思佳訊 (SWKS) 2010 Q4 法說會逐字稿

Good afternoon and welcome to the Skyworks Solutions fourth quarter fiscal year 2010 earnings call.

This call is being recorded.

At this time, I would like to turn the call over to Steve Ferranti, Investor Relations for Skyworks.

Mr Ferranti, please go ahead.

Thank you, Robby.

Good afternoon everyone.

Welcome to Skyworks fourth 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 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 uncertainty, 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 our complete reconciliation to GAAP.

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

Thank you, Steve and welcome everyone.

I am pleased to report today that Skyworks exceeded the upwardly revised fourth quarter outlook that we provided at our September analyst day meeting.

Demonstrating solid execution and a strengthening competitive position.

Specifically in the quarter we delivered revenue of $313 million, that's up 14% sequentially and is up 37% year-over-year.

We expanded our gross margins to 43.8%.

And our operating margin to 26.1%.

We improved our operating income by 92% year-over-year to $82 million.

We posted $0.43 in earnings per share.

We also strengthened our balance sheet during the quarter increasing our next cash position by $69 million.

And exiting the quarter now with $459 million in cash.

Our strong fourth quarter results were driven by our mobile Internet and our diversified analog growth engines.

First with regard to mobile Internet, we're continuing to see increasing momentum given consumer's growing appetite for anytime anywhere connectivity.

By all accounts, global adoptions of Smartphones is happening at an accelerated pace.

Now at least four times the growth rate of the traditional cellular handset market.

To be sure, we have benefited from the rising tide of increasing our content associated with these band intensive 3G and 4G platforms.

But more importantly as demonstrated by our more than 35% year-over-year growth rate, Skyworks is on an even steeper growth trajectory.

The growth is being driven by - first, recent share gains stemming from our strong relationships spanning all leading Smartphone and tablet OEMs.

This is coupled with our technology leadership, our integration capabilities and our scale advantages.

At a higher level, there are a number of factors that are contributing to our growth in the mobile Internet segment.

To start, we are increasingly seeing multiple devices per subscriber.

In fact AT&T is now projecting mobile penetration rates to reach 300% within the US over the next three years.

This means three mobile devices for every man, every woman and every child in the United States by the year 2014.

This growth will be fueled by a host of new devices above and beyond traditional cellular handsets and even above and beyond Smartphones.

Encompassing high-resolution tablets, USB modems, home networks and still-yet-to-be-introduced Internet connected devices.

Proliferation of these devices within the US represents, we think only the tip of the iceberg as compared with the substantially larger global opportunity as the developing world becomes even more connected.

Further the move to 4G represent a significant market expansion opportunity for us.

Verizon recently announced that it would have LTE service in 38 cities this year and operators throughout the world are announcing plans to rapidly follow suit.

By early 2011 we expect to see a host of LTE capable USB modems, tablets, and Smartphones.

As this next wave approaches, Skyworks has a clear early mover advantage.

Having powered not only the world's first commercialized LTE USB modem but also the very first LTE-based phone on the market.

And finally we are solidly out in front of the rapidly emerging tablet segment.

Where we are seeing exponential growth.

The applications are seemingly limitless today and these platforms are enabling entirely new usage models.

Everything from eHelp, to replacing textbooks, to watching high definition football game on DirectTV, Sunday Ticket To Go.

Early tablet adoption rates continue to exceed expectations.

We can conservatively estimate this market could surpass 200 million units by the year 2014.

Creating an incremental $1 billion of addressable market for us.

These RF contents rich devices rival and in some cases they exceed the dollar content in high-end Smartphones.

Here again, Skyworks maintains a clear market leadership position having shipped over 4 million units into tablet applications in the fourth quarter alone.

In parallel, we are gaining traction on the network infrastructure side of the mobile Internet connection.

As operators install new base stations, new routers and backhaul equipment to expand coverage of data services, alleviate capacity bottlenecks and prepare for next generation LTE deployments.

Consumer demand for anytime, anywhere Internet access is creating exciting new growth avenues for wireless carriers who in turn are making significant new investment in their networks to support wider adoption of these very lucrative services.

According to a recent In-Stat mobile Internet group research report, infrastructure expenditures by mobile operators will need to scale up by more than 40% in the coming years to meet this fast-approaching demand.

