思佳訊 (SWKS) 2009 Q1 法說會逐字稿

Good afternoon and welcome to Skyworks Solutions' First Quarter Fiscal Year 2009 Earnings Call.

This call is being recorded.

At this time, I would like to turn the conference over to Mr.

Tom Schiller, Investor Relations for Skyworks.

Please go ahead, sir.

Good afternoon, everyone, and welcome to Skyworks' First Fiscal Quarter 2009 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 from our non-GAAP 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.

With that said, I will now turn the call over to Dave for his comments on the quarter.

Thank you, Tom, and welcome, everyone.

Despite ongoing market weakness, Skyworks delivered solid financial performance in our first fiscal quarter of '09.

Most notably, our revenue of $210 million was in line with one year ago.

$0.17 of earnings per share was $0.02 better than consensus.

We generated $75 million of cash flow from operations.

And as a result, we ended the quarter with a quarter of a billion dollars of cash.

Now on today's call, we'll discuss what we believe is differentiating Skyworks in this challenging market and the steps we've taken to improve our competitive position towards emerging an even stronger and an even more profitable company with the markets recover.

And first and foremost, throughout all of Skyworks, we're intensely focused on executing to our strategic initiatives, which we've outlined in several previous calls -- namely market diversification, share gains, operational execution.

Now in particular, we believe our financial performance is beginning to demonstrate the success of our fab-light manufacturing strategy and diversification initiatives that we commenced several years ago, in fact, and by fab-light, what I mean to imply is that our hybrid manufacturing model, where we've partnered with existing foundry suppliers and we've created a copy exact replica of our capabilities, including our quality systems and our toolsets.

And as a result, we are now much better able to balance external capacity with the demands of the marketplace.

Internally, our utilization remains high and we are, therefore, able to maintain margins and maintain return on invested capital over a much broader range of revenues.

Now this model is quite unique in the handset market, though it's much more common in the precision analog space -- or in the precision analog markets.

Now at the same time, we are driving continuous improvements in our yields, in our equipment utilization, in our cycle times.

So together, our fab-light model and our operational focus have resulted in higher gross and operating margins and generated strong cash flow.

On the diversification front, we're gaining share in a variety of exciting growth applications.

And one example -- during the quarter, we've ramped energy management semiconductors in support of Itron, Sensus and Landis and Gear, which translated into a more-than-30% sequential growth in this sector.

This is proving to be the start of what we believe to be a macrotransition to smart-grid wireless technology with Skyworks at the forefront of the market's development.

Additionally, we are ramping our recently-introduced suite of silicon-based voltage control oscillators, or VCOs, and frequency synthesizers.

Now these devices play a critical role in the signal generation and timing performance of our customers' architectures.

These products, we believe, showcase the breadth of our analog silicon design initiatives, where we're aiming at a number of high-margin products in underserved end markets.

Now across these and other program ramps, we're leveraging core analog and mixed-signal technologies into emerging applications.

These applications are defined by much longer product life cycles, higher margin profiles -- and these margin profiles are commensurate with the value of our technical innovation.

In other words, our customers are quite willing to pay for performance in these markets.

Now that said, we are in no way immune from this unprecedented economic downturn.

Consumer confidence levels are or approaching all-time lows, and it's really unclear just when we'll see a market recovery.

Nonetheless, we're not waiting for perfect information and we've taken steps to align our cost structure with the economic realities.

At Skyworks, we're really quite fortunate that we're not opportunity-constrained, and therefore, we're able to approach our cost reductions in a much more strategic way.

Specifically, we've undertaken a very rigorous portfolio management approach, the result of which is that we have ceased our development of low-margin 3-1/2 and 4G cellular transceivers, and we've increased our investment -- our R&D investment -- at a higher growth -- higher margin in adjacent analog markets, actions which, beginning this quarter, will net/net improve our operating income by more than $20 million annually and, I think much more importantly, will yield higher future returns.

Leveraging our analog and our mixed-signal integration competencies, we've enhanced focus within our linear products business by creating two dedicated development and marketing teams at a much lower R&D burn rate.

