思佳訊 (SWKS) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Skyworks Solutions third quarter fiscal year 2009 earnings conference call.

Today's call is being recorded.

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

Tom Schiller, Investor Relations for Skyworks.

Mr.

Schiller, please go ahead, sir.

Thank you, operator.

Good afternoon, everyone, and welcome to Skyworks' third fiscal quarter 2009 conference call.

Joining me are Dave Aldrich, our present 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 for your questions.

Please note that our comments today will include statements relating to future results that is 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 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.

Thanks, Tom, and welcome everyone.

Well, despite the economic downturn, I am really very pleased to report that the Skyworks team delivered solid top and bottom line performance in the June quarter and exceeded all of our key financial and operational targets.

Throughout this difficult market, we have been working diligently across Skyworks to remain focused on our customers and to become a better supplier and a better competitor.

It's our firm belief that it is in times like this that provide opportunities to gain share and to improve customer relations while at the same time streamlining our operations.

And today, Don, Liam and I will be providing an update on these activities and our progress.

Specifically in our third fiscal quarter, we delivered revenue of $191.2 million.

That's up 11% sequentially.

We expanded our gross margins to 40.5%.

We improved operating income by 35% sequentially to a 15% operating margin today.

And we posted $0.16 of earnings per share, and that's $0.02 better than our guidance.

We generated $44 million of cash flow from operations, and we exited with $308 million of cash.

At a higher level, our financial performance reflects the progress we are making towards realizing our longer term goal of becoming the world's leading supplier of analog semiconductors for mobile connectivity applications.

And our strategy, I think is quite simple and straightforward.

It is to leverage our scale and the capabilities we've derived from our handset business to first, consolidate and take share within our targeted markets.

Second, to gain increased traction within our analog catalog business; third, to open new market segments with innovative products and solutions and fourth, to deliver superior operating margins and return on investment.

So I'll follow that format throughout this discussion today and to begin, I'd like to discuss how we're gaining share in our targeted markets with both the high and low end handset segments.

On the high end, growth of the smart phone category is a micro trend today that in some ways is transforming our industry.

Multimedia platforms are strategically important to us given not only the increasing consumer demand for mobile voice, for data, for video, but the related network capacity expansion needs of the service operators.

This demand is fostering an industry-wide sea change, and it's really not unlike the PC revolution of the early '90s.

In effect, the smart phone is moving from a higher end tool reserved for corporate road warriors to an increasing a mainstream communications platform, one that is truly changing the way we live, the way we work and the way we play.

This segment, equally importantly, has been embraced by carriers with a highly profitable stream of data service revenue.

And a little further down the food chain, our OEM customers' demand for extended battery life for improved data rates for multiband and multimode capability and for ever-smaller devices perfectly intersects with what we at Skyworks uniquely develop and deliver.

As a example at RIM, we've begun shipping our first 3GW CDMA PA products as they prepare to launch refresh platforms.

And this is an exciting growth vector for us as it compliments our existing strength at RIM in CDMA and GPRS and in Edge.

And likewise, at Samsung and LG, we are in the midst of an expansion as we move from supporting GPRS and Edge handsets to multiband, wide band CDMA tough screen platforms and smart phones, particularly as they increasing leverage Qualcomm, Broadcom and Infinion reference design where we are a leading front end module supplier.

And today, I'm very pleased to announce that we've recently won our very first designs at HTC, a leading Taiwanese 3G smart phone producer.

And with the addition of HTC today, Skyworks is now uniquely supporting all leading smart phone providers.

In the low end or the emerging markets segments, we're seeing increasing strength driven by our scale and some recent market share gains.

Additionally during the quarter, we acquired Axiom -- or completed the acquisition of Axiom micro devices.

Axiom is the world's only volume supplier of CMOS silicon based power amplifiers for mobile phones, the only supplier in the world.

Through this acquisition, we're complementing our existing leadership galliumarsenid capabilities.

We are bolstering our fundamental intellectual property portfolio, and it's allowing us to capture more share on the ultra low end of the market where cost often supersedes performance.

We are now, today, the largest provider of front end solutions into this high growth market segment that includes China, India, Africa, the Middle East and eastern Europe.

