思佳訊 (SWKS) 2008 Q3 法說會逐字稿

Good afternoon and welcome to the Skyworks Solution Third Quarter 2008 Earnings Conference Call.

This call is being recorded.

Now at this time, it's my pleasure to turn the conference over to Tom Schiller, Investor Relations for Skyworks.

Mr.

Schiller, please go ahead.

Thank you, operator.

Good afternoon, everyone, and welcome to Skyworks' Third Quarter 2008 Conference Call.

Joining me today are Dave Aldrich, our President and Chief Executive Officer; Don Palette, 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 Don's financial review and outlook.

We will then open the lines to 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 non-GAAP, consistent with the format we've 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.

For our third fiscal quarter, I'm pleased to report that Skyworks' team again exceeded guidance, with top-line growth of 23%, driving a 79% improvement in operating income.

Our performance reflects our increasing diversification in wireless and adjacent analog markets, share gains, and strong operational execution.

Specifically during the quarter, we delivered $215 million of revenue.

That's up 23% from $175 million last year.

We expanded our gross margins to 40.6%, a 180 basis point year-over-year increase and our fifth consecutive quarter of gross margin improvement.

We generated operating income of $30 million -- now, this is up 79% year-over-year.

We increased our operating margin to 14.1% and this compares to 9.7% last year.

I think most importantly, we posted record earnings per share of $0.18 versus $0.11 in Q3 of '07.

And we've generated $112 million of cash flow from operations on a fiscal year-to-date basis.

And we exited with $254 million of cash.

Now, at a higher level, our performance represents further progress towards realizing our stated vision of becoming the worldwide leader in mobile connectivity semiconductor solutions.

And to that end, and as we've outlined in past calls, we're focused on four simple, we think, yet very powerful business strategies.

First, we're continuing to diversify Skyworks.

Second, we're developing higher margin products.

Third, we're capitalizing on content growth in wireless front-end solutions.

And fourth, we're driving continuous operational improvements.

Now, I'll spend a little time today providing an update on our progress along each of these four critically important initiatives.

First, with respect to diversifying Skyworks, we're leveraging our catalog business and our worldwide distribution network and expanding into a broader set of end markets, including energy management, satellite radio, industrial, automotive, wireless networking and broadband communications.

Now, keep in mind, today Skyworks supports nearly 1,000 global customers with over 2,500 standard products.

And with each new customer engagement we're widening our product pipeline.

In fact, during the quarter we ramped energy management solutions for ZigBee and remote meter-reading applications.

We've launched ultra-compact satellite radio antenna modules, including filter and low-noise amplifiers.

We've introduced the industry's first bulk acoustic wave filters, enabling WiMax and wireless land coexistence.

In the automotive sector we now support Microsoft's Sync initiatives with low power control ICs, enabling fully integrated, voice-activated communications for our mobile phones and digital music players.

During the quarter we also increased shipments of FEMTO cell building blocks at a top-tier OEM with additional design wins slated to ramp later this year.

And we've commenced shipments of custom multi-chip modules for fiber to the home applications.

Now, in parallel to our analog market growth initiatives and diversification, we're continuing to diversify our handset business.

As many of you may recall, in 2006 our revenues were heavily concentrated with two handset OEMs; whereas today, we're uniquely supporting all five top-tier OEMs, as well as the two leading smart phone suppliers, with new program ramps across the board.

And a special note.

During the quarter we partnered with Qualcomm for the first time in our history, aligning our multi-mode frontend module portfolio with their CDMA2000, EDGE and 3G HSDPA system roadmaps and reference designs.

Now, given Qualcomm's CDMA and wideband CDMA leadership, this is a significant growth opportunity for Skyworks.

Second.

We're developing higher margin products.

With the development and introduction of a host of new custom solutions, we've created a portfolio characterized in many cases not only by longer lifecycles and, in some cases annuity-like revenue profiles, but also higher overall contribution margins.

This transition is occurring on multiple levels, including, for example, standard catalog products, custom analog solutions in multiple new markets, front-end modules for system-on-a-chip applications, or SoC systems, and multi-mode front-end modules.

Both our handset and our newer linear products customers place very high value on architectures that reduce size, reduce bond complexity, improve system reliability and enhance performance while enabling the lowest system price points.

And this is precisely where Skyworks excels today.

Third initiative.

We're capitalizing on the increase in handset front-end content.

