思佳訊 (SWKS) 2013 Q1 法說會逐字稿

Good afternoon and welcome to Skyworks Solutions first-quarter fiscal year 2013 earnings call.

This call is being recorded.

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

Please go ahead.

Thanks Rachelle.

Good afternoon everyone and welcome to Skyworks first fiscal quarter 2013 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 our results and guidance we will discuss today are from our non-GAAP income statement consistent with the format we've 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.

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

Thanks Steve and welcome everyone.

I'm pleased to report that Skyworks is off to a great start to fiscal 2013.

Our strong first-quarter performance and better than seasonal guidance again demonstrate how our diversification and expanding market opportunities enable us to consistently deliver superior financial results.

At a high level, we are capitalizing on the proliferation of connectivity in all its forms across the diversified analog landscape.

In fact it's virtually impossible to find a segment today that is not incorporating some form of always-on access.

And as the enabler of all things connected, Skyworks is benefiting from and in some ways facilitating this market transition.

Today we bring to bear an entire portfolio of leading-edge technologies, along with world-class system engineering capabilities, to provide differentiated performance-based solutions spanning the entire diversified analog market.

So as the world at large becomes increasingly more connected, we are uniquely positioned to lead this transition.

And our strategy is paying off, as reflected by the strength of our financial results and guidance.

During the first quarter we delivered revenue of $454 million.

That's up more than 15% year-over-year.

We achieved an operating margin of 25.3%.

We posted $0.55 in earnings per share, and we generated $148 million in cash flow from operations.

At the same time our return on invested capital remained very strong at 21.4%, and that's nearly twice our weighted average cost of capital.

So in short, Q1 was an excellent quarter for us across all our key metrics.

And for our second fiscal quarter we see continuing momentum as key program ramps and growth in new product categories help to offset normal seasonality.

The combination of mid-teens revenue growth and mid-20% operating margin that we demonstrated thus far into fiscal 2013 puts our financial returns among the best of breed in the semiconductor industry.

With the opportunity pipeline and design win momentum we have in place today, the stage is set for continued revenue growth, continued margin expansion and earnings leverage for the remainder of 2013 and beyond.

Now for a more in-depth review of our financial results, I'll turn the call over to Don for his outlook.

Thanks Dave, thanks for joining us everyone.

We appreciate that.

Revenue for the first quarter was $453.7 million, up more than 15% versus the year ago quarter and nearly 8% sequentially.

Gross profit was $195 million or 43% of revenue, which is in line with our prior guidance.

Operating expenses were $80.2 million, consisting of R&D expense of $50.7 million and SG&A expense of $29.5 million.

We generated $114.8 million of operating income, yielding a 25.3% operating margin which is a 70 basis point increase over the prior quarter.

Our cash tax rate for the quarter was 7.3%, producing net income of $106.6 million or $0.55 of diluted earnings per share, or a penny better than our guidance.

Turning to our first quarter balance sheet and cash flow statement, we generated $148 million in cash flow from operations, we invested $26.4 million in capital expenditures with depreciation of $18.5 million, and we repurchased 1.9 million shares of our common stock, representing a $42 million investment.

Given our confidence in our business outlook we continue to believe that repurchasing shares of our common stock represents a highly attractive use of our cash.

And finally, we exited the quarter with $378 million in cash and no debt.

Now for our second quarter business outlook.

With the order visibility and specific platform launches we have in place today, we expect Q2 revenue to be $420 million, representing better than normal seasonality and a 15% year-over-year growth.

At this revenue level, we suggest modeling gross margin in the range of 42.3% to 42.5% with operating expenses of approximately $80 million.

We continue to see opportunities for sustainable margin expansion in the second half and beyond as we leverage our current capital investments and benefit from the transition to a richer mix of margin-enhancing system solutions.

Below the line we anticipate $100,000 in expenses from interest income and other expenses, and a cash tax rate around 7%.

We project our tax rate to remain at these levels for the remainder of our 2013 fiscal year.

We expect share count to be around 193.5 million shares, resulting in second-quarter EPS of $0.47.

All of the underlying drivers are in place for Skyworks to continue to outperform, putting us on a clear path to achieving our midterm business model of 30% operating margin which, as a reminder, generates around $3 in annualized earnings per share.

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

For the remainder of the call I'd like to provide some additional perspective on how we see the trend towards always-on connectivity transforming our analog markets.

One of the overriding themes at this year's Consumer Electronics Show was the Internet of Things, which is comprised of sensors and embedded connectivity deployed across a seemingly endless range of devices that touch our everyday lives.

We see this trend driving a proliferation of access points from conventional mobile devices like smartphones, like tablets, to nontraditional devices like home appliances, medical devices, gaming consoles, industrial machinery, home entertainment systems, smart energy and security systems, just to name a few.

Just compare the number of connected devices in your home today versus just a couple years ago.

The result may surprise you, and I can assure you that the list will only continue to grow over the next few years.

In fact, some analysts are projecting over 50 billion connected devices within the next decade.

This trend is happening today, and it represents the next major growth stage for the analog industry.

Along with the explosion in access points, complexity is being driven substantially higher.

Most network devices span a variety of communications protocols, including some mix of cellular, Wi-Fi, ZigBee, peer-to-peer, Bluetooth, NFC, on both licensed and unlicensed spectrum and across multiple operating frequencies.

