Skyworks Solutions Inc (SWKS) — Q4 2022 Earnings Call Transcript

Thank you, David. Good afternoon, everyone, and welcome to Skyworks' fourth fiscal quarter and year-end 2022 conference call. With me today are Liam Griffin, our Chairman, Chief Executive Officer 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 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. Before reviewing the fourth fiscal quarter results, I want to highlight the significant accomplishments that underpinned another year of record financial performance for Skyworks. Specifically, for fiscal 2022, we generated a record $5.5 billion in revenue, a 7% year-over-year increase. We achieved a record $2 billion in revenue for our broad markets, up 37% year-over-year, representing 36% of total revenue. We drove earnings per share to a record of $11.24, and we returned $1.3 billion to shareholders through dividends and share repurchases. Now turning to the September quarter. Our diversified portfolio and expanding set of customers drove record Q4 performance. We delivered revenue of $1.4 billion, a Q4 record and above consensus estimates. We achieved gross margin of 51.3% and operating margin of 37.6%. And we posted earnings per share of $3.02, exceeding our guidance by $0.12. In addition to the record financial results, we continued building a foundation for long-term growth, with strong operational execution and design win momentum. In mobile, we delivered integrated platforms to the leading 5G smartphone OEMs, including flagship and mid-tier launches at Google, Samsung and others. In IoT, we continue to gain new customers and extend the content. We partnered with Vodafone to launch the UK's first Wi-Fi 6E platform. We shipped into tri-band platforms for Frontier Communications, and we launched connectivity solutions with Amazon, supporting their Wi-Fi 6 Power over Ethernet access points. Across the infrastructure and industrial markets, we provided programmable timing solutions for a leading optical transport OEM, simplifying 400G capacity in data centers and telco networks. We captured new infrastructure wins at Samsung, enabling service providers to expand mid-band capacity and coverage. And we delivered comprehensive timing technologies, delivered to a leading O-RAN small cell provider. In automotive, we achieved another record of quarterly results, with revenue strength highlighting our connectivity and power isolation portfolio. We secured digital radio platforms with a global EV leader, as well as a top European luxury brand. We developed onboard charging solutions for a leading Korean OEM, and we received a key supplier award from Schneider Electric, highlighting the capabilities of our power isolation portfolio. Moving forward, mobility, the shift to the cloud and the electrification of automobiles are all key catalysts driving demand for our unique solutions. The value and utility of mobile data continues to grow, with estimates of 750 million mobile subscribers being added by 2027. In parallel, global cloud revenues are expected to reach $1 trillion by 2028, representing an annual growth rate of 16%. And by 2030, an estimated 96% of new vehicles will feature onboard connectivity and nearly 25% of those vehicles will be electric. Each of these trends requires complex connectivity engines, underpinning the need for high-speed, ultra-reliable, low latency performance. Skyworks is uniquely positioned to craft faster, smaller and more efficient form factors, seamlessly integrating and customizing for an expanding set of customers, end markets and applications. As these opportunities emerge, Skyworks is poised to win, with a talented team that has executed extraordinarily well in the face of macroeconomic and geopolitical headwinds. With our market-leading profitability and scale, we are leveraging strategic technologies from high-performance filters to custom gallium arsenide and advanced packaging, while elevating performance for a coveted set of diverse customers. With that, I will turn the call over to Kris.

