Skyworks Solutions Inc (SWKS) — Q1 2021 Earnings Call Transcript

Thank you, Rob. Good afternoon, everyone, and welcome to Skyworks' first fiscal quarter 2021 conference call. With me 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 to Liam.

Thanks, Mitch, and welcome, everyone. Skyworks delivered record quarterly results in the first fiscal quarter of 2021, leveraging our expansive technology reach and deep customer engagements, spanning both mobile and broad markets. We established new quarterly records for revenue, operating margin and earnings per share, demonstrating both the power of our financial model and unique opportunity to lead the global transition to more advanced wireless communications. Now, looking at the quarter in more detail. We delivered revenue of $1.51 billion, more than $455 million above the midpoint of our guidance. We posted earnings per share of $3.36, exceeding our guidance by $1.30, effectively doubling year-over-year earnings. We achieved gross margin of 51.1% and record operating margin of 41.2%. And we generated strong operating cash flow, totaling $485 million in the quarter. As our results demonstrate, the demand for always-on connectivity is accelerating and extending into new applications, including telemedicine, high-speed video conferencing, remote learning, autonomous transport, essential services for the infrastructure markets, store-to-door delivery, and touchless commerce. This is a global phenomenon, where upgrades of key technologies are increasingly critical in the face of the ongoing pandemic. The investments we've made over the last two decades have prepared Skyworks to address these challenges. The mobile and wireless ecosystems will benefit from these dynamics, yet outsized gains will largely accrue to those companies that have invested deeply in core technology and scale. These gains are being driven by both, a growing device count and an expanding content per device, in some cases, doubling or even tripling for Skyworks. We are proud to play an instrumental role in shaping the fast-evolving landscape, collaborating with our partners and customers, leveraging key technologies from TC-SAW to high-performance BAW filtering, SOI, gallium arsenide, and state-of-the-art packaging technologies. Our strong results in Q1 demonstrate our execution around these themes. Specifically in mobile, we accelerated the ramp of our Sky5 portfolio, supporting the next wave of 5G launches at Samsung, Oppo, Vivo, Xiaomi and other Tier 1s. In IoT, we captured design wins across a diversified array of new and existing customers. Specifically, we partnered with ASUS, delivering the world's first Wi-Fi 6E connected home router. We shipped Wi-Fi 6 solutions for access points at top network OEMs, including Cisco, NETGEAR, CenturyLink and Aruba. We captured new wins at Google for their latest Fitbit smartwatch. And we delivered low-latency cognitive audio solutions, powering wireless gaming headsets at multiple Tier 1 accounts. In industrial, we ramped Itron’s multi-standard ISM connectivity solutions for smart cities. In infrastructure, we deployed 5G amplifier and receive modules, supporting multiple European base station OEMs. And finally in automotive, we accelerated shipments of advanced connectivity solutions supporting the world's premier EV manufacturer. We leveraged V2X solutions with Volkswagen and Toyota for their enhanced safety systems, and partnered with MediaTek for 5G reference design, specifically targeted at automotive applications. Moving forward, we are seeing the confluence of multiple market developments, a significant rise in device complexity and expansion in wireless spectrum and band count combined with a technology bar that has never been higher. These trends directly translate to increased opportunity for Skyworks with both new and existing customers. With essential technologies and scale propelling performance gains across a broad set of applications, our purpose-built solutions address all key network protocols, spanning 5G, Wi-Fi enhanced UPS and Bluetooth. Additionally, we expect the current C-band auction to be a catalyst, with new spectrum creating significant content opportunities for our Sky5 platform. While smartphones were the first to embrace 5G, the performance gains will power a broad set of use cases, extending into billions of IoT devices. Looking ahead, we see 5G as a transformative technology, catalyzing new applications, while acting as the universal connector from the home to the car to the factory floor. In summary, Skyworks is solidifying market leadership as connectivity meaningfully alters the way we live, work, play and educate, not just from home, but from anywhere. Our record performance clearly reflects this dynamic. With that, I will turn the call over to Kris for a discussion of Q1 and our outlook for Q2.

