思佳訊 (SWKS) 2017 Q3 法說會逐字稿

Good afternoon, and welcome to Skyworks Solutions' Third Quarter Fiscal Year 2017 Earnings Call.

This call is being recorded.

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

Mr. Haws, please go ahead.

Thank you, operator.

Good afternoon, everyone, and welcome to Skyworks' third fiscal quarter 2017 conference call.

With me on the call today are Liam Griffin, our President and Chief Executive Officer; and Kris Sennesael, our Chief Financial Officer.

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

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 include non-GAAP financial measures consistent with our past practice.

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 produced another quarter of strong results in fiscal Q3.

Let me begin with a few highlights.

We delivered revenue of $901 million, up 20% year-over-year and above consensus, with gross margin of 50.7% and operating margin of 37%.

We achieved earnings per share of $1.57, up 27% year-over-year and $0.05 better than consensus and we continued to generate strong cash flow.

Our operating cash flow in the first 9 months of fiscal '17 exceeded $1 billion, up 63% compared to the same period last year.

In addition to our financial performance, we are aggressively expanding our design win pipeline.

In mobile, we are broadening our reach across all premiere OEMs.

Specifically, we supported Huawei's feature-rich smartphones with SkyOne and SkyLiTE products.

We extended proprietary DRx solutions for Samsung's Galaxy platforms.

We leveraged SkyOne and SkyLiTE at OPPO, Vivo, ZTE and Sharp, to name just a few.

And we extended out antenna tuning wins across virtually all of the leading Chinese OEMs.

In broad markets, we delivered ZigBee and Wi-Fi devices for Amazon's virtual assistance; ramped LTE MIMO solutions for leading infrastructure OEMs; commenced volume production of 802.11p modules, supporting vehicle-to-vehicle communications; released optocouplers supporting health care monitoring; unveiled high-efficiency LAA and LTE use solutions for small cell based stations; launched home security sensors and motion detectors at Honeywell and Bosch; and repowered NetGear's latest mesh networking product line, leveraging our proprietary 802.11ac technology.

So to summarize, we delivered strong financial results above consensus, diversified our design win pipeline across all key market segments and strengthened our balance sheet.

In fact, we are targeting in excess of $1.1 billion in free cash flow this fiscal year, while systematically returning cash to our shareholders through buybacks and increasing dividends.

Let me remind you, we are still in the very early innings of a massive sea change as big data alters the way we live, work, educate and play.

Growth projections around this opportunity are impressive.

Global mobile data usage is expected to grow 7x between 2016 and 2021.

IoT volumes are exploding, with 75 billion devices projected by 2025.

And there is still a compelling opportunity to connect the unconnected, which today represents over 3 billion people worldwide.

As we look to the future, the major stakeholders in this ecosystem will be dependent upon fast, reliable and secure connectivity, providing Skyworks with a tremendous opportunity to leverage our systems-level solutions and global scale.

At Skyworks, we have an ambitious vision, it's quite simply connecting everyone and everything all the time.

The connection could be a smartphone, a screening device, a car, a VR headset, a drone or a form factor we haven't yet imagined.

This vision is certainly relevant today and will be increasingly powerful as we look to the future.

Anticipating the needs of our customers and end markets, Skyworks' strategy to drive integrated system solutions remains a centric theme supporting the success of our business.

Our strategy is further underpinned by several key competitive advantages.

First, we have developed the broadest technology reach and highest performing portfolio, moving from power amplifiers, switches and filters to our advanced SkyOne and DRx platforms.

Second, we engage at a deep level with the most innovative and influential companies in the wireless ecosystem, working side by side, engineer to engineer to resolve challenges we see today and those we anticipate in the future.

Finally, we have global manufacturing assets and scale, providing us with an ability to deliver unique form factors and world-class quality across a broad set of applications and customers.

Moving forward, we will continue to play a leadership role in unwiring the planet, extending our reach across new markets and enabling billions of connected devices.

With that, I will turn the call over to Kris for a review of Q3 and our outlook for the current quarter.

Thanks, Liam.

Revenue for the third fiscal quarter was $901 million, up 20% compared to Q3 of last year and exceeding our guidance and consensus estimates.

