思佳訊 (SWKS) 2007 Q1 法說會逐字稿

Good day and welcome to the Skyworks Solutions First Quarter Fiscal 2007 Earnings Call.

Today's call is being recorded.

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

Mr. Schiller, please go ahead.

Thank you, Operator.

Good afternoon everyone and welcome to Skyworks' First Fiscal Quarter 2007 Conference Call.

With me today are Dave Aldrich our President and Chief Executive Officer, Allan Kline our Chief Financial Officer and Liam Griffin our Senior Vice President of Sales and Marketing.

Dave will begin today's call with a business overview 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 and guidance we will discuss today are from our pro forma income statement consistent with the format we have used in the past.

Please refer to our press release within the Investor Relations section of our Company website for a complete reconciliation to GAAP.

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

Thank you, Tom, and welcome everyone.

Today we announced our first fiscal quarter results and are pleased that our performance demonstrates the financial leverage within Skyworks and our new operating model.

Now as you may recall, last quarter we announced our exit of the baseband business to focus exclusively on our analog and our RF businesses.

As our first quarter results show, today we are a far more profitable Company and are making substantial progress towards our key financial metrics.

In fact, for the first quarter we recorded revenue of $196 million which was in line with our guidance.

We expanded our gross margins by 100 basis points to 38.5% driven primarily by operational improvements and a better product mix.

We grew our operating income to $23 million, that's up 97% sequentially and 65% over a year ago.

We delivered net income of $21 million - that incidentally is a new Company record and more than doubling on a sequential basis - and this yielded $0.13 of earnings per share, up 85% from the prior quarter.

And we generated $26 million of cash flow from operations before paying $10 million of cash restructure related expenses.

Now Allan will elaborate on our financial performance later in the call and although we're pleased with this degree of financial improvement we've really only begun to reap the benefits of this business restructuring.

From a strategic perspective, Skyworks is streamlined and focused on three key product areas - linear products, front-end modules and multi-mode radio solutions.

And our goal is to build upon this financial foundation as we begin volume production ramps with several new programs in '07.

With this in mind let me take just a moment to outline some of our first fiscal quarter highlights within each product area.

First linear products - this business was 21% of our total revenue.

Now as you may recall we created linear products in 2004 with the objective of leveraging our core analog capabilities along with our sales -- strong catalog sales channel, distribution channel, into non-handset applications.

The result of our concentrated efforts began to pay off in '06 with linear products posting solid consecutive growth throughout the year.

This momentum continued in the first quarter and specifically we initiated production of our direct conversion transceivers for a tier-one infrastructure customer deploying WiMAX.

We are now sampling BAW filters for a broad number of end market applications.

We launched next generation base station solutions at Ericsson's with a tripling of our addressable dollar content, a tripling of our content.

We've secured design wins with the industry's highest dynamic range active mixer that supplies various medical, scientific and industrial applications and we've now begun volume shipments for high isolation switches as part of 3G infrastructure reference designs.

As we look to continue this trajectory in the remainder of '07 and beyond, the linear products team is intentionally and squarely focused on several new growth catalysts and I'd like to provide a preview of what we'll be talking about and what you'll see throughout 2007.

First, in infrastructure solutions our product portfolio and infrastructure which has been tailored for base station OEM's implementing system upgrades or developing 3G and 3.5 G design continues to gain traction.

This portfolio includes high performance receiver front-ends, converters, linear power amplifiers and drivers and more importantly today we are capturing about $35 per system with RF intensive wideband CDMA platforms where historically we've been addressing about $10 of content in a 2G base station.

We've secured wins with this portfolio with Alcatel, with Ericsson, with Nortel and we just recently added Huawei, ZTE and Nokia Siemens.

Second, within linear products with our wireless LAN product line for 802.11N applications, these FEMs are designed to compliment industry leading chipsets and they facilitate data rates of up to 200 megabit per second enough for broad commercial applications such as notebooks, set-top boxes and electronic gaming.

More importantly, these solutions are indistinguishable, completely indistinguishable, from this architecture we pioneered for handsets and they leverage our existing production facilities.

We're very excited to be playing a role in the rapid deployment of 802.11 and, in fact, according to Strategies Analytics forecast, 802.11N devices could reach more than 85 million units in 2009 and we have quite high dollar content in those systems.

Third within linear products is our analog catalog business, our standard catalog business.

