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Operator
Good afternoon, and welcome to Skyworks Solutions' fourth-quarter fiscal year 2013 earnings conference 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.
Mr. Ferranti, please go ahead.
Steve Ferranti - Senior Director of IR
Thanks, Greg.
Good afternoon, everyone, and welcome to Skyworks' fourth 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'd also like to remind everyone that the resulting guidance we'll 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 or the Investor Relations section of our Company website for a complete reconciliation of GAAP.
With that, I'll turn over the call to Dave for his comments on the quarter.
Dave Aldrich - President and CEO
Thanks, Steve, and welcome, everyone.
I'm pleased to report that we delivered a strong close to the 2013 fiscal year, with fourth quarter results beating our prior expectations on the top and bottom line.
Our outperformance was driven by our expanding diversified analog footprint and growth in custom solutions for connectivity platforms, coupled with a laser focus on execution.
During the fourth quarter, we posted revenue of $477 million, that's up 9% sequentially and more than 13% versus last year.
We produced operating income of $130 million.
That's up 26% versus last year.
We earned $0.64 in diluted earnings per share, up more than 20% versus last year, and $0.02 ahead of our guidance.
We also generated $166 million in cash flow from operations.
Our strong fourth-quarter performance closed out a record 2013 for Skyworks.
To recap, for the full year, we posted over 14% top line growth, achieving revenue of nearly $1.8 billion.
We grew our operating income by 19%, exiting the fiscal year with operating margins of 27%, and we generated over $0.5 billion in cash flow from operations.
We also repurchased over 8 million shares of our common stock at an average price of $22.75 per share.
The growth, profitability and cash flow metrics that we achieved in 2013 put us among the best-of-breed within our broader peer group, and highlight our differentiated business model.
Looking ahead, we see this momentum continuing.
Our strategy of aggressively investing in diversified analog markets, while capturing more value through custom system solutions, will enable us to continue to drive above-market top line growth, profit margin expansion, strong earnings leverage, and robust cash flow.
For a more detailed commentary on the quarter, I'll now turn it over to Don for his financial review and outlook.
Don Palette - VP and CFO
Thanks, Dave, and thanks again for joining us, everyone.
We appreciate that.
I'm going to provide a more in-depth review of our fourth-quarter results and then outline our business outlook for the first quarter of fiscal 2014.
Revenue for the fourth quarter was $477 million, and that's up over 9% sequentially, and more than 13% year-over-year.
Gross profit was $211.8 million or 44.4% of revenue, ahead of the midpoint of our guidance range and up 150 basis points from a year ago.
Operating expenses were $81.5 million, consisting of R&D expense of $49.2 million and SG&A expense of $32.3 million.
Operating income was $130.3 million for the quarter.
That translates into 27.3% operating margin.
Our cash tax rate was 7.3%, slightly better than our prior forecast, based on favorable year-end tax adjustments.
Net income was $121.2 million or $0.64 of diluted earnings per share, and that's $0.02 better than our guidance.
Turning to the fourth-quarter balance sheet and cash flow statement, we generated $166 million in cash flow from operations.
We invested $38 million in capital expenditures, with depreciation of $19 million; exited the fiscal year with $511 million in cash and no debt; and we repurchased over 800,000 shares of our common stock.
For the full fiscal year, we produced $508 million in cash flow from operations, with free cash flow of $384 million.
That represents over an 8% free cash flow yield, based on our most recent stock price.
Finally, our return on invested capital was 20.5% for fiscal 2013, well ahead of our weighted-average cost of capital.
Turning to our first-quarter 2014 business outlook, we expect Q1 revenue to be $500 million, our first quarter as a company at a $2 billion annualized revenue run rate.
We expect gross margins to continue trending higher, and recommend modeling at 48% drop-through of incremental revenue to the gross profit line.
That translates into first-quarter gross margin of around 44.5%.
We expect operating expenses to be approximately $82.5 million, resulting in operating margins of 28%.
And that's a 270 basis point improvement from Q1 of 2013.
Over the course of fiscal 2014, we expect continued margin enhancements, driven by growth of our diversified analog business, and by capturing new customized content across the world's leading connectivity platforms.
Below the line, we anticipate $100,000 in expense from Interest Income and Other Expenses, and a cash tax rate around 10%.
We expect our cash tax rate to remain at these levels for the remainder of 2014 fiscal year.
As a result, we expect Q1 EPS of $0.66 using a base of 191 million shares.
Many of the drivers for a strong 2014 are in place today, giving us a high level of confidence in our growth trajectory over the course of the year, and putting us on a clear path to achieving our midterm business model of 30% operating margins at a quarterly revenue level of $550 million.
And just as a reminder, this would produce around $3.00 in annualized earnings per share.
And with that, I'll turn the call back over to Dave for his comments on our market trends and growth strategy.