Thanks, Liam. Skyworks' revenue for the fourth fiscal quarter of 2022 was $1.407 billion, up 7% year-over-year and up 14% sequentially, driven by both mobile and broad markets. Broad markets were particularly strong at just over $500 million of revenue in the quarter, up 30% year-over-year and representing 36% of total revenue. Gross profit in the fourth quarter was $721 million, resulting in a gross margin of 51.3%, up 30 basis points year-over-year. Operating expenses were $192 million, or 13.7% of revenue. We generated $529 million of operating income, translating into an operating margin of 37.6%. We incurred $15 million of other expenses and our effective tax rate was 5.3%, driving net income of $486 million. Top line growth and execution on margins drove diluted earnings per share of $3.02, ahead of consensus estimates and representing growth of 24% sequentially and 15% compared to Q4 of last year. Turning to cash flow. Fourth fiscal quarter cash flow from operations was $236 million and capital expenditures were $142 million. In terms of capital allocation, during the quarter, we returned $179 million to shareholders, paying $99 million in dividends and repurchasing approximately 800,000 shares of our common stock for a total of $80 million. Let's also review our fiscal year 2022 performance. Revenue grew 7% to a record of $5.5 billion, gross profit was $2.8 billion, resulting in a gross margin of 51.2%. Operating income reached $2 billion with an operating margin of 37.3%. Net income was $1.8 billion, translating into a record of $11.24 of diluted earnings per share, up 7% year-over-year. Cash flow from operations was $1.4 billion. And during fiscal 2022, we returned $1.3 billion of cash back to shareholders with $373 million in dividends and $887 million in share buybacks. So in summary, the Skyworks team delivered record revenue and earnings per share in fiscal 2022, while fortifying the business with the investments that advance our technology leadership and support long-term profitable growth. Now, let's move on to our outlook for Q1 of fiscal 2023. Given broad demand weakness, we expect revenue to decline on a sequential basis. Specifically, we anticipate revenue between $1.300 billion and $1.350 billion. Gross margin is projected to be in the range of 51.25% and 51.75%. We expect operating expenses of approximately $190 million to $193 million. Below the line, we anticipate roughly $16 million in other expense and a non-GAAP tax rate of approximately 12.5%. The increase in the tax rate from prior fiscal years reflects the impact of the US tax loss requiring the capitalization and amortization of R&D expenses for tax purposes, starting in Q1 of fiscal 2023. Absent legislative action to reverse the R&D capitalization rules, we expect our full year fiscal 2023 non-GAAP effective tax rate to be consistent with the 12.5% we are estimating for Q1. We also expect our diluted share count to be approximately 160.5 million shares. Accordingly, at the midpoint of the revenue range of $1.325 billion, we intend to deliver diluted earnings per share of $2.59. And with that, I'll turn the call back over to Liam.

Thanks, Kris. As our record financials demonstrate, our portfolio is powering an increasingly broad set of applications across the market's most essential and fast-growing segments. Our proven execution and deep customer partnerships position Skyworks to outperform. Moving forward, our revenue diversification, profitability, and cash generation will fuel long-term growth while increasing shareholder returns through dividends and share buybacks. That concludes our prepared remarks. Operator, let's open the line to questions.

Yes. Hey, guys. Liam, Kris and team, first of all, congratulations. These are amazing results compared to the rest of the industry. Liam and Kris, you talked about macro when you talked about the guide. I wanted to understand how much of a function China and inventory problems in China is, part of the decline for the December quarter, or is the US a part of that as well? And then, most folks are indicating that China is pretty off. I'd be curious about how your business is doing in China. So any color you have there would be appreciated. And then, I've got a follow-up?

Sure, Harsh. I appreciate the question. Yes, it's certainly been volatile across the space. But I would say the China markets have been a unique situation. Now, as you know, for us, we've been much more focused on the higher-end brands, although we're exposed to global markets broadly. What we have seen is Android markets contract quite a bit. And within there, the OVX portfolios and mobile have been hit quite hard. But the good news for us, Harsh, and I think you know this, is that we've been slowly driving more towards the higher-end brands. The exposure to the OVX markets has been radically reduced and derisked in our portfolio. Even going back to the early days with Huawei and ZTE and coming down to the OVX markets, we've been able to manage through those headwinds. But I would say that, as we go forward, the portfolio that we have in front of us is outstanding. The technology developments that we put forth, the investments that we've made in scale and technology, the diversification themes that we have put forth, they are all going to be incredible benefits and tailwinds for us once these markets normalize. So we feel really good about it. China is definitely a weak spot, I think, in terms of relative strength. There's still some opportunity for us, but it's definitely a bumpy part of the landscape today.