Here we continue to secure orders for our CMOS switches we identified and introduced last year, our high performance mixers, game blocks, personal area networking solutions for broadband infrastructure for automotive, for medical.

With the introduction of a host of new products we're gaining share in a broad market that is characterized by very long product life cycles and almost annuity-like revenue profiles.

And our investments in R&D that began two years ago have resulted in a brand new catalog of 800 products that are now translating into top line growth.

Fourth within linear products are BAW filters.

We entered this market in 2006 with the belief that bringing this key building block in house would be a logical next step in our push to deliver highly integrated solutions.

With their very small footprint, low profile and high performance, BAW filters are extremely valuable in enabling wireless multi-mode products.

In the coming year, as demand for our filters that can handle high power, are less sensitive to surface contamination much more so than surface devices or SAW's and have better frequency stability, we believe we're in a position to capture a disproportionate share of the market and according to industry analysts BAW filter demand is projected to triple over the next five years with a market size that exceeds $1.5 billion by 2010.

And we're focused with our filter product line not only on handsets but also in GPS, wireless local area networking, optical networking and other markets where the combination of both high frequency and demanding signal filtering are required.

We anticipate high volume production within the next few months.

So clearly we are excited about our linear products growth and believe that you will begin to share our enthusiasm as we progress throughout 2007.

And please keep in mind that while the addressable market for our linear products business is highly fragmented, it's almost four times the size of the cellular handset RF industry and we've got the channel and we've got the products.

Okay.

Let me switch to our handset business.

During the quarter we increased our EDGE and wideband CDMA front-end module shipments or FEMs with units more than doubling year-over-year driven primarily by our tier-one accounts.

A couple of examples, at Sony Ericsson we're now supporting their GSM/GPRS EDGE and Wideband CDMA Walkman series.

We're also now delivering new high speed data downlink packet access, or HSDPA, capable solutions for data rates that are up to 3.6 megabit per second -- megabytes per second.

At Motorola, we're spanning all their key interfaces - namely GPRS, CDMA, iDEN, Wideband CDMA, TETRA - covering a wide range of platforms from the very low tier such as the [MOTO] phone to the high end 3G app -- and 3G applications like RAZR maxx suite and we're participating in several new key program ramps.

In our radio portfolio, Helios, which integrates our front-end modules with our direct conversion transceiver to create some of the world's sleekest handsets, we're increasing our addressable content with a family of multi-mode Helios brand of solutions.

These recently announced products support the industry's migration to EDGE and Wideband CDMA which require the simultaneous transmission of both voice and high speed data.

In particular during the quarter, we shipped nearly 12 million complete radios - this is up more than 30% year-over-year - we've ramped Helios now in support of Samsung's newest EDGE models including the Trace.

This is the thinnest bar phone that's currently available in the United States and we've secured wins now with our newly released Quad-Band Helios EDGE Radio.

And this is a complete RF system that reduces board space by about 25% and enables various multi-media applications and capabilities and increased user talk times.

And we're now supporting LG with the ramp of their newest GPRS Chocolate phones.

Now this is a recent event and I'm very pleased to report that we're supporting LG; given the past success of the Chocolate model, we're thrilled to be working with them as they market this next generation of phones throughout Europe and later in the U.S.

And we're also supporting MediaTek, a leading supplier of complete reference design within China, with Helios.

And this is really just the tip of the iceberg but it's proving that we can successfully partner with rather than compete against baseband providers.

Going forward, we're cultivating relationships with others in this area which we believe will result in additional collaborations now, now that we no longer compete with their baseband offerings.

So the bottom line is that as handsets become more complex, as they become more data rich, our customers are seeking partners who can provide more value through integration, partners who have the necessary scale, the ability to manufacture a broad range of key RF process and device technologies with our current family of Helios radios and the development of a deep product pipeline consisting of DGRF, CMOS, WEDGE Transceivers, WiMAX radios and with the recent introduction of BAW filters, we believe we can take advantage of this trend through engagements with all top tier OEM's and key baseband suppliers.

So in summary, our first quarter results demonstrate the success of our recent restructuring.

We are now being led by three growth engines - linear products, front-end modules and radio solutions.

We plan to continue to leverage our deep relationships with industry leaders, our increasing addressable content and operational efficiencies to increase profitability and ultimately create shareholder value.

All our employees are intentionally focused on innovation and ramping these new programs we've been discussing.

