思佳訊 (SWKS) 0 Q0 法說會逐字稿

Good afternoon everyone, and welcome to today’s Skyworks Solutions First Quarter Fiscal Year 2005 Earnings Call.

A reminder that this call is being recorded.

At this time for opening remarks and introductions, I’d like to turn things over to Mr. Tom Schiller, Industrial Relations for Skyworks.

Sir please go ahead.

Thank you operator.

Good afternoon everyone and welcome to Skyworks First Fiscal Quarter 2005 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 VP of Sales and Marketing.

Dave will begin today’s call with a broad overview of the highlights from our First Fiscal Quarter, 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 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 him comments on the quarter.

Thank you Tom, and welcome everyone.

Today we announced first quarter 2005 earnings, and I am pleased to report that our record top and bottom-line results represent the fifth straight quarter of improving fundamentals and reflect our considerable market share gains.

Our customers are clearly prioritizing relationships with wireless semiconductor suppliers who can deliver high levels of integration, low product cost structures, and a compelling path to multi-media, EDGE, and 3G.

Specifically for the quarter, we grew revenue to an all-time high of $220 million.

This is up 26 percent year-over-year and up sequentially in line with the guidance we provided 90 days ago.

We demonstrated strong operating leverage with a 113 percent improvement in operating income, and a 225 percent increase in earnings per share over the same timeframe.

Similarly, our operating leverage drove a 12 percent increase in operating income, and this is ahead of our forecast of a 10 percent improvement.

We delivered 13 percent of earnings per share in line with consensus estimates and grew our cash balance to $216 million.

Okay, now let’s discuss some of the key elements driving this quarter’s performance.

Within our mobile platform business, I’ll first start with front-end modules.

Our power amplifiers and FBM unit volumes were again up more than 50 percent on a year-over-year basis versus analyst estimates of roughly 15 percent handset growth for the same timeframe.

Now, we know there continues to be quite a bit of confusion surrounding power amplifier market share.

So let me try to be clear.

Last quarter we shipped just over 75 million power amplifier models.

Now, this supports roughly 70 million phones as a few of these phones have more than one amplifier, 70 million phones.

This is out of a total handset market estimated at around 170 million units.

Now this implies that we now have north of 40 percent total worldwide market share.

And this is up from just over 30 percent this time last year.

These market share gains are being fueled basically by 3 factors.

First, the launch of our highly-integrated and higher value-added front-end transmit modules, that is ramping across Motorola and now Sony Ericsson and Mingo Byrd [ph].

Second GPRS iPAC power amplifier modules commencing volume production at Samsung and LG, as well as a number of Taiwanese ODM customers, 6 customers are now utilizing our wide band CDMA solution, including our load-end sensitive power amplifier, or LEPA module.

Equally important, we gained even more share on a revenue basis as we’ve increased our dollar content per phone with the successful transition from more successful power amplifier modules to more complex transmit front-end modules.

From a key account perspective, as the world’s largest handset OEM, we are now participating in GPRS for the first time with our bundled power amplifier and DCR transceiver via a well-known Taiwanese ODM.

And we look forward to expanding this relationship.

At Motorola, our front-end module is proliferating across their refreshed line of GPRS phones highlighted by their flagship ultra-thin Razor V3 featuring MPEG-4, video playback, blue tube and digital camera.

Likewise, we are the premier supplier on their I-DEN side and we are now continuing to gain ground within CDMA, another new addressable segment for Skyworks.

Further, we are now co-developing custom solutions for EDGE radio and ramping another custom transmit module to address a suite of 3G handsets, starting with their 81,000 series.

So in the case of Motorola, we grew revenue at this customer last quarter and we expect to sequentially grow revenue again in the March quarter based upon the fact that we continue to capture an increasing number of sockets.

Turning now to Samsung, while we continue to be a leading supplier in CDMA amplifiers, a year ago, as most of you know, we had no activity with stand-alone activity with GPRS and EDGE RF components.

By contrast today, our PA modules are being incorporated into roughly half of their new handsets, including the D-500, which is expected to be one of Europe’s highest running platforms.

Further, we see significant opportunities to bundle the complete radio for not only GPRS but also EDGE and 3G applications.

The same can be said for LG, where we’re increasingly satisfying a growing portion of their GPRS, EDGE and wide-band CDMA phones, and are supporting a complete line of new handsets introduced in the U.S. market by AT&T/Cingular.

Of special note, I’m delighted to report that LG has introduced their A7150 EDGE handset based on Helios, representing the first of a half-dozen EDGE platforms slated for introduction this year.

This now brings our total number of EDGE OEMs to four.

And finally, with Sony Ericsson we’re across the majority of their handsets with high-volume phones to advanced multi-media, camera and gaming terminals.

In particular their J-2000, P-910, S-700, and their new K-300-I models.

Perhaps most exciting is their future design wins will integrate switch and control functionality from Skyworks, increasing our dollar content while reducing their overall cost and footprint, another true win/win example.

In addition, our power amplifier modules are supporting a wide range of platforms from other leading OEMs such as Kyocera, Pantec, Panasonic, Sanyo, as well as the world’s leading ODMs, including VanQ, Chemay [ph], Compel and Quantum.