These activities are directed at custom vertical markets -- or adjacent markets -- and standard analog component applications, complementing our leadership front-end solutions franchise.

But before turning this over to Don, let me close by saying that we are creating, we believe, a uniquely diversified company with the scale derived from volume wireless applications applied to a range of analog product markets and applications.

Okay.

Don?

Thanks, Dave, and thanks again for joining us today.

Revenue for the first fiscal quarter was $210.2 million versus $210.5 million in the year-ago period, and representing a 9.6% sequential decrease.

Gross profit was $84.8 million, or 40.3% of revenue, a 50-basis point expansion year-over-year.

Our ability to maintain gross margin levels in the 40% range is being driven by the flexibility of our fab-light model, improved equipment efficiencies at all of our factories, progress on yield-improvement initiatives, double-digit year-over-year material cost reductions and the continued migration to a richer product mix.

Operating expenses were $56.2 million, of which R&D expenses totaled $33 million and SG&A costs were $23.2 million.

As a result, our operating income for the quarter was $28.6 million, equal to our operating income in the first fiscal quarter of 2008 and representing a 13.6% operating margin.

Our net interest and other income for the quarter was $263,000, while taxes were $1.2 million.

As a result, net income was $27.6 million, or $0.17 of earnings per share.

Turning to the balance sheet, we exited the quarter with cash and cash equivalents of $250 million.

During the quarter, we generated $75 in cash flow from operations.

We recorded $11 million in depreciation, invested $13 million in capital expenditures, and retired $41 million in convertible debt for $0.93 on the dollar.

Our strong cash flow position and continued volatility in the financial markets presented us with the opportunity to retire an additional $41 million of our 2012 convertible debt.

With the retirement of over half of our convertible debt, we have effectively reduced potential future dilution by 11 million shares.

Perhaps more importantly, over the past year, we've increased our cash balance from $207 million at the end of Q1 fiscal 2008 to $250 million most recently, while simultaneously reducing our convertible debt from $200 million last year to $97 million today.

Balance sheet strength is increasingly a key determining factor in winning business, particularly during this challenging economic time.

Customers and suppliers alike want to partner with companies who not only provide innovative solutions, but with those who are financially well-positioned to support their long-term road maps.

This is yet another area where we believe we are distinguishing ourselves.

Now to our business outlook for the second fiscal quarter of 2009.

First, some market color.

We believe traditional market seasonality of 15% is being magnified by the ongoing inventory correction, creating a 20% to 30% sequential sell-in market decline, as OEMs and distributors reduce their inventory levels.

Against this backdrop, we are forecasting our revenue to decline 20% sequentially.

Operationally, our fab-light hybrid manufacturing strategy is enabling us to maintain gross margin in the 39% to 40% range.

Additionally, with the completion of our expense reduction initiatives, we are planning for operating expenses of $49 million to $50 million, of which $28 million is R&D.

Below the line, we anticipate $300,000 in net interest and other expense and taxes at a 4% cash tax rate.

In turn, we expect to deliver non-GAAP diluted earnings per share of $0.10 to $0.11 off of a base of $166 million shares.

At a higher level, our December quarter margin performance and cost reduction initiatives underscore the resiliency of our operating model in the face of this market downturn.

Most importantly, as the market recovers, our path to sustainable 20%-plus operating margins is now that much faster.

That concludes our prepared remarks.

Operator, let's open the lines up for questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS.) We'll go first to Cody Acree with Stifel Nicolaus.

(Inaudible) guys, and congrats in a tough market.

Could you talk a little bit about a couple things?

One, of channel inventory held.

Obviously, sell-in versus sell-out's going to be a little bit different this quarter so there's still some burn, but channel versus OEM inventory health.

And then also, what you're seeing from order linearity, cancellations, push-outs.

We've seen some commentary during the quarter that maybe things have firmed up just a bit.

They're maybe not yet improving but firmed and not continuing the decline.

Thanks.

Okay.

Thank you, Cody.