Dave Aldrich - President and CEO
Thank you, Don.
We're quite pleased by our recent financial performance.
And more importantly, we are excited about 2014 and beyond.
Our consistently strong business results reflect a healthy underlying trend in our served markets, and our success in capitalizing on these opportunities.
These include the widespread adoption of connectivity in all its forms across a diverse set of end markets; the dramatic increase in analog complexity, driven by the proliferation of communication protocols and enhanced functionality; and OEMs need to align with partners capable of providing a total system solution that maximizes performance.
So, for the remainder of the call, I'll discuss how our business strategy is designed to capitalize on these trends, generating above-market growth with best-in-class financial returns.
At a high level, there are two underlying components to our strategic plan.
First, we're aggressively investing in growth opportunities across diversified end markets.
And second, we are capturing more value through highly-customized system solutions.
The end result is that Skyworks facilitate the adoption of all forms of connectivity -- within devices, across the supporting infrastructure, and throughout the broad markets.
Now starting with the broader market opportunity, it is clear that connectivity has evolved into a critical enabling technology within the traditional analog landscape, and in fact, represents the biggest growth vector in these markets today.
Just as an example, General Electric recently announced that it will incorporate machine-to-machine communications across its entire industrial portfolio, including jet engines, including locomotives, turbines, and medical devices, representing millions of GE products in total.
This is just one example of how traditional analog end markets -- like industrial, medical, automotive -- are embracing connectivity, in many cases for the first time, and intersecting directly with Skyworks core competencies.
These are highly attractive markets for us, characterized by longer product life cycles, far fewer competitors, and higher margins.
Skyworks participates in these markets by leveraging core analog and mixed signal design capabilities, and a very broad product catalog.
Our portfolio spans all connectivity standards, and includes power management ICs, panel lighting and display modules, and switching solutions, along with more traditional analog products.
This opportunity creates -- the opportunity that this creates is tremendous.
And, for example, Cisco forecasted there will be 50 billion connected devices by 2020.
In fact, we recorded a number of new design wins during the quarter that illustrate our growing diversification in areas like medical.
This is a newer market for Skyworks, relatively small in size for us today, but representing a significant growth driver in the coming years.
We've built a presence in this market through investment in product line expansion, in field applications engineering teams, and systems development.
And, for example, in the fourth quarter, we won a custom optical emitter detector module with Varian Medical for oncology radiation applications.
We've also been designed into magnetic resonance imaging, or MRI, applications, where we provide switch matrices reactors and limited diodes -- limiter diodes, utilizing literally dozens of Skyworks devices.
In total, we provide a portfolio of analog solutions for a wide range of medical applications, like hearing aids and glucose monitors, heart defibrillators and patient telemetry applications.
And we're already aligned with the major medical equipment makers like GE Medical, Boston Scientific, and Medtronic, among others.
Our Q4 design wins also include a diverse set of applications like DC to DC converters, LED backlight drivers for automotive displays at LG; like power management ICs and ZigBee front-ends for WNC's portfolio of remote lighting, in-home monitoring and security platforms; low-noise amplifiers for the broadcast microphone portfolio at Shure; HiRel analog solutions with Cobham, EADS and Teledyne; and low-power smart energy solutions supporting communications hubs, meters and in-home displays with Silicon Labs.
In summary, we're quite excited about the breadth of new market opportunities that deploy Skyworks technology.
Turning to the second component of our growth strategy, we are capturing more value through highly customized system solutions.
Growth of connected devices is projected to continue at a healthy pace for the next several years.
But more importantly, Skyworks addressable content is being driven higher by the adoption of precision, location-based services, and upgraded local-area connectivity, both of which require highly-customized isolation and shielding to avoid coexistence issues with adjacent communication protocols; high-performance power management ASICs and LCD backlighting to support higher resolution displays and more complex camera flash approaches; system-level architectural trends like tuning, carrier aggregation and diversity, to maximize data bandwidth within today's spectrum constraints; and band proliferation with significant expansion in global 4G LTE capabilities.
The net result is an expanding addressable market opportunity for Skyworks.
And, in fact, it's not uncommon for us today to target addressable content of more than $12 within leading platforms.
This is more than twice that of just a few years ago, and we see numerous opportunities to continue adding new content in the coming years.
So, in closing, our fourth fiscal quarter marked another strong performance for Skyworks.
And we're optimistic about our prospects for 2014.
Our strategy of growing our diversified analog footprint, while capturing more value through custom system solutions, will enable us to continue producing best-in-class results.
This concludes our prepared remarks, so operator, let's open the lines for questions.
Operator
(Operator Instructions).
And due to time constraints, please limit yourself to one question and one follow-up.
(Operator Instructions).
Harsh Kumar, Stephens.
Harsh Kumar - Analyst
Hey, guys, for the fourth time this fiscal year, let me just say great execution, congratulations.