All right, now let me turn from front-end modules to our RF solutions.

Moving up the value chain during the quarter, DCR shipments were up a bit more than 10 percent sequentially.

In fact our bundle rate -- this is significant -- our bundle rate between our power amplifier and RF has increased from roughly 70 percent to over 90 percent this year.

That means when we sell an amplifier, we sell a radio.

We sell a radio, we sell an amplifier.

Our ability to offer leadership front-end technology coupled with field-proven RF solutions is clearly a strategic sales advantage unique to Skyworks.

Our radio solutions today support 30 ODM and OEM customers worldwide.

To underscore the importance of this approach, we ramped production of our 6 x 6 EDGE-enabled silicon direct-conversion transceiver, which combined with our PA module creates the world’s first sub-250 mm square quad beam [ph] radio.

Customers are demanding this level of integration to optimize RF performance, improve system yields, and minimize board real estate.

In parallel, our Helios EDGE radio solution is gaining market acceptance in support of bandwidth-intensive and advanced multi-media platforms as leading OEMs and ODMs discover the advantage of our closed-loop architecture and avail themselves of our worldwide customer support centers.

Comprised of a single-chip direct-conversion transceiver, power amplifier module, and our patent-pending polar-loop transmit module technology, Helios with its innovative feedback mechanism is able to adjust for temperature, supply voltage and supply variations outside of a lab.

In other words, we optimize radio performance with a device that has proven to be more robust, more efficient, more reliable, and more stable in real-world environments, eliminating the need for calibration at the production level, which is the case with competing products today.

And as the industry’s only high-volume supplier of CDMA, GPRS, and EDGE radios, with shipments of well over 100 million units, Skyworks is well positioned to satisfy 3G RF requirements, particularly as wideband CDMA represents an amalgamation of all 3 protocols with the need for backward compatibility.

Accordingly, we expect this migration will further enhance our market share position.

Okay, now turning to our cellular systems business competing the mobile platform segments at Skyworks, our cellular systems business was equally as strong during the quarter, with record unit shipments driven by the uptake of our Pegasus multi-media platform across the following key accounts;

Samsung with their P-510 and P-107;

Arima, a leading Taiwanese ODM;

NEC with the N-100, N-500, and N-600 series, as well as the N-910 fashion pulse;

Sanyo with the PGD-G100;

Lenovo with their E-602, V-830 and V-850; and Telefonica in Europe with their Movie Star TSM-4, and a growing roster of OEMs and ODMs, including CONCA, Mio, Saltech [ph], EastCom, and CECT.

We’re also very pleased to report that UTStarcom has recently been added as a system customer.

By employing our comprehensive solution, customers can get to market far more quickly than would have been possible if working with multiple base-band and RF suppliers.

Given that the entire core GSM/GPRS handset functionality is completely integrated and field tested, handset manufacturers can now focus their attention on industrial design, feature development, and passing type approval.

Further as our customers design phones to accommodate carrier of plans to increase average revenue per user or RPU, there is a growing demand for multi-media to enable imaging, MP-3 gaming, GPS, high-speed data, nTag video functionality, and this dynamic places a premium on system size, battery life, processing horsepower, and ease of implementation.

In response, we have enhanced the multi-media capability of our current Pegasus system’s offering.

In addition in 2005, we are releasing a new class of systems that can enable simultaneous multi-media and EDGE sessions utilizing our R9 processor coupled with a very high-speed DSP engine.

The convergence of multi-media applications within the handset is the catalyst that will drive new subscriber growth and accelerate replacement rates.

We believe Skyworks to be a clear beneficiary of this trend.

Okay, now turning to our linear products business unit.

As we enter 2005, I’d like to take just a moment to define the strategy of our newly-formed linear products business unit.

Our infrastructure in wireless data portfolio has been folded into a larger linear products business unit whose charter is to become the world leader in innovative linear components that deliver high gross margins, have long product life cycles, and utilize our core capabilities.

We will aggressively leverage our core analog product portfolio, our linear design and modeling capabilities, our mix-signal engineering skill set, our strong catalog sales channel and specialized rep and distributor networks.

This network that we’ve developed is particularly suited for this class of product.

To that end, during the quarter we secured several strategic design wins with our precision analog solutions across medical, broadband, automotive and industrial applications.

Specifically we introduced automotive tire pressure sensing and personal area networking solutions.

We ramped a portfolio of variable attenuators to enable dynamic positioning of 3G base stations.

And we initiated volume production of ultra-linear control ICs for multiple research and motion, or REM blackberry devices in the quarter.

Now given the fact that these applications all leverage Skyworks’ existing core capabilities, have longer product life cycles, high barriers to entry, and commensurate high gross margins, we’re quite excited about the long-term growth prospect of this business.

Okay to summarize, we first gained market share and captured a higher degree of handset content.

Second, we delivered record revenue, operating income and net income.

And finally we launched a compelling portfolio of analog products within our newly-formed linear products business unit.

I’ll now turn the call over the Allan for his review.

Thanks Dave.

Revenue for the first fiscal quarter was $220 million up 26 percent year-over-year and up sequentially in line with our guidance.