Thanks Liam. Skyworks started fiscal '21 with very strong Q1 results, delivering all-time record revenue of $1.51 billion, adding more than $550 million of incremental sequential revenue and exceeding the midpoint of the guidance for Q1 by $455 million. Revenue was up 58% sequentially, and up 69% year-over-year, driven by increasing adoption of our mobile solutions with all smartphone OEMs along with record broad market revenue and customer reach. Mobile revenue grew 80% sequentially, as well as on a year-over-year basis, largely driven by widespread content increases as 5G phones are ramping with all major smartphone brands worldwide. Broad markets revenue grew to $326 million, establishing a new quarterly record. This reflects revenue growth of 35% over Q1 of last year, benefiting from a diverse set of use cases supporting work, play, learn from anywhere, and increasing adoption of technologies such as Wi-Fi 6 and 6E along with the continuous momentum in our audio solutions business. Gross profit in the first quarter was $771 million, resulting in a gross margin of 51.1%, up 70 basis points sequentially, and up 100 basis points year-over-year. Operating expenses were $149 million or 10% of revenue, demonstrating strong leverage in our operating model, while continuing our strategic investments in support of future growth. We generated $622 million of operating income, translating into an all-time record operating margin of 41.2%. Other income was $1 million, and our effective tax rate was 10%, resulting in net income of $560 million or a net income margin of 37.1%. Top-line momentum and execution on both gross and operating margins drove record diluted earnings per share of $3.36, beating the guidance by $1.30. EPS grew 82% sequentially and doubled when compared to Q1 of last year. Turning to the balance sheet and cash flow. First fiscal quarter cash flow from operations was $485 million. Capital expenditures were $119 million. We paid $83 million in dividends and we spent $196 million to repurchase 1.4 million shares of our common stock at an average price of approximately $139 per share. Additionally, as noted in our separate press release issued today, Skyworks' Board of Directors has authorized a new $2 billion stock repurchase program. This new buyback plan reflects our Board's confidence in Skyworks' business model and in management's ability to consistently produce strong free cash flow, allowing us to leverage share repurchases and dividends to generate higher stockholder returns. Now, let's move on to our outlook for Q2 of fiscal 2021. We expect the continued and rapid adoption of multiple wireless protocols and expanding use cases to drive strong year-over-year growth for Skyworks. Specifically, in the second fiscal quarter of 2021, we anticipate revenue to be between $1.125 billion and $1.175 billion, with non-GAAP diluted earnings per share of $2.34 at the midpoint of our revenue range. This translates into year-over-year revenue growth of 50% at the midpoint of the revenue range, and year-over-year non-GAAP diluted earnings per share growth of 75%. Gross margin is projected to be in the range of 50.5% to 51%. We expect operating expenses to be between $150 million and $152 million. And below the line, we anticipate roughly $1 million in other income and a tax rate of approximately 10%. We expect our diluted share count to be approximately 166.5 million shares. And with that, I will turn the call back over to Liam.

Thanks, Kris. Skyworks started the new fiscal year with record results, clearly demonstrating the breadth and depth of our business model, from Tier 1 mobile to thousands of broad market customers. Importantly, the multiyear wireless transition is now underway, creating a burgeoning set of new opportunities and use cases. With deep customer engagements, underpinned by decades of technology investments in scale, Skyworks is uniquely positioned to lead. Finally, our high levels of profitability and strong cash generation afford us the flexibility to invest and win, while generating consistent returns to our stockholders. That concludes our prepared remarks. Operator, let's open the lines for questions.

Hey. Good afternoon, gentlemen. And thank you for letting me ask a question. I guess, with results and an outlook this strong, the elephant in the room is about sustainability, both in terms of revenue growth but also profitability. We know that 5G handsets will increase this year, but I would really appreciate if you could talk perhaps qualitatively of how you see that outlook for the balance of the year, as well as your view on broad markets too, given what appears to be a multitude of design ramps across your Wi-Fi 6 portfolio. Thank you.

Sure, absolutely. Well, a couple of things. The 5G cycle really is just beginning, and that's clear. And I think, if you listen to Skyworks and what we've been saying, it's all about complexity, it's all about content gains, and the culmination of those coming together with a tremendous unit launch in 5G. And again, very early in 5G. The estimates for unit uptake at 5G, if you think about 2020, maybe there were 200 million, 220 million phones. Those numbers are going to be more than double going into '21, and they'll continue to move. You've got almost 7 billion subscribers on the planet, and the percentage that own a 5G phone are very, very low. So there's a tremendous upside there in our core business in mobile, and also advanced by great technology execution with our team. So, that's one big driver. The second driver that's been bubbling up for a while is our broad market portfolio. We had tremendous gains in our broad market portfolio, 35% year-over-year with a broad set of customers, names like Nokia, names like Honeywell, names like GE, Bosch, just an entirely new landscape of customers that we've been able to engage with. And then, we talked a lot about usage cases here in the call. Usage cases, new applications that require connectivity, whether it's Wi-Fi, whether it's Bluetooth, whether it's 5G. All of those trends are moving in the right direction for us, and they're sustainable.