(multiple speakers) A couple of questions.
First of all, in your Business Highlights section of the press release, there was not a single cell phone design win.
So when you talk of diversity, Dave, are you talking about diversity of revenues into analog?
Or, more specifically, diversity of revenues into analog away from cell phones?
Dave Aldrich - President and CEO
No, Harsh.
Thank you.
It's not away from cell phones.
It's more the fact that the smartphone market tablets and the like, they're very large components and drivers of a broader connectivity landscape.
So when we talk about connectivity, we talk about location-based services, for example; Wi-Fi connectivity, power management, and expanding our footprint.
We're talking about mobile as well as the connected home, as well as medical applications, the automobile, machine-to-machine.
So, we're really talking about connectivity in a more broad sense.
Harsh Kumar - Analyst
Okay.
And then as a follow-up, could you, Dave, maybe talk about your assumptions for the China market in the near-term, and even the Korean market and the large customer there?
There's been a lot of talk that there's variations going on in the order activity.
Any color that you could give us would be helpful.
Liam Griffin - EVP and Corporate General Manager
Sure, Harsh.
This is Liam.
With respect to China, we have a very strong position there, as we've had in the past, with all the major players -- Mediatech, Spreadtrum.
We're seeing great opportunity going into 2014 and beyond, as they move through an upgrade cycle that really is in the early innings.
As you know, probably 80% of the subscribers today in China are carrying a 2G phone.
Mediatech, for example, moving from dual to quad-core chipsets, supporting customers like Lenovo and Coolpad and others; great partnership for us.
And I think one of the opportunities you should see is not only an expansion in our core power amplifier and multiband, but also we'll start to weave in Wi-Fi and power management, GPS and other capabilities around analog.
So, that should be a grower for us.
And with respect to Korea, we have seen, in some cases, some inventory correction there, but it's all been factored into our guidance.
Nothing that surprises us and nothing that will impact our numbers.
Harsh Kumar - Analyst
Hey, guys, congratulations.
Operator
Mike Walkley, Canaccord.
Mike Walkley - Analyst
Don, just a quick housekeeping question.
Can you just give us the split between the handset and HPA business?
And then I have a follow-up question.
Don Palette - VP and CFO
Sure, Mike.
It's consistent with where we've been for all of 2013.
It's 40% HPA and approximately 60% handsets.
Mike Walkley - Analyst
Great.
And as we just look longer-term, we're a big believer also in the Internet of everything, a machine-to-machine market, but with the opportunities you highlighted and the growing bands of LTE, et cetera, over the next year or two, it seems like the TAM for just the handset side of your business grows at double digits.
So you anticipate the mix staying similar for your two businesses over time?
Don Palette - VP and CFO
This is Dave, Mike.
No, I don't.
I think that the non-handset component of our business will grow and become a larger component than the 40% that it is today.
Because even -- we talked about medical in the prepared comments.
It's a relatively nascent market, in terms of connectivity, but the opportunities are exploding, machine-to-machine.
So I think the year-over-year growth rates in connectivity into some of these new or burgeoning markets is going to allow us to grow faster.
And you're right, within mobile, what we're really seeing is not so much the growth coming from traditional products, but being able to provide more custom system solutions that incorporate power management location-based services, Wi-Fi connectivity, and lighting and display.
So, we've done, we think, a good job of adding more content, growing that way within mobile.
It's highly defensible.
It's higher margin.
And then continuing to round out our market portfolio.
Mike Walkley - Analyst
Great.
Thanks for taking my questions and congratulations on the strong execution.
Don Palette - VP and CFO
Thank you, Mike.
Operator
Vivek Arya, Bank of America Merrill Lynch.
Vivek Arya - Analyst
Thank you for letting me ask a question.
Dave, how's the visibility into the flagship motors for 2014?
So if you, for example, look at the top three, four or five models that you're in today, would you expect your content to be flat up or down next year?
And any color would be helpful.
Don Palette - VP and CFO
Well, I think, Vivek, I'd -- if I could answer that question more broadly, there is a trend that is not slowing down, and that is that devices in general, high-end smartphones, as well as the upgrade cycle from 2G feature phones to smartphones in places like China, is sweeping in much more content and complexity.
The screens are becoming, in many cases, bigger, but in all cases, a higher resolution.
The cameras are moving to dual flash, AML LED technologies.
You're starting to see more complex power management and voltage regulation systems required to support low current consumption, connectivity with GPS and Wi-Fi being virtually across the board.
So, I think in general, you should look at the content gains for a broad analog provider like Skyworks continuing for many years to come.
I don't see that slowing down.
And then I think as you start to see connectivity in its nascent state moving into these other markets, you'll start to see a shift towards a more balanced portfolio of end markets to Skyworks, in addition to a much broader set of functions customized into a system solution.
