Skyworks Solutions Inc (SWKS) — Q1 2022 Earnings Call Transcript

Thank you, Rachel. Good afternoon, everyone, and welcome to Skyworks' First Fiscal Quarter 2022 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 a strong start to the fiscal year, establishing all-time quarterly records for revenue and free cash flow. Looking at the quarter in more detail, we delivered revenue of $1.51 billion, above consensus and up 15% sequentially, demonstrating the strength of our broadening product portfolio. Specifically, the mobile business grew 12% sequentially, driven by increasingly complex architectures in 5G phones at our largest customer and momentum across the Android ecosystem. In parallel, our broad markets business achieved a record $477 million in the quarter, up 23% sequentially and 46% year-over-year. Our growth was fueled by both the continued adoption of our solutions across 5G, IoT, automotive and wireless infrastructure, and an expanding set of new customers and markets from our recently acquired I&A business. Importantly, Skyworks continues to drive strong profit margins and exceptional cash flow. We achieved gross margin of 51.2% and operating margin of 38.8%. We posted earnings per share of $3.14, above consensus and up 20% sequentially. Finally, we generated record Q1 operating cash flow of $582 million. As our first quarter results illustrate, the growth trajectory we established in fiscal 2021 is extending into fiscal 2022. We continue to see deployments accelerating with 5G cellular subscriptions predicted to grow from 700 million today to more than 4.4 billion by the year 2027. As connectivity becomes more vital to the ways we work, educate, and play, devices are increasingly integrating 5G with advanced Wi-Fi, precision GPS, Bluetooth, Zigbee and other wireless protocols, creating the seamless and ultrafast experience demanded by our customers. The rapid adoption of new wireless technologies enables a proliferating set of use cases with design wins spanning mobile and broad markets, further bolstered by contributions from our recently completed acquisition. Specifically in mobile, we shipped Sky5 platforms across leading smartphone OEMs, including Samsung, Oppo, Vivo, and Xiaomi, among others. In enterprise and IoT, we supported Wi-Fi access points at Siemens, powered NETGEAR's latest Wi-Fi 6 and 6E mesh system, partnered with British Telecom to launch 5G home routers, ramped Wi-Fi 6 and 6E modules at Juniper Networks and Telus, and provided digital isolation solutions for GE Consumer Appliances. Moving to automotive, we leverage Sky5 technology to enable telematics, security, driver assist and other advanced services at leading OEMs. We scaled volume production of timing and isolation products, enabling the leading EV manufacturers. And finally, across the infrastructure and industrial space, we captured design wins at Quectel for enterprise M2M platforms, delivered industrial IoT solutions to Itron, Honeywell and Thales, supporting smart energy and factory automation. We also expanded our position in timing applications at the top 5 data centers. And as markets evolve, we expect to deploy billions of wireless devices, capitalizing on a strong multiyear growth trend. Advances in cloud and edge computing, autonomous vehicles, and factory automation, together with the emergence of the Metaverse, are intensifying the burden on existing networks, catalyzing demand for our highly integrated and customized platforms. From inception, Skyworks has been a driving force empowering the wireless network revolution, connecting people, places, and things. We invested early and extensively to develop and fabricate cutting-edge technology at massive scale. Today, we're a global leader providing the essential elements required to deliver the highest performance connectivity platforms in the industry, producing billions of units, integrating core technology nodes, including gallium arsenide, bulk and surface acoustic wave, as well as the most advanced multi-chip module test and assembly capabilities in the world. Underpinned by this powerful foundation, we are leading the transition of 5G, inspiring a new era of unrivaled innovation. The strength of our balance sheet and consistent outperformance demonstrates the significant value of our vertically integrated model and the compelling advantages it delivers. Looking forward, we are committed to supporting strategic investments in technology, product development, and world-class manufacturing scale to further extend our market leadership. With that, I will turn the call over to Kris.

