思佳訊 (SWKS) 2011 Q1 法說會逐字稿

Good afternoon and welcome to the Skyworks Solutions first quarter fiscal year 2011 earnings call.

This call is being recorded.

At this time, I will turn the call over to Mr.

Steve Ferranti, Investor Relations for Skyworks.

Mr.

Ferranti, please go ahead.

Thank you, Marvin.

Good afternoon everyone, and welcome to Skyworks first fiscal quarter 2011 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 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 complete reconciliation to GAAP.

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

Thanks, Steve, and welcome, everyone.

I am pleased to report that Skyworks is off to a great start in fiscal 2011.

Our strong first quarter results demonstrate solid execution by the entire Skyworks team and illustrate how our revenue diversification, technology leadership, and our operational focus are improving our financial returns.

Specifically, during the quarter we delivered revenue of $335 million representing 37% year-over-year growth.

We expanded our gross margins to 44.7%.

We posted operating margins of 27.7%.

We improved operating income by 78% year-over-year to $93 million, and we posted $0.45 in earnings per share.

At the same time, we further strengthened our balance sheet by retiring our $50 million credit facility.

We repurchased approximately 800,000 shares of our common stock and we still improved our net cash position by $41 million.

Looking forward, we are guiding to an excess of 30% revenue year-over-year growth in the March quarter, reflecting substantially better than normal seasonality.

This is positioning us for accelerating earnings growth as we enter the second half of the fiscal year.

In the December quarter we continued to benefit from strong underlying demand in the mobile Internet, enhanced by ongoing share gains and by new product ramps.

Consumer appetite for anytime, anywhere connectivity continues to grow exponentially In fact, 2010 holiday sales underscored the strong demand for Internet-connected mobile devices that provide always-on access to social networking sites, gaming, video, music, and web access.

Retailers have highlighted mobile devices as a bright spot in consumer spending this past holiday season, and we've certainly benefited from this demand.

Clearly, adoption of smartphones is happening at an accelerated pace.

With a growth rate of at least four times that of the traditional cellular handset market, these devices represent a compelling value proposition across the supply chain.

Our customers are experiencing brisk sales and keep raising the bar in terms of performance and in terms of capability.

And consumers are lining up to get the latest models, and carriers are eagerly pushing and promoting these devices into consumers' hands as expanding mobile data revenues contribute to improving ARPU.

Skyworks is in a unique position to capitalize on these healthy market dynamics based on our unique product offering and our broad customer base.

Our products support all smartphone and tablet operating systems including Android, Symbian, Windows Mobile, and others.

What's more, is we believe that the momentum we have seen with 3G-enabled mobile devices will only accelerate with the commercial launch of 4G networks.

While 3G exposed consumers to the concept of untethering the Internet, 4G will provide users a truly mobile broadband experience with speeds rivaling those of the wire Internet.

In fact, forecast suggest in the coming years growth in global broadband subscriptions will be dominated by growth in mobile Internet subscribers.

By its very nature, 4G is a technology that was developed to provide ultra high-speed data rates and stream video.

In fact, for many consumers, 4Gs may be their only broadband connection.

And what's especially exciting here at Skyworks is that 4G devices operate on a new and unique set of frequency bands beyond 2G and 3G, providing an incremental dollar content opportunity and expanding our total available market for years to come.

This year's consumer electronics show provided a preview of the pending wave of 4G product that will come to market over the course of 2011, and the rate of availability of these devices exceeding all our expectations.

As an example, Verizon, which has already launched its commercial LTE service, plans to add 140 new markets in 2011.

And they've recently announced a roster of Skyworks-enabled LTE devices including smartphones, including tablets, and mobile hot spots.

Likewise, AT&T is accelerating its own LTE plans, and now intends to service initial markets later this year along with 20 LTE devices over the course of 2011.

As this next technology wave approaches, Skyworks has a clear early mover advantage, having already powered not only the world's first commercialized LTE USB modem, but also the first LTE based phone on the market.

Some recent examples of Skyworks' position include the Droid Bionic, an Android-based LTE smartphone that was unveiled at CES by Motorola.

