思佳訊 (SWKS) 2011 Q3 法說會逐字稿

Good afternoon, everyone.

Welcome to the Skyworks Solutions third quarter fiscal year 2011 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, Robbie.

Good afternoon, everyone, and welcome to Skyworks' third 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 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 that we will discuss today are from a 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 web site for a complete reconciliation to GAAP.

With that, I'll turn over the call to Dave for his comments on the quarter.

Thank you, Steve.

And welcome, everyone.

I'm very pleased to report another strong quarterly performance by Skyworks.

We exceeded prior guidance across all key metrics.

And based on recent design win activity, see a strong growth trajectory heading into the second half of 2011.

Driven by our compelling product portfolio which continues to enable us to take share.

Our unique scale advantages, our customer and market diversity, as well as consistent operational execution.

And specifically during the quarter, we delivered revenue of $356 million, which included $6.5 million of revenue from our recent acquisition of SiGe Semiconductor.

Excluding the SiGe contribution, revenue would have been $350 million, and that's up 27% year-over-year organically.

We expanded our profit margins with gross margins improving by 166 basis points, and operating margins increasing by 430 basis points on a year-over-year basis.

And as a result, we delivered strong operating leverage, as exhibited by our operating income being up 54% year-over-year to nearly $100 million.

We earned $0.49 in diluted EPS and we generated $86 million in cash flow from operations.

We exited with more than $310 million in cash.

And this is after accounting for the SiGe acquisition and for stock repurchase activity during the quarter.

And today we're guiding the current quarter September to be a Skyworks record $400 million, with $0.53 of diluted earnings per share.

To put these results in perspective, during a challenging quarter for some of our marketed OEM customers, our core business was up 6% sequentially last quarter.

And our September quarter guidance is for accelerating sequential growth.

And what's more, our unit shipments of 3G front-end modules were up over 100% versus last year.

And at the same time our high-performance analog product line grew at more than 3 times the rate of the broader analog market.

And our revenue has grown by 34% year to date.

As our third quarter results and fourth quarter outlook demonstrate, we're riding a very strong momentum and have a deep pipeline of growth opportunities spanning both our handset and our high-performance analog product lines.

We see an expanding set of addressable market opportunities across the board.

The rising RF dollar content and increasing complexity associated with the proliferation of smartphones, and an array of other mobile internet devices, is fueling our TAM growth and providing a unique opportunity to extend our market leadership.

Of note, Ericsson recently estimated that broadband mobile subscriptions were on track to surpass 1 billion mark in 2011.

Now, that's up from just a half a billion only 8 months ago.

And more importantly, analysts are now forecasting that by 2015, mobile broadband subscriptions will reach nearly 4 billion.

That's a 4-fold increase over the next few years.

And to that end, we see the advent of cloud computing applications as a major driver.

Wireless connectivity is a key enabler of this enormous macro trend as the cloud relies on any time, anywhere access, whether it's for corporate data or personal music, photo, video.

In fact, we're in the lab today with some of our major smartphone and tablet customers developing solutions for just these applications.

And by all accounts today, tablets are the next must-have device for consumers globally.

Specifically, the tablet segment is expected to grow at nearly 80% compounded annual rate for the next few years.

And by 2014, we estimate that this category could represent nearly $0.5 billion in incremental TAM for Skyworks.

And some market analysts suggest shipments could reach 70 million units this year alone, which is remarkable, as this product category didn't exist just a short time ago.

Now, another big factor behind the rise in the mobile cloud is the pace of LTE rollouts, and it's accelerating.

In fact, earlier this year, the Global Mobile Suppliers Association, or GSMA, noted that LTE is developing faster than any other technology ever.

Currently, there are 20 LTE networks in commercial operations, with over 150 LTE deployments in progress in 60 countries around the world.

The number of commercially operational LTE networks is expected to increase 4-fold between now and just the end of 2012.

So for Skyworks, these market dynamics translate into significant long-term growth opportunities as the proliferation of LTE networks is creating an entirely new set of operating frequency bands that are currently being designed into tomorrow's mobile internet access systems.

On a stand-alone basis, LTE accounts for more than 15 new frequency bands worldwide.

15 new bands.

Next generation smartphones, many of which will support global roaming, will include a combination of multiple LTE bands, along with full backward compatibility to 3G and 2G bands.

As a result, the high end LTE platforms we're currently architecting for 2012 are some of the highest dollar content devices we've ever supported, with some containing as many as a dozen addressable sockets for Skyworks.

The addressable opportunity within these platforms ranges from products like RF front-end engines and multiple discrete 3G and 4G bands, to antenna switch modules and diversity switches, to wireless networking transmit and receive modules.

Now, specifically of note during the quarter, we powered multiple smartphone models that were recently launched by a major handset OEM using our converged multi-mode, multi-band products.

And we began ramping our converter solution within several upcoming models of the Galaxy S2 platform at Samsung, as well as other customers.

