思佳訊 (SWKS) 2011 Q2 法說會逐字稿

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

This call is being recorded.

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

Mr.

Ferranti, please go ahead.

Thank you, Jake.

Good afternoon everyone and welcome to Skyworks second fiscal quarter 2011 conference call.

Joining me today are Dave Aldrich, Don Palette and Liam Griffin.

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 materially differ and adversely differ from those projected as a result of certain risks and uncertainties including but not limited 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'll now turn over the call to Dave for his comments on the quarter.

Thank you, Steve, and welcome to our second fiscal quarter 2011 earnings call.

I'm pleased to report another solid quarter of execution by the Skyworks team.

Our financial results for the March quarter exceeded our prior guidance and significantly outpaced normal seasonal trends.

In fact, our sequential revenue performance demonstrates how our diversification strategy and growth in new market segments are contributing to stronger financial results for our shareholders.

We fully expect that the momentum achieved in the first half will translate into further market share gains during the remainder of the fiscal year, throughout fiscal 2012 and beyond.

Of note in the second quarter, we delivered revenue of $325 million, this represents year-over-year growth of 37% with a seasonal impact of only 3% versus normal March quarter seasonality of 10% to 15%.

We reported strong returns with gross margins of 43.9%, and operating margin of 26.1%.

We grew operating income by 74% to $85 million, and we earned $0.41 per share, now, that's $0.02 better than our prior guidance and we continued to improve our balance sheet.

We generated $92 million in cash flow from operations.

And, we exited the quarter with a cash balance of $504 million.

As our second fiscal quarter results indicate, our strategy is working.

Our business fundamentals are improving.

And our opportunity set is growing.

The mobile Internet and expanding set of addressable analog market opportunities are fueling an exciting growth pipeline for us.

First, mobile computing and ubiquitous broadband connectivity continue to be the key drivers of our business.

Even in the normally slow post holiday season period, sales of SmartPhones and tablets have remained brisk, driven by exciting new product launches, and the early roll-out of 4G devices.

Incidentally, globally the adoption rate of SmartPhones continues to significantly outpace the growth in the overall handset market by at least 4X, by at least 4 times, and in fact SmartPhones still account for only about 25% of global handset shipments.

We firmly believe this figure could easily double by the year 2014.

And, at the same time, subscribers are increasingly carrying multiple mobile devices.

I think tablets are a terrific example of this.

The tablet market is forecasted to grow at a 78% compounded rate over the next four years.

From less than 20 million last year to 200 million by 2014.

Interestingly, tablets are becoming more than just a consumer discretionary purchase as they are finding their way into enterprises and new vertical market segments like healthcare, like education, like retail.

Demand has thus far exceeded most market analysts' initial expectations and early indications are that tablets represent an incremental purchase and more and more often these devices come embedded with 3G and 4G connectivity.

So, whether we're talking about SmartPhones, tablets, e-readers, portable gaming platforms or any other mobile Internet devices, one trend is clear.

Wireless connectivity is becoming more widespread and RF complexity is increasing and the dollar content for us is rising.

Skyworks is clearly capitalizing on consumers' skyrocketing demand to be connected anywhere and anytime.

Now, I'd like to spend just a moment on exactly how we're gaining share, and why we win.

Skyworks leverages a long heritage of deep systems level integration, to engage in collaborative and highly customized development programs with our customers.

We help to solve increasingly complex RF design challenges and reduce the size, lower the material cost and increase performance.

Leveraging our R&D scale, we are strategically engaged with each and every leading handset, SmartPhone and tablet OEM.

As well as all baseband providers.

This is across the entire spectrum of products from discrete implementation to highly integrated multi mode converged platforms.

We've staked out a market leading position with our broad portfolio of high performance front end modules and discrete WCDMA and LTE devices.

Similarly, we are currently in high volume production with our converged multi-mode platforms and we expect to see an accelerating rate of adoption across our customer base during the second half of this fiscal year.

Now, at a higher level, Skyworks is agnostic to our customers' architectural choices, whether it's a discrete design, a PA duplexer, multi-mode or some variation of all of these and, instead, we remain focused on leveraging our scale advantages, our technology leadership, our integration capabilities and our unique product breadth and this enables us to stay broadly engaged across our customer base versus wagering on a single approach.