Well, as we mentioned in our comments, we are seeing -- entering March and what we consider to be a seasonal -- a normal -- relatively normal seasonality, if not a little worse -- maybe 15%.

But, of course, we've been tracking very closely the inventory position and we are seeing an inventory contraction or an inventory burn that's going on.

So we think that the sell-in at the component or the semiconductor level is perhaps -- oh, 25% -- 20% to 30% or so.

And so that's what we're seeing.

It's really no different than comments you've heard elsewhere, but we're actually watching that inventory burn.

It began in December and we are seeing it continue a bit into the March quarter.

Right.

And with respects to your comments on order dynamics, certainly the end market is down and we factor that into our guidance, but having said that, order patterns right now have actually been quite steady and consistent with our outlook.

We're seeing demand come through multiple channels, not just handsets but also infrastructure, and backlog generation thus far has been quite steady.

We'll take our next question from George Iwanyc with Oppenheimer.

Thank you for taking my questions, guys.

Just following up on the order outlook.

How -- what percentage of your business is linear right now and how do the orders trend there and are you seeing that become a bigger part of your overall business in the near term?

Well, you know what was really quite remarkable about the sort of November/December downturn was how broad-based it was.

We track it by customer, we track it by market segment -- or at least those market segments in which we participate.

And we saw it just universal.

There was this general trend -- or desire to exit the calendar year with as little inventory as possible.

It was clear that March was going to be seasonal and every bit as seasonal as prior years.

There was no incentive to get out in front of any inventory or capacity position.

So I must say that it was no different, really, in general between our linear products business and our handset business, or between customers or between regions.

So does that mean linear stayed around that 23% contribution area?

Yes.

Okay.

And then just one other question.

With how you see order patterns progressing right now, do you believe that, at least from a Skyworks perspective, that by the end of the quarter, you'll be back on track relative to channel inventory.

Well, yes.

The inventory across the market space -- it certainly varies sector to sector.

But order patterns right now are consistent with our guidance.

We've taken a very conservative view of some of our leading OEMs.

We've also studied inventory in the channel that we can manage through our distribution partners.

So to the extent that we would be impacted, we feel that we've put the diligence in place for that.

Now certainly there are some market dynamic out there or some customers have handsets in inventory, etc.

But we believe we've done a healthy job in managing that and understanding that as we've guided.

We also -- if you'll notice from the balance sheet -- even though the demand signal or the real fall-off was mid-quarter or so or relatively late in the quarter, we were able to throttle back our suppliers from a capacity standpoint.

We have -- we think we have quite short cycle times, so we were able to react to that.

So our own component inventory and the sell-in to Skyworks is in pretty good shape.

We'll take our next question from Steve Ferranti with Stephens.

Hi, guys.

Good afternoon.

Just to sort of follow up on the inventory line of questioning.

Do you believe that, in the March quarter, you will be running your production rates below sort of the underlying demand level, or are we at a point where you're actually just sort of running in line with demand?

We're running below, and let me make sure I understand the question.

I think that we are not at -- I'm quite sure that we are not at equilibrium in that the sell-through or the sell-out of the channel to consumers is higher than the sell-in at the component level because there's inventory of phones and there's inventory of components that are being burned.

So -- and so that's what we see right now, is we see -- and December was the same thing, right?

If you look at the sequential September to December handset sales, they were down but they were down modest single digits.

If you look at the aggregate reduction -- now we were down around 9 and change, but the market was down anywhere between 20% to 30% or the aggregate of all the suppliers who reported publicly -- that difference is purely inventory burn.

Okay.

So it sounds like we'll still have a bit of a burn here in the March quarter going on.

That's what's reflected in our guidance and that's correct.

Gotcha.

One follow-up from me.

Can you give us some sense of what percentage of your business you are running in-house versus outsourcing at this point?

Depends -- Steve, this is Don.

It depends on the activity.

On our assembly and test, it's virtually zero being outsourced.

And on our wafers, it's approximately 20% to 25%.

Thank you.