In the quarter, we secured multiple PA duplexer designs in a leading forthcoming tablet.

And we are now in production across a number of customers with these PAD products.

We captured multiple LTE sockets in a major upcoming smartphone release by HTC.

And we sampled our first ball filter-based 3G products in support of Band 2 applications.

Our PAD product line now spans all major operating frequency bands and is gaining traction.

Now, switching gears to analog, the organization structure that we recently announced as our high performance analog business, highlights our strong-standing commitment to increased diversification into new markets.

With this new organization now firmly in place, we're focused on increasing our market share in existing markets, and while at the same time identifying new addressable vertical market opportunities.

In many cases, in fact, we see similarities in the dynamics between these new product areas and our handset business.

In both of these, we are addressing high-growth markets, where RF complexity is increasing.

And we are able to capture more dollar content.

With the recent addition of the SiGe portfolio, we see our momentum increasing.

These growth areas are key to our long-term strategy as they help increase our diversification, deepen our level of customer engagements, and improve our corporate margin profile.

During the quarter, we captured share in a number of diverse applications.

With new customers, specifically, we've won multiple networking sockets within a forthcoming internet TV platform.

We enabled this wireless connectivity at all 3 market-leading gaming console OEMs.

We unveiled high power RF filters for military and for home security markets.

And we secured design wins for high power switches, modulators and digital attenuators with a leading supplier of bay stations with the rapidly growing TD LTE China market.

And finally, we ramped opto-coupler solutions for medical, industrial, and for satellite applications.

So in closing, our third fiscal quarter marked another strong performance for Skyworks.

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

Now, before I turn it over to Don, I would like to take a moment to add further color to our outlook.

Over the past several months, we've received a great deal of investor interest in specific program launches and their potential impact on our ability to grow, and I would like to address this.

As the market share leader and as part of our normal course of business, we bid on literally dozens sockets each and every quarter.

And we don't win every socket.

No one does.

But in aggregate, we win more than our fair share.

And to be more specific, Skyworks has not lost any customers, nor have we been excluded from any major platforms.

And if you look back over time, we've consistently proven our ability to grow, both in terms of revenue and profitability, despite the share shifts within our customer base, and through some fairly choppy markets.

We've just guided for a record September.

And for Skyworks, we expect to continue to grow in business, both in an organic and a consolidated basis.

This highlights the real power of our diversification strategy.

And many of you who know us are familiar with our track record focused on execution.

So in summary, given the multi-year revenue drivers we've discussed, along with our design win traction, our expanding customer base, in new market opportunities, Skyworks is well positioned to continue to outpace industry growth, not only in the second half of 2011, but in 2012 and beyond.

And with that, I'll turn it over now to Don for his financial review.

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

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

Revenue for the period was $356 million, which included a $6.5 million contribution from SiGe.

Excluding SiGe, third quarter revenue would have been $349.5 million versus our guidance of $345 million, and up 27% year-over-year organically.

Gross profit was $160 million, or 44.9% of revenue, representing a 166 basis point year-over-year expansion.

Operating expenses were $62.5 million.

R&D for the quarter was $38.8 million.

And SG&A was $23.6 million, yielding $97.5 million of operating income and a 27.4% operating margin.

Our net interest and other expense for the quarter was $100,000 of expense.

While cash taxes were $4.4 million, resulting in a 5% tax rate.

As a result, our net income was $93 million, or $0.49 of diluted earnings per share, $0.03 better than our guidance.

Turning to our third quarter balance sheet and cash flow, we generated $86 million in cash flow from operations, attributable to our strong operating results.

And invested $20 million in capital expenditures during the quarter.

As the sequential decline in CapEx suggests, our CapEx has now begun to moderate back towards steady state levels, as we have completed the majority of our capacity investments in both Mexicali and Newbury Park.

Depreciation for the second quarter was $15 million.

And we ended the quarter nearly debt-free with a cash balance of $310 million, post the roughly $210 million for the acquisition of SiGe and $19 million as part of our ongoing share repurchase program.

Now, to our business outlook.

As Dave outlined, the stage is set for Skyworks to again outperform our addressable markets throughout the back half of 2011 and into 2012.

We are well positioned to expand margins, deliver operating leverage, and most importantly, to create shareholder value.

For the current quarter, we are guiding revenue to be $400 million, with a $20 million to $25 million contribution from our SiGe acquisition, and nothing yet assumed for our planned acquisition of Advanced Analogic.

We'll provide commentary on the accretion from AATI during our fourth quarter conference call.

At the aggregate $400 million level, we suggest modeling gross margins of 44.6% to 45%, and operating expenses of roughly $70 million.

Below the line, we expect $200,000 of net interest and other expense.

And we plan on our cash tax rate for Q4 to be 7%.

As a result, we expect our non-GAAP diluted earnings per share to be $0.53 off of a base of 193 million shares.