Gross margin for the quarter was 40 percent of revenue versus 39.7 percent during the same period a year ago.

Operating expenses of $64 million were down approximately $2 million sequentially.

And operating income was $23.7 million, up 12 percent sequentially and ahead of our guidance of a 10 percent improvement.

Interest expense for the quarter was $3.5 million, and that was offset by interest and other income of $1.1 million with a $700,000 provision for income taxes.

In turn, net income for the first quarter was $20.5 million, or $0.13 a share in line with consensus estimates.

I’d like to make some comments on our balance sheet.

Our cash and cash equivalents increased to $216 million, and of note we generated $7 million of cash flow from operations.

We invested $10 million in capital expenditures in line with our depreciation expense.

We did increase working capital this quarter $26 million, and a significant portion of that, $14 million related to a decline in accrued liabilities, and that included the incentives that we paid this quarter relating to 2004 and also our normal semi-annual interest payment.

Inventories were flat for the quarter, and we did increase accounts receivable as we continue to invest in our customers outside of North America.

Now to our business outlook; as we enter the March quarter, we are assuming handset market seasonality in the 13 to 15 percent range, which we expect to partially offset with shipments of our next-generation products and share gains at several top-tier OEMs.

At the same time, we are entering into consignment inventory agreements with 2 of our largest customers.

While these arrangements, called “hub” arrangements do solidify our relationships and enable us to proliferate our products throughout each account, they will have a one-time revenue impact in the current period.

Below the line, we’re forecasting interest expense net of other income and interest income of $3 million and taxes of $800,000 on a base of 161 million shares.

We are forecasting March quarterly revenues to be approximately $190 million for the reasons I just mentioned.

Operationally, we expect to maintain gross margins between 38 to 39 percent.

We anticipate that operating expenses will remain flat sequentially, and we’re forecasting operating income of approximately $10 million.

Based on the ramp of our EDGE and 3G portfolio, specific program launches, and the normalization of revenue following the stocking of these hubs, we anticipate sequential growth in the June quarter continuing throughout the balance of the year.

More importantly our LEPA YD and CDMA modules, Helios EDGE radios and Pegasus multi-media system solutions are gaining market momentum as customers transition to EDGE and 3G.

Our product size, performance, cost and power efficiency are at a premium, and as a result we expect another year in which Skyworks will outperform the overall mobile communications market.

That completes our prepared comments Jason.

Let’s open it up for questions and answers.

Thank you everyone. (OPERATOR INSTRUCTIONS).

Randy Abrams, Credit Suisse First Banc.

Yes good afternoon, a couple of follow ups on the ship to the hub.

Could you talk about how much revenue you expect it will cost you in the first quarter?

And then looking out should we get a similar snap-back in the following quarter?

Randy yes, this is Liam.

Right now what we do know is we’ve got a couple of weeks, maybe 2 to 3 weeks of inventory with the customers that we mentioned through the hub.

So looking at that, we think we’re going to be in the range of $6 million to $9 million roughly for exposure.

And certainly this should be a one-time event.

When we move into the June quarter this should be behind us and we should see a bit of a snap-back.

Okay, and then to follow up on it, is this Skyworks-specific, or do you expect all competitive suppliers will see the same effect?

And are any other customers moving in the same direction that still need to do this in forward quarters?

Okay, well first of all maybe just to shed a little bit more light on what these consignment or hubbing arrangements really mean, effectively what you’ve got here is a much closer engagement with your customer.

When customers go through the drill-down of their suppliers, they only select either 1 or 2 for a hubbing arrangement within a given platform.

And we were fortunate enough to be selected in these 2 areas.

So it does create much closer linkages between the end customer and ourselves so that’s a positive thing.

To the extent that other players are engaged in the mobile industry and our tier-one suppliers are the best OEMs I think they’re going to see more hubbing arrangements.

All right, thanks a lot.

You’re welcome.

John Lau, Bank of America Securities.

Yes thank you.

Just in terms of house cleaning your greater than 10 percent customers, and you mentioned the hub arrangements, but if you could comment on outside of those hub arrangements how those overall inventory levels are in the channel.

Thank you.

The 10 percent customers -- this is Allan -- were Motorola and Samsung.

We have several Nokia, Sony Ericsson under 10 large accounts.

Could you characterize how large of a tenth you were above the 10 percent?

We report that annually in the 10-K.

Motorola was 14 and Samsung, this was for the year ended ’04, 10 percent.

Okay.

And with respect to inventory, we feel the inventory in the overall channel is at reasonable levels for the most part.

And with respect to the guidance that we provided with market seasonality, that all makes sense.

China still is a little bit soft, and we think that inventory, we don’t have the clear analysis on this but our view last quarter was about 10 to 12 weeks in inventory within China.

We think that’s about 10, so there’s been some improvement, some burn-through.

And that should get better as we move into June.

Great, thank you very much.

Blaine Carroll, Oppenheimer.

Yes, thank you.

Just figuring out the hub again for a second, can you explain where the inventory sits in these hub arrangements?

Do you ship it to the customer, and then when they use it do you recognize it as revenue as they use it or when you ship it?

And what impact is that going to have on your overall inventory on the balance sheet?