One of the things that we were able to do in the seasonal down quarter is we throttled way back externally and we maintained reasonable utilization in our factories.

So that number isn't normally quite that low or quite that high, depending upon how you look at it.

Quite the high internal versus external.

But that's what we were able to accomplish in the seasonal low quarter.

And as you can see, hopefully, from the way we guided and the gross margin and operating income models, that's what we're seeing a big benefit from.

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

Thank you very much.

Impressive results in a tough environment.

When you look at your December quarter performance relative to some of your larger competitors, your downturn in the December quarter was very modest relative to the pretty sharp decline some of your competitors saw.

The share gains that you saw -- were they in both sides of your business -- in the cellular and the linear?

-- or was there one side where you seemed to have done a better job relative to the competition?

As we mentioned in the earlier question about how was the balance, it was pretty broad-based.

I will say -- no, you're right, that if you look at our base business, if you will, we saw exactly what many of the competitors have seen, which is a pretty dramatic year-over-year and sequential decline, but we offset that by some program ramps with SmartPhones.

We had some analog component introductions where the selling -- where the take-up in the market has been pretty strong.

And what we call vertical markets, or adjacent markets, where we're doing custom solutions in identified adjacent markets, we had a couple of those, like energy management, for example, that did well, and that offset a pretty tough base business.

Just one quick follow-up, but it's unrelated.

You're getting out of the transceiver development business.

You called out a pretty sizeable savings.

How much revenue today are you doing in transceivers?

Well, last year, we were roughly around $30 million, and in the first quarter, it's 1% of revenue.

It's a very insignificant amount of our revenue.

Thank you very much.

Good luck.

Thank you.

Thanks.

We'll go next to Uche Orji with UBS.

I have a couple of questions, but first, let me follow up on the comments on transceiver.

Can you just explain to me what is strategic objective is in terms of why you are continuing with this development?

Is this something that will eventually in the future contribute a sizeable revenue?

(Inaudible) from 3-1/2G to 4G, but can you just help me understand what the strategy is?

Sure.

Well, let me try to be clear.

We were partnered with a very large baseband supplier targeting a couple of OEMs.

That baseband supplier recently lost that business.

And as a result, the uptake that we might have seen in LTE and in some 3-1/2G, we think, is going to be less probable.

And what we have been analyzing and the decision that we made entering this quarter was that there are non-cellular handset analog opportunities.

VCO synthesizers is one.

Up-convert/down-convert functions.

Energy management.

Cellular infrastructure.

Other applications that use the very same silicon RF integration techniques, but those customers frankly pay a whole lot more.

They value the technology and they pay for the performance of the cellular handset.

Customers typically don't today because it's becoming a solution bundled with a baseband or a [modem] offering more and more.

Okay.

So it's more of a pure bulk volume CMOS play.

So we have ceased development of 3-1/2G and 4G products -- stopped -- and we have applied a subset of those resources -- in fact, some extremely talented engineer applications and systems people -- towards clearly-identified vertical market opportunities that we knew if we applied those people that we had the customers lined up and that we know we could hit the ground running, and I think you're going to find long-term that, while we are in RF, we are in RF in non-handset markets and the returns will be much higher.

Okay.

Okay.

That's good.

Thanks for that.

Another question please.

In terms of understanding the gross margin dynamics, first of all, can you talk to me about what happened so far with pricing and looking out into the future, even as -- your shipments are below the sell-through?

Do you anticipate that there will be any impacts to pricing in what is obviously still a very weak environment?

Well, maybe Liam and I will answer that question.

It is the case today that the -- unlike 2 or 3 or 4 years ago, that the vast majority of the designs that we produce are custom designs at -- designed for a customer with a specific baseband implementation or baseband architecture, and as a result, we are much more often than not sole source in a platform.

Not sole source within a customer, but sole source in a platform -- in a given platform.

And that's much more often the case today than not.

And in those cases, it's much more about are you able to deliver the customer's required system level performance and are you able to sweep in the functionality that allows them to justify paying you a reasonable price for the component, if you will, or the solution, while at the same time achieving their bill of material objectives.