To recap, those new programs - or multi-mode front-end modules and Helios radios - link specifically with tier-one customers, continued growth with our core radio customers including Samsung, LG and Baseband Reference Partners, ramping our 802.11N front-end module solutions, our 3G infrastructure platforms and our linear and standard product catalog sales.

Okay.

I'll now turn this over to Allan for his review.

Thanks, Dave.

I'll summarize our financial results.

Revenue for the first quarter was $196 million, up 8% year-over-year in our core business and that's excluding basebands.

Gross profit for the quarter was $75.4 million or 38.5% of revenue and that's 100 basis points sequential expansion driven by operational improvements and a richer product mix.

Operating expenses were $52.5 million with R&D at $29.9 million and SG&A at $22.6 million for the period.

And that's driving operating income of $22.9 million, up 97% sequentially and 65% year-over-year.

Meanwhile, net interest expense for the quarter was $1.2 million and we recorded $400,000 in taxes yielding record net income of $21.4 million, up 105% sequentially.

Earnings per share was $0.13 within the range previously provided under our new business model.

Turning to the balance sheet, we exited the quarter with cash and cash equivalents as well as short term investments of $183 million.

Of note, we generated, as Dave mentioned, $26 million in cash flow from operations and that's before $10 million of restructuring related payments.

Inventories decreased by $10 million, we reduced our accounts payable by $17 million, recorded $9 million in depreciation and we invested $6 million in capital expenditures.

Before moving on to our outlook, I'd like to recap some key financial metrics resulting from our restructuring particularly given the impact it had on our operating model.

We met or exceeded all of our internal targets on schedule, on budget.

In summary, we grew our core business and made it more transparent to you, our investors, as we exited the Baseband product area.

We beat our estimates for cash related restructuring items which now are forecast at 25% of the total cost versus the 33% we estimated previously.

As a percent of sales we expanded operating income to 12%.

We decreased R&D spending to 15% while fully funding all key programs.

We reduced SG&A expense to 11.5% and achieved total OpEx of 28.8% of sales which will provide financial leverage as we grow.

In other words, we'll maintain current spending levels even as the new programs Dave outlined begin to ramp.

We enhanced our yields and expanded gross margins.

We increased cycle times in operations which improves our return on assets and we improved inventory turns to 6.8 times.

Our first quarter results demonstrate substantial progress along every key financial metric and have set the stage for us to become a more profitable Company.

Now to our business outlook.

We anticipate revenue in the second quarter in the range of $180 million with typical handset market seasonality offset by new product introductions.

We expect to maintain gross margins above 38% with operating expenses between $50 million to $52 million.

Below the line, we suggest modeling $1.5 million of net interest expense and $500,000 of taxes.

In turn, we expect earnings per share in the range of $0.09 to $0.11 on 163 million shares.

Incidentally, we plan to again generate positive cash flow from operations and anticipate recording approximately $3.5 million of FAS 123R related expenses.

That completes our prepared comments.

Robbie, please open the lines for questions and answers.

Thank you. [OPERATOR INSTRUCTIONS] We'll go ahead and take our first question from Ittai Kidron with CIBC World Markets.

Hey guys, a couple of questions for me.

First with regards to the guidance, $180 million, could you give us a little bit more color into that?

I mean, you did have an increase in revenues in the December quarter so I was wondering why you have still what you would call seasonal decline in the March quarter.

And second, with regards to the operating expenses, Allan you mentioned that the operating expenses will move down to around $50 to $52 and then you mentioned that you'll be able to continue to ramp the introduction of new products [without] necessarily raising expenses.

Does that mean that this will be roughly the range through the rest of the year?

Ittai, I think I heard the first question.

With respect to our guidance for the March quarter it's the combination of general market seasonality -- we're actually seeing the overall infrastructure market and kind of the broad-based market being a little bit choppy.

I would say it's no secret that that's been not the demand in the book-to-bill that most people expected and you can see that across the industry.

We are offsetting that with some new program ramps, although I will say that those new program ramps will add more in Q3 than they do in Q2.

But as you put all those together we felt the prudent guidance was to be a little bit less than market seasonality as we combine those factors.

The margin will be as good as it was in Q1 as we maintain our gross margins at lower revenue because we are starting to see improving yields on our radio products, we're holding our operating expenses and we're beginning to be much more disciplined about portfolio managing and looking at all of our products relative to the return on invested capital, not just growth.