At the same time operators in emerging markets like China, like India, are in the early stages of 3G build-outs and are spending aggressively to roll out service for the first time on a nationwide basis.

Both of these trends are creating a tremendous opportunity funnel for Skyworks and to support this upgrade, we've developed a multitude of infrastructure solution including attenuators, synthesizers, mixers, LNAs, demodulators.

I think importantly our portfolio is moving away from component level offerings towards highly customized, highly performance driven modules that command higher ASPs and create more formidable competitive barriers.

Specifically during the quarter, we increased our share at Huawei and ZTE with our family of high performance broadband synthesizers and system-in-a-package solutions spanning ultrawide frequency ranges.

We captured design wins in support of Cisco's Fiber To the Curb and Fiber To the Home applications.

And we now support Ericsson 4G and LTE base station platforms with new digital attenuators and low noise amplifiers.

In short, global penetration of the mobile Internet entails upgrades to both existing client devices as well as to the supporting network infrastructure.

Skyworks is well-positioned to capitalize on these twin megatrends.

Having covered mobile Internet, let's turn our attention to the diversified analog market.

Some examples that we have highlighted in the past have centered on the energy management market which continued to trend very positively for us particularly with our recent entry into LED streetlight monitoring and control applications.

But today I would like to spend a couple minutes focusing on a complementary ecosystem that we believe holds significant potential for Skyworks which we'll refer to as home networking and automation.

This product area extends several of our Smart energy solutions into the home and enables connectivity across a range of products including gaming consoles, set-top boxes, printers, appliances, HDTVs, Blu-Ray players as well as remote home security and monitoring systems.

This new class of enabling wireless device requires high data rates, requires extended network range, and a reliable radio signal performance.

This plays directly into Skyworks strengths.

In this area during the quarter, we secured key design wins as part of Cisco Scientific-Atlanta cable set-top boxes and Linksys branded home wireless audio and video monitoring systems.

We ramped as part of Microsoft next generation XBOX360.

We also captured design wins on a forthcoming IP-based television platform.

Given all of the revenue drivers that we've discussed, we are entering FY 2011 poised to demonstrably outpace industry growth.

Underpinned by our design win momentum, by our product pipeline and by our scale advantages.

And operationally speaking, Skyworks is making strides towards our new mid-term Operating Model target of 30%.

In summary, we believe that our strategy of diversifying across new vertical markets and diversifying our customer base while continuously improving operational execution will translate into above market growth, greater operating leverage, and increasing shareholder value.

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

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

I will first provide a quick summary of our fourth fiscal quarter results and then outline our business outlook.

Revenue for the period was $313.3 million up 37% year-over-year and 14% sequentially versus our updated guidance of $310 million.

Gross profit was $137.3 million or 43.8% of revenue, a 290 basis point year-over-year expansion which was driven by a product mix that increasingly includes - higher-margin vertical market and 3G solutions; volume ramp of new products; margin enhancing, demand driven capital investments; continued manufacturing productivity enhancements; and product end and yield improvements.

Operating expenses were $55.5 million of which R&D was $33.5 million, and SG&A was $22 million.

Yielding $81.8 million of operating income and a 26.1% operating margin.

A 750 basis point improvement year-over-year.

Our net interest and other expense for the quarter was $400,000 of expense while cash taxes were $2.7 million.

As a result, our net income was $78.8 million or $0.43 of diluted earnings per share versus our guidance of $0.40.

I did want to point out that we recognize the $0.02 per share benefit associated with lower than expected taxes in the quarter.

Excluding this benefit, our fourth quarter earnings per share would have been $0.41.

Turning to the balance sheet during the quarter we increased our net cash position by $69 million sequentially driven by $82 million in operating income, recorded $12 million of the depreciation and invested $29 million in capital expenditures.

As a result, we exited the quarter with $459 million of cash and cash equivalents.

Having completed the six-inch capacity expansion in our Newberry Park fab last year, we have strategically focused our more recent CapEx investments on expanding our assembly and test capabilities in support of our improving outlook and high visibility.

These back end investment compliment our six-inch wafer transition in hybrid outsourcing model and are focused on equipment ads to eliminate internal bottlenecks.