Thanks, Liam. And then for my follow-up, the question that we're already getting from investors is that everybody else is sort of hurting in the industry relative to you guys. So the question that we're getting is maybe, as we start to look past December, do you think that the flush in China, for at least Skyworks, is largely contained in the December quarter, or do you think it's possible that China gets materially worse for you as you look into the March and maybe even the June quarter?

Yes. It's hard to tell for sure, Harsh. But I would say that the relationships that we have with the key customers and the visions that we share on opportunities, we still feel like there can be some recovery here. Of course, this is unique circumstances for the industry in general, but I definitely would look at Skyworks to outperform on a relative basis. There may be some headwinds continued, but I expect that our team is going to be able to navigate that better than others. It's not just words. The ability to manage our fabs, to deliver high-performance solutions in our factories and work closely with our customers day-to-day. So we're not a company that puts products on the shelf and waits for our customers to pull. We work together to drive a demand curve to be very much in lockstep with our partners. And hopefully, that has been true in the past, and I am optimistic we can continue to drive success with our customers knowing that we're a proven supplier and a proven solution for them.

Yes. And maybe I would add there that December for China is definitely the low point. It can’t get much lower than that. The question is, when does it switch back on? Is it in March? We expect some of it to start in March or the following quarter. But, again, in December, it's completely derisked. It can’t get much lower than that.

Yes. Thank you very much, guys. Good afternoon. And I guess for my first question, Liam, maybe you could talk to me about the non-mobile business and the trends there? I know there'll be a lot of questions around inventory corrections and whatnot in the smartphone market, in China and with your largest customer, but I wanted to focus on the broad markets business, because it's a bit more diverse. Maybe you could kind of walk us through the different subsegments of that collection of businesses, the stuff that you acquired, the core Skyworks business. And if there's any puts and takes on where you're seeing weakness? I know there's some folks that across consumer devices, there's certainly some weakness. There's been hints at the start of some weakness in industrial; you guys are exposed to data centers where there's some different trends in different markets. But if you could just kind of walk through the puts and takes there and what you expect that broad markets business to do in the guidance on a sequential basis, that would be really helpful? Thank you.

Sure. Good question. Just to kind of kick that off, we ended our fiscal 2022 with a $2 billion broad markets business. So that's really good, and representing 36% of annual revenue. So a lot of good work going on. The opportunity there is outstanding. If you look at some of the markets that we have today, we are making strides in the automotive business and moving into more and more opportunity in infrastructure. The IoT portfolios continue to grow, a lot of connectivity in that, but also looking at more industrial applications and industrial customers. So there's a lot going on there in broad markets. Our sales and marketing teams are working every corner of the globe here to drive revenue. There's definitely for Skyworks, a lot of headroom coming from our current base, and we expect that to be a key driver going into FY 2023 and beyond.

Got it. Thank you for that, Liam. Just as my follow-up, Kris, a quick clarification in the guide for December, up, down, flat for broad markets. And I guess my second question is, we were talking to the folks at Qualcomm last night, they have a pretty good view of the global smart mobile market given their breadth. And they talked about weakness in mid-tier Android in China, which has been there for a while, sort of expanding to weakness globally and moving into higher tiers of the market, including the premium tier, with customers wanting to hold less inventory basically across the board in smartphones. Is that something that you guys are observing in the premium tier of the market as well? Thank you.

Yes. So clarification on broad markets in the guide to December, so it's kind of flattish on a sequential basis, but still up on a year-over-year basis, low single digits.

Yes. Thank you for taking my questions and congrats as well on kind of better-than-expected results relative to peers for the December guide. But I'm just curious going back to the December guide and the commentary around China. My understanding that you had significantly derisked your China handset business December of last year, as you started to stop basically shipping into the channel. And China was a relatively small percentage of revenue, 2%, 3%, or 4% in terms of smartphones, I might be mistaken there. And so, I'm just curious why the sequential decline in mobile phone when your top customers have been ramping pretty well, better than the expectations. So just curious why the smartphone business is down sequentially in Q4, given your top customer ramp and then given your limited exposure in China?

