思佳訊 (SWKS) 2016 Q4 法說會逐字稿

Good afternoon, and welcome to Skyworks Solutions' fourth-quarter and FY16 earnings call.

This call is being recorded.

At this time I will turn the call over to Mitch Haws, Investor Relations for Skyworks.

Mr. Haws, please go ahead.

Thank you, operator.

Good afternoon, everyone, and welcome to the Skyworks fourth fiscal quarter and year-end 2016 conference call.

On the call today are Liam Griffin, our President and Chief Executive Officer, and Kris Sennesael, our Chief Financial Officer.

Before we begin, I like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward looking.

Please refer to our earnings press release and recent SEC filings, including our Annual Report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today.

Additionally, the results and guidance we will discuss today are from our non-GAAP financials, consistent with the format we have used in the past.

Please refer to our press release within the Investor Relations section of our Company website for a complete reconciliation to GAAP.

With that, I'll turn the call over to Liam.

Thanks, Mitch, and welcome everyone.

The Skyworks Team delivered solid Q4 and fiscal 2016 results, demonstrating the resiliency and power of our business model.

To put a few metrics in perspective, we achieved record revenue of $3.3 billion; expanded gross margin by 280 basis points; delivered 37.8% operating margin; generated record operating cash flow of $1.1 billion, allowing us to return $727 million in cash to our shareholders in the form of dividends and share repurchases, more than double the amount from last year.

Despite headwinds with one of our leading customers, we are pleased with our ability to deliver record results in FY16.

Now at a high level, we see strengthening dynamics in the core markets we serve.

Specifically, we're in the midst of a massive sea change in the mobile usage case.

Given the utility and value that connected devices are bringing to the world, we are supporting, and in many ways enabling, a mobile ecosystem that is cannibalizing traditional brick-and-mortar industries, transforming the way we live, work, and play.

Wireless platforms have become virtual hubs for e-commerce, enterprise to cloud, social media, gaming, and entertainment portals.

Ultimately, these devices are a conduit for a new multi-trillion-dollar connected economy across a wealth of innovative technology players.

Consider that the top five S&P 500 companies, namely Apple, Google Alphabet, Microsoft, Facebook, and Amazon are all monetizing these themes with mobile-centric business models.

At the same time, smartphone architectures are evolving to accommodate this rapid increase in mobile data across a densely crowded spectrum.

The usage case is a catalyst for higher speed, lower latency, secure, and always on connectivity, which is challenging the capabilities of existing hardware and the supporting cellular infrastructure.

Our mission at Skyworks is resolving this daunting complexity with customized system-level solutions, unburdening our customers while improving the user experience, with higher levels of efficiency, enhanced streaming capabilities, and expanded network coverage.

All of this translates into an expanding opportunity for Skyworks.

Recall that our focus is on the wireless connection, the most critical function linking the user to this incredible ecosystem.

And in addition to the rise of mobile data, we are actively addressing two parallel growth drivers.

First, connecting the unconnected.

There remain 2 billion people that have yet to benefit from this dynamic ecosystem, and Skyworks will play a leading role in bringing this population online.

In addition, we are committed to connecting everything, as we address an estimated 20 billion new devices brought to market over the next five years.

Skyworks is seamlessly enabling these massive opportunities with highly customized system solutions, supporting a broad set of protocols, including cellular, LTE, Wi-Fi, Bluetooth, ZigBee, and emerging 5G standards.

In an effort to facilitate the explosive growth of data delivery, creation, movement, and storage, our customers are implementing methods to improve performance, with carrier aggregation, receive diversity, and MIMO functionality.

This dynamic involves a step function increase in levels of requisite analog and mixed signal performance, enhanced power efficiency, and high-precision filtering, as well as configurable systems integration capabilities.

Skyworks' broad portfolio and systems-level expertise are well aligned to resolve the intense performance demands facing our customers.

And further, 5G will be yet another industry catalyst and significant content driver for Skyworks.

This technology will drive band proliferation at higher frequencies and place squarely into our ability to address complexity with fully-integrated systems.

The breadth of our portfolio, and our unique market reach, continues to fuel a robust and diverse design-win pipeline.