Gross profit was $457 million or 50.7% of revenue, up 30 basis points sequentially.

Operating expenses were $123 million.

As a result, we've generated $333 million of operating income, translating into an operating margin of 37%, up 30 basis points sequentially.

Our tax rate was 12.7%, driving net income of $293 million or $1.57 of diluted earnings per share, exceeding our guidance by $0.05.

Turning to the balance sheet and cash flow.

Cash flow from operations was $314 million, an increase of 123% year-over-year.

Capital expenditures were $113 million.

Dividends paid in the quarter were $52 million, and we repurchased 1.3 million shares of our common stock for a total of $129 million.

We ended the third quarter with a cash balance of $1.4 billion, up nearly 50% from Q3 last year, and we have no debt.

Now moving to our outlook for fiscal Q4.

For the fourth quarter of 2017, we anticipate our revenue to be $980 million.

At this revenue level, we expect gross margin expansion to 51%, with operating expenses of $124 million.

Below the line, we anticipate roughly $1 million in other income and a tax rate of 13.5%.

We expect our diluted share count to be approximately 186 million shares.

Accordingly, we plan to deliver diluted earnings per share of $1.75.

Finally, we announced today a 14% increase in our quarterly dividend to $0.32 per share.

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

Thank you, Kris.

Clearly, Skyworks continues to demonstrate momentum in our business.

Our Q4 guidance reflects record financial performance, with 17% revenue growth and 19% EPS growth on a year-over-year basis.

Skyworks outperformance is driven by a vibrant, dynamic mobile ecosystem, one that rewards companies who can resolve architectural complexity with simplified integrated solutions.

At a higher level, Skyworks is well positioned to capitalize on the rapidly approaching 5G technology wave, enabling new markets from autonomous vehicles through emerging segments in artificial intelligence, robotics and virtual reality.

In closing, we are focused on creating significant shareholder value while executing on our ambitious vision of connecting everyone and everything all the time.

That concludes our prepared remarks.

Operator, let's open the line for questions.

(Operator Instructions) Our first question is from Harsh Kumar at Stephens.

Fantastic execution in the quarter, I just had a simple question.

Liam, you just put up a 20% growth rate you're guiding for '17.

I think from previous conversations with your company, I remember you talk about 3%, 4% unit growth, content growth of 10% to 15%, minus some ASP, but you seem to be doing a lot better than that as a company.

Even when your biggest customer is sort of flattish, call it, what is working here at a broad level?

And I have a follow-up.

Yes, sure.

Thank you, Harsh.

Well, a couple of things.

One of the points I'd like to make is that we really are making great strides on extending the reach of our portfolio, the content reach, innovating more and more with higher-end platforms, adding customers -- we've named several in the prepared remarks.

The other thing I'd like to point out, and we didn't comment on this in the script, but in our Q4, current quarter, we're going to get our broad markets business on a $1 billion annualized revenue run rate.

So we're going to be above $250 million.

That side of the business has been growing double digits, and then you add what we're doing in mobile by extending reach, you put that together and I think that's really the catalyst behind that top line.

And my follow-up, Liam or Kris feel free to comment here.

You talked about outpacing the industry growth.

I was curious how you're looking at the industry growth in the next 6 to 12 to 18 to 24 months?

And how do you think you will do relative to that?

How much better can you do relative to that?

Sure.

Well, we still think that the content momentum in mobile is compelling.

If you look at this ecosystem we talked about and the number of stakeholders that drive a mobile economy, right, whether it's Netflix or Amazon or Google, we know all these companies are making tremendous profits leveraging mobile.

So when we look out, we do see a significant content opportunity for high-performance integrated systems, that's what we do.

So the market still looks good.

It's hard to characterize the total unit base because there's a lot of mixed shifts.

But mobile is getting more and more value within semiconductors, and our ability to address that continues to expand.

And next, we go to Blayne Curtis at Barclays.

Liam, I was wondering, when you look at the September quarter, actually the whole back half, maybe you can just talk about the ramp of the North American smartphone guy versus prior years?