The migration to multi-mode wireless platforms from 2G voice-centric phones is accelerating as consumers demand high-speed data capabilities supported by 2.5 and 3G applications.

Now, with this strategic trend, the complexity in the front-end module significantly increases, expanding our addressable market nearly three-fold, specifically driven by a few things.

One is the need for backward compatibility to existing networks.

Another is the requirement to manage multiple standards and frequencies within the same phone or within the same device; in some cases, up to a dozen frequencies in a single platform.

The inclusion of broadband functionality enabling things like music, data, video, and the requirement to accomplish all of this in a compact size with minimal battery consumption.

The integration of these various bands for reliable high-speed access requires very complex modules, which must, must remain physically small.

They must remain extremely power efficient and cost effective.

In fact, the more modes of operation in any given platform the better it is for us, the better it is for Skyworks.

As we can push the performance envelope in terms of front-end integration and reduced current consumption obviously enabling longer talk times and, thus, improving the overall user experience.

Now, at the same time the emerging market is moving aggressively to lower-cost system-on-chip solutions, SoC.

Now, these particular architectures place a higher burden on the front-end module given the RF functionality that is being merged into the baseband device.

But there are inherent performance challenges when integrating analog functions into CMOS technology and, as such, there's higher value assigned to the SoC front-end module.

This trend may in fact be the most misunderstood aspect of our business today and is clearly a substantial revenue growth area for Skyworks.

And as we previously discussed, we're aligned with each and every leading baseband supplier.

So, with ramps in various stages of progress across all tier-one OEMs, Skyworks is positioned to gain further share in the FEM product segment.

The competitive landscape is clearly narrowing, with fewer suppliers able to support the demanding performance specifications, the stringent quality standards, and the manufacturing scale requirements of leading handset OEMs.

In fact, our customers are very quickly consolidating down to an extremely short list of strategic front-end module suppliers out of a dozen or PA companies that serve the pin-for-pin compatible space only a few short years ago.

So in short, the market's growth needs are intersecting with what Skyworks does well and, therefore, we're capturing points of market share in a growing market.

Fourth strategy.

We are executing operationally.

As some of you may know, we're an extremely metrics-driven culture with an intense focus on continuous improvement in yields, in equipment utilization, in our cycle times, and in our return on invested capital.

Meanwhile, we've effectively implemented a hybrid manufacturing model.

We're now leveraging multiple external foundries.

And this model is providing us with a great deal of supply chain flexibility.

It allows us to have a lower capital investment, along with the ability to meet upside demand.

And this focus on operation I'll call blocking and tackling is directly correlated to our results, and is best evidenced by our five consecutive quarters of gross margin expansion.

And for the sixth and solid stripes toward reaching our long-term profitability targets.

Okay, to recap.

Our third quarter performance demonstrates continuous progress in our four initiatives.

First, we're diversifying Skyworks; second, we're delivering higher margin products; third, we're capitalizing on the increase in front-end module content; and fourth, we're executing operationally.

So, in summary, this is an exciting time for Skyworks.

We believe we are well positioned to continue to outperform the broader semiconductor market and to deliver superior returns to our shareholders.

I'll now turn the call over to Don for his review.

Thank you, Dave.

And thanks again for joining us, everyone, this afternoon.

Revenue for the third fiscal quarter was $215.2 million, up 23% year over year, up 7% sequentially, and ahead of our guidance for $210 million for the period.

Gross profit for the quarter was $87.4 million, or 40.6% of revenue, a 180 basis point year-over-year expansion and fifth consecutive quarter of improvement.

This performance reflects our focus on margin improvement and was driven by the following -- higher equipment efficiencies at all of our factories, progress on yield improvement initiatives, and double-digit year-over-year material cost reductions.

Operating expenses were $57.1 million, of which R&D expenses totaled $34.1 million and SG&A costs were $22.9 million.

As a result, our operating income for the quarter was $30.3 million, up 79% year over year, and representing a 14.1% operating margin.

Our net interest expense and other income for the quarter was $600,000, while taxes were $800,000, which is approximately at our 3% cash tax rate.

Net income was $28.9 million, yielding $0.18 of earnings per share, $0.01 ahead of our consensus estimates.

Now, turning to the balance sheet.

We exited the quarter with cash and cash equivalents of $254 million.