I appreciate that very much. If I could, for a follow-up, one of the baseband companies in Asia, the other day spoke about how they do not see any evidence of a build of inventory across the channel. Similarly, it's now well-known that there remains tightness across the foundry and component supply chain. My question is, how are these dynamics driving your discussions on both pricing and volume commitments to your customers? Thank you.

Thank you for your question. You're right about the tightness in supply and some of the operational challenges. The Skyworks team did an excellent job executing during the first quarter, and I believe we'll continue to see that opportunity extend throughout the year. We've made significant investments in capital and scale, including our own factory capable of producing 10 billion unit TC-SAW for customized filtering, in-house bulk acoustic wave technology, and unique assembly and testing capabilities designed specifically for this market. This has allowed us to navigate some of the supply chain challenges effectively since much of our production is done in-house. While there have been some execution bumps in the technology and connectivity landscape, we are beginning to see improvements and managed to execute well during the December quarter.

Hi. Thank you. Liam and Kris, I was fooled for a second. I thought I was reading a TI or ADI earnings release with that kind of operating margin. So, that's pretty solid, guys. But, let me address maybe a baby elephant that's running around, at least in our minds, which is China. So, there's been a lot of talk about overbuild in China, especially in the bots complex and how they're trying to take share from Huawei. So, maybe if you could just give us some sense, quantitatively, how big was the China business? And then, qualitatively, can you just help us understand what's going on? And then, I had a follow-up for Kris.

Sure. Well, we've been a key element, a key supplier for the Oppo, Vivo, Xiaomi ecosystem, and that continues. And we had great results with those accounts this year. There's a lot of opportunity to grow their 5G base as well, and that's something that we should be looking forward to throughout the year. And it's a multi-year cycle, of course. But again, one of the things that we continue to say here at Skyworks, and it really rings true is our ability to get in and help these customers customize and configure the complexity around 5G, leverage solutions like Sky5 that really integrate that tremendous amount of components and complexity and make it easy for the customer to go to market. So, we had some strong uptake there in the China space. We continue to see that looking good. Obviously, there you have a Chinese New Year opportunity here as we get into our new year. So, I think there's going to be some good signs of growth. But, we have a good position there today. And I think there's just more room to move on units, as we go through the year.

What was the growth in China on the end Q-over-Q?

So, our China business in the December quarter was up double digits sequentially, and of course, very, very strongly on a year-over-year basis. And of course, looking into March, we will have stronger than seasonal growth, double-digit growth, accelerating our year-over-year growth with those accounts.

Okay. And a quick follow-up for you, Kris, since you are on the line. Just remind us on the capital allocation priorities, good to see the $2 billion buyback. But just kind of just walk us through divi, buyback and M&A. And I'm assuming M&A would mostly be in the broad markets. Thank you.

Yes. We're not changing our strategy there. We did have a $2 billion buyback program in place that had a two-year life cycle. And so, that came to an end. And so, we are replacing that program with a new $2 billion buyback program. And so, we will continue to return most of our free cash flow back to the shareholders, a combination of our dividend program and now the new $2 billion buyback program.

Hi. Thanks. I guess, the first question is, the beat was so significant, and you guided just in early November. And you typically get pretty good visibility from your biggest customers. So, I guess my first question is sort of like what drove the big beat? Was it a pull-in from your large customers? Can you just sort of double-click on what drove the beat? And then, I had a follow-up. Thanks.