And the design challenges within this environment require competencies across mixed-signal, analog and RF -- including signal transmission and conditioning, seamless handoffs between disparate air interface technologies, power management, voltage regulation, battery charging, isolation, filtering and tuning among others.

And we have spent at Skyworks the last decade putting in place substantial differentiators to simplify these complex design challenges.

Some examples.

First, we are the experts in RF and analog system design, who are leveraging a global force of systems and applications engineers.

Second, we offer an unmatched technology portfolio that includes deep expertise in silicon on insulator, or SOI, CMOS, gallium arsenide, BiFET, silicon germanium.

And third, we have the leading capability in advanced multichip module integration.

And finally we are the low cost producer.

By leveraging these core competencies along with the broad market footprint that we've created through our catalog business, we are rapidly transitioning our product mix towards integrated analog solutions and across diverse end markets.

One interesting example of how this is playing out for us in real-time is within the automotive market where we offer a portfolio of application-specific solutions that include GPS receive modules, sensors, telematics, electronic transponders, diagnostics monitoring and collision avoidance.

The automobile itself is transforming into a networked hub incorporating in-dash infotainment consoles, navigation, real-time traffic and other demand-based services through a host of communications protocols.

And looking ahead, we see substantial opportunities for continued growth as OEMs continue to increase functionality and therefore analog complexity.

And it's clear that these trends in the diversified analog market are moving in Skyworks' direction.

As a solution provider with a broad technical footprint, our addressable analog opportunity is exploding.

And as an enabler of all things connected, Skyworks is uniquely positioned as a direct beneficiary.

We expect these positive underlying trends to fuel our TAM growth for years to come, and as our product highlights demonstrated, we are capitalizing today.

In fact during the quarter we captured new design wins across a number of diverse applications that include Comcast Xfinity home security and surveillance systems, high-voltage protection circuits for Boston Scientific heart defibrillators, switch modules for in-dash automotive infotainment applications.

Connectivity supporting -- connectivity ICs supporting Nest's energy-efficient intelligent thermostat, a 16-channel LED TV backlighting controller for LG and others, antenna tuning and control modules supporting multiple smartphone OEMs.

Connectivity solutions within several new set-top box designs across three leading OEMs, and radiation-tolerant optocouplers supporting new iridium satellites.

So in closing, we are quite optimistic about our prospects for the remainder of 2013 and beyond.

Trends in the broader analog market are moving in our favor, and our strategy of continuing to diversify and expand into new verticals while maintaining a laser focus on operational execution is clearly working.

That concludes our prepared remarks.

Operator, let's open the lines.

(Operator Instructions).

Vivek Arya, Bank of America Merrill Lynch.

Thanks for taking my question.

First, just a clarification.

What was the mix between handsets and non-handsets in this quarter and what do you expect that mix to be in the March quarter?

This is Don.

The mix this quarter was similar to the mix that we had last quarter.

It was 60% -- approximately 60% handsets and 40% HPA.

And as far as the March quarter, we don't guide that.

But we wouldn't expect that number to change materially in that quarter.

Got it.

And as my question, Dave, you are guiding to better than seasonal trend, and I think you mentioned share gains in your prepared remarks.

Can you give us any more color around that?

Is it driven by share gains at one single customer's new model?

Is it more broad-based, because we have heard a lot of weakness at one of your larger customers in the March quarter?

But you are guiding to better than seasonal trends, so I'm trying to understand where that strength is coming from.

Thank you.

Sure, thank you.

In fact we see -- you're probably right; March normal seasonality is in the 10% to 12% range.

We're going to do better than that.

And as you mentioned, some of our customers are doing very well, others not so well.

They're challenged.

We are seeing new analog opportunities ramping, antenna switch modules, wireless LAN devices, some tuning products.

We've also, as we talked about in the prepared comments, we've expanded into some new verticals.

We are seeing sequential growth there in some cases, in the seasonally down quarter for mobile.

So I think it's just a combination of those identified programs as well as beginning to ramp into some of these new verticals.

Craig Ellis, B. Riley Caris.

This is Brett here for Craig.

I guess could you just talk a little bit about your 802.11ac design wins?

And then within that, when do you see the ecosystem evolving into the smartphone tablet PC type area?

And do you still expect that to be meaningful in 2013?

Sure.

This is Liam.

11ac is a major upgrade opportunity for the wireline ecosystem with Skyworks being a direct beneficiary.

We are today closely aligned with the leading chipset providers, number one.

We have design wins today and access points in routers that are shipping.

We have new design wins that just occurred in the last quarter in notebooks and netbooks, and we see Q3/Q4 fiscal significant ramp in 11ac in handsets.

So it's a story that is building momentum, and we think it sustainable for a number of years.

Thanks.

Can you just provide me with your mix of 2G in the quarter?

It was roughly 20% 2G and 80% edge and wedge.

Mike Walkley, Canaccord.

Thank you very much, this is Matt Ramsay on the line today from Mike.

Good afternoon guys; just a couple from me.

I wondered if you -- this is kind of building on the last question.

I wondered if you might breakout your 4G mix in the quarter, just because now with the two big guys kind of ramping 4G phones globally, it seems like that's probably a material portion of sales and you haven't broken out before, so I was just wondering if you might today.