Importantly, in virtually all cases, we anticipate these investments to pay back within the fiscal year while expanding margins and improving our return on invested capital.

Now to our business outlook.

Based on specific program ramps and back log coverage, we are forecasting current quarter revenue of $330 million to $335 million, gross margin expansions of roughly 44.5% and operating expense is of approximately $57 million.yielding a 27% to 28% non-GAAP operating margin.

Which is squarely on track to our previously outlined medium-term operating model target.

Below the line we expect $200,000 of net interest and other expense and incidentally we are anticipating paying off our $50 million credit facility this period.

Further deleveraging our balance sheet.

This repayment will be an accretive using cash given that the rate on the facility is significantly higher than our earned interest rate.

Also of note based on the implementation of a number of business initiatives, we now believe our cash tax rates for Q1 and for the remainder of fiscal year 2011 will be 9% as compared with our prior outlook for a 10% to 12% cash tax rate.

As a result, we expect to increase our operational non-GAAP diluted earnings per share to $0.44 in the December quarter off of a base of 187 million shares.

Well, that concludes our prepared remarks.

Operator, let's go ahead and open the lines for questions.

(Operator Instructions) We'll go first to Ittai Kidron with Oppenheimer.

Thanks.

Congratulations on good numbers and guide.

I wanted to ask two things, first, I know you're not giving guidance here until the March quarter, given all the momentum you're seeing in the business, how would you think we need to think about seasonality for you guys in the March quarter.

Second, on looking at your Accounts Receivable and inventories, this is the first time in four or five years that we have seen both actually grow in the September quarter historically, they have been flat if not down.

Can you give us a little more color into that.

Well, we see -- hi, Ittai thank you,.

The strength we are seeing today, is being heavily influence by demand in the mobile Internet and we talked about some new programs that are ramping for us outside of handsets in energy management home automation and networking products.

For us, we think that that there will certainly be seasonality in margin and most people take that to be 8%, 9%, 10% I don't see any reason to forecast anything different than that.

We hope to be able to outperform that given the specific program ramps we talked about.

Hi Ittai, This is Don.

On the AR and the inventories, both these line items on the balance sheet are a direct results of volume during the quarter and anticipated future volumes.

In the case of AR, it's both a combination of sales being up and also the linearity of sales that affects what the balance is at the end of each quarter.

Our DSO in this quarter versus any of the prior quarters this time of year is consistent with where it has been.

It's not a velocity issue of collections.

On inventory our turns are actually up from where they've been in prior periods, so it's strictly a volume issue.

Was the linearity in this quarter any different than in the past?

Slightly.

It is enough -- it's really volume and a little bit of linearity.

But again, the DSO is consistent with where it's been in the past.

Very good, good luck guys.

Thank you, we'll go next to Craig Ellis with Caris & Company.

Thanks for taking the question and nice job once again on the results, guys.

Am not sure if this is for Don or Dave.

As you look at the outlook and think about the underlying businesses, can you help us understand some of the gives and takes across the handset business, linear products et cetera?

Thank you.

This is Dave, maybe Liam can help me with this.

I would say clearly in the mobile Internet space, Smartphones, tablets and some of the feature rich phones where we are benefiting from some of our chip-set relationships we are seeing strong momentum there.

We're also seeing it as we talked about some of these energy management home renovation.

They're starting from a small base but we're seeing sequential growth there.

We are seeing some choppiness clearly in China.

We factored that into our guidance but we've seen some areas of softness in that part of the world.

We have been monitoring our inventory levels both with distributors and very, very closely and there is no issues there, there's no inventory overhang anywhere that we can see.

Almost half of our revenue now goes through these consigned hubs and we have very, very good visibility in the component supplies.

We don't think there's an inventory overhang anywhere in the channel that we can see, and the mix, shakes out the way I described.

The China comment, is that handset, infrastructure or both?

It's really handset.

Actually we are seeing some nice strength in infrastructure we talked about Huawei and ZTE, we've won some system package a BTO synthesizer business there.

Our share in those two customers is expanding.

It is really the well-publicized handset softening that we have been dealing with now for a few months.

Thank you.

We will go now to Anthony Stoss with Craig-Hallum Capital.

