思佳訊 (SWKS) 2014 Q1 法說會逐字稿

Good afternoon, and welcome to Skyworks Solutions first quarter fiscal year 2014 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.

Mr. Ferranti, please go ahead.

Thank you, operator.

Good afternoon, everyone, and welcome to Skyworks first fiscal quarter 2014 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'll 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 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 complete reconciliation to GAAP.

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

Thanks, Steve, and welcome, everyone.

I'm pleased to report that we're off to a great start to fiscal 2014, as reflected by our strong first quarter performance and above seasonal guidance for the second quarter.

Fueling our success is the proliferation of connectivity in all of its forms across a broad array of end markets and applications.

This powerful underlying global trend, combined with our growing analog portfolio, expanding broad market opportunities, and consistent execution, all translate into superior ongoing financial results for the Company.

Skyworks has become an enabler of all things connected, providing custom solutions that help our customers navigate increasingly complex analog design challenges.

We leverage a comprehensive portfolio of technologies, and leading edge integration capabilities to create differentiated solutions.

And as the world becomes increasingly more connected, and analog complexity escalates, we're uniquely positioned to capitalize.

Our strategy is paying off.

During the quarter, we delivered revenue of $505 million.

That's ahead of our guidance, and up more than 11% year-over-year.

We produced operating income of $141.8 million.

That's up nearly 24% from a year ago.

We posted $0.67 in earnings per share.

That's up 22% versus a year ago.

And we generated $159 million in cash flow from operations, which is a record for the Company.

In short, Q1 was another excellent quarter for us across all key metrics, and looking ahead, we see our momentum continuing.

While March is normally a slower seasonal quarter for the industry, our increasing market diversification and new product ramps are enabling Skyworks to largely offset normal mobile seasonality.

More specifically during the second quarter, we're seeing strength from our expanding portfolio for the networked home, connectivity solutions in the emerging markets, key vertical market opportunities, and our ramp of integrated system solutions like SkyOne.

These drivers are helping to mute seasonal trends at some of our OEM customers.

This is a clear testament to our diversification.

To put our growth trajectory into perspective, EPS for the first half of 2014, as measured by our first quarter reported results and second quarter guidance, is 2.5 times the EPS we reported for the first half of 2010, representing a 25% compounded growth rate over that 4-year period.

With our expanding market footprint, the stage is set for continued revenue growth, margin expansion, and earnings leverage.

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

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

We appreciate it.

Revenue for the first quarter was $505.2 million, ahead of our prior guidance, and a up more than 11% versus the year-ago quarter, and nearly 6% sequentially.

Gross profit was $224.7 million, or 44.5% of revenue, in line with our prior guidance and up 150 basis points from the year-ago quarter.

Operating expenses were $82.9 million, consisting of R&D expense of $50.8 million, and SG&A expense of $32.1 million.

We generated $141.8 million of operating income, and that yields a 28.1% operating margin.

That's a 280 basis point increase versus the year-ago quarter.

Our cash tax rate for the quarter was 10%.

That produced net income of $127.7 million, or $0.67 of diluted earnings per share, $0.01 better than our guidance.

Turning to our first quarter balance sheet and cash flow statement, we generated $159 million in cash flow from operations.

We invested $16 million in capital expenditures, with depreciation of $21 million, and we repurchased 670,000 shares of our common stock, representing a $17 million investment.

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

Finally, we exited the quarter with $649 million in cash and no debt.

Now for our second quarter business outlook.

With the demand visibility and order backlog we have in place today, we expect second quarter revenue to be $470 million, significantly better than normal seasonality, and representing 11% year-over-year top line growth.

At this revenue level, we suggest modeling gross margin in the range of 44% to 44.5%, with operating expenses of approximately $83.5 million.

We continue to see opportunities for sustainable margin expansion as we leverage our capital investments and benefit from growing demand for our margin-enhancing, integrated custom solutions and precision analog products.

Below the line, we anticipate $200,000 in expenses from interest income and other expenses, and a cash tax rate around 10%.

We project our tax rate to remain at these levels for the remainder of our 2014 fiscal year.

We expect a share count to be around 191.5 million shares, resulting in second quarter EPS of $0.59.

All of the underlying drivers are in place for Skyworks to continue to outperform.

It is worth noting that our second quarter 2014 guidance represents our fourth consecutive quarter of over 20% year-over-year earnings growth, and that highlights the consistency of our execution and placing our financial returns among the best-of-breed in the semiconductor industry.

We are within striking distance of 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.

Thanks, Don.

