思佳訊 (SWKS) 2007 Q3 法說會逐字稿

Good day and welcome to the Skyworks Solutions third quarter 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' Second 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.

Welcome, everyone.

Today we announced our third fiscal quarter results, and I'm pleased to report that the Skyworks team delivered on our revenue guidance, and we exceeded our operating income forecast and consensus EPS estimates.

This performance, we believe, is a testament to our increasingly diversified product portfolio and the successful implementation of our new business model.

Since restructuring our company last October we have focused exclusively on core analog and RF applications working to enhance our leadership position in multimode engines while steadily growing our diversified linear products business.

And as our year-over-year comparisons highlight, we have begun to make some real progress.

More specifically, for the third fiscal quarter, we generated revenue above $175 million -- this is consistent with the guidance we provided at the end of last quarter -- we expanded our gross margins by 50 basis points to 38.8%, and we recorded $0.11 of diluted earnings per share.

This is $0.02 above consensus estimates and more than doubling when compared to a $0.05 recorded this time last year.

From a product pipeline perspective, we continue to gain momentum with our linear products business as we introduced a suite of brand-new analog devices, and we delivered another positive bookings quarter -- and we supported existing handset customers as well as some very important new ones with our latest high-ASP multimode-enabling front-end modules and RF solutions.

Now, with this in mind, let me take a moment to provide an update on our core product areas.

First, linear products -- now, linear products leverages our core analog capabilities into non-handset applications.

During the quarter we captured key new wireless base station sockets at Huawei.

Now, Huawei is a rapidly emerging powerhouse in network infrastructure as they move from a domestic supplier in China to a global player with highly integrated base station solutions.

And, as a result, Huawei is fast becoming one of our linear products' largest customers.

In addition, we added a Atheros, and we added Cisco to our growing list of wireless networking customers.

We continue to derive value from our IP portfolio particularly our Vocoder patents, and we've unveiled a host of new products in linear products targeting WiMax, high definition television tuner, remote meter reading, and medical imaging opportunities.

Once again, our goal in our linear products segment is to aggressively leverage our core analog capabilities, our strong IP portfolio position, and our established catalog sales channels and specialized distributor networks.

With longer product lifecycles, with annuity-like revenue profiles supporting a wide range of applications at higher margins, we are creating a much more diversified and stable revenue and profit base.

Of special note, we recently received our certification for ISO TS-16949 standard.

This is an internationally accepted automotive standard.

This certification allows Skyworks to now participate in what we view as a rapidly growing automotive segment estimated by some to have a total available market of approximately $16 billion, and we're supporting applications such as keyless entry, GPS, telematics, and satellite radio, just to name a few.

As a result, we continue to be very encouraged by the growth prospects of our linear products business and in our participation in an addressable market that is roughly four times -- four times -- the size of the wireless RF cellular industry.

Okay, now let me switch from linear products to our handset business.

Before I address some specific highlights for the quarter, I'd like to make a few more general comments regarding the increasingly important role of multimode front-end modules in the rapidly evolving mobile market, particularly as the industry shifts to 3G.

Now, just to be clear, when I talk about front-end modules, I'm really referring to a solution where the power amplifier, switches, filter, power leveling control functionality, are integrated into a single product, into a single device.

From a market perspective, media-rich EDGE, WEDGE, 3G, wideband CDMA wireless platforms are driving overall unit growth and in 2008 are expected by many to be the majority of the more than 1 billion cellular handsets we'll ship as an industry.

So the transformation from a voice-centric business or handset to multimedia devices is finally a reality in our industry.

Now, with this trend, the complexity in what I described as the front-end module increases as each new operating frequency band requires additional amplification, it needs to be filtered, switch, and other RF content, and it's basically to support a number of things, and these phones are increasingly backward compatible to existing networks, they simultaneously must transmit both voice and data, international roaming, and, obviously, these bands need to have the bandwidth and the data integrity for reliable music and video.

So for greater carrier and consumer flexibility, our OEM customers must integrate multiple-frequency bands into their devices.