It's a little hard to answer that question specifically, because as Don mentioned it's about 80% 3G/4G, 20% traditional feature phones and the like.

And within those, most of the smartphones is a combination of 4G/3G backward compatibility all the way to 2G.

So it's difficult to break it out.

But those products in smartphones for us are 3G and 4G Pas; increasingly, Wi-Fi enabled GPS LNAs.

We've got analog power management devices.

So it's a pretty broad suite, and now antenna tuning devices and so on.

So it's a pretty broad suite of analog products that make it up, of which 4G is an element.

But it's hard to break it out specifically.

That's fair, thanks.

And I guess as the follow-up, and kind of unrelated, Apple talked recently about launching the iPhone LTE enabled with 36 new carriers.

And from our work it seems like LTE network rollouts outside of just the US, Korea, Japan are starting to pick up a little bit of steam.

Maybe you could talk about what you're seeing on the wireless infrastructure front, because I know that margin accretive for you guys, and anything you are seeing different in from the last several quarters, where that market has been pretty weak.

Sure.

The wireless infrastructure space, as we discussed in the past, has always been a major opportunity for Skyworks, and it had been relatively sluggish through 2012.

We are starting to see some design wins pick up and some demand pick up with customers like Ericsson, Huawei in Asia, Nokia Siemens.

We have a great footprint there.

We have a deep portfolio of analog mixed signal technologies, good margins.

And we agree.

We think the LTE rollout of handsets are going to be a catalyst for a major upgrade cycle.

Parag Agarwal, Topeka Capital Markets.

Thanks for taking my question.

Don, first question is about gross margin.

How should we expect the gross margin to trend as we go forward?

And if you could highlight the specific margin drivers that we should look for.

This is consistent with what -- when we talked about our goal of 30% operating margin, the incremental revenue at this point, what we recommend that you do is to drop that through at about 46% to 47% incremental margin.

We said our goal is to drive that back up into the high 40%'s or even 50%, but at this point in time the best way to model it through '13 is to use that 46% to 47%.

And that improvement from the drop you've seen the last few quarters, that's really driven by a combination of things.

It's more -- it's a mix shift from going from 2G lower margin products where we are going more towards high-end smartphones, and also the contribution Liam talked about as far as the overall content we are getting from the non-PA part of the business, and those margins are all accretive to the overall Skyworks.

So you get your mix shift towards more and more content that's outside of the traditional PA space and it's also a movement away from 2G.

Those things, coupled with the extra volume, are going to drive margin enhancement for us in the back half of the year.

And Dave, regarding the share gains, should we expect your share gains to accelerate as we head towards the end of the year, maybe driven by LTE and SkyOne and SkyHi.

And also if you could talk about the traction you're seeing with SkyOne.

Thank you.

Sure.

I think you should see more -- the trend of Hi share for Skyworks in smartphones and tablet and related devices, but you should also see more content bolted around the traditional transmit products for us.

So as you've seen from recent tear down reports, we're finding increasingly that our customers are coming to Skyworks and they are looking for more of a complete system approach.

They're asking us to figure out how to shield -- how to shield frequency interference or coexistence issues.

They're asking us how to figure out how to tune the antenna and work on the power management side of the architecture to improve current consumption.

There's a lot of switching content, and of course, as you know, we are doing high-performance GPS LNAs and Wi-Fi devices.

So you should continue to see more dollar content, more functional content from Skyworks in each successive rollout and design.

That's what you should expect.

Alex Gauna, JMP Securities.

Thanks very much for taking my question.

Congratulations on the quarter.

I was wondering if I could take another stab at this, Dave, and ask you about LTE exposure at this juncture.

Maybe if we just limit the question to PA opportunities specifically tuned for LTE, is that maybe 5% or less of your mix or 10% of your mix or less, ballpark?

And what could go to by the end of the year as your mix improves?

If I understand, among our PA segment of the business, LTE is much higher than 5% or 10%.

My only comment earlier was really meant to point out that we tend to tally the revenue in the content, of which LTE may be a functional block, or just simply one transmit path.

So I don't have the number at my fingertips exactly what percentage it is, but it is increasing rapidly and it's much higher than single digits.

Okay.

And then I was wondering if you could talk about backlog coverage for the current quarter, maybe what the turns were last quarter and what you need to do to make guidance this quarter.

It's quite similar.

Our -- we are largely booked -- I'll call it 80% to 90%, that plus our hub contract gives us a great deal of comfort that we put an appropriately conservative model on there.

We're pretty much fully covered when you include the hub forecast, Alex.

Harsh Kumar, Stephens.

Hey guys.

Very impressive numbers, congratulations.

Two questions.

First of all, I know, Don, you said expect the mix to be 60/40 again, but is there any standout category or any particular end market that's a standout in the March quarter for you guys?

Well, I would say we talked about it a bit here, you are starting to see more traction outside of mobile, the 11ac opportunities.

Although they will address handsets in the second half, right now we are seeing nice swing up here with routers.

We've got MIMO content, so we can have 2 to 3 screens of devices in a single router.

We've got some nice uptick now in our ZigBee portfolio spanning home automation and security.

We mentioned a few of those in the opening comments.

So there's a lot of diversification outside of mobile that is moving us above seasonality, and then we have some nice design wins that we're putting into place today in handsets that will affect us in the second half.