Thanks, Liam. Skyworks' revenue for the first fiscal quarter of 2022 was $1.51 billion, up 15% sequentially, driven by continued strong demand across our entire portfolio. Gross profit in the first quarter was $773 million, resulting in a gross margin of 51.2%, up 20 basis points sequentially. Operating expenses were $187 million or 12.4% of revenue, demonstrating leverage in our operating model while continuing our strategic investments in support of future growth. We generated $586 million of operating income translating into an operating margin of 38.8%, up 160 basis points sequentially. We incurred $9 million of other expenses, and our effective tax rate was 9.3%, driving net income of $523 million. Strong revenue growth and execution on margins brought diluted earnings per share of $3.14, up 20% sequentially. Turning to the balance sheet and cash flow, first fiscal quarter cash flow from operations was a record Q1 of $582 million. Capital expenditures were $96 million, resulting in an all-time record free cash flow of $486 million and a free cash flow margin of 32%, driven by strong profitability and great working capital management. In fact, inventory levels were reduced by 22 days to 103 days, and receivables were reduced by 5 days to 47 days. In terms of capital allocation during the quarter, we paid $93 million in dividends and repaid $50 million of our term loan, and we repurchased 1.7 million shares of our common stock for a total of $269 million. In summary, the Skyworks team continues to execute well, delivering strong profitability and rapid free cash flow in the December quarter, with design wins across our growing product portfolio and customer set, positioning us to outperform through 2022. Now let's move on to our outlook for Q2 of fiscal '22. We expect to deliver double-digit year-over-year revenue and earnings per share growth in the March quarter. Specifically, we anticipate revenue between $1.3 billion and $1.36 billion. At the midpoint of $1.33 billion, revenue for the quarter is expected to increase 13.5% year-over-year. Gross margin is projected to be in the range of 50.75% to 51.25%. We expect operating expenses of approximately $186 million to $188 million. Below the line, we anticipate roughly $10 million in other expense and a tax rate of approximately 9.5%. We expect our diluted share count to be approximately 166 million shares. Accordingly, at the midpoint of the revenue range, we intend to deliver diluted earnings per share of $2.62, an increase of 11% over Q2 of last year. And finally, given our strong cash flow and confidence in the business model, we will continue to focus on investing in our business while returning cash to the shareholders through both share repurchases and dividends. And with that, I'll turn the call back over to Liam.

Thanks, Kris. Despite macro challenges and supply chain specific headwinds, Skyworks delivered excellent first quarter results, underscoring the increasingly diverse composition of our customer base and extending our track record of strong profitability and robust free cash flow generation. This strong performance and outlook reflect our critical position within the wireless ecosystem and how complexity favors Skyworks with its vast IP, deep customer relationships, differentiated manufacturing capabilities, and market-leading solutions. The momentum established in Q1 positions Skyworks for another year of record revenue and earnings. That concludes our prepared remarks. Operator, let's open the lines for questions.

I guess for the first question, can you help us detail the breakout of broad markets versus mobile in the quarter? And what your expectations are for those markets as we go forward into March?

Yes, Chris. So as we indicated in the prepared remarks, we had very strong performance in growth markets. It was roughly 32% of our total revenue compared to 22% last year. And so we saw a very strong growth, 23% sequentially, 46% on a year-over-year basis, and the growth was driven by ongoing strong demand for wireless connectivity, especially as it relates to IoT solutions. In addition to that, we have a strong contribution, an all-time record from the acquired business of the Infrastructure & Automotive business as well. So great execution in growth markets. On the flip side, of course, you have mobile, which was in the December quarter, approximately 68% of revenue. It was up 12% sequentially. It was down 13% year-over-year, but you have to take into account the timing of the ramp of flagships, especially last year, where the large customer had a condensed ramp with a late launch in the late October, early November time frame. This year, the launch was spread over the September and the December quarter, but great execution there as well in mobile. As it relates to the March quarter, we typically don't really guide by segments, but we just provide the guidance for the March quarter, which is up 13.5% year-over-year. We do expect both segments to grow double-digit year-over-year, of course, stronger in broad markets than it is in mobile.