Like band 1 for European UMTS, band 2 for USPCS, band 4 for U.S.

Advanced wireless, band 5 for U.S.

Cellular, band 8 for European GSM.

Now, keep in mind that the integration of all of these bands involves the development of increasingly complex modules, which must, at the same time, remain physically very small.

The modules can't get bigger.

They've got to be extremely power-efficient.

We can't cost battery life, and they've got to be cost efficient while also managing an unprecedented level of related noise and potential signal interference within the handset.

So what all of this means is that successful suppliers into this growing market must possess a breadth of process technologies first -- things like pHEMT, HBT, CMOS capabilities, filtering, very complex passive integration techniques and, of course, high manufacturing scale -- volume.

In fact, this trend, more bands, more complexity, creates a total available market for front ends that will grow substantially faster than the overall handset segment.

As an example, a 2G CDMA and GSM phones have roughly $1 to $2 in content of these functions.

That increases anywhere from $4 to $6 in multimode engines per mobile device or per phone.

This is producing an incremental RF market opportunity measured in the billions of dollars -- billions of dollars -- annually and, by the way, with far fewer competent competitors to deliver this complexity.

And with this in mind, our R&D, our Skyworks R&D and marketing teams are squarely focused on capturing share within this growth vector, particularly as Skyworks is one of the few qualified improver suppliers supporting all top five-tier OEMs.

Okay, now let me move from the generic to some more specific trends this quarter in Skyworks.

Speaking of increasing front-end contact, we're quite pleased to report that we're now supporting Sony Ericsson's recent debut of their HSDPA handset platforms.

By the way, this includes the K850 Cybershot camera phone, which includes a 5 megapixel camera with a video blogging functionality.

In this case, we're supplying a quad-band EDGE front-end module with a wideband CDMA band 1 UMTS amplifier plus our newest device the incorporates in one device bands 2 and 5 in a single package.

The dollar content is high -- the complexity is high, but the dollar content is high.

Meanwhile, Motorola, we've now launched CDMA and EDGE Entera front-end modules in support of their sleek Razr 2 phone series, the Razr 2 series, and our participation here is particularly noteworthy as it represents, really, the very first time Skyworks is supporting Motorola with EDGE on a large scale.

We look forward to this platform driving growth this quarter, in the December period, and into 2008.

We've also ramped our Entera front-end modules for LGs record-selling Shine phone, and we've increased our shipments of Helios EDGE radios into Samsung as they've launched their new SGHU600 ultra series and recently, as we've announced, we are seeing volumes from Mediatech for the China market as a reference partner.

We've also extended our relationship now to include research in motion where we previously were a switch per customer, we are now including complete EDGE front-end modules.

I am also pleased to report that we are making significant progress -- we talked about this last quarter -- in forging represents with virtually all of the key baseband players.

As we outlined, developing these partnerships represents the key strategic initiative for us, especially since exiting the baseband business last October, and you'll hear a lot about our progress and the benefits of this collaboration as we move forward and into 2008.

So, in summary, all of us at Skyworks continue to focus on creating an increasingly diversified company with stable earnings growth driven by defensible competitive positions in handset front ends and precision analog end markets.

As we look forward, linear products' momentum coupled with multiple 3G product roadmaps spanning new and existing customers, are positioning Skyworks to outpace the overall market growth rate and, at the same time, we believe that crisp operational execution will enable further growth margin expansion and a strong bottom line growth trajectory.

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

Thanks, Dave.

Revenue for the third quarter was $175.2 million, consistent with our guidance and despite the dynamics at a large tier 1 handset OEM.

Gross profit for the quarter was $68 million, or 38.8% of revenue.

This performance was better than guidance as we approved absorption as factory utilization increased, we improved yields, reduced scrap, and we increased the number of products we assembled and tested in-house.

Operating expenses were $51 million with R&D $29 million and SG&A $22 million, driving operating income of $17 million.

Meanwhile, net interest income -- and that's income not expense -- for the quarter was $200,000 reflecting lower interest on our new convertible notes.

