思佳訊 (SWKS) 2014 Q4 法說會逐字稿

Good afternoon, and welcome to Skyworks Solutions fourth quarter FY14 earnings call.

This call is being recorded.

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

Mr. Ferranti, please go ahead.

Thank you, Marla.

Good afternoon, everyone, and welcome to Skyworks fourth 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 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 results and guidance we will discuss today are from a 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 over the call to Dave for his comments on the quarter.

Thanks, Steve, and welcome, everyone.

I'm pleased to report that we delivered a strong finish to FY14 with fourth quarter results beating expectations across the board.

The ongoing strength of our business performance reflects our success in capitalizing on the powerful underlying demand trends spanning our served markets.

I'm particularly pleased with the broad-based nature of our business strength, highlighting the success of our diversification efforts with momentum spanning mobile, the Internet of Things, and the expanding set of vertical markets.

From our vantage point, we expect to continue to significantly outperform the broader semiconductor market throughout FY15 and beyond, driven by a combination of long-term secular growth drivers, share consolidation and consistent execution.

Specifically during the fourth quarter, we posted revenue of $718 million.

That's more than a 22% sequential increase, representing top line growth of 51% versus the fourth quarter of fiscal 2013.

We produced operating income of $236 million.

That's up 81% versus last year.

We earned $1.12 in diluted earnings per share, and that's up 75% versus last year, and we generated over $200 million in cash flow from operations.

We also completed our acquisition of Panasonic's filter division, making Skyworks the market leader in high-performance, temperature compensated filters.

Our fourth quarter performance closed another record year for our Company.

For the full year, we posted revenue of roughly $2.3 billion.

This represents 28% in top line growth.

We grew operating income by over 50%, expanding operating margins by 450 basis points.

We generated over $560 million in free cash flow with a return on invested capital of 25%, and we returned over $200 million to shareholders in the form of dividend distribution and share repurchases.

This represents 35% of our free cash flow.

As a testament to our confidence in the ongoing strength of our financial performance, we're also pleased to announce that we are raising our quarterly dividend to $0.13 per share, representing an 18% increase.

This increase highlights our commitment to returning cash to shareholders, as we continue to generate strong financial returns from the business.

The combination of growth, profitability, and cash flow that we delivered during FY14 is validation of our strategy of diversifying our market footprint, while investing in core analog capabilities to capture more value through integrated system solutions.

We continue to see tremendous opportunity ahead as the world rapidly becomes more connected.

By all measures, global demand for wireless data is skyrocketing.

With each successive generation, device manufacturers are raising the bar on performance to more seamlessly integrate on-demand video, cloud-based services, enterprise data, and e-commerce into the user experience.

Operators are investing in networks and facilitating device upgrades to launch new services, to drive increased data traffic, and provide better access to content.

Skyworks advanced solutions are at the very heart of this technology shift.

Our strategy is to capitalize on this unprecedented demand environment, and it's threefold.

First, we look to harness the growth and scale of mobile, capitalizing on increasing analog complexity by capturing more value through custom system solutions, while our customer diversification mitigates share shifts among OEMs.

Second, cultivate the emerging Internet of Things opportunity, enabling the next wave of new connected devices through our industry-leading connectivity solutions.

And third, aggressively expand into new vertical markets, leveraging our broad portfolio of precision analog solutions.

Our Q4 design wins highlight the success we've had in addressing these new opportunities.

Some of these include multiple diversity receive module wins at a Tier 1 smartphone manufacturer, analog control ICs for GoPro for action video cameras, connectivity modules supporting multiple smartwatch platforms, custom front end solutions for streaming music platforms at Sonos and other leading wireless speaker providers, a suite of devices supporting Netgear's latest X6 Tri-Band Gigabit router, dedicated short-range communications, vehicle-to-vehicle solutions for GM's platforms, and finally, custom ASICs for Rockwell Collins avionics platforms.

Okay, for a more detailed outlook and commentary on the quarter, I'll turn it over to Don.

Thanks, Dave.

Thanks for joining us, everyone.

Our revenue for the fourth quarter was $718.2 million.

That's up 22% sequentially and 51% year-over-year.

Gross profit was $329.6 million, or 45.9% of revenue, ahead of the midpoint of our guidance range and up 150 basis points from the year-ago period.

Operating expenses were $93.9 million, consisting of R&D expense of $58.2 million, and SG&A expense of $35.8 million.