In terms of your second question, Ittai, on the OpEx the reason the dip in Q2 is seasonality and the revenue is lower, we would expect in the back half of the year as revenue ramps OpEx and dollars would be a little higher but in percentages we're going to stay around the Q1 percentages except as I mentioned we're actually going to leverage those so you might see the percent of sales tick down as we grow.

Allan, just to follow up with that, are you reiterating your annual EPS guidance of, I think it was $0.55 to $0.60 if I remember correctly?

Yes.

No, we mentioned at year-end that that was a one-time event, the annual guidance, when we did the restructuring so you would get a feel for the new model and that we were going to go back to quarterly guidance.

Ittai, let me add to that.

This is Dave.

You know we delivered, to recap, $0.13 of EPS in the first quarter and $0.09 to $0.11 in Q2.

We have additional operating leverage because those operating expenses are not going to grow with sales.

I think you're pretty well aware of the new programs that we've been talking about in the prepared comments.

They are, indeed, ramping and as they ramp they'll have high contribution margin and we won't need to ramp OpEx.

So we will see accretion both in margins and in earnings per share as we discussed when we provided that annual guidance.

Thank you.

We'll take our next question from Jeff Kvaal with Lehman Brothers.

Yes.

Thanks very much, guys.

I was wondering if we could follow up on the annual guidance, as well, to some extent.

Essentially being at a 180 level in the March quarter suggests that we should be thinking about greater than seasonal growth in the June and September quarters.

I'm wondering if that is a fair way of thinking of it or how we should perceive that?

Well, as we're going through the product transition that we've been talking about now for a couple of quarters it is absolutely correct for you to assume we will grow faster than the market.

So, yes, Jeff that's a fair assumption.

Great, Dave.

Then secondarily as a follow-up will you folks now be breaking out analog every quarter for us?

We've been doing that -- we've been giving you the range for linear.

Yes.

This is the most --

The most granular that we've done it - we've given you ranges - but, yes.

Thank you.

We'll take our next question from Amit Kapur with Piper Jaffray.

Great.

Thanks a lot, guys.

I was wondering if you could -- you mentioned some new platforms set to ramp later this year.

Could you maybe talk about some of the, for example, the expected timing of the ramp at Motorola and maybe give us an update on the GRF traction there?

Yes.

Well we absolutely, as Dave outlined, the second half of the year will be highlighted by ramps across the top five OEM's and we specifically want to concentrate our efforts among the top two.

Within Motorola we are positioned right now and will be delivering new products with our EDGE FEM portfolios so they're going to be ramping this quarter.

And then we've also outlined our DGRF solution.

We have a design win there that we're working with Motorola on but the timing of that really is in the hands of the customer.

Product is ready to go; we expect it to be part of their upgrade cycle in late '07 and it's really in Motorola's hands in terms of timing.

Great.

And maybe to follow-up, would kind of their shift toward WCDMA be part of that upgrade cycle and maybe you could give your view on the WCDMA market overall, what you're seeing out of your customers?

No.

That's a great question.

Well, actually the WCDMA market was kind of mixed in the last quarter.

You could see some very strong results with Sony Ericsson and mixed results with some other players.

So we're very well positioned in WCDMA; we like that upgrade cycle.

For Skyworks it typically means $3 to $4 of FEM content per phone.

We'll be enjoying that across the suite of accounts we've mentioned.

We look for that to be part of Motorola's upgrade cycle you're seeing with many other customers now and it is an opportunity for us to gain content and margins.

Thank you.

We'll take our next question with Jeff Loff with Credit Suisse.

Yes.

I guess if you said in your December numbers the December quarter was up 8% year-over-year if you look at the core business.

The March quarter guidance is for the core business to be up 5% year-over-year.

Is this something where it can start to grow 15% year-over-year the way you talked about before or where it might be a little bit less than that?

Yes.

I think one of the things to maybe eliminate some of the ambiguity - and I know it's a little bit difficult as we've exited the baseband business and we've talked so much about improving margins in the operating model but we are going through a product transition at a couple of our largest customers.

And as we go through that product transition you'll see above market growth.

Conversely, as we've not come completely out of that product transition you're not seeing the benefit of that upside.

So it is -- you should look at the -- as we move throughout '07 and move throughout 2008, as Liam mentioned, we've got engagements with each one of the top tier OEM's.

We've got Helios designed in now in several more sockets.

We've got new versions and we have Wideband CDMA and GSM and EDGE FEM's across our customer base.

So in addition to that - the linear products entering BAW Filters - some of the 802.11N which is just going for ratification where we have high dollar content across now several reference designs so you will see -- you should expect to see above market growth rate from Skyworks as we move throughout the year.