We also recorded $350,000 in taxes yielding net income of $16.8 million compared to $8 million in the third quarter a year ago, we're up 110%.

That's 110% increase.

Earnings per share were $0.11, $0.02 ahead of consensus estimates and reflects a more than doubling when compared to the $0.05 for the third quarter of 2006.

Now turning to the balance sheet.

Last quarter, as you know, we completed a $200 million debt offering, which consisted of $100 million of convertible notes with a 1.25% interest rate due in 2010 and $100 million tranche with a 1.50% interest rate due in 2012.

This accretive financing allowed us to effectively lower our interest rate on our convertible debt from 4.75% to 1.375%.

We exited the quarter with cash and cash equivalents as well as short-term investments of $235 million, up $12 million from the prior quarter.

More specifically, we generated $13 million in cash flow from operations, we have $10 million of depreciation, we invested $13 million in capital expenditures -- plant and fab expansion -- and we built $7.5 million of inventory, which we plan to do in anticipation of a strong second half of the calendar year.

Now to our business outlook for the fourth quarter.

We anticipate top-line growth of 6% to 10% on a sequential basis, and that's fueled by new program launches and the transition of several key design wins in the high-volume production.

We'd suggest you model gross margins of 39% and operating expenses in the range of $52 million to $53 million.

Below the line, we're forecasting interest expense of $500,000 and taxes of another $500,000, which will translate into $0.12 to $0.14 earnings per share based on using 162 million shares outstanding.

I want to point out that with earnings per share of $0.34 year-to-date plus the guidance we just gave you, we'll be approaching $0.50 per share for this physical year compared to $0.21 last year.

That's almost $0.50 this year compared to $0.21 last year.

Incidentally, we anticipate reporting approximately $3.5 million of FAS123-related expenses in the fourth quarter.

That completes our prepared remarks.

Alan, please open the lines for question-and-answers.

Thank you.

(Operator Instructions) Jeff Kvaal, Lehman Brothers.

Dave, I was wondering if you could talk a little bit about the third quarter or the September and December quarter outlook.

Obviously, your inventories are up.

To what extent can you be more helpful in telling us which particular design wins will reach high-volume production?

Obviously, Nokia is the subtext here.

Well, we're up in inventory, and that reflects the need to be in a position to deliver the sequential increase in September and, frankly, it's a sequential increase we see again in December, and the $7 billion, I think, that Allan was referring to is pretty broad.

It represents being prepared for linear product launches as well as, obviously, some of the newer front-end modules and existing high runners within our base business.

It's a fairly reasonable growth, we believe, given the magnitude of what we see in revenue upside for the next six months.

Turns are still over five.

It was whip and finished goods, the raw materials were flat, and, as I mentioned, we had planned the build.

Okay, makes sense -- so that suggests something slightly better than seasonal growth through the next several quarters then?

And is Nokia a part of that?

We believe we'll outperform the market in handsets.

As we talked about in the prepared comments, there's more higher-dollar content opportunities for us.

Jeff, the market is moving very quickly to more multimode phones.

We have a lot more content potentially there, and we're beginning to see what I really like for the last several quarters, we're seeing sequential increases in our linear products -- kind of steady, a couple of million dollars a quarter, I like that a lot, and we do have new customers that are coming online.

Okay, and could you just help us with where linear is as a percentage of sales now?

As you remember, it was 22% last quarter, and it's 24% this quarter, so it was up $2.5 million.

It was up almost 20% year-over-year and 6% sequentially.

Amit Kapur, Piper Jaffray.

Maybe you can talk about -- you kind of hinted about the weakness at one of your major customers.

Could you talk about who your 10% customers are?

Allan?

Sure -- the 10% are Motorola and Sony Ericsson.

And could you give a little bit percentages around how much of revenue they were?

We don't do that, Amit, except in the 10-K.

You'll see it next quarter.

Okay, great, and maybe just kind of a quick follow-up -- in terms of the guidance you gave, how quickly are you assuming Motorola to kind of bounce back, overall?