Operating income was $235.7 million, translating into a 32.8% operating margin for the fourth quarter.

Our cash tax rate was 8.4%, and that's ahead of our prior forecast as a result of fiscal year end tax adjustments.

Net income was $216.1 million or $1.12 of diluted earnings per share, $0.12 ahead of our original guidance.

The $0.04 upside to our pre-announced Q4 results consisted of $0.01 from better than expected operating results and $0.03 from the more favorable fourth quarter tax rate.

During the quarter, we also generated $201 million of cash flow from operations, invested $83 million in capital expenditures with depreciation of $30 million, exited the fiscal year with $806 million in cash and no debt, and we repurchased 875,000 shares of our common stock.

Moving to our product mix, for the fourth quarter of FY14 power amplifiers represented 36% of revenue.

Integrated mobile systems was 39%, and broad markets was 25%.

We saw healthy growth across all product categories with the strongest being integrated mobile systems which, as a reminder, includes our integrated systems portfolio, as well as mobile analog products like power management, Wi-Fi, and GPS.

It's worth noting that our broad markets product lines, which serve the connected home, networking, media, automotive, and medical markets, grew at over 30% over the course of FY14.

That's significantly outpacing the broader semiconductor industry.

For the fiscal year we produced a total of $773 million in cash flow from operations, with free cash flow of $564 million.

That's our second consecutive year with free cash flow yield of nearly 8%.

Finally, our return on invested capital was 25% for fiscal 2014.

That's over twice our weighted average cost of capital.

During the fourth quarter, we closed the acquisition of Panasonic's filter division, paying $148.5 million for a 66% controlling interest with provisions to acquire the remaining 34% roughly two years from now.

We have now fully consolidated Panasonic's results in our financial statements.

This venture makes Skyworks the performance leader in TC-SAW with shipments approaching 100 million units per quarter, broadening our technology portfolio, enriching our systems capabilities, and enhancing our financial returns.

Turning to our first quarter 2015 business outlook, we expect revenue to be $770 million, our first quarter over a $3 billion annualized revenue run rate.

We anticipate gross margin of 46.5% for Q1 and expect margins to continue to trend positively over the course of FY15, as we leverage a higher mix of integrated systems, improve volume utilization, and realize the benefits of our joint venture with Panasonic.

As a result of all of these positive factors we now recommend modeling a 52% drop-through of incremental revenue to the gross profit line for the remainder of FY15 and beyond.

We expect operating expenses to be approximately $94 million, which includes a full quarter of expenses from Panasonic.

Below the line, we anticipate $100,000 in expenses from interest income and other expenses and a cash tax rate around 13.5%.

We expect our cash tax rate to remain at these levels for the remainder of our 2015 fiscal year.

As a result, we expect Q1 EPS of $1.18, using a base of 194 million shares.

As Dave mentioned earlier, we've raised our quarterly dividend payment to $0.13 per share.

That's an increase of 18%, and implies around a 1% yield.

Through the combination of our dividend plan and our ongoing share repurchase activity, we've returned roughly $200 million to shareholders over the course of FY14 representing 35% of our free cash flow.

We continue to view an allocation of roughly 40% of free cash flow as an appropriate balance between internal investment for growth initiatives and shareholder returns.

Many of the drivers of a strong 2015 are in place today.

That gives us a high level of confidence in our growth trajectory over the course of the year, putting us on a clear path towards $5 in annualized EPS.

With that, I'll turn the call back over to Dave for his comments on our market trends and growth strategy.

Thank you, Don.

By all measures, we delivered a strong FY14, and that's a testament to the efforts of the entire Skyworks team.

We're quite pleased with our financial performance, but I think more importantly looking ahead, we see our track record of success continuing for the foreseeable future.

Our corporate vision is very clear; we are enabling the global adoption of connectivity, in all its forms, and across all applications and end markets.

This powerful and secular megatrend is in the early innings, and it's spanning diverse markets like mobile, the connected home, media, computing, security, enterprise, and networking, across a number of communications protocols.

These include 4G, Wi-Fi, ZigBee, GPS, Bluetooth, and others.

As I outlined earlier, we have a threefold strategy in place to capitalize on these positive market trends.

Now, I'd like to take a moment to delve into each element of our strategy just in a bit more detail.

First, harnessing the growth and scale of mobile.

Within the mobile device market, the combined impact of band proliferation, and the adoption of advanced uplink architectures is causing a rapid shift away from discrete components, and towards customized integrated solutions which sweep in adjacent analog content.

