Skyworks Solutions Inc (SWKS) — Q3 2021 Earnings Call Transcript

Thank you, Rachel. Good afternoon everyone and welcome to Skyworks' third fiscal quarter 2021 conference call. With me today are Liam Griffin, our Chairman, CEO and President; 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 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 third quarter results with strong year-over-year growth in both revenue and earnings per share. Further, the completion of our acquisition of the Infrastructure and Automotive business of Silicon Labs has significantly expanded our market opportunity while accelerating our top and bottom line growth. Here are a few highlights. In the quarter, we delivered revenue of $1.116 billion, which is 52% above Q3 of last year. We posted a new Q3 record for earnings with EPS of $2.15, above consensus and representing a year-over-year increase of 72%. Given our strong and predictable cash generation, we announced a substantial increase to our quarterly dividend. Looking ahead, we expect continued momentum as we execute on strong design wins with our mobile and broad market customers, leveraged by the performance gains of 5G. We are seeing a tipping point with 5G acting as a catalyst that is transforming entire industries, from telemedicine and autonomous driving to factory automation and intelligent energy management. By increasing efficiency, these 5G-enabled applications are also lowering carbon footprints and driving renewable energy. Skyworks is at the center of this unique technological shift and its reliance on wireless connectivity, with innovative solutions developed over 20 years across multiple technology transitions. The combination of our innovative solutions, broad customer reach, and unrivaled manufacturing scale drove another quarter of strong design win execution. In mobile, we expanded the reach of our Sky5 portfolio, powering upcoming smartphone launches at Tier 1 manufacturers, including Google, Oppo, Vivo, and Xiaomi, among others. In IoT, we secured wins across a diverse set of customers. Specifically, we delivered Wi-Fi front-end modules to Facebook for their new portal launch, captured design wins at Peloton supporting home fitness applications, partnered with Linksys on their newest Wi-Fi 6E mesh network system, and ramped additional advanced Wi-Fi platforms at Altice, Charter Communications, and Aruba Networks. We also launched connected home and security solutions at Honeywell and shipped cognitive audio platforms to Samsung and Vizio for their home theater systems. In wireless infrastructure, we continue to leverage our small cell and advanced MIMO expertise in support of multiple Tier 1 OEMs. Finally, in automotive, we strengthened our position across the global ecosystem, with our integrated solutions enabling advanced telematics for leading auto manufacturers. In summary, Skyworks' trusted technologies play a pivotal and essential role in the way we live, work, play, and educate, enabling ubiquitous, reliable, ultra-fast connections, positioning our business for continued growth. Skyworks' success is underpinned by unique strengths, including our highly integrated connectivity engine, powering applications across an increasingly diverse array of customers in multiple high-growth end markets, a differentiated manufacturing footprint leveraging strategic technologies, from high-performance filters to custom gallium arsenide and advanced packaging. And finally, along with our seasoned and diligent workforce, we maintain deep collaborative relationships with our customers. These advantages will be further enhanced by the acquisition of the I&A business. This combination immediately broadens our product portfolio, augments our engineering prowess, expands our market reach, while diversifying revenue and enhancing profitability. With that, I will turn the call over to Kris for a discussion of Q3 and our outlook for Q4.