Sure. Yes. Well, it was certainly not pull-ins. That's for sure. I mean, it was a quarter that started a little slow and really accelerated through the period, a tremendous amount of technology execution behind this on the mobile side. But again, in broad markets, we had a record 35% year-over-year. So, it's a culmination of strong 5G launches with the most important customers, within those launches, an extended reach of technology from Skyworks. The content that we're putting forth right now is significantly more advanced and more impactful than what we've had in prior years. And that comes through our own technology fabs, our own investments in R&D and then scale to make that happen. So, you had a very strong mobile opportunity. And then you had a broad market opportunity in parallel that was leveraging some of the core technology as well. But again, things like Wi-Fi moved, GPS, Bluetooth, all the connectivity protocols, the new usage cases, popped up customers that we didn't have before, emerged. So, it was a culmination of multiple factors. But those factors are sustainable. I mean, those customers that we've won are going to stay with us as we go through the next couple of quarters and years. And we look forward to more opportunity there.

Okay. Got it. And then, I guess, Kris, oftentimes, you give us what your largest customer was in terms of revenue in the quarter. I think, last December, it was in the low-60s. So, I imagine that's probably that or even higher in December. So, can you give us that number?

Yes. Revenue with the largest customer in the December quarter was approximately 70% of total revenue. Obviously, it was a great quarter with that large customer that just launched their first 5G phones, which with very rich content inside, we talked about that and we indicated that 9, 12 months ago. In addition to that, we do have some very nice and good content, and some of their other products that have large customer sales as well. But again, so great execution there, we have a large customer. But, as Liam indicated, the strength in the December quarter was not just with the large customer. All our other customers, all our other segments, every region was up double digits sequentially and strong double digits on a year-over-year basis.

Yes. And just to follow-up with Kris. I think, it is important to note that the growth with our large customer is also accelerating in their new application. So, it is not all just about smartphones, a lot of other opportunities there that require the connectivity protocols that we bring to market, which is really great.

Thank you for the opportunity to ask a question. The results are truly impressive. I would appreciate some insights on March, particularly regarding your large customer, as the high numbers likely show some seasonality. What is your outlook for mobile compared to the broad market? Typically, we would expect a decline in the broader market, but do you anticipate an increase this March?

Yes. No, absolutely. So, the guide that we provided for March has some seasonality with the large customer, as you can expect. But, if you look at the revenue in mobile outside of a large customer, as well as the revenue in growth markets, it will be up double digits sequentially, which is actually stronger than normal seasonality, a lot stronger than normal seasonality. And it further accelerates our year-over-year revenue growth with all those accounts, the Korean, the Chinese as well as thousands of broad market customers.

Got you. And then, I want to ask you also, I guess, within broad markets but it has a mobile play as well. On Wi-Fi 6E, Samsung launch a phone without, I'm assuming you'll see another mobile customer with that. And then, I guess, at some point, you'll see access points. Can you just talk about the content driver for you for Wi-Fi 6E?

Sure. Yes. I mean, we are seeing that roll out now very quickly. A lot of great design wins with key customers today now. And so, I mean, there's a technology pop there, Blayne, when you look at the Wi-Fi 6E product, there's even bulk acoustic wave opportunity within those systems. And the data rates and speed are demonstrably more powerful. You could see that in your Zoom calls or whatever. So, Wi-Fi 6E is a big driver for us as is Wi-Fi 6. And that's one of the things to think about with Skyworks. It's really about connectivity. Connectivity can be 5G, connectivity can be Wi-Fi 6, Wi-Fi 6E, can be Bluetooth, all those protocols are there, but Wi-Fi 6 and 6E are meaningful, and they are really now the product of choice in the work-at-home, work-from-anywhere dynamic. And I think that's an opportunity for continued gains for us, and with content and also with adding additional customers.

Thank you for taking my questions. I also want to congratulate you on an impressive quarter. Regarding your outlook, are there any limitations in your manufacturing capacity, or since you've reduced inventory, is that figure constrained?

No. I think, right now, we are in good shape from a capacity point of view. In fact, I think, we've been able to broaden the aperture a little bit on execution and drive more technologies through our own fabs. So, we should be in good shape. I mean, obviously, the December quarter really tested our metal in terms of execution. Team did very, very well. We still had to navigate some supply chain hiccups here and there that were outside of our supply chains. But, for the most part, we executed very well, and we can take that momentum and the lessons learned through the December quarter to put us in better position to come through strong through the calendar year 2021.

Okay, great. Thanks. And just, can you give us a time line for the C-band? How does that move into revenue? And what kind of percentage increase would you expect those handsets with C-band having?

