a lot of people in the fields in the right markets working shoulder to shoulder with our customers insuring that we go to FDA and we do it quickly.

In China, for example, we talked a lot about China.

We have more than 35 engineers in Shanghai that will work with local design houses and OEMs to insure that this solution goes to market within six months,.

What you are seeing also in the market today is more of a need for multimedia and creative industrial design.

Our customers want to spend their money there and they want to outsource the IP which is our systems solution, to Skyworks.

And the folks who are kind of the net losers of your initiative, what's their likely response?

I mean, the net losers would likely be the point product companies that want to come in with more of a mix or match play looking for the customer to do some of that design work on the board.

And the response is its challenging for them.

We are going about our business and trying again to deliver that service support completeness and freeing our customers, R&D spend to do what they need to do to win.

I think there's another point that perhaps isn't very well understood.

A lot of this about the software.

Our protocol stack is up and running proven and I think a little bit more at last count on 100 networks.

When a customer comes in and wants to design a complete cellular system we can give them the complete portfolio, shrink wrap, call it what you want, we make it very easy.

We will lay the board out for them.

We will do the software integration, the user interface but it's up on the network.

They not taking a great risk.

It's cheap for them to produce.

Our latest cellular systems solution is three packages and all the software.

They get to market quickly.

They can sell a very inexpensive phone.

They pay us $15 for all the support and the chipset solution.

They can sell a low end phone and make money.

We are happy.

They are happy.

We will go next to Jeff Kvall with Lehman Brothers.

Hi, thanks very much.

I wanted to ask if you could clarify what is driving the margins higher in the upcoming quarter?

And also if you could give us some sense of the, what do you think the March seasonality is likely to be like, obviously, you eluded it was up last year.

And I am wondering in the office on the baseball, on the World Series given that half of you guys are on the West Coast?

I am going to answer if you don't mind, Jeff.

Hi, Jeff, this is Allan.

The last question first.

We had a strategic off site during the Anaheim series, half our guys are Anaheim fans and we are having a good time.

In terms of the margins and I will ask Dave to comment on the seasonality, in terms of the margins, it's continued leverage on the volume.

It's, we continue to reduce cycles times, operational efficiency, the product margins have been increasing.

And it's really factory driven, operations driven.

I think with respect to seasonality, our forecast is no better than probably the ones you're looking at.

There will certainly be market based seasonality in the market.

I think if we go back a year ago when we were having these discussions, I don't accept market based seasonality in products that don't have very high market share.

We've invested significant R&D dollars where we have new platforms in the market that are ramping, we are securing new design wins, those nascent(ph) product lines shouldn't have market based seasonality as a significant component of their revenue stream quarter over quarter.

However, where we have a very broad-based footprint, our switches, our amplifiers, some of our radio products, one would expect that to mirror the overall market.

And we have a mix of products today that are more mature with high market share and those that are nascent, that are just beginning to ramp.

I don't expect to us mirror the overall market seasonality because we are growing product and we simply don't except from our business leader as market seasonality answer when they are spending significantly more than our corporate average in R&D to create growth engine products.

We will go next to Earl Lumb with CIBC World Markets.

Yes, good afternoon, gentlemen.

A couple of quick housekeeping questions since most of my other ones have been answered.

Al, with regard to assembly revenue was for the quarter can you give us that and also the percentage breakouts within the different business units?

Yeah.

On the assembly and test that's going to be a very small number, so as you remember last quarter we don't, we don't even break that out any more or comment on the impact on margins very small.

In terms of the break down of the business, I think, earlier you are referring to we usually give you the front end modules, the RF sub-systems and cellular systems and the infrastructure wireless data?

Yes.

Actually the frost end modules this year's quarter grew a little bit.

That's up around 50%.

The systems business, 35, and the infrastructure business, 15.

Okay.

And then if we look going into your next fiscal year, given the tax changes, what should we be modeling as we go forward?

For those businesses?

For your overall business in terms of the impacts from Mexico.

Oh the, the tax?

Yes.

We haven't heard yet.

We haven't heard on the tax holiday.

We gave you guidance for Q1 of 400,000 for the taxes which is an expectation that we will be paying some taxes basically in Mexico or France, and we will update you at the end of the first quarter, but I would use 400,000 for the cash tax portion.

Earl, this is Paul, with regards to any additional taxes given our N. O. L. positions, we would expect that any tax would be those going to goodwill, non-cash, and as Allan has just explained, we have not heard yet whether the government in Mexico will extend it.

They are on a calendar year basis that they do this provision so it is through this first quarter and we will no shortly as to whether they will extend this presidential holiday.

Next we'll go to Ren Zamora with Loop Capital Markets.

Thanks a lot.

My question comes on top what have we just talked about for the breakouts of the different groups.

So if you said infrastructure was about 15%, it looks like that means it was flat generally.

And then so the RF sub-system and cellular systems looks like they declined quarter over quarter.

Just trying to see what your guy's thoughts are going into the December quarter there.

I don't understand the comment on decline.

They didn't decline.

They were up.

Yeah, the mix percentage, I mean the infrastructure business has been about the same.