For the remainder of the call, I'll provide some perspective on the growth trends in the market, and how we've positioned the Company to capitalize.

Skyworks is at the forefront of enabling the connected world by providing high-performance analog solutions for end markets ranging from communications infrastructure and network access points to mobile platforms and connected devices within the home, as well as within key verticals like automotive, industrial, like medical.

Looking at the high level drivers of our market opportunities entering 2014, we see three key trends fueling our growth, first, the adoption of higher data rate services across a broader global footprint; second, the rapid proliferation of connectivity into new vertical markets and expanding device categories; and third, connected devices incorporating more and more network standards.

I'll spend a few minutes going through each of these in the bit more detail starting first with increasing global demand for high data rate services like 802.11ac and like 4G LTE.

The uptake of these technologies, as well as the implementation of multi-antenna architectures and carrier aggregation, are still in their infancy, accounting for only a fraction of connected devices today.

OEM manufacturers and network operators are rapidly rolling out these technologies in their drive to provide users with a premium connected experience, meaning seamless connections, faster download speeds, improved signal range, and longer battery life.

Over the next couple of years, we expect the global footprint of devices utilizing these standards to grow substantially, and we see tremendous opportunities ahead within the emerging markets where broadband penetration rates are low.

Population density however is high, and there is a general lack of wired communications infrastructure.

As an example, Credit Suisse estimates that the number of LTE-enabled smartphones in Asia will grow by over 70% over the next two years.

These opportunities drive increased content along with more stringent performance requirements and higher complexity.

Second, connectivity is quickly making its way into new vertical markets and into new device categories.

A recent report by Morgan Stanley suggests that by 2020, the total number of connected devices could reach a staggering 75 billion.

The billions of connected devices that make up the Internet of Things will be powered by a combination of sensors, microcontrollers, and perhaps more importantly for Skyworks, connectivity and power management solutions, dramatically expanding our served addressable markets.

Validating this theme is Google's acquisition of Nest technology which only have an extremely strong relationship and high content.

We spent the last few years positioning the Company for this trend, investing significant resources in new growth verticals outside of mobile in markets like automotive, medical, and industrial.

These remain a strategic area of investment for us and have contributed to our recent out-performance.

On top of this, the 2014 CES, or Consumer Electronics Show, showcased an entirely new generation of connected devices like wearable technologies, home automation products, fitness gear, health and wellness products, and machine-to-machine devices.

While these new products are still in the early stages of evolution, we have already developed traction in this exciting new growth avenue.

Our third growth driver is connected devices incorporating more and more network standards.

This is happening across our service markets like the smart home, where we have an exciting and diverse pipeline of opportunities.

As one current example, we are engaged in a media gateway design for leading network operator which provides the functionality of a traditional set top box with enhanced capabilities to support home networking and streaming on-demand video.

This product incorporates Skyworks' ZigBee, Wi-Fi, and GPS solutions, along with a number of our power management products, and we have similar opportunities and applications within the home spanning gaming, entertainment, security, and automation.

In these examples, Skyworks is providing the complete analog connectivity solution, driving content expansion for us and the opportunity to differentiate through system customization.

These macro trends in our end markets today validate the strategic directions we've set for the Company.

We've spent the last decade putting in place sustainable differentiators to simplify complex design challenges across a diverse set of end markets.

We're experts in analog system design, leveraging a global force of systems and applications engineers within key vertical markets.

We offer an unmatched technology portfolio and strategic partnerships with outside foundries, providing deep expertise in SOI, CMOS, gallium arsenide, filters, silicon germanium, and on and on.

And we have leading capabilities in advance multichip module integration.

A prime example of our differentiation in the market is our SkyOne platform which leverages all of these competitive advantages to provide unprecedented levels of integration and performance.

We ramp SkyOne with our two first customers this quarter, Samsung and HTC, and we expect to add new customers throughout the year.

We also captured other new design wins during the quarter across a number of diverse applications, including 802.11ac solutions in set top boxes, Blu-Ray players, and LED 4K TVs, RF subsystems for Ericsson for 4G LTE base stations, power management devices within Philips' wearable technologies and health and wellness applications, connectivity IC supporting Nest's suite of smart home products, switch models in Belkin's wireless home lighting solutions, envelope tracking solutions within multiple 4G LTE platforms, and connectivity ICs in Fitbits, smart scale, and connected wristband fitness systems.

It's clear that we're riding a wave of powerful underlying market forces.

We expect these trends to fuel growth in our addressable markets for years to come, and as our product highlights demonstrated, we're capitalizing today.

In closing, we're quite optimistic about our prospects for the remainder of 2014 and beyond.