Further, the addition of Axiom 's product line underscores our commitment to providing our customers with the broadest, the most comprehensive suite of solutions on a process agnostic basis to meet their unique platform, their unique geographic and cost needs.

Okay, now switching gears to the second prong of our strategy, we're continuing to gain traction within our analog catalog business.

During the quarter, we introduced several high linearity ultra low noise amplifiers to serve a number of demanding receiver applications including global positioning, satellite radio, infrastructure markets as well as ISM hubs, repeaters and access points.

I think it's of note to say first, we've captured our first design with with Ericsson's base station business in support of Verizon's LTE network deployments as well.

At the same time, we broadened our portfolio of silicon based, VCO synthesizer and our RF mixers addressing 3G and 4G infrastructure applications.

And we recently won awards from Huawei, from Alcatel Lucent and Nokia Siemens networks.

Incidently, our analog products catalog is a high margin business that now boasts nearly 1,000 customers, and our roster of customers is growing.

Continuing along, third, we're opening new market segments with innovative products and solutions.

We've added customers in the high growth energy management area, most recently beginning production at ESCO and Neptune who join our roster of Itron, Badger Meter, Landis and Gear and Census, some of the first movers in deploying new and retrofitted smart water, gas and electric meters worldwide.

These strategic partnerships are enabling Skyworks to develop highly customized and high performance solutions for these growing smart grid applications.

In wireless networking, another targeted vertical application for us, we've recently captured our very first design win at Intel.

With their portfolio of 802.11B, G and N chipsets.

Given Intel's market leaderships, we're delighted by this initial inroad and intend to expand our engagement to encompass a wider variety of products and a wider variety of protocols.

During the quarter, we also ramped front end solutions as part of Broadcom's wireless land reference design and as a result, are now enabling three of the world's top four netbook and notebook OEMS.

I'm also pleased to report that Skyworks is now supporting MIcrosoft's XBox gaming console and controller with advanced analog components.

Finally, from a new product and customer standpoint we have entered the mobile video market recently with reference design wins that are going into production this quarter at ZTE and Long Chair in China.

Our devices support not only hand sets and smart phones, but also PCs, notebooks and netbooks which have the potential to serve as converge TV media devices.

Like the smart phone trend we outlined earlier, we believe that mobile video applications have enormous long term growth potential.

According to Cisco, 64% of the world's mobile network traffic will be video, 64% by the year 2013 with 150% compounded growth between the years 2008 and 2013.

This explosive growth is driven by mobile TV and web browsing as well as emerging applications including tele medicine, machine to machine, enhanced navigation and interactive gaming.

So we are excited to be positioned very early in the mobile video market.

And now lastly, the final element of our four prong strategy, but certainly not least is to deliver superior operating margins and superior return on investment.

We are in the process of creating a fairly unique business model, that delivers consistent returns, more common to what you would expect from a diversified analog company, that enhance our component company.

As evidenced in June, we delivered a 15% operating margin, and we are guiding to a 17% operating income performance in the current quarter.

This is putting us on track to achieve our previously outlined target model earlier than expected.

Given our product pipeline and the success of our fab light strategy and our leaner cost structure today, we now see a path to 20% operating margins at revenue levels significantly less than the $250 million quarterly model.

And this is a new paradigm.

Quite simply, we are creating a uniquely diversified company with the scale derived from high volume applications applied to a range of margin rich analog products and markets.

As a result, we have never been better positioned to outperform our addressable markets to achieve our long term financial targets and most importantly, to create shareholder value.

I will now turn this over to Don for his financial review.

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

Revenue for the third fiscal quarter was $191 million, up 111% sequentially and versus our prior guidance of 5% growth from Q2's $173 million level.

Gross profit was $77.5 million,increasing to 40.5% of revenue and driven by improved equipment efficiencies at all of our factories, progress on yield improvement initiatives and ongoing material cost reductions.

Operating expenses were $48.9 million of which R&D was $28.11 million and SG&A was $20.8 million yielding $28.6 million of operating income and a 15% operating margin.

Our net interest and other expense for the quarter was $900,000 of expense while taxes $600,000.

As a result.

net income was $27 million or $0.16 of diluted earnings per share, $0.02 better than our guidance and consensus estimates.

Turning to the balance sheet, we exited the quarter with cash and cash equivalents of $308 million, a $40 million sequential improvement in our cash balance, even after the cash acquisition of Axiom .