We are also seeing some lightning and display, power management products that are ramping incrementally from a relatively small base, but those are products we either acquired or we have developed in the last couple of years that we have then presented to our mainstream customers.

And we're starting to gain traction as we provide more that overall system solution.

We are seeing the same thing with more customers for our LNA products, and we continue to take share and drive the growth of Wi-Fi.

Great, thanks.

Listening to your commentary, and again reading the press release, seems like a lot of good things happening in the high-performance analog and I think you just answered my second question.

Seems like -- would you agree that you feel like you are at an inflection point with respect to that business?

I think we have -- it's been a long investment.

We've been investing in building out the marketing and the design infrastructure and the product building blocks and other solutions.

We've been doing that now going on six or seven years.

But we are beginning to see sequential growth as we have more content and we are able to leverage the existing relationships we have.

So these products are becoming more battle-hardened.

We're becoming more established over the footprint in these designs and we're starting to see a snowball effect if -- I think that's what you mean.

Blayne Curtis, Barclays.

Good afternoon guys.

You mentioned antenna tuning wins in your preamble.

I was wondering if you would just frame your thoughts on just overall market there and when you expect to be shipping in phones.

Actually we are shipping antenna tuning solutions today, using a number of different architectures and topologies.

We think it is an increasingly important part of the architectures when you look at multimode, multiband and LTE.

And what antenna tuning does is it effectively synthetically lengthens or shortens the antenna to improve matching, and Skyworks has some great IP around this.

So what we're doing today is leveraging our switch technology, SOI and PHEMP, also some of our developments -- integrated solutions and packaging technologies that deliver custom solutions.

So we are in production with antenna tuning.

Quite frankly it's not a one-size-fits-all solution.

You have to look at each customer, each OEM, what their intent is doing, what bands they have, manage coexistence and filtering in some cases.

But we think it's going to be a powerful revenue driver for us for many years.

It's early days for this and we're well-positioned at the start.

Thanks.

Maybe if you could address -- you talked about 2G, but maybe if you could address the overall emerging-market low-end 3G market, whether you're seeing any uplift there and kind of what inventory picture is and how you're positioned.

Sure.

This is Dave.

We don't see any inventory position there, so the inventory position is lean and appropriately so for us.

We typically address that market through a combination of distribution and direct.

I would say about the 2G market, the beauty of some of these emerging markets is that -- and China in particular, is that we are now seeing an inflection point where 2G, 3G smartphones, high-performance devices are proliferating throughout that market.

So there's a great deal more content.

Some of them -- a lot of these phones have backward compatibility or they may even, in fact, have a transmit path on 2G, but they're 3G smartphones.

But a lot more content, a lot more bands, a lot more filtering, a lot more switching, more Wi-Fi connectivity just like the rest of the world.

2G as a standalone product has -- continues to decline and is perhaps a mid-single-digit percentage of our revenue.

That market is crowded with competitors, the ASP pressure is high, and in fact customers simply don't want -- making a -- successful customers making the transition to more high-performance smart phones and devices simply don't want the discrete 2GPA.

They want someone to integrate that solution into entire transmit receive path.

So you won't see much 2G standalone component business at Skyworks.

It's simply not an attractive market.

We are looking to facilitate the upgrade cycle to the smartphone.

Anthony Stoss, Craig Hallum.

Hi guys, my congrats as well on the results and guide.

Could you talk about your in-house capacity utilization and maybe start with the percent you guys manufacture in the December quarter versus subcontracted out, if you will?

And then Dave, could you talk about where you stand on your BAW filter products and how competitive you think you'll be?

Thanks.

As far as utilization, I think that's consistent with the discussions we've had in the past.

When you look at utilization, we really look at it in two forms.

One is sort of the equipment line utilization and the other is facility -- square footage, bricks and mortar utilization.

As far as the lines and the equipment, again, we're fully utilized.

That's been consistent for us for a long period of time.

And you look at our ability to ramp production, when you look at square footage utilization we've got -- particularly in Mexicali we have square footage available.

So for short capital we are able to expand capacity and drive incremental margin benefit, because there is a fairly significant cost differential for us to do that internally versus externally.

As far as internal versus external, how we actually source that, when you look at the last quarter, our HBT or gas wafer supply was about 20% externally sourced and 80% internally sourced.

And you've got to keep in mind that as we've continued to grow in some of these bolt-on opportunities that we talked about, we are sourcing more and more of our products -- they're silicon-based so we are sourcing more and more those from the outside.

As far as the gas goes, it's about 80/20 on the wafer supply.

I think the second question was around filters.

Let me try to clarify.

We participate in filters as part of an integrated power -- tuned to a power amplifier in the same package of PAD.

SkyOne has a complete suite of filters for all frequency and bands.

But we don't sell discrete filters; that's not our business.

In these applications, in fact today we are one of the largest integrators of filters in the world today, and let me kind of give you a sense for it.

Below 2 gigahertz or so, we used SAW-based products.

The performance is high, the cost is low.

And when there is narrow spacing, so in other words when there are bands on top of one another, or transmit and receive on top of one another in that market we temperature we use temperature-compensated surface acoustic devices, temperature-compensated SAWs.

So that allows us to a limited temperature drift and have real spot-on performance.

In very high frequency bands, or bands -- and bands that, again, the TR is right on top of each other, transmit and receive, or the bands themselves are -- there isn't a lot of adjacent frequency gap, we do use some bulk devices for high frequencies -- BAW primarily, bulk acoustic wave.