Our strategy of continuing to diversify and expand into new verticals, while maintaining a laser focus on operational execution is clearly working.

Okay, that concludes our prepared remarks.

Operator, let's open the line, please.

(Operators Instructions)

Rick Schafer, Oppenheimer and Company.

Thanks, guys.

Great quarter.

I just had a couple of questions.

The first is what is driving this near-term strength that you're seeing?

I know you talked about seeing an above seasonal March quarter here.

Is it any one particular customer, or end market?

Or is it more broad than that?

Thank you, Rick.

The way we see March shaping up is that I think it'll be fairly normal historical season patterns in mobile.

Obviously, we're seeing some OEMs impacted more than others.

I think the difference is our opportunity, our target, is much broader than others, and it is basically driven by end market diversification and content gains.

I think the specific areas of strength are we're seeing continued success and sequential growth in connected home products.

I think we talked about it a bit in our prepared comments.

We're seeing strong demand in emerging markets.

We're seeing strong demand in some of the new verticals, and by the way, we're ramping high ASP and high-margin products like SkyOne.

I think it's a combination of those offsetting seasonality.

Okay.

Then just as a follow-up, in TD-LTE, and correct me if I'm wrong, but I think you've said in the past you're close to about 50% of MediaTek's quad-core designs or reference designs.

Is that still true?

What does that trend look like this year?

I know you called out Asia specifically, talking about the opportunity there with LTE devices over the next couple of years.

If you could quantify anything there, that'd be great.

Sure, this is Liam on that.

MediaTek continues to be a real important customer for us.

We are on their latest quad-core platforms and their newest LTE platforms.

What that means for us is really a significant upgrade in content versus the traditional 2G or a 3G phone.

We're seeing content around the power amplifier suite, moving into more multimode complex systems, but we're also in addition sweeping in ASM technology with switch, GPS in some cases, and even seeing Wi-Fi attached.

It's a meaningful cycle, and we're in the very early innings of that upgrade throughout China.

Alex Gauna, JMP Securities.

Thanks so much for taking my question.

I wonder if you could give us a little bit of color on how China mobile appears to be factoring in to what you just delivered, and what you guided to?

Maybe some indications on how you feel the build-out is going to be, and if there's any risk you think of a hangover if we have channel fill, and not so much channel fill through, and I guess some color on that?

Thank you.

Let me answer in a broad way.

Actually what we're seeing in China today and it's pretty strong growth here is that more than anything, the upgrade cycle, irrespective of which carrier, the upgrade cycle is sweeping in a lot more analog functionality and connectivity and AC and some of our products for switching and control.

We're seeing strong attach rate with QRD, strong attach rate with MediaTek, including some of their work horse smart phone quad-core models.

If you look at the big players in China, think of Lenovo, Huawei, Coolpad, and if you look at some of those tear-down reports, we've got a lot of content and very high penetration rates.

I think if you combine all those, we're just pretty broad there, and we're seeing a lot of incremental content.

Okay, and then you mentioned the diversification strength across some various areas, most of them still having to do with wireless connectivity.

Could you comment on where you are in terms of evolving some of your HPA opportunities that aren't cellular attached?

I know you talked about connected home, but you briefly mentioned power management.

Where are you seeing that?

How are things going on the wireless infrastructure side?

Thank you.

Sure, Alex, yes.

Outside of the core mobile business, we are seeing a lot of diversification and opportunities, home automation, ZigBee enabled lighting for example.

We have a design win with Philips where they're using blue light LED inside of a wearable patch for therapeutic purposes.

The Fitbit example that Dave mentioned, another outstanding opportunity for us is leveraging Wi-Fi.

We're moving into power management with DC-to-DC and voltage regulators.

We have LED backlight in automotive applications.

It's just a broad reach of opportunities, and we feel that our team in the field is picking up more and more opportunities each quarter.

We're very excited about where that can go.

Alex, we built out a system engineering and an applications infrastructure throughout the world, who have really been getting better and better at identifying sockets where we can penetrate, we can customize, we gain some real value, and add value to our customers.

I think if you just look at the orders we booked this quarter, I mentioned a few of them, they're with Philips.

They're with Nest.

They're with Fitbit.

They're with Belkin.

It's really across the board, everything from the cable modem to the gateway products to all kinds of appliances.

It's really across the board.

Vivek Arya, Bank of America.

Hi, guys.

This is Anne Edelstein, calling in on behalf of Vivek.

First of all, I wanted to say congratulations on the solid quarter.

Thanks.