Customers are also increasingly focused on new ways to improve signal quality and download speeds, driving much more complex downlink architectures and creating entirely new growth avenues for us in the receive path.

The net result is a rapidly expanding addressable market opportunity for Skyworks, significantly outpacing underlying unit growth with fewer qualified competitors.

Second, cultivate the emergent Internet of Things opportunity.

We see numerous examples of connectivity expanding into entirely new device categories, including wearable electronics, security, lighting, and automation opportunities across the connected home and enterprise.

These all provide incremental new growth avenues for Skyworks technology and enhance our diversification.

In fact, market analysts estimate the growth within the Internet of Things market will far exceed that of other connected devices over the next five years, some predicting as many as 50 billion connected devices by the year 2020.

Third, we are aggressively expanding into new vertical markets.

We're investing heavily to increase our market footprint in traditional analog segments like automotive, like medical, and industrial.

These are highly attractive markets, 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 broad product catalog.

As one example, in the September quarter AT&T announced that it added more than half of a million connected cars to its network, and predicted that there will be well over 10 million connected cars by the year 2017.

We are winning numerous new content opportunities in the connected automobile today, not only in cellular and local area connectivity, but also in telematic systems, infotainment and navigation, in climate control, collision avoidance, keyless entry, and transponders.

In total, we're addressing over $20 of content per car.

We see these trends contributing to above market growth for us in the foreseeable future.

But equally important, we've established a solid track record of converting these strong top line growth trends into superior financial returns.

In closing, we've created a unique business model combining strong, consistent top line growth with the financial returns of best in class diversified analog Company.

As our results show, we're delivering on that vision today.

That concludes our prepared remarks.

Operator, let's please open the line for questions.

(Operator Instructions)

Rick Schafer, Oppenheimer.

Thanks.

Another great quarter, guys.

Congratulations.

Thank you.

My first question is with front end or with mobile demand up so much this year, do you guys see any constraints on growth now, or as we look into 2015 for Skyworks?

As part of that answer, I'm curious what you're seeing on the pricing front as it relates to tighter supply.

Sure.

With respect to our ability to grow and growth constraints, we actually see today an expanding opportunity with our leading customers in smartphones.

We talked a bit about it in the opening remarks that we see increasing band count, more opportunities to lever our switching, levering now our new filter technologies.

And just a tremendous demand on the usage of mobile.

That is one side.

Then broad markets, as we've outlined, we grew 30% year-over-year.

We have tremendous traction now, going into IOT, early innings there.

We think the combination of our smartphone growth and then emerging markets within IOT and broad market categories will give us a great shot at additional growth into 2015

Okay.

It doesn't sell if there's any constraints then?

You don't see.

No.

My follow-up just quickly is can you update us on your attach rate with the China 4G reference designs?

I don't know if there's any way.

This might be a tough question, but is there any way to quantify your average RF content in some of those local branded China phones?

Sure.

We have fortunately a balanced attack with respect to China.

We have great partnerships with the leading global chipset providers.

We also do some very well with some of the local brands like MediaTek and Spreadtrum.

We're seeing increasing attach.

They're going from 3-mode to 5-mode phones.

What you're seeing is a market that had been leveraged by 2G and low content, maybe $0.50, $0.60, moving to 3G which is a 2X multiplier for us, if not more, and now finally, 4G LTE rolling out.

That's been a tremendous catalyst for us.

Not only do we see the band count move up, and our traditional amplifier and systems business go up, but we're seeing adjacent content in Wi-Fi, power management, and GPS as these phones get richer and richer.

It's really important.

These are early innings for that upgrade cycle.

That's something we're going to see really play out into 2015 and 2016 as well.

Craig Ellis, B. Riley and Company.

Thanks for taking the question, and congratulations on the strong results and outlook, guys.

Near-term question, Don, as we look at the guidance for the calendar fourth quarter, 7%-ish quarter-on-quarter, what are some of the gives and takes as you look the business across the power amplifier business, the broad market business, and the multimode business?

This is Dave.

Thank you for the question.

December is normally a very strong quarter for us, and that's certainly the case this year.

The strength is very broad-based.

It's across markets, and it's across multiple applications.

We are seeing an uptake of content rich integrated mobile systems as these architectures get more and more complex.

In fact, this was the highest growth segment for us last quarter.

I might add that we're seeing broad market business growth to be healthy in the December quarter, and that was 30% up year-over-year last year.