And that's an appropriate technology for high frequency, and so there's always a trade-off between what is SAW does well and what a BAW does well or what a temperature-compensated SAW does well.

We have strategic partners aligned for each of these devices today.

We are in production and it gives us a great deal of flexibility because those suppliers are different.

No one in the world has competencies that will handle all bands at all configuration at high-performance.

So it's a far better return profile, we think, and gives us a great deal more supply flexibility to work with the best process technology for -- given the existing application and band configuration.

And we're doing that across the board today.

Dale Pfau, Cantor Fitzgerald.

Good afternoon gentlemen.

Congratulations; great quarter, great outlook.

Don, you sort of danced around this, but maybe we could talk a little bit about the share of your products that are going to outside foundries versus internal, and how that's going to affect our margins.

And can we get some margin expansion over the course of the year?

Is the mix going to shift, or does utilization get better?

But how are we going to get some margin expansion here?

No, it's consistent with what we've talked about in the past.

First of all, as we continue to grow we've got a 15% topline growth opportunity.

We're going to get a significant benefit both in what we in-source and manufacture internally and we manufacture externally; we'll get a margin benefit in that.

So that's point number one.

Number two is, as we continue to move, as the margins that we get on this incremental dollar content that we are getting that both Dave and Liam would talk about as accretive to the overall Skyworks margin.

So as we see the greater and greater attach rate for GPS LNAs for instance, for Wi-Fi devices, all of that within the mobile and outside of the mobile space, that's going to add margin dollars and margin percentage for the Company.

So that's a real [problem].

Then we're going to see a mix shift in our traditional space for power amplifiers and the handset space we're primarily part of the revenue, where we're moving away from 2G to 3G, low-end smartphones and high-end smartphones.

All of those products have accretive margin.

So it's that combination is going to continue to drive margin expansion.

And, yes, we are outsourcing content.

When you look at the incremental revenue and capacity we've added through acquisitions, all of that content, and it's silicon-based, all of that is outsourced.

So that has been a consistent part of what we have done in order to drive the margin profile over the last year, year and a half.

That's not new.

And then as one follow-up, as your content begins to increase, and I understand the system architecture and the customers wanting to [deal with] system, at what point do your customers get a little twitchy about having so much content with one supplier, or have we already crossed that bridge?

I think -- this is Dave.

I think we've crossed that bridge.

If you look at it from -- as the front end complexity, if you will, now by the front end I mean analog mixed signal RF.

As that complexity begins to rival the complexity in the applications processor, the modem and the overall system and it has a big, huge impact on the overall performance of the device itself, it is increasingly becoming -- they need a best system solution that is integrated, that's bundled, that's shielded, that's bulletproof.

And just as most of our OEM customers have gotten over the fact that they're going to have a custom baseband, for example, they're going to have a custom front end.

And I think we just need to make sure that we have flawless execution on the supply chain side, high yields, never have reliability hiccups, and we are good at that.

So I think they have crossed that bridge.

Some more than others; some like to generate more competition.

But the fact is that it's increasingly accustomed business and very few customers are going out and shopping for the best discrete component.

So, very few, if any.

And so we think that that ability to integrate by keeping a broad technology footprint, by keeping our cost structure low, by being able to integrate both the semiconductor as well as a module, the laminate capacitive, gives us an opportunity to add a lot of value for our customers.

As long as we continue to support them as we have, I don't think there's an issue with that.

Vijay Rakesh, Sterne, Agee.

Hi guys, good quarter and nice look on the guide here.

I had a couple of questions.

When you look at your -- when you look at last year, you had good traction on the top couple of customers.

You did very well.

Just wondering as you look at fiscal '13, look at 2013 here, how you look at -- how you feel at your top customers, how do see those guys ramp?

How are you guys doing a mini platforms coming out, your market share there?

I think that we will, in the mobile smart phone potion of our business, you should think about us having the kind of penetration and concentration that the overall market has.

So unlike many, we do participate with all the leading -- all the OEMs.

And we participate on all the baseband providers' reference designs and systems.

So we will look an awful lot like the market.

We'll exceed the growth of the market because we'll bolt on more content, and the demands of the market are looking -- customers are looking for more of the kind of solution we provided versus point [profits].

That's good for us.

So I think you should continue to look at it that way.

I would expect you to see subsequent design iterations with our customers maintaining the content that we have today and the functional blocks in which we participate, but seeing us bolt on more content, more shielding, more filtering and switching and all the rest.

Yes, as a follow-on to that, success for us in 2013 and 2014 and beyond isn't just execution in the front end where we have been successful.

But now you're really going to see -- and you're just turn to see it now, ASM and antenna tuning being bolted on, multiple bands of WiLAN, 802.11ac, display devices, LED backlight, camera flash and a whole suite of power management.

So the opportunity around the center of the plate in multimode/multiband PAs and LTE is there.

And we're going to execute, but we can really surround that with some complementary devices in analog and mixed signal and drive not only revenue but margin.

Got it.

And on that 802.11ac that you just mentioned, how big is it now?

And how do you expect that growth year on year, if you could give us some color on that?

That's the last question.

Thanks.

Sure.

It's a small percentages are while I'm portfolio today.

It's going from an upgrade cycle from 11n.