I guess the first question is, I look at the way that you are guiding operating expenses in the current quarter, coming up somewhat quarter over quarter as revenues are declining.

Is that a one-off?

Can you talk a little bit more about that, and how that factors into your pace to 30% operating margin?

Sure, Anne.

This is Don.

We've been pretty consistent about our ongoing investment in some of the key areas of the business.

Particularly, if you look at the OpEx increase that we just saw from fiscal Q4 to December quarter fiscal Q1, all that increase was in R&D, and that's a similar pattern that you'll see in our guide for March.

It's really just reflective of some critical investments that we're making in R&D teams to support our continued focus and ability to grow in some of these new vertical markets.

We feel really good about those investments.

We've been consistent about our OpEx slowly increasing this year, but there's a tremendous amount of leverage still left in the model when you look at the revenue growth.

Great, and then a little bit more on the China opportunity.

How well-positioned do you think that you are currently to grow as the TD-LTE market takes off this year?

How do you see your opportunity maybe diversifying a bit into some lower end phones?

Thanks, Anne.

I think one way to look at it is the way we decompose that market, and there's going to be some big customer winners or at least high-volume drivers within that market.

We focused very intently on them.

As I mentioned, we've done a really good job we think with Lenovo, with Huawei, with Coolpad, with some others that are really going to drive a great deal of volume.

Of course, there are hundreds of indigenous OEMs, but we've done very well with the volume drivers.

We've also focused for a long time as you know with MediaTek, and I'm really very pleased with the amount of penetration we've got in all their reference designs, particularly the work horses we think that are going to drive high dollar content smart phones.

We've go everything from ASM-based products, now even some connectivity products, multimode PAs, switches.

I guess the third element is the whole theme of, as these smart phones become more complex, and indeed feature phone transitions to smart phone, and then smart phones move more towards 4K, they're having very high penetration rate of some pretty sophisticated analog processing.

That's where we've been excelling, is being able to sell more of the system solution by having our applications engineers and system designers hand-in-hand with our chipset marketers in those regions, whether it's MediaTek, QRD, or Qualcomm QRD, and that's where we're gaining volume and we're gaining share.

Richard Sewell, Stephens.

Thanks for taking my question.

It's Richard calling in for Harsh.

Let me add my congratulations.

First question, looking out over this year, how are you thinking about the growth opportunity in mobile, and specifically in the smart phone end market?

Sure, we're still very bullish on mobile in general and in smart phones specifically.

We talked about China as a real theme that we're benefiting from.

But even in traditional tier 1 accounts, we continue to see the need for higher data rates, more advanced protocols, and that brings complexity to the table.

So, as we look out to 2014 and the platforms we're designing now for 2015, the performance of these products is going up and up, and our ability to deliver simplicity here is exactly what these customers want.

We're really excited about the content theme is coming together.

There are more bands.

There's a lot of complexity in filtering and tuning.

The analog suite that we bring to the table is another real key driver for us.

We like that.

We think it's a great trend.

We're seeing it with our tier 1s, and as we talked about already today, we really like what we're seeing in China.

Great, and for my follow-up, what are some of the remaining levers to get to that 30% op margin you always talk about?

It's pretty consistent, Richard, with what we've talked about.

Number one, it's, we've said consistently that we need to be above $550 million per quarter in revenue.

With that and with the spending profile we're looking for the rest of the year, that gives you the continued leverage on the OpEx expenses which help.

We're going to continue to drive margin expansion.

That's a long list of items, whether it's leveraging the CapEx investments we're measuring.

It's the improved margin on some of the new system solutions that are rolling out.

It's our hybrid manufacturing model, our ability to keep our utilization at very high rate.

It's how we manage the supply chain.

It's multiple things.

We would expect to drop that incremental revenue to about 48% which will continue to drive margins, so it's a combination of both.

Great, guys, and congratulations.

Quinn Bolton, Needham and Company.

Let me add my congratulations on the strong results and guidance.

Dave, you've talked a lot about IOT on the conference call.

Clearly, you guys are well-positioned with high-performance analog power management, and some of the connectivity solutions.

But things like microcontrollers and sensors are also pretty key solutions and could align pretty nicely with your product portfolio.

Do you guys have a strategy potentially to either partner or potentially look to expand your product portfolio into those types of devices for IOT?

Yes, thank you, Quinn.

That's a great question.

The horses we are riding in 2014/2015 will continue to be what we were doing in much of 2013, which is the earlier question that Richard had was about our feeling about smart phones.

Irrespective of what the growth rate in smart phones is, one thing is for certain, that customers need to see more analog solutions that sweep in functionality because they're finding it too difficult to meet the constraints of the board space, current consumption, and so on.