Okay.

And then just to follow-up on the balance sheet, it looks like the $179 million of converts moved into short-term debt.

I think you said you've got $183 million in cash.

What's the strategy there?

Yes.

So the short-term debt is the $50 million revolver or facility which is a receivable and $179 million convert and as you mention we have $180 million in cash, strong cash flow and a lot of options available.

We'll take our next question from Brian Modoff with Deutsche Bank.

On your last conference call you indicated that you'd been designed into the Motorola DGRF platform that's scheduled for early 2007.

It seems like that slipped out now.

Are we looking at the end of the year now or do you -- has there been a change perhaps with Motorola accelerating the move to single chip architectures and the fact that they already have two transceiver vendors, RFMD and Freescale.

Do you think, perhaps, they need a third vendor for EDGE transceivers?

Well as I outlined, right now the decision within Motorola is timing for us.

The product that we have has been evaluated.

We really can't speculate on what they're doing with our competitors.

And the move to SOC is a totally different vector here.

That's not going to impact EDGE, at least in our opinion, EDGE for quite awhile.

But again the product is available for use.

We're actually shipping variants of that product right now to other customers and we feel that we will be in production by the end of the year.

So if Motorola is accelerating the adoption of single chip architecture that they indicated last week, eCosto is sampling next quarter, Qualcomm has a couple of products sampling the following quarter which means they'll probably be ready for production the first half of '08, you don't see that impacting your business perhaps later this year or into next year?

Well, again, I really can't get into speculating Motorola's decisions with the multiple vendors that you mentioned.

We know where we stand.

We have a great relationship with this customer.

We've had for some time.

We have a very robust product.

And, again, with the architecture in LoCosto - you mentioned eCosto which is the EDGE base - recall that in the LoCosto architecture for GSM/GPRS we have the lion's share of the PA FEM's alongside those platforms.

Let me try to be clear because this eCosto architecture has been around for some time and we are in the lab or we're in production or engaged with each of the top tier OEM's and when you look at the SOC system performance compared to the requirements of these new architectures and linear EDGE and WEDGE, it is not the performance requirement that we see from our top customers.

So there's a lot of discussion and [inaudible] always creates a great splash but we've seen the SOC on the low end of the market at Motorola and we believe we're conservatively in 80% to 90% of the TI LoCosto of designs with an FEM designed specifically to partner with that baseband or with that baseband RF integration.

But I would not hold my breath on broad market adoption of an EDGE or a WEDGE, linear highly efficient based silicone complete SOC that meets the specification of my customers.

We'll go next to Satya Chillara with Pacific Growth.

Okay.

Looks like he removed himself from the queue.

We'll go next to Suji De Silva with Cathay Financial.

Thanks, Dave.

Thanks, Allan.

Quick question on the target mix you expect on the revenue side as you exit this fiscal year.

Where do you think linear comes out relative to handsets?

That's a tough one because our business unit leaders here both have growth projections and growth targets.

Linear products will grow as a percentage of the overall Company given our relatively nascent participation in a lot of these markets.

But it isn't a given that as we grow the business throughout '07 that you'll see a big part relative of the total pie.

You'll see an increase in dollars, certainly.

Whether or not it will grow faster than these other program ramps in the short term is a little bit difficult to tell.

Both have aggressive growth plans and programs.

I understand that's hard to tell there but can you remind us what the gross margin impact would be if linear does improve in the mix?

Well, linear products has about - oh, let's call it 15 points of higher contribution margins.

So it's really all about scale.

So depending upon which project it is, it does add points of gross margin to the mix.

So it does have a positive impact.

It really depends upon the mix with the product within linear product.

It's about 15 points higher contribution margin.

So it really depends upon overall volume.

We'll go next to Satya Chillara with Pacific Growth.

Hi, Dave.

Can you hear me?

Yes.

Good.

The first question looking at your WCDMA we talked about the transceiver development for some time.

Can you talk about the timing with respect to all the single chip [inaudible] to [inaudible] on eCosto and wideband CDMA.

What is the latest and greatest on your road map?

I guess I would ask you to stay tuned.

We'll be making some announcements at the 3GSM World Congress.

But we are very close.

We are very close.

The product looks great.

It looks just terrific.

The second question, follow-up Dave, is on the revenue.