That concludes our prepared remarks.

Operator, you can go ahead and open the lines for questions.

(Operator Instructions) Ittai Kidron with Oppenheimer.

Thanks, and congrats on good numbers.

And Dave, appreciate the color into the second half of the year.

Maybe we can follow on that a little bit more specifically.

Regarding the transitions in market share that you've talked about, do you see any material fall-off in your core revenue, excluding SiGe, over the next 2 or 3 quarters?

Or something that would make your performance relative to the market not comparable for a period of adjustment?

Or do you think you have enough diversity in your portfolio to maneuver through that, as you said business as normal things, ebb and flow.

Thanks, Ittai.

And I think as the current quarter and our outlook being up organically 7% sequentially, we also commented that we expect it to grow in December.

Hopefully that answers part of your question.

And as you have mentioned, our performance and outlook isn't dependent on any one OEM or any 1 or 2 platforms.

In the normal course of business, we bid on dozens of sockets.

Dozens and dozens of sockets.

We don't win every one.

But in aggregate, we win more than our share.

And as I said, we haven't lost any single customers.

We haven't been excluded from any major platform.

So I think our outlook speaks for itself.

And certainly we think we are the beneficiary of a longstanding strategy to continue to diversify our business, both at a customer level and a market level.

Very good.

And as a follow-up, I want to get down into the details around SiGe.

Can you tell us, have you completed the OpEx realignment of that business?

And at this point, how do we think about the head wind or contribution, whatever that may be, of SiGe, both to the gross margin line and operating margin line?

And how should we think about that evolving through fiscal '12, at least directionally?

Yes, Ittai, this is Don.

In fact, we had detailed plans in place even prior to the closing as to exactly what direction we were going to go in as far as realigning the expense base.

So we've made a lot of progress.

We continue to work through that.

The guidance that you've received for Q4 as the Skyworks core operating expenses, and a pretty good estimate of where the SiGe expenses are going to be.

There's also some increases in there.

We're making some investments in R&D head count to continue to execute against some market opportunities going forward.

So based on what you're seeing for Q4, again, that's all prior to NATI acquisition, that's a good proxy for what's going to go forward with normal types of increases.

So that's the way I would think about it.

As far as SiGe for 2012, we don't guide beyond 1 quarter.

We've given you the $20 million to $25 million.

And we're currently working through, on a revenue standpoint, an extensive review rationalization of the product portfolio as we align it with our mobile connectivity business.

And we view the 2012 growth opportunities as attractive.

As you know, from the information that's on the S4 related SiGe that their margins are slightly below our corporate average right now.

We have specific plans in place.

In very short order, we're going to drive those up to the Skyworks corporate average.

We would expect that to be sometime in late 2012.

So those are well on their way and we feel real confident with that.

And as a result, you can model that with what you know.

And the acquisition is instantly accretive, as we've already demonstrated.

Jonathan Goldberg with Deutsche Bank.

Hi, guys.

Thanks for taking my questions.

I was hoping you could talk a little bit about LTE.

First, what demand are you actually seeing?

When do you think those become really significant volumes?

Is that in 2012?

Is it 2013?

Also, could you talk about the complexity of front ends that are needed there?

Do you have all the products you need or do you have to acquire more to capture more of the complexity?

Thanks, Jonathan.

Clearly the complexity, as we mentioned there, it's really mind-boggling to think that up to 15 new frequency bands.

So the level of complexity, depending upon how broadly our customers want these devices to roam, is all over the map.

But in all cases, increasing in complexity.

And it's not 2015.

It's 2012.

It's now, in fact, we're starting to see some early rollouts, lot of design activity with very specific program launches late this year.

2012, accelerating throughout 2012 and we think 2013.

And I'll tell you, there is nothing that we need.

These technologies are quite consistent with what we used in 3G, from a process, packaging, design, methodology tool set.

We have, as we mentioned in the prepared comments, we have been working very closely with the world's largest and best, we think, both capitalized and technology-wise, the best duplexer and filter suppliers.

So we've rounded out, we added Band 2, which had been a gap for us.

We added that to the profile which is now complete.

So that was the one area where we've made a great deal of investment in time and energy with our partners to have products that both meet the forward pricing curve to the market but also overall performance.

So I would say that was the one area we needed to work on.

We've done that.

So I would say, no, we don't need to add, we certainly don't need to acquire any technology for LTE that we don't already have in place for 3G.

Great.

And what percentage of revenue was analog?

Jonathan, the linear high-performance analog was just north of 25%, and our handset smartphones were a little bit below 75% for the quarter.

Suji De Silva with ThinkEquity.

Hi, nice job on the quarter.

Following up on the filter announcement you have, is there a reason you waited this long to have a BAW filter for Band 2?

And is there an advantage for someone having it in-house versus you guys outsourcing it?

No, there wasn't any strategy to wait until now.

We needed to have a highly competitive product.