Of course, that's in a market that is up far less than that, perhaps single digits.

I'd like to mention that we have a clearly stated goal to gain content in all flagship models with each successive model generation.

We've been successfully executing with higher and higher dollar content with each successive smartphone application.

Thanks for that color, Dave.

Just the follow-up, and it's related to comments in the press release.

In the fourth quarter business highlights, numerous smartwatch design wins, when would we expect revenues from that category to become material?

When it does, where will we see it?

Will it be in the multi-markets group, or will it be in another segment?

Craig, this is Liam.

We are seeing great traction in IOT.

It's early innings, as we've mentioned before.

Some of the design wins we've mentioned, for example, the GoPro camera, we have some new applications in automotive, and wearable categories like watches.

A lot of these design wins, some of them will be launching in the December quarter, but a lot of these will be 2015 through the year.

We expect add to that roster of course.

Harsh Kumar, Stephens.

Thanks for taking the question, and I'll pass on my congratulations.

Thank you.

Looking into the March quarter, can you remind us the seasonality?

Are you thinking any differently about seasonality, given the strength in the September and December quarter?

It's a little early to provide specifics on March.

Generally, the March quarter is down sequentially for the industry, around 10%.

We typically outperform, and that's a combination of our diversification efforts which don't have the same market seasonality, and we are grabbing more analog content in existing mobile platforms.

Share, in fact, is being consolidated across the industry.

Not only are companies consolidating, but we're continuing to see more opportunities to bundle functionality and gain share through, if you will, industry consolidation around system providers, leaders like ourselves.

We expect March to be seasonal, but we also expect (inaudible).

Great.

Thanks for the color on that.

As my follow-on, I was hoping you could parcel out the impact of the extra week in terms of revenue in the September quarter.

Well, to start with, as far as expenses, that's a good place to start, it was roughly around $2.5 million of expenses that we had.

As far as revenue, we don't really believe that had any material impact in the numbers because the focus is customer requirements and demands.

And knowing ahead of time what that schedule's going to be, we were able to plan accordingly.

We don't believe it had any material impact from the top line, as far as where we ended up for the quarter.

Great.

Thanks, guys, and congratulations.

Thanks.

Anthony Stoss, Craig-Hallum Capital.

My congrats as well.

The $83 million you spent in CapEx this quarter, can you give us a sense of what your plans are for 2015?

Are you missing or unable to land any further designs based on the lack of production?

Lastly, Dave, I'd love to hear your views on your December guide, if you expect China to be up sequentially.

Thank you.

Tony, absolutely no issue as far as our ability to win share and grow.

Based on having the right capacity, they'd need a hybrid model.

It serves us quite well.

And when you see us spending CapEx and spending at the level as we have pretty good visibility to volume.

It's our goal to try and keep that internal/external mix in line, so that we get the right incremental margin answer.

That's the goal.

With respect to the December quarter in China, we have a great deal of experience in China, so we understand how to handicap that market.

We're rather conservative in our guidance.

We recognize that there's historically been some volatility, but we see coming off a strong September quarter in China, we do see some growth in December.

More importantly, we believe we're at the beginning of a very early cycle of a very long upgrade cycle, multi-year.

As you know, we're highly diversified.

We have a great position with the leading indigenous OEMs.

We have a equally strong position with domestic brands, worldwide leaders that ship into China.

Of course, if you look at the market leaders of chipset providers, we have majority share with really the two or three leaders there.

We're well-positioned.

We expect December to be up somewhat, and we think we've been very conservative in our guidance.

Great job, guys.

Thank you.

Vivek Arya, Bank of America Merrill Lynch.

Thanks for taking my question.

Very good results and execution.

I think you guys have done so well for so long that investors always want more, and they want to know what will take Skyworks to the next level.

Specifically as part of that, what is the Company's M&A strategy to diversify the business for mobile?

Dave, my question really is do you see enough growth within mobile, and then what is the M&A strategy?

Is that even important to think about now because you have been talking about it for some time, but we have not seen any follow-through on that.

Just conceptually, how you think about the Company, and how you take it to the next level from here?

That's a lot of questions, but thank you.

If I look at 2015 and beyond, we see a number of positive dynamics.

We think we're very uniquely and strongly positioned.

First, we're going to continue to see big content gains in mobile and in connectivity, particularly in 4G and 11ac.

We see a smaller number of competitors, as I said earlier, a lot of industry consolidation.