I think that this may be a case where we are so close to it we assume everybody understands the detail of a hub.

It’s really rather simple.

It isn’t necessarily a location or a building that says, “This is the hub.” What it essentially is is that our customers notify us or negotiate with us, discuss with us an arrangement whereby their very high products they’re tending proliferate across multiple skews and platforms enter into a hubbing relationship.

And what that means is let’s say for example we’ve been shipping a product on a weekly basis, recording revenue as we ship it, which is classically what happens.

Then all of a sudden, as in the case with these 2 customers, on January 1 we go into a hub.

That means that we think they’ve maybe got say on average 3 weeks of this inventory, they’re going to continue to draw down from their shelves or their factories or their warehouses 3 weeks worth of inventory that we’ve already recorded revenue on, right because we recorded it when we shipped it right up to December 31.

And we continue during that period to ship in a linear if you will against the forecast, but we build a hub and get no revenue.

When they’ve worked through their factory inventory and start to pull down this consignment inventory, which is probably in the same location in the same warehouse, only then do we begin to record revenue.

So if we have 13 weeks in the March quarter for these products, we may get only 10 weeks of revenue even though we’ll ship 13, and that’s kind of how it works.

Okay, so it sits on their shelves Dave, and then as they use it they then say to you, “Okay, we used “x” number of parts” and you record that as sales.

Precisely.

We get a booking and a sale when they draw it down.

And what we get for that is they make a commitment to pay us much faster, so the good new is our days’ sales outstanding go down.

And this is not new for us.

We’ve done this in the past.

It does have this quirk to it -- I’ll call it a quirk.

It has a negative impact on the quarter in which you enter the hub because you ship into a hub and you don’t record that revenue.

But all things equal, it’s a one-quarter event.

Okay, and then Liam said the exposure there is somewhere around $6 million to $9 million.

Can you talk about what the pricing environment is like there?

With respect to the hub or just independent of that?

No, independent.

I mean if we normalize this quarter’s expectations, it would have been somewhere around, what $199 million.

So I’m just wondering if there’s something going on as far as pricing pressure in the industry.

No, I think it is quite frankly exactly what we have been experiencing in the past.

In those areas where we call them “point products” you notice we’re transitioning our customer very rapidly up the food chain from a PA to a PA plus a VCR, from an amplifier to a transmit module, from a PA plus a VCR to a single-package radio on up to a complete system.

And what we find is on the low end of that food chain where there are more competitors, and perhaps those competitors can’t move up the food chain, most of them cannot, they have no choice but to try to fight for what is becoming a smaller and smaller piece of the overall wireless semiconductor pie.

So that’s where we see the pricing to be most acute.

Conversely, when we move up the food chain, there are so few with any competitors in some cases that the product pricing there tends to be quite stable.

Think of it this way.

A customer may be paying $8 for a front-end solution.

We bundle it at the IC level of module, we may get 5 or 6, but we’re getting higher dollar content where we have contribution margins north typically of 60 percent.

So we get more dollar content, they get a lower billed material, smaller footprint, faster time to market, and that’s the win/win we talk about.

So we’re actually increasing our average blended price per unit at the same time that things like amplifier pricing are dropping.

Okay, what was your dollar content per phone during the quarter Dave?

We don’t do quarter-over-quarter, but when we started Skyworks it was a couple of bucks.

We moved it north of $3 last year; it’s $4-ish.

Okay, thank you.

Kalpesh Kapadia, C.E.

Unterberg, Towbin.

Hi, good afternoon gentlemen.

Hi Kalpesh.

A question on your number 1 and number 2 customer, Motorola and Samsung.

Motorola just had a blow-out quarter at 35 percent unit growth.

And Samsung is guiding for 15 percent plus unit growth in March quarter.

So where seems to be the disconnect here?

We didn’t see quite as good a growth as Motorola did, and we’re not showing the growth in Q1 that Samsung is expecting.

Well, let’s be clear.

When we into the December quarter, most of the sector at the semiconductor level, and it got worse down the food chain, talked about flat to declining with very low visibility.

So I believe if you think about how we performed in December quarter, I think we performed quite well.

There was inventory in the channel, not only at the completed phone level perhaps most acute in China, but also throughout the supply chain.

Throughout the supply chain there was inventory that needed to get burned in December, and quite frankly the marvelous performance of Motorola has been something that we’ve been forecasting into our plan.

Now they had a terrific quarter.

There are a lot of moving targets though Kalpesh in our business.

There’s the base station component of our business.

There’s the China inventory burn, so when you wrap it all together it equaled $220 million or up 26 percent year-over-year.

And to be clear, Motorola will be up for us as commented on earlier in the March quarter, and so will Samsung.

So there really isn’t a disconnect.

We do have to deal with -- we’re becoming a bigger wireless player, so seasonality does impact our business.

So if you think of it this way, if we shipped $220 million in the December quarter, seasonality is 14 percent or so, that gets us to the high 80s in revenue.

We’ve taken some share, which gets us back close to $200.

So we offset some of the seasonality, but then you introduce the hub concept and it all rolls, we believe into a prudent guidance of roughly $190.

So I don’t believe there’s a disconnect.