Well, certainly, we have to watch Motorola's results carefully, and they haven't reported formally yet this quarter.

We are very excited about a number of new designs that we do have with that customer including the Razr 2.

We have both EDGE FEM and WCDMA design wins.

So Motorola is still a very important part of our business, and we look forward for their recovery.

But, Amit, we're being, we think, quite prudent about this customer in terms of providing guidance that is conservative.

Mike Burton, ThinkEquity Partners.

Hi, guys, congrats on the quarter.

I wonder if you could give a percentage that's running through distributors?

Yes, you know, it's linear products is a business unit that we do leverage our distribution and also our third-party reps quite a bit.

I would say, roughly, 15%.

Yes, maybe a little less.

Yes, probably a little bit less -- within the LP portfolio.

Okay, great, and also if you could give a breakdown of CDMA versus GSM?

Yes, CDMA was about 15% of the mix.

GSM PPRS about 55; and if you look at WCDMA and EDGE or WEDGE combined, that was about 25%.

George Iwanyc, CIBC World Markets.

Following up on your comments on the multimode front-end modules and the progress there, can you give us an update on transceivers and Helios and how things are tracking with those products?

We spent time in the prepared comments because I think that it is an often overlooked fact that it is finally the case that EDGE and WEDGE and data-enabled phones are becoming not only high-growth rate in terms of percentages but actually beginning to drive and many people believe in '08, the majority of units, and, of course, I think, as you know, we have opportunities for much higher-dollar content.

I mean, if you think 1 billion units sold, it could be the case that the front-end module content is several dollars per phone.

It's a multibillion-dollar market, and it's growing fast by virtue of that fact -- the dollar content increasing while, at the same time, unit volumes are increasing.

But what I think a lot of investors perhaps don't understand is that to address that market is so much more complicated to deal with all the interference and signal integrity problems that are created by multiple band, and you're not just talking over these phones.

It is good enough to just maintain a phone session connection with a base station, it's got to be pristine for data.

So we like to talk about it because we're gaining sockets because we have a breadth of technology that's differentiated.

When we were competing with many folks in 2G when consistently looking to drive prices lower, and so our customers benefited, and we struggled, as an industry with margins, that is changing, assuming you have the breadth and depth of technology.

That's why we talk so much about it in this call.

Okay, and switching over to linear products again -- can you give us an idea of how much of a positive influence it was on margins this quarter and how much more you think you can get over the next several quarters from linear products?

The things that drove the margins even in a low quarter, you know, we had the improved absorption in the factory, we had better yields in scrap, we did more in-house -- we actually had some very good leverage on the purchasing.

Some of our PCBs and wafers that we buy outside, the costs were down, and we have product mix, and that includes the linear products.

So that was one element of a lot of things we did well.

Edward Snyder, Charter Equity Research.

My apology if you mentioned this -- what was your utilization during the quarter?

And then in terms of the next couple of quarters, you've been shipping the Nokia CDMA.

Do you see any traction significantly in the GSM business and any idea what that could mean to you in '08 in terms of a ramp at all?

Ed, yeah, we didn't talk about utilizations, and we're running today -- you know, we've got, really, three pockets of capacity here.

One is the two foundries, processes, that we operate -- both the switches and for amplification; the third is assembly and test in Mexicali.

Starting with the third -- assembly and test -- that's very -- a relatively short lead capital, and we're ahead on that capital.

We invested, I think, about $13 million this quarter throughout the company.

A lot of that went into test -- high-volume test and assembly -- so we're in good shape there, and when we see upside we can react to it very quickly.

In the fabs, it's a little bit of a different story.

We invested heavily last year, more than we have in past years in both pHEMT and HBT to take our capacity, I think, in pHEMT from, I don't know, what, about 1,100 wafers to up to 1,800 if we need it.

We're not -- nowhere near that yet, and at HBT going up to, I don't know 2,400 or so wafers internally.