That's a big way of saying -- maybe a long way of saying it's the win-win scenario we look to create by doing things like transmit front-end modules from multiband, multimode handsets, providing a price that's much lower than doing it with a more discreet implementation.

They get a lower (inaudible) cost, a more reliable product.

We get higher ASP.

And, of course, in the blended Skyworks sense, as we are doing more multi-market linear product analog markets, our blended ASP is benefiting from that.

We'll take our next question from Anthony Stoss with Craig Hallum.

Hi, guys.

A couple of quickie questions here.

Could you just give us the number of 10% customers -- if there's any changes from last quarter?

The two 10% customers we had during the quarter were Samsung and Sony Ericsson.

Okay.

And what percentage of your business was 3G versus 2G?

55% -- very similar to what we said.

55% 2G and 45% multimode and wedge.

Okay.

Also, can you give us a sense of your CapEx plans for 2009?

Yes.

We'll do that.

I just want to frame -- we've -- for the first half of this year, when you look at our actual and our first quarter forecast, we're planning our CapEx investment to approximate our depreciation level -- about $11 million quarter.

For the second half of the year -- while we don't give guidance, we're expecting that number to be below depreciation level in the second half, based on what's going on in the economy.

Okay.

I understand.

You mentioned $20 million in annual cost cuts.

Are those complete or what can we expect perhaps in the June quarter on the operating expense side?

They were announced and completed in January.

Okay.

Also, you mentioned that your cycle times are better.

Can you quantify that a little bit more and how much further can you go?

I'm just wondering what other further gains we could see there?

Well, our cycle time -- depending upon the product, for the cycle time -- a cycle time for our front-end products, for example, where there isn't a lot of silicon or CMOS content, the cycle time for those is measured in weeks, perhaps 9 weeks or so.

We could make them shorter than that if we need to, with lead-lot or hot-lot capabilities.

But I would say the end-to-end is around 9 weeks.

And if there's silicon content and we don't stock -- we don't have a standing inventory level, it could be 16 weeks or so.

But in this space, really quite short.

We'll take our next question from Tim Luke with Barclays Capital.

Thanks so much.

I was just wondering in terms of the shape of the gross margin what you think some of the different puts and takes may be there and whether we should expect it to be broadly sort of flattish from the current level or how you would expect that to trend.

I was also wondering, given the restructuring that you are doing, what the headcount was at the end of the quarter and how we should think about that going forward.

Thank you.

Well, longer term, we -- the business that we've chosen not to participate in, which was cellular transceiver moving towards -- cellular transceivers in 3-1/2 and in LTE -- those were just about the lowest gross margin products in the company.

There was a lot of revenue there, but that $30 million last year -- that was about the lowest gross products in the company.

We're replacing it, we hope, over time with these targeted adjacent market linear solutions, like VCO synthesizers.

They're about the highest gross margin products in the company.

So that diversification play for us is having a blended gross margin benefit.

Also, as we increase revenue, of course, we get benefit and utilization from that.

So we flexed the supply chain, improved our mix, and that's how we're maintaining, we think, pretty strong gross margin in the seasonally low quarter during an inventory burn.

But as revenue increases, you should expect gross margin accretion and a lot of leverage at the operating expense line.

On the headcount, could you --

The headcount reduction was about 150.

And so what does that take you to?

It takes us to about 3,100 -- 3,150, of which about 1,600 of those are [engaged] in assembly and test in Mexico.

And with respect to your inventory on hand, how should we think about that trending going forward?

Well, we were down about $5 million from the September quarter to the December quarter.

We would expect, based on where we're at right now and the inventory build plans in place and the market demand, that that number's going to be relatively flat at the end of March.

That's our expectation.

Our next question comes from Sanjay Devgan with Morgan Stanley.

Yes.

Hi, guys.

Congratulations on the results.

Just a question on your plans regarding your conversion from the 4-inch to 6-inch wafers.

How do you view that?

And how should we think about that in terms of your CapEx outlay?