There's been a lot of talk about a later ramp, just curious what you're embedding into the second half for yourself.

Sure, Blayne.

Thank you.

We actually are seeing a predictable cycle with our largest customer.

The areas that we can control are around content reach and our ability to drive technology.

We feel really good about that part of the equation.

And our backlog visibility and forward-looking momentum, we feel very comfortable with it.

So we've worked with our largest customer for years.

We feel good about the cycle.

And we also have a very broad mix across legacy, new models and also a portfolio of nonmobile product within that account.

Great.

And then I want to ask you, there are a lot of concerns throughout the quarter, some of the sales data out of China for domestic China were a little soft the last couple of months.

Obviously, it's a complex equation.

They could be exporting, or we heard last night from QUALCOMM about a mixed shift to the high end.

I'm just kind of curious of your prospective on the entire market and what you're seeing also into the second half.

Sure.

Yes, I mean, China again, there's spots of weakness, I think, more in the 3G, 2G area.

The high end, as you articulated, is solid.

Huawei is a big, big player for us now.

OPPO and Vivo also important.

In Q3, we were up in China.

We're going to be up slightly in Q4.

We had -- Q2 for us, the March quarter, was more of a challenge.

We model through that, but Q3 up a little bit, and then Q4 again probably flat to up single digits.

And next, we go to Rick Schafer at Oppenheimer.

I guess my first question is just on the CapEx.

I guess it roughly doubled quarter-to-quarter.

Maybe you could provide some more color on what's driving that.

I mean, was it capacity adds for Mexicali?

Was it anything to do with the BAW effort?

And so how -- and how we should model CapEx going forward?

Yes, so CapEx tends to be a little bit lumpy quarter-to-quarter.

And typically, it's higher in the second half of our fiscal year and then lower in the first half of the fiscal year, but we target to have our CapEx on or about high single-digits percent to revenue.

Most of that CapEx is, of course, driven by a strong revenue growth that translate into more units, and so we're making the necessary investments in our front-end fabs as well as our back-end operation assembly in test and our filter operation.

There in -- for filter operation, it's not only extending or increasing the capacity, but also making sure we're making the necessary technology investments to be able to provide a higher content or richer filter portfolio.

Got it.

And then maybe a high little one for Liam, but how does the current situation between Apple and QUALCOMM affects Skyworks, if at all?

Yes, we really, at this point, don't see any effect on us, and then we certainly support our customer and we'll do whatever we need to do to help them be successful at this point.

And now we go to John Vinh with KeyBanc Capital Markets.

Kris, a question for you.

I was wondering if you could give us the breakout between broad markets and mobile?

And then, Liam, a follow-up to that, you'd mentioned about getting to $250 million in broad markets.

Was that a kind of a Q4 commentary?

Or is that somewhere outside of Q4?

Yes, so broad markets in Q3 was approximately 27% of total revenue; and so mobile, 73%.

Yes, John.

And with respect to broad market in Q4, we're looking for that $250 million handle in Q4 and obviously continuing from there.

So that would represent the $1 billion run rate.

Broad markets has been performing very well.

We put a lot of investment and effort around that in our portfolio around WiFi, around ZigBee, even LTE in some cases is really helping propel that momentum across really high-level diversification across customers and end products.

Great.

And then my follow-up question is around diversity -- DRx.

You guys seem to be doing extremely well in that market.

I was just wondering if you could just talk about how much runway do you see left there?

Obviously, it looks like a lot of the flagship phones today have uplink and downlink.

Should we think about most of that growth opportunity being in China and other customers?

Or can you just help us quantify that?

Sure.

Well, DRx technology, I know that you've studied that and you recognize the value that it brings to downlink communication in mobile.

It's a big deal.

And with this whole ecosystem that we discussed and the amount of data that's being driven through mobile, the DRx technology is more valuable than ever.

Just like our movement towards SkyOne on the transmit chain, we see a continuous evolution with more content, more complexity, more opportunity.

So you have -- the filling of the units perspective, introducing DRx to customers that don't have it, and then there's the continuous upgrade cycle with customers that have enjoyed that product and benefited from it, yet want more.