Yes. So there's two parts to the business, right? So, there is the large customer and then is Android. Within Android, there are two large players as well. There is China, basically Oppo, Vivo, Xiaomi, and then there is Samsung. We have definitely been derisking China for the last couple of quarters, given the COVID-19 lockdowns and the well-documented softness in end customer demand in the China market. But there is also a Korean player in Android where we have been doing really well. We have seen very strong year-over-year revenue growth in fiscal 2022 with that customer. However, that customer is also not immune to some of the softness on the global demand, including some of the European markets. And so, it's very well documented as well there. There is some inventory overhang at that customer, and that's definitely having an impact on our December guide.

Yes. I would also say that, despite the near-term bumps with that customer, there's a great opportunity for content gains, and so we're excited about that. There isn't anything that's going to impede on an effort. So there's a lot of opportunities for us to round that out. I think the China case, we have derisked appropriately, but we have a great deal of opportunity with the other leading smartphone players. Our teams are all in on that.

Yes. Thank you for that. And just for my follow-up, just a question on the inventory, both kind of internal inventory as well as inventory in the channel. So if I look at the absolute dollar inventory, it's up about almost 30% on a year-over-year basis relative to revenue growth of 7%. So number one, I just wanted to get an understanding of how you're managing internal inventory? And then, how would you characterize, I guess, smartphone channel inventory or any inventory in the broad market? That would be helpful. Thank you.

Yes. Regarding our internal inventory, I am satisfied with our current levels. In fact, during the September quarter, our inventory decreased by six days. It's important to remember that the products and solutions we offer are quite complex and integrated, and we are increasingly focusing on this integration. This complexity also results in longer production cycle times as we incorporate more components, particularly filters, into our solutions. Additionally, as I've mentioned previously, due to the supply chain challenges over the past couple of years, we have increased our buffer stocks to ensure we can meet customer demands. Furthermore, we are leveling our factory loads to improve utilization, as our business experiences seasonality. Despite all this, I believe that supply chain disruptions and constraints are starting to ease, which could enable us to reduce some buffer stocks in the future and help lower our inventory days. Concerning external inventory, we manage channel inventory very carefully, and I would describe it as being at a normal level. However, the larger concern lies with some elevated inventory at the customer level, particularly within the smartphone market, especially regarding Android devices, which has been noted previously.

Hey, guys. Thanks for taking my question and I need to congratulate you as well on a strong finish to the year. I wanted to start off by asking about some customer mix percentages for the fourth quarter. Specifically, what was the mix from your largest customer? And were there any other greater than 10% customers in the fourth quarter?

Yes. So our largest customer in the September quarter was approximately 63% of our business. So great execution by the team here, reporting the launch of our largest customer, new products that translated into a 30% sequential growth or a 14% year-over-year growth. I know there are always a lot of questions about whether Skyworks is gaining content or not. While those numbers clearly illustrate that we had a major uplift in content in the new products that have been launched by our large customer.

The other greater than 10% customers?

No. That was the only plus 10% customer in the quarter.

Okay. As my follow-up question, what sort of big or double-clicks into your Q1 guide. So it looks like it's about a few hundred million dollars shy of what you would normally expect, given the normal seasonal sequential comp. Can you quantify how much of that is just general market weakness versus what is inventory drawdown from what sounds like your on Samsung?

I believe the primary issue is certainly an excess inventory situation in Android, especially at the phone level, particularly in China with companies like Oppo, Vivo, and Xiaomi, as well as our Korean customer. This is clearly the main factor affecting us.

Hi. Thank you very much. What is the percent of the China Android business for you now, Kris?