And this strategy has served us well and it will enable us to continue to gain share in the years to come.

Now, as evidence of this and towards this end, during the quarter, we powered an entirely new lineup of Android based SmartPhones and tablets from HTC which leverage our highly integrated front end solutions.

Likewise, we were designed into multiple new sockets in key Samsung Galaxy SmartPhone platforms.

We introduced a new family of antenna switch modules supporting a host of multi-mode SmartPhones, tablets and data cards.

Further, we expanded our support of next generation Qualcomm MSM reference designs encompassing now WCDMA and LTE applications.

And, finally, we were honored to be the first semiconductor Company ever to receive the 2010 best quality award from Samsung.

This award recognizes Skyworks' excellence in overall product quality and our supply chain efficiency.

This activity is a reflection of the significant traction our mobile Internet business is gaining as we head into 2012.

Okay, now, switching gears for a moment.

Our linear products area continues to grow in near lock step with our mobile Internet business and, of course, this is dramatically outpacing the broader analog market growth.

Here, we are leveraging our catalog of precision analog products to address a broad variety of markets including automotive, avionics, satellite, medical, military and industrial and with our global customer base that is now over 2,500 analog products, we continue to bolster our portfolio with each and every new product launch and each new customer engagement.

We've successfully leveraged our growing and profitable catalog component business into high performance solutions for vertical markets as well, like cellular infrastructure, like wireless networking and smart energy and home automation.

These vertical market applications first are increase our diversification, they deepen our level of customer engagements and help improve our margin profile.

Some recent examples of our design activity here, we secured analog design wins with SD Microelectronics for their next generation IP television chipset reference design.

We ramped production of precision analog IC supporting enterprise access points, cable set top boxes and wireless video systems for Motorola and Cisco among others and we're now supporting General Dynamics with high powered switching solutions for military land mobile radios and we captured multiple infrastructure sockets with Ericsson, Huawei and ZTE for complex WCDMA base station transceivers.

And, finally, a quick comment on Japan.

Our team has been actively engaged across all levels of the supply chain, and I think has done an excellent and outstanding job of ensuring business continuity.

And, while uncertainties obviously still remain in this area, we currently do not foresee any supply chain impact.

Of course, we'll continue to closely monitor the situation, and we'll keep you posted if anything should materially change.

So, in closing, our second fiscal quarter was another strong one for Skyworks and the second half of fiscal 2011 is shaping up to be even more exciting.

We believe that our strategy of diversifying across baseband partners, among OEM customers and new vertical markets while continuously improving operational execution is clearly working.

Given the multi-year revenue drivers we've discussed, along with our design win momentum, our expanding customer base and new market opportunities, we intend to demonstrably outpace industry growth in not only the second half of 2011, but throughout 2012 and beyond.

I'll now turn is over to Don for his financial review and outlook.

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

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

Revenue for the period was $325 million, up 37% year-over-year and ahead of our guidance for $310 million to $320 million.

Gross profit was $142.9 million, or 43.9% of revenue, a 160 basis point year-over-year expansion.

Operating expenses were $57.9 million, in line with our prior outlook.

R&D for the quarter was $35.2 million, and SG&A was $22.7 million, yielding $84.9 million of operating income and a 26.1% operating margin.

That's a 560 basis point improvement over the prior year.

Our net interest and other expense for the quarter was $200,000 of expense, while cash taxes were $5.9 million, resulting in a 7% tax rate.

As a result, our net income was $78.7 million or $0.41 of diluted earnings per share, versus our guidance of $0.38 to $0.40.

Turning to our second quarter balance sheet and cash flow, we generated $92 million in cash flow from operations and that's attributable to our strong operating results and second quarter collections.

We invested $32 million in capital expenditures during the quarter, reflecting process investments to complement our existing assembly and test capacity.

We anticipate these investments to pay back within the fiscal year and improve our return on invested capital.