Okay. And just following on to some of the comments that you made with respect to seasonality. Last year, seasonality was skewed, as you said, because of the late launch of the phones. But this year, there were also capacity constraints affecting your customers as well. So as your largest customer said that they weren't able to ship as much as they wanted in the December quarter. How does that affect seasonality for the March quarter this year? And does it have any implications for June as well if some of your customers are catching up with unfulfilled demand during the March quarter?

Yes, Chris. So again, if you look at the guide we provided for March, down 12% sequentially, up 13.5% year-over-year. But the down 12% sequentially is actually slightly better than normal seasonality if you compared to the last 5 years for the March quarter. As you probably remember from the call of our large customer, they left some revenue on the table in the December quarter, and they're still trying to catch up, and they see improvements going into the March quarter. Looking ahead for June, again, we only guide one quarter at a time, but sitting here today, I don't see any reason why June would not be in line with normal seasonality. So we do expect normal seasonality for the June quarter. Also, keep in mind that June is just a transition quarter. We feel very strong, based on our technology roadmap, the products, the design win momentum, and the design wins that we have on the book right now; we feel very strong for further sequential growth into the September and December quarter typically, as you see, with strong performance in the second half of the year.

I'm going to pick up right where you left off Kris, and ask specifically what you would classify or quantify as a typical June quarter-over-quarter seasonal comp focusing specifically on the mobile business? And then I have a follow-up.

Yes. So for the total company, if you look at the average of the last 5 years, in June, we have been flat to down 5%. So call it, an average 3%, 4% down sequentially in the June quarter. That's the average over the last 5 years.

And that's mobile specifically, to be clear?

That is mostly driven by mobile.

Okay. All right. And then switching gears over to the Broad Markets business. I know that you have been capacity constrained for that business, but I presume given the upside that you delivered in the December quarter, that's less of an issue or turned out to be less of an issue. So maybe if you can give us an update on where you stand with expanding capacity to support the Broad Markets business, how the backlog is trending for that business in relationship to the improved supply? And that's it for me.

Yes, this is Liam. As mentioned in the prepared remarks, we achieved a record broad market quarter with $477 million, up 46% year-over-year. There's still a lot more for us to do in these areas. We are reaching out to new customers and enhancing our offerings with complex cellular engines and IoT solutions. We're also seeing significant progress with the I&A portfolio from Silicon Labs. The opportunities in the Broad Markets business are vast, and we are pleased with the results we are discussing. The total addressable market is substantial, and while there is still much work ahead, we are encouraged by our team's performance and the addition of new customers. We're committed to continuing this momentum. There's a lot of good technical synergy, as many of these products share a common core, which allows us to operate our supply chain effectively and efficiently, leveraging our scale.

There has been notably tight execution on the balance sheet and cash flow. Kris, I have a quick housekeeping question. What should we expect CapEx to be for this year? I also have a quick follow-up, please.

CapEx for the quarter was $96 million, which is on the lower side, but we don’t manage CapEx on a quarterly basis. We will definitely keep investing as we are still in the early stages of a multi-year 5G upgrade cycle. There are numerous growth opportunities and markets, and we will continue to invest in our manufacturing to increase size and scale while also supporting our technology road maps. We have seen significant success with bulk acoustic wave technology, and revenue from integrated devices with BAW filters is growing robustly, which we are supporting. Additionally, we are making necessary investments in Mexicali for our back-end operations to advance packaging and testing. Overall, we have many growth opportunities ahead and will support them by expanding capacity and making capital expenditures.

Sorry, Kris. So just in terms of numbers, double digit, low double digit is the right number to be modeling? on top intensity?

Double-digit.

Okay. Okay. And then for my follow-up is, Liam, for you on the broad markets business. What's now that you have included the Silicon Lab business, what's the right way to think about the longer-term CAGR for this business?