We have also secured design sockets with HTC's EVO and Desire 4G platforms.

These design wins complement our already well-established position across other LTE suppliers' platforms.

So, in addition to smartphones, we expect to see 4G connectivity getting embedded into tablets during the second half of 2011.

And by combining the mobility of a smartphone with the performance and the processing power of a netbook PC, tablets are fundamentally changing the computing landscape.

These devices have found a unique niche within the consumer electronics market and provide an ideal platform for mobile video applications.

And we see mobile video as an exciting and an enabling trend for Skyworks, not just within tablets, but across a broad array of technology platforms.

Content providers like Netflix and others are keenly focused on providing streaming IP video service to gaming consoles, to high definition televisions, to Blu-ray players and set-top boxes, as well as smartphones and tablets.

Keep in mind, video delivery consumes a significant amount of network bandwidth and drives up performance requirements on RF architectures.

This plays squarely into Skyworks' technical strengths.

Future developments will only add more of the same, including high-definition and eventually 3D video streaming, and will only serve to raise the performance requirement for these devices.

Importantly for us, these macro trends are in the early stages of playing out.

Smartphones, in fact, accounted for only about 20% of mobile device shipments in 2010, and we believe that smartphones could account for more than 50% of global unit shipments by the year 2014.

Now, if you add to this the tablet market is expected to grow at nearly 80% compounded rate over the next four years, from something less than 20 million units in 2010 to as many as 200 million units by the year 2014.

All in all, we see a long runway today for these positive macro trends to continue.

So, given our momentum and the multi-year revenue drivers that we've discussed, we will enter the second half of 2011 poised to outpace the industry and the market growth, underpinned by new design wins, by strong product pipeline, and by our scale advantages.

So, in summary, we believe that our strategy of diversifying across new vertical markets and new customers, while continuously driving operational execution, will translate not only to above market growth but greater operating leverage and ultimately, increasing shareholder returns.

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

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

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

Revenue for the period was $335 million, up 37% year-over-year and 7% sequentially.

Gross profit was $149.9 million or 44.7% of revenue, a 250 basis point year-over-year expansion, which was driven by an improving product mix, supply chain efficiencies, margin enhancing, demand-driven capital investments, and continued manufacturing productivity enhancements.

Operating expenses were $57 million, of which R&D was $34.1 million and SG&A was $22.9 million, yielding $92.8 million of operating income and a 27.7% operating margin, a 640 basis point improvement year-over-year.

Our net interest and other expense for the quarter was $278,000 of expense, while cash taxes were $7.9 million, which is an 8.5% tax rate.

As a result, our net income was $84.7 million or $0.45 of the diluted earnings per share.

Turning to the balance sheet, during the quarter we invested $33 million in capital expenditures and back end process investments, which complement our hybrid outsourcing model.

As a reminder, 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.

We also recorded $13.6 million of depreciation.

We retired our $50 million credit facility, part of our broader strategy to reduce debt, and repurchased approximately 800,000 shares of our stock at an average price of $23.15 per share.

As a result, our balance sheet is now virtually debt-free and we still increased our net cash by $41 million and exited the quarter with over $450 million of cash and cash equivalents.

These improvements highlight the progress we've made in our broader strategy to reduce debt and strengthen our balance sheet.

As a reflection of this, over the last three years we've improved our balance sheet from a negative $46 million net debt position to a positive $426 million net cash position.

Now, to our business outlook.

Based on specific program ramps and backlog coverage, we are forecasting current quarter revenue of $310 million to $320 million.

Assuming the midpoint of this guidance range, we suggest modeling gross margin of 43.8% and operating expenses of approximately $57.5 million to $58 million.

Below the line, we expect $300,000 of net interest and other expense.

We expect our cash tax rate for the remainder of fiscal 2011 to be 8.5%.

In turn, we expect our operational non-GAAP diluted earnings per share to be $0.39 in the seasonally low March quarter, off of a base of 190 million shares.

Well, that concludes our prepared remarks, and, Operator, go ahead and open the lines for questions.

Thank you.

(Operator Instructions) Our first question comes from Alex with JMP Securities.

Thanks very much, and congratulations on the quarter.

