思佳訊 (SWKS) 2010 Q1 法說會逐字稿

Welcome to the Skyworks Solution first quarter fiscal year 2010 earnings call.

This call is being recorded.

At this time, I'd like to turn the conference over to Pilar Barrigas, Corporation Communications, who is filling in for Tom Schiller.

Ms.

Barrigas, please go ahead.

Thank you, Dwayne.

Good afternoon, everyone, and welcome to Skyworks first fiscal quarter 2010 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 for your questions.

Please note that our comments today will include statements relating to future results that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially and adversely from those projected as a result of certain risks and uncertainties including, but not limited to those noted in our earnings release and those detailed from time to time in our SEC filings.

I would also like to remind everyone that the results and guidance we will discuss today are from our 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.

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

Thanks Pilar, and welcome, everyone.

I'm pleased to report that 2010 is off to a solid start for Skyworks.

In our first quarter of the fiscal year, we delivered strong top and bottom line growth on both a sequential and year-over-year basis.

We believe these results are demonstrating our ongoing transformation to a higher margin and a highly diversified analog Company.

Specifically in the first quarter, we delivered revenue of $245 million, that's up 17% sequentially year-over-year.

We expanded our gross margins to 42.2%.

We improved our year-over-year operating income by 83%.

And we achieved a 21.3% operating margin and posted $0.27 of EPS.

This is $0.02 better than our guidance.

With respect to cash, we generated $53 million of cash flow from operations and we exited the quarter with $402 million of cash.

And looking forward, we are guiding to a 30% year-over-year revenue growth in the seasonally low March quarter and we're well positioned for accelerating EPS growth during the fiscal year.

As we believe our results and outlook reflect, we are capitalizing on several key market drivers today.

First is the exploding demand for mobile Internet applications and always-on connectivity.

Particularly given the increasing ubiquity of social networking, enterprise access, music and video applications, and this in turn is driving the broad proliferation of SmartPhones, netbooks, notebooks, tablets and other forms of embedded wireless devices.

The second market trend is the increasing demand for custom analog solutions supporting a number of applications across a variety of non-handset markets including automotive, avionics, including wireless and wire line infrastructure, satellite, medical, military, industrial, and the third market trend is the rapid adoption of smart grid technologies as utilities and consumers alike seek to more efficiently measure and to manage their energy utilization.

Okay.

Now, moving from these market tailwinds to Skyworks, strategically, we continue to make substantial progress along each of the three core strategies we've shared with you over the last few years.

Namely, first, to gain share in our targeted markets.

Second, to diversify our business through increased traction in adjacent analog markets.

And third, to execute operationally to deliver ongoing margin expansion and higher returns on investment.

With regards to gaining market share, Skyworks continues to consolidate share across the mobile Internet spectrum.

This covers everything from netbooks and data cards to SmartPhones and even entry level handsets.

On the high end, Skyworks is uniquely today supporting all five top tier handset OEMs and all key SmartPhone suppliers.

I think a special note, last quarter we added several new Android-based platforms including Google's recently launched Nexus One mobile phone.

And as we've discussed on many investor calls, this segment in particular has been a focal point for us, given that we capture up to $8 per device, and our technology addresses both system complexity and stringent performance requirements.

With network roaming and maximum carrier flexibility in mind, we see a growing trend towards more bands and as a result, increasing addressable semiconductor content per platform.

I think furthermore, we're seeing a very successful SmartPhone food chain, which service providers like AT&T, Verizon, Vodafone, deriving highly profitable revenue streams from data service contracts and other embedded wireless devices.

I think their strategy is very simple.

Place application-rich SmartPhones in the hands of the consumers and both parties benefit.

Consumers satisfy their demand for real time mobile Internet access, while carriers gain from ever increasing ARPU levels.

According to Piper Jaffray, an equity research firm, global SmartPhone sales will increase from around 139 million units in 2008, to nearly 400 million units in 2011, that represents a 42% compounded annual growth rate.

So let me reiterate why we're performing in the SmartPhone category.

And why we believe we will be the leading front end supplier in this segment.

First, we're able to meet our customers' demand for size and cost.

We deliver highly integrated solutions at both the chip and at the module level, saving precious board space on ever-shrinking form factors.

In addition, we leverage our in-house building blocks in scale, to produce cost effective solutions that that decrease a handset manufacturer's overall bill of material costs.