During the quarter, we recorded $11.4 million of depreciation, generated $26.2 million in cash flow from operations as we continued to deliver working capital improvements through our collection performance and accelerating our inventory turns, and we invested $14.4 million in demand-driven capital expenditures, primarily for fab and assembly and test capacity.

Now, to our business outlook for the fourth fiscal quarter.

As Dave has outlined, new program launches, targeted design win ramps and market share gains are translating into improving order visibility.

And as a result, we expect to continue to outpace market growth and to show further operating leverage.

Specifically, assuming revenue of $225 million in the September quarter, we suggest modeling a sequential gross margin expansion of 10 to 30 basis points and operating expenses of approximately $58 million, yielding an operating margin of roughly 15%.

Below the line, we suggest modeling interest expense of $300,000 and $900,000 for taxes.

In turn, we intend to deliver $0.20 of diluted earnings per share off a base of 166.5 million shares

To put our performance in better context, it's worth noting the trajectory of our improvement.

In fiscal 2006 we recorded $0.21 of diluted earnings per share.

In fiscal 2007, we posted $0.48 for the entire year.

And by virtue of our guidance, we are at an $0.80 annualized EPS run rate.

And that, with us heading into a seasonally strong back half of the year with the opportunity for further improvements going forward.

Now, that completes our prepared comments.

Operator, please open the lines for the question-and-answer session.

Very good.

(OPERATOR INSTRUCTIONS.) We'll first go to Steve Ferranti with Stephens, Inc.

Thank you.

Congratulations, guys, on a nice quarter.

I thought the quarter was particularly noteworthy given that two of your biggest customers continued to see challenges last quarter.

How do you sort of factor that into your guidance as you look ahead into the fourth quarter?

Well, I think it's -- and thank you, Stephen.

I believe that, given the diversification we have among our customer set, we're starting to see increasingly over time, when we see shifts among the OEMs, it doesn't impact the way it once did.

It doesn't impact us the way it once did.

And so, that stability has been entered into our business and so we're a little bit less impacted by share shifts.

Having said that, we've used a similar approach -- we have for the last several quarters -- in creating our guidance in a prudent way.

Don?

Yes, that's correct.

Yes, that's the approach.

Okay, great.

And are you seeing any signs of uptick at those particular customers?

I guess I'm most interested in what you're seeing at Sony Ericsson these days.

Yes, Steve.

Actually, what we're seeing is a pretty balanced attack right now.

We are gaining share, primarily in new multi-mode designs, and our position there is expanding quite well.

I wouldn't put it on one specific account.

I think our attack is quite balanced now among each of the top five and we're growing in every one of those.

Our next question is then from Ittai Kidron with Oppenheimer.

Congratulations on good results.

First, just some clarification.

Don, with regards to the interest income this quarter, it's the third quarter in a row where it's declining while your cash balance is growing quite nicely, so it's counterintuitive to me.

If you could explain that.

And also, your interest expense guidance of $300,000, is that net?

On a net basis, interest income minus expense?

Yes.

Well, I'll answer the second one first.

Yes, that's net.

When I give you that guidance, that's interest income minus interest expense.

So, the guidance is an expense for Q4.

Your question on our overall return, what you're seeing is that, with what's going on in the financial markets, the instruments that we have our cash in, we had -- the returns on those interests has been dropping over the past several quarters and that's exactly what you're seeing with the interest dropping.

Okay.

Okay.

Well, good to know.

You should be thinking about a buy-back at this point.

Dave, can you comment about, through the quarter there's been significant concerns about the slowdown in handset market and macro.

I know that your guidance is a [conglomeration] of your forecasts and I'm hoping to assume some haircuts to some estimates.

But can you give us a little bit more color as to, ever quarter you have an OEM that beats -- an OEM that misses as part of the mix.

But can you tell us how that mix in general ended up in the quarter?

Was there one OEM more than others responsible for the upside in your numbers and how do you expect that to differ in the September quarter?

Sure, Ittai.

Clearly we're seeing some choppiness to the environment.

We're seeing some strength in smart phones.

We're seeing strength in our multi-mode phones and our multi-mode phone customers.

We're seeing somewhat slower growth in some of the more mature markets, North America for example, Western Europe.

Having said that, the important issue for us is that we are gaining share.

We are gaining higher dollar contents and growth, in fact, across all top five accounts.

So, that's allowing us to outpace the market growth.

And we've taken those program ramps, and I think an appropriate view of the overall market, into consideration as we've created our guidance.