We have been increasingly, even if we don't sell it in an integrative platform like SkyOne, in as integrated platform as SkyOne, we are able to bundle those products and guarantee the system-level performance by working with our customers at the radio board level.

Recently, that's begun to sweep in more and more high-performance Wi-Fi, AC, and the like, multimode Wi-Fi, GPS, shielded devices that incorporate filtering.

We've talked about power lighting and display.

That's a big deal where you're trying to drive very high-performance, camera flash for example, or displays.

There's a lot of power management in voltage regulation that this complexity is driving.

We think we're the only folks out there today who can take a complete suite of products and from the system standpoint lay it out for them.

Now, when you look at the next click, I am very intrigued by the opportunities, for example MEMS-based technology, to do things in not only the microphone space but in gyros and sensors, and then taking that product outside.

We are investing.

We are creating partnerships that are going to allow us to go to the next click because I think the next big wave is going to be around sensing level functionality and all kinds of motion controls.

We're going to play there, and we're investing now.

Okay, great.

The second question I had, and you guys are obviously very well-positioned in Wi-Fi front ends, there's been some talk about 2X2 MIMO potentially moving out or moving down from the tablet space into some of the higher-end smart phone platforms.

Do you guys have a view?

Is that a real opportunity for you in 2014?

Or do you think for power reasons that you'd most likely stay 1X1 in smart phones?

Yes, it's a great question.

We talked a lot about MIMO technology and access points.

We see 3X3, even 4X4, multiple screens and access points to extend range and performance.

We are actually to your point seeing this now in smart phones, and we think the benefit provided to the consumer is outstanding.

It's again higher data rate, greater levels of connectivity, expanded range, and the value to the consumer is there.

For us, it actually effectively doubles the content in phones that go 2X2, or 3X3 would be a triple.

We're excited by it, and we like the fact that again that the relentless demand for connectivity for data, for wireless data continues.

The solutions that we've talked about here are really in high demand now.

Steve Smigie, Raymond James.

I'll add my congratulations on the great numbers.

You guys obviously discussed and listed on your press release a whole bunch of non-handset related drivers.

I was hoping you could give us your typical break out, cellular group versus analog.

In addition to that, you see typically 60/40, or something like that.

Within that Wi-Fi portion that's usually a lot of it still seems to be going to handsets.

Could you say how much is handset and non-handset, all in?

What I'm trying to get at is, where are you now?

And where can you go three years out on that non-handset portion?

Yes, Steve, I'm glad you asked that question.

I think we recognize that the split we have discussed, we continue to discuss, which is around 60/40.

That's consistent this last quarter.

It really hearkens back to a couple of years ago, a few years ago, when we talked about being 80/20, with 80% being dominated by PA and transmit module products, and 20% mostly infrastructure, some homes, some smart energy.

The fact is that business today is very different.

If I look at where the growth is coming from, maybe this will help answer your question.

In mobile for example, our PA business for example is declining as a percentage of sales.

It's still growing, but it's declining as a percentage of our revenue.

What's growing fast is these mobile analog solutions we're talking about, GPS, Wi-Fi, power display, as well as highly integrated solutions, like power amplify duplex or SkyOne, and the like.

That is where the growth.

Then the second growth engine has been in non-mobile.

We've talked about the connected home.

We've talked about automotive and medical.

That's really the way we are running the business today, and I think as we go forward, we'll be looking for ways to articulate better for you what that split is because I think the 60/40 is probably not as useful as it once was.

Okay, thanks.

You guys really helped us out last quarter.

You gave some color an extra quarter out, where you gave us some thoughts on March.

I was hoping you might be able to give us some color into June?

Obviously, more and more we're seeing some big OEMs drive that, but you're diversifying more.

How should we think about seasonality for you in June, and how's looking right now?

Yes, Steve, I think it's a little too early to get very specific.

I would say that I don't see any reason to believe that it won't be a normally modest up quarter.

That's usually the case in the June quarter.

As we look at our business rolling out in 2014 Q2, Q3, Q4, as we see similar trends as in Q3 as we do in Q2, or in June as we do in March, which is the share gains, content gains, diversification gains, largely offsetting whatever seasonal mobile business may be thrown at us.

We expect to have a good June quarter.

We expect the mobile market to be up modestly a few percentages.

Anthony Stoss, Craig-Hallum.

Hi, guys.

Mike [Gretz] as well.

Dave, can you give us a sense on the analog side for March in terms of your overall guidance?

Do expect that business to be up sequentially in March?