Secondly, our deep understanding of system level requirements allows us to develop architectures with Best-in-Class specifications that enhance the performance of our customers end solutions.

In essence, since our very inception of Skyworks, we approach opportunities from a complete solutions perspective, when engaging with our customers and chip set partners.

Rather than simply looking at it from a single device or in a single component perspective, and this is why Skyworks was created way back in 2002.

At the same time, we're diversifying into new markets, the second element of our strategy.

For example, during the quarter we secured a strategic design win with Huawei that leverages our custom amplifiers, mixers and discretes in a very highly integrated subsystem in support of their 3G base station applications.

In addition, we commenced volume production of 5 gigahertz low noise amplifiers, targeting a diverse set of end markets.

We launched a family of highly integrated CMOS switches with high isolation capability for the direct.

We successfully ramped analog control devices for Intel's wireless local area networking applications, and we extended our ISO TX16949 automotive certification.

This allows us to further penetrate new markets.

In addition, we have over the past couple of years made targeted investments in order to position ourselves very early to capture share in the smart grid market.

By virtue of our very recent design wins, today Skyworks is servicing several multi-year advanced metering infrastructure contracts, supporting a czar variety of US and international billing utilities.

Some of these include Southern California Edison, CenterPoint Energy, National Grid, The Southern Company, DTE Energy, San Diego Gas and Electric and British Gas.

Of special note during the quarter, we commenced shipment volume production on several devices supporting Itron's open way energy management solutions, which provide outage and fault monitoring, surge protection, real time pricing and usage information.

At a higher level, our approach in these targeted vertical applications is to service the needs where the focus is on portability, mobility, current consumption or signal and data integrity.

These are the challenge that our linear technology is ideally suited to solve.

Okay.

Finally, the third element of our strategy to execute operationally.

Our progress on this front I think is best exemplified by our first quarter's performance with operating margin of 21.3%.

Don will discuss this in more details and discuss the specifics regarding our medium-term plans to drive the business into the mid-20s operating margin range.

So in summary, we're transforming Skyworks.

We're creating a Company that can rival some of the best analog stalwarts in terms of growth, certification, profitability, and cash generation.

Perhaps most importantly, we're entering this new and exciting phase with a rich product pipeline, a broad sales channel, and demonstrated operational agility.

All positioning us to create greater competitive advantages and to continue to create shareholder value.

I'll now turn this over to Don for his comments.

Thanks, Dave and thanks for joining us.

everyone.

We appreciate that.

First I will provide you with a quick summary of our first fiscal quarter results.

and then we'll discuss our business outlook.

Revenue for the period was $245.1 million, up 17% year-over-year, and surpassing our guidance range of $238 million to $242 million.

Gross profit was $103.5 million, or 42.2% of revenue, a 130 basis point sequential expansion which was driven by a richly diversified product mix, volume ramp of margin accretive new products, continued factory process and productivity enhancements, product end-to-end yield improvements, and double-digit year-over-year material cost reductions.

Operating expenses were $51.3 million, of which R&D was $30 million, and SG&A was $21.3 million, yielding $52.3 million of operating income and a 21.3% operating margin.

Our net interest and other expense for the quarter was $700,000 of expense, while taxes were $3.9 million.

As a result, our net income was $47.7 million, or $0.27 of diluted earnings per share.

Turning to the balance sheet, we exited the quarter with cash and cash equivalents of $402 million.

During the quarter, we generated $53 million in cash flow from operations.

We recorded $11 million of depreciation.

Retired $5 million of convertible debt and invested $15 million in capital expenditures.

Now, to our business outlook.

Based on broad-based business strengths and new applications, we anticipate 30% year-over-year revenue growth for the second fiscal quarter.

Specifically, we expect revenue of $225 million, significantly better than normal seasonality for the March quarter.

Gross margin between 41% and 41.5%, operating expenses of approximately $52 million, $700,000 of other expense and an 8% cash tax rate.

In turn, assuming 182 million fully diluted shares, we are forecasting diluted earnings per share of $0.21, which represents a 75% year-over-year improvement in bottom line profitability.

Now, let me just take a moment to discuss our medium term financial targets.

Given our top line growth plans, scale, product gross margin improvements, and operating expense leverage, we now have a path to operating margins in the mid-20s on revenues in the range of $280 million to $300 million.