Thanks, Liam. Skyworks posted another quarter of strong financial results, delivering record Q3 revenue of $1.116 billion, exceeding the midpoint of our guidance. Total revenue grew 52% year-over-year, demonstrating exceptional performance across both mobile and broad markets. Mobile revenue grew 52% year-over-year, as we capitalized on technology-rich content, powering an impactful set of 5G customers. In parallel, broad markets revenue was up 50% year-over-year, benefiting from strong demand for IoT solutions, including Wi-Fi 6 and 6E, and smart audio, as well as emerging use cases in industrial and automotive markets. Gross profit in the quarter was $565 million, resulting in a gross margin of 50.6%, up 50 basis points year-over-year. Operating expenses were $161 million or 14.5% of revenue, demonstrating spending discipline while continuing our strategic investments to drive growth. We generated $403 million of operating income, translating into an operating margin of 36.1%, a 480 basis points improvement over Q3 of last year. Other expense was $3 million, reflecting a partial quarter of interest expense associated with the recently completed acquisition of the Infrastructure and Automotive business of Silicon Labs. Our effective tax rate was 10.4%, resulting in net income of $359 million or a net income margin of 32.1%. Execution on top and bottom line growth, while expanding gross and operating margins, drove record Q3 diluted earnings per share of $2.15, beating the guidance by $0.02 and representing an increase of 72% compared to fiscal Q3 of 2020. Turning to the balance sheet and cash flow. Third fiscal quarter cash flow from operations was $273 million, capital expenditures were $115 million, and we paid $83 million in dividends. We ended the quarter with a net cash position of $1.5 billion, with $3 billion in cash and investments and $1.5 billion in debt. Moving to our outlook for Q4 of fiscal 2021. Based on continued robust demand for connectivity solutions in mobile and broad markets, along with the inclusion of a partial quarter of revenue from the recently completed acquisition, we expect continued growth into the September quarter. Specifically, in the fourth fiscal quarter of 2021, we anticipate revenue to be between $1.27 billion and $1.33 billion, with non-GAAP diluted earnings per share of $2.53 at the midpoint of our revenue range. This represents revenue growth of 36% and non-GAAP diluted earnings per share growth of 37% compared to the fourth fiscal quarter of 2020. Exclusive of acquisition-related revenue, we expect double digit sequential growth in both mobile and broad markets. Gross margin is projected to be in the range of 51% to 51.5%. We expect operating expenses to be between $180 million and $183 million. Below the line, we anticipate roughly $11 million in other expense, reflecting the interest expense associated with the acquisition financing. We expect a tax rate of approximately 10.5% and a diluted share count of approximately 167.5 million shares. Lastly, given our conviction in Skyworks' strategic outlook and predictable strong cash generation, today we also announced a 12% increase to our quarterly dividend to $0.56 per share. And with that, I'll turn the call back over to Liam.

Thanks, Kris. Skyworks is clearly on track to deliver record financial results for fiscal 2021. As mentioned, the addition of the I&A business further propels our expansion into strategic growth segments. With a widening array of usage cases, the proliferation of 5G is driving significant momentum for Skyworks. Our powerful cash generation capabilities, technology-centric operational scale, and global reach are fueling a robust design win pipeline. Finally, the strength of our balance sheet allows us the flexibility to invest to win while delivering consistent shareholder returns. That concludes our prepared remarks. Operator, let's open the line for questions.

Yes, thanks for taking the question and congratulations on the financial results, guys. Kris, I wanted to start with you and see if I could get you to put a finer point on the contribution from A&I in the fiscal fourth quarter. Can you be a little bit more specific on what you expect from a revenue standpoint and the earnings contribution from the deal?

Yes, Craig. We are not going to report on any specific business line or product line within the quarter. But given that you asked, first of all, we are very excited about the conclusion and the closing of the acquisition on July 26, so earlier this week. It's a great business, very diversified, new revenue streams, and high growth markets for us. The business was running, and we told you that when we announced the deal at approximately $400 million of revenue on an annualized basis, so approximately $100 million of revenue on a quarterly basis if it's a full quarter. This is only a partial quarter, so we only get two out of three months in this September quarter. We will get three out of three months in the December quarter. So I hope that answers your question.

That helps. And then I'll just stick with A&I, but make it a longer term, more strategic question, and I'll flip it to you, Liam. Under Silicon Labs, this was a very high-quality business that steadily grew over time in two different end markets, and now you have it. I'm just hoping that you could spend a minute talking about your vision for what you can do from a synergy standpoint with channels, with customers, with product roadmaps, and what do you think that means for the growth rate of the business on a multiyear basis from the base that Kris talked about, which is a $400 million business.