It's sticky, it's defensible, and we make much higher margin in those class of product.
Vivek Arya - Analyst
I see.
And as a follow-up, Dave, I'm always very surprised to look at the growth rate you guys have delivered versus the discount that your stocks held at, versus, say, a TriQuint or a Novagen, presumably one of the factors is that those guys have access to BAW FBAR filters and you perhaps do not.
I'm wondering, are you being -- I don't know if handicapped is the right word, but are you being held back in any way in going after certain sockets?
Or do you think you might undergrow their growth rates because you don't have access to BAW or FBAR filter capability?
Dave Aldrich - President and CEO
Well, that's the first time I've heard the question asked quite that way.
Absolutely not.
Filters has not been an impediment.
If you look at, closely, at teardown reports of those platforms that use filters integrated with other devices, I think we're the largest.
We produce many, many filters.
And we participate broadly.
And I think our model is quite unique.
We don't sell discrete filters, and I think that's a big advantage for us.
We like the margin structure of more highly customized solutions and integrated solutions.
And what we're able to do in SkyOne and PAD's and our GPS modules, is we're able to couple the very best process with the frequency or with the application.
For example, below 2 gigahertz, if you look at our reports or looking our product portfolio, below 2 gigabytes, we use surface acoustic devices.
And when the spacing is narrow, the frequency spectrum spacing is narrow, we use temp comp saw devices from a different supplier.
Above 2 gigahertz in some cases, when there's narrow spacing, we'll use a bulk device.
We have strategic partners that are giving us very good pricing with quite differentiated solutions in each one of those technology nodes.
So, no, it's not in the least bit hampering our growth.
And the margin structures for those products are quite good.
Vivek Arya - Analyst
One last one, if I can squeeze it.
If you look at the non-handset market, I would assume that it would be able to grow faster for you guys in the handset market, because those are new underpenetrated markets.
So if you could address that.
And is it fair to assume that those are more profitable markets for you?
Thank you.
Dave Aldrich - President and CEO
As I mentioned earlier, we expect the ratio of 60/40 to swing, over time, more growth in these markets for the very reason you highlighted.
They are nascent adopters of connectivity, but the growth rate, sequentially, we expect to be very strong.
And because of our very broad system portfolio, we are able to address it -- in those cases, many of these customers are not proficient at all in connectivity in wireless, and we're able to land a complete solution that makes it very easy for them to get to market.
So we expect to grow very fast there.
Don Palette - VP and CFO
And almost all of those are accretive as far as a return standpoint.
Vivek Arya - Analyst
Great.
Thank you, guys.
I appreciate it.
Operator
Quinn Bolton, Needham and Company.
Quinn Bolton - Analyst
Congratulations on the strong results.
I apologize, I miss the opening prepared comments, but my first question, Dave, is, you guys broadcasting from the site of the Analyst Day?
Dave Aldrich - President and CEO
I'm sorry?
Quinn Bolton - Analyst
Are you guys broadcasting tonight's (multiple speakers) call from the site (laughter) --?
Dave Aldrich - President and CEO
No, unfortunately, we're not.
We're in here in a dark conference room in Woburn, Massachusetts.
I wish we were, though.
(laughter)
Quinn Bolton - Analyst
Yes.
Sorry, I just had to ask.
On a serious note, guys, just a quick question.
You talked in some of the prepared comments about the mix shift and some of the opportunities in analog.
And I'm just wondering within HPA, can you give us a sense what percent of HPA is in sort of the non-mobile device segment?
Is that maybe half of HPA?
And does it -- it sounds like the non-mobile side of HPA probably is a faster growing part of the business over a long period of time.
If that's the case, do you think ultimately, you can drive to a better than 47% incremental margin, as you see that mix shift kick in?
Thanks.
Dave Aldrich - President and CEO
Yes, I think it is definitely much more in the non-mobile than it is in the mobile.
And I think what you're referring to, Quinn, must be that we have Wi-Fi solutions that we sell broadly in everywhere.
And some of those solutions do, in fact, go into smartphones and tablets.
But I think, broadly speaking, again, we expect the nonmobile piece of our business to grow more quickly over time than the mobile piece.
They are accretive to margin and it will, over the long haul, continue to see our -- help us improve our returns.
And, in fact, as Don talked about in his prepared remarks, this quarter, we guided to about [28 points above high], midterm we see 30 points at $550 million revenue in revenue a quarter.
We're at $500 million now.
And that's a function of diversification within custom analog solutions in mobile, outside of mobile, and our entry into new markets.
Quinn Bolton - Analyst
Great.
And then just a quick follow-up on that, on the PA side, Qualcomm's out with RF360.
It looks like Peregrine Semiconductor just announced the new SOI-based process that they could integrate PAs and switches.
