Qorvo Inc (QRVO) — Q2 2022 Earnings Call Transcript

Thanks very much, Todd. Hello, everybody, and welcome to Qorvo's Fiscal 2022 Second Quarter Earnings Conference Call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today as well as the risk factors associated with our business in our annual report on Form 10-K filed with the Securities and Exchange Commission because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain noncash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our website at qorvo.com under Investors. Joining us today are Bob Bruggeworth, President and CEO; Mark Murphy, Chief Financial Officer; Eric Creviston, President of Qorvo's Mobile Products Group; Philip Chesley, incoming President of Qorvo's Infrastructure and Defense Products Group; and James Klein, outgoing President of Qorvo's Infrastructure and Defense Products Group; as well as other members of Qorvo's management team. And with that, I'll turn the call over to Bob.

Thank you, Doug, and welcome, everyone, to our call. The Qorvo team delivered an exceptional September quarter with revenue and EPS at all-time highs. Strength during the quarter was broad-based across customers and supported by new product launches. In Mobile Products, the multiyear migration of 5G continues to drive RF content and integration trends. What began in top-tier flagship phones is now playing out in the mass market, where the RF content increase is greater on a percent basis than in flagship devices. Qorvo enjoys broad exposure to mass market designs to customers like Honor, Oppo, Pixel, Samsung, Vivo, and Xiaomi. As a preferred supplier with leading products and a robust technology roadmap, Qorvo is well positioned as 5G devices and the Android ecosystem contribute increasingly to the growth in the RF total addressable market. In other connectivity markets, ultra-wideband adoption in smartphones is serving as the infrastructure for a growing ecosystem of ultra-wideband-enabled devices. The opportunity set spans mobile, automotive, and IoT markets, creating a strong foundation for growth over the coming years. In WiFi, the adoption of WiFi 6E and the performance limitations of smaller node CMOS-integrated PAs are driving the migration to chip onboard FEMs and iFEMs like ours. In WiFi and other markets, Qorvo's products and technologies are at the forefront of multiyear upgrade cycles, enabling new ecosystems and use cases and transforming the user experience. Now let's look at some of the quarterly highlights in our end markets, starting with mobile. For Google, we commenced shipments of mid-high and ultrahigh band PADs, antenna tuners, and multiple connectivity solutions to support the ramp of their recently announced Pixel 6. For an upcoming Korea-based 5G mass-market smartphone platform, we received the first production orders for our mid-high and ultrahigh band PADs, WiFi FEMs, and multiple high-performance discrete solutions. In mobile WiFi, we secured WiFi 6 FEM design wins with multiple top-tier smartphone OEMs and began sampling WiFi 7 FEMs, enabling higher data rates and improved performance. In ultra-wideband, Qorvo is advancing technologies for a diverse ecosystem of proximity-aware connected devices. We secured an ultra-wideband design win to enable real-time device tracking and other location-aware applications in home mesh networks, and we were selected to supply ultra-wideband solutions for enterprise access points as well. We also expanded our engagement with a leading provider of consumer IoT products across a broad set of connected home devices, including smart speakers, point control fans, and air conditioners. In automotive manufacturing, Qorvo was selected to supply ultra-wideband and ZigBee solutions with ConcurrentConnect technology to an automaker in Korea, streamlining automation and manufacturing. In other connectivity markets, we began sampling a WiFi 6 iFEM covering 5.2 gigahertz and 5.6 gigahertz, featuring an integrated BAW filter. Qorvo's 5 gigahertz iFEMs enable higher capacity and improved efficiency and reduced form factor. In broadband, we begin sampling a triple-output DOCSIS 3.1 amplifier module supporting network upgrades for major cable operators in the U.S. and in Europe. In infrastructure, design win activity was strong across OEMs, including small cells and base stations. Wins included all of the RF transmit and receive path content, including BAW filters for 5G small cells at a major base station OEM. We see infrastructure markets picking up in 2022 with Qorvo's serviceable addressable market growing year-over-year. The serviceable addressable market for Qorvo outside of China will post significant growth next year and support a strong double-digit compound annual growth rate through 2025. In aerospace and defense, we expanded our product portfolio with an industry-leading 125 watt S-band power amplifier module and a 1.8 kilowatt L-band radar pallet for commercial and defense radar applications. In RF-based biotechnology testing, we received our first commercial orders and commenced shipments of our Omnia antigen test platform. During the quarter, the NIH RADx variant task force conducted an external study that demonstrated the performance of our Omnia antigen test platform in effectively detecting COVID variants, including the delta variant. Although this is a new market for us, we believe we bring a novel technology that offers unique and real value as the world moves to more testing protocols, including for flu A/B and other seasonal pathogens. Our platform offers a unique combination of accuracy and speed at the point-of-care with improved process flow, including real-time wireless delivery of results. We have seen its benefits in our own operations as part of our protocol for our own internal testing. After the quarter closed, Qorvo acquired United Silicon Carbide, an innovator in silicon carbide power devices and a pioneer in silicon carbide JFETs. The combination will further differentiate Qorvo's power portfolio, enabling more highly integrated power device solutions and expand our addressable market to include higher voltage applications that demand maximum power efficiency such as electric vehicles, charging stations, and renewable energy systems. We welcome Chris Dries and his team and look forward to helping them accelerate the growth in their business. For Qorvo, our ability to deliver more power more efficiently while using less current helped put us at the center of the digital transformation. We are eager to expand these competencies as global markets move to electrification and renewable energy. Qorvo's technology portfolio is best in class. Our product position is strong. Our end market exposure is expanding, and we are operating very well. Yes, we are seeing constraints, and we are working closely with our customers and our partners. Mark will have more comments about the operating environment, and we look forward to discussions during your question and answers. Big picture, we see the industry working through this as it always has. For Qorvo, we see a business with unique competencies and an expanding set of growth drivers, and we expect a continuation of double-digit growth over several years. Before handing the call over to Mark, I'm pleased to welcome Philip Chesley as President of Qorvo's Infrastructure and Defense Products Group. Philip has a proven track record, growing global semiconductor businesses with experience in RF, power, data communications, automotive, industrial, aerospace, and defense. We are very pleased Philip has joined Qorvo to lead our IDP team. I also want to thank James Klein. Since the formation of Qorvo, James and the team have more than doubled IDP revenue while creating a recognized industry leader. We thank James for his many contributions to Qorvo and wish him the very best. James will remain with us through November to help ensure a smooth transition with the change in IDP leadership. And with that, I'll hand the call over to Mark.