Yes, absolutely. We definitely see great opportunity in that portfolio as it is right now. And so leveraging that is a very substantial sales team from the core Skyworks still leveraging the I&A portfolio. We've done really well in the last couple of months of introducing the I&A products and technologies to customers that we already have, proven customers that we do a lot of business with, which is a great synergy for us. We are scaling operationally, the majority of the portfolio and the I&A business had been more of a fabless play. Over time, we're going to bring that technology under our own roof here at Skyworks and leverage the great scale that we have. So it's a lot of really interesting things that we're doing on the inside, inward looking, but there's tremendous opportunity on the outbound side. A lot of activity, great people, the spirit and the business there is very high, and the opportunity that we have is tremendous. We really have a small piece of the total opportunity size that product line can bring. So I think we're excited about the opportunity. We'll continue to report on our results. But thus far, things have been going really well.

I wanted to clarify something regarding the Mobile segment since we've heard similar comments from other companies. Specifically, about the March seasonality, it seems that the largest customer has been ordering more products but might not have a typical seasonal performance. They're also launching a new phone with 5G capabilities, which is positive. I am trying to grasp if you're observing this trend because you mentioned that June should return to normal. However, some companies have indicated that June could be weaker, as March appears stronger. I want to ensure I understand your perspective on this matter.

Sure, Blayne. This is Liam. Yes, I think what you may see here is relatively typical demand cycle. But then within that demand cycle, where is the technology and how do you grow that technology even in constant units? It won't be constant units, but if we have a baseline. Some of the enthusiasm around our view going into June is really about design wins that we have squarely in our sight. In some cases, design wins that have been consummated, they haven't shipped yet. So a lot of that is Skyworks specific. But the typical calendar or fiscal cycles that we tend to see are still relatively in place. But I will tell you that the opportunity within the devices that we're serving and with the customers that we're serving, we're seeing growth potential there. And that's much more predictable for us. Because we know exactly what we're winning, we know exactly where that's going, we know how to prepare that operationally, and still do that shoulder-to-shoulder with the leading customers. So we feel really good about it. The macro seasonality could be a little bit different, but we feel very confident in what we're going to do.

And then just a question for Kris. I think when you bought the Silicon Labs business, you're going to retire debt quite quickly. I think you were actually pretty active on the buyback for December. So with the pullback in the stock, are you thinking about that differently? And anything you can talk about for the remainder of this fiscal year in terms of buybacks versus debt retirement?

Yes, Blayne. So currently, we have still $2.2 billion of debt on the balance sheet in addition to $1 billion of cash. So we feel really good about our liquidity position today. In terms of even gross debt, it's less than a turn of EBITDA. And so given where the stock is trading today and what it was trading over the last 3 months, we have switched on the buybacks again, and we will continue to do so going forward.

A couple if I could. So Liam, Skyworks traditionally has been very strong in Wi-Fi, the 2.4 gig section, and I think you own when they use external amps. But that's always been shipped in the phone business into a SIP, a system in a package from somebody else, combined with a lot of other products. But it looks like now finally, the Android ecosystem is moving to more of an RF module architecture and where they'll break out the RF separately. So I kind of understand what that means from a content point of view, especially with Wi-Fi 6E, but I suppose as a problem does it, I mean because now in addition to the amps, you've got to have the best filters, 2.4 uses a tough BAW filter and Wi-Fi 6E will use a tough BAW filter. So one, are you seeing this shift to modules in Wi-Fi finally? And two, does it present any difference in content opportunity for you? Does it go up? Does it go down? Does it stay the same? How do you characterize Skyworks' positioning if the Android world moves in mass to this new architecture? And I have a follow-up.

That's a good question. To clarify, we have a strong position in Wi-Fi today, which is significant and has been performing well. However, advancements in technology and the demand for higher speeds and performance are crucial. In these scenarios, bulk acoustic wave technology plays an important role within the Wi-Fi system. We have successfully advanced our bulk acoustic wave technology, particularly in smartphones, through significant work and investment, and that effort is yielding positive results. Now we are seeing this technology integrated into Wi-Fi as well. We have secured design wins that incorporate bulk acoustic wave technology within Wi-Fi systems with multiple customers. This adds another growth opportunity for Skyworks, primarily in the Broad Market sector, which is quite diverse. While we value our handset business, it's more limited in customer base. By expanding into connectivity applications like Wi-Fi, we have more opportunities, positioning us well to leverage bulk acoustic wave technology beyond mobile phones.