Yes, absolutely. First of all, as Kris mentioned, we really are excited about taking on this acquisition; great people, great technology, fabulous end markets. The other important thing is this is all uncorrelated to what we do in mobile. So this is really unique for us. One of the things, Craig, that we absolutely will capitalize on is the quality of the technology that the Silicon Labs team has brought and our ability at Skyworks to scale at a high level. We look at these products now that are great, and we think we can take them as is and bring them to newer customers, broader scale opportunities, and proliferate much further than what we see today. It's going to be a lot of fun doing that. Our operational team, our ability to do work in our own fabs, which is very strategic right now, will definitely put some fuel behind it. We're excited about many great end markets, improved margin, improved diversification. There are some customers that we know very well that we can take these products to, and there are some new accounts that we're going to find together. We are really excited about the opportunity. It's very early, but we're very excited about what we can do.

Got it. Thanks, guys, and good luck.

Thanks.

Hi. Thank you very much. Liam and Kris, can you comment on shortages? Apple has made public comments indicating that shortages are worsening compared to the third quarter. From your perspective, are you noticing that this is affecting your business in the third quarter? I have a quick follow-up as well.

Sure. Well, on a general basis, there is a supply chain crunch around semiconductors. I think we all understand that, and it's affecting everybody to some degree. I would say that Skyworks—if you know the company—we are an investor in technology and we have the lion's share of our technologies in-house, in our own fabs, all the way from Gallium Arsenide to assembly and testing through bulk acoustic wave filtering and TC-SAW. We have a lot of really complex portfolios that we bring in-house. So we have the benefit of that scale and the investments we've made over the years have fortified our position in the supply chain. However, any given platform, whether it's a smartphone or a piece of infrastructure, all components have to come together to create a solution for the customer. If anything is short anywhere in the food chain, it can impede demand and execution around demand. So, we are certainly seeing that. I feel like our teams are doing a good job navigating through, but it's clear that there are more demand opportunities now that haven't been executed. We're going to do work on our end to support our customers and we're certainly doing the work in our fabs and labs to be a bit more efficient there and drive technology. It is clear that there is an impediment in demand globally in the supply chain, so that is a real issue.

Got it. Thank you. And you did set your supply chain capability, if I remember correctly, in the December quarter. I had a question on gross margin. Maybe Kris, you can address that. I'm just trying to do my math on the fly. Is it the delta, and we haven't seen this level in a while. Is this delta coming from the impact of the contribution from the Silicon Labs business? Because the cost headwinds are there and they seem to be getting not getting any better. So can you just walk us through the delta in gross margin please? Thank you.

Yes. First of all, I'm pleased with our execution on gross margin. We did 50.6% gross margin in the June quarter, up 50 basis points year-over-year, and that's just pure organic. We guided for 51% to 51.5%, which is up another 65 basis points sequentially, or up 85 basis points on a year-over-year basis. As we indicated before, the I&A business is helping there because that's running at about a 60% gross margin. You can clearly see that we continue to make further improvements in gross margins in our organic business as well, as we execute on our technology roadmaps and get more and more 5G, Wi-Fi 6, Wi-Fi 6E, with a higher level of complexity and higher performance parts in our product mix.

Thank you.

Great. Thank you very much. I wanted to focus first on the SLAB I&A division that just closed. I know you just closed it a couple of days ago. But during your due diligence process, have you been able to find areas of cost overlap that may drive incremental synergies over the next few quarters? And I guess as you address that question, could you also describe any early indications on sale synergies in the broad markets division, now that that acquisition has closed that actually will allow you to have a much broader solution set for customers?