The other thing that we've done that's different -- a little bit different -- and we like this model a lot, is we have partnered with two foundries that are giving us surge capacity for very good pricing where we control essentially the quality and the process for the copy exact and some of our older technologies, and we're deriving from that, I think, some level of customer comfort, because we operate out of two foundries for each process technology.

We've also been able to have a more manageable capital envelope for the company and high return on vested capital.

So we've got capacity, we're going to add some more, but we're going to do it not only on our own, we're going to do it with partnerships.

Does that represent -- I mean -- how should we think about margins as your revenue starts to ramp then?

Suddenly, you've got sufficient excess capacity, you should see some sort of drop down to the gross margin line just based on revenue without you having to see a big CapEx spend.

Is that a fair statement?

Yes, it is, and that's kind of why you're seeing it now a little bit.

You know, we were up a little bit this quarter even though -- on gross margin -- even though the revenue wasn't up.

We're going to be up again in the September quarter as we have guided, even though we're ramping some new programs.

So that way we think about it is when our revenue numbers drive a little bit past $200 million a quarter, we start to see gross margins in the 40s -- in the 40 -- beginning with a 4 -- and that's really because we're able to maintain reasonably high contribution margin and not have to dump it into internal capacity.

Now, having said that, we did spend 13 million this quarter, and we're going to spend what we need.

It's not going to be free, but it's not going to be a big bricks-and-mortar.

Not that we're going to have to spend in the next while.

Daniel Amir, W.R.

Hambrecht.

Thanks a lot and congratulations on a good quarter.

A question here a bit about your operating margins.

What way should we -- as we see the gross margins here increasing nicely, and it looks like that you're on the track to get into the 40% range in '08, what type of operating margin should we model in the future, or what's kind of the long-term financial model for the company now?

We've been running at a normal revenue level, you know, with -- we've been a 29 or 30 million of R&D and $22 million of SG&A.

We've been at the 15 or 12, and we think the 13 to 15 is right in R&D, but we think that SG&A could go down lower than 12 over the next couple of quarters as we leverage up, as a percent of revenue.

So we think about -- you know, if we're running 10%-ish now, we can see our path pretty clearly to get to the mid-teens and, frankly, when we start getting into numbers that look like $250 million a quarter, we think we could even be to the mid to high teens, and that would be with margins, again, that begin with a 4, although not -- we're not getting ahead of ourselves on that margin, however, but it also is a lot of leverage on the OpEx line, as Allan mentioned.

So we're firmly focused on 15%, but I'm committed to driving beyond that just as soon as we get there -- just as soon as we round that bend.

Okay, and one other question on the linear side -- what type of run rate should we expect going forward?

Is it going to tap out here around, you know, a $50 million run rate or is the percentage revenues as the company goes forwards into a 220 to 250 million run rate?

I'd have to say heck no, it's not going to tap out.

This is a big market.

Now, it's diversified, right, it is a diversified market, but most estimates look to be three to four times the handsets, believe it or not, it is diversified.

So what we've done is we've got marketing and applications experts that are driving design teams that are going after certain niche markets where -- I say "niche markets" -- not handset markets that are, in aggregate, driving this kind of growth.

We've said this year that we would begin roughly $40 million in total revenue.

We'd like to exit around 50 and add a couple of [steady million a quarter] and, boy, I've got to say, we'd be -- our hearts would be broken if it flattened at [50 million a quarter].

We think we can do much better than that.

Aaron Husock, Morgan Stanley.

On your OpEx dollar expenses, you did a good job bringing them down again for the fourth quarter in a row.

You're guiding for an increase in operating expense dollars in the September quarter.

Can you talk about what's driving that increase in dollar spending and whether you think you can hold it, roughly, flattish or minimal growth from now on?

Well, some of it is, we had some masks that were timing differences from Q3 to Q4.

There's a little bit of depreciation -- some of it on the SG&A side in sales commissions as we ramped sales.

So it's more the variable, I think, the semi-fixed portion.

We can go a long way without increasing the model.

That's a long way of saying yes to your question, Aaron.

Okay, okay.