To illustrate, during the most recent quarter, we leveraged our leadership SkyOne architecture across scores of 4G LTE platforms with customers like Huawei across their Honor 8 premium lineup.

We're also powering the first Google-branded LTE pixel smartphone, and we're capturing design wins across broader markets in the Internet of Things.

In particular, we continue gaining traction with customers like Amazon, supporting their Echo and Tap digital assistants.

We also enabling Netgear's Orbi home router system and providing an integrated solution to Trilliant, for use in their smart grid platforms.

In addition, we are deploying small cell solutions for several leading infrastructure providers in China, and in automotive, we're delivering 4G LTE solutions for use in both Land Rover and Jaguar models.

These wins and others demonstrate our expanding customer and end-market reach across both mobile platforms and the IoT.

At this point, I will turn the call over to Kris for his financial review.

Thanks, Liam.

Revenue for the fourth fiscal quarter was $835.4 million, up 11% sequentially and exceeding our guidance and consensus.

Gross profit was $425.9 million, or 51% of revenue, in line with our guidance and up 100 basis points from the fourth quarter last year.

Operating expenses were $107.5 million, consistent with our guidance for flat sequential spending.

We generated $318.4 million of operating income, translating into 38.1% operating margin.

Our cash tax rate was 12.6%, driving net income of $277.6 million or $1.47 of diluted earnings per share, exceeding our guidance by $0.04.

Turning to the balance sheet and cash flow, cash flow from operations was a record $455 million, driven by higher profitability and significant improvements in working capital on a sequential basis.

In particular, DSOs declined from 69 to 45 days, and days of inventory declined from 108 to 94 days, and we expect further reduction of inventory dollars and inventory days in Q1.

Capital expenditures were $16 million versus $57 million in Q3, reflecting the lower investment level now required for our TC-SAW filter production.

Further, in Q4, we repurchased 3 million shares at an average price of roughly $66 a share.

And for FY16, we have repurchased 8 million shares at an average price of just under $66 per share, helping us to reduce our share count from 195 million shares entering the fiscal year to 189 million shares exiting Q4.

We also distributed over $200 million in dividends over the course of FY16, up 63% year over year.

In summary, Skyworks returned 81% of our free cash flow, or $727 million to our shareholders over the fiscal year, up from the 64% distributed in FY15.

Now moving on to our outlook.

For the first fiscal quarter of 2017, we anticipate our revenue to be up 7% to 9% sequentially.

At the midpoint of $902 million, we expect gross margin in the low 51% range.

We expect operating expenses to be $112 million, further reducing our overall OpEx ratio to 12.4% of revenue.

Below the line, we anticipate around $1 million in interest and other expenses, and a cash tax rate of approximately 15%.

We expect our share count to be roughly 187 million shares.

With our revenue growth and continued operating leverage, we plan to generate non-GAAP diluted earnings per share of $1.58 in the first fiscal quarter.

With that, I will turn the call back over to Liam.

Thanks, Kris.

So to quickly summarize, we delivered above-guidance results in fourth fiscal quarter, closing out another record year, driven by increasing global demand for high-speed connectivity, coupled with strong operational execution.

Skyworks systems-level expertise and scale advantages are positioning us to capitalize on the rapidly expanding mobile and IoT ecosystems, particularly with 5G on the Horizon.

Our profitability and strong cash generation capabilities allow us to fund growth and deliver increasingly higher returns to our shareholders.

Clearly, we remain well-positioned to realize our vision of connecting everyone and everything all the time.

That concludes our prepared remarks.

Operator, let's open the line for questions.

(Operator Instructions)

Vivek Arya, Bank of America Merrill Lynch.

Thanks for taking my question.

Liam, for my first one -- your December sales outlook is above Street expectations.

When I look at it, though, it's still somewhat down year-on-year.

When do you think you will get back to what has been historical high single-digit, double-digit growth rate from a top-line perspective, and as part of that, how is the visibility into content gains and to flagship forms for next year?

Sure, thank you, Vivek.

Well, as you outlined, the guidance here for the current quarter is up strong, 7% to 9%, coming off an 11% sequential here in Q4, so we certainly see the momentum coming back into our business.

With respect to year-over-year comps, we are confident that we will be up on a year-over-year basis in fiscal Q2.