Yes, absolutely. On the cost side, clearly, the ability to take Skyworks, a $5 billion run-rate revenue company, and the infrastructure that we already have in-house and the technology know-how that we have is definitely a strategic piece of the equation with the Silicon Labs deal. On the customer side, there are some great products that are ready to go right now that we can leverage some of those portfolios. The Silicon Labs team is brought to us, and we know where to take it. We are a big volume player at Skyworks, so we are absolutely ready to go after big game. We have the scale for it, the appetite for it, and the technology know-how and prowess to make that happen. There are a lot of really good technologies in the SLAB I&A team that we can scale with known customers and known markets, and that's going to be a crucial part here. We have spent a lot of time working on it as we went through diligence on this process. Both of those vectors are going to be strategic for us as we go forward, and we have the game plan to make it happen.

I appreciate that, Liam. For my follow-up, your outlook for September looks to be up 11% sequentially on even just an organic basis on par with one of your RF peers who reported this week. That peer indicated that some of the slowdown in Android production impacted results, but is more really due to supply constraints. I guess some of that would improve in the September quarter. My question, and maybe dovetailing to an earlier question today, I was hoping you could address whether you see improvements in assembly and testing or other areas of constraint that could allow you to propel strong results from here? Thank you.

Sure. That makes total sense, and that's what we're seeing. For the most part, we have great control in our supply chain because we have our assets. But it only takes one or two devices that you don't make to create an impediment in demand. There are clearly levels of demand that are being delayed in terms of execution due to supply chain constraints. It's a global issue right now, so we are doing some really good work on our end. We are leveraging what we can on our side and working with our partners where we can. I don’t think this is going to be a long-term problem, but it's certainly a problem that is making its way through the semiconductor cycle. Some companies have it worse than others. With our internal capabilities, I think we have some strengths there that others may not have, but it is certainly unique where demand is being impeded to some degree with supply chain issues. This is just a global issue in the semiconductor space, and a lot of work is being done to get that free flow of demand again. The demand opportunity is intact, so I want to make that clear. The demand opportunity for the products we have and the appetite from our customers is still very strong. The technologies coming to market are rich and powerful, and I think that's all going to come to market here soon.

Thank you.

Thanks a lot. Kris, this is probably a tough question to answer given the addition of the SLAB revenue, but I'm just kind of wondering as you look into December, if you were to strip that out, it seems like December is normally up low teens. So I'm wondering if you can look out into December, and if you excluded SLAB, is that sort of how you see things trending into December?

Yes. Tim, as you know, we only guide one quarter at a time. We feel really good about the guide we provided for September. Having said that, looking to December, you're absolutely right. We typically see further strong sequential growth into that December quarter as we execute on some high-content-rich, 5G phone ramps. We expect our broad markets business organically to further continue to grow into the December quarter. Plus, in addition, as I mentioned before, we will have three months of the I&A business in the December quarter. When you put that all together, we feel really good about December.

Thanks, Kris. Thanks for that. I guess, typically, your concentration from your largest customer in the June quarter is somewhere in the 45% to 50% range. I just wanted to get a sense of where that came in. Was it in that same range, 45% or 50%? Thanks.

Yes. In June, it was slightly above 50%, which by the way was exactly the same percentage a year ago in the June quarter of 2020.

Thank you. Liam, I believe SLAB is a strong acquisition. However, it seems quite different from what you’ve done in the past. One of your most successful acquisitions, arguably the best in the industry, was SiGe back in 2011. That was extremely successful largely due to their excellent technology which was highly sought after by your largest customers, but they couldn’t purchase from them because they were too small. Once Skyworks acquired it, it took off and has been a significant success. This acquisition appears to resemble the TI National acquisitions, focusing on a plug-and-play diversification role. I'm unsure about the growth strategy. While I know you intend to expand it and that they possess impressive technologies and strong margins, could you provide some examples of how you plan to integrate this into your customer base? I suspect most of the growth will be in broader markets, meaning it may not achieve anything close to the growth you experienced with SiGe, since it likely won’t cater to your mobile customers. Could you elaborate on the potential growth rate and the specific areas where you anticipate seeing this growth? Thank you.