And huge advantage from discrete component providers to system providers because we are very broad in the analog and RF domain.

Our customers see the benefit of that.

We're obviously able to sweep in more and more content.

All of these factors, we think, play into future growth.

Incidentally, we continue to double down in these vertical markets.

We're excited by them.

We're seeing growth far in excess of the market, and all that's organic.

From an M&A standpoint, we did just close the Panasonic acquisition, so we have been active.

We've been very selective however.

It's part of our capital allocation strategy that Don mentioned.

We have a high hurdle rate for M&A.

It needs to be accretive to our EPS, our margins, and accelerate diversification.

We're very active, but we're going to be very selective and look for the right deal.

In the meantime, we have very strong organic opportunities.

Vivek, just to put color on that, we have spent over $700 million over the last three or four years on multiple acquisitions.

We have been able to pay cash for those.

We have been active in the market.

Got it.

Then as a follow-up, just a little more short-term question, you've had very good control on the spending side.

You're also guiding to the 52% fall-through on the gross margin.

I'm just wondering, Don, how we should think about the OpEx trajectory?

Importantly, your OpEx is among the lowest, OpEx as a percentage of sales, is among the lowest in the industry.

I assume you are spending where the spending is required, but how should we think about a business model that can support the growth that you're looking forward to in 2015?

We've talked to you about improving the margin drop-through.

That's a result of the focus we have on the things you need to do to expand margins, and that's the spending the CapEx, and focus on yields and productivity.

Then what we're also seeing is you're getting this move from our power amplifiers (inaudible) integrated mobile systems.

That's going to continue to expand our margin.

That's a lot of what you see.

Plus, we've got a nice bump going forward now with the filter acquisition and not stacking those margins anymore.

All that is going to continue to grow the margin which is going to help the model.

We will continue to grow OpEx and make investments that we believe are going to add value to shareholders.

We just guided to $94 million.

I would say for modeling, you could add $1.5 million a quarter.

It's probably good number.

Could it go up a little here or there, or maybe down?

Absolutely, that's just a rule of thumb.

But we'll continue to make the investments that we think are going to enable us to go grow, to outperform the markets.

We're very confident we can do that.

I think we have a track record of doing that, given our expense profile.

Sid Sinha, Canaccord Genuity.

Congrats on the results, and thanks for taking my question.

Quick question on the [Android equal system] we're seeing share shifts from the leading Android OEM towards the Chinese OEMs.

I just want to see longer-term, these share shifts, what kind of implications they have on Skyworks sales into this market?

Our position in the market really is operating system agnostic, so to speak.

We certainly partner with the leaders, and we also partner with a broad set of end customers and chipset partners.

Our business in China, as Dave outlined, has been strong.

We are very well diversified.

We're also seeing fortunately a lot of the China brands move into additional emerging markets like India, like Latin America, which creates a second level.

The operating system environment doesn't change that much in terms of what we offer.

We are, with respect to chipsets, we have a strong position with partners like Qualcomm.

We have a very good position with MediaTek.

We're excited about their LTE launches.

We have position with more of the true local brands in China like Spreadtrum.

I think we've got our bases covered with respect to that.

We have quite a bit of revenue in the Android ecosystem as well.

Just as a follow-up, a lot of focus on integrated mobile systems, and on the SkyOne family.

This portfolio has other products too like pads and transport modules, et cetera.

Within integrated mobile systems portfolio, what would you say is the fastest-growing component of that business?

Would it be fair to assume that pads are still the largest piece of that business?

By definition, it really is a systems based portfolio.

There are elements of pads.

We also have some very, very interesting devices that don't have any amplifiers, in terms of transmit chain.

We have diversity receive technology.

We have highly advanced Wi-Fi and GPS technology that are often woven together into system solutions.

The pad portfolio is exciting for us.

We've done a lot of innovative things.

We're now able to leverage our temp comp assets with Panasonic.

I think that's not only helping us win new business, but really, as Don outlined, giving us a bit of room in margins as well.

We're excited about that.

I think you should expect more and more from us when you look at some of these new bands and frequencies that we've been talking about.

I'd add we're seeing a very high attach rate in addition to SkyOne and pads, a high very attach rate with our Wi-Fi solutions, with our power management, and our lighting and displays.

As I mentioned earlier, we've moved the business from a transmit module into transmit filtering, advanced switching, and then capturing more and more of the overall content.