I know you talked about CapEx being lower than it is in the first half of the year, so does that mean those plans are kind of slowing down, or how should we think about that?

We've definitely -- given what's been going on, we have definitely slowed down that investment.

It's still an investment that's a core part of our long-term margin growth strategy.

Right now, our expectation is, with the slight slowdown in the investment, that we're going to be going live with the 6-inch early in next year in 2010.

But during that interim period, we expect no margin erosion as a result of the push-out, so that's -- those are our plans right now.

Thank you very much.

We'll go next to Nathan Johnson with Pacific Crest.

Yes.

Hi.

Thanks for taking my question.

You've talked in the past about the number of competing suppliers being significantly smaller when you're going after WCDMA platforms just because of the technology difficulties, with often only one other supplier at the table.

I was wondering if you guys expect that to change at all going forward?

Are kind of the other competitors beyond just that one beginning to catch up?

How much of a lead do you guys think that you have over kind of the rest of the field?

So that's my first question, and secondly, I was just wondering if you could kind of give an update on your tax expectation for fiscal 2010.

Given kind of the current market conditions and earnings expectations, does that ramp in taxes push out at all?

Well, let me make just a more -- a general comment that hopefully answers that question, and then Don can help on the latter part.

In general, if you were to look at 2007, 2006 -- the transition began to happen in earnest more in 2008 -- you're looking at north of a billion units a year, most being dominated by 2G.

Very little high band count, if you will, multimode.

And as a result, you would have seen power amplifier companies a few years ago -- maybe as many as 12, 14 -- on a pure PA.

In 2007, 2008, that began to transition to more of a transmit module, and the difference is that they're a very high, complicated switch count, or throwcount switches.

There's more filtering.

There's more digital logic control to control all the frequency transmit and received in band modes, essentially playing traffic cop.

And because of all that complexity, a real hard time going to FTA and shielding all of that RF content.

So when we compete with some of the new reference designs with Qualcomm and others, or when we go after our top-tier customers, these modules are pretty complicated, but the technology and process breadth and the complexity of the packaging is high.

So today, we see, typically in a customer -- in an application -- perhaps one other competitor, one other viable competitor.

It's not always the same competitor, but one other viable competitor, and I would say that rather than having a dozen companies going after a buck and a half a phone over a billion units, you now have 2 or 3 much more broad-based companies with scale who I think are going to have the lion's share of what's becoming a $3 billion-or-so market, as the average content in SmartPhones, (inaudible) CDMA and EDGE is quite a bit higher than 2G.

On the tax question follow-up, if you recall, in the last call, we were trying to put some color and highlights around where we expected our cash tax rate with our NOL position to be in 2010, and that -- we may get some slight benefit from what's going on in the economy and some of the slowdown of the top line, but I think the safe takeaway here is to assume in 2010 we're going to be about 15% to 18% on a cash tax rate, and that's not dramatically different than what we've told you in the past.

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

Thank you.

A couple questions here, Dave.

It sounds like you've gotten real good control of your utilization and your capacity, but your days of sale still went up this month -- I'm sorry, this last quarter, which is actually pretty typical for the space.

The only company that's gone down seems to be Nokia.

So even in an absolute sense, when inventories have gone down because the sales have slowed down.

I'm wondering how -- you said you were underproducing so that you've got room to burn off more inventory, but you're looking for flat on an absolute basis.

Should we expect to see days of sales decline before you may be inching capacity up, and will that take a couple of quarters?

I'm trying to figure out when does the chain tighten up so that you will start seeing the whiplash on the upside of the rain, because as Nokia starts -- or some of your larger customers start to tighten up and start -- quit selling out of inventory, your orders are naturally going to go up, even if handset demand doesn't increase.

So I'm trying to get a feel for where you are in the kind of curve.

You say days of sales -- you mean inventory turns?

Yes.

Okay.

Okay.

Well, clearly this quarter, the signals were pretty late, and so I thought we reacted pretty well to maintain the turns that we did.