That business has been growing.

And really what happened is the front end module business really grew and going forward we expect each of the businesses to grow.

So.

I think you just saw a mix shift in the quarter.

Okay.

But front ends module is 50% and you are saying RF sub-system --

It had been 45% of the total.

We just had a very good quarter in that business in the front end modules and the PAs.

I think it's been, it's been 48, 47 but it runs between 45 and 50 on a quarter by quarter basis.

Okay.

All right.

Then my other question is, you said your increasing the dollar content for handsets which as you move up the chain it seems like that has possibilities.

But, with front end modules being 50% this quarter that is where the lower dollar content is, so is this more, you think that was in this particular quarter and then going forward you are going to kind of go back to increasing it as you are going to these higher end products?

Well, yeah, we are increasing our content.

We talked a lot about it with our radio and our systems.

But I tell you within the front end module I'm glad you pointed it out.

We executed on this transition from moving from a standard generic P. A. module, particularly in GPRS, to a highly integrate transmit front end that brings in our filling, our switching technologies, some passage discrete and bring it into a highly integrated 8X10 package, our front and module.

What you are looking at here from an ASP increase is, in many cases, more than a 50% increase over the generic standard GPRS product.

In addition to that can it creates the barrier to entry from competition that we discussed in the outset of the presentation.

So, we are within front end module increasing our generic ASP and our content within a phone, as well as leveraging the radio, the helios and the systems business.

So net/net the content is going forward.

When you listen to some of our peers in the space and they talk about power amplifier they are talking about a fairly simple power amplifier matched module with some control.

When we talk about a front end module which is most of the growth we were talking about today in that front ends module PA business that's a part that's nearly $3 a copy and is driven by, as Liam pointed out, a much higher level content and we were the first and only one or two companies in the world that have that technology today.

And we think we are the best.

We will take our next from James Faucette with Pacific Crest.

Good afternoon, guys.

I'm wondering if I could ask a question regarding Samsung and what you expect there?

You said thank you expect a moderate decline sequentially as they go through an inventory correction.

Is that moderate decline similar to the moderate increase in revenues that you're expecting to be just a couple of percent, or are you expecting a more substantial decline out of Samsung this quarter than that?

James, well, as you know we have very broad penetration at Samsung across GPRS, CDMA, across the whole suite of technology.

We are going to mirror their guidance.

The signals they have given to us indicate what we would call a modest decline.

It is less than some of the numbers we have heard this week from some of our peers and we have some share gains that will offset that, but it will be relatively close to what Samsung does in units in general.

Just I guess to drill in quickly on that, one of the things, one of the comments made by a competitor earlier in the week was that they were adjusting the way that they handle component inventory.

I mean from your vantage point, is that accurate, are they in fact changing the production processes, et cetera, that would impact that?

Yeah, no, actually I think that that is accurate, that statement.

They have given us some signals that they want to tighten up a bit on inventory.

We have been running consistent with their forecast so I don't think there's a major effect there for us.

There's a bit of sequential decline that Samsung is indicating to all of their suppliers but again we do have some ramps in GPRS, they are kind of monitoring this a touch.

Just a broader question, if we kind of ignore Samsung and then what the Chinese customers are looking at, the Chinese customers are looking at sequentially, can you talk about what the seasonality is at the rest of your customer base, the Motorola, L.G. and all the rest.

Let me try to clarify a little bit.

Our guidance is to be up modestly in the December quarter relative to September.

And that's on the back of an increase in our OEM business and an increase with several of new product platforms we are were talking about ramping into product, being directly offset by a lower Samsung number, not dramatically low but by a lower Samsung number, and by the inventory position I think most people is well understood in the second and third tiers within China.

So, that's the impact on the December quarter.

I expect seasonality to be relatively normal elsewhere.

Let's call it 10 percentish, that's the guidance in aggregate I think that our customers have given.

I think I answered the question on March seasonality where we expect it to be there, perhaps less so for our company because we are ramping some pretty, we think exciting high dollar content products.

We will take our next question from Sandy Harrison with Pacific Growth.

Good afternoon, guys.

Hi, Sandy.

Just to look at another major customer out there, Moe, you guys have been making some nice dollar gains in some of the handsets.

As you look at some of these new models that are rolling out what sort of dollar content are we seeing?

And, are they still at the real nice levels that you enjoyed with the tripletts?

Yeah, just a quick answer is the majority of those new phones I would say as high as 60, 70% of the new models that are going out in GPRS are going to contain the transmit front end module on the ASPs we indicated in the last question.

CDMA is an emerging spot for us at Motorola so we have a lot of head room there.

We talked about the V. 710, that's just one part that we're are in, one phone.

And, then at Idon we are seeing not only increasing penetration but also some improved market acceptance from push to talk.

Very well-positioned there.

Certainly EDGE is our next step.

We are shipping 3G, which is a new event for us this quarter and things look very solid going forward.

We've talked about the phones that we are in and the new 3G products that are ramping and so on.

We have gone, and the dollar content going from a couple of years ago, 10 cents per switch now to a few dollars for a front ends module.