Do you have a sense for looking at your overall power amplifier units?

What percentage of them are sold as a front-end module versus a power amplifier module?

Yes, well, the mix is definitely moving more towards complexity, and that's front-end modules, and, as you know, we have a number of technologies in-house -- filters, discrete switches, that we can bring in to match the PA.

So the way I'd look at, overall, right now, it's probably about 30 to 40% FEMS but, of the new designs, the majority of new designs and new customer engagements are all front-end modules.

Satya Chillara, Pacific Quest Equities.

Dave, can you talk about the status of the EDGE radio at Motorola?

Sure, you know, we have, and Liam can help me with this -- this design, DGRF EDGE radio, we've made calls with it together.

It is fully spec-compliant, it meets all of Motorola's specifications.

It came in at the cost budget established for it as well.

So I've got to tell you, I'm pretty happy with the design team.

Frankly, it is, at this point, firmly in the hands of Motorola to determine when it gets launched.

We believe it will get launched.

They've told us it will get launched.

We look at it as an '08 opportunity not an '07 opportunity, but it's a great product.

We did what we were supposed to do, and we've got to get Motorola to move it into phones.

What's your best estimate in terms of when you say '08 opportunity first half or second half?

Probably summer '08 right now based on our information.

We're trying to be very conservative with that, because we've been wrong before, but we've done what we can do on our end.

It may be earlier than that, but we want to be very conservative on DGRF.

It is not in our guidance.

Brian Modoff, Deutsche Bank.

It seems you've been not really talking much about the radio product with Helios.

You had, obviously, the comments on Samsung.

You're really playing up front in modules now.

Do you see doing front-end modules -- or -- radios, excuse me -- of Helios product in WCDMA or do you see bigger opportunities in front-end modules' arena, and will you stay in radios?

Well, first, yes, we will stay in radios.

We talked about Samsung and increasing unit volumes there.

We talked about Mediatech as a reference partner.

You know, when we look at -- and we do have a wideband CDMA design that is taping out now.

So we're well along the way on having CMOS -- inexpensive, small, wideband CDMA design that we are mating with, we think, a pretty slick multimode front-end module architecture that makes the whole system pretty compelling.

But when we make a decision to develop a radio for a handset, we look at an identified customer, we look at a socket that is not threatened by an SOC.

We talked a lot last quarter about how we were complementing and partnering with people like TI and Infineon and others.

We think we've got the vast majority of SOC-derived front-end business.

I know that to be the case.

So we look for identifying customers and sockets multimode are wideband CDMA WEDGE sockets that are not threatened, at least, in the medium term by SOC, and where we can leverage our advanced linear technology.

You know, if you think about, Brian, how we run this business, we've got a team, a relatively small team, of RF designers that focuses really on three markets.

These folks are really good at taking complex analog and linear circuits and implementing solutions in CMOS -- cheaply, small, quickly, we think, from a time-to-market standpoint -- and they're focused on handsets where we have a customer and where we have a defensible barrier, an advantage, we can make money.

They are also aimed at infrastructure -- we're doing a lot of business now in synthesizes and Huawei and Ericsson and elsewhere and, third, is a lot of these new linear catalog products we're talking about are linear CMOS-derived designs that, believe it or not, are derivatives of building blocks for our linear business.

So that's the way we think of this business as an essential component of our long-term growth strategy.

Aalok Shah, Credit Suisse.

One of your competitors last night announced that they had an excess inventory situation with one of their major customers, and I'm trying to figure out, you know, because you all operate with a hub inventory system with this major customer, how are you guys managing that channel at this point?

I don't know the specifics of what you've just described with a competitor, but I will say that these hub arrangements do have some safety valves.

They are min/maxed based, it's difficult -- they don't let you get too far ahead, really, because you're shipping, you know what's being drawn down, you're shipping in and attempting to have a couple of weeks, perhaps, of inventory depending on what the contract is and where it does get ahead a little bit, typically, in our experience, the customer has a contractual liability for what's in the hub to the extent you haven't gotten ahead of yourself.