We think is going to accelerate but we love the opportunity.

It's early, we're moving fast, we got great relationships with OEM partners on the chipset side, and we like the applications that are being driven by 11ac.

It's going to enable quite a bit of interesting new consumer level applications.

Nitin Kumar, BNP Paribas.

Congratulations on a great quarter and thanks for taking my question.

My quick question on the pricing environment, especially on the handset side, I know content has been increasing.

And -- but -- like has been mentioned before, there's been some weakness in the higher end and more momentum in the lower end of the spectrum.

Have you guys seen any pricing pressure or anything like that?

We've seen pricing pressure be the most dramatic on the point products in 2G.

We've seen increasing content offset any pricing pressure on the mid to high tier products, smartphone products, whether they be low, mid or high end, and a more normalized pricing pattern with these newer devices.

We need to be on a path to continue to add value.

We've been able to sweep in more functionality so that our customers pay us more, even though for the individual functional block they are seeing enough value that they can meet their bill of material cost objectives.

And that's our goal.

Yes, and you look at actual year-over-year price erosion number that we track and monitor very closely, we are tracking pretty much at that same 9% number that we've seen over the last few years.

So there isn't anything new.

The only -- at the low-end, as Dave said, there's been maybe a little bit more pressure.

But overall our percentage is in line with what it's been historically.

So that points to the upside in some of the other parts of the market.

Great, thanks.

Just one other question, I know linear products has been very strong, and I think, Dave, you mentioned automotive.

As you sit here in the cycle, what are your thoughts for the rest of the year in terms of 2013?

Do you see an improvement from this point on, or any specific thoughts?

I see the continued -- a few years ago we were kind of 80/20 on the mobile [FPS] space, FPS being dominated by transmit power, we are now more like 60/40.

I see that trend continuing to be more balanced as we ramp vertical markets and as we add more content within our mobile customer systems than simply the transmit chain, and more systems solutions, more functionality.

So I think you will see the trend of more dollars in a more balanced portfolio, both in terms of the number of markets we address, the number of verticals we're penetrating, but also in terms of the amount of content we have and how diverse it is within a smartphone, for example.

Mike Burton, Brean Capital.

Congratulations on the great results.

I wanted to talk a little bit about the -- if you could give us a little color about ET, when does that really become important to you?

Do have PAs work with QUALCOMM?

And maybe your strategy there, are you developing your own [PMEC]?

Or is it partnered?

And do you view ET as an opportunity for Skyworks to differentiate?

Let me clarify that a little bit.

That's a good question, Mike.

ET is important, and for the big baseband providers out there, and you mentioned one, ET will be integrated as part of the chipset.

And the system, the front end PA system if you will, is being quite customized around high-performance to dovetail into that chipset solution.

So it's not an ET PA as much as it is a PA that's optimized to deliver envelope tracking in the overall system architecture.

So it is very important.

And in fact for the first reference design, for the first designs that are hitting the market, we are the reference design with our multimode PA on the largest chipset supplier's ET system.

So it is a growth driver for us.

Most chipset suppliers, the large ones at least, will facilitate ET and there will be a partnership between what the PA does.

It won't be a separate [PMEC] for ET that the PA supplier provides.

It will be more providing the right PA, maybe antenna tuning and bolting around it.

There will be some small percentages of the market, in our view, that will have a discrete ET device, and we have been working on those devices.

We have that capability.

We also, as you know, we bought a power management company, we've got PMEC capability and that DC-to-DC converter technology gives us an advantage to drive that, drive the right supply voltage and drive the transmit change.

So it's a good opportunity for us.

We're leaving today on the reference design with the largest and we're excited about it.

Great, that's helpful.

Thanks.

And also your view on the CMOS PA market; you guys obviously bought the volume supplier at the time when you bought Axiom.

Can you maybe size that market for us now?

Do you believe that market is progressing to someday capture low-end 3G, and if so, what sort of impact could that have on the space and for Skyworks obviously?

The low-end CMOS PA market is tiny, frankly, because the 2G market continues to decline in units and in price.

We do CMOS, we do low-end gallium arsenide, we do very cost effective front-end modules to take that PA and integrated with switch and control and logic, to have it more integrated solution.

We're finding that the market for those discrete 2G products is dwindling.

And so it's not, frankly, not a very attractive market for us.

It's maybe 5% of our 6% of our revenue, and it will not be accretive to margin.

That's just not the way that market is going to play out.

It is, however, 2G -- you need backward compatibility to 2G in these low-end smartphones, and so that is where we are focused, on integrated devices.

There will be CMOS content; there will be gallium arsenide content.

There'll be silicon germanium and SOI content in the transmit path.

And we are really quite agnostic and indifferent with respect to which technology it is.

Aalok Shah, D.A. Davidson.

Just Liam, if I could pick your brain real quick on Wi-Fi, especially on 802.11ac, a lot of companies tell us there's of course the two bands.

And some companies win a couple; some win the high band, some win the low band.

How do you guys attack that market?

Are you guys going after both?

And how do customers kind of view that opportunity for you guys?

Sure.

Well, first of all, we absolutely are attacking both bands, 2 gig, 4 gig and 5 gig.

And we have been for the most part the incumbent supplier in 11n.

So in many cases it's continuing to fortify the chipset partnerships that we have with the two leading players, and we have very strong positions with both.