On the EPS -- I'm okay with the EPS guidance but what about the revenue 820 to 840 that you guided, are you still sticking with that or are the numbers we need to think differently for the second half?

Well, let me try to be clear.

Allan I think asked a sort of a variation of that same question and I certainly understand the question.

We delivered $0.13 of EPS in the first quarter.

We guided between $0.09 and $0.11.

This new model is giving us additional operating leverage.

You will see increases in earnings per share and margin as we move throughout '07.

And we believe and are convinced as we enter the ramp phase of a whole host of new programs that we will achieve our operating model as the revenue grows.

Frankly, what we're trying to institute here at Skyworks is a much more disciplined approach to looking at our pricing and cost structure.

Not all revenue growth is created the same.

We will grow our revenue.

We are very confident that we can continue to maintain our EPS, overall guidance and our EPS trajectory and our increasing operating income percentage of sales with operating leverage and frankly if the revenue is a little high or a little low I don't care.

I want the high return on invested capital.

I want the investment pay off.

I want increasing earnings per share and I want to participate in the programs with those tier-ones who are going to drive the market.

That's my focus.

We'll take our next question from Aaron Husock with Morgan Stanley.

Thanks for taking my call.

I guess first just kind of a housekeeping question.

Out of this 12 million complete radios you shipped in the quarter, how many of those were Helios?

Well, Helios is the family for our radios.

They were all Helios devices.

Do you think that number could actually increase in the March quarter as you ramp some of the wins there?

Yes.

Absolutely.

We're still working through the details but it certainly will be ramping through the second half of '07.

That is the portfolio where a number of our tier-one accounts right now are either sampling or in production and with some of our current customers such as Samsung they're really in the early stages of their penetration through the market so we definitely see strength through the second half of '07.

We have higher percentage and higher market share projections for EDGE and WEDGE than we do for 2G because it's a more differentiated solution.

So as the market -- Samsung, for example, not only is EDGE growing but they're growing -- their percentage of what they produce that's GSM based, that's based on an EDGE platform is increasing and so if you look at LG Chocolate, if you look at the new thin Samsung phone, the Trace phone that was just released - that's a couple of examples - size, multi-media features, larger screens as well as power added efficiency are driving our customers to more highly integrated solutions with very difficult, incidentally, specification requirements which gets back to the SEC comments.

I mean every quarter, every year, we're now beginning to see our customers and the end consumers asking for more and more stringent requirements, more robust data handling capability.

So even as these process technologies improve, the performance of requirements on the system are improving every bit as fast, or increasing every bit as fast.

And then, I guess, if you could just comment on when you talk to your customers, what's your sense for how handset inventory levels are out there, either at your customers or in the distribution channels, and how have you seen kind of that your customers pull so far in the month of January?

Yes.

That's a good question.

The reports are in now across the board from our customers and there's a lot of variation among the top five in terms of the performance.

But in general units -- unit volumes were pretty good.

We see, as we move into '07 right now that the numbers that we're seeing are very consistent with what we're guiding and consistent with a typical quarter.

We have some accounts that are ramping with new products and we think the year, 2007, will actually be relatively strong for handsets; somewhere in the 8% to 10% range with maybe some upside surprises in the emerging markets.

We'll go next to Edward Snyder with Charter Equity Research.

Thank you, Dave.

Back to the single chip - I know Brian's been concerned about this since Motorola's announcement last Friday - but eCosto and some of the other solutions are all linear solutions.

Yours is a large signal polar [inaudible] RF Microdevices.

It seems to me that if you look at the phones that these chips are going into there's a very distinct difference in the market.

Yours is significantly higher performance.

Have you seen any overlap between the phone that you've been selling Helios into or you know the large signal polar stuff's been going into and some of the linear solution where the single chip, I know Nokia does linear solution that's discreet.

Is there any overlap between those two segments?

I'm not sure what you mean.

Elaborate on what you mean by overlap?

I think I get it but let me be sure.

It seems if you look at the models that your product and RF Micro's products have been landing in they tend to be mid- to high-tier phones that are designed for data usage - color screens, lot of extra features, the carriers are pushing them into the hands of people who can afford to buy data.

If you look at the linear solutions, especially the single chip stuff, it's moving into phones you're stripping out everything.

Some of them are monochromatic even -- don't even have color screens.

It doesn't look like they're being targeted for data anyway and you have lots of experience, I'm sure, with the difference between linear and polar.

It seems to be a much higher performance product.