So we see that as a -- really kind of the mirror image of what we've done in the transmit chain and the content opportunity continuing to expand.

Now we go to Vivek Arya with Bank of America.

Liam, for my first question, I -- when I look at the implied mobile guidance for September, it sounds like it's up about 10%, 11% sequential, which is somewhat below seasonality.

So is it possible that you have predictable outlook at your last customer, but still the ramp is somewhat back-end loaded?

And if that's right, then is it possible that December or March are perhaps better than seasonal for your mobile business?

So I'm not sure how your math works, because we are guiding for the September quarter to be up 17% year-over-year, which is up 9% sequentially.

Right.

But when I look at the growth, Kris, from your broad markets business, it implies the mobile business would be slightly better than 9%, so up 11% or so sequential.

I'm just looking at that sequential and comparing it to your historical September, right, which tends to grow up substantially more than that.

So I'm just trying to think whether that is because perhaps the upper ramp is maybe pushed out a little bit this year even though it has not really changed versus your expectations.

Yes.

We’ll have to triangulate on the map.

I mean, we -- what I can tell you is, the outlook that we have in Q4 is solid.

It represents record performance.

We're not guiding Q1, but I think it's safe to say that you should expect continued growth into Q1.

And so maybe some of that will flush through on your map.

But we can discuss that offline if we need to triangulate.

Got it.

And then as my follow-up, longer-term question, Liam.

I'm on the same page as far as all the long-term trends and the leverage to big data and mobile and IoT are concerned.

The question is, what can you do to reduce their reliance on Apple, that is still close to 40% of your sales and has been that way over the last several years?

Right now, they are in front of a very good product cycle.

In another year or so, right, they will probably start to decelerate at some point.

So just conceptually, how do you think about reducing reliance on Apple at some point?

Sure.

Well, as the data represents, the broad market business has been on a substantial growth rate, starting with relatively low numbers a few years back and now it's a $1 billion business.

We talked about what we've done with Huawei.

We talked about what we've done at Samsung.

We've introduced a rich product line throughout China.

The IoT business within broad market has been incredible for us and it leverages different technologies.

And with respect our large largest customer, we're going to win all the business we can with that account, that's not going to stop.

So I think if you weave all that together, that's our strategy.

And also, you have to look at the market value of the opportunity across customers.

And if you look at how the shares break out, it's important to be balanced, and we certainly are.

And our next question comes from Edward Snyder at Charter Equity Research.

And speaking more to the mobile question, Liam, do you expect this year that you might wind up on more different SKUs of your largest customers?

Last year, you were on the QUALCOMM SKU.

Is that going to be the case again this year?

Or are things going to be a little bit different when you get a piece of the Intel?

Well, we expect to have solid position with all of the base bands that our largest customer use.

We feel very good about that.

We refresh our product line in ways that make sense.

We have a technology reach that's expanded.

We've demonstrated our ability to work with multiple base band providers just by looking out through the market, whether it's HiSilicon, whether it's QUALCOMM, whether Intel or MediaTek.

I think you know we've demonstrated diversification in our ability to link and sync up and calibrate with base bands.

That's -- nothing's different with our largest customer.

We will demonstrate the same level of performance.

Just as a way of clarification, I know you had content on all SKUs last year, but your concentration content was mostly with QUALCOMM, I think, on the last model.

And then, to follow up on the DRx question that was posed earlier here.

I know you talk in general, there's a lot of growth here.

But more specifically, now that cellular MIMO's coming into some of these flagship phones, doesn't that cause a significant increase, maybe even a doubling -- maybe not doubling depending on the content, but certainly in terms of units or modules, don't we see maybe a significant maybe doubling or tripling of DRx modules to support cellular MIMO?

Yes, absolutely.

I think that's a significant trend.

Early -- very early innings right now.

But the important part is getting the baseline right, which we've done, and then starting to move that technology forward and then having the multiplication effect of MIMO architectures is going to be a great opportunity.

And as you know, what it does for the user, what it does for data delivery is incredible.

So the value of that technology is good for us, but it's great for the ecosystem, it's great for the end customer.

And next, we have Toshiya Hari with Goldman Sachs.

My first question is on gross margins.