Hi, guys, also my compliments.

Can you talk more about capacity where you are at?

How much more room you have or AWS has?

Also, lead times and what percent might be put into your guidance?

Thanks.

Sure.

Will talk a little bit about -- capacity.

Right now we believe we are well positioned with our current capacity profile and our ability to meet customer demand.

We have successfully increased our capacity over the last three to four quarters in all our internal fabs in our assembly and test operations.

We'll also continue to leverage the hybrid manufacturing model.

With this dual combination of expanding internal capacity preparing our suppliers to get ready to handle the capacity.

This will allow us to keep internal utilization high.

Leverage the external partners and with both of those things aimed at gross margin expansion and our return on invested capital expansion.

That is the end result for us.

And the percent booked to your guide currently?

Consistent with the way we typically do this forecast when you look at backlog and you look at the hub pull forecast it is virtually 100%.

Thank you.

Thank you.

We will go next to Jonathan Goldberg with Deutsche Bank.

Thanks for taking my question.

First on China, do you have better exposure or better tax rates to some of the base band ecosystem there than others.

I know there's a little bit of a share shift price war going in that markets.

I was just wondering how diversified you are across base band ecosystems.

Jonathan, yes this is Liam.

We are diversified, certainly Media Tech is a larger prayer and we've got great position there.

We've expanded with -- and some smaller players like MStar.

We will be diversified as much as possible across the base band partners.

Another move that we are making now that you will see the benefits in 2011 is a concerted effort to penetrate Huawei and DTE more fully moving into 3G technology.

They're basically in China right now.

The lead players for 3G doing some great work with data cards as well as handsets.

That Dave has alluded to our infrastructure opportunity in China looks very promising.

We are starting to see strength now come together in our integrated packages and I think that has a tremendous upgrade cycle forthcoming in 2011.

In the case of Huawei -- business, do you sell to them directly now or does that go through distribution?

Directly, we sell directly there.

Great.

Thank you.

We'll take our next question from Parag Agarwal with UBS.

Thanks for taking my question.

Just want to get an idea of for you design win momentum in the sense that -- I mean -- I wanted to get a feel of -- is going to shape out based on your current design win and based on your designing momentum.

Like now, do you feel that you are getting share at your existing customers?

I think really the good news in the transformation of our business over the last few years has been it has moved so far away from any comoditized business like the old 2G days when there was an opportunity to win a design and then have to reup or recompete for that design.

Today it is all around pretty highly customized solutions with our chipset partners going after specific segments or specific OEMs and so we know what we won and we know where we are positioned.

I think one thing that is very, very unique about us is that we are in production with all OEMs and all smart phone manufacturers.

We have relationships and volume with all of the major base band providers in the world, all of them.

I think that the market as we describe at our analyst day and in the prepared comments for Smartphones, for tablets and the overall handset market is going to be strong.

It is going to be shifting again away from the low end, the low performance towards feature phones and the high end.

That is a clear shift that will continue.

We have increased our share in each one of those segments going into 2011 versus where we exited at 2010.

We are very confident of that because it is kind of something you do not launch a phone in 2011 unless you are working in that ecosystem 18 months ago.

Okay.

Don, if you look at the gross margin how should we think about incremental gross margins going forward to 2011 and also how is the offers going to trend?

Again we don't guide out beyond the current quarter.

The way to think about it is to relate it to the business model target that we have at 30% return.

With that model works at a minimum of 45%, we have a higher goal than that internally.

But clearly if you think in terms as revenues continues to ramp and we continue to focus on the initiatives we have in place and we continue to get the higher dollar content, the higher margin that we are getting with the product shift that is going on within each segment, those are all going to be margin enhancers and will continue to drive margin forward to that minimum goal of 45% which again makes that 30% model work.

With a higher goal internally to drive that number above that.

Thank you.

We'll go next to Quinn Bolton with Needham & Company.

Dave, I just wanted to try and reconcile your comments about inventory -- Qualcomm on their call last night said that they say a typical -- bigger than typical seasonal build ahead of the holidays.

They sort of cautioned that they might have to work out of that March and June.

It doesn't feel like you are necessarily seeing the same things but just wondering if you could provide some additional comment?