So as we were designing the PA and the MCM technology around that band, we were working with our partners.

And there's been a little challenge at that band to get to the size and height requirements.

So certainly it wasn't strategic.

We needed to get the product ready for the market and to meet all specifications, costs.

But I think the real gate on Band 2, unless the other bands, has been size, specifically height in some applications.

And as we've talked about before, we have partnered with filter suppliers.

We make some ourselves.

For the most part, we buy them when we include them in MCM.

And the reason for that is filter technology is apparently not integrated at the chip level.

It's often non integrated at the module level, but sometimes it is for technical or cost reasons.

And what we have found, and what you'll see as the market progresses here, is that by partnering with the best in the world, you're able to play, for example, soft filter tends to be much cheaper.

It also tends to be a little bigger.

But it improves over time, moves up in frequency, tends to displace other more expensive technology.

We like to be able to play that shift.

And over time, the very well-capitalized leaders in filters drive down their marginal cost curve and price it at a point at which we don't think you can make the kind of margins our investors expect.

So consistent with our strategy to make what we need to make to have a differential competitive advantage, and buy from the merchant market the best technology, this strategy is working for us.

But we did have to fill that Band 2 gap.

Very good to hear.

Then for Don, is it timely now to revisit the target models since you've hit $400 million in revenues, what you talked about before, with these acquisitions?

Or would that really require waiting 'til AATI to flush that out?

Yes, that's exactly right.

If you look at the original, the model we have in place now that we've come out and we've communicated, the $375 million to $400 million, that we were going to be at 30% operating margin, the core business is still on track for that.

Nothing's changed at all there.

But now that we've layered in SiGe, and as we said, right now the product margins are a little bit below the corporate average.

And, as well, the OI percentage is slightly below the corporate average.

We see a clear path for that changing by the end of 2012 and those being on par, if not better, in fact, depending on the growth rate.

So what we're going to do is, with that being incorporated into the business and AATI being layered in, we're going to communicate to you once those are closed and we've got full quarters of revenue and expenses for everybody to assimilate into their models.

Then we'll communicate to you what the new operating model is for the Company.

But keep in mind, at one point, it's really important, the core operating model is still intact and there's no changes to that.

Parag Agarwal with UBS.

Nice job on the quarter, and thanks for taking my question.

The first question is about the disconnect between the revenue growth you are seeing versus some of your handset OEM and some of the base band guidance.

How do you explain that disconnect?

Is it basically the content or it is share gain?

What is going on there?

I presume you mean by that our growth rate being higher.

Yes, yes.

It's a couple of things.

One is it absolutely is an ongoing increase in content.

I think what many find difficult to model, it's complicated, is netting pricing against increased content, factoring in levels of integration with multiple PA frequencies can be integrated on a die.

And it is a complicated algorithm.

But directionally, it is increased content per phone, per device, per tablet, is increasing And looks to continue to do so here for the next few years.

LTE being one of the drivers.

So that's one.

Another is, we really do, unlike maybe some competitors or customers, we are quite diversified.

So we really do, we ship to everybody, we partner with all the base band folks, we try to service them all equally well.

And as a result, we don't get whip sored quite as much when you see big shifts in OEM, for example.

We weathered high concentration years ago with customers that lost a lot of share.

We were able to power through that, so we're pretty proud of that, and it's a function of diversification.

We also, as I said in the prepared comments, we've literally grown our high-performance analog business with a group of product lines.

About 3 times the growth rate of analog, which has been high single digits.

And that's been a lot of hard work in identifying where we have a competitive advantage in a vertical and then doing customized things that afford not only high margin, but they stick, and products that will have a very long product life cycle.

I have to say that it is that.

It's new customers within our targeted handset business, it's new vertical markets, and it's raising content.

Okay.

And the other question is about the second half outlook.

Just wanted to build on further, for the December quarter.

Should we assume that it could potentially be better than seasonality or in line with seasonality?

Is that the right way to think about it?

We don't guide to December but we will grow.

And it is our expectation, as is always the case with Skyworks, that we have opportunities to take share of the playout, both in the short, medium and long-term.

So I'm sorry, we don't guide to December, but we'll grow the business in December and we'll continue to work on taking share.

Nathan Johnson with Pacific Crest Securities.

Great.

Thanks for taking my question.

Coming back to the discussion on the BAW filter and you guys competing for Band 2 sockets.

Are you guys in a position where you're competing for those now or are you sampling with customers and expect to compete for deign, say, next year?

Just some color around the timing of revenue there would be fantastic.

And then key customer note.

I was wondering if I could get a little insight as to the puts and takes there.

You guys have clearly been benefiting from a platform transition there, and you seem pretty well positioned to benefit from them ramping to Windows Phone 7.

But, there's clearly been some head winds just overall for that company.

Just wondering if we should expect growth of that account maybe in fiscal '12 versus fiscal '11.