It's taking our current customers through the upgrade cycle.

We were very early in sampling the technology, again provided by the support of our baseband partner.

So we will get an absolute upgrade cycle at 2 gig, 4 gig and 5 gig.

We are seeing, as I mentioned before, MIMO multiple screens in routers and access points that really magnifies the content.

And then by and large the handsets that we see today are going to go 2 gig, 4 gig and 5 gig as well.

So there's a lot of momentum there.

I think if you listen to what Broadcom said as an example, how bullish they are, we are right by them on those designs.

So, 2 gig, 4 gig and 5 gig -- absolutely.

I think you look out a few years, there are some opportunities for us to integrate that into a single solution.

But we are very well-positioned, and quite frankly, with customers that we have solid relationships with.

Are you guys the preferred vendor or preferred partner with Broadcom?

We've heard multiple different competitors of yours talk about the market and how they're well-positioned what Broadcom.

Can you describe how you think your relationship with Broadcom is?

We think our position is very strong.

We have a partner for quite a while.

And if you go back to our partner [Cy G] that we acquired a year ago, they had been involved there for years.

So the relationship is solid.

They're a lead player.

There's others.

And our position we believe is very strong there.

Ittai Kidron, Oppenheimer.

Thanks, congratulations on good numbers.

Dave, can you give us an update on SkyOne, the design activity, the revenue ramp over there?

SkyOne, just as a refresher, SkyOne is a product that moves from the baseband chipset, the output of the baseband chipset through the antenna and back.

It has all switch and control, logic, filters, all filter bands and PAs.

And it's really a platform, because we have devices that are going to be for more network specific customers who look to be more narrow geographically, others for the world phone market.

The idea is that it's completely shielded and integrated, and we take analog complexity away, for which we get paid, which is nice.

So we have released that product.

We have it in various stages of qualification with at least three OEMs.

And you will see that product ramping throughout 2013.

It's just beginning because it's a very different architectural approach, and our customers need to get comfortable with it and go through the qualification and the sourcing, reliability analysis, and it looks very good.

So it's going to be a good product for us, but it will take a little while.

It'll ramp faster than most because the ASP is very high, but nonetheless it'll take a little while.

Another follow-on to that, is that if you think about the R&D burden in putting out a smart phone, a next-generation smartphone, what our customers need to do in terms of industrial design and display and performance that have nothing to do with RF, so there's a tremendous amount of R&D burden and budget and challenge that is moving towards a display and look and feel.

The RF budget is getting smaller.

So we have an opportunity to come in and really solve that problem with multiple bands, antenna tuning and switching.

We can make it configurable.

So SkyOne really can be modulated and customized depending on the needs and the bands of the end OEM.

So we are seeing that value log being delivered and received with our customers, and we think it's a great opportunity.

Okay, just to follow-up on that, correct me if I'm wrong, it was my impression that you will have already revenue for that in the March quarter.

Is that not true?

As a follow-up question, can you talk about China, your business activity there sequentially in December?

And how do you expect that to be in the March quarter?

With respect to SkyOne, I think given the rate of qualification, you will see it in the spring.

If there's anything in March, it will be does minimis.

It will be very small.

So -- what was the second half?

With respect to China, what we've talked about here for a couple calls is kind of a smaller 2G business right now.

So we have a lot of great relationships with companies like MediaTek and [Spry Term].

But the 2G business for us right now is getting smaller, and that's totally okay.

Now to combat that, though, on the upside we are seeing some pickup in 3G, we're seeing better performance out of Huawei and ZTE.

We are seeing performance out of Lenovo, for example, in smartphones.

So we are seeing that migration from low-end single-band GSM 2G to an upgrade cycle in 3G that's playing out quite nicely.

Quinn Bolton, Needham.

Congratulations on the fine results.

Just wanted to ask two quick questions.

You spent a lot of time on the call talking about the bolt-on content around the traditional transmit chain.

As you look forward into the 2013 and 2014, given the trend towards sort of multimode converged PAs or wider band PAs, do you think that the actual PA content starts to level out or actually declines, and your overall content growth comes from this bolt-on analog content?

Thank you.

It's hard for me to distinguish.

The content that will grow will be -- given the band proliferation, there'll be some architectures that will use a multimode PA, so that while there being more band, the bands that will tend to keep the price of the MMMB beat up and consistent, but clearly the cost per band needs to drop.

It's got to scale somehow.

There's got to be some semiconductor integration advantage on the MMMB.

But where those customers will use an MMMB there will be -- the [honking] filter is very complicated, complex filtering, switching, logic and controls.

There is a great deal more content on the switch and on some of the other bolt-on functionality, so you kind of get to the same place of growing TAM.

But in the case of an MMMB, you would see some integration advantage of the PA.

The other bolt-ons you're talking about are quite independent, which is the GPS products, the power management products, the antenna tuning, the Wi-Fi.

And that will be bolt-on and we continue -- we think there's going to be growth for us as the system becomes more important than the individual device.

That will facilitate growth for us for the next several years.

Just on the ET question, you talked about the tight coupling with the chipsets.

Does that mean you end up having to do specific PAs for each reference design, or is the EPTPA broad enough that it can interface with both chipsets or multiple vendors' ET chipsets?

I think it's quite unique per chipset, and oftentimes will be customized by customer platform.