And the next question is we have been expecting for a while to reach a gross margin of 45 percent and contribution volumes of 50 percent or more, we have seen revenues grow every quarter for the last 3 or 4 quarter, and we haven’t seen margins follow.

And now we are expecting margins to be down.

So when are we going to see gross margin improvement?

Kalpesh, this is Allan.

The margin decline is really relating to volume, but because of our expectations at the back half of the year, we’re not taking down capacity.

But if you take the current quarter, the $220, 40 percent dollar-wise that’s $88 million.

And use your number of $250, not giving guidance, just your number and our average variable contribution margin of 65 percent on the extra $30 million, then it gets you to $108.

And then some of the costs that we had this quarter, capacity where we went outside, some other savings, some mix changes another $5 million gets you to 45 percent, we think we can get there.

Thank you and good luck.

Thanks.

Cody Acree, Legg Mason.

Thanks.

We obviously had a big impact of the inventory draw-down in China and you think some progress has been made there.

Can you talk about what your exposure is now, where did percentage of revenue end the year, and where do you expect that to be as we go through 2005?

Well I think the inventory that was in China, and we have -- you may or may not know this -- we have for example 50 Skyworks employees in Shanghai and we have engagements with multiple distributors as well as direct customer relationships obviously.

And so, even though we blend it and talk about several weeks of excess inventory perhaps, going into the last quarter it was 12.

Going into this quarter it’s maybe half that, maybe 8 weeks.

So it was burned down in the quarter.

But when you really drill down and talk about a customer or a phone model-by-model basis, it’s really very much a mixed bag.

There are customers who have no inventory where we’re shipping product and they’re turning it over.

There are customers who have inventory that quite frankly looks to us like maybe those phone feature sets are getting a little stale, so maybe the inventory doesn’t move and it becomes obsolete for them.

So it’s very much a mixed bag.

It depends upon where you sit.

Clearly it impacted us in this quarter, and it will impact us again in March.

We think by the end of March it will be more or less normalized.

And if it’s not, I suspect that those phones that are in inventory at the end of March if they haven’t moved, and now as I think back, they probably were put on the shelves 3 quarters ago.

You begin to wonder if they’re ever going to see because the feature set is moving pretty quickly in China, pretty quickly.

Great, can you talk about how large of a growth driver you’re counting on for the next few quarters for EDGE and YD and CDMA offerings to be?

Yes Cody for the next few quarters, first of all we’re quite pleased as mentioned in Dave’s opening comments about the uptake of our EDGE business and also our YD and CDMA.

For the near-term right now, the forecasts are still relative to our overall Company revenue, are still kind of small.

But the design win uptake and the customer base continues to improve.

So we would think by maybe the second half of ’05 the numbers could become quite meaningful.

Meaningful, could you put any kind of details on that?

Probably getting into the 5 to 10 percent level a quarter.

Great, thanks.

A lot of it is going depend upon whether or not, because our customers now are tending to have skews that our GPR is enabled with and without EDGE.

And so as we look at this, clearly the number of models and customers are increasing dramatically.

I guess the one thing that remains to be seen, and each customer we see has a slightly different strategy, not many of them simply bundle EDGE as a way to have backward compatibility or as a way to entice carriers to give them more share, and how many of them really look at trying to tie into market.

And we’re not playing that game.

We’re simply lining up both EDGE simultaneous with GPS and GSM.

But that really will depend.

If customers start to do what they did with GPRS, simply add EDGE because it helps them with share with the carrier, then we’re going to see a much bigger number than what Liam talked about.

Great, thanks guys.

Shawn Slayton, SG Cowen.

Hi gentlemen, good afternoon.

Just a few smaller items here.

Can you tell us what percentage of your revs were ODMs in December quarter?

Roughly 20 percent.

About 20 percent, okay and percentage of revs by interface?

If you gave it I missed it.

I’m sorry.

Well, it’s interesting.

We have been running in the 70/30 GSM/CDMA.

In the last quarter 2 things happened as you are probably aware.

Domestic career and other markets for CDMA were a little softer, and we are really seeing an uptake with these higher value-added, higher dollars.

We’re seeing a lot of GPRS, more recently EDGE and more multi-media rich solutions based upon our Pegasus.

So that number is tipped in the current quarter to more like 80/20.

Okay and for Allan, how should we be looking at taxes for fiscal ’06, and also did you mentioned your expected March revenue is booked?

That’s all I have, thanks guys.

The taxes for ’05 you mean, basically we guided to $800,000 for next quarter.

You notice on the reconciliation and the pro forma we still have the, well, we’re not paying U.S. taxes but most of that adjustment is going as a reduction of good will.

So it’s a pro forma adjustment, non-cash, so basically the combination of the cash foreign taxes, and there is some turning of Mexican deferred taxes, $800,000 next quarter, and it’s going to be at that level for the next couple of quarters.

Can you help us with tax rate for fiscal ’06, a ballpark?

It really depends, it would be forecasting.

The rate is dependent on the amount of income, so we’d rather do it on a quarter-by-quarter basis.

Okay, fair enough.

And how much of the March’s expected revs were booked?

About 90 percent.

Okay, thanks much guys.

Thank you.