And then one last question, more near-term macro, given some of the risks or some of the concerns surrounding Europe and debt in the US, just wondering if you're seeing any change in behavior on the part of OEMs, if they're potentially being more conservative heading into the holiday build season.

Thank you.

Okay.

Thank you.

That was a lot there.

Let me talk about Band 2 and then maybe I'll switch it over to Liam and he can talk about Nokia a bit.

With respect to Band 2, that was the one whole in our lineup for reasons I described, mostly size-related.

But the product now is fully characterized and validated and simulated.

So, as we sample these now, we have high visibility into sockets now that will ramp relatively quickly.

So it is the future for Band 2, but it was an area that we needed to address.

And then the last part of your question, the overall market, no we're not seeing any hedging.

Remember, most of our customers are in hubs.

They need to pool what they are building and they look to aggressively take share where there's opportunity to do so.

I don't see any OEM that's coming back and being conservative for global macro reasons.

They are all just, I think, slugging it out and trying to take as much share or hold onto the base as they possibly can.

Liam, maybe you can talk about Nokia?

Sure.

With respect to Nokia, as we've stated before, we are today a major supplier to Nokia.

We're shipping in all corners of their business -- GSM, 3G, [AGI] and Converge platforms.

And our market share at Nokia has been growing steadily.

But having said that, we're still now at just about one-third of their PA business.

So there's room for us to grow.

And if there are share shifts from Nokia to other OEMs, we are very well positioned to capitalize.

In fact, our prevailing amplifier share globally is about 40%.

If the share moves, we are likely to pick it up elsewhere.

Blayne Curtis with Barclays Capital.

Thanks.

Just a couple questions.

First, on SiGe, I know quarters aren't linear.

They did 6.5 for a partial June.

They did about 100 million last year.

You guided to low $20 million, 25 million for that business.

Just curious, that typically is a seasonally stronger quarter for them.

Are you paring back product lines, or is there something going on seasonally for them?

That's my first question.

Blayne, it's what I mentioned earlier when I talked about the SiGe outlook for 2012.

We're absolutely going through the pruning exercise and doing the rationalization of the product portfolio, especially when you align it with our own mobile connectivity business.

So that's part of it.

And quite frankly, the other part of it is it's a new business.

We're integrating it in our processes and trying to hold all that in, and we're being a little bit conservative, as well.

It's a combination of those things.

I got you.

And then when you look forward is this the base or is there still some more of that work to do?

As far as?

Pruning the product line?

No, we'll be through that in pretty short order.

That won't be a year-long process.

Craig Ellis with Caris & Company.

Thanks, guys.

Nice job.

Dave, just looking over to emerging countries, China and some of the faster growing regions for hand sets.

Some of the larger vendors in China in those markets have talked about increased smartphone mix recently.

Can you just talk about how you're positioned with some of the bigger vendors there?

I think you're right about that.

I think the one area that may, in fact, be underrepresented, we think, is the rate at which there will be adoption of 3G products and networks in places like China or in developing markets.

And in fact, we see it now.

There's just so much demand.

The carriers are pushing for it.

It's a little different rollout, different architecture, in some cases.

So we do think that's a high growth opportunity.

And we're servicing it in a couple different ways.

One is Mediatech has been a partner of ours for a long time.

We're the share leader there.

We're working very hard with them.

We have 3G products integrated with their solutions.

So we think they will be a player there.

They have competition.

We're doing the same thing with their indigenous local competitors.

And we're pushing, obviously, very hard to continue to increase our share in content with our existing customer base that will be importing into those markets.

So we do think it's a growth opportunity.

We think it may be under-represented in many models.

And we think we're very well positioned there.

Okay, thanks for that.

And then in your prepared comments, you talked about expanding your vertical market opportunities.

And I wasn't clear if you were referring to tablets when you made mention of some of those opportunities, or if there were other things that the Company had started to target.

So, clarification there would be appreciated.

Sure, this is Liam.

We're looking at a number of things.

One of the areas now we're starting to work on are GPS.

We're looking at GPS [solenaise].

We're very close to our first design win in that category.

Create a nice adjacent sale to what we're doing with our wireless business now.

If you look at the SiGe extension, not only does that give us a real strong leadership position at 802.11, they also have the ZigBee portfolio that allows us to get deeper into the home automation space.

So those are a couple of good examples.

I think there's a lot more we'll talk about as we get into 2012.

But as Dave articulated, the real mission for HPA is to continue to diversify, look at markets that have high gross margin, high growth, and an opportunity to dovetail with our sales and marketing teams.

Sanjay Devgan with Morgan Stanley.

Hello, guys.

Thanks for taking the question.

Great job on the quarter.

Just want to follow up on Blayne's question regarding the SiGe contribution.

Was wondering if there's any more color you can provide just on, as you're going through the pruning process, anything you can give us with respect to long-term growth rates of SiGe, how do you view that?