Sure, Ed. Through the process, we had deep dives into all the elements of the I&A business. They have a very strong timing portfolio, which we can take to multiple customers and customers that we have right now. They have an isolation business that's very strong. Their automotive portfolio is outstanding. There's a lot we can do there. There’s quite a bit of customer and sales synergy that we can unlock. Their portfolio is technically strong but hasn't been as broad in terms of scale, going after very large players. That's something we do very well here. We’re going to leverage the scale, enhance the technology, invest in this portfolio, find great end markets, and we believe this will be a special deal for us. The early innings show what we're seeing and the engagements with their customers, and what we’re doing with our sales channel is going to be unique. The manufacturing benefits are also important. Most of the I&A business has been outsourced, but I think there's a great deal of synergy we can use in our assembly and testing operations. Just having the packaging, assembly, and testing in-house is a strategic advantage. We're really excited about it and have spent a lot of time working through this transaction. We haven't done a lot of deals here at Skyworks; we are very conservative with that. It has to fit before we do an acquisition. This is one of those transactions that, as we moved through the process, we liked it more and more. We really like it now and look forward to demonstrating that opportunity as we go forward.

Great. And then if I could shift to mobile perhaps. Your largest customer leads the field in complexity and sophistication. I think everybody knows that. Some of the things they implemented last year and look to implement this year, should correlate to Skyworks' strength, obviously. We saw the December quarter of last year was phenomenal. But in terms of the rest of the world, especially in regard to China, they lag and it looks like they're moving in that direction. Now if you step back, it seems like Skyworks has been under-earned in China over the last several years, maybe over-earned domestically. As those technologies move into the Vox group, does that present an opportunity? Do you think you'll be able to exploit that to gain a larger share? Should we expect to see more acceleration in growth in the Chinese OEMs Android space for Skyworks next year?

Yes, great comment. I'm glad you brought it up. We are seeing a great opportunity there. We went through the last calendar year with great success, working with flagship models, largely domestic U.S. players. We are starting to see now the incremental move with the Oppo, Vivo, Xiaomi, and MediaTek players as they advance and bring their technology along in 5G. That's a great opportunity, and the content delta can be substantial. We're working very hard on that. We mentioned it in our prepared remarks. That's a very strategic lever for Skyworks. We're engaged, and this isn't a case where we have to break in and form a relationship—we're already a supplier to these key players. We're seeing the technology lift within their devices, just as we anticipated. Expect more from that corner of the world.

Next question?

Hi, guys. Thanks for taking my question. One of your competitors on the RF side has been talking about certain available opportunities of roughly $10 billion that have opened up largely because of Huawei’s business essentially declining, and that being redistributed among more influential customers. I’m wondering—what is your perspective on how that has benefited Skyworks in recent quarters, what inning we may be in with respect to that redistribution of market share, and how it may impact you guys looking forward?

That's an interesting question. As we just mentioned with the last caller, we are deeply engaged in China across all the platforms, and we have good relationships there. We have been a trusted partner for years. We have the know-how to create custom engines with our Sky5 portfolio that allows our end-market customers to step in quickly with a solution that we've architected. We see the demand opportunity as well as anyone. We have a more diverse portfolio that can address those markets, and it's not a single solution. We can crack it, customize it, and reach into our Sky5 portfolio to do exactly what the customer needs. We look forward to that growth. We see the same opportunity, and it can be upside for us as we see China move into 5G accelerate.

Okay. For my follow-up, I want to ask you about content growth at your lead customer, but I won't go there. I would hope maybe you can give us a little more detail on sort of the frequency band support that will be needed as we move from one 5G phone to the next generation. In other words, the cycles within a cycle, as it relates to air interfaces. What sort of content growth do you think you can see long term in the broad market segment as these flagship phones need to support more frequency bands, particularly millimeter wave support? And what's your current stance with respect to millimeter wave? Thank you.