I would point out that we have completed the majority of our capacity investments in Mexicali, and we anticipate that CapEx will begin to moderate back towards maintenance levels over the next couple of quarters.

Depreciation for the second quarter was $14.3 million, and we ended the quarter nearly debt-free with a cash balance of $504 million.

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

Now to our business outlook.

Based on our broad customer base, diversification in the new markets, and share gains, we are forecasting current quarter revenue to be approximately $345 million.

At this revenue level, we suggest modeling gross margin of 44.5% to 45% with operating expenses of roughly $60 million.

Below the line, we expect $200,000 of net interest and other expense and we now plan on our cash tax rate for the remainder of fiscal year 2011 to be 7%.

In turn, we expect our non-GAAP diluted earnings per share to be $0.46, off of a base of 192 million shares.

And, finally, I would like to point out that our third quarter guidance puts us squarely on a path to approach a $1.5 billion revenue run rate with $2 in annualized EPS by the end of this fiscal year.

That concludes our prepared remarks.

And, Operator, we'll open the lines for questions.

Thank you.

(Operator Instructions).

We'll go first to Parag Agarwal with UBS.

Hey, guys, congratulations on solid results and thanks for taking my question.

Thank you.

Thank you.

First question is about your guidance and outlook for the market.

If you look at that guidance of many of the baseband players and some of your competitors, June quarter guidance for these guys had been kind of muted to down.

But your guidance is pretty strong.

So just if you can explain what are the moving parts here and from your vantage point can you explain what is happening in the market.

Well, I think -- thank you, and I think the easiest answer is that it is a function of a very strong backlog, so our visibility is quite good right now and that visibility is being driven by very specific program ramps.

So both within our linear product segment as well as SmartPhone, tablet and some feature phone launches, we've been able to continue to take some share and those program launches are happening as we speak so that's helped us to offset the seasonality in March, and I think it's helping us to power through the second half with above market growth rates.

Okay.

And there has been some speculation about your content or status with one of your leading customers.

I know you cannot talk about that customer, but any -- could you talk about the design pipeline as it's seen now and your confidence in your second half of the year outlook.

Thank you.

Yes, as I said, the visibility is quite good and it's driven by that design pipeline.

We, as I think our track record reflects, we consistently win more than our fair share of new designs.

I'm proud of the team's ability to continue to do that.

And in fact, we gained points of market share in the first half of 2011.

We're on track to do that with designs already in place, we're on track to do that again in the second half and we believe we'll grow 2012 beyond the overall growth rate of the market.

And as Don stated, we're now on a path to approach $1.5 billion in revenue toward the end of this year and $2 in annualized EPS.

We're quite comfortable in our ability to do that.

We'll go next to Alex Gauna with JMP Securities.

Thank you and David, I think you answered that question pretty well but let me ask it a different way around investor concerns.

I believe they're centered around some of these leading SmartPhones as we see UMTS and CDMA converging.

There's been some arguments put out that with your heritage in the UMTS band and some of your rivals maybe coming at some new approaches in the CDMA band that maybe it's easier for some of these CDMA players to encroach on your GSM track record or UMTS track record versus the other way around.

Is there any truth in that argument or that concern?

Well, keep in mind that we've always been a major player in CDMA.

Our heritage goes back over a decade.

So we are very strong in CDMA.

In fact, I remind you, maybe a lot of people have forgotten, maybe sometimes we want to forget we were a pretty major player in transceiver development for CDMA as well as GSM.

We have a strong systems heritage.

We understand those implementations.

And so if you look at the architectures and the way they're panning out today there's everything from performance oriented discretes to power amplifier duplexers, to converged or say the mid to low end of the SmartPhone market and we're involved in volume production each and every one of those.

So we try to be and we're successful in being completely agnostic with respect to architectural approach.

We partner with all the baseband folks.

We sell to all the OEMs, whether they be SmartPhones or tablets.

So that gives us a good sense for the overall market and it implies that we have not only a breadth of engagement with those customers baseband partners.

But we have the building blocks, the scale, to confidently go ahead with all of those.

So we really don't get too hung up on which architectural approach because we made those investments.