Thanks, Bob, and good afternoon, everyone. In the September quarter, Qorvo delivered the strongest quarterly revenue and earnings in the company's history. Qorvo's revenue for the fiscal year 2022 second quarter was $1.255 billion, $5 million above the midpoint of our guidance and $195 million or 18% higher than last year's September quarter. When comparing September quarter numbers, recall that our fiscal year 2021 was a 53-week fiscal year, and the September quarter last year was a 14-week quarter versus this fiscal year's more typical 13-week quarter. Mobile Products revenue of $996 million was up 32% year-over-year on the continued growth of higher content 5G smartphones. Infrastructure and Defense Products revenue of $260 million was slightly below expectations due to reduced supply from outsourced assembly and test operations in Malaysia and elsewhere. As expected, IDP was down year-over-year due primarily to last year's strong infrastructure build-out and the 14-week quarter. We expect IDP to return to year-over-year growth in the December quarter and growth to accelerate in the March quarter. Non-GAAP gross margin in the September quarter was 52.4%, exceeding the midpoint of our guidance despite worsening supply chain disruptions throughout the quarter. Non-GAAP operating expenses in the second quarter were lower than anticipated at $222 million, representing 17.7% of sales. The sequential and year-over-year increases in operating expenses were driven by technology and product development costs related to key growth initiatives and recent acquisitions. Non-GAAP operating income for the September quarter was $435 million, or 34.7% of sales, marking the fourth consecutive quarter with an operating margin above 33%. Non-GAAP net income in the second quarter was $385 million, with diluted earnings per share of $3.42, which was $0.18 higher than the midpoint of our guidance. Cash flow from operations in the second quarter was $245 million. Our working capital reflects an increase in payables associated with a long-term silicon supply agreement. The largest of these payments is a deposit that we expect to recover by the end of the agreement in calendar 2025. This agreement serves as a structured method to enhance our unique technology position and streamline our long-term planning. Additionally, it is just one of several ways that Qorvo is fostering longer-term and more collaborative partnerships to provide our customers with supply assurance and address their product and technology needs. Concurrently, our customer relationships are broadening and strengthening, allowing us to invest with more certainty. As we have indicated previously, the challenges the industry is currently experiencing are driving more constructive and longer-term relationships that we see enhancing the overall durability and value of the business. Capital expenditures in the September quarter were $47 million, lower than expected on spend timing and an earlier-than-expected reimbursement for a portion of our government-funded work on advanced packaging. Free cash flow was $198 million, and we repurchased $223 million of shares. Over the last 2 quarters, we've purchased $523 million of shares, which was 110% of our free cash flow. We continue to repurchase shares as our outlook is positive. Our free cash flow and ability to sustain investment in technology and growth is strong, and our leverage remains low. On the balance sheet, cash and debt remained largely unchanged from the prior quarter at $1.2 billion and $1.7 billion, respectively. In the December quarter, our cash is projected to decline, following payments associated with the previously mentioned agreement and with our acquisition of United Silicon Carbide. Now turning to our current quarter outlook. We expect revenue between $1.09 billion and $1.12 billion, non-GAAP gross margin between 52% and 52.5%, non-GAAP diluted earnings per share of $2.75 at the midpoint of our guidance. Our December quarter revenue outlook reflects broad-based challenges in supply, impacting Mobile and IDP and near-term weakness in demand, principally in Asia. Starting with supply, we have several areas of constraint. Our external supply chain is still recovering from disruptions in September, including shutdowns in Southeast Asia. Beyond that, select materials, products, and production capacity remain tight. These are industry-wide issues affecting all suppliers, and our customers are challenged in producing matched sets for products. For example, in smartphones, even where channel inventory for certain parts is healthy, customers lack silicon chips to produce phones. This, in turn, creates changes in demand that add to constraints on our own production as we work to adjust the mix. Mix changes are part of our business, but in a normal