By virtue of our system sell and the relationships we have with many of our customers, we're able to sell the entire footprint -- increasingly selling the entire footprint.

Alex Gauna, JMP Securities.

Great quarter, guys.

I'm wondering now that the full year is complete, if you can give us an idea of what your greater than 10% customer mix looks like?

As we roll forward here with the strength in China, are some of these Chinese OEMs getting large enough such that your customer concentration risk is going down?

Or do you think rolling forward here it roughly remains the same?

Thanks.

Alex, we haven't published it yet, but there were two.

There will be two top 10 customers for 2014, and that's Foxconn and Samsung.

The nature of your question is spot on.

We are seeing more diversification as these indigenous OEMs within China, which we're selling to all, virtually all of them, as they continue to increase their market share.

We're seeing more and more customer diversification.

As we continue to sweep in more content, we're seeing more technology and product diversification within those customers.

Okay.

As a follow-on, with regard to the product diversification, you mentioned mobile payments.

You caught me by surprise there.

I'm wondering what your attach is to mobile payments.

Also, you seem incrementally more upbeat on Bluetooth, ZigBee, Internet of Things, while at the same time your gross margin profile is looking very strong.

Can you help me understand how defensible you see those Internet of Things applications, and what those mean to your gross margin profile?

Thank you.

I'll tag team this with Liam.

I think mobile payments was really just, for us, an example of the ecosystem and following the money and what's driving more of the need for performance, and the need for more investment in mobility, both through the Internet of Things, mobile devices as well as the infrastructure.

It's just another driver that validates the economics of having high-performance mobile devices.

Sure.

Exactly.

I think as we go forward, Alex, you see things like GPS technology becomes part of mobile payments.

The real theme here is just the richness of content and the user model changing to the point where a smartphone is a must-have device.

It represents an enterprise device.

It's a device for e-commerce.

It's a device that fuels many of the social media companies with their advertising dollars.

It's our job to make those products better and faster.

With our OEMs and our relationships with chipset providers, we have very good insight into what the next-generation architectures look like.

Fortunately, it dovetails quite well with our R&D investments.

Quinn Bolton, Needham and Company.

I'll offer my congratulations as well.

Dave, I just wanted to ask, a very strong second half I think driven by broad markets, increasing content, and some of the major smartphone platforms.

On smartphone ramp, as you look at customer forecasts, have you seen any indications that might suggest that the smartphone guys are building the inventory here ahead of year end?

And that could come back and cause perhaps greater than normal seasonality in the March quarter?

Do you think that these guys, they're selling them as fast as they can build them?

That's a great question.

Let me answer it from an inventory visibility.

Since we shipped to virtually everybody, and we look at the sell-in and sell-through, our distribution partners, contract manufacturers, and the like.

It's very lean in the component channel and in the chipset inventory channel.

At that tactical level, there's no evidence at all that anything's being built in excess.

We constantly look at the inputs we're getting from our customers, and try to handicap those to be realistic with sell-through from the carrier.

We think we've got that right.

When I mentioned earlier that we model, particularly emerging markets, China specifically, conservatively that's what I mean.

We handicap all those inputs, and then we try to come up with a common denominator that makes sense to us, given the sell-through at the carrier level.

I think we're going to be fine.

Okay.

Great.

Just for Don, you raised the incremental gross margin to 52%.

I'm wondering, is that really just a FY15 phenomenon as you bring in the Panasonic JV and you no longer have to share the margins, or is 52%, is that a good level to use beyond FY15?

No.

We're telling you to model that for the foreseeable future.

I don't know how many years you're modeling out, but it's absolutely part if it's Panasonic.

It's also this mix shift.

And it's also when you look at more and more systems complexity, the complexity of the phones, our ability to design and win share with the right systems, all that has accretive margins.

That's really what you're seeing in 2015 and beyond, so 52% is the number to use in your models.

It's not just a one-year phenomenon.

It's real simple, less discrete PAs, more integrated mobile within our mobile business, and then more vertical markets and broad markets which have longer product life cycles and consistently higher margins.

Great.

Thank you.

You're welcome.

Vijay Rakesh, Sterne Agee.

Hi, guys.

Congratulations on a solid quarter here.

Thank you.

I had a question.

You're obviously growing 28% year-on-year with good growth.

As you look at 2015, with the content growth with LTE and receive-side integration, what's the dollar content opportunity you see on LTE-advanced versus LTE?