To help define the key elements of this revised model, we anticipate that approximately $0.45 to $0.50 of incremental revenue will drop through the gross and operating margins, with the balance of the model return improvements deriving from operating expense leverage.

We believe that this model is highly achievable, and strikes the right balance between gaining market share, enhancing margins, and most importantly, maximizing our return on invested capital.

That concludes our prepared remarks, so operator, you can open the lines up for questions.

Very good.

(Operator Instructions).

Due to time constraints we ask that you initially limit yourself to one question with a follow-up.

We'll first go to Ittai Kidron with Oppenheimer.

Thanks, guys.

Congratulations on a good quarter.

Don, wanted to drill in a little bit into your guidance.

Last time you gave a model target.

You achieved it in the year that you provided that guidance, should we make the same assumption on your most current operating margin guidance target?

Hi, Ittai.

Thanks for the question.

We're obviously not guiding beyond the current quarter.

I think the way to think of this, this is a highly achievable medium term model and we look at 2010 as having a lot of significant growth potential.

Our served markets are growing and we believe we're well positioned to win share.

Okay.

And as a follow-up, Dave, maybe just a little bit for you.

Share gains has been a big part of the story over the past year.

Clearly, you've made a lot of great progress in that area.

I guess the question is where do you feel you stand right now with regards to more opportunities like this?

You've gained a lot.

Where else is there for you to go and if you can be a little bit more specific on that front.

I'm just trying to get a better gauge whether your growth this year is just a little bit weighted towards TAM expansion rather than share gains as a driver.

Thank you, Ittai.

That's a broad question, but we are -- we see opportunities in 3G, where in some segments we're underweighted in our newest solutions, reference design partnerships are allowing us to gain traction.

We think about Korea, for example.

We also with respect to Nokia, moving from the high end into the midterm main stream market as we speak, I think that's an important driver for us.

We're gaining more content where the SmartPhone architectures are moving toward less discrete front ends and more integrated if you will front end solutions, where we are moving in a pretty fast rate from servicing a portion of that front end to more and more and ultimately all in many platforms.

So kind of take share in SmartPhone.

And I think in terms of the secular trend, if the handset market's going to grow, let's say the 8 to 10% range on a compounded basis, our addressable market as there are more SmartPhones, more 3G, more bands, more filtering and switching complexity at an 8 to 10% unit growth rate, our serviceable portion of that market is growing roughly double that as we calculate it.

So we believe we're addressing a market that's growing in the 17% compounded growth rate, where we could move our share dial pretty significantly in the areas I described.

Our next question is coming from Uche Orji with UBS.

Hi, guys.

This is Uche.

Take thanks for taking my question.

Just wanted to drill down on your guidance for the March quarter.

First question is how much of that March quarter revenue number is covered by the current backlog?

And also, I see that your inventory has gone up significantly so just wondering if inventory and building in anticipation of higher revenue or how do you explain that?

Well, the question, thank you, the question as to how booked we are, if we take our current firm backlog and the forecasts of our customers were over 90% booked which is a good place for us to be with this guidance.

We're very comfortable that the guidance is conservative.

With respect to the inventory, Don, perhaps you could answer that.

Sure.

Thanks for the question.

Yes, the inventory actually was up at the end of this quarter, $12 million, from the prior quarter, and what you're seeing there is it's all a function of customer requirement dates for shipments.

We have a high percentage of those early in the quarter, higher than normal so we've got the inventory build that reflects that.

The one thing to keep in mind is our velocity as far as turns, that's how we measure inventory velocity was above six for Q1.

Again, the inventory turns are very healthy and it's really just a function of timing of customer demand.

Nothing else.

Okay.

And secondly, about your gross margin, if you could explain to me, I mean, as we go down from December to the March quarter, the difference in the gross margin is basically driven by revenue or is there any other factor that is leading to lower gross margin in the March quarter?

No, it's strictly volume.

As all manufacturing companies have a fixed component of costs and that big of a revenue change does drive some margin pressure.

That's all you're seeing.

Nothing else unusual at all.

Okay.

Thank you.

And our next question will come from Alex Gauna with JMP Securities.

Thanks very much.

Point of clarification here.

I was wondering, you mentioned the 17% compounded annual growth rate potential for your addressable market.

I'm assuming that this doesn't include your potential for share gains.

Is that correct?

Yes, that's correct.

And by the way, I need to point out, that's just in the handset sector.