environment, Qorvo can move swiftly to respond and capture demand. These supply-driven gaps are making recent demand softness in select areas, such as our Asia smartphone customers, harder to quantify. We see the industry working through this situation with some supply effects beginning to moderate this quarter and supply/demand alignment improving more broadly through the March quarter. Given these supply and demand effects, we now see 5G smartphone volumes coming in below 550 million in calendar '21. Qorvo's December forecasted revenue of $1.105 billion at the midpoint is down 12% sequentially and up slightly year-over-year. We forecast Mobile revenue in the current quarter to be approximately $830 million at the midpoint, down 17% sequentially and flat year-over-year. In the March quarter, we expect Mobile to be up slightly sequentially as the typical seasonal decline is offset by improved supply and demand. In IDP, we project revenue to increase in the December quarter to $275 million and the segment to return to year-over-year growth. We expect IDP to be over $300 million in the March quarter. Our December quarter gross margin guide of 52.25% at the midpoint is up versus the view we provided last quarter despite a more challenging supply/demand environment than expected. We see our technology and product mix and operating and capital efficiency yielding a gross margin above 52% for the fiscal year. We expect the March quarter to be around 52%. We project non-GAAP operating expenses to increase slightly in the December quarter to approximately $224 million, reflecting higher investments in core technologies and expanding capabilities in new businesses, including the addition of the United Silicon Carbide team. We now project our current quarter and full year non-GAAP tax rate to be between 8.5% and 9%. Capital expenditures are projected to exceed $70 million in the December quarter as we work to intersect demand and support long-term supply agreements with multiple customers. Currently, we are supply-constrained and project to remain so through our fiscal year-end. We continue to expand BAW and GaAs capacity as well as biosensor production capacity to support our growth projections for fiscal 2023. In summary, we expect year-over-year revenue growth in the December quarter, though less than we had anticipated earlier. The current supply challenges and short-term demand weaknesses are significant but more temporary than lasting. We expect supply effects to ease starting this quarter and an improved supply/demand alignment early next calendar year. For the full fiscal year '22, we anticipate revenue growth of over 15%, gross margin exceeding 52%, and an operating margin of approximately 33%. Looking beyond this fiscal year, we expect double-digit growth to continue as Qorvo's premium technology, product portfolio, and operational capabilities support 5G, WiFi, IoT, defense, power, and other growth markets. Overall, we are investing to grow Mobile and IDP at or above market. Looking at our business by end markets instead of operating segments helps highlight the strength of our portfolio and market position. On advanced cellular RF front ends for smartphones, Qorvo's technology and product breadth is world-class. We expect this part of Qorvo's business near $3.3 billion this fiscal year to deliver high single-digit to low double-digit growth as increasing RF complexity and integration trends support years of content expansion. Next, looking at other connectivity beyond cellular solutions for smartphones, Qorvo enjoys exposure across multiple wireless protocols and serves industrial automation, connected home, automotive, and other high-growth IoT markets. This fiscal year, connectivity solutions spread across our Mobile and IDP segments combined to approximately $700 million and can grow in the strong double digits. Finally, defense, infrastructure, and power solutions support multiple long-term growth drivers. These include the multiyear build-out of 5G infrastructure, increasing semiconductor spend in defense, and worldwide demand for power semis driven by mega trends like electrification. We expect to sustain long-term double-digit growth in this business from a base of over $600 million this fiscal year. Our December quarter is off of what we expected previously, but still guided up year-over-year as is our view of the March quarter. We expect the business to strengthen through the second half of our fiscal year and contribute to a record full year performance, including earnings growth over 20%. Longer term, the outlook is bright. Qorvo is exceptionally well positioned to deliver earnings and free cash flow growth, serving the large and growing need for more efficient power and greater connectivity. Now Todd, would you please open the line for questions?