I know you mentioned the Bionic 4U and 4G, but Motorola also is refreshing along other lines, and I know had the ATRIX at CES and the Xoom tablet.

Can you talk about Motorola as an account and what's happening even within the 3G segments for you?

Thank you.

Sure.

Alex, this is Liam.

Motorola continues to be a very important customer for Skyworks.

Fortunately, their strategy now has been to go very deep in smartphones, which happen to be quite content-rich for Skyworks.

So, we are seeing ourselves line up with Motorola across a number of new platforms, some supported by Qualcomm, some supported by Infineon,typically Android-based.

And we think the content gains that we're seeing now from Motorola look good, and hopefully their unit volumes as they projected in 2011 will really accelerate the demand.

So, we think Motorola is going to be a grower for us in 2011.

And if I could, as a follow-up along those lines, can you give any color around average selling prices overall you're seeing on the RF deck and what the opportunities are in some of these 3G and 4Gs, with regards to average selling price bias?

Yes The content -- if we think about selling price, we think about the content we can derive from these smartphones.

Typically, we are seeing our 2G and Edge-based products that could be $1 to $2 now move to $3, $4, $5 of redressable content in smartphones.

And when you start to look at these devices that we've talked about with Motorola, with HTC and some others, they are incredibly rich in content.

Multiple bands, high-speed data, capitalizing on all of that media, that wireless IP that Dave articulated.

So, we are seeing the content per phone move into the $4 to $5 mark per device.

Thank you.

Our next question comes from Suji with ThinkEquity.

Hi, guys.

Nice job on the quarter.

Can you help us understand at this point where your tablets are in the percent of revenues, and where you think you'll be exiting '11?

I know it's kind of early.

And is that the biggest factor in guiding above seasonal for the March quarter?

I would say that it's clear if you look at the last year, at 2010, tablets was a very small percentage of our revenue.

A year ago we weren't talking much about tablets.

It has been a natural extension of the smartphone phenomenon.

I think that the growth rate and the pent-up demand for this class of device, the growth rate is going to be huge.

We talked about in the prepared comments moving from perhaps less than 20 million devices in the year 2010 growing at maybe as much as an 80% compounded rate.

So, it's a big growth rate.

Still a relatively small percentage of the total 1.3 billion, 1.4 billion units that are going to be sold in terms of cell phones and smartphones.

So, I think it's going to be a driver.

We have disproportionate amount of content and we have a disproportionate amount of market share, given the inherent complexity and the need for performance for these devices.

So, I think the market's going to be big.

I think it's going to play out over the next several years.

But it's starting from a small base.

Okay.

And then on the balance sheet, I think inventory was up more than revenues on a Q-over-Q basis.

Can you talk about what the -- where you think that's going to come out the next quarter and how you're managing that?

Sure, Suji.

This is Don.

Our balance was up this quarter, and it was really geared at -- the balance was built in order to support some specific customer program ramps we have for the second quarter.

But the important point when you look at our inventory is, it is not that the balance is up.

If you look at our balance sheet historically, as our end market demand and revenue grow, we're going to grow working capital.

That's just a function of the business.

Our turns are still above 5.5 this quarter and we consider those best in class when you look at our sector.

So, very strong, still, performance on the inventory side for us, as far as the velocity.

Thank you.

Our next question is from Parag Agarwal with UBS.

Hi, guys.

Thanks for taking my question.

First question, was your revenue or guidance impacted by any supply constraints of any companies, like displays of NAND flash with the handset OEMs, or you could have shipped more if those constraints were not there?

Thank you, Parag, for the question.

I would say that we have seen some component -- certain component lead time stretch.

We've seen some tightness in assembly test and some of our wafer supply.

We've taken steps to expand our internal capacity.

Remind you, we have a hybrid model that allows us to pull, in some critical processes, pull volume internally, and we have done that in some cases when we've needed to.

It allows to us flex our own utilization as demand fluctuates.

So, I would say from a component supply into Skyworks modules, the answer would be no.

But we were able to work through those.

Now, whether or not our customers could have shipped more if there were other component shortages, products we didn't provide that truncated their ability to ship, I think there probably was some of that.