As a related follow-up on that, I know you're very clear in the second half you expect your pace of growth to exceed that of the market.

What about your bill of materials within some of the leading SmartPhone designs, is that going up?

Is that really the driver?

Or is it more the share gains?

It's both.

The bill of material on average continues to go up.

I think we mentioned in the prepared comments that this year roughly a quarter of the phones delivered are SmartPhone in nature.

We think that number doubles in the next few years, that's a huge driver to the overall blended dollar content of our business.

While a 2G phone is still $1, we are seeing a disproportionate amount of phones converting to an edged device with two bands of WCDMA 3, 4, bolting on LTE.

In general, the blended ASP across the market continues to rise.

We'll go next to Nathan Johnsen with Pacific Crest Securities.

Just wanted to come back a little bit on the questions surrounding architecture.

Obviously one of your key competitors has kind of a critical platform change from their perspective.

Wanted to see what Skyworks' view on converged solutions in 2011.

How much of a place do you think they have in the market and does Skyworks expect to ship any fully converged solutions in 2011.

And then secondly, clearly Nokia has been an area of growth for you guys over the last few quarters but a lot of moving parts there.

Just wanted to see if you guys still view that as a potential growth area or if kind of the share gains are being overshadowed by some of the weakness that they're seeing there.

Thanks.

Sure.

This is Liam.

Let me take the first part of your question and we can talk about Nokia.

First of all, we are in production today with converged platforms.

We're shipping them now.

We have several customers that should be ramping by the end of the fiscal year, multiple products, multiple platforms so that's a given, and one of the things that we like to do with our converged platforms is as Dave mentioned, take a real customer agnostic approach.

Address each account and each baseband provider with the tools and the technology and the DNA that they like, and then deliver a collaborative solution around that platform.

That's going quite well for us.

Your point about where the market is going.

The market today is very different.

Each customer has different preferences.

There are some that favor a lower cost, lesser performance architecture, maybe full converged, there are hybrids where maybe you converge a couple of bands and have discrete WCDMA, and there are complete full-on discrete solutions that are out there.

And our ability to cover all is in place.

We have the customer set, the relationships to go about our business in a way that our customers favor.

If I may add, one of the things that we're finding and I think it's long-term going to be very good for us, as I mentioned that we are addressing all OEMs and the intersection point of those OEMs with the various baseband partners out there.

And what we're finding is that the competitive base, I think out of necessity has become more niche-y.

They're competent, obviously but they're more niche-y.

So we have -- a competitor may be very deeply engaged with a baseband provider and their set of customers, some with another baseband provider.

We simply don't do it that way.

When you hear folks talking about a converged platform and a flavor of a converged platform.

That's fine.

We compete there.

They're good, we're good.

But that's not the way the market is going.

The market is going very customer specific.

Very custom and so we believe we have the scale and the breadth and greater than anybody in the industry today to address those, and address that complexity.

We'll go next to Craig Ellis with Caris & Company.

Hello?

Hello?

Mr.

Ellis, please check your mute function.

Yes, sorry about that, guys.

Nice job on the quarter.

Just wanted to follow up, David, on your comments regarding HTC, it sounds like there's some nice share gain.

Can you comment on what percent of their business you think you have and what could that grow to over time?

Sure, Craig, this is Liam.

HTC is an account right now that's developing quite well for us.

We are very much in the early innings with this customer.

Difficult to handicap share but I'll tell you that we have a lot of room to grow here.

They're a company that is enabling, very content-rich devices in SmartPhones, they have some great tablets and we're well positioned.

Of course these are all higher end 3G and in some cases LTE platforms.

That's helpful, Liam.

David, regarding the confidence in outgrowing the market in the fiscal '11 and fiscal '12.

I understood that to be both linear products and more of a power amplifier front end module statement but could you clarify that and any further comments on that would be helpful.

We put a lot -- the short answer is yes, we put a lot of investments in the applications, systems know how and design to continue to address not only component business within our precision analog business but also more of these vertical markets that have very high gross margin, and they're long product life cycles, we like that business a lot.