We continue to see great momentum with the flagship players, not just the leading US player, but globally.

We're starting to see strength there, and that's being represented in our numbers.

Got it.

And as my follow up, maybe one for Kris, on gross margins, if you could address the impact on gross margins from both fab utilization and just market pricing, because I think you mentioned you would take down inventory over the next one or two quarters.

What is the impact on utilization in gross margins?

And sort of part B of that is your competitor just reported very weak gross margins, and I am wondering if that is a company-specific issue for them, or are you seeing any pricing issues from a market perspective?

Thank you.

I can't speak to what happens to our competitor.

We haven't seen any major changes to the pricing environment; that has been very consistent over the last couple of quarters, and looking forward, we don't see any major changes there.

Let me just -- on the gross margin, highlight that in FY16, we improved the gross margin with 280 basis points, exiting the year at 51%, which clearly demonstrates a strong operational execution in terms of margin improvements.

And we definitely want to continue to further drive operational efficiencies, and we believe that we can improve the gross margins with another 100 basis points exiting the FY17.

Blayne Curtis, Barclays Capital.

Hey guys, thanks for taking my questions.

Nice results.

I was just curious to follow up on a prior question when you talked about -- when you are looking at the year-over-year, and being down.

Are you still working through that specific customer issue, and when do you think you will resolve that and be able to back shift the total end units?

Sure, Blayne In our 902, we don't have the full complement of what would be the legacy products with one of our customers, so some of that had been invoiced earlier in the year, as we articulated.

But I will tell you that by the time this quarter is exited, we are clean, we're back on track.

Again, we're pleased with the ability to bring up a 7% to 9% top line off an 11%.

We feel really good about our content position with the leading platforms, but there is a slight --an abating headwind, but a bit of a touch of that in the 902 versus the prior year.

Thanks, and then maybe a bigger picture question, as you look out next year, you mentioned several drivers.

Just curious, when you look at carrier aggregation, obviously you're combining bands, and some of those bands may historically be a BAW band.

I'm just curious of your view in terms of whether SAW and TC-SAW can address a lot of the transmit in terms of carrier aggregation, and when you look at next year, where do you see your biggest gains?

You're able to get and receive JM content in the larger phone, where else do you see picking up decent content next year?

That's a great question.

As you articulated, there's a couple of dynamics.

We have been known for leadership in the transmit chain with Power Amplifier Plus, Duplex, and SkyOne like systems.

That continues to be beneficial for us.

We're probably 30% to 40% of the way of penetrating the market now.

New names like Huawei are adopting the technology, players like Oppo and Vivo in China, and certainly the larger tier ones have been with us for a while.

On the transmit chain, we continue to move up in frequency.

So we've done a great job in low band.

We're starting to win mid band.

We can address high-band with foundry partners for boss.

So of that part of the food chain looks really good.

When you look at the receive side, we have a very unique strategy -- a leadership strategy.

We've been able to implement high-content, high-performance solutions with the leading players in the market.

That again, now, is starting to round out into China and some other spaces where that value is quite unique, and the performance requirements on the down link side are immense.

So we can handle that.

As you move further along, though, you start to look at 5G, et cetera.

We think that the way that transmission will occur with TDD, as well as FDD, where you have time division duplexing, our ability to leverage TC-SAW looks very good there.

So we can encroach frequencies that had been the domain of bulk acoustic wave with our TC-SAW, with Performance Advantage, and also taking advantage of the unique protocols that we see in 5G.

Harsh Kumar, Stephens.

Thanks, guys for taking my question.

This is Richard in for Harsh, and congratulations on the quarter.

Just wanted to start off and look at a little bit deeper into the December quarter guidance of 7% to 9%.

What are some of the base assumptions for broad-based growth vs growth in mobile, and what are you seeing at your largest customer?

And also, within China, some of the buy-siders that we talk to have talked about double ordering taking place over there.

Are you seeing anything like that?

Let me start with Q1, and that we can touch on China.

So we are seeing Q1 seasonally being strong in mobile across all of our major accounts in mobile, looking good.

And with a great enrichment and content really steering the ship there.

So we see that.

The IoT and broad markets business continues to look good.