There probably was some of that.

But it didn't affect the supply chain into Skyworks products.

Okay.

Fair enough.

And secondly, about your account receivables, they were up again this quarter.

Just wondering, what is the aging profile of that account receivable, and if any one of your customers have a higher than average concentration in that account receivable number?

Parag, this is Don.

The increase in receivables, when you look at that again, it's the comment on inventory.

It is driven by our end demand and overall revenue increase.

In our balance, the increase of the balance this quarter was driven by higher Q1 revenue and a combination of the customer linearity and customer mix, because we do in fact have different payment terms among customers.

So, based on that mix, and when that mix occurs during the quarter, it does impact the overall velocity measures.

But I want to step back and say, when you look at the improvements we've built in the balance sheet over the last two or three years in the business, and I take a look at the asset base from an inventory standpoint and receivable standpoint, it's as strong as it's ever been.

So, the quality of that asset growth is extremely good.

Thank you.

Our next question comes from Jonathan Goldberg with Deutsche Bank.

Please go ahead.

Hi.

Just a quick housekeeping question first.

Have you broken out linear as a percent of revenue?

No, we haven't yet, Jonathan.

The breakout is, the mobile internet access was roughly about 60% of our revenue, 2G feature phones about 20%, and linear products roughly 20%.

Okay.

And then, Liam, I think a question for you.

Can you talk a little bit about market dynamics you are seeing in China?

How are your products faring there?

How do you think your share is trending this quarter?

Sure.

What we're seeing right now in China is that the 2G market is really going through some changes.

The local manufacturers, or the indigenous Chinese sources, are really contracting.

But at the same time, we're actually seeing some share gains from some of the traditional tier 1s.

Nokia, Samsung, and others going back into China at the low end.

So, that's one of the dynamics.

For us, we obviously approach China conservatively.

We know there can be some volatility.

But at the same time, we're doing quite well with companies like Huawei and ZTE in the infrastructure space.

We're making progress now in data cards -- 3G data cards.

And jumping into Taiwan, we're seeing some really nice potential and new design wins at HTC.

Thank you.

Our next question comes from Ittai Kidron with Oppenheimer & Company.

Hi, guys.

Congratulations on a good quarter and guide.

Thank you.

I wanted to focus on the sequential transition from December to March and compare and contrast this year versus last.

In last year, you managed to deliver a very well-below seasonal pattern of down 2.9% sequential in the top line, and this year you're guiding to double that.

Whereas this year the tablet impact on your business is much more significant, and I will say versus probably immaterial, last year.

Also, Don, your gross margin is declining.

Your guidance implies a decline in gross margin into March, whereas last year it increased.

So, what's so different about the transition into the March quarter this year versus last year?

My gut and my intuition would have told me it should have been at least on par on last year, if not better, from a sequential movement.

Okay.

Let me try to answer multi-part you question.

Don can jump in on the latter half.

We think that -- we're modeling market seasonality from March to be down 9% or 10%.

That's what we see.

We've guided down about half of that, so much, much better than seasonality with revenue that year-over-year will be over 30% up, or north of 30% up.

So, clearly, there is a lot of share gains going on.

And we do -- we like to guide conservatively.

We guide for fully-booked backlog.

As I mentioned the comments, we're fully-booked to deliver that range.

And we think 's prudent, so I think that is above, clearly above the market.

And you're right, we are seeing strength in these new program launches, but we do see the traditional business with the degree of market seasonality.

And we want to factor all of those into our guidance.

Ittai, this is Don.

On the revenue, if you go back to last year, we were essentially flat in the margin, but the revenue decline from Q1 to Q2 was a little bit less than it is this year.

And we also, when you look at the change from Q1 to Q2 last year, we were also starting to get benefits from the six-inch ramp that are already embedded in the baseline overall margin of the Company.

So, when you're looking at comparisons, there were some things going on that muted that revenue change.

It was lower to begin with than what you're seeing this quarter, quarter-to-quarter.

So, that's really what's driving it.

Just keep in mind, on the margin front, margin expansion for us is still a key element for us to be able to get to 30%.