But it has been choppy.

Our next question is from Cody Acree with Stifel Nicolaus.

You've done a great quarter and good guidance.

With regard to that overall market, given the movement to a higher dollar content, to 3G, to smart phones, what -- if you had to look at say Nokia's kind of 10-ish percent unit growth forecast for the total market, how does that compare to what you would expect your market, your total available market, to be growing?

Ex, of course, the analog business.

Cody, yes, this is Liam.

We're encouraged with Nokia's numbers.

They're about in line with what we were seeing for overall handset unit.

But I think one of the issues that you may be getting to is that, if you look at the actual handset count, the power amplifier cam goes up quite a bit more.

So, if you look at wedge devices, for example, you have maybe two or three bands of WCDMA anchored with an EDGE FEM.

We're seeing much more of that content.

So, the actual power amplifier count is growing much faster than let's say a high single-digit or 10% handset unit count.

So, would you -- can you give any kind of variance to that?

I mean, do you think there's a -- is there a percentage?

Do you -- if it's at 10%, do you add 2% or 3%?

Or is it significantly more?

No, it's much more than that.

I mean, it's an order of -- I would -- you've got almost a PA count now.

Certainly, in the 3G models you're looking at two or three devices, as many as four.

And then if you take that and extrapolate your own estimates for 3G on top of what you see in GSM an EDGE.

So, it's a pretty powerful multiplier.

So, could we see -- if the units of handsets are growing 10%, does the PA market grow 15%?

Yes, at least.

Okay.

And then lastly, you've been getting obviously great gross margin leverage from lots of different areas.

If you could give us a little bit of an update on your 4 to 6-inch wafer transition in your PA fab.

What's going on with the switch fab.

And then, where does that -- how do all of these things kind of, along with the growth of these higher dollar content Pas, come in to give you kind of a structural base?

I know you've given us a target before, but what becomes your new structural base or long-term structural gross margin?

Well, Cody, maybe I'll break that question -- there's a lot in that question so I'll -- let me comment a bit on your specific questions with respect to the foundry.

And perhaps Don can talk about the model.

Yes.

We are in the process and have facilitated much of the conversion to 6-inch in our Newbury Park HBT (inaudible) factory.

We're on target to cut that higher capacity over sometime in the second half of 2009.

We're on track to do that.

When we do that, we will get an overall reduction in wafer costs or a square millimeter of die costs.

That's rather significant.

We'll also get a lot more capacity.

And we've been partnering with foundries to facilitate our capacity to do that.

So, we're well on the way to cutting that over.

With respect to [PHEP], we still have capacity.

So, we expanded capacity.

We paid for that in capital mostly in 2007 and we're growing into that capacity utilization as we speak now, in 2008 and 2009.

We're in good shape in PHEP.

We'll be in excellent shape as well in HBT as move through 2009.

Yes.

And Cody, as far as our targeted business model, at $250 million we're targeting 42% margin.

And certainly a component of that is the benefit that we're going to get from the 6-inch conversion that Dave's talking about.

But we feel really positive about the focus.

Dave mentioned earlier in the call that we're a metrics-driven Company.

And there's an extreme amount of focus on margin improvement.

And it's -- the bulk of the improvement you've seen in the last five consecutive quarters in improvement -- if you add in our guidance and we deliver it that's six quarters -- is really focused around improving our product yield, our factory efficiencies, and delivering double-digit year-over-year cost reductions.

And that, coupled with the volume benefit that we would received, as well as then layering in the wafer cost reductions from the 6-inch, puts us in a position to deliver that 42%.

Our next question is from Suji De Silva with Kaufman Brothers.

Nice job on the quarter.

So, can you tell us what the mix of handset versus linear was in the quarter?

Sure.

Both our handset and linear products business were up sequentially and year-over-year.

And our linear products was just under 25% for the third quarter.

Okay, great.

And then as you kind of look toward your $250 million run rate, 42% and 18% sort of model, what kind of mix do you expect linear to be at that point?

Do you expect it to outgrow handset to get to that point?

I think -- Suji, I think you should consider it to be roughly the same mix.

Now, we're going to grow our linear products business.

Don mentioned we're up in the quarter, we're up year-over-year.

But we also intend to grow our handset business for the reasons we described.

So, I don't think it would be -- I think it's difficult to handicap whether or not there'll be an actual shift.

I think the safest thing is how to keep it consistent.