Of note, we generated $44 million in cash flow from operations, recorded $11 million of depreciation and invested $6 million in capital expenditures.

At a higher level, we continue to strengthen our balance sheet, focusing on translating improving business performance into a higher cash balance.

We've generated $140 million of cash flow from operations from a fiscal year-to-date basis.

This balance sheet strength is increasingly a key competitive advantage as customers and suppliers alike seek to align with financially well positioned partners who can support their long-term road maps.

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

Although we remain cautious on the macro economy, our expanding product, market and customer footprints are positioning us well for a strong second half of calendar 2009.

Specifically, we expect revenue for the September quarter to be up 10% sequentially.

Operationally, we expect gross margin to expand to between 40.5% and 41% and project operating expenses of approximately $50 million, yielding a 17% operating margin.

Below the line we anticipate $1 million in expense for net interest and other expense and taxes at our 3% cash rate driving $0.19 of non-GAAP diluted earnings per share off of a base of 175 million shares.

As a reminder, we had previously outlined that at $250 million quarterly revenue, we were targeting 18% to 20% operating margin.

Given continued growth in higher contribution margin products, operational plans in place including our six inch wafer conversion in Newbury Park and leaner cost structure, today I am pleased to announce that our business model has the leverage to achieve a 20% operating margin at $240 million in quarterly revenue.

At this near term revenue milestone, our performance translates into EPS approaching $1 per share on an annualized basis.

Well, that concludes our prepared remarks and operator, let's open the lines up for

Certainly.

(Operator Instructions).

We will pause a moment to assemble the queue.

We will go to George Iwanyc with Oppenheimer.

Congratulations on the results, guys.

Thanks, George.

Don, can you give us what the split is between the linear business and the hand set business?

And Dave, can you give us an idea -- I suspect a lot of the new application areas that you are looking at for growth is coming on the linear side.

Can you give us an idea, on top of energy, what other applications might be coming and the timing involved?

Sure, George.

I will jump in quick.

The split between linear and our hand set space was similar to past quarters.

Linear was in the 20% to 25% range and hand sets in the 75% to 80% range.

Sure, George, and I think the appli -- we talked about energy management.

We talked about mobile video, you probably heard a lot about that recently today.

We have products, for example, that are going in high volume or ramping into high volume that would be actually facilitating an analog TV signal in certain markets.

That's important.

We are also seeing a lot of these new VCO synthesizers and high level silicon products going into 3 and 4G cellular infrastructure and back haul.

We have talked about our catalog business.

We continue to expand and add new product families and low noise amplifiers,, VCOs and receiver components.

We talked about wireless LAN.

We are excited about the fact we can now talk about Intel as a volume customer.

That's just beginning, just at the very -- it is at its infancy, and with our ongoing relationship with Broadcom, we are now in, as of I think this quarter and next three of the four largest lap top manufacturers in the world.

That's a pretty big change from where we were six months ago.

I guess those would be some of the top ones that come to mind, George.

And following up on that, when you look at those applications ramping and the operating margin targeted 20% at $240 million, is the linear and hand set mix staying in the same range?

And is the gross margin target still around -- long term gross margin target still around 42%?

Well, the long term -- the short term I have to say now, the more immediate target that Don has defined as 20% operating income, we don't view that as a long term model any longer.

That occurs at at about $240 million in revenue and our growth rate, we think we can begin to see that.

I think longer term, we are really looking at a very different model.

I discussed in the prepared comments, this paradigm shift.

I am convinced that as we begin to ramp more of these catalog products and penetrate more of these vertical markets and participate in the sweet spot of the cellular business, smart phones for example, that we are going to start to create a financial model for a return on invested capital that is materially above our cost of capital and operating income that looks a lot more like an analog company.

So when we talk about 20 points, I have to say, we are not talking about the longer term model.

We are refining that as we go forward here, but we are getting pretty excited about what a diversified Skyworks looks like.

It looks nothing like a cellular hand set component company.

And George, just in the short term, the 240 Dave described, we don't assume any change in the linear products hand set mix.

We do not assume any change in that.

We will go next to Suji De Silva with Kaufman Brothers.

Thanks guys, nice job on the quarter.