Also, I know there's a lot of different products and units that could be on the Internet of Things.

I'd love to hear your view on how you can piggyback multiple chipsets, and what your view is on overall content for Skyworks in the Internet of Things?

Thanks.

Yes, thanks.

I think that our March non-mobile business will be roughly flat.

Most of the seasonality is occurring on those OEMs in our mobile business.

If I think within that roughly flat which is much better than seasonality, it really is as we talked about in the prepared comments.

It's a combination of obviously traditional Wi-Fi products and more Wi-Fi content, where we're looking to have multimode Wi-Fi that has more AC content, and so on and so forth.

We're also seeing ZigBee content that's meaningful.

There's also some real power management and voltage challenges with some of these devices, these gateway devices we talked about it.

We talked at length in the prepared comments about an engagement we have with a service provider today.

That's a lot of dollar content in a very cool, complex product.

The content there is multiple dollars, and it's GPS.

It's Wi-Fi.

It's cellular.

I think it's really all of the above in the home.

We've talked about brand-new nascent products for us.

We are just starting to see meaningful revenue coming from medical, medical devices we talked about and some automotive devices.

In the Volkswagen platform we have in the press release, that's a slick product going into in-mounted dash entertainment Volkswagen device.

Okay, then lastly on your SkyOne comments, the traction you're seeing there, is that more on the low end, mid range phones?

I'd love to hear your view on where it's ending up.

Thanks.

Sure, Tony.

As we mentioned in the prepared remarks, we have two customers right now in production, HTC and Samsung.

We're making great progress with both.

We're in high volume production on some very slick smart phones.

There's a number of customers right now that are in various stages of sampling, some traditional tier 1s, some players in Asia.

But we certainly expect as we've seen success with those two customers we expect several more to ramp during the calendar year.

Mike Walkley, Canaccord Genuity.

This holiday season, it seemed the carriers were more aggressive in subsidizing LTE tablets, especially on the Android side.

Have you seen a discernible mix shift from Wi-Fi only tablets to LTE?

Is that helping some of your growth drivers into the near-term?

Yes, that's a great question.

As you know we seen really nice attach with Wi-Fi and tablets.

We're also by the way seeing tablet expanding dramatically from some of the real strong US-based tier 1s to a burgeoning market in China, so that's good.

We see unit increase there that's substantial All of that has been Wi-Fi enabled.

But it is true, we're starting to see more and more LTE, full cellular LTE engines, attaching with Wi-Fi.

In the past, it may have been 25% to 30% penetration.

We've seen some companies go 100%.

But certainly the dial is moving up, and that does present a real significant pop in content for us.

It's not a big driver in this last quarter, but I think the trend is clearly there.

I expect it to be meaningful in out quarters.

Great, thanks.

Follow-up question, and that's helpful Dave, but follow-up question, just going back to some of these interesting design wins and the Internet of Things market.

A lot of these early stage ramps here are much smaller than, say, a handset ramp.

How do the gross margins compare now?

And how can the gross margins in this division maybe improve over time, as some of these things like Nest could ramp into really big units longer term?

Yes, Mike, as we've said, if you look at the suite of products and system solutions that we're delivering in the diversified analog space, they are typically accretive to the overall corporate margins.

As we're successful in continuing to gain share and grow that business, it's going to, without question, move our margins forward.

But I do want to point out, the margin expansion that you're seeing as well is the value add that we're doing in the complex system solutions that's tied into the mobile space as well.

We're having some real good success there too, so it's both.

Clearly, as that analog piece of the business grows, margins will expand.

Mike Burton, Brean Capital.

Thanks, and congratulations on the great results and guidance.

I wanted to follow-up on a question of a previous one on SkyOne.

SkyOne ramping this quarter, can you remind us the type of dollar content you get there, compared to your average?

And maybe help describe some of those initial platforms you've secured?

Certainly, yes.

SkyOne is a meaningful increase in content versus even our traditional tier 1 engagements.

It provides not only full multimode, multiband power amplifier solutions, we bring in expertly matched and tuned filters.

It's configurable.

We can make a unique platform for any given customer.

What we also provide is a great deal of the engineering systems benefit.

A customer that has a time to market challenge, or is spending their R&D budget on look and feel, industrial design, software screens, we can unburden them completely from the cellular [range], so there's a lot of value.

The two customers that we named are really just the beginning.

We're very proud to be within Samsung.

They're a market leader in this space, across the board.

They found a great deal of value in our solution.

HTC, another player that does incredible industrial design and really good brand, really good look and feel.

We were a perfect solution there.