We've completed recently some of the negotiations into '05.

Our expectation is that we will be up at Motorola, in December, we will be up in '05 over '04, given the contracts and the share we have been awarded as part of their '05 plan.

Gotcha.

Just maybe trying to get a little different shade of gray on the decline or expected decline and it being offset at Samsung in the December quarter, how would you attribute the offset to basically in the two sections of share gain in one sense and increasing footprint?

Share gains.

Okay.

That you.

Thank you.

Our next question comes from Jason Tsai with Thinkequity partners.

Can you give us a split between GSM and CDMA in the quarter?

It's about 70% GSM.

And then 30% CDMA?

Yes.

And.

25 to 30, right?

Okay.

And when do you expect WCDMA to get to the 5 to 10% range for you guys?

We haven't guided with that level of specificity.

It is ramping for us now.

I expect, there's a lot of debate about the up take on 3G.

We are seeing several of our customers that are really beginning to gets quite bullish and carriers rolling out 3G services, of which we are a part.

I don't really comment on when it will get to 5 to 10%.

We do expect it to begin to become meaningful in the latter part of '05, and we think we will participate to a disproportionately high extent given the products that we talked about that we've launched very recently.

We will take our next question from Kalpesh Kapadia with CE Unterberg Towbin

Good afternoon, Dave and team.

Hi.

A question on the design win on EDGE front.

You mentioned helios with customer which (indiscernible) and you also mentioned one other OEM in the top tier.

Is that a new design win that's you are announcing today or?

Well, all of the -- I guess the short answer is yes, but the helios product is a relatively recent product for us so by definition it's all new, Kalpesh.

All right.

And nextly, on the ODM design that you have for a top tier DSGSM manufacturer is this a beginning of a trend or is this a one time shot that you are getting for (indiscernible).

We sure expect it to be the beginning of a trend.

The operating model you mentioned, 45% gross margin and 15% as an operating margin expectation, I believe if I recollect that it was targeted at 250 million a quarter in revenue, you are not that far off from this, what had to change to get that leverage kicking in?

I think, Kalpesh, we guided up 30 basis points for next quarter.

We are seeing continued improvement in the margins.

We keep leveraging our operating expenses, and as you know we don't guide out more than a quarter but we are on our way.

Also Kalpesh, a couple of thing going on.

I think Allan mentioned that during the, this quarter we reduced our inventory by a lot.

I mean $7 million took our turns way up and so there is some absorption impact there but we are quite willing to take that absorption hit to improve our inventory turns and that's something from an inventory turns standpoint we will looked to continue to do.

As we move out into '05 and beyond, the high dollar content phones and high contribution will continue to leverage our factory utilization higher, but I think significantly as well, we talked a little bit about and we will talk about much more about this in the future, is that we are a concerted effort to penetrate with product that we developed that carry a much higher gross margin than the core cellular business.

Some of these precision analog product lines, and you talked about machine to machine, some medical device technology, and so you are going to hear a lot more about that from us.

Our goal is to have a growing footprint in our core wireless business and core terminal business, cellular business, and augment it with higher and higher gross margin business, it's very sustainable from a competitive standpoint, and we have the core technology in terms of mixed-signal, digital as well as precision analog.

Modeling, engineering capabilities.

So you are going to hear more about that.

But we I think were we have a mix of business that will get us to that 45%.

We will go next to Ambish Srivastava with Harris Nesbitt.

Hi, this is (indiscernible) Just a question on clarification on 10% customer.

How big was Samsung this quarter?

And, also when do you expect LG, Sony and Nokia to be 10% customers going forward?

And I have another question.

Yeah, we don't detail exact percentage of Samsung and will you see a percentage in the K for the year.

The other customers that you mentioned are getting pretty close between five and 10% but not over ten yet.

Okay.

You have Samsung and Motorola at 10% and Sony Ericson, Nokia and L. G. moving up quickly.

Thanks.

The other question I have is you did mention about helios being shipped in helios WCDMA also and would you care to characterize what sort of a shipment it dumps, what qualitative (indiscernible) compared to helios EDGE?

Actually let me correct you on that.

Helios is an EDGE RF sub-system solution.

Not WCDMA.

Okay.

Thanks.

And also what's your current ODM and OEM mix?

ODMs are, they range between 15 and 18%, as high as 20%.

I think in this last quarter we were probably between 18 and 20% ODM.

We will take a follow-up question from Shawn Slayton with SG Cowen.

Bookkeeping, did you guys give utilization fab and back end?

Thanks.

We didn't but I can, Sean.

It's, the Newbury park, which is HBT is about 80%.

Our woven fab which is both silicon and PMs about 70, and Mexicallie(ph), about 95.

Okay.

Great.

Thanks.

That does conclude our question and answer session.

At this time I will turn the call back over to you, gentlemen, for any additional or closing comments.

Okay.

Well, thank you very much for joining us today, and on behalf of the entire Skyworks team thank you for your participation this afternoon.

We look forward to updating you on our performance next quarter.

That does conclude today's conference call.

Thank you for your participation.

You may disconnect at this time.