So what we model, Don talked about the second half, and that $1.5 billion run rate, and when we've in the past modeled our midterm financial model, we made the assumption that the growth rate is similar for each product line and we're continuing to do so and we've had that experience now going on three years.

We'll go next to Tim Luke with Barclays Capital.

Thanks.

And congratulations on your execution.

Thanks.

With respect to the outlook, could you give some color on your perception of how you see the tablet market evolving and what it may mean for you, given your position.

It seems as an important supplier there.

And, Don, in seeing the revenue ramp, could you just sort of give us some feel further about how you see the profile of your gross margins developing going forward?

And maybe lastly, Dave, could you just balance the growth that you're seeing on the -- in the device side and SmartPhones relative to the linear business.

Thanks.

Okay.

Tim, this is Liam.

Let me start with tablets.

Clearly, we're very bullish on that market as Dave articulated.

We think it's really the fastest growth area in mobile today.

Our base position there is quite good.

It's quite strong.

Tablets tend to be content-rich, performance oriented architectures which is just what we do best here.

I think you're going to see more entrants here over the next several years.

We are engaged with everyone in that space, just to tell you that.

We are working with each and every player and we feel very bullish about that and that will be one of the growth drivers for us in 2012 for sure.

That's where you'll see LTE we think the penetration highest so there will be additional bands.

There will be more of an eye towards performance than there is trying to squeeze the next $0.10 out of the bill of materials.

We think it does stay more hybrid, more discrete.

With respect to linear products versus front end solutions growth, again, as I stated, we think we can grow those business roughly equally.

And that's really good for the overall margin structure of our Company.

And Tim, you asked a question on the margins too.

Absolutely, we still see opportunities for margin expansion.

Just as a refresher to keep in mind when we announced our midterm target model back in September, part of that was continued margin expansion as well as leveraging our operating expense.

We just guided to a number between 44.5% to 45%.

That model assumes 45%, so as revenue continues to grow, we leverage the hybrid manufacturing model, you combine that with the focus we have on the CapEx investments that are going to drive productivity and margin expansion, and all those things combined are going to -- and the higher dollar content with the more complex RF devices that are going in the phones today, all of that is going to continue to allow us to have an opportunity to expand margin as revenue grows.

That's clearly part of the story for us.

We'll go next to George Iwanyc with Oppenheimer.

Thank you.

And congratulations.

Don, following up on your margin comments right now, can you give us an idea of what the operating margin target was and what sales level you were expecting to have to reach that level?

Sure, George.

Again, we announced that at the Analyst Day in September and we said that at $375 million to $400 million of quarterly revenue we were going to deliver 30%.

So that was the range.

Keep in mind, we've done that multiple times where we set targets, we typically achieve those targets in four to six quarters.

So stay tuned.

Okay.

And Dave, could you give us an update on how you approach the filter part of the front end and whether the -- and the advantages and disadvantages to your approach to sourcing filters.

I think that's a -- thank you.

That's a great question.

I would say -- I've been around this business a long time and what we found in the past is whenever there is a change in architecture, for example, right now there's movement in exactly which bands of WCDMA are going to be combined, how they're going to be combined with bands of LTE, how discrete versus integrated it's going to be and whenever there are those kind of changes like there were in the early days when analog went to digital it creates some disruption.

In filter technology there's a bit of a scramble.

The saw guys have typically done a good job of moving up in frequency and performance while keeping the costs low but over time once those architectural shifts settle down, the very high volume filter companies typically out of Japan have been able to drive volume and commoditize the pricing of that segment.

That's happened every time there's been a change.

Our strategy keep in mind is to be vertically integrated where the technology is unavailable in the merchant market and to partner with the best of breed for those of -- on a make versus buy.

In the case of filters we have partnered with the very best filter suppliers, we are aligned with the desire to address this market with the best-in-class devices and I believe that that's the right strategy and I think over time - by the way incidentally, we're in very high volume production of filter-enabled pads and designs today.

We're winning sockets that are enabled with filters and without.

So I think the strategy of partnering with the best and allowing those very big filter providers to drive pricing down over time will serve us well.

We'll go next to Jonathan Goldberg with Deutsche Bank.

Hi, guys, thanks for taking my call.