Kris, I think gross margins at Skyworks has been relatively stable over the past, say, 4 to 6 quarters despite revenue being weaker 1 year ago and now much stronger today.

So basically, we haven't seen much leverage to the upside nor the downside.

Can you remind us what the long-term goal is for you guys in terms of gross margins?

Yes, our target is to get to 53% and we are making good progress towards that target.

In Q3, we added 30 basis points.

For Q4, we guide another 30 basis points.

And of course, in the December quarter, we expect, on higher revenue, further improvements on the gross margin as well.

Okay.

And then as a follow-up, kind of related to that, you guys have talked about insourcing filters going forward and that being an opportunity to improve gross margins.

Can you remind us where you are in that process?

And again, what the end goal is there?

Yes, currently, we have approximately 50% of the filters in-house.

As we ramp in the second half of calendar year '17, here, a new set of platforms that will further increase probably towards the 75%.

And then we will continue to work on that in '18, probably, at the max, we will reach 90%.

And next, we go to Ambrish Srivastava from BMO Capital Markets.

This is Kulin Patel calling in for Ambrish.

My first is a follow-up on the gross margin question.

On a year-on-year basis, you're guiding September quarter revenues up 17% year-on-year, but your GM's flat.

Can you help us understand -- you talked about issues on expanding GM, but what is offsetting that?

Why aren't we seeing a year-on-year increase?

Yes, there's a lot of put and takes that go into gross margin.

Obviously, on the revenue side, you have pricing and mix shifts.

Although there, from a pricing point of view, there is no real change.

It's a relatively stable by environment.

From a mix point of view, we continue to work on bringing more complex, more integrated, more value added products to the market.

We're growing our broad market business, which is slightly above average gross margin and so that helps a little bit there.

Then on the cost side, of course, we continue to execute our driving operational efficiencies, yield improvement, test time reduction, sourcing actions as well as our in sourcing.

Also, keep in mind that our days of inventory right now is approximately 10% lower than it was 1 year ago.

So when you put that all together, again, I feel comfortable that we can continue to further improve gross margins towards our target model of 53%.

And on the capital allocation, you recently announced increasing dividend, how does that sync in with your capital allocation framework again?

And can you remind us of your capital allocation framework?

Yes, absolutely.

So first of all, I feel good about the balance sheet.

We have $1.4 billion of cash and no debt.

Keep in mind that roughly half of the cash is onshore, half of that cash is offshore.

Secondly, I feel really strong about our ability to generate cash.

On a year-to-date basis, our free cash flow margin is approximately 31%.

Again, take into account that roughly half of the cash being generated is onshore, half is offshore.

And in terms of returning cash to the shareholders, our stated goal is that we want to return 40% to 50% of the free cash flow back to shareholders using our dividend program and share buyback program.

Actually, year-to-date, it's approximately 60% that we have returned, 60% of the free cash flow.

We are very active with our share buyback program.

Last quarter, we repurchased 1.3 million shares, $129 million.

And we have our dividend program which we announced today, that we increased it by 14%, increasing the dividend from $0.28 per share to $0.32 per share.

And for our next question, we go to Chris Krastel at Raymond James.

I wonder if you could walk us through network -- we're talking about -- with your guidance for September up 17% year-on-year, where that comes from as best you can in terms of pros and cons and (inaudible) where the growth and content comes?

And I guess with -- if I remember correctly, the first half of last year, there was some inventory burn with your largest customer, so is it correct in thinking that this year-on-year comp is now a cleaner year-on-year comp?

Sure, Kris.

Yes, this is definitely a cleaner year-on-year comp, I'll start with that.

And if you look at the outlook here, the 17% up in Q4, and then, again, we expect to be up in Q1 -- we haven't guided, but we expect to be up, you've got a couple of things happening.

You've got a predictable mobile cycle, and Skyworks having some real strong content aligned with that mobile cycle, so that's a positive.

We're continuing to do well in the broad markets.

The IoT space within broad markets is solid.

And then, again, I think if you just look out at some of these new accounts that we've been developing, beyond our largest -- the Samsung numbers, the Huawei numbers, elements of China all contribute to that.