If we assume a $20 million to $25 million run rate now, what kind of growth do you expect there relative to the core business that you have today?

Yes, this is Liam.

We are very bullish on wireless connectivity, as a market, as a segment.

If you think about all of these great things that are happening in cellular you typically have 802.11 connection, whether it's a smartphone, a tablet.

And internet-enabled TV.

In some cases, even additional consumer products -- eBooks, et cetera.

So we're very bullish on the space.

What we like about SiGe is they have great technology.

The people that we find in this company are outstanding, hard workers.

The technology is incredible and it's also complementary to our existing portfolio today at Skyworks.

So as we bring these companies together, and as Don articulated, we really are at the early stages, we're going to look at the best core IP, how we together can couple and deliver and develop products that no one else in the market can offer.

So we expect it to be one of our fastest growing portfolios going into 2012.

We'll give you more color as we move forward.

Okay, great.

And then just secondly, a quick question on internal utilization.

Can you give us an update on how your internal fabs are utilized?

And how do you expect that to trend through the year?

Yes, Sanjay, there's really no change.

We've been running at these levels for a considerable period of time.

And we talk about utilization from an equipment and facilities standpoint.

From an equipment standpoint, we're pretty much at theoretical utilization, and we have been for some period of time.

And from a building standpoint, probably 60%, 70%, which you couple that with the hybrid model where we do the insource, outsource model, we can expand internal capacity very quickly by adding nominal CapEx investments.

So that model is running really well for us.

We had margin expansion again in Q3 and we think that's going to continue through 2012.

So it's working very well.

Quinn Bolton with Needham & Company.

Dave, just wanted to come back to your comments about the December quarter.

Do you think you can grow faster than the market in December, or do you just think you grow organically?

And then I've got a follow-up.

I think we could grow with the market and we have an opportunity to grow faster than the market.

Okay, great.

And then just looking, you had mentioned, you teased us with some of the LTE designs you're working on right now.

Can you just talk about a typical LTE configuration that you're seeing requested by OEMs?

Is this 2, 3 bands of LTE?

And for those LTE bands, what do you think the dollar content?

Is it $1, $1.50, $2 per band for LTE?

Yes, actually the value that we see in LTE phones now gets into the double digits in terms of value.

So you're looking at literally $10 to $12.

Now, there's different levels of integrations.

Sometimes you'll see a band 13, a band 2, a band 1, a band 4.

And you'll also invariably see a very strong GSM, EDGE device and even WCDMA.

So you have backward compatibility to WCDMA and further down to GSM or EDGE.

You have discreet LTE bands.

And then in addition to that, there's a great deal of switching complexity and filter complexity.

So in addition to the gas PA's that you may see from us, we also are leveraging both our pHEM and our SOI switching capability.

And again, if you think about in your mind's eye here how you have these different devices, they all need to communicate.

Power and signal need to be communicated.

That's all done through switch.

So the complexity goes way, way up.

The dollar value goes way, way up.

And our addressable content just continues to accelerate there.

Edward Snyder with Charter Equity Research.

Thanks a lot, good quarter.

On the BAW thing, real quick, as you are aware, I'm sure, Vargo and TriQuint are the only other 2 sources for high performance BAW.

And the Japanese source you’re using obviously has been working out for some time.

They don't publish their specs.

So I'm just curious, in your opinion, as it relates to developments broadly in parity in terms of performance both in filter performance itself and in size.

And then, given how tough this area is, is pricing on it going to be a problem for stacked margins?

Or do you think you can cut a deal or your relationship will allow you to get it at attractive enough cost that you can compete with the other 2 who are building it internally?

And then on the fourth quarter comments about revenue growth, does any part of that include AATI quarterly revenue?

Obviously within the $20 million to $30 million range, are you counting on any of that to achieve your comments about the top line growth in the fourth quarter?

Thanks, guys.

Yes, thanks, Ed.

No, we're not.

We're not putting any AATI in our guidance.

So you should assume when you model that there's zero AATI.

As far as filters, the size parity is equal.

So that's not an issue.

And when you talk about performance, the performance of the filters themselves are best in class.

There's nobody better in the world than companies like Taiyo, for example, Panasonic and others.

So the performance of the filter is good.

As you probably know, the trick is being able to spend enough time with those filters to tune them, to match them to the amplifier, and then to get the overall transmit path to have the lowest current consumption, the best harmonics and so on.

So you need to work with them a little bit.

And then that feedback loop of, okay, how do you create both the best filter, the best MTM, the best matching, the best PA, so that the whole transmit path gives you the lowest current consumption and the best overall RF performance.

And that's taken some time, but it is absolutely in parity.

And in fact, on the cost side, I would put forth that over time, it will be a cost advantage not to try to make these filters.

Because when you think about it, there are going to be a lot of competing filters, multiple competing filter technologies that are going to try to move up the frequency band, frequency range.