So on the Intel win, can you guys give us a sense of what you think your share could go to in the wireless LAN there?

Sure.

Well, as Dave pointed out this is really a milestone win for Skyworks to break into this strategic account.

It's early in (inaudible) right now.

We are delivering a control high speed that was developed by our advanced analog team, and we really feel that with Intel's view on wireless, you see a lot work more, cellular in addition to the WiLAN, WiMAX, this could become a very meaningful growth element for us over the next few years.

It is very early today.

We are excited about the design win, but there's plenty of blue sky for us here.

Great, thanks, Liam.

And maybe on energy management, you guys talk about that potentially becoming a significant part of revenue.

How is that tracking towards your expectations and maybe what percent of overall revenue is it now?

Sure, well, it is tracking quite well.

We continue to add new customers, and I think that's the controllable factor for us.

We have moved off of just Itron, we've added ESCO, Census, Neptune, Landis and Gear in Europe.

So the customer portfolio is looking very good.

The business is growing.

It is a steady, and I think a progressive rate of growth.

There's a lot of stimulus behind it, there's some real macro tail winds behind this.

It is still relatively small in terms of mix for us, it's less than 10% of revenues, but we think compound growth rates on this will be among the best across our analog portfolio the next three or five years.

We will go next to Todd Koffman, Raymond James.

I just wanted to ask, Skyworks now has emerged as the clearly defined most profitable player amongst your peers, but this industry historically has had some trouble with maintaining that consistency.

Is there anything as you look structurally at the landscape that might lead you to believe that maybe the sustainability of the consistently could last a little bit longer than it has in the past?

Well, maybe Don and I can tiger team the question, Todd, and I appreciate your comment on our consistency or our margins.

A couple of things have happened.

First of all, I think if you go back and look at us for now several quarters, and that's since we exited the (inaudible) business which was an inherently volatile business where we didn't have the competitive advantages to have a sustainable financial improving model, we now have focused in areas that we can use as a springboard to continue to diversify our business.

So the difference is today there are far fewer players.

We see fewer competitors in our targeted markets or our more mature markets, if you will, and that's because the complexity of the product is getting higher, the need for scale, not only in manufacturing and R&D is becoming a higher hurdle.

So the hurdle rate is going higher, products are becoming multiband, multimode, simultaneous voice and data, and that plays to our strength and against the single, more discreate component companies.

So we have seen a lot of share consolidating around the broad based suppliers, and there are far fewer of them today in hand sets.

Our market now today -- a couple of years ago, a reasonable knock against Skyworks, well, you are not doing that much with Qualcomm reference design, don't have much at Nokia.

Today, those two things are well behind us.

So now we are shipping, really to every major, every hand set OEM and every smart phone manufacturer, every major smart phone manufacturer.

We also have vertical markets that we spend a lot of time dissecting and supporting customers there with innovative designs.

That's taken us years, and now we're beginning to penetrate those, and the margins there are simply terrific compared to what you might have thought of in this industry.

And our catalog business continues to expand.

So the difference is we are diversified, we have a fab light model, we invest less in capital than our growth rate would suggest we would need for other competitors, perhaps.

We are not a hand set component company anymore.

So I think over time, you won't think of us as in that way.

You will think of us as a diversified company with far less volatility.

We will go next to Tim Luke with Barclays Capital.

Hey guys, this is (inaudible) calling in for Tim Luke.

Thanks for taking the question.

Just two quick ones.

Number one, more current on inventory in the channel, where do you see the inventory tracking going forward?

Sure it is --

Is it like towards the normal range or expected to build?

Okay.

I'm sorry.

Inventory appears to be stabilizing.

There certainly were and continue to be some pockets of imbalance, but for the most part, we believe throughout the June quarter a lot of that will recover to normal levels.

Now again there are pockets of opportunity there.

But again, as we look through the next quarter, we start to see customer demands and inventory making much more sense and more consistent with prior periods.

And then -- thanks.

Then the next question,more of longer term.

For hand sets and LTE, how do you see the ASBs and margins evolving in the industry transitions to LTE?

Right.

Well, LTE, there are very few platforms right now that are in production, Ericsson have the few.

We think that that is going to be an exciting element of the whole mobile internet that Dave spoke of.