But it's a mobile-driven second half we're in excellent position for, our visibility is real solid.

And we expect to be able to drive the right kind of performance.

Q4, as we outlined, is a record for us.

Q4, with our guidance of $980 million, it's record revenue and it's record EPS.

And it's not going to be the peak quarter in the calendar year, so I think there's more to come.

Okay.

As a follow-on to that, how should we be thinking about content this year at your largest customer?

And I guess for one, are you still expecting that to be up year-on-year?

And then, is it anyway mix dependent?

And unlike this year, there may be some differences in terms of the models, mix baked into that?

Is your content dependent, to some extent, on some of that mix going forward?

Well, we can't get into too much detail here with our largest customer, but we have confidence in what we've modeled financially.

We completely understand what we've won with respect to content, and we completely understand where the mix is.

And having all of that flush through with our guidance, it's lined up very well.

And the position that we have with backlog is solid.

And the other accounts around that, we have very good visibility.

So that's where we are at this point.

Next, we go to Craig Hettenbach with Morgan Stanley.

This is Vinayak calling in for Craig.

I had a follow-up on China.

So you said you're expecting China to be flat to up slightly in September.

How does that compare to typical seasonality?

And secondly, like what potential do you see in the region for content growth?

Where are you now and where do you see the content heading over the next 2 to 3 years?

Sure.

Yes, I mean, with respect to typical seasonality, normally, you don't see, going into September, a big pop from China.

I mean, it's kind of a neutral period.

That's been our history anyway.

But we continue to grow, overall, the revenues in China.

So on a sequential basis, we look at it as slightly up, nothing substantial.

China year-over-year for Skyworks is still a double-digit grower.

With respect to content, I think that's the real story for us.

And we've talked a lot about names like Huawei where we posted very significant content, approaching $9 to $10 with P9 and A series phones.

OPPO and Vivo, they're kind of moving up the food chain.

Not quite at the Huawei level in terms of performance or content, but moving up.

And we're not a big, big player in the lower end of China.

That's not our game.

We do have some broad reach with MediaTek positions that do get us into some of the 3G markets and some of the other 4G markets.

But content is a key element.

We haven't -- we're starting to roll out our antenna tuning platforms now into China.

The DRx attached in the mid-tier China really is early innings again.

So there's a lot more to do in China, but the current position that we have right now is solid.

Got it.

That's helpful.

As a follow-up, I wanted to talk about your positioning for carrier agg.

Like with increasing penetration of the carrier aggregation, as we see a lot of mixing of bands in the mid and high band, right?

Like, how are you positioned there?

Like, is your strategy focusing there with multiplexes that involve DC SAW filters?

Like, eventually, would you require BAW filters there, and that's something that you look for partners?

Or some of it captive solution?

Like just comment how you're positioned for carrier aggregation.

Sure.

Well, I mean, we're not only -- we're actually delivering carrier aggregation-based solutions.

We've been doing that for years.

The SkyOne technology, which is more transmit chain, integrating multimode, multiband PAs, with switching and high performance filtering, delivering CA upload -- uplink on the DRx side, the category we discussed on a few questions already today, the diversity receive technology is providing carrier aggregation on the downlink.

And there's a variety of filters that, depending upon the bands that you're engaged with, it could be a standard SAW, TC SAW bulk acoustic wave, or a technology that can even use a passive device in some cases.

So we're very well positioned, and we're looking forward to carrier aggregation.

It has been one of the catalyst that's driven content expansion through mobile and through the whole RF space, and I think it will continue to increase.

For us now, the DRx category where we've led has been really illustrating the performance of CA and the downlink, as I mentioned, it's a big deal.

But the DRx category has been lightly populated with just a handful of meaningful accounts.

We have a long way to go to roll that out globally.

So we're in a good position.

And next, we go to Craig Ellis with B. Riley Financial.

(inaudible) As we look at the last couple of years for the company, you've had a very good we've of growth driving SkyOne and SkyLiTE into your customer base.

And then, more recently, diversity receive has come long.

As we look out over the next 12 to 18 months, what will represent that third leg of growth for the company?