Are you guys looking at silicon germanium as a platform for integration?
Or are you seeing pretty good demand for modules like SkyOne and don't necessarily see silicon germanium as the right integration platform?
Dave Aldrich - President and CEO
Well, you know, it's interesting.
The answer is yes to both.
We see SkyOne -- in fact, we have our first two customers are ramping production now.
So, you'll be able to buy two different high-end phone or high-volume phone models this year.
We're excited about that.
We have other customers coming online.
So it's a great sort of highly integrated and also high-performance solution.
It, by the way, contains SOI content, silicon content, as well as other process technologies -- again, focusing on the right process for the function, and integrating it in a very inexpensive way using our proprietary manufacturing techniques.
We probably ship -- in our connectivity markets alone, we ship over 100 million SOI or silicon germanium devices a quarter.
So I think we're probably the biggest producer -- procurer of SOI wafers and we shift more than anybody I think in the market today.
I believe that's right.
So we're quite agnostic.
We will ship SOI silicon germanium.
We will ship HBT and we will ship pure bulk CMOS.
Again, focusing on what's the best process for the function that we can have a fair and high return, and we can provide the appropriate level of integration for the customer.
Operator
Vijay Rakesh, Sterne, Agee.
Vijay Rakesh - Analyst
Good numbers here.
I had a question on the gross margin line again.
How much room do you have there?
Obviously, it's come up very nicely and you are well above your peers.
How much room do you have there as you look at fiscal 2014?
And what are the levers there to improve that?
Don Palette - VP and CFO
Yes, Vijay, this is Don.
I mean, the best way to do that is the way we've been talking about modeling it.
I would continue to use the 48% incremental margin on all the increased revenue contribution, and that's the underlying assumptions, when Dave talked about 30% at [$550 million].
So, take the latest guidance and drop that incremental revenue through at 48%, and you'll see the margin expansion opportunity.
But then the real opportunity longer-term -- that's short-term; longer-term is, as we continue to provide more and more of these complex system solutions, and move toward more and more analog, we would expect that contribution to increase over time.
But for 2014, that's not the way to model it.
Dave Aldrich - President and CEO
And Vijay, I'd add to Don's comment.
You've asked the question in an interesting way.
You said our gross margin is above our peers.
I don't look at it that way.
I think our gross margin today is below our peers.
Our operating income is in line with the best among the diversified analog companies.
But if you look at companies who are in power management voltage, system solutions around analog mixed signals, their gross margins are higher than ours.
And that's where we aspire.
I think when you talk about our peers, we don't compare ourselves to traditional PA-like companies.
We compare ourselves to highly-diversified, well-run analog companies.
Vijay Rakesh - Analyst
Got it.
Good to have good high aspirations there.
(laughter) Going on to the Qualcomm RF360, have you seen that in the market?
I mean, do you -- is there -- do you see that taking away from the RF market next year?
We have a ton of integrated solutions there.
Dave Aldrich - President and CEO
The short answer to that today is no.
And the reason for that is, the vast majority of our OEM customers continue to look for custom solutions with very high-performance requirements, and they raise that bar with every new model.
I suppose there could be and will be a narrow market with less stringent performance requirements, that would utilize a preconfigured system and Package.
But even in this segment, we tend to win with configurations like SkyOne, different approaches to MMB technology, PAD's, and so on, that are more configurable with a very low cost structure.
So in short, we see no impact to our business model and don't see it for the foreseeable future.
Operator
Steve Smigie, Raymond James.
Steve Smigie - Analyst
I was just following up.
You guys had a very nice performance here in guidance.
And I was just wondering if, given that, if you could talk a little bit about your cycle times, and how you go to market with your customers?
Given your record of performance here, do you think you're able to, say, hold less inventory and able to deliver it more quickly?
So a part of the question is, how quickly or how soon ahead of when your customers part ramped, are you able to ship?
And do you think that's better than maybe what your peers are doing that leads you to give some better performance and better guidance?
Dave Aldrich - President and CEO
Well, inventory turns right now are pushing 5. We think that's good.
We can do better over the long haul.
We have aspirations of continuing to reduce our cycle times to move to increase those turns.
That's an aspiration we have across the balance sheet.
Our cycle times range from a few weeks in processes of which we're vertically integrated to a couple of months, where we have to go out and buy things like CMOS controllers and SLI devices.
So I think we have -- and we're able to because we do our own assembly and test, and we think we're pretty fast on our feet.
I do think we have a cycle time advantage vis-a-vis our competition, and we don't see any issue intersecting with our customer ramps, so supporting those ramps based on cycle time.
Steve Smigie - Analyst
Okay, great.
And then just a follow-up on the gross margin and your point about seeing the analog guys more as your peers for gross margin.
Is it fair to say that as technology evolves here that it's a more full-featured SkyOne solution, et cetera, that would allow you to get to that gross margin that you're talking about?