Sandy Harrison, Pacific Growth Equities.

Hey guys, just a couple of housekeeping items.

One, when you look at the infrastructure business for the quarter, how did that do?

And what do you expect to see, or what are you forecasting for that in the March quarter?

Well, the infrastructure business, which is a component of our linear product segment, it has not been a growth driver for us.

We’ve seen some nice product ramps recently for wide-band CDMA, and we’re doing very, very well with Ericsson.

But I think a combination of some of the deals that have perhaps pushed back a bit on capital spending, it looks like in some countries, specifically China there may not be the growth originally thought.

So it’s looking like single-digit growth for infrastructure throughout ’05.

It did not drive growth for us in this last quarter.

Got you, and then when you guys are giving your outlook for 190 for the March quarter, what are sort of your assumptions on the timing and the potential impact of the Chinese New Year?

That always has some sort of an impact one way or the other.

What are kind of your expectations in order to do the 190 number?

That’s a good question.

When we look at that overall seasonality, we think markets like Taiwan are going to do a little bit better with Chinese New Year.

We’d also say China in total would, but with the inventory overhang right now, we’re not as optimistic there.

So we are factoring in some improvement.

The ODM markets in Taiwan for example should do a little bit better with respect to the New Year.

So that’s factored in a little bit.

Got you, and then lastly what kind of lead times do customers give you when they go to a hub agreement?

Is this something that starts 6 months in advance, a month in advance?

What sort of your visibility, or do they come to you one day and say, “Okay, here’s the new deal guys”?

Well, I mean it’s all contractual to be honest with you, and there are some differences customer by customer.

It’s an agreement that tightens the relationship for sure.

It does crate some flexibility for a customer, but also creates a lot of protection for the supplier.

So it’s difficult to just characterize it on a lead-time basis.

But certainly for our customers, the benefit is more an adjusted time arrangement.

For us, it’s a longer term engagement.

These contracts are not quarter-by-quarter.

They are very long term.

I’ll just put it another way.

When would they have approached you or how long is the lead time for them to say, “Hey, we’re thinking of going to this.

We’re putting the bid out to compete to see who is going to go”?

Well Sandy in one case it was an amendment to an agreement in place for some new high-volume products.

So we generally, it’s done in an orderly fashion.

We’re not surprised.

And it’s only done after you’ve won the business.

Quite honestly, there’s a cost of ownership with customers as well, and this is only done when a program is projected to do very well and a product launch is expected to be a certain volume.

So there’s a real positive kind of price of admission to this game.

I’ll give you an example.

In one case, the biggest case here, we were involved at year-end negotiations.

These were November negotiations, and part of that there was a contractual discussion, and the issue of consignment, or hub was pushed.

It became then something that we really spent a great deal of time on.

I worked out the arrangements and elected to do it together beginning on January 1.

So the lead time on that was a November-ish negotiation with a trigger of January 1.

Got you, okay thanks guys.

Thanks.

Jeff Kvaal, Lehman Brothers.

Thanks very much.

I have 2 questions.

The first is on the outlook for 2005, it sounds as if you are expecting to exceed the revenue growth.

We were looking for a 7 or 8 percent revenue growth for the full year, then that would put you folks in the range of 10 or so.

And because of the inventory uptake in the first quarter being balanced, but it’s not back in the second, that shouldn’t affect the overall growth rate for the year too much.

Yes it really is an event, and your question do we expect it to grow faster than gross market, the answer is absolutely yes.

Okay, and then secondly could you give us some sort of thoughts on either margin or EPS for the first quarter, and margin recovery for the balance of the year?

Well Jeff, when we gave the guidance on the second half of the year, as you know we only go one quarter out so we’re expecting next quarter, because we’re not going to change capacity because we’re bullish on the back half of the year, I’m estimating 38 to 39 percent.

But I’d expect in the back half of the year, you’d see it, not giving guidance but north of 40 again.

Okay wonderful, thanks very much Allan.

Craig Berger, Smith Barney.

[Inaudible].

Sir we’re having some trouble hearing you.

Good afternoon, I have a couple of questions.

First on the front-end modules, can you help us to understand where in the transition you are on that, i.e. how many of your power amplifiers are going out as a module versus a transmit front-end module?

And how do you see that progressing throughout the rest of your fiscal year?

Craig actually the rate of adoption on the front-end module has been very solid for us.

We talked about for a while, either directly or implied Motorola had been our lead customer.

They continue to be very strong for us, but we have recently added Sony Ericsson, and by say added we’ve moved them from a power amplifier customer, we’ve enjoyed great share, and now a transmit front-end module customer.

And by doing that, we’ve raised our ASP substantially, more than 50 percent per unit.

We’ve also added Mingo Byrd, and again you’ve found a customer here where we were selling discrete power amplifiers, or more simplified modules that were let’s say in the $1.30 or $1.40 range.

We’re now well north of $2.00 with the transmit front-end.

So that’s a trend for Skyworks that is certainly going to continue.

It provides simplification for the customer.

It provides barrier to entry from competitors for us.

As Dave had mentioned, it really slows down the ASP.

Do you have any quantifiable metrics you can help us understand?