We're up substantially on a year-over-year basis.

IoT was up into the high teens; on overall broad markets for the full fiscal year, we're up about 12%, so we continue to see opportunities there.

And then if you think about China -- unfortunately, China has changed a bit in the last couple of years.

It has moved away from this 10 to 12 white box players where there is a great deal of distribution, and just kind of hoping for the best in terms of upgrade cycles and ensuring that you pick the right horses.

What's happening now is it starting to coalesce around three or four or maybe five players with names like Huawei, [Weeting], Oppo, Vivo, Xiomei, and then you get into a long tail of others.

So we play that directly with the top four or five with direct engineer-to-engineer engagements.

We also play the entire China theater with our baseband partners, so close collaboration with MediaTek, Spreadtrum, HiSilicon, even Qualcomm, provides a buffer of diversification.

So right now, China has been a solid market.

We handicap it quite well.

We analyze the data from our distributors.

We look at the poll rates and the upgrade data that we get from China Mobile and others.

And we feel we have a very balanced outlook.

I don't expect any volatility through any double ordering or anything like that.

I don't see that.

But we will maintain a cautious view as we look out.

That's extremely helpful, and then kind of wanted to get your sense on what you look for, what are your criteria for M&A, and what's the appetite for M&A right now?

Sure.

The good news for us is that we're very bullish on the opportunities in front of us today at Skyworks.

There is a great deal for us to do in our core markets and mobile and IoT and expanding our broad portfolio.

We like what we see there.

There's a tremendous need to support great customers looking forward.

So M&A isn't something that is mission-critical for Skyworks, but having said that, we continue to look at opportunities if they come about.

Our track record, as you know, reflects that we are highly disciplined when it comes to M&A.

A deal needs to meet all of our stringent criteria.

You can see that we've done a few deals in the last few years, the Panasonic JV has closed, bringing great TC-SAW technology in-house.

We did a SiGe deal a few years ago for wi-fi technology that has played out beautifully, and even a power management deal with Advanced Analogic.

And all of those elements play very well into our long-term strategy.

So we will keep our lense open for opportunities as they come about, but again, very stringent financial criteria here.

Craig Ellis, B. Riley.

Thanks for taking the question, and congratulations on turning the corner in sequential growth in your on-hand inventory.

Liam, I wanted to start with a longer-term question on the growth of the business.

So one of the supply chain players early in the reporting season noted they think that smartphones will grow about 5% through 2020.

So I'm not asking you to endorse that, but if that were the industry's growth rate, what growth rate would you be satisfied with organically, and do you feel like you've got enough leverage in the portfolio to drive sufficient organic growth, or do you need to have a blended organic and inorganic strategy?

I think organically, Craig, if you look at the unit growth, which is approximately, as you indicated, about 5% on smartphones, it is the content lever that we are most excited about.

And if you listen to the prepared remarks, one of the reasons why we talk about this mobile ecosystem and some of these great companies that are monetizing it is that they really are driving change.

They're driving change with our customers, and our customers are driving that change to us.

And often it's a give-and-take, and in many cases, we're at the drawing board in crafting these incredible systems that move data.

So we see content being really the key focus.

So we see unit growth could be 3% to 5%, maybe as high as 7% on top-line units, but it's the content lever that is unique, and I think that is where I know -- that is where Skyworks outperforms.

The higher the content in terms of the complexity and the performance needs, that's when we do our best work.

So with that said, we would expect to be at or around double digits across the board, could be higher in some cases, depending on the market and the mix.

That's helpful.

And then one for Kris.

Kris, you mentioned that you'd expect gross margins to be up 100 basis points this year, that is solid, but it is just 40% of what the business had done in the just-completed year.

So as we look at the performance of the business, should we expect that as the expanded manufacturing facility, both the Panasonic and in packaging, as that really ramps and hits its operational stride, that longer-term we can get back to years where gross margins can improve on a multi-100 basis point basis, or is this the new run rate for the business?

There are definitely multiple levers to improve gross margins.

As Liam just explained, we see some above-market revenue growth, and of course incremental revenue and volume growth helps to absorb our fixed cost structure.

Secondly, we are insourcing the filters in our own filter fob, and that is driving further margin expansion.