Very small. Very small. As I said, we've derisked it. We've been bringing it down over the last couple of quarters because we noticed that there was an inventory overhang building up, and so we derisked it, and it's now very small.

Yes. And that being said, we're largely talking about China here. Obviously, we have other Android players that are continuing to drive solutions and have some really good opportunities that will flow through the year.

That's okay. I understand. And so, just to make sure, when you say very small, it's like low single digit as a percent of total sales. And what was it at the peak? And then a quick follow-up, Kris, what's the CapEx for the full year?

So in fiscal 2022, we did $489 million, $490 million of CapEx, which was 9% to revenue. We definitely will continue to invest in the business, but we also will do that in a smart way. And given some of the demand softness that we experience now, we definitely are going to manage our CapEx accordingly.

Hey, guys. Thanks for taking my question. I just wanted to ask you, on March, and I know you don't want to guide March probably, but just the moving pieces, obviously, big misses from Qorvo and Qualcomm, but they did both highlight content gains at Samsung. That seems to be the one offset for March. So I guess it's two parts. How do you feel about your content and growth at that customer? And then if you can, just more thoughts as to the two moving pieces. Should the box inventory, I guess, zero, you're shipping basically nothing, but should the Korean inventory situation be done by then? And I guess, your prospects for growth kind of with new business there?

Sure, Blayne. This is Liam. The content opportunity for us continues to grow. We have penetrated some really unique solutions with our largest customer, and the opportunities going forward are very bright. The engagement is outstanding. Our ability to outperform technically with that customer continues, and I don't think that's going to change at all. So we're really bullish on that. When we go back to things like Samsung, I think there's a lot of opportunity there. We just got an odd turn right now with the way that market is moving out. But the opportunities continue to be strong. We have, I think, some really nice new technology that we're bringing forth in the portfolio beyond handsets. If you look at where this business is going to go after some of the inventory burns down. And we're very, very tight on that, by the way. We know how to work with the largest customer. We've been doing this for years, and we're very close in terms of the signals that we have that will help us manage inventories, et cetera. But a lot of good stuff going on there, and we should definitely expect from us to do more on the Android side, maybe absent some of the China players.

Thanks. And then, I just wanted to go to Matt's question on broad markets and the moving pieces, because obviously, consumer Wi-Fi sounds very weak, maybe service provider and more mixed. And then, you tell me, I guess, I'm curious about the direction that the Silicon Labs business is going, because I know they were shorted for a while and have more exposure, maybe more industrial communications and such. So just thoughts on those kind of moving pieces as to what drove the beat? And then you're not seeing much of a dip in December. Are you seeing weakness in one area and its offset, or are you just not seeing much weakness?

Yes. So I would look at two things. On the Silicon Labs portion, we're seeing really good progress. I know you've heard it from us before, but honestly, this deal has gone better than we expected and it continues to increase. So we're really excited about that; a lot of new opportunities. But then on the Wi-Fi portfolio, as we start to move through Wi-Fi 6 and 6E, we've got a great lead in that product line. There's a lot of technology that we're bringing to bear. It's higher grade. It's higher performance. Consumers are just now starting to buy into that, think of that Wi-Fi as kind of a cycle similar to 5G. There's a lot of replacement and new engagement around that portfolio, and we have a great solution. So we're feeling good about that. And then another market that's popped up, obviously through the SLAB deal was automotive, and we didn't talk that much about it today yet, but it's a really critical part of the portfolio. We've got a power isolation business doing incredible things. We've got customer engagements with names we wouldn't have had with Skyworks two or three years ago. So we're really excited about that. The brands are starting to extend; the application set is getting stronger, and the technologies that we're populating are really critical and unique.

Yes. Thanks Liam and Kris. I appreciate you taking my question. I want to follow up on Blayne's last one, which was your comps in broad markets being flattish for December, that does seem exceptionally strong versus peers after coming off outperformance in September versus your previous guide, I think to the tune of roughly 10 points. And so, I guess, how much of the outperformance is from some of the backlog you have serviced that I think was initially challenged by match set issues in the last quarter or two, that seems to be loosening up? So, I guess, how much of that outperformance is driven by that? And then I have a follow-up.