Yes. No, that's a great question. So the C-band auction now is pretty much commenced. And what it does, which is great, as it opens up new spectrum in mid-band. So, let's call it mid-band 1 gig to 6 gig. There's a lot of opportunity there that had been really kind of tied up pre-auction. That will be very beneficial for Skyworks because we have a great portfolio of products in mid-band. We have great products in ultra-high band and high-band as well. But C-band is going to be unique here. It's going to be an important piece of the 5G landscape, a very necessary piece going from low to mid to high, kind of the layer cake approach, if you will with low-band at the bottom, mid-band in the middle and then technologies like millimeter wave narrowly at the top. So, that C-band auction will drive more technology. We will be delivering 5G signals through that new spectrum, will require upgrades in our Sky5 platform that we're ready to go on, and it will be able to add content.

I guess, the first question is just digging into what was different from your expectations going in the quarter again? And if I guess, the question maybe a little differently, we had talked about some supply constraints coming into the quarter. Was the nature of this beat just that you were able to get more supply out the door this quarter than you had expected? And otherwise, when you guided back in September that perhaps more of this would have been pushed into the March quarter? Was it that either content or demand from your customers turned out to be better?

Yes, Chris, there are several aspects to consider. Firstly, we noticed an increase in demand during the December quarter, which was positive. Things were somewhat slow earlier in the fourth quarter, but we started to see significant progress in December, and that trend continued. The December quarter experienced growth rather than decline. In previous instances, we had launches that began strongly but then lost momentum, which was not the case this time. This situation emphasized the importance of effective execution, particularly in the supply chain. We have been investing in capital expenditures, which involves not only acquiring new equipment but also introducing new technology to the market. This success can be attributed to our effective supply chain management, primarily within Skyworks, despite some challenges from external sources. While we do not manufacture everything in-house, the majority is produced within our facilities. Owning our factories allows us to operate efficiently while managing constraints and enhancing our technology. The experience we gained during this period positions us better as a company. The insights learned during times of high intensity are crucial and will strengthen us as we continue to supply. Additionally, as Chris mentioned, our accomplishments were not limited to the mobile sector. While our mobile launch was outstanding and a key highlight, we also performed well in our broad markets. I take pride in having secured several high-quality customer accounts that were not in partnership with Skyworks a year ago, and they are now onboard and will continue to be in the future.

Thank you. As a follow-up, with the big revenue growth, what can we think about margins as we go into next year? And I know that you may have been leaning on some production outsourcing, given all the supply constraints and the big ramps that happened this year. With the investments that you're making now, will that allow you to get some more margin leverage on these very large revenue numbers and start to grow the gross margin line as we go into next year?

Yes. Chris, great question. And so, first of all, I'm pleased with the fact that we delivered 51.1% gross margin, up 70 basis points sequentially, up 100 basis points year-over-year and 35 basis points above the high end of what we guided, right? Despite the fact that, as you pointed out, it was a very tight supply chain environment. And keep in mind, we still have some COVID-19 headwinds out there as well. But as Liam indicated, great execution by the operational team, delivering more than $1.5 billion in revenue to our customers, right? And so, as we move forward and as we move, of course, through our seasonal trends here, and as some of those headwinds I just talked about will abate over time, we definitely will see further gross margin improvements here. And maybe just to add there, of course, I mean, we are focused on driving top line growth and we are focused on driving gross margin improvements all the time, but we also focus on overall profitability and operating margins improvements. And so, there as well, very pleased with the delivery of the 41.2% operating margin in the December quarter.

Thank you. Excellent results, guys. Congratulations. Kris, I'd like to ask, if possible. I mean, obviously, you've got a big boost from your largest customer, the results yesterday, your comments on today's call and clearly, your revenue line show that. But in terms of sustainability, why shouldn't we expect things to actually get materially better? Because if you look at your content, I mean, you have a big content increase on the latest model, something like by our own teardown, about 20%. But, you still have a lot of runway at the Korean and Chinese customers, where you've been kind of under earning last year. That seems to be coming back. So, can you maybe help characterize revenue growth maybe to '21? You've got a very strong one with the domestic suppliers, what should we expect for the Koreans and China? Thanks.