It is going to provide tremendous data rates consistent with DSL and cable, albeit with a wireless connection.

We also see that the LTE platforms are probably not going to be traditional hand set-like devices.

You may see them more in ultra mobile PCs or netbooks or even data cards.

The margins should be very high, and Skyworks, by the way, has a very strong portfolio across an LTE suite, power amplifiers, LNAs and control ICs,so we look forward to that trend

We will go next to Uche Orji UBS.

Hi, this is (inaudible) for Uche, thanks for taking my question.

First question, could you say who are the 10% customer and also if you were able to sneak in IDS and Nokia as a 10% customer.

Sure.

This is Don.

We had four 10% customers during the quarter.

We had Samsung, Sony Ericsson, Motorola and LG.

Nokia actually was in the high single-digits for the quarter as well.

Okay, thanks.

Secondly, you have indicated share gains.

I was wondering whether the share gains had been largely by your customer or you have been gaining shares, share at existing customers that is increasing your penetration in existing customers.

I would have to say in terms of our OEM share shifts benefiting us, we -- it is nice to see LG is a 10% customer, Samsung continuing to gain strength.

We are in the early, at the first inning of the growth in Nokia.

But I, the flip side is that we are diversified enough now within our hand set business that share shifts among OEMs tend to have less of a whip saw to our business model, and we have been striving for that for a long time.

So I would say it is the growth in general is far more around penetration of the smart phone category gaining share on the low end category and not hand set applications then we were lucky enough to be with one OEM and not another OEM if they were winning.

That's really not our business.

That was Skyworks two years ago, that's not so much our business today.

We will go next Cody Acree with Stifel Nicolaus.

Thanks, guys, and congrats on a great quarter.

You talk about being more diversified and definitely applaud for that.

But those of us who have had a history with Skyworks, seeing the prior transceiver base band, the software solution business, I think the distraction maybe or at least the diversity that it took away from your power amplifier core module business, and then what happened when you focused back on that core power amp module business to the market share gains that you have seen at Nokia and some of the major OEMs?

Do you run the risk of -- you have spent a lot of time in your commentary talking about the increasing diversity which has a lot of puts and takes, it has a lot of positives, but does it run a risk of getting off of focus?

Well, I think that's a intriguing question, Cody, and a good one.

The difference -- the shorter answer is no, because all of the product markets we are talking about, every single one of them have some very common DNA.

They're analog circuits.

ICs, perhaps module base, but all around a very narrow set of, we think very deep core strengths of the company.

Our ability to design and manufacture multichip module technologies and different process technologies, our process in difference when it comes to what's the best process for the function within the analog domain, and RF power amplifier switches, they're all within that footprint.

Yes, different voltages,different power levels.

So we view them as being very, very similar from a core intellectual property standpoint.

Where they differ and where we have been working very hard for the last five years now is they differ in the kind of application support and some of the system architectural aspects of these products.

That's where we have waited very carefully into these vertical markets, only after penetrating them with relatively low complexity components, and then we sell up chain, integrating with our customers, in bed with our customers.

So it is quite a bit different.

When you talk about base band and software, that was a digital CMOS process.

Going after customers in the software domain, competing with mega companies, many of whom have their own FABs and a great deal of scale in digital signal processing.

That was not a business that we, over time, thought we can add enough value to provide sustainable shareholder returns, so we did what we thought was smart, we analyzed the portfolio, we exited, we doubled down in areas of strength.

So I think it is a good question, Cody, but I don't think it is apples to apples when you compare the distraction in cellular base.

Now when you talk about -- cellular base band.

When you talk about transceivers, transceiver was just a product market segment that customers were unwilling to pay for.

So we were quite good at transceivers, just customers -- the margins in that business were not commensurate with where we want the take the business.

So while there was revenue upside to it, we didn't see margin enhancement and therefore, likewise, we exited that business.

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

Thank you very much.

Good quarter, guys.

A couple of questions.

I know you touched on this earlier, but I want to dig in a little bit more.

There has been a lot of conjecture about Nokia in your product mix.

I know a year or so ago, you were hoping for a little bit higher revenue with the programs that are pushed out there, specifically, the Broadcom Voyager 1.

And I know it's in the high single digits now.

What is your guidance for the end of the year?

Do you think you will break through 10% and you'll continue to grow?