Is it MIMO on the diversity side?

Or are you seeing some new content opportunities that could be somewhat similar to the diversity receive where it gives you net new content gain opportunity?

Yes, that's a great question, Craig.

So a couple of things.

We do believe, and I think this was mentioned by one of the analysts already today, MIMO is real.

It's going to produce significant gains in data rate and performance back and -- content generated back and forth from the phone to the cloud, and MIMO is going to be a big deal for us.

So we have the technology in place to deliver and that could be substantial.

There's some other technologies that we are looking at with our filtering portfolio.

There's still -- for Skyworks, there's a lot of customers that we have that use the SkyLiTE architecture which excludes filtering.

So the filtering is handled on a discrete basis.

We deliver everything else and they made it together.

We want to drive that towards integration.

That would be a benefit for us.

The broad market in IoT space continues to look good, and we're starting to see a migration.

As an example, one of the leading home surveillance companies, video companies, where we started with a light duty Wi-Fi device with relatively low content, and now the technology is moving to real-time streaming and 4K.

And the value for us, the content opportunity goes up 3 to 4x, and that's just with one example.

So there's IoT in units and then there's IoT in content.

And then, again, in classical mobile, you've got the high-end looking at MIMO, you have the mid-tier and low tier looking at DRx and SkyOne with filters for the first time.

So all of those things come together.

And that's kind in your 18- to 24-month time horizon.

If you get -- if you go out beyond that, we do think, within 5G, there's going to be a whole new set of opportunities that are going to be driven by the 5G capabilities, higher data rate, lower latency, things like autonomous vehicles should be very strategic to Skyworks and some other applications.

But we have a pretty good line of sight over the next couple of years on where the market's going to go, and it's our job to be ready to deliver products.

Just a follow-up then on 5G.

I think it was in the last 2 months that another company that's been in your ZIP Code indicated that their expectations (inaudible) from your device partners and your infrastructure partners on the broad markets side for when you'll start to see some impact to that business?

And will we see it more on the handset side or the broad market side for Skyworks?

Yes, I missed some of your question there, but I'll try to answer it the way I believe I heard it.

So on the handset side, what we are seeing -- and again, this is a few years out, we're seeing 5G engines will augment the existing 4G technology.

So it's a case where you're going to have an incremental slice of content to handle the higher frequency bands in 5G and some of the CA and downlink work required for 5G.

So that'll be an incremental value in mobile.

On the infrastructure side, there's going to be a very substantial upgrade cycle going on to deliver 5G technology.

So that could be powerful.

And as you know, we have technologies there.

There's also going to be, I think, a proliferation of small cell technology kind of in the metro areas around 5G, and we'll participate there as well.

So you've got a mobile side, you've got classic infrastructure and then you have the small cell space.

And our next question comes from David Wong with Wells Fargo.

Within your broad markets, do you have all the technology, the key products you'd like that to have to develop businesses at the rate you want?

Or are there specific new capabilities you're either developing in-house or thinking about acquiring?

Sure.

No, that's a great question.

We could always do more.

We could always add to the broad market portfolio for sure.

I mean, today, what has been really the key for us is the connectivity portion of IoT in broad markets.

So within IoT, really just delivering whether it's ZigBee or Bluetooth or Wi-Fi or GPS, Skyworks is able to attach to these applications.

Other parts of broad market like infrastructure can bring you a whole different set of products.

You can have A to Ds and D to As and power management and other things.

But I will tell you that our reach in the broad markets is expanding, and as we start to build better relationships and stronger partnerships with more and more companies, nonmobile companies, in many cases, we're learning more about what the architectures look like.

So there's been several occasions where we've got an initial design win with a broad market customer on a certain component and that's led to an expansion in the relationship and opportunity.

And we succeeded with adding content and new application, so we want to continue to do that.

But definitely, connectivity has been a key.

But there's been a lot of things around connectivity that we could wrap up and kind of -- and lever into our system solutions.

Much like what we've done in mobile, where we started with power amplifiers and then brought in switching and then brought in filtering, and now deliver that as a single engine in SkyOne or DRx on the downlink.

And our next question is from Vijay Rakesh with Mizuho.