Or could you still do it even if you had, like say, a one-off PA for, say, an LTE phone is, given your improvements or whatever, could you potentially get to maybe a 50% gross margin or something just on PA?
Dave Aldrich - President and CEO
Steve, I think I'd look at it this way.
The standalone PA is becoming increasingly a smaller percentage of our business.
It's not what's driving the long-term return and growth of the market.
When we look at mobile, we look at mobility in terms of a smartphone, we really think that the customer base is becoming less interested in differentiating at the chipset level, and looking for companies that are broad, that are smart, that can ramp quickly, and support future cost structures that enable high usage.
And there aren't many companies that can do that.
So we increasingly don't sell components.
We don't want to promote the component business because it's too easy to create competition among the OEMs.
So, what we do is we focus on customization.
We have, for example, in location GPS modules that we're selling by the hundreds of millions right now.
Those GPS modules are fully shielded and filtered, it's patented.
It's proprietary processes using our own manufacturing, and no one else can do it.
We get paid a premium for it.
Wi-Fi upgrade to AC using SLI and SIGI and other technologies, and our own packaging, gives us a differential performance advantage.
When we do SkyOne, it's kind of the ultimate, because we give them everything from the output of the transceiver to the antenna and everything in between.
And it's completely custom, it's all ours, and we don't compete with anybody for components.
So, it's not a PA business.
It's a system solution business that is mixed-signal analog.
It is mobile to the sense that there are a lot of smartphones sold, but it's increasingly markets that are growing into connectivity in this overall fabric called broad market connectivity, where we think we're broader, we think we have the scale.
We know we have the customer relationships.
And that's where our growth in margin and revenue is going to come from over the next many years.
Operator
Blayne Curtis, Barclays.
Blayne Curtis - Analyst
Thanks for taking my question.
Maybe if you could just talk about -- I mean, obviously, I probably should start with the nice guidance, and I would say some of your peers have talked about corrections at some of the smartphone vendors.
If you could just talk about broadly the space, and you obviously are offsetting that.
But are you seeing any end-of-the-year corrections as many else have?
Liam Griffin - EVP and Corporate General Manager
Yes, Blayne, this is Liam.
Yes, we noted earlier on a question that it was a little bit of a correction in Korea.
We had visibility to that.
It's completely factored into our guidance -- and with that account, I should add, that we're doing quite well on new product upgrades in the next cycle of smartphones there.
So it really isn't anything to be concerned with.
We understand it.
We recognize it, but it's been fully monetized into our numbers.
Blayne Curtis - Analyst
Got you.
And then, you probably don't want to guide and talk too much about Q1.
I mean, some of your peers have talked about a more normal pattern in Q1, down double digits.
If you could maybe talk about whether there's any factors that would be offsetting of any sort of normal trends, and what you would consider a normal trend into Q1.
Dave Aldrich - President and CEO
Yes, I think, in fact, Blayne, if you go back and look the last few years, it's obviously a little too early to give specifics about March.
It's normally a seasonally down quarter.
It will be that way probably this year.
But this trend that we're seeing with these new products from Skyworks, they're solving some unique difficult problems our OEMs are facing.
We're seeing them get designed in now and they are going into production this quarter, next quarter and quarters beyond.
So we're seeing an uptake in SkyOne.
We're seeing an uptake in a number of different power-based devices and lighting devices, both within mobile and outside of mobile.
So I think, like prior years, we expect to do better and to do substantially better than what would be a normally seasonally down quarter.
Blayne Curtis - Analyst
Okay.
And then if I can just get one more, I apologize.
There's a couple of calls tonight if you already answered this.
But the prior answer to SkyOne was, you had parts but there hasn't been a lot of uptick.
But has something changed and you're seeing a more meaningful uptick there?
Dave Aldrich - President and CEO
Yes, we have two customers that have gone through type approval.
They're ramping now and there will be phones available in late November and December.
And we have more to follow.
Operator
Edward Snyder, Charter Equity.
Edward Snyder - Analyst
Dave, a couple of questions.
First, what do you think your blend is, gas versus everything else?
And by that I mean, in all its implementations, both in your analog business and then also in cellular.
And then, kind of a similar approach -- other technologies, like SOI, particularly in cellular.
It's clear that a lot of the bigger handset guys are moving -- I won't say more and more away from gas, because it's still a core technology, but certainly other technologies are playing a bigger role in leading with these other OEMs.
And I'm just kind of curious of how that mix is working for you guys right now?
Dave Aldrich - President and CEO
Yes, I think, Ed, your basic question is correct.
We're seeing this hybrid model, this fab light model works really well for us now, because we have been scaling up SLI, scaling up CMOS, scaling up other process nodes and technology.
And we've been working on those for years.