So speaking for ourselves, yes, we have product in hubs.

We're quite familiar with it, and we don't believe we've gotten ahead nor do we expect to get ahead.

We're watching MRP very, very closely, and we have good visibility as a result of it.

And a hypothetical question -- if a customer decides to scrap a design, and there's inventory in the hub, what happens to that inventory?

Is the customer liable or are you guys liable for that inventory?

If you've maintained within the contract of the hub, and you haven't gotten ahead of their forecast, then the customer is liable.

Mark Teller, Merrill Lynch.

Thanks, a solid quarter, guys.

I just had a couple of quick questions -- Allan, when do you expect the tax rate to normalize and what tax rate do you expect?

That's a really good question.

We've been looking at that.

So we still, right now, in Europe and in Mexico, the cash taxes that we're paying are in this $250,000 to $500,000 range.

The NOL, without giving you a forecast out for two or three years, you know, we think will, for sure, be able to absorb '08 and into '09.

There is some GAAP accounting that requires us, when we're -- it's more than probable we're going to use the NOLs, which is we're getting close because of the strong profits, we've got to reverse some of those valuation allowances.

So next quarter, you may see, on a GAAP basis, we'll do some tax accounting, although the rate, by the time we have to pay taxes, we believe the rate will be down in the 20s, and we'll really give you a deep dime on it next quarter, but on a pro forma basis, you're not going to see if for a while, and in your '08 models, you can, I think, use the rates that you're using and (inaudible).

As far as, you know, I guess some of are starting to model out '09.

Should we increase the tax rate at that point, do you think?

I don't think yet until I give you guidance, and I'd use the same pro forma tax rates for '09, and we'll talk more about it at year-end.

Okay, and, David, you know, the two 10% customers were Motorola and Sony Ericcson.

I know that at least maybe it was a quarter or two again, we noticed that Samsung popped up above 10%.

Is this just because they're not growing anymore and your other customers are growing -- that they're not showing up as 10% anymore?

We're giving you a technical answer to perhaps what is not meant to be -- intended to be a technical question.

I think Samsung, I don't know, in the current quarter was 1.999%, or something.

It was just, you know -- since we don't segment customers by quarter and, really, there's a lot of good reasons not to get into that level of granularity by customer, not the least of which is what our customers are seeing and not wanting to be overly transparent about what our customers are doing, but we gave you an answer, which were those two customers that are clearly above 10%.

But Samsung is going up, incidentally -- going up, driven by the new phones we talked about in the prepared comments, and they're going up with Helios.

They're marked in the top three and they're very close.

Pierre Maccagno, Needham.

Congratulations on the quarter, Dave.

So could you talk about this quarter -- how did Helios grow compared to the front-end modules.

I don't know if you can give some sort of breakdown?

Within the Helios portfolio, I think we've alluded to -- we had some strong gains in EDGE but primarily by Samsung.

We also picked up Mediatech, who is now delivering EDGE solutions throughout China.

We did have some legacy 2G business in CDMA and GPRS that muted that somewhat.

Again, the power amplifier business remains very robust.

We had some solid growth in WCDMA and EDGE FEM, and also we're seeing some robustness in the low-end GPRS.

Okay, but are you going to give a comparison of which one -- how much each one grew?

No, we don't -- we did give you, at the outset, a rough estimate of our handset revenues versus linear products, which were about 24 for linear and about 76 for the handset business, but we don't get into any further granularity.

Edward Snyder, Charter Equity Research.

I just wanted to follow up -- in terms of your business with Nokia, you've traditionally been very good at the CDMA side of the business, not so strong in GSM.

Do you see that changing over the next year and any feeling at all how rapid or large that business could be for you in '08?

You know, the beauty of -- one of the reasons, perhaps, I bored you a little bit maybe in the prepared comments was to talk about multimedia, and there's a thing about it that we love and have always struggled a little bit with Nokia is that Nokia is very loyal to their supplier basis and very methodical about selecting the suppliers and, frankly, if we were unsuccessful going to Nokia in the past and saying, "Well, suppose we drop price?