Well, we’ve sold now I believe about 25 million transmit front-end modules over the last year, and the last quarter was a record.

As you look at EDGE in calendar 2005, how big do you guys think that market grows?

And I know you’ve discussed a little bit, but what are your unit expectations there?

Yes, this is really a tough call right now, and it’s really an industry call.

And we think it’s somewhere between 80 plus or minus 10 to 20 million units.

What’s kind of interesting, and we alluded to that already today but we’re seeing wideband CDMA come up with almost the same level of acceleration.

And we are certainly positioned well in both segments.

So we’ll play it out either way, and we should be well positioned in the back half.

Are you finding that your customers are having more difficulty than you thought previously?

Yes because some of our customers -- EDGE can be a little bit tricky.

And depending upon the implementation when you use an integrated silicon radio and a front-end module, the inter-play between those 2 devices and the ability to be able to simulate what you’re seeing in the lab and on the production line and have it not, have it behave exactly the same way in the real-world environment turned out to be a real issue.

We did a great deal of analysis early on and developed some products and technology around what we call “Polar Loop”, which is what we’ve settled on in a closed-loop technology.

There’s another technology called, “Open Loop” which has some trade-off, but in practice has been quite difficult for the customers we talked to to be able to get it right so it doesn’t create problems when it gets out into the real-world environment.

So what customers have to do is the trade-off is they have to do a lot of fine tuning in software calibration on the production line that they just plain hate.

They just hate that.

So yes, they’ve had a dickens of a time getting their EDGE phones out given the different architectural approaches that were introduced early.

Got it, and then just my last question kind of a follow up to Shawn’s earlier question on taxes.

I know you guys aren’t giving guidance for taxes, but is there a time period at which you recommend the analysts start going to a fully-taxed EPS for first call?

I think it’s going to 2006, and before we get to the end of this year we’ll give you some help on the rate as it’ll start to trend up toward 28 or 30 percent.

But we’ll be able to give you guidance a quarter or two before that happens.

Great, thanks.

Thanks.

Mike Whatley [ph], Piper Jaffray.

Thanks, actually it’s Albert Capor [ph] for Mike Whatley [ph].

Just a quick question getting back to the hub agreement.

Is there any impact on the cost structure from these agreements, such as smoother product shipments to customers?

Well, there’s isn’t necessarily on the cost structure.

But if you think about it, first of all the qualification process for a customer to put a supplier into the hub is that they want to make, it tends to be the case that it’s very high volume and a product that’s proliferated or will be proliferated across lots of skews.

And that’s exactly what we see.

So if it becomes for them a standardized component or part of a platform strategy in every case we’re participating.

The good new is that then as they do subsequent design and [inaudible] of existing design it’s a qualified product, it’s always there available for them, and it tends to proliferate faster.

The only other financial implication is, of course, you have the inventory until they draw it down, but then they pay much faster.

So you see, a trade-off between inventory and days’ sales outstanding.

And they basically pay freight in and out of the hub if it’s in their location or if they use a third party, which some of them do.

Even though they may not draw it down, they really contractually own the inventory in that hub.

Okay.

If you follow, from a liability standpoint.

That’s another somewhat minor advantage is that they do own it if a phone were to ramp down quicker than they expected, they own what’s in the hub.

Okay, great, thanks a lot.

That’s helpful.

Jeremy Bunting, Thomas Weisel Partners.

Thanks very much.

I hate to harp on this hub issue, but didn’t Nokia and move to a hub system I’m thinking like 2002.

It may have been 2001.

And so are these deals sort of revised deals with previous OEMs, or are they new OEMs?

Well, one customer that went into hub with us for the first time, it’s a new arrangement for them, it’s LG.

They’re a good-size customer of ours.

So what is LG?

In the other cases it tends to be customers who have hubbing systems set up and have hub arrangements, but then pick and choose which platform.

So in one case here, we’ve entered a very high-volume, high-dollar value part that’s proliferating across lots of skews, and they’ve chosen to say, “Okay, we want that product in the hub”.

So they qualified a supplier and then they qualify the platform and say, “Okay, this is now big enough and it’s used in enough locations and enough design, we want to pull it into the hub.”

So you’re correct, those customers have hub arrangements, but they don’t say, “Once I’m in a hub, everything you ship goes into the hub.” It’s only very high-volume, high-skew count components.

Okay, that makes much more sense.

Dave, could you just qualify the comment that you made earlier on with your bundle rates vis-à-vis VCRs with PA speakers?

You’re implying, unless I’ve entirely misheard you, that you have an 80 percent under rate.

Could you qualify that please?

Yes, I may have been unclear.

What I intended to say, and this is really, we just love this occurrence in the market, is that today when we sell a radio, whether it’s a Helios or our new single-chip silicon what we call a 117 VCR, when we sell a radio 80, and it’s actually recently closer to 90 percent we are also able to convince our customers through board layout reference design and in just plain working in the lab in relationship to also buy the PA.

Okay.

It isn’t the same statistic when you sell a PA going to a radio, but it is when you sell a radio.

So as we sell more and more radios, the PA is coming along with it because it is just, we’ve made it so easy we hope it’s attractive for them to design in.