We have pretty -- our smart grid business is growing faster than that.

We have linear product markets that are growing faster than that.

The 17%, all it's really doing is weighting the movement of the unit volume more towards 3G and SmartPhones where we have a higher addressable content and less towards 2G where the dollar content is the lowest.

Simply weighting the average dollar content of what we can address in more complex products versus less complex products and that 17% assumes ASP erosion as well so that's after ASP erosion.

Okay.

Perfect.

You touched on my follow-on, which is in regard to your smart grid here.

Pretty impressive array of engagements here.

Can you give us sort of an idea of the timetable for this.

The magnitude.

And it seems like you're giving a little bit more visible than most of your wireless peers.

Do you feel like you've got a first mover advantage in this market or a share advantage at this point.

Alex, sure, this is Liam.

We did invest early in that sector as Dave outlined in the opening comments and we still believe as much as we've enabled some great design wins with a number of players, it's still very, very early in what we believe to be a multi-year cycle.

So we're well positioned for this.

There's a number of products that we are selling to a variety of customers.

We take advantage of the DNA that we developed in mobile Internet.

We're selling discrete components, integrated components.

It's early.

There's quite a bit of growth ahead.

Next go to Steve Ferranti with Stephens, Incorporated.

Just a follow-up to the prior question.

Liam, you mentioned that we're early on in the smart grid opportunity playing out.

Does the fact that you're talking about now commencing volume production, does that imply any sort of acceleration perhaps in the growth in calendar year 2010?

Yes, absolutely.

Calendar year 2010 will be a very good year for energy management business.

The last several quarters have all been up sequentially.

We will be up again in the March quarter.

It's just a matter of timing in terms of how these ramps roll out, how these utilities adopt the technology.

We're certainly trying to attract more and more end-to-end customers but it will be a material growth driver for the non-handset portfolio in 2010.

Okay.

Great.

And one quick follow-up.

Your guidance implies sequential decline of only 8%, which is I believe less than the historic norm.

Do you think that that is a reflection of the fact that you're picturing up share, or do you think that maybe the end markets are just down less than what's seasonally normal?

We're assuming I guess one might say conservatively that the March seasonality will be down and it will be down to normal levels which will be the 10 to 15% range.

Our guidance is better than that.

And we think we've outlined pretty conservative guidance based on backlog position, based upon some known program ramps where we have very high visibility, ramping into production.

It's based on the mix of our business that in the March quarter we get much less seasonality from our linear product business and these targeted vertical applications.

As Liam mentioned, smart grid won't be down in the March quarter.

It's a culmination of all those things.

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

Thanks a lot.

Good job, guys.

Dave, a couple questions.

Your your margin profile that's described here, gross margins, seems to be occurring even without a huge increase in your linear business or share gains in your linear business relative to the handset side of this.

It's always been the case that the gross margins on those are significantly better than your handset margins.

Is that still the case?

Is linear still doing better than the handsets.

What should we expect over the next year or so?

Should we expect to see that break above the 25% of revenue for the firm?

Is that going to grow because you're doing so well on the handset side of the business?

Is it going continue to be around the 20% mark and could you tell us what was it this quarter.

Appreciate it.

The model that Don described assumed that we had the same relative split between non-handset and handset or linear products and handsets.

We've talked about this a lot on calls in the past where at one time, we had a growth in the handset business expectation and we had sort of a catalog standard, analog catalog business and we felt that while that was a great mix in terms of volatility and less volatility obviously and more profitability, we really wanted to step up our ability to go in very surgically with this targeted verticals and create fewer singles and more doubles and triples to use a baseball analogy.

Takes a long time to do that.

You have to build your marketing team, your applications knowledge so that you're not throwing spaghetti at the walls.

We're getting much better.

Our hit rate's improving.

So the long way of saying the model assumes a similar split.

I'm optimistic that over the medium term, over the long term in this Company, you're going to see us grow that business faster.

But the model's not dependent on it.

Ed, this is Don.

The handsets were again in the mid to high 70% range just like you've seen in the last year or so.

As a quick follow-up, there's been a lot of chatter about kind of the mix shift for you from more of the low end GSM stuff into China, maybe giving up a little bit of share to your competitors, taking a lot more share in the SmartPhone and the largest handset OEM.

Will that trend continue on the quarter?

And then six inches, you're going to move to six inch fab in the spring, I guess full on or ramping it.