Yes.

I guess my question was kind of does mix shift help you get to your gross margin target.

It sounds like that's not one of the key factors--.

--No.

No, it isn't.

The higher overall dollar, contribution dollars from the product families that we described in the prepared comments, including multi-mode front-end modules, including SoC FEMs and including LONG-TERM, that's really what drives it more than any dramatic shift between handsets and linear products.

Great.

That color helps.

And then who were the 10% customers in the quarter?

Suji, that was Sony Ericsson and Samsung.

And the other market leaders, the other three top OEMs, were in the high single-digits for the quarter.

Our next question is from Edward Snyder with Charter Equity Research.

Hey, guys.

A couple of them here.

Good quarter.

And I know you're guiding for 42 at 250.

In the near term, though, I mean, you've wracked up some really good margin gains here.

It would seem that your PA business is becoming a lot more profitable given your mix.

And linear's lower than I would have expected and yet your margins continue to move up.

Can we expect it to continue or do we wait until we get a kind of step function when you get the 6-inches up and running?

And then also, I want to touch on some of your customer blends here.

What was Freescale's PA business or the business you acquired from Freescale in terms of contribution on the quarter itself?

And finally, Nokia.

You guys are gaining some share there.

What's that opportunity look like for '09, do you think?

Okay.

A lot of questions in there, Ed.

That's one.

That's one question, guys.

If I can say it all in one sentence and not breathe, its one question.

Oh, perfect.

That was perfect.

I like that.

Well, I think your first question was, are we improving our margins.

And we obviously are improving our margins in Pas as well as -- as we increase our revenue in linear product.

And that's actually true, although it's not as interesting a story perhaps as you may think.

I mean, it is, in fact, the blocking and tackling that Don described.

We are getting better yields.

We're driving our equipment efficiencies.

We're driving our average dollar per unit out the door.

And we have dashboards that we look at ad nauseam every day, every week, every month.

And that's what drives a cost reduction per part, per SKU; that, if it beats our targets, we're able to stay in good stead, in good shape, improving our gross margins as these products ramp and as new products ramp into production.

It is also a function of higher dollar content.

That much is true on the multi-mode.

So, that's -- I think your intuition is correct.

We are getting good solid gross margins with these higher value-added solutions.

And we're just continuing to try to drive every aspect of our supply chain to lower cost.

The second part of your question, Ed, was with respect to Freescale.

Those of you who don't remember, we acquired the Freescale business.

What we -- we did not acquire a revenue stream, per se.

We acquired patents, we acquired some very valuable intellectual property and some exclusive design rights, primarily into systems going into [RIM] and Motorola.

And with the combination of the share -- the small share that we had at RIM prior to that acquisition back in September, and the transition of those designs from Freescale designs to ours, and the improving yields on those new designs as we transition them into our process, we are now, I'm happy to say, the majority PA supplier at RIM.

My Snyder, did you have additional--?

--Yes.

And then in terms of Nokia, I mean, you've obviously got a slot there and you're ramping.

What kind of opportunity do you think that holds for '09?

And do you think -- I mean, obviously you're getting share there.

Are the share gains going to continue at Nokia?

And how about the Koreans?

Are you getting share with the Koreans?

Ed, yes.

This is Liam.

Certainly, we can't get into all the details with Nokia, but there's a pretty important growth opportunity within that account, as there is with the other four leading OEMs.

And the upside, as we move into '09, could be quite substantial.

We do believe that we still have -- we talked about it before.

We feel like we are in position by the December quarter to put four of the top five up as 10% customers.

So, that should give you a bit of a hit directionally where we see Nokia.

With respect to the Korean accounts, they've actually been quite strong.

LG and Samsung have been two of the stronger players through the year.

We see them in the second half also looking pretty good.

We talked earlier, Dave and Don, about multi-mode.

And we've seen some benefits there.

Both of those accounts are also beneficiaries of our -- or we are beneficiaries of their relationship with Qualcomm and our recent engagements with Qualcomm.

So, we see continued momentum.

And in some cases we're in the early stages of growth as a result of that baseband partnership.

Our next question is from Jeff Kvaal with Lehman Brothers.

Hi.

Thanks very much.

First, Don, this may be for you, but could you talk a little bit about the 18% operating margin target?

And you have also I know talked about getting to 20% over time.

How much of that is continued excellent execution from you on the yield side?