Yes. I mean, there's some gains with kind of unfreezing that backlog. But the truth is, it's really new design wins and new opportunities. And I know we've said it before in other calls, but the organization is really moving into a period where we've got great technology. We have engagements with customers on both sides, the SLAB side and obviously the core Skyworks, and the business development is going really well. The revenue is growing better than we thought actually, and we continue to see more and more opportunities for growth. Additionally, there are solid margins in that portfolio as well. So it's going really well. A lot more to do. I would bet hard on data center and automotive here. That portfolio is starting to really ramp. But it's been a great transaction, and there's a lot more to go from there.

Yes. No, I appreciate that, Liam. I guess to that point, the I&A division you acquired brought you new opportunities in automotive connectivity and power isolation for electric vehicles and data center hardware. Could you just talk about that? Could you just see some of those opportunities, because they seem to be gaining much traction? So maybe any things you might call out on that. Thank you.

Yes. For example, we are now working with companies like AWS and Google Cloud in data centers, which was not the case a year or two ago. We also have new business in automotive power isolation, which is a critical technology that we didn’t have a few years back. There are many positive developments happening in the infrastructure markets where we already have a presence, and we're now expanding our involvement. In the automotive sector, there are impressive technologies that require wireless and high-performance semiconductor products, which is our expertise. This is particularly beneficial as we advance into autonomous systems, where high-speed wireless connectivity is essential. We recognize that connection. It's a combination of strong customer relationships, solid technology, and diverse growing markets, and we are excited about our progress. We are exceeding expectations with this initiative and are increasing our investments in that area due to its excellent returns. There have been some challenges with the supply chain, which affected our performance slightly, but I believe we're overcoming that. Skyworks typically has a more focused approach, whereas the I&A portfolio is much broader. With the backing and investment from the larger Skyworks, we can achieve remarkable competitive advantages moving forward, and we are eager to see what's ahead.

Thanks a lot. I have two. Kris, I have a question on the December guidance. I mean, even if I zero out China Android and zero out Samsung, the big customer is down about 10% year-over-year, and you were down 30% year-over-year in September. The units at least aren't a really big mystery for September. So I'm just trying to figure that and reconfirm that you actually gained share this launch. I think you were planning to gain 5% to 10% content. And maybe if you did gain the share, could it be that maybe the customer bought parts for this launch much earlier because of how much money they left on the table during the last cycle due to the constraints? Can you just help us fit all that?

Yes, Tim, I think we probably will have to take that offline and go into a deeper dive there. I think you have to take into account that part of the large customer revenue is in broad markets, as we sell many of our solutions into other devices than their phones, and I think that's part of the reconciliation there. But again, the business, as I said before, with the large customer is strong. It was strong in September and continues to be relatively strong in December, as we execute with content gains in the new form lineup and continue to support their ramp.

Okay. Yes. Let's take it offline. I guess then the second question is really on March. And I know there was a question just asked about this, but to ask it maybe a little different way. So seasonality this year, obviously, is a bit wonky because December is usually not down and it's down this time. March is usually down low teens sequentially. I would think maybe it could be a little bit better than that. Can you sort of give us a little bit of a sense on March just in light of how December is so much below normal seasonal? Thanks.

Tim, so this is a very volatile environment. There are macroeconomic headwinds. There is a war going on in Europe. There are COVID flares. So we're going to stick to guiding one quarter at a time. But I mean, some of the elements that you mentioned there, of course, could potentially have an impact on the March quarter. We discussed it before; it will depend to a certain extent on how the inventory at the phone level gets resolved and when some of that Android business starts picking up again.

Yes. And I will say that we definitely will have visibility. So we're not blind. We're really close to the customers. And so we're on top of the transaction. So everything that Kris said is exactly true. I would just add that our ability to look through the channel and be engaged with our customers and our suppliers is very strong.