I was wondering if you could give us an update on your manufacturing utilization, how you're doing, how much you're doing in-house versus outsourced and just how -- give us an update on that strategy.

Thanks.

Sure, Jonathan.

We talked about this before.

When we look at utilization, it's really two numbers that are important.

It's sort of the equipment line utilization, which we consistently run at theoretical capacity.

Then it's sort of you look at the facility utilization and so you're looking at your usage of the factory and the square footage and so for us that's still a number where we have the opportunity with very specific reasonable CapEx investments to put those in and to get very, very quick payback, to give us a much better incremental margin answer because we're able to keep the utilization at a very high level and we're able to keep that balance between internal, external, the hybrid manufacturing model in line to give us that best margin and ROIC number.

Typically we run and it varies based on the specific demand profile in a quarter but we'll run about 20% wafers that we outsource and it's running 5% to 10% for assembly and test operations.

That's typically what we see.

Okay.

And then just a quick housekeeping question.

You talked about an annual run rate of $1.5 billion in revenue.

Is that fiscal or calendar?

The way to -- $1.5 billion is a calendar number, as opposed to -- it's a fiscal number, but the way to think about that number is to take our guidance that we just provided, put a reasonable growth rate on to that number and you annualize that and that gives you comfort level of $1.5 billion.

That's the way to think about it.

Great.

Thank you.

Thank you.

We'll go next to Suji De Silva with ThinkEquity.

Good job on the quarter.

I remember when we used to knock you for your GSM capabilities.

Nice to see you come full circle here.

Quick question for Dave or Liam.

As customers try to put products -- market in a newer platform do they tend to lean toward trying to make it more integrated to reduce the complexity or more discrete and then move toward integrated.

Which of the two have you observed historically.

I think we've observed both and everything in between.

There's some cases where the platform is designed specifically around a chipset to be low cost, for example.

May not have many, many bands of WCDMA, just as an example but it will go converged, try to go converged early on and others will say no, this is a performance-oriented architecture.

In fact, we're seeing customers who have gone converged who are going the other way and that's a trend we're seeing right now, kind of an interesting one.

For a few pennies more, a little bit more money I could go at a much higher performance design.

So we're seeing customers go from discrete to hybrid to converged and we're seeing the exact opposite and it's very different customer by customer engagement.

Yes.

And I think as you start to look to markets like tablets where you're bolting on LTE bands and really focusing on high speed video and content rich applications, we are seeing the pendulum move back as Dave illustrated to even a hybrid approach where maybe a few bands are integrated with several discrete LTE and WCDMA devices.

All that points to more content and an RF rich end device.

The other thing that we're kind of excited about is the upgrade of the lowest dollar content is dual band GSM.

A lot of that's sold in places like China.

As there's a push by the carriers and consumers to upgrade to 3G we think that will be an interesting area where they will be highly integrated.

They won't be world phones, they won't have very many bands.

They may use GSM receive side, for example.

So it's kind of interesting to watch that evolve and we really like the fact -- now, those won't be $8 per phone but I'll tell you they'll be a lot more than $1, two or three times that and so we think that's a big, we think under -- not very well understood TAM driver in our space over the next five years.

That's terrific color.

And then some housekeeping questions for Don.

What's the turns in the guidance Don and what are your top ten customers?

Thanks.

I'm sorry, Suji, did you say turns?

Turns, yes, in the guidance.

Backlog coverage versus turns.

Oh, 100%.

100% backlog coverage.

Right.

100% coverage.

Top ten customers.

Top ten customers for the quarter were FoxCon, Nokia, and Samsung which is consistent with what we had last quarter.

Go next to Cody Acree with Williams Financial.

Congrats.

Back to the converged platform.

You said you were now qualified in the multiple basebands.

Are there any significant suppliers that you're not qualified into?

No.

Okay.

Great.

And then just on that, the performance versus maybe the cost and flexibility, what is typically the performance tradeoff that you're seeing in your products versus your discrete solutions.

You mean between a multi-motor converged and discrete?

Yes.

Well, it really kind of depends.