As you've seen, the frequency opportunities continue to expand. If you look at the C-band, for example, that opened up a tremendous amount of technology—3 to 6 gig where we can capitalize immediately. The appetite for this technology is really strong. The mobile technology we see every year gets more complex and more challenging, whether it's in China or the U.S., and we thrive on that. We are a company that focuses on high-end technology and excellence in our products. We see that opportunity rewarded by our customers. We can hit all those nodes, whether it's a China play, the high end of the U.S., and we've grown the technology along with it. There's nothing new about the news around Huawei; all that is completely understood. Millimeter wave is interesting technology. It works in certain areas and has its drawbacks, but we listen to our customers as we have great engagement with all the players we need to work with. Together, we resolve the complexity and work on the end-market solution. We have investments across that entire spectrum. We know what we need to win, and we also know what we need to do to allow our customers to win. That's the recipe that's been working.

Thanks for taking my question. I just want to revisit the September guide. When you look at it on an organic basis, it's a little over $100 million sequentially. If you look back last year, your lead customer contributed that amount. With earlier launches and content gains, you'd think it would be a bit more. Just trying to understand if there are some segments that are down? Are you adding some conservatism? I'm just trying to figure out what I'm missing.

Blayne, I think as we indicated, organically we see double digit sequential growth into September, both in our mobile and broad markets business. We've executed well on design wins, and we have higher content in multiple forms at all OEMs launching soon. Sometimes it becomes a little bit of a unit play. As you know, we always are somewhat conservative in our unit assumptions. There's strong demand for the products. We consider the global supply issues, needing parts to make a phone. If there are only 95 parts available, including Skyworks parts but missing others, you can’t make a phone. That’s being taken into account. Growth will continue into December. Looking at the second half of the calendar year, I think you will see strong year-over-year growth.

Got you. And I guess, just drilling a finer point on broad markets. I know you don't want to break out their contribution, but can you talk about whether it would be up on an organic basis into September?

Yes, that's exactly the point. Our broad markets business will be up double digits sequentially, excluding contributions from the I&A business. On a year-over-year basis, it will be strong double digits. We're continuing to see growth on the order of about 30% year-over-year.

I appreciate it. Thank you.

Yes. Thank you. First question on broad markets. Wi-Fi is a significant part of your organic business and that's been strong on the Wi-Fi 6 ramp. In how long do you expect that Wi-Fi 6 ramp to continue? Wi-Fi has benefited from work from home, but we've also heard there's an enterprise refresh on Wi-Fi 6. Not sure on the size of those segments; does that give it enough strength, even if work from home trends subside, to allow the Wi-Fi 6 trend to continue?

The Wi-Fi cycle in some way is almost parallel to what we're seeing in 5G. We're seeing high complexity moving into 6E, both from consumer to enterprise. That continues to grow. We have solid technologies in this area. Our relationships with customers remain strong. It’s a ubiquitous player for connectivity. We've seen strong drivers from it. Wi-Fi enhances it. Incredible opportunities exist when we look at access points. Wireless infrastructure, alongside customers like Honeywell in industrial areas and players like Nokia and Ericsson, are stepping up. Kris mentioned having 50% year-over-year growth. The portfolio is unique, continues to grow, and is diverse. The new customer engagement through the I&A portfolio is also promising, so we look forward to it. Wi-Fi, as you’ve noted, is highly strategic and we're well-positioned.

Okay. As a follow-up to some costs you've been absorbing that have been a headwind to margins, particularly COVID costs that affected production efficiency. Some reports indicated subcontractors in Southeast Asia had to take shutdowns again. What's your view of that? What headwind are you still seeing, and is there a timeframe to see some of these costs reduce and positively impact gross margins?

We executed well on gross margin with 50.6%, up 50 basis points year-over-year, despite a couple of headwinds. The COVID-19 headwind costs are still present, and I think they're going to stay for a couple more quarters. We are working hard to improve our position. Despite that, we are further improving gross margins. Last year, we brought in $3.3 billion to $3.4 billion in revenue compared to this year; we will pass $5 billion in revenue. This provides some mitigation for the headwinds. We continue climbing the technology ladder and executing with better complexity, more 5G, and even Wi-Fi 6 and 6E. Combined with the I&A business at higher margins, we anticipate further gross margin improvements. As some headwinds transition to tailwinds, we will make progress towards our target model of 53%.