And as recently as a year-and-a-half or 2 years ago it really was just a coincidence because customers were sourcing the PA and the switch and the radio very separately.

Now they’re not doing that.

It’s one of the reasons why you don’t see the same reverse attachment rates.

You have customers like Sony Ericsson in EMT platforms where the radio is almost a captive point.

There’s a little bit more available market in the straight PA.

That actually makes more sense.

I think that what you might have implied earlier that you said VA also goes with [inaudible].

I may have.

Thanks very much.

Thank you.

Ambrish Srivstava, Harris Nesbitt.

Thank you Dave, just a clarification.

You mentioned the DCR units were up 10 percent.

Am I reading this correct?

The number you have given the past 2 quarters was 50 million units in June and 100 in September.

Is this growth hitting a wall or is the number you gave earlier in the remarks for a different unit?

No, it’s certainly not hitting a wall.

It’s wrapped up in the same dynamic of inventory that we discussed.

But no, we are seeing more customers designing around a direct-conversion technology, so that has been an uptake in the overall market.

And with the introduction of Helios for EDGE, which just really works well and is easy for them to integrate, and our latest silicon DCR, which quite frankly we’ve pulled in more of the external componentry.

We believe it’s the most highly-integrated single-chip radio ion the world, we’re now seeing increased tracks there.

And remember when we talk about it, we are also one of the only a handful, only a couple of companies who can attach a CDMA radio with a CDMA PA.

You need to think of it in that term.

It’s GSM, it’s GPRS, it’s EDGE, it’s also CDMA.

And 10 percent sequential growth is the statistic we quoted.

But the [inaudible] units would be 110 million then based on the stats you’ve give us in the past, right?

Roughly, yes.

Okay, great, thanks.

Thank you.

Rens [ph] Moore, Loop Capital Markets.

Hi thanks.

I was wondering if you could just provide me a little more of the reasoning behind creating the linear products group.

Based on what you’ve talked about, it seems like some of it could be diversification because you mentioned medical, broadband, automotive.

But then I’m also wondering does it have anything to do with in the sense of utilizing your manufacturing facilities and those kinds of things?

Well, that’s a great question.

You know, when we think about our business we always want to be sure that we stay just absolutely focused like a laser beam on our end market.

I mean we are looking to gain share and to expand our footprint in our wireless and mobile communications market.

And that’s our mission.

But when we look at the overall world environment, the very capability as we become more and more in our -- you know we have over 1,000 engineers now.

And as these engineers create more stable libraries on linear and analog design, as we become more and more of an analog-mix signal company by virtue of our solutions, whether they’re RF or complete cellular solution, we’re finding that there are market opportunities that use the same process technology, so it’s the same material type.

They use the same modeling simulation algorithms.

They are also packaged and manufacture in a very similar way.

The difference is the sockets tend to be smaller, but when you get a socket, it’s sole source and it may last for years and years and years.

And we know how to sell those kinds of products because we’ve been selling into markets through very specialized representative sales rep network as well as distributors.

We tend to focus our internal Skyworks employees on developing relationships with our OEM and ODM customers, and then we use a pretty extensive distribution and rep network, which I think is perfectly suited for this class of product.

So it is diversification; it is to give us a smoother growth ramp, if you will, a little less seasonality.

And it is much higher gross margin business.

Okay great, and then my other question was I don’t know if I heard you guys mention the breakouts by the different business units as a percentage of revenue.

Basically the breakouts we normally give are the front-end modules are 55 percent.

The systems, RF systems, and systems solutions 35, and then there’s linear products 10.

Right, thanks.

Trini Mashuri [ph], Merrill Lynch

Thank you, just a couple of quick questions.

First on the EDGE and WCDMA, can you talk about what happens to your dollar opportunity as you move from DCR to EDGE to WCDMA, especially on the radio side?

Yes, sure well if you look at EDGE, our Helios solution is a highly-integrated device that brings in our RF sub-system coupled with our PA and will raise [inaudible].

And EDGE at today’s levels right now would be a little bit of a higher ASP with respect to GPRS.

So there’s some upswing there.

YBMC from a PA perspective again more integrated solutions.

We have a technology out there called LEPA, Loaded-sensitive Power Amplifier that commands a price premium due to some of its proprietary advantages that we offer.

So we believe, and you know the markets are still a little bit lower volume, so that’s another advantage on ASP in price.

But we think at least for ’05 and probably into ’06 that we can get a price advantage with respect to GPRS and a margin advantage as well.

And this is just for the PS, right?

No, when we talked about -- I mean Helios is a complete RF sub-system.

It has the direct-conversion transceivers as well as the power amp.

Okay, and on the WCDMA side when do you expect to have a radio solution available?

Well, we’re working on that right now, and probably by the end of this year, we’ll be able to talk to customers with some hardware.

Okay, thank you.

Operator, this is Tom.

I think we have time for 1 more question.

Actually sir there are no further questions.

Okay, well thank you very much everyone.

This concludes our conference call today, and on behalf of the entire Skyworks team, thank you for your participation, your questions, and we look forward to upgrading you on our performance next quarter.

Once again everyone, this will conclude today’s Skyward Solutions Conference Call.

We thank you all for dialing in.

You may now disconnect.