I have two, if I may. My first one is probably for Mark. The 17% sequential decline you're guiding to in your Mobile business for December is probably hard. But can you sort of break that down into supply factors and demand factors to the extent possible? And then on the demand side, you talked about weakness in Asia, but if you can elaborate on that, that would be super helpful. And then I got a quick follow-up.

Sure. So Toshiya, we decreased our December number about $150 million, as you can see, and about $135 million of that was in Mobile, where we went from roughly 965 to 830 in the December quarter. The balance of the decrease was IDP. IDP is the most straightforward. It's all supply in IDP. So just keep that in mind. Of the $135 million roughly in Mobile, as we characterize supply constraints, which is our suppliers not having supply for us, our customers not having the chipsets, thus not able to build their product and use our product, and then finally, our own internal constraints, we see up to $100 million that we would characterize as supply related of that $135 million. The balance, so $35 million we would view as net demand. Some demand is up and we're able to intersect that. But some demand is clearly down, and I think that's well publicized, particularly in parts of Asia. So broad brush strokes were three quarters or less down on supply in Mobile and one quarter or more related to demand. Now if you add in IDP, which is all supply, then that proportion is stronger. So that's our view, Toshiya.

Great. And then as my follow-up, you guys talked quite a bit about having constructive longer-term conversations with your customers. You also talked about your long-term silicon supply agreement. As you kind of compare and contrast the visibility you have today versus three years ago, five years ago, I mean, how would you characterize the key differences? I'm sure you've had long-term agreements in the past, but how much bigger are they as a percentage of your backlog? And how enforceable are they going forward relative to history?

Toshiya, this is Eric. I'll take that. I think one of the silver linings in this environment is how constructive the conversations have gotten in terms of much longer term. So not just one or even two years, but in some cases up to three years of discussions about how we're going to outline both our technology and supply roadmap to our customers' product roadmaps, their markets, and what they expect to ship. And first, there's no crystal ball. It's not perfect, but at least we have ranges of alignment and sort of volume bars, share windows, and things like this that we can talk both to our customers and to our suppliers. I think for suppliers, it's a great benefit to them and us to have more stability. And for our customers, of course, supply assurance is paramount, and for us to have more confidence in our growth of the businesses is, of course, very important as well. So it's a very different environment driven by all the factors we've talked about already on this call.

For the first one, I'm curious, given the supply constraints in the industry, does that change the competitive landscape in the RF side in some way as we look at next year? So, for example, one of your competitors can bundle their apps, processors, and modems along with the RF side. Do you think that gives them perhaps an advantage from a competitive perspective as we look at next year?

This is Eric. I don't think so. Technology decisions are still critical to enable next-generation phones, and best-in-class RF is still going to win in the front-end section. So I don't think we're competing against people that have advantages of bundling across the boundary, if you will, from the apps and modem side to the RF side really. And I think, again, just as in the last question with Toshiya, I think the long-term visibility we have and kind of planning our technology roadmaps, we're getting no signs that there's any change, if you will, in terms of the bundling or the architectures that would change that.

Vivek, this is Bob. Thanks for your question. I think the other point that's interesting is that a lot of the things that our customers are waiting on are from some of those very people you mentioned. So I think we need to keep that in mind. It's not us. The primary reason is we have the parts. We can get the parts for them. They've been saying, as we've mentioned many times through last quarter as well as this quarter, the challenges our customers have with matched sets or kitting, whatever vocabulary you want to use, that's been their bigger problem, is in SoCs, not with RF front ends, at least not from us.