What the tradeoff is in linearity, power added efficiency which translates into talk time, sometimes thermal characteristics of the device, battery performance and data speed, down link data speed.

There's also areas around isolation and noise, that get a little bit more RF esoteric but they're quite a bit harder to implement in a multi-mode design.

So if you keep in mind that a process technology like any process technology, but in this case gallium arsenide tends to be a bell curve across frequency and let's say for example efficiency.

So what you wind up, it maximizes at a certain frequency and then rolls off the edges of that frequency band.

The broader, the more bands or the broader the frequency range you ask and amplify to address, the more it's going to roll off the end of that.

If you optimize it 1.5, it will roll off at 900 megahertz.

So that is the tradeoff.

Customers using converged have to try to center it where the phone will be used the most and then they pay a price for bands that move away from that center of frequency.

In some cases the market is okay with that.

Which may mean it will work great in your home territory when you're running 3G, but then when you roam it will be much worse.

In some markets, that's okay.

In some that's not okay.

We'll go next to Anthony Stoss with Craig-Hallum.

Hey, guys, also congrats on the quarter.

A lot of my questions were answered; however, can you give us the breakdown between 3G and 2G and also what percent was from the linear products groups?

And then right after that Dave if you wouldn't mind just talking about given your capacity where you're at right now, are you prevented from -- do you have to walk away from anything currently?

Anthony, I'll just get those housekeeping questions done.

The air interface for the quarter we were 2G we were roughly 25% and edge, WCDMA was roughly about 75% which these percentages continue to reflect the upgrade cycle and the revenue segmentation, mobile Internet access we were roughly 60%, 2G feature phones, 20% and linear products, roughly 20%.

Second part of the question, no, we're not walking away from any business today.

Keep in mind we successfully completed the 6-inch conversion in our HBT fab.

We increased our PM capability for switches and ASMs.

We also are partnered with -- for assembly PF and HBT with others, to copy that process for us.

The combination of our own capacity and their capacity gives us a great deal of comfort as we look out over the next few years and we don't have to do anything major in terms of bricks and mortar in our operations.

We'll go next to Aalok Shah with D.A.

Davidson and Company.

Dave, maybe you can explain this a little bit.

A, can you tell us where you are with Nokia now?

Are you done with the ramp up phase or is there more to go.

And then B, in terms of where you guys are really winning share, I guess we're all a little confused with everyone else in the wireless space kind of guiding down for Q2, I know there's share gains for you but we're trying to kind of -- I guess least for me -- trying to consider where really you guys have made the momentum shift in the last quarter to gain this much share in just a quarter time span, really.

This is Liam.

Some of these wins are certainly programs and applications with customers that have been in the works for years and months, right, so this is not a short-term reflection.

Nokia is a great case.

So we are moving forward with share gains.

We're actually making great progress in continuing along our 3G path, our multi-mode path as well as 2G.

So that account is in great shape.

We see continued upside there and then in the broader markets we're also seeing SmartPhones in general, tablets in general, higher end handsets in general present an expanding TAM, much faster than unit growth.

You get top 10 gains in these devices and then there are many, many customers out there that we really are in the early innings.

We mentioned HTC.

ZTE and Huawei are others, and there are some other SmartPhone players that quite frankly we are in the early innings and have plenty of blue sky to grow share.

Keep in mind, just to add a little color to Liam's comment, we are very diversified in this space.

So while the guidance may vary from company to company, the overall market is growing and the market that we expect to grow in June and we've got backlog coverage of that, so it is share gains and identified programs that are ramping.

I could tell you, the market is not down in the June quarter.

If the market's down for a particular company it's a share issue, it's not the market.

I think we benefit from diversification, while there are OEM share shifts that happen out there, they happen all the time and that may be accelerating as there's so much dynamic -- the market is so dynamic.

We attempt to stay so diversified that we can power through those and that's what's happening in June.

That's all the questions that we do have at this time.

I would like to turn the conference back over to Skyworks Solutions for any additional or closing remarks.

Well, thank you, everyone, for listening.

That concludes the call.

We look forward to updating you in the future.

That does conclude today's conference.

We thank you for your participation.