Not only the PA, but the power management scheme, the PA device and the antenna tuning.

And having said that, there's a limited universe of suppliers that have the sophistication to handle that matching.

Having power management under our wing is definitely an advantage for us.

Tom Sepenzis, Northland.

Congratulations and thank you for taking my question.

Most have been asked.

I just wanted to -- I had a couple of quick housekeeping things.

One, can you -- I think you said your tax rate is going to be 7% for the rest of the year.

Is that correct?

Yes.

That's correct.

And what is driving the low rate?

We had guided to 7.5%.

The change from 7.5% to 7% was really the passing of the recent tax legislation.

They confirmed that they're going to extend the R&D tax credit and bonus depreciation, so that's what drove it down from 7.5% to 7%.

When you look at our 7.5% and compare it to others in the space, we have a very competitive tax rate.

And that's really a result of what we've been doing with some business restructuring initiatives and that's really helped us drive that rate to a very, very competitive level.

But that small change was because of the legislation.

(multiple speakers)

And do you expect that to continue beyond 2013 and into 2014?

We -- guiding the rate is hard because it's based on the whole elements of earnings, but what we have said is that it -- as earnings and revenue grow, it's not linear.

So that rate probably is going to go up a little bit, and I think if you're looking at beyond '13 and '14, I think using around [a 10% rate is] probably pretty competitive.

But again we haven't specifically guided that.

But it is going to go up a little bit.

Edward Snyder, Charter Equity.

Thank you very much.

Dave, as you look out over the landscape a little bit longer-term than the next couple of quarters, you have got a lot of excess guest capacity in the industry right now.

You've got MMPAs, dual band pads, things that are compression overall, gas ASP per band that I would say.

And at the same time as you've mentioned as several people pointed out, the filter business is starting to boom especially in the BAW side of the thing.

You've got these new antenna tuners and some new technologies out here.

If Skyworks is very strong in the analog side of the business, would be unreasonable expectation to suggest that maybe the business model starts moving more that direction?

I don't want to take away from gas of course, but maybe less of an accent just on the kind of classic historic RF gas business?

And where does that put Skyworks, given you're likely not going to get into the BAW side or even SAW given the unit volumes?

Would you be pushing more into some of the more infrastructure or fragmented markets and maybe away from such a large reliance on RF gas?

I would say that you've already seen a transition where a few years ago we were -- a couple years ago we were 80/20; 80% mobile, most of which was gallium arsenide.

Today that number is getting closer to half-and-half.

And within the PA space and the transmit side, we've got a mix of technologies.

And you're right about too much gas capacity.

But I'd characterize it this way.

For those who have a good broad footprint and are gaining content with the smartphone leaders and the like, capacity utilization is not an issue, and we don't believe will be an issue for years to come.

If you don't have that broad footprint you have to try to fill vertically integrated capacity, and you do it by dropping prices on 2G PAs, for example.

That's not good from a return standpoint and that's not our business model.

So you should continue to see the diversification go on.

And while we don't participate in BAW filters or discrete filters of any type, that's not our business.

That's mostly our Japanese suppliers are in that business and they tend to -- they've had decades in that business.

We are a leader anytime that filter is tuned with an integrator with the PA -- SkyOne, PADs.

Look at tear down reports for customers who use PAD.

And we see margin accretive products where we can gain a lot of content to value by tuning that filter in PA using different technologies, depending upon the band configuration.

So we're using a combination of SAW, temperature-compensated SAW and bulk devices.

We expect to be a leader in filters in the sense that when the filters are tuned on the transmit side, to a PA.

And to the same kind of point, you've always been kind of a leader on the cost side of the gas business.

You've got your own assembly and test which is unique in the industry.

[On Micro, just speak to the mall fee was finally] the largest 2G supplier -- or Micro is pretty big in 2G, so now they certainly are the largest.

And from our checks it sounds like pricing has eased a bit.

Skyworks was early into CMOS.

It's not a big part of your business now, or I would expect neither is 2G.

But if that segment starts to grow and the margins start to -- or at least the ASPs start to rise a bit, given there's less competition today than there was a year ago, is that an area where Skyworks could possibly grow?

You still have the Axiom product lines.

I don't know how much they've been updated over the several years you've had them.

But given your cost advantage in test and assembly, is that something that could be reasonably assumed in out years if we see growth in that area, that Skyworks would move back in?

No, I think you should assume where 2G is required in backward compatibility for a low-end smartphone, for example, Skyworks will be a leader there.

It would be a mix of technologies that will have CMOS but will also silicon on insulator, some gallium arsenide for sure.

I don't think you should expect growth in margin units or total TAM dollars in the 2G standalone market, whether it's CMOS or gallium arsenide.

That market -- that ship has sailed.

That market is in unit volume decline.

And the competitors who are in that space, think of the local indigenous suppliers in that part of the world as well as the silicon guys you talked about, we bought one, the margins in those businesses are just not consistent with the margins that we want to generate in our business model.

They are very dilutive.

So we just don't think investing any money in that business is good for our investors.

Ladies and gentlemen, that concludes today's question-and-answer session.

I'll now turn the call back over to Mr. Aldrich for any closing comments.

Thank you for joining, everyone, and we look forward to seeing you in upcoming conferences.

Thank you.

Ladies and gentlemen, that does conclude today's conference call.

We thank you for your participation.