Got it. Regarding the recently announced acquisition, could you provide more details on how to accurately represent it in our model? Our understanding is that the silicon carbide and power semiconductor market presents a significant growth opportunity in automotive and industrial sectors. However, it's also a capital-intensive industry, and many established companies have margins that are significantly lower than your corporate average. How should we approach the strategy, and will it be beneficial for you in the long run?

Yes, let me discuss some of the financial aspects. Vivek, I'll pass it to James. Firstly, we are not involved in the capital-intensive segment. We focus on device manufacturing, which is our area of expertise. We are utilizing our knowledge of silicon carbide, which provides us with an advantage. It's important to recognize that these elements are things we can manage and source. There will be more detailed information in our update tomorrow, but we will be paying over $200 million for United Silicon Carbide. Initially, this will be dilutive, but we anticipate it becoming accretive by the end of the next fiscal year, and we expect it to become a significant portion of our business in the coming years.

Yes, this is James. So as you stated, we like the aspect that it gets us into several fast-growing markets like electric vehicles, industrial power, and data centers, maybe longer term, even in things like circuit protection. We see it in the current year expanding our addressable market by almost $1 billion. And we think that certainly continues to grow at a high growth rate as we go over the next several years. We do believe that we have industry-leading performance in efficiency and in die size. So we think when we compare those differentiated type capabilities with our existing power management capabilities, we really do believe we have the ability to continue to grow and scale the business.

I just want to go back on the supply issues. If you look at the shipments from the two major modem companies, I guess, they're up and you're seeing a correction. So I'm just kind of curious, there's a couple of ways that could happen. Just kind of curious if now in retrospect, did you ship more RF than maybe modems in the first half of the year and that has to correct? Or just kind of curious to your thoughts on that. I know you probably haven't seen Qualcomm sky, but at that MediaTek, they're not seeing a sharp of a decline in December. Just kind of thoughts between the disconnect there.

Blayne, this is Eric. Yes, it's a good question. And I think to a certain extent, there's some of that, and I think a lot of it comes down to mix as well. I think we did a good job of responding to customer demand. Now we still have several parts where we're on allocation as well and chasing and behind, of course, as we talked about. But for the most part, we did a pretty good job of satisfying customer demand. But what happens is as the mix shifts, I mean, they're essentially taking every baseband chip they can get, regardless of which RF it's on. So yes, it could be that net-net, we shift a bit ahead up to this point.

I wanted to add, Blayne, that while we are disappointed with the December guidance, it emphasizes our commitment to maintaining a healthy channel and providing the best guidance we can given the supply and demand dynamics. It's been challenging lately, more so than usual. It’s crucial to remember how strong our business is despite this adjustment. For this fiscal year, we projected a downturn, which we missed, but there was a consensus that the supply situation deteriorated during the quarter, especially in mid to late September, and we saw weaknesses in demand. However, we believe things will improve, and we think December represents our low point, with better conditions anticipated in March and beyond. We had initially provided a guidance range of 15% to 20%, and with this 2.5% adjustment, we find ourselves at the lower end of that range. We are still within the range we set. Our gross margin outlook remains around 52%. Operating expenses are under control, and we are investing in both established and emerging segments of our business. We are adjusting our earnings per share forecast to just below $12. While there's been a slight correction, we feel it's the right decision for us. Looking ahead to next year and beyond, we’re optimistic about our position. We offer premium technology and products in appealing markets, with expected double-digit growth and sustained margins over 52%. There is much to be positive about beyond this quarter.

And I guess when you look at your supply constraints on the constraints on your business, you did grow inventory in September with that level of sales. So I guess I'm looking at our sales down teens. So I guess I'm kind of wondering, I guess, did the supply situation get that bad between September and December? Or is there another factor there? I'm just trying to understand those moving pieces.

No, it indeed worsened in mid- to late September, Blayne. We've been trying to clarify that. Initially, the supply environment, which has been challenging for almost 1.5 to 2 years, deteriorated further. In addition, demand has declined over the past three weeks. However, our inventory situation is manageable; our turnover rates are at the high end of the historical range, and even with the slowdown, they will stay within normal historical levels. This is the reason we are addressing these issues now. We believe it's a temporary challenge that we will overcome, and we expect to be in a better position by the March quarter.

For your December quarter outlook, are the bottlenecks you described, at least for Mobile, concentrated in the Android ecosystem? And then if I may, just as a follow-up, if you could highlight whether the growth trajectory of Android into December is better or worse than your guide of down 17% for Mobile. That would be very helpful.

Yes, Karl, this is Eric. I don't think we can break them up between ecosystems like that and give any more color given the concentration of the ecosystem.