And then of course, there is the normal tackle and blocking and operational efficiency improvements, including cycle time reduction, yield improvements, and internal and external cost reductions.

Maybe last but not least as well, we do see a further mix improvement in some other areas outside of mobile that have slightly above-average gross margin.

When you put that all together, we are comfortable that we can further improve our gross margins.

Atif Malik, Citigroup.

Thanks for taking my question, and good job on the execution.

The first question, you talked about the criteria for M&A, and I think in the past, Skyworks has talked about maybe acquiring something in the $2 billion-$3 billion range.

Size of the company.

Can you just remind us what are some of the criteria you are looking at, and this is still the right size of the deal you are looking at?

Yes.

I wouldn't want to put any boundaries on deal size.

I think it's more about the merit of the opportunity, and how it plays within a Skyworks franchise, so to speak.

We definitely look for opportunities that -- everyone talks about synergies in terms of accretion and financials, but I also want to see entities that really do better with the Skyworks brand than they would separately.

We talked about some success stories: SiGe, Panasonic, even AATI are examples of that.

So we would like to have the kind of acquisitions that really raise the overall franchise, that bring us into new technology opportunities, that perhaps augment our strength already and the position in the market that we enjoy today.

It's really a complex answer.

There isn't one simple thing that we are looking for; it's a number of things.

We do have a very, very high bar.

We've looked at a lot of franchise, and a lot of assets, and for us the bars are quite high, and I like that.

I think we've worked really hard to generate the cash that now has been phenomenal for us, and I think we're on a great track ready to continue to do that.

We have the powder to do the right deals when they come along, but we will continue to be very vigilant.

Sure.

And then as a follow-up, you guys had a pretty good design wins in the latest iPhone C modules, and Mobara was quoted in a Nikkei article in Japan that they could take pricing down by like one-third in order to get the sockets back.

Can you just talk about the stickiness of these wins, and how should we think about you guys sustaining this content going to next year?

Sure.

All of these complex solutions that you alluded to, whether they are with the lead customer are the top three or four, are highly customized.

I know what we offer.

It is highly customized, it is very sticky, these are engineer-to-engineer develop solutions.

Highly calibrated within the customer's ecosystem.

There is little risk that anyone will be unseated or there will be any kind of pricing action, post- design win.

And then it's the incumbency, the ability to execute, the ability to manage your capacities, and execute the supply, and all those other things that keep you in at the long-term.

So we feel really good about our position with the leading accounts and our ability to grow at highly complex solutions that are in every new cycle, upgraded, altered, changed to meet customers needs.

Chris Caso, CLSA.

Thank you.

First question is regarding the inventory levels.

Could you talk a bit about where you expect those to be exiting the quarter, and I suppose you want to have the inventory levels down entering the seasonally slower March quarter.

Just talk a little bit about that, about the magnitude of any potential reduction, and where you would like to see them exiting the year.

So during Q4, we reduced our days of inventory from 108 to 94 days.

That is a 13% reduction.

We are pleased with that.

We do expect in Q1 to further reduce inventory, both as an absolute dollar level as well as in terms of days of inventory, where we target to get to approximately 85 days.

Okay, that's 85 days by the end of the year, or is that a target for the future?

There will be some seasonal fluctuations as you go through the normal seasonality, but on average, that's what we target.

Ambrish Srivastava, BMO Capital Markets.

This is Kulin Patel calling in for Ambrish.

Thanks for taking my questions.

For year-on-year revenue headwind, you mentioned headwind at your largest customer.

Is all the headwind due to legacy units or was there any share loss?

No.

No share loss.

This is really just about some headwinds on legacy units that were shipped earlier in the year.

Trued up now here by the middle of the end of this quarter.

Okay.

And for the CapEx, you mentioned it is down, because of lower investments in TC-SAW.

How do we think about it for the new fiscal year?

What your CapEx plans for the year?

Are there any investments in the pipeline?

No.

Just normal course.

In FY16, we spent roughly $189 million.

For FY17, we target $200 million-$220 million of CapEx.

Let me just add, if you go back to a couple years back, we were at about $400 million-$430 million to really outfit and install this significant TC-SAW facility, which is a three billion unit per year producer of high-performance filter.