So, being down this quarter is based on the revenue decline, the seasonality, and the mix that we have in there.

And as we go forward, in order to get to 30%, it's still going to be a combination of leveraging OpEx and continuing to drive margin expansion.

That's what's going to happen to get us there.

Thank you.

Our next question comes from Nathan Johnson with Pacific Crest Securities.

Thanks for taking my question.

Just want to talk a little bit more on smartphones.

They've clearly been doing well, high-end and developed markets.

But certainly, much has been made on the part of Android, OEMs, on lower-tier smartphones.

Wondering if you guys have seen much traction with those phones, particularly in emerging markets?

Is that a meaningful part of revenue now, or is that a potential growth driver that we should expect to happen in the future?

Sure.

I absolutely believe -- this is Liam, that the emerging markets represents a significant upside opportunity for this industry.

You look at a subscriber base today in China and India that's invariably holding a 2G phone that has maybe a dollar of ASP content for us, they will move up.

Those subscribers want to move up.

They want internet access.

They don't have DSL at home.

They don't have cable at home.

So, a smartphone really represents their path to the internet.

So, we are seeing some of our OEMs develop specific platforms to address those markets.

There are platforms that is may not have all the bells and whistles that you may see in the US, but still compelling.

And all that for us is outstanding, because it moves our dial up substantially from our baseline, and we think there is tremendous growth opportunities there over the next several years.

And if I'm hearing you right, there is almost none of that revenue in your run rate currently?

Very minimal, yes.

Literally, small numbers here and some of our OEMs that we're working with right now are just starting to get those phones in a prototype stage and sampling stage with the carriers in China.

Thank you.

Our next question comes from Quinn Bolton with Needham & Company.

Please go ahead.

First question, just back to analyst day in the fall.

You talked about the multi-mode, multi-band platforms, I think, going into production in the March quarter.

Just wondering if you can provide an update whether that's still on-track.

And then a follow-up question is, can you list the 10% customers in the quarter?

Thanks.

Okay.

The multi-mode, multi-band designs, and keep in mind, Quinn, there's lot of different configurations as everything -- sort of a fully converged platform, which is not going into production yet.

And perhaps the most complex for a certain segment of the market, most likely a lower end of the market, to what's more prevalent.

Which is a hybrid between certain discreet bands, while at the same time, more integrated amplifiers, filter functionality, and then there are pure discreet size.

So, I would say different flavors of these multi-mode architectures are going into production and will continue to roll out throughout 2011, 2012, and even some we're talking about now into 2013.

So, I think that trend is on track.

I think the fully converged platforms, those are very complex and there's a lot of moving parts with those.

And so for that slice of the multi-mode market, we don't see that becoming a major driver here for some time.

Thank you.

Our next question comes from Tim Luke with Barclays Capital.

Thanks, guys.

I was wondering if you could frame what you think the lift may be as you begin to see LTE come into the marketplace?

And where do you see that beginning to get deployed, and when do you think it could become something that might be possibly material?

Also, separately, I think from the prior question, if there was -- just clarifying the 10% customers, I'm not sure if you gave that.

Thanks, Tim.

I forgot to answer that.

I will go ahead and start with that.

The 10% customers for the quarter were Samsung, Nokia and FoxCon.

So, Tim, with respect to LTE, one of the important elements here, it's not just the new standard.

It is a standard that runs on unique frequency bands, adds incremental RF content to devices.

So you will have devices, smartphones, and I think eventually tablets will be a really important driver for LTE.

You will have LTE frequency bands, 2.6 gig, 3.5 gig, backward compatible to 3G, that could be 3 or 4 devices.

And then even backward compatible again to add your GSM.

So, it's an extension of bands, and it's an extension of content.

They run on discreet frequencies.

So, it's really an important part of the story.

It will probably just get off the ground here in 2011.

2012 and 2013 could become a very significant driver for us.

If I may, just to follow up on the general relationship with Nokia, could you just bring us up to speed with how that has been proceeding?

And whether, as you move forward through this calendar year in general, you foresee a sort of broad adjustment in your customer mix and ongoing broadening of it?

Thank you.