For example, surface acoustic filters are inherently cheaper than the bulk acoustic that has a lot of process steps.

Unless you're really big and well capitalized, it's hard to have every band in a complete rollout of multi-band designs, pads, and do that all internally.

So you tend to have to be kind of nichey and focused on certain bands.

We don't have that problem.

We can play BAW versus SAW.

And I’ll tell you from experience of 20 years in this business, what happens is, as these bands become more common in the market, and the band combinations become more common in the market, which will happen even in this crazy LTE world today, these filter guys will solve it.

And then, boy, as soon as they do, they will drive down their marginal cost curve and they’ll price it exactly where they need to.

And it will be really hard for small-ish filter companies to make any money.

So we think the gross margin is better to be a procurer of merchant filters than it would be to do it internally.

Over time, that disadvantage of being an internal supplier will become more acute because nobody will beat these guys on price.

Nobody.

That speaks to exactly my next question, which is that it sounds like the combination of the gas in terms of having your match to the BAW filters, because really in a pad it's the entire system, it isn't just the filter, the standalone basis itself.

So you've been working with them and it's the combination of the filter and your gas that you are suggesting is going to be competitive with some of these internal guys.

And Skyworks had an effort in BAW back in '04, right?

I'm sure that you're well aware of the expense of trying to do a BAW.

Is that what you're speaking to?

A lot of companies have tried it, and it turned out to be hugely expensive and complicated.

The process is just so complex.

What we found was that unless you could drive a mega factory with a great deal of utilization, you had a real total cost disadvantage.

And frankly, even though our BAW filters were pretty good, when we then said, okay, what does it take to address the entire market, it was mind boggling.

And so you've got folks who have invested billions in this business and they have got highly utilized state-of-the-art factories, and there was no way we could compete.

It wasn’t going to provide a differential advantage to our customers.

it’s a classic example of don't try to beat them, go out and join them.

Buy it, partner with them.

One thing that's interesting, it’s not lost on these folks, that having access into smartphones and tablets is absolutely key in their business model.

And our competitors have that technology internally.

So we have become the partner of choice.

We sell more PAs than anybody in the world and we have a path to all the customers that they covet.

If there’s a motivation on anybody’s part to partner, it's these very same filter companies.

Dale Pfau with Cantor Fitzgerald.

Good afternoon, gentlemen.

Congratulations on a great quarter.

Could you talk just a little bit about the architectures you're seeing going forward, that you're bidding on now for production in '12 and '13?

Is there any particular direction people are leaning on the front end architectures, Dave?

One of the things that we’re seeing, we talked a lot about, is the need for performance is really stepping up.

The need for multiple bands, roaming, data handling.

Invariably now these devices, smartphones and tablets are going to manage high-speed data, high-speed video, cloud computing.

So we are seeing that the value of the product that we deliver is going up.

The complexity is going up.

In a competitive landscape, you need to meet that challenge.

We do see content increasing.

We see the companies that have the R&D capabilities and the IP to deliver not just 1 band or 2 band, but really the full scope.

LTE, WCDMA, the backward compatibility, the GSM, and also the switching and filtering.

I think the companies that have that combination, there are very few, those are the companies that are going to win.

But you aren't seeing a trend toward fully Converged hybrid, discrete pads?

No, in fact we're seeing -- it's kind of interesting.

Particularly on the tablet side, the high-end smartphone, it's all about performance.

And as LTE's coming online, believe it or not, those platforms are tending to go more, a little more discrete.

Some of them push towards Converge early and the performance is okay.

So it's all over the map.

We're seeing very discrete designs, we’re seeing hybrids somewhere in between, pads, discrete, coupled with a multi-band EDGE device, for example, and then we’re seeing fully Converged.

It's hard to say, but I would say today the vast majority going forward, in our estimate, would be some form of a hybrid design with the minority being fully Converged or fully discrete.

Anthony Stoss with Craig-Hallum Capital.

Hello, guys.

Also my congrats.

Dave, if you wouldn't mind talking in a little bit more detail in China in terms of ASP and content growth, either going from 2G to 2.5 G to 3G.

Would love to hear your views there.

I think you’ve said in the past ultimately you think you can get to $3 for phone on average on a full-fledged 3G.

Also, Dave, if you wouldn't mind talking about your view on reference design tractions for you guys heading into 2012.

And then before I forget, Don, 2 questions.

Is it the same 3 10% customers?

And also any changes in what's your view on tax rate for fiscal 2012?

Thanks.

Okay.

Was your question on dollar content, was it specifically China?

Yes, China.

Yes, that's a great question, because it's not obvious that there will be as many platforms that really want to roam globally that will be produced for the China market.

And in fact, there are some customers that are really pushing for a GPRS 3G design so that they can download at 3G speeds and upload at GPRS.

So you can bypass EDGE.

That makes it a little bit less expensive for mass consumption, and it's all about getting well below $100 smartphone.

I think that's going to happen.