We are seeing, just to backtrack a little bit as I outlined before, 2G to 3G in China can represent $1.50 incremental for us.

When you get into 4G, you have opportunities, whether it is 3-mode or 5-mode, to go into the $3 or $4 range.

In some of the richer global Tier 1s, those numbers are 2X'ed.

We see in a high volume, diversified opportunity in China which we talked about a lot of good opportunities there.

We're getting design wins.

We're laying it out with our amplifier technologies, our system technologies, switching, GPS, all of those devices and technologies we mentioned.

With a larger global Tier 1 SAW, again, there's a tremendous reach there that we can see.

We see the opportunity to grow share and continue on growth rate consistent with what we've outlined.

Got it.

As you look out, where are you adding capacity (inaudible) is growing so fast, do you still intend to keep capacity flexible there with the foundry?

Thanks.

Part of the reason that we're ramping capacity, it's based on market demand and our visibility to that demand.

Vijay, what we always try to do is we try to balance the hybrid models.

So that when we're adding capacity again, we're trying to keep that mix between what we outsource and what we manufacture ourselves at the right kind of percentages that gives us the best answers.

That's what you're seeing when we're expanding the capacity.

Edward Snyder, Charter Equity Research.

Thanks.

Don, how much revenue is Panasonic in the December guide?

Are we talking $10 million to $15 million, or more than that?

Less than that, about $1.5 million.

Great.

In terms of capacity, how do you feel about your TC-SAW capacity at Panasonic now?

How much of the CapEx that you announced would be going into the filter fab versus gas?

Are you selling the product outside of the Company, or are you consuming it all internally?

Then, Dave, is the use of debt off the table for acquisitions, or is it something you consider?

Thanks.

I'll start, Ed, with the CapEx question.

While we haven't specifically guided CapEx, again, any CapEx level for 2015 is going to be based on the demand that we see.

We would expect it to probably be at a level similar to 2014, and there will be a piece of that that's tied to CapEx for filter expansion.

It's going to be a part of that, very little to-date.

Obviously, we just closed the transaction, but it's going to be piece of that in Q1 and Q2 of 2015.

Let me just add to that, to Don's comments.

We see the appetite for our TC technology to be incredible.

We're very pleased with what we've seen so far with this JV.

When we look at designs that will launch this time next year, we fully expect additional TC content and expanding customers.

Liam, is all the appetite inside, or are you selling it on the outside yet, and do you plan to?

For the most part, we're looking at TC as an enabler for some of our system solutions.

If opportunities come out outside of that, that's a potential, but right now we're focused on the higher end, higher grade performance-rich, integrated systems.

Ed, as a comment on the revenue, that's why when you're modeling us going forward, that $1.5 million at that are contractual requirements are done.

For the rest of 2015, at this point we're assuming it's all internal.

There's no external revenue.

Mike Burton, Brean Capital.

Thanks, and congratulations, guys.

Another great quarter.

Thank you.

First on SkyOne, I was wondering if you could give us some progress on SkyOne?

How many customers, prices, where the competition is?

How big can this integrated approach become a percentage of industry designs or a percent of Skyworks revenues?

What impact would that have Skyworks gross and operating margin?

Sure.

SkyOne, as we exited Q4, we now have seven platforms in production with SkyOne today.

That number has moved up through the year, and it will continue to grow into 2015.

Mike, as we've talked about in the past, and you think of SkyOne as a platform approach, it's highly configurable and customizable.

We are seeing an increasing appetite for integrated systems across our customer base, so this type of solution has really worked well.

Again, we think that that flexibility and our applications and engineering teams work to truly configure a device that works for a specific customer, one at a time, has been a real differentiator for us.

We expect it to grow into 2015.

Back to our last comment, technologies like TC-SAW now will be readily available for us to populate SkyOne.

I think that's been a missing link in some cases, and it takes us to the next level of performance.

We're excited about that opportunity which we should see again for several years to come.

Okay.

Thanks.

Just on the margins on SkyOne, and then also you mentioned broad-based strength in both the preliminary September results, and now for the December guidance.

I believe you generally see an inventory correction at your largest Korean customer.

Can you confirm if both of your 10% customers were up in September, and your outlook for them in December?

They were both up in September quarter, and we expect an increase in the December quarter as well.

As Dave outlined comments about handicapping the outlook, that goes for all of our customers.

We don't anticipate any impact of inventory correction with any of our lead customers.

Steve Smigie, Raymond James.

Great.

Thanks a lot, guys.