There's a long list of others that we're in various stages of sampling today, so we're quite bullish on our opportunity there.

Okay, thanks.

Also, can you talk a little bit about the wireless infrastructure market?

How big is the exposure there now for you guys?

Have you begun to see any life there?

Then lastly, any 10% customers?

Thanks again.

On the infrastructure side, it is an important market for Skyworks, and it's been relatively flat over the last few years.

We have strong position with Erickson, with Huawei, with ZTE, Nokia, Siemens, all of those players.

We're starting to now to see finally some upside with LTE rollouts.

Everything that we've spoken about with respect to China and even the smart phone gains in the US, are moving towards 4G and LTE solutions.

There needs to be that commensurate network infrastructure to handle the data.

We're finally seeing it.

It's not double-digit right now, but it's slowly moving in that direction.

Fortunately for us, over the last few years, we've really been doing a nice job expanding our reach, adding a lot of new products there, whether they be power management products, or highly customize analog solutions.

We'll be in good shape when that market picks up.

And Mike, the 10% were Foxconn and Samsung in the quarter.

Blayne Curtis, Barclays.

Good afternoon, and congrats on the great results.

A couple of questions.

One, I just wanted to better understand the comments on seasonality.

You said the non-mobile would be flat.

I guess everybody's got the old metrics, the 60/40.

I'm assuming that comment assumes some portion of that 40% is also mobile.

I know you didn't break it out, Dave, but if you could just clarify that?

No, when I talked about the non-mobile being relatively flat, I just mean everything that's not in a smart phone.

That's what I mean.

Got you.

If you just talk about seasonality, it's hard and there's no real -- given the concentration in customers, seems like the seasonality changes every year.

Last year, you benefited from a new product ramp.

Are you seeing any benefits the upside as far as major products, or if you can just talk about what you're seeing from a seasonality in mobile?

Are you seeing product platforms ramp down?

Are you getting any benefit?

You mentioned SkyOne, but I'm assuming that's not a huge number.

Are there any ups versus normal seasonality in mobile besides SkyOne?

Yes, we actually do, Blayne.

We see a couple of customers, or some customers, being pretty dramatically down.

It's normal, the way they've roll their products out.

We see others up.

We see some customers within China up.

It's no secret that Samsung tends to take their inventory down and have a soft December.

That occurred for us.

That's less so in the March quarter, so that's a contributor.

We are ramping SkyOne, as Liam mentioned.

That has high dollar content.

And again, this portion of the business that is non-mobile or outside of the smart phone, we're seeing some nice tablet growth, some nice high dollar content products in these vertical markets.

I think it's really a combination of all those things.

But we're certainly not immune from OEMs taking the smart phone volumes down in March.

We see some of that.

Edward Snyder, Charter Equity.

SkyOne, so I think there's some confusion in the investor base.

When Qualcomm talks about RF360.

I think a lot of Street folks think SkyOne is a similar product.

But it's quite a bit different, isn't it, Liam?

It looks like maybe MMPA, some amplifiers but much more focused on the hardened bands, but more utility.

Can you give us a brief description of, one, what is in it, and two, how it varies from what a lot of people think is going on with RF360?

One of the most important parts is that it's made up of proven core building blocks that been proven at Skyworks for years.

We also have the ability to uniquely configure the solution, so it is not a one-shop-fits-all solution.

A lot of the work, the tuning, the matching, bringing in multiple bands of filters, using different technologies, as Dave pointed out, we have a very strong partnership with filter providers.

We can bring in BAW solutions.

We can bring in SAW, [Tempcomp] SAW.

We can weave in our own power management, ET-based solutions, if needed, and then deliver unique MMPAs that wrap around that.

The ability to configure, highly configure, customer by customer rather than give a single monolithic solution is very important to us.

We found each engagement to end up uniquely with a different design, and we found our benefit to deliver time-to-market, our systems in tuning expertise from our teams, all to be real differentiators for SkyOne.

You've mentioned several times that not only does high dollar content but also your margin profile of this product, is it accretive to mobile?

Accretive to consolidated margins?

Can you give us a feel for that?

You mentioned a MIPI controller, et cetera, or a digital controller.

Does it include any of the ET products?

By that, I mean amplifiers or modulators?

Ed, as Liam said, it's a platform.

So case-by-case, the margin profile can swing.

Generally it's at or above the best margins we would see typically in the mobile space.

That's the way to think of it.

Ed, with respect to ET, it does not include the ET modulator today.

It does include ETPAs, for tuned and designed from the ground up, to be high-performance in ET mode.

Suji De Silva, Topeka.