Will that have an impact on gross margin?

Is that a big part of your gross margin story for the year?

If you could quantify that, it would be helpful.

It's a six inch.

This is Don.

Six inch is consistent with what we've communicated prior quarters but we've been producing both four and six inch over the past several quarters as we're ramping the new line.

The full cutover will be completed at the end of this quarter.

Certainly when it's fully utilized, it's an important lever for us to increase internal capacity and expand gross margin.

It is part of the equation of the new business model formula.

It will occur gradually over time as volume ramps.

Ed, with respect to the China business, I'm not really sure where the comment that we're losing share in China is coming from.

We acquired Axiom a short time ago, and that business is doing what we expected it to do, and it's allowing us to address the ultra low end.

That's going quite well.

Our partnership with Media Tech is strong.

We were very strong in the December quarter.

And in addition, we're moving from some fewer of the commoditized pans, power input, gas chip in a box and more of our going forward solutions are going to be customized front end solutions.

The shares move around.

That market is sometimes difficult to get a beat on.

There have been share shifts in that sector but we haven't been a net loser on that.

Our share there is very strong.

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

Hi, guys, nice job on the quarter.

I think Dave you talked about some visibility into share gains in the coming quarter helping you over seasonality.

Is that something you see continuing for the next few quarters or does that tail off at some point, that visibility from program ramps.

It only tails off if your program ramps tail off.

March is typically a slow quarter on the handset side but the design activity I must say is just being driven through the roof.

The number of new designs going through our characterization and qualification process, our AT or sampling line is running 24/7.

I think we doubled the number of new designs here in the last six to nine months versus the prior six to nine months.

It's really heating up.

Multi mode or multi band complex front end solutions is driving in a lot of these linear products, low noise amplifiers, complicated linear products devices so I think you should look for ongoing share consolidation within our handset business, simply because the complexity is becoming more and more difficult for component suppliers to address.

You're seeing few discrete switches, few discrete PAs, fewer and fewer of them in favor of a system approach that allows for miniaturization, it's shielded RF performance.

That trend will not stop and we expect to be a beneficiary of that.

Where's the mix of your revenues now.

3G Edge versus non 3G?

This is Don.

Hey, Don.

We were roughly 50% 2G, 50% 3G this quarter which is where we've been over the past several quarters.

That's dollars,.

Dollars, yes.

Thanks, guys.

Our next question is from Richard Shannon with Northland Securities.

Hi, guys.

Very nice quarter.

I have one, just one question on the topic of Wi-Fi or wireless LAN, kind of a three parter.

Hope you don't mind.

You refer to in your initial comments regarding your analog control devices with Intel's wireless LAN.

Kind of curious what kind of magnitude, what kind of a ramp we should see in that business?

Second part of that question is what is your viewpoint, visibility into getting any sort of power amp wins with that particular customer?

And third, what's your viewpoint on Wi-Fi into handsets in 2010?

Is that going to be a product area of interest for you?

Okay.

This is Liam.

Well, with respect to Wi-Fi in general, we actually are doing quite well in that space.

We have a number of customers, some in the PC OEM market, netbook market, also some chip set partners like Broadcom that we work with.

The Intel business is actually notable for us, because we are now in that account for the first so it's early engagement.

There's a lot of blue sky with Intel.

Today, the business that we have is around CMOS switches for wireless LAN applications.

We think there's clearly opportunity for us to bring that up with.

And power amplifiers to really gain some content.

First of all, we think the Wi-Fi space is really important for us.

We've had that business for a while.

Intel is new.

With respect to the broader attachment in handsets, I'm quite bullish on that.

If you look at SmartPhones for examples.

Virtually all of the SmartPhones today carry Wi-Fi connectivity.

We think attachments going into 2012, 2015, could be as much at 30, 40% of the overall handset market.

It will be a big segment for wireless.

Is Wi-Fi in handsets even a material part of your business at this point or is it something that's very early in that curve.

It's actually most of our revenue in Wi-Fi today is in the laptop, netbook space but we have some customers that will be going into production on the handset side by the middle of the year.

Thank you very much.

Thank you.

Our next question will come from Craig Ellis with Caris and Company.

Thanks, guys and nice job.

Don, can you just help us understand on the gross margin strength in the quarter, which of the factors that you identified was responsible for driving the upside to initial guidance?

It was a combination of everything we discussed.