Just going back to the seasonality as you go to the end of the year.

When you look at the December quarter, do you expect a similar trend as you saw last year where I think, last year, you had an up 9%?

Or rather do you expect to see this same 17% to 20% year-on-year growth coming into the back half as well?

Yes, I mean, we're not going to give you a full guidance for December.

But certainly, you should expect a sequential increase similar to what we've been seeing over the last -- we're not sure how it will roll up.

At this point, we're not going to guide the full quarter, but it will be certainly be up.

Got it.

As you look at -- you talked about $1.4 billion cash on hand and $1 billion plus of free cash flow now.

Any thoughts on -- if you're looking at diversifying your business M&A, any thoughts around that?

So in terms of M&A, we haven't changed our view.

So we feel really good about our organic business, the ability to grow the top line and grow the bottom line to record levels.

And so we definitely are not desperate.

We -- but having said that, yes, we look at multiple potential targets out there.

We keep our eyes open.

And if the right target comes along at the right price, we'll definitely have a look at it.

And our final question comes from Srini Pajjuri with Macquarie Securities.

A question about China.

As you look out to next year's design -- I guess you're probably bidding for next year's design cycle in China.

Now I'm just curious as to if you're seeing any change to competitor environment given QUALCOMM-TDK, as well as the fact that the BAW filter availability has improved at your competitors.

Yes -- no, there isn't anything new related to TDK-QUALCOMM in this.

The filters were available before, they're still available now, I don't think that's changed.

What we do see in China, though, and this is a really important dynamic, is that finally now the market leader in China, Huawei, who for years really kind of drove a mid-tier connectivity architecture, they're now driving a high-tier connectivity architecture.

That's a big difference.

And that's an opportunity for us to bring $9, $10 of content to the market, and we've demonstrated that.

We're starting to see the mid-tier move in cycle, maybe not quite up to that level, but they're also seeing the benefit of connectivity within their bill of material and the benefit of high-speed data and what that means to their consumer and how that allows them to sell more and more phones.

So we see some really nice upgrade cycles there.

One of our partners -- we have a lot of designs with QUALCOMM in the region.

We have a lot of designs with MediaTek in the region.

And then if you go with Huawei, which is the flagship account, that's HiSilicon.

And our relationship there, engineer to engineer, in the lab, developing unique architecture has been outstanding.

So we've got quite a bit of diversification.

There hasn't been a big change.

But I think, today, the catalyst towards moving upstream and adding more value from the OEM perspective is playing out really well for us here at Skyworks.

Great.

And then my follow-up, I guess more of a longer-term.

Liam, you mentioned 5G, it'll happen in the next couple of years.

I guess I'm just curious as to what type of filter technology will be used.

I guess there are 2 different sets of frequencies, one is sub-6 gigahertz and then we're also hearing about millimeter wave.

And I want to hear your thoughts on how well you're positioned in both of these different frequency ranges.

Yes, sure.

Well, one of the things that you also need to mention is kind of the way that the duplexing is going on.

So you've got -- in China, there's FDD, frequency division duplexing; or TDD, time division duplexing, and that's a big, big issue around filters.

That's going to drive what filters you select.

So in addition to just the frequency band themselves and how high those frequencies go, you have to look at the duplexing technologies.

So one of the things we are seeing is in TDD, time division duplexing, you can use TC SAW, you don't need bulk acoustic wave.

And in FDD, frequency division, where there's more of a burden, the bulk acoustic wave technology plays better.

A shift in 5G is actually opening up more opportunity as the markets move into time division, so that's one important point.

Beyond that, the temperature compensated devices that we have today have a reach that goes up to 2.5 gig, and we're continuing to push higher in mid-band.

So one of the things that you have at Skyworks is a lot of -- we have a lot of greenfield in our filtering capabilities.

We can go as low as 600 megahertz all the way to 2.5 and potentially higher with TCS SAW.

When you jumped to 5G and you move to TDD, time division, there's a whole new opportunity for us that doesn't necessarily require bulk acoustic wave.

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

I'll 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 investor conferences and other events during the quarter.

Thank you.

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

We thank you for your participation.