Hi, Dave, Don, Liam.

Nice job on the quarter.

Can you talk about what you're seeing in the marketplace from integrated solutions like Qualcomm's RF360?

Are you seeing traction there, perhaps competitively?

Yes, thank you.

The short answer is no.

We don't see traction competitively from the RF360 today.

I will say that by its nature, that product and to some degree our SkyOne, or at least elements within our SkyOne family, they're very highly integrated products, lots of bands, lots of filtering.

We see certain customers, while perhaps somewhat limited in scope, that really need someone to come in and step up and provide more functionality, PA-centric, albeit, by more functionality.

On top of that, we try to bolt and we do bolt around that front end functionality, that transmit chain functionality, a lot of GPS power management, tuning devices.

I would say that we don't see competitive threat today, if you will.

But we do see an opportunity to compete in the sense that both products provide for that segment of the market a complete solution.

I'll also mention that we really are seeing a lot more content attach rate with Qualcomm, whether it's QRD, or Qualcomm here, with a lot more product.

I'm really delighted with the amount of partnership, the relationship, and the fact that we have a lot of dollar content.

Thanks.

That's helpful color.

Then, on the balance sheet, you did good job buying back shares here, but you're generating a lot of cash and building up significant amount of cash balance.

What's a comfortable level of cash for you guys?

And would you contemplate a dividend, given the strength of your fundamentals?

Yes, Suji, thanks.

We ended the quarter at $649 million in cash, and we're really happy with our consistent ability and the velocity with which we convert the strong earnings into cash flow.

We're always looking at the capital structure.

Clearly, when you look at our financial growth opportunities in the model going forward, we're going to continue to buy back stock.

We think it's an excellent way to deliver shareholder value.

To frame that for everybody, over the last five quarters, we have spent around $190 million on share buybacks.

We still have over $200 million approved by the Board, share buybacks.

We'll continue to be in the market to do that.

You balance that with maintaining the financial flexibility for strategic growth initiatives, so that's one of the things we do.

We absolutely are looking at a dividend as a possibility in the future.

There's no question.

Tom Diffely, DA Davidson.

I'm hoping to get a little bit more on your capital spending plans, or your capital addition plans for the year?

Sure, Tom.

We don't really provide guidance going out, but CapEx for us is really volume dependent.

If we're making CapEx investments above our depreciation level, around $20 million, that's a positive thing.

The payback on the capital we're putting in is generally very short, and it based on our visibility to volumes.

I think it's safe to say that you should be thinking about something slightly above our depreciation level for now, for the last three quarters of the fiscal year.

That's a safe starting place.

Okay, thanks for that.

Then, when you look at some of your integrated modules, can you talk more about the potential to get access to BAW filters of the future?

Sure, it's interesting.

The integrated modules whether they're PADs or SkyOne, if you look at the tear-down reports, we've got a fairly big footprint now in filters.

We are in production today with a host of different SAW devices.

We're now shipping temperature compensated SAW products, and designing those into our modules.

We expect throughout 2014 for there to be some bands, there will be very many of them, but there will be some bands because of the tight band spacing, coupled with high frequency, where there will be some BAW devices.

Do your suppliers have access to that yet?

Yes.

Okay.

Vijay Rakesh, Sterne, Agee.

Great quarter and guidance.

I just want to get your thoughts on who the top three major customers during the quarter, as you go through 2014, how do you see the China market?

Vijay, the only 10% customers this quarter were Foxconn and Samsung.

I think the China market, we're expecting to see very robust smart phone growth.

We're seeing 4G attach.

We've got a good lineup of our products with QRD, Qualcomm, with MediaTek, and others.

We're benefiting not only from the increased complexity on the transmit side, but we're sweeping in a lot more high-performance Wi-Fi connectivity, power lighting and display, and some voltage and power.

We're seeing an increasing content as the shift to smart phone occurs.

We feel very good about China.

Got it.

If I may have a follow-up, when you're looking gross margins, you're doing very well on the gross margin side.

What are the levels as you go through 2014 on that?

Obviously, it's come up very nicely, but how do you see that going forward?

For 2014, as I said, we want you to continue to model an incremental 48% which is going to expand margin as we grow.

It's driven by a long list of items, the products, the new products we're releasing, the design, the system solutions, the value-add is driving margin.

Our focus on the metrics, and the factory and driving yield, and productivity, leveraging the CapEx investments.

So, it's a long list of things that will continue to enable us to drive that margin expansion forward.

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

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

Thank you, everyone, for participating tonight, and I look forward to seeing you all at upcoming conferences.

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

We thank you for your participation.