Okay. If I may then, just going back to this acquisition you've made in silicon carbide. I understand that most of UnitedSiC's products are aimed at high-voltage server and in general industrial power supplies, where you have some pretty good customer overlap today. But could you discuss your plan to go to market for UnitedSiC and whether they have existing relationships with Tier 1 automotive OEMs?

Yes, today it's primarily focused on the lower voltage scale, specifically in power supplies for automotive and data center applications. Looking at our plans for the business moving forward, we will certainly leverage our channels for significant expansion. We have a solid foothold in the automotive sector and other markets such as defense, which will enable us to adopt this technology in the long run. Additionally, we will be increasing the voltage of the technology, allowing us to enter further areas within the automotive sector, including motor controls and other applications in the future.

I wanted to ask about the acquisition. James, your main expertise in wide-bandgap semiconductor materials has primarily been in GaN RF. United Silicon Carbide specializes in silicon carbide and has always outsourced manufacturing to X-FAB. My question is whether there are plans to eventually bring manufacturing in-house, utilizing some of Qorvo's established wide-bandgap processing capabilities. Additionally, in terms of entering the automotive market, it has been essential for car manufacturers to partner with silicon carbide providers that offer a vertically integrated supply chain with BAWs, materials, and power devices for supply chain reliability. So, is that the long-term strategy for this business?

Let me take the second one first. Certainly, we'll use our very large and strong supply chain to make sure we supply that. And of course, we have expertise also in very high power packaging. So we'll combine that with the power control that we have from the Active-Semiconductor acquisition that's been a couple of years ago now, and we really intend to take this business much more into a module play, where we'll have that integrated capability. And of course, we'll use our supply chain to make sure we've got a stable supply of raw material and the ability to manufacture the wafers and things like that. As far as moving it inside, we'll certainly, as we go over the period of scale in the business, we're going to take a hard look at what makes sense and what doesn't make sense. I think there's parts of that process that maybe we'll adapt well to some of our internal capabilities and some that may be a bit more of a challenge. And I think we'll just look at that as we go through the next several years as we scale to see what makes the most economic sense on a go-forward basis.

Got it. And correct me if I'm using a wrong term here, but the prepayment of wafer...

Sorry, Gary, the question?

Sure.

Eric, it's clear that Qualcomm is gaining some share in the low and mid-high in the low end China and Samsung's mass market. How can you be sure that some of your demand weaknesses in share loss in a few slots in that area? I know they don't participate as much in antenna tuning, but just trying to figure out how you figure that out given some of their gains.

I'm really confused about the SiC power acquisition. Purchasing wafers from a premium foundry like X-FAB will probably only be effective if it's aimed at the industrial market or a more diversified analog sector. However, you are at a significant disadvantage in scale compared to ST, Infineon, and particularly Wolfspeed's new foundry in New York. I'm curious about your perspective on the future of this acquisition. What strategies do you believe you can implement to penetrate the EV market, as cost alone doesn't seem to be a viable avenue? Considering the size of the fab and the fact that they will be working with wafers, you won't even be able to access the 200-millimeter wafers, which presents a considerable challenge regarding scale. I'm looking for more insight into which markets you believe are worth targeting. Okay, I'll start with the question about share and how we can be certain about our share gains or losses, and it's fairly straightforward for us. I don't think there's a phone platform of any significance that we don't have content on. So we know exactly how many phones every model are being built, and so we know exactly what our share is. We do all the teardowns and figure out what all the other slots are if we don't really know. And it's easily trackable. And I can assure you that it's not a share issue at all. In fact, we're excited as we exit the December quarter and go into March, I think we've got some very nice content pickups with Samsung, in particular, new platforms that we're really happy about that tailwind. But right now, to your question, I think we're quite certain of our share position, especially against Qualcomm or, frankly, any other supplier.

Ed, this is James. I'll take on the acquisition question. So for us, that technology benefit there is low loss and, therefore, smaller die size. We agree, competitive market, but we are sort of the high-end performance side of that side of the market. So it's going to take that customer set that's really, really looking for a high-performance part. Now go-forward basis, we'll take both the power management things that we have in the prior acquisition and our packaging capability, and we'll move more into a module space. And again, we'll do that selectively, where we see parts of the market that are really going to be driven by performance. So we're not trying to take on the world.

So you're going to be high-performance application-specific in the module side of it, but you did mention EVs quite a bit and all EVs you've built into big modules.

Well, there'll be high-performance applications in that space as well.