How much of that requires you to get better margins on, say, a system-on-chip PAs?

Thanks, Jeff, for the question.

When you're looking at the model it's 42%.

It's -- I don't know -- it's not going to be easy for me to actual segment the percentages of that.

But clearly, what we've demonstrated to date and what we'll continue to focus on, on just grinding out the yield improvement, grinding out the material cost reduction year-over-year, and also the equipment efficiencies in the factories, that's a critical component, as well as what you just described with the newer parts, the higher dollar content.

That's also going to contribute.

Then you've got the 6-inch -- adding the capacity of 6-inch.

All those things are contributing to that.

It's hard for me to break that down into percentages.

But we're very, very comfortable at 42% at $250 million.

And the 18 is a function of op expenses being at 24.

And we're very -- in fact, I would hope that that's a number that's -- that we could slightly exceed at that level.

And if you look at what we spend today and 250, I mean, the math works pretty easily.

So, we're very, very comfortable that 18 to 20 is something that's doable for the business.

I guess that presupposes that you folks are able to hold on to a lot of the improvements that you're making in yields, etc., which typically in the past, one has passed through to the customer.

So, maybe it's better for Dave or Liam or for you, but could you help us understand a little bit about the pricing dynamics?

Well, I think first of all, we do believe that we can hold onto the yield improvements, or that we can continue to perpetuate those yield improvements.

And this is a process that we've worked very hard to get better at, and that is predicting how new programs and products will ramp through our factories, getting them up the learning curve faster and faster and then driving overall utilization.

And so, we are confident that you'll continue to see improvements in yield.

We've got a lot of head room there.

Got a lot more to do.

And so, we're going to continue to drive it.

Our die sizes are shrinking per function.

And were entering an era of new processes that actually drive the overall build material costs down.

And so, with respect to do we pass that along, well, clearly we pass that along, we hope, in a way that we can add value to our customers.

Our customers need these products to get smaller.

They need these products to add functions.

They need to add bands.

And they need to do it in a way that allows them to achieve their bottom cost reductions.

And if we do our jobs really well, we're able to add dollar content while, at the same time, our customers are delighted to have a product that lowers their overall bottom cost.

It's less relevant what they pay us for a specific function.

It's more relevant what we're able to do for their overall bill of material.

So, we're sweeping in function.

We're sweeping in bands, we're sweeping in filters, more modes of switch.

And so, that's how we're able to, as you say, pass the benefit along to our customers without a detriment to our gross margin.

Our next question is from Aalok Shah with D.

A.

Davidson.

Hi, guys.

Congratulations.

Just a couple of quick questions.

I know we've talked about the front-end module wins, but maybe, Dave, if you can go into it a little bit more in detail as to -- when you spoke earlier about the front-end module, getting some traction with the single chip, were you referencing particularly the reference to TI and Qualcomm helping you there?

And in particularly with the Koreans?

I mean, was there a specific reason why you mentioned that at this point?

Well, I think we've mentioned it in the past.

But there is a specific reason and it is the top tier baseband providers.

So, for example, we enjoy an increasingly close relationship with Texas Instruments, with Qualcomm and others.

And that's been a concerted effort on our part to get closer to them as we attempt together to provide our customers a system that makes -- that works for them.

And the reason we talk about it now is we think it may be a little counterintuitive because, in the last 8 years, 6 years maybe, as there have been more and more phones produced, the view of the market has been -- well, there must be -- those products must be commoditized.

They were discreet designs.

There were a lot of suppliers.

Many of those suppliers had excess capacity and it created a difficult pricing environment.

You typically oftentimes had to give up points of margin for points of share.

What's happening today in the SoC world is that the way to -- my earlier comment, I think, applies.

The way to lower the overall cost of the bill of materials is to do more creative integration and SoC is a way to do that.

Sweep the radio into the baseband, provide baseband horsepower that works for the function.

But what that does is puts a lot of pressure on the front-end module so that you can meet all the system specifications.

Because something that is -- it is inherently more difficult to pull analog functions into bulk CMOS.

And so, we need to partner very closely so we can together deliver a solution that adds value.

And that's a higher value solution than it was when it was simply a discreet PA with a discreet switch and a discreet filter.

And does that include the [ball] filters at this point?

It could.

It could.

It doesn't today in the earlier designs, but it absolutely could because there's a filter as part of that function.

Okay.

And Don, just a couple quick questions for you.