I think the inventory was slightly down, Don?

Yes.

We had a slight impact on the turns because of exactly what Dave's described, that those signals came in past October and so it did have some impact.

To your point, Ed, we are expecting the overall gross inventory to be relatively flat going into March.

That's going to impact the turns slightly, but we're well-positioned as we ramp -- as we balance our production in the second half of the year, that we're going to drive those turns back up to prior levels.

That's our target.

It rolled most of your competitors and your customers much worse than it affected you, so it looked liked you guys responded very well.

And you're holding production low in order to keep the turns up.

When do you think you will get to the point where your turns will either be back in line or maybe even a little bit lower than historic so you start seeing utilizations go back up?

And if that happens, will we see a corresponding improvement in margins, or are you running your internal factories pretty heavy now and just lightened up on your outsourcing?

Well, we will see a corresponding improvement in our margins because we will improve the overall utilization of our assembly and test assets, and as I said, we're balancing external/internal, but nonetheless running a lower overall level of utilization, and I think we're working very hard to maintain the kind of margins and returns with -- as I mentioned in the prepared comments, Ed, the sort of -- the range of revenue possibilities that are out there -- if you try to model this business during a time of uncertainty.

So margins, as utilization goes up and revenue goes up, will indeed go up and, of course, there's a lot of operating expense leverage.

I think it's really tough to predict today when does the snapback occur, which I think was the second part of your question.

It's certainly my hope that, with all the inventory that was burned in December or the lack of equilibrium between sell-in and sell-through and again in March, that by the time we get into the second half, you'll begin -- the first thing you'll see is equilibrium.

You'll see the benefit of no longer an inventory burn exacerbating the actual sell-through.

And boy, I'll tell you, it is my hope that you start to see a return to normal seasonal pattern where each subsequent quarter throughout the year gets a bit higher than the last.

But it's too early to tell in this environment.

We'll go next to Brian Modoff with Deutsche Bank.

Hi.

It's Jay Goldberg in for Brian.

I was wondering -- you mentioned something in your prepared remarks about your balance sheet becoming a competitive tool.

Could you just expand on that a little bit?

I wanted to hear how that's actually playing out in the marketplace.

And also, just a housekeeping question.

If you could just repeat your guidance for interest expense?

Sure, Jay.

This is Liam.

With respect to the balance sheet and competitive dynamics, one of the things that we are seeing is that vendor selection criteria is really increasing right now.

There's much more scrutiny placed on suppliers.

When we start to look at a smaller (inaudible), our customers realize that maybe two suppliers or one really good one is what they're looking for for some of these platforms.

So what we are seeing is, in addition to the technology that we use to differentiate, as Dave pointed out, our customers increasingly want to see our factories.

They want to look at our fabs.

And they want to look at our balance sheets.

They want to have vendors and partners that are going to be able to stand up to this and endure this market correction and also be there when the market returns and be able to deliver to upside.

So that has been an increasingly important part of our strategy right now with our customers, and our results have done the talking for us, so to speak here.

And -- I'm sorry.

I can tell you that we've actually, in some cases, won business or increased our share as a result of our financial strength and our operational agility and performance.

It doesn't seem like you have -- your competitors have much of a balance sheet to stand on.

Well, here's another way to answer that question.

We have been -- there's a silver lining, and it's not a very big one, but there's a silver lining in this downturn, and that is that we were able to, as Don mentioned in the prepared comments, we were able to buy -- we're a profitable company.

We're generating cash.

In fact, $75 million last quarter, I think $50 million or something the quarter before.

And we were able to apply that cash to buying convertible debt back at a discount.

So what we're seeing is that not only do customers like it because they're engaging for platforms that perhaps won't be launched in two or three years.

They want to make sure you're going to be around and that you continue to invest.

It's a real tactical, pragmatic question that they ask of their suppliers.

But the other thing that's happening is if you look at our behavior throughout this downturn, because our margins are reasonably high, because we can flex this fab-light model and because we continue to generate cash flow, we're able to be very selective about where we cut.