I mean, it wasn't any one specific item.

I mean, it's continued -- it's something that we continue to focus on.

We're very margin improvement focused.

It's execution.

It's product yield improvements.

It's factory productivity.

It's managing the cost base.

And it's volume upside.

All of those things contributed to the overall margin expansion and we -- one of the things that we believe gives us a cost advantage is the whole fab light model that we deploy and continue to leverage that and striking the right balance between internal and external capacity also gives us cost and margin improvements.

We also see some of the programs we identified in our prepared comments, many of these programs have higher contribution margins or ultimately result in higher gross margins so we think over time as we achieve this medium term model we talked about, it will be partially because we'll have all the things that Don said.

We're also seeing a shift in our overall business towards more margin rich products over time.

Okay.

That makes sense.

And then just thinking about the first quarter, it seems like mix would become even more margin accretive for the Company.

Obviously volume is a headwind but are there any other headwinds besides volume as we think about the first calendar quarter?

No, Craig.

All right.

Thanks, guys.

Thank you.

And our next question will come from Sanjay Devgan with Morgan Stanley.

Hey, guys.

Thanks so much for taking my question.

Great ask job on the quarter.

Just had a question, following up on the path to the mid-20s operating margin at the $280 million to $300 million in revenue.

Is it fair to assume that at that rate, gross margins will have to trend to the mid-40s?

And if that's the case, is it more a case of volumes driving that since you'll be at the 280 to 300 or is it more a matter of kind of the operational improvement from the four inch to six inch fab conversion?

Clearly, Sanjay, this is Don, what -- the way we position the model is we give the ability to take revenue changes and run them at the different contribution levels and get a feel for where the margins are.

So yes, the margins will start tracking towards the mid-45.

That's absolutely the case and it's going to be driven by the increased volume is absolutely going to drive benefit.

We've got the new products Dave described, higher dollar content.

Some of these new linear product markets that we're serving, six inch ramp and also continually focusing on design for cost and operational efficiencies in the factories.

All those things are going to contribute to expanding margins.

Great.

One follow-on.

You mentioned the initial ramp into Itron's Open Way Energy Management Module.

As we look at remote metering or smart metering in general, as that business kind of takes off this year and given the number of engagements you have, as a percentage of your revenue, how meaningful, without getting too detailed, I guess, if you could give some qualitative insights, how meaningful do you think that business is by the end of the year?

Sure.

Well, as we mentioned earlier, today within our non-handset portfolio, it is the largest growth driver in 2010.

We think by mid-year, end of the year, you'll be approaching potentially 20% of the non-handset business.

From there, it just really depends on how the Company grows, and how the rest of our linear businesses grow.

It will be a material driver.

We have good visibility, we have a good suite of customers, Itron being one of our more significant ones, also customers internationally.

Again, we've got some macro tailwinds, government stimulus money.

Energy, conservation, they all want to be part of this.

I think there's good long-term potential.

As we talked about the early mover advantage, one of the things that we've done is we created really specialized custom fairly integrated solutions.

So the competition isn't so much with somebody doing what we're doing but the competition is with a more -- a less efficient, if you will, more costly, larger board space requirement with discrete designs.

So these are custom solutions and they just work and play better in these applications so there is a real differentiated product set here for us that will be difficult for these RF competitors to match.

Our next question will come from Aalok Shah, DA Davidson & Company.

Can you remind me who the 10% customers were this quarter?

We had one 10% customer this quarter, it was Samsung.

Several of the customers were in the high single digits as we've seen in previous quarters.

But I think the important point, Aalok, when you look at our results we achieved $245 million in Q1 revenue and we did this with only one 10% customer and I really think the take-away, that's a real testament to our overall diversification and how well we're executing on that strategy.

Along those same lines, I know we talked about Nokia in the past, and you mentioned I'm sure they're a high percentage of revenue this quarter, but can you give us a status where you think you are now with Nokia and how we should be thinking about Nokia going through this year?

Nokia of course represents great potential for Skyworks.

We are engaged with that customer fully.

Having said that, our revenues today are still well below 10%.

We think we have our sights and their sights set on material growth over the next several years.

We're moving from 3G to Edge and eventually some of their platforms.

We feel positive about that.

We're nowhere near where our capabilities are.

Our next question will come from Anthony Stoss with Craig-Hallum Capital.

Hi, guys.