To the extent you can talk about it, are you shipping to the Voyager platform at Nokia at this point?

I'm trying to get a feel.

You are so small there and it is such a big area, and Nokia even mentioned they want to move away from more of their yen based cost.

So Rinosis is out and you guys would be a natural substitute for that.

So I'm just trying to get a feel for, how big reasonably you think they could be this year and what the ramp would look like.

Sure Ed, this is Liam.

This those are all good questions.

Well as you know, Nokia is absolutely strategic to Skyworks and we have done much of the difficult work in being an approved supplier.

We have a very strong position in 3G and in Edge, and we are in the two strategic Edge-only platforms, one is a Broadcom platform and a second is an Infineon platform.

Nokia has absolute plans, and so do we to have to Skyworks be a significant player and a large share player.

We certainly expect to get way beyond the 10% level in 2010.

We also expect in 2010 to broadly expand our position and to deliver product across all segments from the low end all the way to the highest N3G and smart phone within Nokia.

Ed, quite simply today, we are in less than 10% of the phones, that's where we entered their business on the WCDMA sector.

We have got design wins and production ramping in some cases In Edge, we are moving into GPR, as Liam described.

Our goal is nothing -- they have three qualified PA suppliers.

That means we should get at least one-third of their business, and I am confident that's exactly what we are going to get.

And just to refresh, you are in a hub system with Nokia.

Yes, correct.

(Operator Instructions).

We will go next to Steve Ferranti with Stephens Incorporated.

Yes, thank you.

Good afternoon, guys.

Nice job on the quarter.

Thanks, Steve.

I wanted to see -- I think Dave, you had touched upon consolidation and the galliumarsenid space a little earlier.

I wanted to see if you could provide your thoughts on where we are in that consolidation, particularly with some of the nonpublic players.

Do you think that there's still some consolidation to go, or is that a theme that's largely played out by this point?

Well, I think the consolidation -- the big wave of consolidation has been away from more discreate based solutions.

If you think about an Edge device we ship today for say $2.50, it is quad band, it has a multithrow switch, has some fairly sophisticated control logic integrated in that front end module.

It replaced, in on current reference designs, frankly, it It was pulled by the customers, not by the reference designs, because of the small footprint, its efficiency and its ease of integration.

The same thing happened to GPRS and the whole adoption of front end modules versus discreate PAs.

So the big share loss occurred from folks who make a discreate filter or discreate switch or Rls and Cs and so on.

The market moved away from that and it continues to do so.

I think the next wave of share consolidation will occur -- if you were to crack open many multimode phones today, they're still pretty complicated on that transmit shade.

There are still discreate filters.

There are lots of single band YB and CDMA peppered throughout those designs.

So if you have a world phone, you have got five bands, it is not uncommon to have five PAs.

The next generation is going be -- picture this.

If you can put a multithrow switch in your Edge device, why not facilitate all the switching and handle all the logic in one chip, if you will, or in one solution and then begin to consolidate and integrate those discreate bands of YB and CDMA.

That will be the next generation of consolidation where around system transmit systems that will have switching, element of filtering, element of control, a lot of logic and broad based linear power amplifiers.

And that's what we are working with our customers now on that will be 2011, late 2010, 2011, 2012.

And that trend won't, won't stop.

Great color.

Thank you.

And then just wanted to touch quickly upon the six inch transition, maybe an update on sort of where we are there, when you expect that capacity to start coming online and is it a flash cut, is it gradual transition, some sort of sense for how that plays out.

Hi, Steve, this is Don.

Yes, the full cut over where it's fully up and operational is middle of next year.

We are producing wafers on that line right now, so it is a gradual cutover.

During this time and during the whole time of the project, it has had no significant time on margin.

That will continue until the cutover occurs.

But it is an important part of the strategy and it's a lever that we are going to use to continue to move margins forward as that line comes on and it's fully utilized.

Ladies and gentlemen, this this concludes today's question-and-answer session.

I'd like to turn it back to the presenters for any additional or closing remarks.

Okay.

Well, thank you everyone for participating in the call today.

On behalf of the entire Skyworks team, we look forward to seeing you at upcoming conferences.

Take care.

Ladies and gentlemen, this concludes today's conference.

You may disconnect at this time.