Sure. Ed, I'll take this for the first question. And if you have a follow-up, I'll throw it to Kris. Yes. I mean, great question for you there. I appreciate it. And I think one of the things that you know very well is the complexity in 5G and the nuances around that technology. And really, all key elements need to come together. So, we were able to put that forward with, of course, our largest customer, but we're also gaining in China with key players, the Oppo, Vivo, Xiaomi, we've got great attachment with MediaTek as well. It's still so early. If you look at units in 5G versus where they could be in a couple of years, right? You've got 6.5 million to 7 billion mobile subscribers and we're talking about a couple of hundred million units of 5G phones in 2020. It'll probably double in 2021, but there's still a great opportunity for us at Skyworks. And the other thing that we do well is we are an under-the-hood player. We get in there with those customers and help them stitch together the necessary technologies to make it work in 5G. When you look at the Oppo, Vivo, Xiaomi, I mean that the people support that we provide is very unique. The Sky5 platform is highly integrated and really puts them on a fast timeline to market, which is ideal. We're also seeing our large customer perform extremely well, extremely well and taking share globally, in our view. So, there's a lot of positives there, and it's sustainable. 5G, again, still early innings, we believe this is a multi-year thematic cycle for us and others. And then the inflection towards other markets, automotive, IoT, so many other markets that will consume these technologies. I think, it just comes together for a good long-term thesis here.

My follow-up question addresses this issue. It was only about 18 months to 2 years ago that there were concerns about Chinese OEMs or component manufacturers replacing U.S. suppliers after the Huawei ban, which seems absurd in hindsight, and that is clearly not the situation now. What I'm trying to ask is whether the complexity we've observed in our largest customers is now being integrated into some Chinese phones to accommodate these more intricate modules with all the system design involved. Are you noticing any significant changes in the competitive landscape? Specifically, do you see any other companies beyond Qorvo and to a much lesser extent Oahu, who don’t participate in all these areas? Or has the reverse content they previously provided, particularly from some of the quasi-discrete phones, now shifted towards you and your leadership in the market?

Yes, Ed, we are witnessing a consolidation in the industry, which was also mentioned in our prepared remarks. The technology is impressive and beneficial for consumers, but it presents significant challenges. Companies that can invest in scale and technology will thrive, while it's not a suitable endeavor for everyone. We have made considerable progress in this area and developed our technology in-house, which has given us a strategic edge. In China, we offer an ideal combination of scalability, content, coaching, and flexible architectures, allowing us to bring cutting-edge technology to market. However, for smaller players, the current environment is quite challenging due to the high technological standards in 5G. It's a significant hurdle to overcome, leading to a decline in the number of companies capable of succeeding in this space. Those that can navigate these challenges will find success, and we aim to be part of that future.

I would like to inquire about millimeter wave. What actions have you taken towards developing millimeter wave capability, including any partnerships or investments? Additionally, how do you foresee the adoption curve evolving in the coming years?

Yes, it has been launched and is available with certain carriers and phones. However, it still poses some challenges today, including line of sight, power consumption, and cost issues. It's still early for millimeter wave technology. Over time, its footprint may expand, and it could become more common in smartphones. What's interesting is the C-band auction introduces new spectrum that will enable immediate transmission capabilities that haven't existed before, potentially providing another avenue for 5G. I believe millimeter wave will continue to develop and is well-suited for specific environments like line of sight conditions, campuses, and large stadiums. However, it is more complicated for broader technology use. As we expand 5G and make advancements, we may see a layered approach with low-band, mid-band, and then millimeter wave for particular applications. Currently, millimeter wave has the least introduction and exposure, but there is potential for growth. We are also investing in millimeter wave technology at Skyworks to ensure we stay engaged and support our customers effectively.

Great. Thanks. And as a follow-up, how should we think about M&A at Skyworks over the next couple of years? Are you guys looking to bolster broad markets further at this space?

Yes. No. Great question. First of all, we love our organic outlook. We love our business. And the markets that we play in have been incredible. They've been dynamic. They've been challenging. But, they've been incredibly rewarding for us. And so what we do though is as we pursue opportunities and work with customers, ideas and M&A opportunities come about, right, naturally. So we continue to have our eyes and ears open on that front. The opportunities do pop up. We have a tremendous cash machine at Skyworks. You heard the data with our free cash flow margin and just the net cash that we have. So, with the right opportunity comes together, we'll be ready to take advantage.