I hate to see you go. I know it's time to retire; everybody has that time, but I'll miss coming down and bothering you. Before you leave, I have a question about your 5G strategy. You indicated that growth for IDP will be outside of China. Given how dominant China was in the 5G infrastructure business and that it's not returning, with the U.S. appearing more cautious, what is the long-term outlook for 5G for IDP next year? Do you expect to return to the level of 5G MIMO performance you had in China, or will that take longer?

Yes. I believe that 5G will take a bit longer to develop, but I'm really pleased with the progress we've made. We've achieved significant wins outside of China in the MIMO space and are excited about our first integrated modules, known as PAMs, power amplifier modules. Looking at the core IDP business, excluding the infrastructure side, we expect to grow over 20% this year. The slowdown in deployments in China is a concern, but outside of China, our base station business is actually growing more than 30%. So the slowdown in China primarily affects the IDP segment, while the rest of our business is performing very well. Regarding my retirement, I want to express my gratitude to the Qorvo team for their hard work over the past decade. They've done an incredible job, and we've achieved a lot together. I also want to thank Bob for his leadership in building Qorvo. I take great pride in the company we've established, and I appreciate Bob for guiding us through this journey. Thank you very much.

I did want to kind of go back to Blayne's earlier question. So Qualcomm did post some very impressive RFFE numbers. They're now at about $1.2 billion a quarter and probably going up from there. And they actually said that their supply constraints were lessening and had been better than initially expected. So I did want to circle back on the differences between you and them and what you're seeing here in December. I think you guys did say it could be a timing, it could be an inventory issue. But I'd really love to flush the rest out here. Is there a difference tied to more MediaTek modem-centric customers or different OEM customers here? Is there anything else that would mark the difference between the two?

Chris, this is Bob, and I'll make a few comments, and obviously let Eric add some color. But without seeing what they said or understood, it's a little bit difficult. But I believe in that number you gave, there is the millimeter wave front ends that they do sell to our mutually largest customer. And if they broke that out, that probably would be helpful. And yes, we do see them out there. We don't see them on any MediaTek platforms, that's for sure. But we sit alongside them. They don't have the entire RF at the same customers, as Eric already outlined. So I think we've got a pretty good handle on what's going on. So yes, they have more RF content, I would say, at our largest customer. That's a fact. So that could be part of it easily. But Eric, if you think there's anything that I may have missed.

No, just maybe the distinction. I'm not saying Qualcomm is not doing well. They've got some drivers, of course. I think my response to add is that I know it's not at our expense. So we're not losing share to them, if that was the question.

Yes, the millimeter wave is certainly a significant aspect. I wanted to shift the focus to mergers and acquisitions for a moment and congratulate you on the recent acquisition. It involves United Silicon and Decawave, both of which appear to be somewhat specialized businesses. My question is whether you aim to pursue more diversified businesses or even a catalog business, whether in analog, microcontrollers, or mixed signals, or something similar. What are your thoughts on moving in that direction?

So let me start with, Chris. I appreciate the question. And I think we've said before, we'll never telegraph the areas that we want to go after, that's for sure. I think Eric would probably take exception and I'll let him talk about it, but calling ultra-wideband a niche is probably a different view than what we have, that's for sure. We think that is a nice growth area. And I'll let Eric speak to that because I think what we demonstrated with the bullets in our press release and my own comments, I think this is proliferating a lot greater than what most people thought. But Eric?

Yes. And maybe to kind of take a step towards your question. I think we're always looking for opportunities that allow us to leverage our scale in Mobile and then use that same technology at an unfair advantage everywhere else. We're in smaller markets, right? I mean that's one of the advantages we have with our corporate structure. So we fit that perfectly. The mobile phone itself, of course, is going to drive billions of units. But around that, the different things that talk to those billions of units, right? So the whole connected home ecosystem and so forth, it will be a major franchise over time and continuing to expand into industrial, some of the things we talked about in the press release, there's industrial, things like auto manufacturing, autos themselves. So certainly not a niche business to Bob's point, and we're thrilled with the progress that we're making with ultra-wideband today.

Yes, this is Mark. I would like to add that we are looking at this over several years, and these are definitely not niche businesses at that stage. The total addressable market we associate with the approximately $1.6 billion in acquisitions we've made over the past few years, including the recent over $200 million spent on United Silicon Carbide, is about $5 billion. We anticipate that total addressable market will double to $10 billion or more in the coming years. Therefore, we expect these businesses to be significant and to experience substantial growth, and this does not even include Biotechnologies.