Hi. Thank you so much for taking the question. I have two as well. First, on broad markets. In the June quarter, it grew nicely year-over-year, I think you said 50%. On a sequential basis, it was down about 10, which was below your guidance. Curious about the delta with some puts and takes? On the flipside, you're guiding for that business up double digits in September, so if you can speak to the drivers in September within broad markets, that would be super helpful?

We went up 50% year-over-year in broad markets in June. I would say great execution; it may have been slightly below what we anticipated. Some of that is supply because demand is significantly stronger, but we couldn't supply it. We expect strong growth into September, guiding double digits sequentially, and strong year-over-year growth across all end markets.

Got it. As a quick follow-up, I wanted to ask about cash usage going forward. Congrats on closing SLAB. You talked about raising the dividend as well. Between CapEx and possibly deleveraging the balance sheet and share buybacks, how should we think about the balance going forward? Thank you.

In terms of cash usage and allocation, we'll continue investing in technology and innovation through R&D activities, which is key for Skyworks. We will also invest in manufacturing assets like Gallium Arsenide, filters, and advanced packaging. Substantial CapEx will further expand our reach and assets. Despite this, we will generate strong free cash flow, aiming for a target of 30%. We'll use this free cash flow to pay the dividend—we just announced a 12% increase to $0.56—while maintaining room for improvement. We focus on repaying debt, having $2.5 billion of debt on the balance sheet, including a $1 billion term loan. We plan to prioritize repaying that, and we have a share buyback program that we have temporarily suspended as we focus on repaying that term loan. However, we can switch that back on at some point.

Hi. Good afternoon. I just wanted to expand a little bit on a prior question about RF content in next-generation 5G phones. The increase in the first-gen 5G phone was probably in the 30% range year-over-year. You mentioned C-band that will continue to drive content increases. How should we look at that in second-gen 5G phones this year? Wouldn't we see the increase down to maybe high-single digits year-over-year in terms of content? As a follow-up, in China, you mentioned opportunities, but adoption rates for 5G phones there are almost 80%. Are you expecting to gain market share, or will second-gen 5G phones in China use much more RF content than the first generation, given the adoption rate is up there already?

Sure. First of all, there are tiers of 5G in China. A 5G phone with a certain level of complexity can vary from another with much higher complexity. We can scale through all those nodes. The penetration may still be relatively high, but many 5G phones in China still need a performance boost. We see the entire market from end to end—U.S., Europe, and Asia—so there's plenty of 5G phone content growth opportunities yet to come. In other markets, we're experiencing the same push for higher technology, elaborated applications with heavier burdens on these smartphones in 5G. It’s positive for us as it gives us the opportunity to provide solutions ranging from TC-SAW to bulk acoustic wave and packaging/testing in-house. Increasing content and complexity is beneficial.

Thank you for taking my question. I would like to understand more about your order visibility. Are you receiving orders that need to be scheduled for the fourth quarter or extending into the fourth quarter calendar, or even into the first quarter of 2022?

In general terms, the ability to get that demand through has been impeded, as discussed throughout this call. Skyworks, with our own fabs, assembly, and testing, should perform better than our peers that are more fabless. However, we all deal with the global chip shortage. That has become an impediment to demand. We are working hard with customers to resolve demand execution, and we think that it will improve over the next few quarters. Our share presence in RF content and order visibility remain solid.

Okay, great. And just to confirm, if your customer isn’t getting the full bill of materials, are they asking you to hold deliveries, rather than building inventory of your product while they wait for other products?

Yes, somewhat that’s true. It’s a matter of keeping everything in sync. If components are short within our chain, it can hold up demand execution. However, it’s a collaborative process, and we will manage our part effectively from our end.

Okay, great. Thank you.

Thanks everyone for participating today. We look forward to talking to you at upcoming conferences in the quarter. Thank you.