With respect to Nokia, as we've articulated in the last few calls, we continue to make very good progress in diversifying and gaining share across that customer.

We have a great position in 3G.

We've recently extended that into GSM.

Our position in Edge is also solid.

We are trending towards steady market share gains throughout this year, and I think we have an opportunity to secure as much or as great -- perhaps greater than one-third of their overall P A share.

Thank you.

Our next question comes from Craig Ellis with Caris & Company.

Thanks, guys.

Don, you have quite a bit of balance sheet flexibility now.

You used a little bit of that to finish off the debt pay down and buy back some stock, but how should we think about the way you put excess cash to work going forward?

Thanks, Craig, for the question.

Absolutely.

If you look back over the last -- since the first quarter of 2009 over the last two years, we've actually improved the net cash position by about $310 million.

So, absolutely, with a strong balance sheet and the strong performance we've had on our financials, it gives us an awful lot of flexibility.

You've seen today that we've focused on taking the debt down.

We're virtually debt-free.

And we also initiated this quarter that we started to utilize the $200 million share buy back program that the Board approved for us several quarters back.

So, we did that.

We'll continue to buy shares selectively.

We'll look at the right opportunities to do that, and we're virtually debt-free at this point, so what's left with the cash is to look at very selective M&A opportunities.

And we've said this numerous times, we're very conservative on the M&A front.

For us to do any acquisitions they have to be instantly accretive, and they have to drive shareholder value, and that means expanding not only our operating margin and our EPS, but our return on invested capital.

And we just don't want them to be a distraction to how well the overall business is running right now.

We will focus on accretive bolt-on acquisitions like Freescale and Axiom, as well as any analog niche opportunities that come along.

So, it's clearly something that we look at on a regular basis.

Okay, great.

And then a lot of understandable focus on tablets so far.

Liam, I don't think I've heard any comments on energy efficiency and automated meter reading, so can you bring us up to date in terms of the prospects for growth in that business this year?

Yes, Craig, absolutely.

The smart grid and the smart energy and now the complementary home automation markets continue to move forward for us.

They're very strategic with respect to our vertical initiatives.

We've added a few critical customers -- key customers that we had been pursuing.

We're starting to see a little bit of improvements in Europe as well as the US, and we do expect the adoption to continue.

The meters are rolling out.

That's happening.

We're starting to see now that peripheral market, the appliance makers, the LG, Whirlpool, GEs, adopting, in some cases, Wi-Fi to tether back to those smart meters.

So, we definitely see this as a continued area of focus in our linear business.

It's good margin, andit has legs here for the future.

Thank you.

Our next question comes from Anthony Stoss with Craig-Hallum.

Hi, guys.

Dave, this is probably directed to you.

I would love to hear your thoughts on capacity, what your plans are for the remainder of this year and into next year.

And also give us a sense of what AWS is doing, and how you feel -- comfort level with that.

Thanks.

Sure.

So, if you look at where we are today, we're outsourcing roughly 20% of our volume if you were to combine assembly and test services with wafer foundry (inaudible) of course we outsource all silicon.

We, during the last six quarters or so, have completed a six-inch expansion of our HPT facility.

We've added substantially to our [P-hep] switch capability, and we've added a lot of the back end assembly in test capability.

So we have no bricks and mortar constraints, and we continue to incrementally add, but we made the big bucket expansion in our foundries over the last six quarters.

And the fact that we have a hybrid approach that allows us to flex our external partners allows us to take the revenue much higher without having to deal with any material capacity constraints, although we'll continue to invest in bottlenecks and assembly and test, and so on.

And AWSE and our other outsourced partners, they're doing terrific.

It is a copy exact process, the quality meets our standards, we monitor them daily, weekly, hourly, and we're extremely happy with the performance of those partners.

Thank you.

Our next question comes from Tore Svanberg with Stifel Nicolaus.

Hi, guys.

Great quarter and guidance.

This is Eric calling in for Tore.

Real quick, just on what you talked about earlier, where do you see the overall handset market growth rate in 2011?

And with today's news or comments out of Nokia pulling its X7 smartphone out of the AT&T lineup, does that have any sort of impact on where you see the smartphone opportunities for you guys with Nokia?