Thank you very much. Liam, first of all, congratulations on the content gain from your largest customer, particularly with the transmit DRx parts. I guess that puts to rest, at least for the next year, the prelaunch rumors of a net decline in content and share loss. Our testing around the part showed a lot of your filters, which have been trending positively for you over the last several years. I was wondering if this has positioned you to feel confident about competing for a mid-high band module, or if you still depend heavily on very complex MUX filters, making it out of reach unless we see a change in RFP architecture that would enable those modules. I'm just trying to understand if you've experienced significant content gains over the last several years, mainly with new parts, and whether you're beginning to consider targeting some of the longer-standing products that you previously lacked the technology to address. I have a follow-up question as well.

Yes, that's a great question, and I appreciate it. As I've mentioned before, we prefer to tackle challenges right from the start. We focus on seizing the most difficult opportunities and then build momentum from there. Our strength lies in high-end, complex environments, and our design teams excel in these situations; they thrive on the challenge. You can expect us to keep pushing forward. I value your insights into our current achievements, which are quite solid, but there’s still more to accomplish. Our designers and engineers are enthusiastic and eager to take on more. We plan to expand our portfolio not only with our largest customer but also with many others. As you’re aware, performance, complexity, and resolution are key; combining these seamlessly is our goal, and we hope to sustain that progress.

Okay. As a housekeeping note, our calculations suggest a content gain of over 10%. Kris, could you provide clarity on that? Are we in the right range, or do you think we might be underestimating? Additionally, Liam, with Wi-Fi 7 approaching, should we anticipate the architecture in phones shifting back to external amplifiers? If that’s the case, can they utilize SiGe, given that the frequencies will likely need to be gas? Qorvo indicated last night that this is a growth area for them. I'm interested in understanding the technology breakdown here and whether you've noticed increased competition in this space.

Yes. So first, yes, you did a great job at the teardowns, and your conclusion of content gains in excess of 10% is absolutely true.

This is Blake Friedman on Vivek Arya. So just a quick question on your large Korean customer. I know one of your peers last night also highlighted various design wins there. So just curious, from your perspective, if you're seeing an overall expansion of the TAM at this customer or if you believe you're seeing share gains in any way?

Yes. Honestly, here, we're starting to see an expansion of the TAM with the largest Korean customer. That's always been kind of a battle for lower cost versus performance, and what we're seeing is that performance is the driver. If you look at the incremental user experience between a mid to a higher-end phone, it is exceptional. We see it here in the US with the leading player, but it's also a great opportunity for mid-tier. So there's a lot to do there, and I think that's a great opportunity for us with the largest Korean player. We've got the China business derisked, and we have a great position with the top brand. So we're looking forward to getting through some of the bumps that we're dealing with right now and moving into a stronger 2023.

Great. As a follow-up, I would like to discuss future content opportunities at a higher level, particularly considering that 5G penetration is around 55% to 60% of the overall market and that your largest customer has mostly transitioned to a full 5G suite. Could you elaborate on the expected content growth as the cycle matures, especially from generation to generation?

Yes. The importance of high-end smartphones to users is significant. We have consistently observed opportunities for growth in our content and technology reach, and this trend shows no signs of slowing down. Additionally, our work is expanding beyond just one area. We have made advancements with Bulk Acoustic Wave and TC-SAW technologies, leveraging our in-house gallium arsenide, and integrating these unique solutions into a comprehensive offering that serves multiple end markets. The positive aspect is that our partner companies, particularly the largest ones, are keen to innovate. They are looking for enhanced performance that can support more applications, which in turn expands our technology reach at Skyworks. We expect this to continue. The demand for mobility and connectivity is robust and well-recognized by everyone on this call. While we may experience fluctuations in specific quarters, the overall trend is upward. Our ability to combine these technologies and effectively engage with the right customers is crucial, and we are dedicated to continuous improvement in that area.

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