As I said, we are benefiting by the fact that we are in these hub arrangements with virtually all of our major customers and increasing now even with our linear product customers so the way those work is that we're given a forecast that forecast is updating continuously.

More importantly we are able to see into to their production volumes and how they pulling and drawing those lines.

So there really is no opportunity to have component build in inventory because we are watching in real time - daily in fact.

We benefit from that.

We do have a distribution businesses where you can get caught up and get ahead of itself, we look at the turns for every component with the distributors we have.

We have gotten better over the years at really being able to question and challenge where we are seeing puts and takes on that inventory.

We think that is quite in control.

I would say that given what we know today we do not see any meaningful pockets of inventory anywhere that I can point to.

You are looking at it from the component perspective, is that correct?

That's correct.

Do you have any view into the retail channel for mobile phones, that might be the difference.

Absolutely, this is Liam.

We speak with our customers on a regular basis.

Specifically, let's say the top five major handset OEMs and the larger Smartphone players .

We're having discussions with them weekly.

We have very good visibility into the hub equation that Dave mentioned.

So that gives us in fact, day-by-day inventory visibility and with respect to carrier inventory right now we feel like it's in

Will go next to Nathan Johnsen with Pacific Crest Securities.

Thanks for taking my question.

I want to talk a little bit on a competitive situation with one of your key competitors has been certainly talking quite a bit about the expectation for share gains based off of their version of converted solution in 2011.

I want to get your perspective on how important converted solutions are going to be in 2011 and how Skyworks is addressing that particular set up?

Secondly, as far as coming back to the design win question, given the amount of customization and it sounds like increasingly going to sole source, I'm curious how far out you guys now are seeing design wins.

Do you have a sense for the next six months?

Do you have an idea of the design wins you're in even beyond that?

If you could just provide some color there.

I think it varies from customer to customer.

I would say for the most part, we are competing for designs today that are in the 2012 timeframe.

The 2011 designs have been in those ecosystems, if you will.

By ecosystem, I mean the front end provider working with the baseband chips set providers selling into either a broad channel to a reference design or into a specific OEM.

Those decisions had been made.

Going into production in 2011.

The visibility is quite good of how we are positioned.

In answer to your question about how important it is, if we would just look at -- we're a little bit unique because we ship to all the OEMs and we are on all the baseband platforms not every baseband platform but all the baseband partners.

Major baseband suppliers use our chipsets.

We are able to get a good sense where the market is directing-- where it is moving and it really is the case typically for 2011-2012.

It depends.

We have customers who are using very performance-oriented, quite discreet solution because they are very concerned with the overall high keeping the absolute highest performance.

Those designs are quite discreet.

At the other end of this spectrum there are customers and there have been partners driving a multimode hybrid but different approaches -- very different approaches, Different technical architectures around what that multimode would look like.

Not different as to what they will do but how they will be architected in the system There are a number of customers who are somewhere in between, I'll call it a hybrid.

Some discreet elements to gain performance of certain specific bands and for certain markets.

Coupling others in highly integrated call it a multimode, if you will.

It is an important solution.

It's one of several.

And we have very good visibility into what the customer wants.

We actually follow our customers lead and work very closely with our partners to make sure that the technological solution we provide is competitive.

We are very, very competitive across the discrete solution, the hybrid solution and the multi-bug.

Can you elaborate more on how you expect your convert solution to differ from Power Smart at RF&D?

Well, I think that there are different technical approaches to how one might implement the chipset itself.

Let's be clear, the architecture that these various converged platforms are going after have been set.

The footprints has been set, the current consumption goals for have been set.

The power and efficiencies have been set.

All the said set of systems specification are designed and known in we're meeting or exceeding those systems specifications and architecture.

Our cost structure it is lower than anybody, we're convinced of that, for a lot of reasons.

I think we are extremely competitive relative to the system specs that our customers and partners need.

That mean just that, every customer is given access and visibility to each one of the technologies that Dave mentioned.

Converged, fully converged a hybrid or discreet and really the way this pendulum works is the more discreet the implementation the better performance.

You literally build a device for a specific frequency in specific band rather than compromising in a converged the environment.

I can tell you that customers today, the most compelling OEMs and Smartphone's and tablets, the data rich devices we mentioned, it is a performance driven market.