On the tax rate going forward, I know you don't want to give full-year guidance, but should we just assume the tax rate, the cash tax rate is going to be relatively the same level it's been for the last couple quarters?

For Q4--?

--Not necessarily for the next quarter, but going into next year, even.

Oh, absolutely.

In fact, we've talked about that in the past.

We have -- our NOLs protect about $160 million of future income.

So for 2009, absolutely.

The 3% to 4% cash tax rate's the way to go.

That's absolutely where we'll be.

Okay, great.

Thank you very much.

Yes.

Thank you.

Our next question is from Todd Koffman with Raymond James.

Thanks very much and great quarter.

Thanks.

When you listen to your comments about you're within striking distance of your long-term model, your September quarter guidance, some of your remarks relating to maybe having two and maybe even three of the other top OEMs breaking into your 10% customer list, it sounds like the visibility of your business today is as good or better than it's been in quite some time.

Am I misreading that or is that reasonably accurate?

Well, Todd, let me try to put some color on that.

And I understand the question.

The visibility is improving because we are so much more diversified among the customers today.

So -- with the customers today in this space, including the leaders in second tiers and the newer Smartphone entrants.

So as a result, it's a little bit easier for us to predict what our revenue's going to be based upon some overall market dynamics, and the trend of higher dollar content on the higher end of the market.

So, that's giving us more confidence in our forecast, and it is giving us greater visibility.

However, we're obviously cognizant of the fact that there are shifting sands between OEMs, there are share sifts and that we need to constantly be on the lookout for that.

But we're tending to not be impacted the way we once were when we had one or two OEMs with a great -- with a very big share of our overall revenue.

Thank you very much.

Good luck.

Thank you.

Our next question is from Sanjay Devgan with Morgan Stanley.

Hi.

Thanks so much for taking my question.

I just -- qualitatively, I was wondering if you can run me through some of your opportunities in Asia, specifically your relationship with MediaTek and how you see those opportunities kind of evolving?

Sure.

Well, certainly the Asian market is really important to Skyworks.

China, specifically, has been a big market, as has Taiwan in the ODM channel.

MediaTek continues to be a very strategic baseband partner for us.

We have outstanding position with them on the GPRS side.

We're building that relationship now to include EDGE.

And we enjoy a disproportionally high share right now with MediaTek, very strong share in China by virtue of that partnership.

Now, in addition to that, on the linear product side -- let me shift gears with you a bit.

Huawei and most recently [DT] have become very significant for Skyworks as we build up relationship into their infrastructure markets.

And they're both very, very high growth players in infrastructure in APAC.

And if we move into Korean, as we talked about, LG and Samsung continue to be strong.

We think there's a great outlook for those customers.

And again, by virtue of the relationship with Qualcomm, there are platforms that we're engaging in very early that look very strong for us in 2009 and beyond.

And just as a quick follow up, your channel inventory, specifically for your linear products.

If you could just comment qualitatively on how the channel inventories are kind of tracking, I'd love to get any color on that.

Yes.

That's a difficult question.

Right now it feels very balanced.

The linear products distributor base that we have, it's quite diversified geographically.

The density within -- the product density -- by that I mean the revenue per device -- is actually pretty diversified as well.

So, it seems quite normal for this time of year.

We are seeing a lot of new interesting design wins in energy management.

We're seeing new design wins in satellite radio, and a lot of vertical markets that look strong.

Automotive is another one.

So, I feel like the inventory is well positioned there.

Our next question then is from Craig Ellis of Citi.

Thanks for getting me in, guys.

Liam, you were talking a little bit about the linear products business.

Can you just provide some more color as to how we should think about the seasonality in that business as we look out on the third and then the fourth calendar quarter?

Okay, sure.

Seasonality in linear is not nearly the impact or an issue as it is in handsets.

So, we see steady growth.

We're going to grow this quarter.

We should grow next quarter.

There shouldn't be anything that really impacts that.

Getting into the March quarter, again, seasonality in linear is typically not a big issue.

We are gaining share right now in a number of new vertical markets, as I've indicated.

Most of those are, quite frankly, immune to market seasonality.

Some of them may have some consumer sentiment issues that could move the numbers around a bit.

But we are expecting continued growth.

And as Don and Dave outlined, the percentage of LTs should be right around the 25% level.

I think -- this is Dave.

I'd just give a little bit of an input into Liam's comments.