There will be different configurations.

It will increase the dollar.

Because the dollar content in a 2G phone, shipping in the low end market, we typically address the very low end of that with CMOS, an all CMOS design, is pretty low today.

So it is a 2, if not a 3 or 4 X content moving, even for those that won't have to roam very broadly.

Yes, let me add, if we look at China, some of our fastest growing accounts now, we've had a great position with Mediatech.

We’ve talk a lot about that, largely in GSM.

They are moving into 3G.

But if you look at the real strength in our 3G business, it's Wauwei and CTE.

And these companies are making not only phones, but also data cards and wireless modules.

So we're seeing some upside.

And if you indulge me a little bit, we'll jump into Taiwan and look at HTC.

HTC is one of our fastest growing customers now, very powerful suite of smartphones, where we're selling complete 3G solutions, EDGE devices, WCDMA bands, a great deal of switching.

So in the whole greater China region, we are seeing that dollar content move up from what was an $0.80 market per phone to something closer to $2.50 to $3.50.

And, Anthony, this is Don.

On the tax rate, it's probably worth pointing out, we were at the lower tax rate this quarter.

And basically what we have to do on the tax accounting is you do an annual projection every quarter.

And we started out the year at 8.5%, we dropped it to 7%.

It now looks like we're going to be roughly a little bit below 7%.

So you make that quarter to date, year to date adjustment.

That's where you get to the 4.5%.

And then we guide to the 7%.

So the rate's going to end up roughly around 7% for the year.

We're not going to give any more color.

We've said to use around 11% in 2012.

We really have to assimilate the acquisition to see.

There’s some NOLs in there, see what that means.

We'll give you more color on that as we do that.

But right now the 11% is fine.

Aalok Shah, DA Davidson & Co.

Hi, guys.

Just a couple quick ones.

If I could, on the timing, I don't know if you answered this question, Dave, but on the timing of the BAW filter, when do you think we can start to see that come to market for you guys?

You're talking about Band 2.

Because we're in the market with others.

Band 2, yes.

Yes, we're sampling that now, so you should see that in 2012.

Okay.

And then in terms of how you think of the conversion PA solution, now that you're doing a conversion PA for the Galaxy 2, that seems to be a high end smartphone.

And I know you just spoke about maybe the performance still matters, but do you think that maybe we might start to see some of the even higher end guys start to use the convert platform to try and drive down costs?

I think you'll see some.

I think you'll see some do that.

I know you will.

Some customers are converting, as we speak, to Converge.

Some customers are going from Converge away to more hybrid, believe it or not, because they are more interested in performance than a couple of bucks in front-end content.

And then we have everything in between, truly everything in between.

The tablet, the high-end products do tend to be on average more concerned with performance than they are with overall costs.

With some exceptions, and you just named one.

I think you'll see everything.

So, no, I think if you look at 2013 as an example, I think the majority will be some kind of a hybrid.

That's easy to say.

That just simply means that there will be some integrative bands of amplification, there’ll be some discrete, there will be some filter amplifier technology.

I think that will be an architecture that will prevail.

And Converge will absolutely have its place and have a growing segment of the market.

I don't think there's very many phones that are truly completely discrete, although there are a few.

Dave, one of the arguments that I get is the, the bears make, that at some point the dollar content story, the dollar increase content story starts to wear out.

How do you guys think about that in terms of, as these handset guys start to get a little bit more competitive on price, how do you guys think about your position in that?

At some point, though, your dollar content can't increase anymore.

How do you think about that?

I would have two responses to the bears in that case.

One is LTE.

It's just not possible to integrate these bands and configurations that our customers and the market demand with LTE without having increased content.

It's just not possible today.

So for a few years, you're going to see LTE continuing to become a play there.

The other piece is that you will see increasingly a very high growth rate in smartphones and a decline in true 2G phones.

And even the most low end 3G integrated Converge product you could think of that doesn't need to roam is incrementally 2X or 3X what a 2G phone is today.

So if you do the math, there isn't any scenario that doesn’t show increasing content, that I can dream of.

Right, and that's a very strict view of handsets.

If you step back and look at what else is happening, clearly tablets are taking off, and cannibalizing notebooks where we really don't have any 3G or any cellular share.

You see that picking up.

And then other devices that we see enabled with wireless technology.

The Wi-Fi capability now, we're seeing 2.4 and 5-gig devices not integrated into the transceiver, which is projected, but now discretely laid out in these devices.

So, as Dave said, it's a smartphone trade-off from $0.80, $1 level parts.

CDMA is going down, GSM is going down.

And we see the upside now with new devices like tablets.

Thank you.

And with that, we have no further questions.

I would like to turn the program back over to Mr.

Aldrich for any additional or closing comments.

Okay.

Thank you so much for participating on today's call.

And we look forward to seeing you all at upcoming investor conferences.

That does conclude today's call.

Thank you for your participation.