When you're talking to Motorola or any of the other top tier customers about the slots that they are looking at for Helios, is any of that real low, ultra low-end phones?

Not really.

If you think about it, it isn't so much is it low end to high end?

The question is - why use EDGE?

Why use EDGE for those markets?

We tend to see SOC supporting the low end of the market and that market is pretty well understood to be price sensitive and not nearly as performance demanding.

EDGE by its very nature along with our front-end modules has a tendency to be multi-mode and facilitating hooks to a lot of multi-media features - high speed data, linearity, current consumptions and all of those issues that make it very, very difficult to do that in anything but a highly integrated radio architecture that is really well shielded and bullet-proof when a customer looks to go to volume production, get through FTA and then begin to spin skews.

So, Ed, if I think I understand your question if you see SOC at the low end of the market where the performance requirements are much less stringent and, frankly, our customers -- we don't see them looking at EDGE for ultra low end product.

And when they do it tends to be a Helios-like solution because it's relatively speaking at a bill of materials level is quite economical for them to use that as a [accretely] integrated tested RF shielded product.

And as a follow-up to that then, you do linear amplifiers for EDGE solutions and non-EDGE solutions.

If you -- in the EDGE applications, what's the current consumption battery performance of those devices?

Are we talking about significantly lower?

I mean if you use them for a lot of EDGE or a lot of data usage where you're using high speed EDGE with a linear solution, does your battery life suffer a significant difference in performance?

It can be very -- it is very significant because you have to back so far away to operate that linear mode.

So you just have to -- backing away from saturation in order to be able to provide a complete linear performance.

So it is problematic and, frankly, as we are with LG and Samsung and Motorola and others and we look at the system performance requirements and the road map that moves into '08, '09, 2010, WEDGE, Wideband CDMA, EDGE, it's difficult for me to imagine that the SOC designs are going to hit those requirements and why one would be willing to sacrifice performance for a more integrated solution that probably from an overall cost standpoint may not be that advantageous.

It's the wrong -- it seems to me to be the wrong market.

It's for the low end market.

We'll take our next question from Daniel Amir with WR Hambrecht.

Thanks a lot.

Couple of questions here - first of all, last conference call you talked about the Samsung EDGE opportunity saying that 20 models are currently -- you are designed into.

Can you comment a bit about what the road map is there?

Kind of what the opportunity is as we go through '07 there with Samsung?

Absolutely.

So our position as you outlined is quite solid.

We're in roughly 20 phones.

We are in the middle of an upgrade cycle already with Samsung with an advanced version of Helios which will be in production by the summer.

So we're moving down the curve right now trying to add features and performance, working on the various issues that we discussed in the last question - how to improve current consumption on some of these higher end phones?

And we feel we're very well positioned and Samsung is spending a lot of time and energy marketing these products.

And the second question related to your linear products.

You mentioned that some of, I guess, some WiMAX activity here.

Can you comment a bit about the opportunity there?

Is this something that we should start seeing in '07 or is this farther out?

Well, yes, WiMAX is a very significant opportunity for our linear products business and really harnesses much of the technology that we have in our standard PA portfolio.

We're seeing WiMAX deployed now -- or plans for deployment late '07 and into '08.

All the major infrastructure players are on board - Ericsson, Nokia Siemens, Motorola and others.

It's an opportunity for Skyworks.

We think we're going to perform uniquely in this segment and look forward to growth.

This will be late '07 and into '08 but WiMAX is definitely a tipping point for us in infrastructure.

We'll take our next question from James Faucette with Pacific Crest.

Thanks.

I just had a couple of housekeeping questions.

First of all, could you give us a breakdown of how the stock option expenses were allocated to cost of goods and other operating expense lines?

Yes.

I can read it to you but it's actually in the footnote in the press release.

That's okay.

I didn't notice that.

I apologize.

I can find that, then.

And then as far as the talking on radio architectures and that kind of thing, obviously you feel like there's a lot of performance advantages versus the system on a chip.

What about some of what we've seen from competitors bringing in a system in a package.

Can you talk a little bit about how -- what kind of radios they are typically using on the Helios or the other designs and products that you have can offer similar advantages to customers that may be evaluating the SIP packages?

Yes.

If you think about what we're doing with LG, for example, and what we've done in the past with others.

It is a system in a package in many cases.

The only difference between Helios and a complete system in a package mated with a baseband is really where do you -- do you drop the single chip silicone transceiver and the functionality that makes up the front-end module switch that's built as an amplifier?