I was on a couple of calls, so I apologize if I ask something was asked already.

One of the things you mentioned in your press release was I think on 802.11ac going to something like nine streams.

I was hoping you could layout for us, what that opportunity looks like, in terms of dollar content, the same way that you might say from a 3G phone to 4G, you're doubling dollar content.

How many of the routers you've shipped to so far are older, lower stream count?

How many are higher, and what's the jump there?

Thanks.

What you're seeing now is 11ac is the technology that rapidly expands data rates.

You're seeing it in routers, and you're now seeing it in smartphones and tablets.

For us, what it is, it's a MIMO technology, multiple in, multiple out.

You can triple or 6X or 9X the number of streams.

There are devices today that we've noted, design wins that have just launched into production, they're now available in some of the retail stores, that have Skyworks content that can go to $6 to $8.

It's a big part of our story now in Wi-Fi.

These are solid margin, above corporate average, accretive margin parts.

The 11ac access point market it still in its infancy.

That's an upgrade cycle that will go on for years.

We're going to benefit from that.

Perfect.

As I look at price in industry, obviously you're talking about much better margins here.

Even some of your competitors are looking at much better margins.

As I look at pricing, can you talk a little bit about what that might have looked like historically, as you had more intense competition?

Was it you'd see 10% annual price declines, and how that looks as we move more to a SkyOne solution where it seems like that would be more of just a custom win versus any real price competition?

Steve, I can give you this.

Historically, we've run usually anywhere from 7% to 8% on an annual basis.

I think I'll let Liam talk to the systems piece, but it's certainly going to below that on the integrated systems piece.

Absolutely.

I think clearly moving to these integrated solutions, they're not replaceable, and they're not commodities.

They're far from it.

I think customers value not only the device itself but our ability to architect these solutions uniquely, wrap it up with technical support.

It's just a complete sale and engagement.

I think we've seen our ASPs benefit from this.

Steve, to your point, the one thing is that when you talk about competitors' margins and the increase we just guided to, and the increase increment, it just points to a much healthier overall market dynamic that you're seeing.

JoAnne Feeney, ABR Investment Strategy

Thanks, and congrats on a very nice quarter.

Just one more follow-up question really on that pricing issue, as you go to integrated, you're replacing discrete parts.

Does the combined trade-off leave you with higher content, or is it more that you may sacrifice a bit of content, but you have a much stronger position because those are harder to replace?

How do you see that moving forward as the industry has become more consolidated?

Thank you.

The way to think about it is that, if you look at the band count, if you look at these complex switching architectures and so on, what we're able to do is we are able to consistently add more content.

Our ASP per phone in each successive model over the last few years and projected in the next few years is going up, but we're providing a lot more functionality.

The play for Skyworks is that we see fewer competitors competing for components because our customers aren't sourcing their architectures that way.

They're looking for the system.

We were able to first facilitate more bands, more complexity, more switch arms, and so on, to get more dollar content while providing a great deal more value to the customer.

Then as we're architecting the system and the transmit side, we move to receive side.

We sweep in Wi-Fi.

We sweep in lighting and display, buck-boost type power management devices, and the entire performance of the system becomes highly dependent on Skyworks.

And the overall system becomes very sticky to the customer.

Right.

That's helpful.

Thanks.

That leads into the follow-up question.

Clearly, winning a lot of analog parts in the smartphone or in wireless equipment.

Can you separate out and describe your strategy and your opportunity right now, your size of opportunity for analog, beyond those things connected to mobility, whether it's on the equipment side or on the device side?

What your strategy is going forward to perhaps diversify in that direction?

Sure, JoAnne.

We do have a growing analog portfolio in markets like infrastructure.

We're seeing it roll out specifically China right now, with Huawei and LTE, building out the wireless infrastructure ecosystem that's supporting all this data that we've been talking about.

That's one market.

We're looking at markets, and now have design wins in automotive.

We think that's a real attractive market for Skyworks.

We have a lot of technology that's applicable.

We're starting to win.

We have a little bit of business in military and avionics.

Those are markets that we're going continue to pursue.

The benefit for us is that core analog technology is scalable.

It doesn't require a whole reinventing of the wheel for us to participate.

And we're starting to see more and more leverage with what we've already done, and what we've learned in our traditional markets in bringing that to the next level of verticals.

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 very much, everyone, for participating today.

I look forward to seeing you at upcoming conferences.

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

We thank you for your participation.