While at the same time, gas is an important enabler for certain high-performance applications for the output transmit -- the output stage of the PA, for example, in most applications, but we're seeing a much bigger and faster growth in CMOS and silicon.
To this point, I think we're much less than half on a device-by-device level, much less than half gallium arsenide than we are silicon, as broadly defined.
Edward Snyder - Analyst
Great.
And then last year, you kind of punished because expectations got out of hand for this time or the big new product launch, sure seems to be going much better.
And it's no secret, I mean, you haven't had the problem that your peers had, with a really lopsided kind of allocation of revenue between the two quarters in September and December.
Is that one just that you have a higher module content than most of your competitors, so that you're spread over evenly, I think, which hurt maybe last year?
Or how much leverage -- not leverage -- how much control do you have in terms of how you stack up your shipments or just manage it tighter than them?
I'm trying to figure out how you came off so much better than your peers in a quarter that was heavily skewed for just about everybody.
Dave Aldrich - President and CEO
We have no control over how we skew shipments.
We ship to our customers' demand.
And, in fact, we run 99% on delivery to customer requests, so we have no visibility.
We have hub holes, and much of our revenue comes from hub holes, and there's no flexibility there whatsoever.
So I think it's more about the diversified nature of our business, even though you see some OEMs in a quarter that don't do as well as others.
We tend to be shipping to all of them.
We do manage our turns very closely, so that we have short-cycle times.
We're able to ramp up and down quickly.
Don Palette - VP and CFO
Yes.
And one other comment I think that we've noted throughout the discussion today is that, again, it's not just the power amplifier and the traditional multimode multiband devices; it's an uptake in what we call our mobile analog, but we're delivering all those technologies that Dave mentioned.
Wi-Fi -- you know, very, very intense switch applications now at ASM, kind of seeing a substantial increase in those devices that wrap around that core in power amplifier.
Dave Aldrich - President and CEO
And that's all OEMs.
I mean, that's the power of the increase too.
Don Palette - VP and CFO
Exactly.
Operator
Mike Burton, Brean Capital.
Mike Burton - Analyst
Congratulations on the strong results and guidance once again.
Don, first on the OpEx, great job there sticking to your word and keeping that flat.
Can you help us heading into next year what are some of factors that may move that number around?
For example, the merit increases or just when the top line will demand a greater R&D investment.
Don Palette - VP and CFO
Yes -- and thanks for the question, Mike.
Yes, we've been pretty consistent about when you're modeling that you might see -- expect maybe $1 million a quarter.
And that's kind of what you're seeing with the guidance in this last quarter, a little bit above that.
Midyear for us is starting in the June quarter.
We do have a merit increase and a significant amount of OpEx is labor.
So that will affect that.
And we're making some targeted investments, both in R&D and our marketing and sales field apps support.
And these investments are, in our minds, going to pay -- contribute a lot of shareholder value down and returns.
And it's going to allow us to position our product portfolio to gain share.
So we view these as very critical.
So, by the end of the year, the next calendar year, you could expect an OpEx level of maybe about $85 million.
And that's pretty consistent with what we've been saying.
Mike Burton - Analyst
Great, thanks.
And then so we're still unaware of any adoption of the complete RF360 solution yet, but Qualcomm is now shipping its envelope tracker.
So some of your competitors are saying that they have an advantage getting some of these early sockets with some of their own systems expertise that they're bringing in.
Can you point us to any design wins that are coming right now, where your PAs are being used with Qualcomm's or a competitor's tracker?
Thanks.
Dave Aldrich - President and CEO
Sure.
Yes, I mean, there is really a broad list of opportunities that we've won and they be going into production that utilize envelope tracking.
In many cases, what we're seeing is the tracker is not -- the power amplifier comes in separately.
The tracker is integrated with the baseband and the SOC, so that's not an issue.
We're seeing that in some of the smartphones that are in production now this quarter.
And if you go out into 2014, more and more wins for us.
And I should also say that, in the interim, you're also seeing APT, Average Power Tracking, as an enabler for efficiency.
We have very high share with that.
And that's with Qualcomm and with others.
Operator
Tom Diffely, D.A. Davidson.
Tom Diffely - Analyst
Just another margin question for you here.
Your 48% incremental gross margin is very clear.
It sounds like that goes up over time as the non-handset business starts to ramp.
I'm curious, though, on the operating expense side, when you go to more diversified customers, is there going to be a long-term effect on the operating expense with sales or marketing that we need to think about?
Don Palette - VP and CFO
No.
Not any long-term step function changes.
I think that's kind of the way you're thinking about it.
We still think it's very manageable.
And the key to us is, all along, we've talked about this -- we are going to make some targeted investment, but there's a tremendous amount of leverage and we don't see that going away in a model.
So as we add revenue, it's not linear, so that's going to be a key component for us to drive the 30% and beyond, as far as our income returns, so.