There are -- there is some seasonality, but it is different for each product.

So, when you aggregate them you just don't see the overall seasonality.

So, it doesn't -- we don't mean to imply that we're immune market by market, because you'll see seasonality in automotive, for example, and so on.

But when you aggregate them all, that's the beauty of linear product.

We have very little concentration in any one end market or with any one customer.

Got it.

Helpful clarification.

Thanks, guys.

Thank you.

Our next question then is from Brian Modoff with Deutsche Bank.

Hi, guys.

Actually, if you look at the Nokia guidance and, given that units in Q1 were down 11% and then up only 3% in Q2, in order to do the 10% or better unit volumes Nokia was talking about this morning for the industry, you need to see quite a back half at recovery.

And I'm not sure that's doable in this environment.

So, how good is your visibility?

And given what you would think would be normal seasonality, given what Nokia said, shouldn't your guidance on the revenue side be higher sequentially?

Brian, I think it's -- we're modeling high single-digits, if you will, in overall unit volume.

There's nothing -- there's no magic to that.

We're aggregating inputs we're getting from our customers and some of perhaps the same sources you're looking at.

And so, I think we're not different in that regard.

It is so much more important to us in terms of one or two or three points of overall unit growth how we're able to execute on these share gains in multi-mode and of these newer linear product ramps we've been talking about.

So, our dynamic may be a little bit different.

Clearly, we're exposed to the overall unit volume and I think there'll be a reasonably good second half of the year.

But for what it's worth, high single digits is kind of where we are.

With respect to our guidance, I think Don talked about that earlier.

We're trying to factor in the market choppiness.

We're factoring our new program ramps.

And as a result of that, we developed our guidance.

And incidentally, next quarter will be nearly 20% year-over-year growth for our Company.

So, that's clearly higher than any market metric I've seen.

So the difference in -- if your revenue's up, say, almost 5% and the units are up a high single digit, then the difference is pricing pressure?

Or is it mix shift?

I'm not sure.

The high single digits is for the year, Brian.

So, we're thinking year over year would be high single-digit growth.

Oh, okay.

You're not talking about units up sequentially--.

--NO, no.

I'm sorry.

I may have said that and, if I did, I apologize.

I meant year-over-year growth in the high single digits.

For what that's worth.

Okay.

Nokia has stated (inaudible) and others have had different numbers.

Alright.

Thank you.

Okay.

Thanks.

And our last question in the queue, we do have Mike Burton with ThinkPanmure.

Hey, guys, thanks.

Nice job on the quarter.

Can you just break out -- I'm sorry if I missed it, but GSM versus CDMA versus WCDMA?

And then also, within the linear products, I know you guys have had some traction with Huawei on the infrastructure side.

If you could -- is that still a significant portion, 10% to 15%?

Or just give us a range that's going into wireless infrastructure?

Thanks.

Well first, Mike, on the interface, we were, as we said earlier, 50%'s multi-mode and that was -- we had strong growth Q2 to Q3 and that's the first time that we hit 50%, with the balance being in 2G.

That's where we ended up on the interfaces for the quarter.

Right.

And with respect to the Huawei question, I mean, they are probably -- actually, with certainty the fastest growing infrastructure player we have.

They're not a 10% customer of Skyworks.

Within the linear portfolio they are about 10% of revenue.

Okay.

But infrastructure overall is north of 10%.

I could assume that, right?

And then lastly, I wanted to follow up just with a product question.

There was some talk earlier about the development of a MEMS PA coming out at the end of this year.

Is there any progress on that or have you seen anything out of RFMD related to that or are your customers starting to talk about that?

Not MEMS PAs.

There is a lot of -- so I would have to say no, that's not something our customers are asking for in any big way.

A MEMS -- I'm not sure I know what that is, but -- I know what a MEMS is.

So, I -- there clearly, though, is a push towards higher switch count and more complicated switching and control functions in these multi-mode phones that would be feeding multiple -- air interface band is multiple frequencies, [YB] and CDMA being the obvious example, with multiple bands.

So, if I understand your question right, yes, our customers are asking for us to solve a pretty complicated problem, which is transmit and receive all the multiple bands and multiple modes of operation.

And that they are all asking for.

And with that, this will conclude today's question and answer session.

I want to turn the call then to David Aldrich for a closing comment.

Thank you very much.

That concludes our conference call today.

And on behalf of the entire Skyworks team, thank you for participating.