We can go in any one of the three boxes, what we are seeing now is a prevailing view, go performance.

Give me a value solution, but it needs to be high-performance.

That has been leaning more toward hybrid or discrete.

Thank you.

We will go next to Tore Svanberg with Stifel Nicolaus.

Thanks, guys for taking the question this is Eric calling in for Tore.

Maybe you could just elaborate a little more the MMMB integrated product we discussed just now.

If you could talk about the performance of your solution.

And perhaps give some customer feedback to date, any known issues.

That will be helpful.

The customer feedback has been extraordinarily good.

These devices are complicated.

They're being implemented in different architectural approaches.

At the end of the day, the customer doesn't care to the extent that it meets its size, performance cost and system specification.

We look at the marquee customers who we think are early adopters or drive volumes of those products.

We believe we have the best solution in the industry.

We're getting that feedback based on our partners and our major customers.

That is helpful.

Maybe two quick ones.

Could you give the split between the linear and the handset business and then maybe just comment on where the yields are and cycle times based on the some of the commentary you gave last month or the end September 30 during your analyst day?

It would be helpful, thanks.

Eric, the split between the handset and linear is consistent with where it had has been for the last several quarters, 80% handset, 20% linear.

One of the points I want to make on that, we talked a lot about our linear product business, the margins are accretive to the overall business and that is certainly true.

One of the things we want to point out is we have had some strong growth factors in the handset business.

We have been able with that linear product percentage not moving a lot.

Being fairly consistent and flat over the last multiple quarters.

That we've still been able to consistently grow and expand our product margins and our operating margins.

That is a direct result of the mix you are seeing within the linear products and within handset as well.

We just guided a 700-point margin improvement.

I wanted to make the point that the core products within each of those segments, the tide is rising on the margin content of both of those.

As a follow on with Don's comments, with a multi-mode solution, the very first large customers going into high-volume production will be early in 2011 and the yields on those products and the margins on those products look very good.

Incidently, we will be the first supplier in volume production with the multi-mode solution in the world and the yields looks very good on those products.

Will take our next question from Richard Shannon with Northland Capital.

Once again congratulation on very nice numbers.

Thank you.

My first question I guess is on the pricing environment.

It seems like this year been a fairly good pricing environment relative to your historical norms.

You have talked about the transition from more discreet solutions to customized modules going forward.

I would love to get your thoughts on how the pricing environments flushing out for next year is going to be more like what you see in past years or more like what you see on 2010 or how do you see that playing out?

This is Liam, the pricing environment has been well balanced so far.

Nothing unusual.

What we are seeing as I mentioned earlier is what we really liked about this market today is there is so many opportunities for us to differentiate and deliver solutions using creative architectures.

Again, playing off with our performance theme so we believe that we are going to see devices going to 2011 they're going to look quite a bit different than what we are shipping out in 2010.

A lot more integration in some cases.

There are some higher performance devices in market like LTE.

There you can have very significant ASPs but also provide great performance and great value to the customers.

So I would think 2011 would work a little bit like 2010 and maybe more favorable from an ASP perspective

Okay, great.

Second question, you talked about some great growth drivers both in your wireless and your linear product group areas.

As you see it today, 2011, any sense of which group -- would either one grow faster or mature faster than the other or they look both kind of in a similar growth range?

They have been both growing similarly which is really a testament to the strength of these linear products.

I think you have probably seen that the diversified analog market has been struggling a little bit with overall top-line growth rate.

That has not been the case with us.

Part of it is because we are relatively new into some of these vertical markets we discussed in our prepared comments so the starting for small base then growth trajectory is quite high, energy management, network infrastructure and so on.

That is the case.

You will see that even within our handset business, that handset business now is skewing so heavily towards Smartphones, towards tablets, towards very feature rich products.

The ASP with those products is very high and the margin profile is different, better.

It is a very different market.

Our non-handset business is becoming more custom, I see vertical market driven and less component like.

Our handset business is becoming much more custom solution oriented around high value, high performance.

We are offering our customers a great deal of functionality for the dollar which puts less pressure on the ASP.

Thank you.

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

Thank you very much.