So that's a big bump up.

With that behind us, the run rate CapEx that Kris mentioned is sustainable.

It's enough for us.

We can do a great job with that capital and monetize our assets in filters as well.

Timothy Arcuri, Cowen and Company.

Thank you.

My first question is whether you can segment revenue out by PA, IMS, and broad markets?

Yes.

So broad market was approximately 25%, mobile approximately 60%, and the PA 15% during the fourth quarter of 2016.

Thank you for that.

And then I guess I had a question about the revenue minus your largest customer.

You had guided it sort of up in the range of 10% to 12% for the September quarter.

Can you give us what that actually came in at and what the guidance implies, if I exclude your largest customer?

Yes.

So in terms of the full year-- I can give you the full year 2016, the balance of our business ex our largest customer was up about 11% to 12%, and it's a portfolio of broad market, other mobile apps, the largest customer, and other IoT businesses.

That's kind of the roughest cut at the high level.

In Q1, our largest customer is seasonally strong, of course, going into a seasonal ramp, but the top three tier one accounts are also ramping aggressively into Q1.

Craig Hettenbach, Morgan Stanley.

Yes, thanks.

Question on the diverse margin outlook for the December quarter.

Typically, you'd see some fall-through in terms of the higher volume.

I know you mentioned you're working inventory; maybe that's an influence.

Anything else potentially from a mix perspective in terms of some of the new wins, what they might carry, versus a year ago?

No.

From a mix point of view, Q1 traditionally has a higher mobile revenue, which is slightly below average, and so that has an impact on the gross margin.

Okay.

And then as a follow-up, there's a number of questions asked on M&A and capital allocation.

The diversification angle specifically, how important is that to the Company as you explore potential deals out there.

Well, diversification is an element.

It is something that we look for, but it really isn't the only criteria.

It is not the underlying criteria.

I think we're looking for opportunities that really drive the entirety of the business.

And as we said, we feel really good about what mobile is bringing.

It's a lot more than what the market expected three or four years ago or five years ago, and what we're seeing from our customers is just a daunting and relentless push for performance.

And what we are also enjoying are product developments and revenue streams that weren't on the radar screen five years ago: diversity receive, we talked about.

Wi-fi has been taking off, our GPS location systems are taking off, we're seeing more and more reach into our filter franchise.

So there's just a lot to do,.

So we wouldn't look at a deal on the merit of diversification as a primary motive.

It would be nice in some cases, but would also entertain opportunities that really help us advance our core business.

Vijay Rakesh, Mizuho.

Hi, guys.

Just looking at your gross margins for the December quarter, last year revenue was up 5%.

Your margins improved pretty nicely, 100-140 bps.

Here, you are guiding flat.

Are the incremental gross margins much lower than what you had historically?

Our incremental gross margins are in the mid 50s right now.

All right.

And as you look at the BAWs-bordered map, I know you guys said you are getting both from your foundry partners, can you update us how your roadmap looks there?

Are you expecting any BAW products launching here?

Or do you expect TC-SAW to take that part of the bands, too?

Thanks.

Sure.

There are significant growth opportunities in the areas that we are strong today across TC-SAW.

We continue to push the frequency range in TC-SAW quite nicely.

We're winning a lot of products there, not only in transmit but also on diversity receive.

BAW technology is not critical, is not mission-critical.

We understand where it is and road maps -- where it isn't in road maps.

We are making great progress, again, in raising the market opportunity for our TC solutions.

Also, when you look at things like 5G, where we are seeing is that there is more and more TDD capability in 5G than FDD, so when you go to TDD -- time division duplexing-- you don't require a BAW filter or a BAW duplex.

You can do it with TC frequency, so that's another expanding opportunity for us.

Having said all that, we have access to BAW-- we're using it today with some of our flagship products with foundry partners.

We always take a look at make versus buy, is it an opportunity for us to invest in-house?

We will continue to weigh that balance, but be sure that we're going to be able to address the market as we need to.

We will be able to address the filter opportunities and the systems engines that we've been delivering for a year.

So there's no stop on that.

Steve Smigie, Raymond James.

Thanks, this is Vince Celentano on for Steve.