So we think the actions we took in January were really quite strategic.

There wasn't anything panicked about it.

It wasn't defensive.

We were able to apply some of our most talented resources to areas where we're quite confident we're going to make money, and we were able to portfolio manage in a very methodical way out of areas that were not going to add a lot of value.

It wasn't "let's cut across the board because we need to generate cash to satisfy debt" or anything like that.

And we think that's a big differentiator.

And Jay, just one last thing (inaudible) perspective.

Dave mentioned it, but we generated $174 million in cash from ops in '08.

$75 million in the first quarter.

That's $250 million in cash flow from operations in the last five quarters.

So it really has strengthened the company.

And to answer your interest expense, it's about $300K is what you should assume in the model.

Great.

Thank you.

You can tell we all wanted to answer that question.

We'll go next to Aalok Shah with Davidson.

Hi, guys.

Just a couple quick questions.

Dave, on new product ramps, how should we be thinking about that this year, especially -- we've been talking about one major new customer this year ramping.

How should we start to frame around that?

Well, you know what's interesting, Aalok, is that -- I tell you -- in spite of the softness, there has been -- nobody's taken their pedal off the metal in terms of our customers on product introduction.

In fact, in some cases, it's accelerated as they try to differentiate and get back in the saddle with new designs.

So the challenge here is that you're navigating through this period of uncertainty while, at the same time, it seems like the rate of introduction is accelerating.

So you should see more of these vertical market or these adjacent market products rolling out.

We've got platforms aimed at new SmartPhone introductions that are being introduced in the first half of this year.

And again, this broad catalog linear products where we continue to try to create the snowball effect of more highly-characterized broad-based components that we sell through distribution and then to a rep network that are part of the catalog business.

And Dave, just to follow up on that, do you think you're going to see a lot more of an EDGE mix in the first half, second half of the year?

Given the uncertainty in the market right now, are you going to start to see some more traction on the WCDMA side of things?

Yes.

This is Liam.

Actually, certainly WCDMA was lackluster in 2008, but that is one are of the market that everybody expects to grow in 2009.

So we are going to see some growth in WCDMA and that's going to drive $3 to $4 of content.

Typically, with an EDGE FEM, that may be a couple dollars with multiple WCDMA bands.

So that's going to happen.

But we're also seeing something that is very promising for us.

We have a pretty deep position in China on handsets, and that's largely been GPRS FEMs.

We're starting to now see our baseband partners deliver EDGE-based solutions.

Skyworks is on board and we're seeing quite healthy demand for that.

So we may be surprised with some EDGE growth in China as well.

We'll take our next question from Michael Alexander with Charter Equity Research.

Hi.

First, I just wondered if you could tell us the composition (inaudible)?

More general question, in your fab-light strategy, are there any formal obligations that you have with your partners (inaudible - technical difficulty).

In our fab-light strategy -- I think the question was what formal obligations do we have with our partners and our suppliers here, and we tend -- we don't tend to, we do keep these relationships very close.

We also have more of a "we get/you get" kind of a strategy.

So when the markets are strong, our supply partners benefit.

When the markets are soft, they obviously don't.

And so we don't have what you might call condo capacity agreements -- take or pay agreements.

In fact, Don, I don't think we have any of those at this point.

So it's not a contractual obligation.

It is more the nature of the partnership, which is that we want to share the business in a way that it's good business for both our suppliers and ourselves, and so we maintain our high level utilization and we keep some business going through our supply chain.

Got it.

And then the composition of the debt that's left?

Our converts?

We had $97 million and converted $47 million of that.

It's a 2012 traunch at 1.5% interest, and $50 million is due March 2010 and that's at 1.25% interest.

And at this time, there appear to be no further questions.

I'd like to turn the conference back over to Mr.

Aldrich for any additional or closing comments.

Okay.

Well, thank you so much for listening.

This concludes our call today.

And on behalf of the entire Skyworks team, we look forward to updating you in the future.

Again, that does conclude today's conference call.

Again, we thank you for your participation and you may disconnect at this time.