Suppose we can be the best supply chain, the best quality, we'll do all those things that" -- yeah, but, you know, that's not anything new.

I've got suppliers I like.

So the opportunity for us is clearly, as with many customers and other new customers as well, is clearly in multimode where we, frankly, think we have hands-down better solution because we control filters, amplifiers, switches, multi-chip modules, passive integration, we have something that customers need because there are so few suppliers out there who can handle that breadth, do it reliably, and ship them by the tens of millions, and in our case, over 100 million a quarter.

That's our leverage in every single customer we're talking about, and Nokia is no exception.

But I mean in terms of -- you've had that for a while and just recently gained traction in some of their GSM product, the multimode, GSM, 3G stuff, any feeling at all how big that could be or into '08?

Primarily, I mean, you guys are huge and you just kind of scratch the surface with this big opportunity.

What's your feeling on growth?

Well, I think, and I don't mean to be elusive, I just can't comment specifically on this customer.

I think you know that.

We just can't.

But I will say that we are focused on growing faster than the market because the uptake in the market for multimode, for multimedia, and we think our unique position within us has us in the labs and designing into platforms for '08, '09, and 2010 with everybody.

James Faucette, Pacific Crest.

Most of my questions have been answered, but I just had one clarification, or if you could repeat what the CapEx was in the quarter?

Sure.

Capex, Jim, was $13 million, and depreciation was 10.

Okay, great, and then as far as pricing environment -- how should we think about -- obviously, you guys are benefiting from the step up in dollar content, particularly as you've talked a lot about the complexity grows and number of bands grow within the phones -- how should we think about the pricing declines on those components?

Is it similar to what we've seen in the past of around 20% annualized, or are you seeing slower pricing declines from that right now?

Yes, James, this is Liam.

The pricing is not on the order of 20% at all.

I mean, we're certainly -- I'd say, worst case, we're single-digit, maybe 10 and 12 on products.

However, the blended ASPs for us, which is more important -- they're actually running at breakeven, in some cases up a little bit, and this is by virtue of the discussion we had already about multimode, multiband products -- more FEM content, more complexity, which is allowing us to get more dollars within a phone but also get higher ASPs.

So specifically on those multimode products, as you step up, over the lifecycle of those products, are you seeing a normal pricing decline, or is that flatter than what you've seen traditionally?

It is flatter than what we would see traditionally on a stand-alone GPRS PA or CDMA PA, so when you get into these more complex devices, EDGE FEMs, for example, WCDMA FEMs, there's fewer point product competitors.

So we have defensible barriers, we can mitigate price erosion.

You're still going to see declines, because as you negotiate with your customers, and you want to do the right thing.

But we're looking at single digits on those types of products.

Think of it this way -- in the 2G domain, the technology that's been around over a decade, you add a number of competitors with, really, empty -- not empty -- but low utilization manufacturing assets, and they need to price incrementally on the margin, and the technology has been around long enough, and you weren't integrating other functions into the module, it was a PA in a box, that we were competing with as many as 14 companies at one time.

When we get into FEMs, particularly these new generation multimode FEMs, it is a very, very small, we think, elite group of folks who can compete and, therefore, there should be less long-term price pressure, more stability in this market.

So with that less reduced pricing pressure, do you think that your blended ASP, companywide, can continue to be stable or even up a little bit over the next 12 to 18 months?

I think if you believe, as we do, that more and more of the phones will have multiple bands and will have multimedia content; that is, EDGE, WEDGE, wideband CDMA then, yes, because we'll move from a $1 to $2 dominated 2G market and, over time, not only with unit volume growth, but we'll see content growth.

So, the answer is yes, over the long haul, but it's really based more on the dynamic of more multimode.

It appears there are no further questions at this time, Mr.

Aldrich.

I'd like to turn the call back to you for any closing remarks.

Okay, well, thank you very much.

This concludes our call today.

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

And, ladies and gentlemen, thank you for your participation.

You may now disconnect.