I was hoping you could tell us during the quarter how many 10% customers did you have, and if you can give us an idea of how big the overall Chinese handset OEMs were as a percentage of revenue for the smartphone space?

So we have two more than 10% customers: Foxconn, about 40%, and Samsung at about 10%.

Okay, great.

So with respect to China.

China all in -- I don't have the itemization of the handset versus the broad market-- all- in China is about 25% in that, and then if you look at the mobile portion would be led by Huawei, for example, but all-in 25%.

Okay, great.

And then obviously, this past March was more of an abnormality in terms of your normal seasonal trends.

Going forward, as you look at the March quarter, is there any reason you wouldn't see the normal trends you have seen the past few years before this past March?

Correct.

I think is we anticipate, typical market seasonality for our space is maybe 10% to 15% down in the March quarter.

Our mission is to offset that to some degree.

We're confident we can do it.

Last year was a bit of an aberration, so our job is to outperform that market in March.

Ian Ing, MKM Partners.

Welcome, Kris.

Looks like broad markets went down about 5%, went from 29% of sales to 25%.

So is that just lumpiness, or anything happening in wi-fi or IoT?

The issue there was more around infrastructure, more than anything else.

The IoT space was about flat.

That will come back up again in March.

And infrastructure was a bit of a drag on broad markets in this quarter.

Okay, thank you.

And then, maybe talk more about SkyBlue?

It looks like you've got some nice power efficiency solutions that go beyond envelope tracking.

It sounds like you had Panasonic?

Should we expect any progress in some of the geographies and other OEMs?

Great question.

I am glad you brought that up.

So SkyBlue is a method that Skyworks uses as another way to provide efficiency in the amplification and transmission food chain.

And so we do that with a very unique proprietary architecture we call SkyBlue.

It is embedded in some of our system solutions.

If you looked at some of the leading platforms that we have announced, and you can see through tear-downs, those devices are apparent there.

They made up with our SkyOne solutions to provide higher levels of efficiency -- incredible levels -- higher than ET, in many cases.

It's a device that is baseman agnostic.

We are working with all the key chip set providers as well.

And it is very early for us right now.

We have a long way to go with the solution.

We're continuing to provide new and additional revs with upgraded performance, but it is in production with four or five key brands today.

Edward Snyder, Charter Equity Research.

Thanks, Liam.

If iPhone excess inventory is all consumed by the time you exit December, as you indicated, why should we expect to see orders for those parts to you from Apple if they keep selling that phone into 2018?

Is that an erroneous assumption, but if the phones is still being built after they consumed all of their raw maternal from you, then I would expect you would see some sort of revenue for that product.

On MediaTek phase 2 and phase 3, China has been very strong for you and for your competitors, and I know that phase 2 and phase 3 only use modules with switches and amplifiers, but it sounds like MediaTek may be moving to pads earlier than expected.

You currently do not sell discrete filters into that market, but if they go to pads and you are one of the two big suppliers of those parts already, why should we expect that your filter demand should step up significantly, because MediaTek would obviously be buying those filters from whoever's supplying the modules, and that's going to be you and maybe Corval.

Yes.

Great insights, Ed.

On the first one, certainly, if there were additional demand requirements for the legacy products with our lead customer, we would be well positioned to deliver.

And that could be incremental revenue for us, so that's one.

Then with respect to MediaTek, you got it right.

Right now we have a very strong partnership with MediaTek, and one of the products that has done really well in that ecosystem is our Skylight product.

The Skylight product -- and I know you get this, but for everyone-- it is really a SkyOne solution absent the filter.

So we lay out all the required amplification -- transmit, receive, switching --and we do everything but the filters, and we allow the MediaTek ecosystem, the customers that use the MediaTek chip set, to pick and choose filters.

That's been the way of the land here for a while.

Next rev, we are looking at integrating, leveraging our TC -AW capability to bring in a complete PAD or SkyOne-like product to these MediaTek customers.

It's a great opportunity.

We're working on it right now.

Hopefully we will have more to report to you next quarter.

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

I will now turn the call back over to Mr. Griffin for any closing comments.

Well, thank you all for participating on today's call.

We look forward to seeing you at upcoming conferences and events during the quarter.

Thank you.

Thank you.

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

We thank you for your participation.