So it's safe to say you're shipping a coexisting BAW filter at 2.4 gig, which is one of the reasons I thought you even started the BAW to protect your Wi-Fi business...

We do, we have that. We do have those today, and we're going to continue to go higher in frequency as we move along.

You performed exceptionally well with flagship phones last time. They are now finally transitioning the transmitter into the diversity section, and you managed to secure that, which is a significant achievement. I have two questions. What does the content opportunity look like for your major customers in that area? You usually excel in the diversity section and also in the low bands. Now that they've incorporated that, should we expect any significant developments, or have we captured most of what we need? Additionally, how does this situation compare with competitors like Samsung and Chinese OEMs? When do you anticipate they will transition to transmit in DRx? Do you think the same competitive dynamics will occur, where you'll dominate that space and push out other players, similar to what you did with flagships?

Yes, on the higher end, we see significant potential, and we have discussed improving performance and enhancing data rates with 6E technology, which is progressing well. However, in the mid-tier segment, there is an immense opportunity because the majority of Android phones in several markets in China are just beginning to adopt higher-performing filters. These upgrades offer substantial performance benefits. We are actively collaborating with customers to demonstrate the benefits of this technology and the performance improvements they can achieve for a small additional investment. This presents a fantastic opportunity, especially coming from a low starting point. It is not merely an upgrade cycle; it involves moving from a very low base to the mid- and higher-end segments, and we will continue to advance along that trajectory. The expertise we have developed in Mobile and RF technology translates effectively across different platforms. Our engineering team at Skyworks has extensive experience working on flagship phones for many years, and they are adept at scaling these advancements to Wi-Fi and other wireless technologies. We look forward to applying that expertise as we engage with new customers.

Congratulations on the nice quarter and cash flow. I wanted to start with an operational question. So clearly, we've got a very strong demand environment out there right now. Kris, it sounds like you expect the business to be seasonally strong in the back half of the year. So can you just talk a little bit about how you plan to manage manufacturing loadings as we go through the calendar first and second quarter or your fiscal second, third quarters? Should we expect to see that you'll build inventory to put yourself in a position or for whatever reason would inventory stay at a relatively lower level here?

Yes, Craig. I mean we do that every year because we do have some large seasonal swings in our business, right? We have typically strong sequential growth in September, December, and then down in March and kind of flattish to slightly down in June. That's the seasonal pattern. We're, of course, trying to maximize factory utilization and drive efficient use of our capital equipment. And so we are always level loading as much as we can. It's not perfect. That's why you also see some seasonal fluctuations in the gross margins there as well. But we definitely will try to maximize that. Also, you know in this business, the design wins, we know them way ahead, right? So we know what we win, we know the product. We can start building to a certain extent ahead of it, and we do that every year.

Yes. Got it. That's helpful. And then I'll flip one over to Liam. Liam, I think there's a general view out there that this year will be a year for somewhere around 40% growth in the smartphone market, really as we ship a lot more midrange 5G smartphones. So I know you just talked about some of the things you're excited about on the Android ecosystem. But is it possible to put a quantification around the degree of content gain that's left at that tier of the market and beyond that tier what's still possible for Skyworks?