Sure.

We see 2011, in terms of units -- handset units to be roughly 8% to 10% up.

That does not include the tablet number.

It also doesn't include other embedded wireless applications.

But I think what's important is, we look at the unit number, but more important to us is the TAM number.

So, what is the available TAM we see for our amplifiers and switches and the devices that we can market and sell.

We see that number going up 15% to 18% off of an 8% to 10% growth, by virtue of content gains.

Great.

And real quickly on linearity in the quarter, can you maybe just address that, and was there any kind of late orders that you saw taking place?

Thanks.

There wasn't anything specific or unusual that drove that.

Linearity in a quarter changes month-to-month in the forecast, and it changes quarter-to-quarter and it changes year-to-year, so there wasn't really any specific dynamic to discuss that drove it.

It was just the way the overall customer demand of when they needed the product, and when we shipped, and who those customers were.

All that ended up driving some impact to the working capital.

That's -- really nothing more complex than that.

Thank you.

Our next question comes from Richard Shannon with Northland Capital Markets.

Please go ahead.

Hi, guys.

Congratulations.

Very nice results, yet again.

Thanks.

I guess first question, kind of another way to ask one of the previous ones.

But at your analyst day here a few months back you talked about an operating model, I think it was $375 million to $400 million per quarter, and suggested that that timeframe for achieving that might be later in the calendar 2011.

Is that still very much your plan?

Has your confidence in that increased since that timeframe, any thoughts on that, please?

Rich, the way to think of that -- and it would have been, I think, pretty clear when we communicated the new midterm model, is that in order to achieve it we needed the $375 million to $400 million per quarter as you mentioned, and historically, if you look back at the three times we've put midterm models -- communicated those externally, we have achieved those within four to six quarters.

So, that's the way to think about that.

If you look at what we just delivered in the December quarter, it was just under 28% operating income, and so we remain very comfortable with that model.

Okay.

Great.

Appreciate that.

And second thing, just on the pricing trends you're seeing in your base handset business.

How have those trended?

I presume they're coming downwards on some sort of trend.

Has that trend kind of continued what you see in the past year or so, or is that moderate rated some, like down less?

Or how has that been recently?

The pricing environment right now actually, we feel is in line with our expectations.

The demand profile has been good for the industry.

One of the things that we do here is we really capitalize on complexity and we turn our portfolio over very quickly at Skyworks.

There is a lot of new technology being deployed to the market which really helps insulate us from some of the that typical commoditized ASP Curve.

Thank you.

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

Please go ahead.

Thank you.

Good quarter, guys.

Thanks, Ed.

Couple of questions.

First off, Nokia is now above 10%.

You guys are doing fairly well there.

I think it is generally understood that the delay in the platform that you are on, which is now shipping, gave RF Micro a much bigger share in past years.

And now that they're actually not on [Linko] and you guys have got that.

Do you see this going back the other way in the year or so as Nokia tries to balance out their supply chain?

Or do we have a fundamental shift to Nokia where they're going to achieve a more balanced approach to suppliers, maybe 30% each for (inaudible) and RF Micro?

I know they probably don't lay that out that way, but I'm just trying to get your feelings how you think the dynamic there works.

And then I had a question on conversion.

Okay.

Dave, I will take the Nokia question.

Ed, our position at Nokia continues to be really solid, and I understand the platform discussion that you noted.

Right now we're seeing continued growth and share gains as we articulated, I think, with another caller.

So, our position in Nokia right now is we're marching steadily towards achieving at least one third of their share of PAs.

We've created the diversification that we need across multiple base-band partners, across 3G Edge and now GSM.

We don't see anything sliding back.

We worked closely with that customer for a great deal of time.

We executed incredibly well from a supply chain point of view, from a technology point of view, and we think our position is looking great.

Ed, could you repeat the -- you mentioned something about converge?

Yes, I had a follow-up.

Before I get off that, Liam, what you just said, are those share gains generally because Linko is ramping and you're on Linko and reporting to more phones, or are you winding up on other platforms, too?

Absolutely.