Two parter.

Inventory levels in the channel let me hear your thoughts on that, and then are you seeing any pricing pressures and then a question for Don, your view on 2010 tax rates.

Thank you.

Inventory right now looks actually quite balanced.

There's always going to be a few pockets where there maybe a distributor or some hub inventories floating around.

We feel pretty good.

Last quarter was well balanced.

Entering this quarter, backlog looks good, so we don't see any trouble or alarms with inventory and pricing so far looks actually quite stable.

We're not alarmed about pricing or concerned about that going into the new year.

Anthony, on the tax rate, we're looking at and this is consistent with what we guided prior quarter is right now for 2010 we have about $90 million of NOLs that we're going to be able to deploy this year so that's providing us with an 8% cash tax rate.

And just to give you a little -- and we talked about an estimate for next year previously.

I just want to give a little color around that.

We've got several key tax initiatives that we're working on as we speak.

One of those will be deployed in the second half of the year, the other for fiscal 2011.

What's that's going to allow us to do is to we believe deliver a cash tax rate of roughly 12%.

We've got a lot of focus in this area and we think it's going to to put us in a very competitive tax position.

Next question will come from Todd Koffman with Raymond James.

You talked in your prepared remarks about the higher content in these new SmartPhones.

You threw out the $8 number.

Is there a trend within the new SmartPhone designs coming on the market to source all of the PAs from a single supplier or is it a Mix & Match so that if you call out a design win, chances are somebody else has got the same design win as well?

Thank you.

I think clearly what you're describing, the latter half of what you described is -- has been the case because a lot of these newer SmartPhones, these entrants weren't phone manufacturers and they followed a pretty strict reference design approach, and those reference design approach have a lot of discrete content on them.

If you notice, some of the larger cellular OEMs really driving more chip level and package level integration and that over time in our experience has always tended to migrate towards more integration, not less, always over time.

I think these newer -- the newer products and platforms we're seeing, working very closely not only with our SmartPhone and handset OEMs but with our baseband partners.

Are becoming much higher levels of integration, much more thought early on in the development of the base band solutions themselves and much harder to extract a component from it.

That's why my comment for example that they're a couple of suppliers who are always very big at selling discrete switches.

I think those discrete switches will be incorporated into modules.

And I think that's just a fact.

So each -- now, reference design will have some mix and match approaches because their obvious desire is to have continuity of supply and so on.

So there's kind of this pull from the customer to give them more integration and of course the baseband folks was a competitive solution but they don't want to be beholden to one Company.

I understand that.

Over time there will be a trend in more direction, more winner-takes-all, more customization, fewer component opportunities, for discrete providers.

Thank you.

Good luck.

Thank you very much.

And we'll take our final question from Tore Svanberg with Thomas Weisel Partners.

Yes, two questions.

First of all, so just based on your March quarter guidance, will your handset business also be better than seasonal or is it more that that will be in line with seasonality and then the better results driven by linear and smart grid?

We believe that the handset business will be somewhat better than seasonality and we're ing basing that on backlog.

March quarter is always a seasonally down quarter and there's a lot of material that moves at the end of the December quarter.

So that kind of needs to be digested if you will and understood, and we're in the process, and the channel is in the process of doing that.

But the assumption is that we would get less seasonality in our linear products business and handsets would be somewhat better than seasonal and of course we attempted to be quite conservative, as we usually do with our guidance.

Fair enough.

And then you mentioned a pretty important win for 3G infrastructure in China.

Can you just add some color there?

Is that a market that you expect to do quite well in 2010?

Realize that it's the beginning ramp for you but help us understand a little bit more when we could potentially see some bigger ramps from that program in 2010.

Thank you.

Yes, that's a good question.

We absolutely believe that China infrastructure is going to be very important so we are seeing some traction with the normal Huawei, CTE companies.

We think they are net share gainers today.

We have some very custom engines here that bring into account RF mixers, VCO synthesizers, products that are margin rich, highly customized, and performance driven.

So there will be movement in the right direction off of that and we think over the next few years they could be very significant accounts for us.

At this time this does conclude the Q&A session.

I would like to turn the call to Dave Aldrich for closing comments.

This concludes our call today and on behalf of the entire Skyworks team, thank you so much for your participation and we look forward to seeing you at upcoming conferences and on our roadshows.

Again, this does conclude today's conference call.

Thank you for your participation.