We have two key areas of focus: the mid-tier market is advancing, and the premium devices are delivering exceptional performance. Both of these portfolios have been beneficial for us. Our extensive experience, investment, and collaborative engineering efforts enable us to align closely with our customers. We are adaptable, able to cater to high-end demands while also onboarding new companies. The advantages of mobility and wireless connectivity are clear to everyone on this call, presenting numerous opportunities. Beyond smartphones, we are particularly excited about the widespread connectivity potential. There's increasing attention on machine-to-machine communication and the automotive sector, which are substantial markets right now. Wi-Fi and cellular opportunities abound, offering promising prospects beyond just mobile phones. Our in-house technology and scale provide us with flexibility. We don’t follow a one-size-fits-all approach; we can customize solutions for our customers based on their specific needs. We have many interesting design wins that arise from partnerships between customers and our engineers working closely together. It's exciting to observe, and we anticipate continued growth in this area. However, the primary driver remains connectivity, which is essential for making everything function effectively.

Maybe two big picture questions, and maybe for Liam. First, just Android as a market opportunity for Skyworks. I guess your mobile business is much more skewed towards iOS historically. But if I look at Android, we probably look at about $1 billion of revenue for Skyworks every year, and there's more than 1 billion units shipping for Androids. So you're getting sort of less than $1 today of RF content on average. And I guess just moving to 5G and more modules, can you perhaps just talk about the opportunity that you see ahead of yourselves in terms of getting more strategic with customers or where you think you can really start to sort of grow your average content per unit in the Android ecosystem?

That's a great question. Yes, there's a lot more opportunity in Android for us to pursue. It's really about educating our customers. We're showing them how a bit of additional content can enhance the end user experience. There's significant potential for growth. It's not a technical challenge for us, as we know how to execute it. The focus is on crafting a solution that balances technology, performance, and pricing that makes sense for us. This work is underway, especially as 5G accelerates and we need to deliver the promised performance. This requires more content and filtering, as we've discussed. We need to improve our gallium arsenide technologies, assess our packaging and testing, and address coexistence issues arising from integrating various technologies in a single application, whether it's a phone or something else. Recently, we've gained traction at the higher end of Android, with strong customers like Samsung on their new high-performance platforms. We also plan to collaborate with Oppo, Vivo, and Xiaomi. Collectively, these customers are significant for us, and the potential for increasing content from our current baseline over the next couple of years is substantial. So, we appreciate your point, and we foresee increased content from Skyworks in Android products in the second half of the year and into 2023.

Great. Maybe just a follow-up, Liam, on Ed's question on Wi-Fi. I guess, there's something like over 4 billion units of Wi-Fi that ship every year. And I'd just love to understand the RF TAM or the opportunity set that you see, especially with the transition to 6E and some of the changes that we're going to see and how this is packaged up. But I guess we could expect PCs and routers and smartphones and TVs to move quite aggressively towards 6E over the next sort of year or two. But is there anything you can share with us in terms of your strategy and how you plan to address this? Because I guess this transition should be quite positive for RF players like Skyworks that's done very well traditionally in the Wi-Fi space.

Yes, that's a great point. The demand for high-end WiFi has really increased, and the opportunities for its use are becoming apparent everywhere. This spans consumer products to top-tier options, incorporating WiFi, whether it's 6 or 6E. Everything is trending positively for us. As we progress in Wi-Fi technology, we will see a cycle that resembles mobile, where content grows, and as applications advance, the technology must keep pace. Higher speeds require greater efficiency, which means advancements in semiconductors and filtering technology. This aligns well with Skyworks. We consider ourselves a mid- to high-tier player but are also capable of tapping into the lower end of the market. We're noticing growth in the demand for 6 and 6E Wi-Fi. We’ve mentioned the importance of bulk acoustic wave filters for high-end Wi-Fi, which are not widely utilized yet, but this market is on the rise, and it's still early stages for us. We possess the expertise to succeed, and we have the necessary components to make it happen. Similar components are used in high-end smartphones, but they are optimized and scaled for WiFi signals rather than cellular. There is significant potential here, and it aligns with our core technologies. This is an important question and a crucial aspect of our strategy in Broad Markets as we aim to enhance overall WiFi performance.