Linko is a very small piece of Nokia's converge and 3G architecture now.

It is going to grow, but that's a small element.

I think if you look at the overall volume, there's tremendous volume still in their traditional 3G.

Some of the newer platforms they're going to launch this year, as well as Edge and GSM.

So, it's well-balanced.

We're diversified, if a platform moves away here or there, that's fine.

But the position is diversified and looking strong going forward.

And on the converge, Don -- I think it was Don.

Oh no, Liam, you said that 8% to 10% in unit volumes but you're looking at 15% to 20% or 18% on content.

But as converge picks up, RF Micro has PowerSmart out there, and I know it is not really ramping yet but it will be, and I think their pricing philosophy is to under cut a four-band phone for a price above 3.

So at some point, and I know the OEMs are talking about trying to get some of the dollars that are flowing to the RF band someplace else, and doing that to converge.

So the question is, to the extent that conversion becomes successful, don't we start seeing content become compressed a bit?

I think that the way to look at this, Ed, is that there will be multiple architectures, and when you talk about converge, there will be different architectures within converge, different approaches within converge.

And we're -- and then there will be hybrid approaches for higher performance aimed at perhaps a certain band or frequency or network, and then there will be various degrees of more discreet that will go into tablets and other higher-end smartphones where they really need performance across multiple bands and frequencies.

And so, you're right the beauty of converge and the various approaches is that we can sweep more functionality into a smaller footprint, do it in a way that conserves battery talk time, and do it in a price point that allows the bill material to go down into the phone OEMs handset lineup.

So, the way I view converge long-term is that it is going to enable a bill material price point that's going to eat into the mid-tier and ultimately low end of the market.

I personally believe, as we said in our prepared comments, that smartphones go from less than 20% to half the market.

They do so by penetrating what we might call emerging markets or large untapped markets where we can take a product that today may only have a buck of Skyworks content, and triple the TAM.

That won't be $8 or $10, but that's not the point.

The point is the blended ASP will go way up as these converge and other architectures allow a bill material price point.

The performance won't be as good as a hybrid, it won't be as good.

But it will facilitate the penetration of smartphones much deeper into the phone OEMs lineup, and that's going to be tremendously good for our industry.

Thank you.

Our next question comes from Aalok Shaw with D.A.

Davidson.

Davidson.

Hi, guys, just a quick question.

On the linear business, Don, can you give us a sense what the seasonality of that business looks like, and is that having an impact in your gross margin guidance for Q1 or for the March quarter?

Are we seeing a little bit of a seasonal down tick in Q1 for the linear business?

Not particularly.

The linear business looks very strong, the energy management, some of this home networking business we talked about in our prepared comments looks really good.

It is a bit little further out, but the early stages of being placed now and you see a little bit of that going into the March quarter.

And I think as Don has articulated, our gross margin is nothing more than we're forecasting less than seasonality but some seasonality in traditional business, and that revenue as it flexes has a certain contribution associated with it.

So the gross margin will be high, butit will tick down slightly from December as you would expect when revenue drops a little bit.

Another way to think of that is if the guidance, the 315, is almost dead-on -- Q4 actual 313, and we were at 43.8, so this isn't any real erosion of what the performance was two quarters ago.

So, you need to keep it in that context, I think, when you look at the numbers, too.

Okay.

And one quick follow-up, how much networking business is in linear, do you think?

Like to traditional guys [Cisco] and Juniper?

Actually, most of our networking business is in the cellular infrastructure space, companies like Huawei, ZTE, Nokia, Siemens, Erickson.

But it's an interesting question because we do have aspirations here, and we think we have the technology and DNA to start to move into the back hall and potentially the wireline accounts here over the next few years.

So right now today, Cisco, Juniper, very little.

There is Wi-Fi business with Cisco, not very significant.

But overtime, I think the work that we've been able to do the and the cellular infrastructure market positions us well to move into more of the wireline side.

Thank you.

That concludes today's question and answer session.

Mr.

Aldrich, I will turn the conference over to you for closing, remarks.

Thank you, everyone, for participating.

We look forward to seeing you in up upcoming conferences.

This concludes today's conference.

Thank you for your participation.