Do you do that all in one package or not?

And when our customers desire that for footprint reasons or for ease of manufacturing, we provide it.

When they don't -- often times they don't because you're essentially putting a package in a package when you drop system in a package on a mother board, if you will, on a phone board.

So it's very much a customer preference and the only difference for us is do we drop the VCR in the multi-chip module that makes up our current front-end module with switches, filters and amplifiers.

It's not that relevant to us.

It's more of a preference.

Great.

And then finally just a seasonality question related to the linear products business.

As that business grows more important for you what kind of seasonality are you seeing typically through the course of the year for that business line and how should we expect that to evolve over time?

Well, James, as you know that business is so diversified within Skyworks that it has signatures that are related to a broad, broad industry.

So at this point we think we're going to grow sequentially throughout the year.

It typically doesn't fit the normal seasonal curve that we see in our handset market but with the program ramps and some of the opportunities we have with our largest infrastructure accounts we also see some strength in 802.11N in the second half of the year.

We are very confident that we can show sequential growth and we don't see seasonality to be a big factor in linear products.

If I could add to Liam's comment, one of our targeted strategies by putting so much investment and energy into linear products is that while if you look at any one of those fragmented, it's a fragmented market, lots of markets - that many of them do have different cycles and seasonality but when you aggregate them up it has a smoothing effect that certainly is less seasonal than the handset business.

So while there may be cycles within our linear product portfolio, it's such an aggregation of many different markets that it has a wonderful smoothing effect on margins and on revenue profile.

So I think your underlying question was - will we become less seasonal as linear products gets bigger?

And the answer is - we should.

We'll go next to Todd Koffman with Raymond James.

Just a quick follow-up with regard to Brian Modoff's question on the maybe slip out or pushed out or delays of DGRF.

It sounds like you are ready to go but you've recently received indications that that ramp would be pushed out.

Is that accurate?

Well, we have tried to be consistent in saying with that architecture -- if we back up a little bit, we had a development contract early on in developing that overall architecture.

We've been a member of the group that has been developing that standard called DGRF from the beginning.

We like that technology for a lot of reasons.

We're working with several customers including Motorola and this DGRF -- it's a logical architecture for a lot of reasons for the industry to uptake.

And many people are participating in developing that overall standard and it looks great and our product looks great.

So with respect to our specific customers it is entirely dependent on their selection of architectures and their selection of platforms and when it ramps, entirely dependent.

I will say this, our DGRF platform works and it doesn't work marginally, it works great.

It's small, it's less expensive, it's low current consumption, complete digital interface so it has a lot of flexibility.

So I like the prospects of that product long term and we'll just watch as our customer's uptake happens.

That's wonderful but I just got a follow-up.

At some point in the past you gave indication that that might be ramping earlier versus what we're hearing today and I was just wondering when did you get indications from the customer regarding that timing change?

We did have -- we did believe it would ramp earlier than it is -- than it looks like it's going to ramp and it's an ongoing dialogue with our customers using DGRF.

It's an ongoing discussion about when they want to ramp as it is in all cases with all of our customers.

It's not one point where we get one indication.

We talk to these customers everyday.

Thank you.

And at this time we have time for one final question and we'll go to Jeff Kvaal with Lehman Brothers.

yes.

Thanks very much.

I wanted to follow-up if I could on your comment about other baseband partnerships.

I'm wondering if you could give us a list or at least outline for us which baseband partnerships might be possibilities for you.

Well, I think on the FEM side it's really easy - it's anybody and everybody.

Right?

We love them all because there's no competitive disadvantage there and we tend to focus first on the highest runners and then move down -- then we have standard product families that are able to address that we try to make as configurable, if you will, of derivatives that could address any baseband.

The real collaboration is when you start then mating an RF.

It gets a little easier to do with a DGRF domain than it is in an analog interface and we've been engaged with several and we'll be talking about those as we go forward.

I don't have anything to announce today beyond MediaTek although we have several that we're working with today.

Thanks, Dave.

And think about it -- I'm not trying to be elusive - it's all the big guys.

It's really the big customers, the big baseband providers are our targets.

Thank you.

Thank you.

That is all the time we have today for questions.

At this time I'd like to turn the program over to Mr. Aldrich for any additional or closing remarks.

Well, thank you very much.

This concludes our call today and on behalf of the entire Skyworks team, thank you for participating.

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

That does conclude today's call.

You may disconnect your line at any time.