So you've talked about the strength and opportunities in the Android ecosystem. A few years ago, you really had a greenfield of opportunities in the 3 to 6 gigahertz range, notably at your key customer. So how should we look at the competitive landscape now with Qualcomm recently announced ultraBAW RS in the sub-70 gig range, MediaTek also getting in that segment. So it feels like that 3 to 6 gig segment is where you've gained a significant share a few years ago starting to get more crowded. And I'm wondering whether there could be ramifications of that, including in the Android ecosystem.

Yes. I mean we're actually in a pretty significant growth path with the bulk acoustic wave filtering technology that would populate the 3 to 6 gig range. We also have a great deal of know-how and complexity on both transmit and receive and also the way to integrate the complexity around that. When you're dealing with the high-end smartphones that would demand that kind of performance, you got to have the isolation; you've got to have the form fit and factor to integrate all of that. Because you're going to carry all of the existing 4G and 5G stuff around it, and then you have to populate when you get to 3 to 6 gig; there's going to be some additional filtering. That has to all be coexisting in a way that makes perfect sense within the device itself, current consumption, et cetera, size, and scale. We know how to do that. There's absolutely no gap at all, and we are populating 3 to 6 gig now. Our BAW filter technology is very robust, extremely competitive in populating some of the most iconic highest-performing phones today. That same recipe can scale across Android, can go to the highest end, Smartphones, and find itself in applications that are not mobile applications like automotive, for example. We have the keys for that. The market, in some cases, is just starting to demand this technology; in some cases, the market has been behind the technology. Now we're starting to see the intersection with the high-performance technology and the needs of the consumer and the market together, and I think that's where things really are going to accelerate.

Okay. Great. And then as a quick follow-up, obviously, you have opportunities for content increases and share gains. How do you look at the inventory situation in China smartphone OEMs? And is that something we should get concerned over the next few quarters?

Yes. We don't see any significant issues, although there is some variability. However, our current portfolios are stable. We maintain a very streamlined approach to our products, as Kris noted regarding our inventory days. We do not rely heavily on distribution; our focus is direct engagement. We clearly understand where demand lies and where our products are positioned. Supply chain challenges have caused some limitations for our customers, leading to certain imbalances, but many of these issues are currently being resolved. With Skyworks, the majority of our business is conducted in-house. We utilize our own gallium arsenide technology and handle our own TC-SAW, standard SAW, bulk acoustic wave assembly and testing internally. This allows us to operate effectively even amid supply chain disruptions, and while there may be some fluctuations, we are confident in our execution capabilities.

I'm noticing that input costs are rising. How are you managing that? It seems like your operating expenses will remain stable next quarter, but I'm curious about your overall manufacturing. How are you controlling input costs, and what is your outlook for the remainder of the year?

Yes, Kevin. I mean, this is not a Skyworks specific issue. There are definitely some input cost increases. But as Liam just said, we control a lot of our own supply chain. Most of the supply chain is actually in-house. Now we still do buy some third-party materials, and we have seen some increases there as well. But if you look at the gross margins, we have been able to slightly improve our gross margins, in part because we do have also a dynamic pricing policy. That means we increase or decrease prices where we can, depending on our competitive landscape and certain increases or decreases in our cost structure as well.

Okay. Great. And just a reminder on the I&A business that you just acquired, what's the manufacturing strategy with that for the longer term?

Yes. I mean right now, we are still operating in kind of the fabless play, although still leveraging our teams in a way that's very cohesive. There are definitely operational scale advantages with bringing some of the core technologies from the I&A lab business in the core Skyworks facilities. We know. That's something we're working on right now. It is 100% in our control. We don't need help for it. We know exactly what we need to do. We just need to get it done, and we'll do a lot of things because it will greatly open up the portfolio. There will be more scale to drive the products. There's a lot of, as I said earlier, a great synergy with the technologies that we have today and how they can dovetail with the I&A business, but also the very, very large roster of customers that the slab I&A business has that we can generate and engage with our customers today. There will be some great synergy there, upside synergy around revenue and also synergy around operations. We're looking forward to seeing that more as we pursue the business longer.

Thank you all for participating in today's call. We look forward to talking to you at upcoming investor events. Thank you.