Can you hear me?

Yes.

Great. This is Denis on behalf of Raji. I wanted to ask you about your comments regarding mass market handsets and the increases in content. Could you provide more detail on what you're observing, specifically how significant the percentage difference is? I believe you mentioned that it was higher compared to the high-end 5G handsets. Can you elaborate on that?

Sure. Looking at the RF content as 5G becomes more widespread, we noted an increase of about $5 to $7 from 4G Advanced Pro to 5G. Interestingly, this $5 to $7 increase remains consistent as we look at different phone tiers. For a high-tier smartphone, the RF bomb might be $30 to $35, and then you add the $5 to $7 increase on top of that, which reflects solid growth. In contrast, for mid-tier phones, you might be adding that same $5 to $7 to a base of around $10 to $13. This illustrates a compelling growth story as we move down the tiers. However, there are fundamental RF challenges in 5G that lead to increased complexity in filtering, multiband and multimode operations, and elevated requirements for received and transmit diversity. These challenges are largely independent of the phone tier, as they aren't driven solely by consumer features but rather by network infrastructure efficiency and economic factors influenced by carriers. This summarizes the comments we've made before regarding this topic.

That was perfect. And then for my follow-up, I just wanted to ask you regarding the gross margins. You mentioned that kind of gross margins are holding above this quarter despite challenges. Can you discuss the chief drivers of this resilience in the gross margins, please?

We've covered that at length in previous calls, and it's the same factors, which is what we had hoped would happen. So we have premium products and those allow us to price better and compete where we most want to compete. We've maintained the utilization of our factory network. We continue to drive productivity programs aggressively. And it's these and other factors that have contributed to the gross margin quantum improvement and then the consistency we're seeing.

I would like to ask about the demand in the Asia market for the March quarter. Are you expecting a significant recovery, and what is included in your guidance regarding this market? Also, you mentioned holding back to maintain a healthy channel. Could you provide some insights on the current channel inventory? For my follow-up, Mark, considering the ongoing tightness, will the low capital intensity you've maintained change in fiscal year '23?

Right, Ambrish. So first of all, looking at the Mobile market, you asked about Asia, specifically in March. I mean, clearly, I think as you saw from our guide, this is not a normal year, right? We're booking seasonality in our projection in March going up. So I think that there's no normality here to the seasonality. So we're expecting that it will be roughly in line, growing a bit over December quarter most likely.

And the channel inventory?

Yes, that varies significantly by part numbers as we discussed. We are somewhat back to healthy levels, but there are still some areas where we are hand-to-mouth or even constrained in certain cases. There is a wide range. However, over the past quarter or two, we have noted that channel inventories are starting to improve. In some areas, we have definitely reached a healthier state, and we are ensuring that we do not over-ship into the channel.

Ambrish on your...

Go ahead, Mark. Sorry, go ahead.

I was going to answer your CapEx question, but if you had a follow-up.

I have a follow-up. Eric, we've heard the memory companies discussing builds in the VOX complex. Is that unique to the memory companies, or are you experiencing similar trends in your business as well?

Inventory. Did you say at VOX, the local Xiaomi? Is that what you said?

Yes, the memory teams have mentioned this, without naming specifics, but they have expressed a desire to gain market share.

One thing we haven't discussed on this call yet is that we are noticing very lean inventories in the finished goods channel. Specifically regarding phone inventory from Vivo and Xiaomi, we see that there is strict discipline in that area. There are no signs of overproduction or an increase in phone inventory. I'm not entirely sure if you were inquiring about that or if you meant whether they're accumulating a stockpile of memory chips, which I can't confirm.

Well, on the component side, if you saw anything on the component side that...

No, I don't think they're intentionally doing that. They're dealing with mix shifts due to supply changes week-to-week, which baseband they can get depend on which ones they can ship. So yes, so I think that's the key factor. Ambrish, regarding your question on capital expenditures, our long-term aim is to maintain a low capital intensity as we grow, targeting around mid-single digits as a percentage of sales. This figure may fluctuate as we navigate through different investment cycles, but that's our overall objective. It's also crucial to highlight that our capital expenditures are remaining at consistent levels, even during the weaker period in December, because we anticipate improvement on the other side. Specifically, in the March quarter, we expect to see growth. We believe next year will be favorable, and therefore, we need to invest in capacity to take advantage of that growth potential.

We want to thank everyone for joining us today. We look forward to speaking with you again at upcoming investor conferences. Thanks again, and have a good night.