In the 3.5 gigahertz band, as we see more bands being added, some will come from the new C-band opportunity. At what point in the next few years do you think that module will transition from SAW filters to BAW filters? And how do you think you're positioned ahead of that transition?

Yes. As we progress, we have excellent technology in TC-SAW, standard SAW, and ultra-high band bulk acoustic wave. This enables us to navigate the frequency spectrum and seize more opportunities. The most significant growth for Skyworks will likely come from our bulk acoustic wave technology. A couple of years ago, we expressed that we were not ready to scale our BAW technology, but now we are shipping hundreds of millions of bulk acoustic wave units, specifically designed for mid and high-band spectrum. You can see this in some of the current phone models we are working with, and we expect to see further advancements in our bulk acoustic wave technology incorporated into new devices in 2021 and 2022.

Okay, great. And then, as a quick follow-up, how would you describe the inventory levels in the smartphone supply chain, particularly in China, as some of the OEMs you've mentioned are competing for market share by taking segments from Huawei?

Yes. In fact, we are still at a record low level, both internally at Skyworks, but also in the supply chain and in the distribution channel. Keep in mind that there still has been somewhat of a demand supply unbalance, although that is improving as we now move into the March quarter. But, given all of that, the inventory in the channel is extremely low.

Yes. Thanks for taking the question. Congratulations on the tremendous revenue strength and getting gross margins back up to 51% first time in eight quarters, nice to see. Liam, the question I wanted to ask, and I typically wouldn't ask it this early in the year, but it really seems to be big, given the strength of the business in the December quarter and in the March quarter. As we look ahead at the calendar year, I think, we'd typically think that seasonally, the business would be down a few percent in the calendar second quarter, just given the pause between first half builds and second half builds. But, you did mention earlier the doubling in 5G smartphone units and ongoing content gains, and you and Kris both touched on the secular dynamics in broad markets. And so, the question is, in part, just how are you thinking about the gives and takes as we look towards the middle of the year? And then, given the strength we're seeing to start the year, can we still expect to see the typical type of seasonality we would expect in the second half of the year, or are we just starting so robustly that for whatever reason linearity would be flatter?

Yes, those are excellent questions, Craig. We're currently experiencing impressive adoption of our 5G portfolio right from the start, which is exciting as we recognize this is just the beginning. There’s a lot of potential ahead, and at the same time, we're seeing significant growth in broader market opportunities. We've discussed Wi-Fi 6, along with Bluetooth and GPS, and our presence in platforms that are highly widespread is noteworthy. Even from our largest customer, the revenue generated from non-phone or non-cellular devices has been substantial, marking a new area of growth for us. This trend is ongoing, and the broad markets have shown a remarkable 35% year-over-year increase, which is outstanding. We believe there is a vast amount of market share yet to be captured, making it compelling to invest further in our workforce and technology to drive this growth. Additionally, our mobile business is positioned to perform very well. We continue to encounter new content opportunities that we pursue and realize success in. Our position in China is also set to improve as content remains relatively lower in that market compared to others, presenting a great opportunity for advancement. Furthermore, there are numerous customer use cases that we are just beginning to explore. Some of these emerged during the pandemic, a challenging time, while others are due to the introduction of new technologies. Innovations like Zoom, Peloton, door-to-door delivery, and touchless payments are here to stay, all powered by connectivity. The technologies we provide, whether it’s Wi-Fi, 5G, or Bluetooth, are driving a parallel market that is gaining unique momentum. I'm genuinely excited about the 35% growth in broad markets during a time that has traditionally been focused on mobile, showing our ability to diversify while utilizing common technology cores across our operations.

That's really helpful. It's pretty amazing to think that by late this year, those two businesses could be annualizing at $5 billion and $1.5 billion each. So, my follow-up really is for you and Kris, on the share buyback. So nice to see the $2 billion buyback. The question is this. With $700 million remaining on the existing buyback, can you just give us some color on why now with the new authorization? And what was it that dictated the $2 billion was the right amount versus, say, $1 billion or $1.5 billion or even $2.5 billion to $3 billion?

Yes. It's very simple. The time expired on the prior authorization. It's a $2 billion program for two years. So, that previous plan was put in place in January 2019 and expires in January 2021. And so, we are putting in place a new $2 billion program covering the next two years.

Thank you all for participating on today's call. We look forward to talking to you at upcoming investor conferences, during the quarter. Thank you.