Dave, can you give us some idea, I mean given that you have the historical breakdown between linear and handset, we know that you gained a lot of ground at Nokia recently and then of course your number one customer Foxconn has done well.

Is it safe to say that business from your top two customers is north of 30% of total revenue?

Don?

I think he's asking for the top customers.

Yes, the top 10 percentage customers -- same as the previous quarter was Nokia, Samsung and Foxconn.

When you combine those three, are we talking 50% of total revenue, 35%, 40%?

We don't break those percentages down.

The only time we do any percentages, anybody over 10% or exact numbers when we do that K on a annual basis.

But quarterly, Ed, we don't provide that detail.

I know, that's why I was asking for the color.

Okay.

On the converged side of the business, -- made a big deal about winning some slots as limited to Infineon and I know we talked chatter about this in the past.

It appears that several people are technically having difficulty with the truly converged PA.

Is this informed maybe your thrust in a more discreet hybrid solutions or while trying to get to here is in your discussion with the OEMs given some of the difficulty, the technical difficulty that people are getting solutions to work.

Is this coloring their move or the product road map that maybe use hybrids up to the three, maybe in four band level for some of the converged or Smartphones or do you think these all going to fall by the wayside in the next 18 months and that will make a much bigger push to the more truly converged amplifiers than we are seeing right now?

It's a lot of questions there but I appreciate it.

I believe that these converged platforms will play.

They will get the technical issues resolved.

They are very complicated.

But they will work.

They will take longer to get to market than most people projected because that is often the case with the new technology.

I am also convinced that it will be a market that becomes segmented around different technological solutions.

We are now developing products per customer base specification for 2012 and 2013 that are very much a hybrid, single band's LTE, around some degree of hybrid converged platforms but not completely converts.

Others that will drive in a more highly integrated.

The trade up will be performance versus cost and size.

The market will settle into different issues and utilize one architectural approach versus another.

We are very, very agnostic.

We are equal or investing equally whatever flavor our customer wants.

Today our customers are talking to somebody who addresses all of them.

They want all of the above.

Literally all of the above.

Thank you.

(Operator Instructions) We will go next to Cody Acree with Williams Financial.

Thanks.

Congrats on the numbers.

If you look through 2011 and into 2012, and look a little further out, if you've got significant drivers, verticals, 80 -- 20 maintained.

The new inputs maybe you have not seen in years past.

How do you expect as we head into 2012 your vertical mix to start to shake out on a product basis and maybe on a growth driver basis?

I think on a product basis, it will be a product line that is much more highly integrated.

They'll be more silicon content, they'll be more frequency conversion, functionality, more complicated devices, little bit less of the jelly bean components that maybe launched us into the catalog business a few years ago.

Still a great business, I think that is where the growth will come from.

It'll come from the areas we discussed in the prepared comments.

Absolutely.

I think one of the dynamics we see in vertical is every market can converged to wireless in every year.

We are seeing things like smart energy two, three years back was a wireline business.

The wireless implementation is relatively new.

Now we're -- as an off-shoot to that, we mentioned things like LED streetlight monitoring.

Home automation, security, surveillance.

All those markets now are coming in on tangents off of our smart energy core.

We're also now giving a hard look into wireless infrastructure again, not only addressing what we can deliver now but looking at ways to expand our content in our camp.

So I think you're going to hear more about specific segments as well as discrete, new vertical markets.

Great.

Liam, I guess following onto that, what is the competitive dynamic differentials in the new vertical versus maybe where you used to compete on the more discreet 2G to 3G handsets?

That's a great question.

We see a whole different customer set when we look at these protocols now.

As Dave mentioned, it is still heavily silicon-based technology.

We are using creative designs to create a better mousetrap, so to speak.

We tend not to go in and deliver components, we look at highly system-level packages here.

Things that we have done with Huawei are a perfect example, we've integrated six or seven components that deliver a very high-value high-performance solution that puts up tremendous various entries.

That's going to be the theme around our vertical position.

Integration, trying to deliver something differently but also take advantage of our technical DNA.

Thank you.

With that, we have no further questions in queue.

I would like to turn the call back over to Mr Aldrich for any additional or closing comments.

Thank you very much for participating on today's call and we look forward to seeing you at our upcoming conferences.

That does conclude today's conference.

Thank you for your participation.