Tom Diffely - Analyst
Okay.
Sounds good.
And then just quickly on the tax rate, you talked about just a modest cash tax rate for this year 2014.
Longer-term, is there a kind of peak cash tax rate we need to start thinking about?
Dave Aldrich - President and CEO
Well, we -- it's really difficult to do that.
Even for a year, it's tough to do it, but beyond that, we've just been saying -- we've done some long-term estimates, but for beyond 2014, we think in 2015, a good number to use is 12% to 14%.
But again, that's a pretty high level estimate, but we haven't really guided beyond that.
You know, the GAAP and the cash rate will converge a little bit over time, but they'll always be a significant benefit.
And we're seeing that when you look at the rate we posted this year, a little over 7%.
And the business initiatives and restructuring that we've done clearly is adding shareholder value to the Company, so.
Operator
Mike Walkley, Canaccord.
Mike Walkley - Analyst
With the strong cash that we've been generating, can you just share your thoughts on additional buybacks or potential dividend, given your predictable business now with strong cash returns?
Don Palette - VP and CFO
Yes, thanks, Mike.
It's something we look at regularly.
We're always analyzing the capital structure, because we do have some alternatives to consider.
And when you look at the business model and the growth opportunity from the top line, and translating that into the 30-plus-percent, we just think buying back stock continues to be a really strong way to deliver shareholder value.
But you want to balance that with having cash available to maintain financial flexibility for strategic growth initiatives.
So we try to balance those two out.
We did repurchase 8 million of shares -- 8 million shares in 2013, which was $173 million.
And, at some point, dividend is certainly something we would consider as well, so.
Mike Walkley - Analyst
All right, thanks.
And Don, just while I have you, can you tell us what you said for the tax rate next year?
I missed that.
Don Palette - VP and CFO
In 2014?
(multiple speakers) 10%.
10%.
Mike Walkley - Analyst
Great.
Thank you.
Operator
Edward Snyder, Charter Equity.
Edward Snyder - Analyst
Sorry for all the questions, guys, but overall, your Wi-Fi's -- is all your Wi-Fi components, including your HPA, none of it is in your cellular at this point, is that correct?
Don Palette - VP and CFO
Yes, Ed, in this 40/60 split -- the 40% HPA and 60% -- in that split, all of the Wi-Fi mobile connectivity business is in that 40%.
That's correct.
Edward Snyder - Analyst
Okay.
And increasingly with carrier aggregation released and LTE coming up here, I know there's a lot of designs in the works that focus more on the switching aspects, so especially the front-end of it in the carrier aggregation, I know that gets larger.
How do you see yourself positioned there?
I know our Michael took [two] of the [10] switch modules at Apple, which is obviously a key piece for the 2015 or 2014 phone.
But Skyworks is also very big in SOI and growing.
Do you feel that you're in a competitive position for a lot of the designs next year and the year after, that kind of focus on CA and the SOI product?
Don Palette - VP and CFO
You're right, Ed.
Really, the big driver carrier aggregation in terms of overall content is some very precise switching algorithms that need to take place.
And so, and as I said, I think we are a leader, if not the leader, in SOI, and we have a suite of antenna tuners.
We've been shipping them for a long time, both before SOI was used, there were different ways to affect that tuning in an efficient way.
And we're all over that with a good portfolio.
We expect to see multiple designs in production in 2014.
It's just another, albeit highly complex, analog switching algorithm.
Dave Aldrich - President and CEO
Yes, I think, Ed, as you know, it represents a substantial increase in complexity and content for providers like Skyworks.
We see as many as 30 switch arms in some of the newer smartphones.
And absolutely, we're going to be all over it.
We've won a couple of major sockets in APAC with carrier aggregation, and we'll be winning more domestically and abroad going into 2014.
Edward Snyder - Analyst
And then -- so Liam, that begs another question there.
In carrier -- there's a lot of talk about it, and I think a lot of investors don't really understand what CA involves right now.
But in the big picture, the content increase in CA is mostly focused in what area?
Switching, filtering, PAs, where would you --?
Liam Griffin - EVP and Corporate General Manager
It's in switching.
I mean, we're not even talking about the PA.
I mean, certainly, when you're in a carrier aggregation environment, you have larger protocols in connectivity, LTE, et cetera.
But the switch arms go up substantially.
And we've been in this business a long time.
We have SOI capability.
We have P amp -- we've probably not used as much in CA.
We have filtering capability, and it's certainly a market that we expect to be a leader.
Operator
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.
Dave Aldrich - President and CEO
Okay.
Well, thank you, everyone, for participating today.
And we look forward to seeing you at upcoming conferences.
Operator
Ladies and gentlemen, that does conclude your conference for today.
Thank you for your participation and for using AT&T Executive Teleconference.
You may now disconnect.