Skyworks Solutions Inc (SWKS) — Q1 2023 Earnings Call Transcript

Thank you, JP. Good afternoon, everyone, and welcome to Skyworks' first fiscal quarter 2023 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 press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call to Liam.

Thanks, Mitch, and welcome, everyone. Skyworks delivered solid first fiscal quarter results with revenue exceeding consensus estimates, strong profitability, and record cash flow performance. Looking at Q1 in more detail. We delivered revenue of $1.329 billion, drove gross margin of 51.5% and operating margin of 37%. We posted earnings per share of $2.59 and we generated $773 million of operating cash flow, a quarterly record for Skyworks. In addition to the solid financial results, we expanded our design win pipeline in several emerging high-growth segments. In IoT, we extended our broadening technology portfolio across a growing customer base. We partnered with AT&T to launch their first WiFi 6 gateways, unveiled the industry's first WiFi 7 networking system with TP-Link, and leveraged our advanced connectivity portfolio to support 6 gigahertz fixed wireless access points at Cambium Networks. Across infrastructure and industrial markets, we integrated Power-over-Ethernet functionality in Cisco modular switches for enterprise networks. We ramped timing platforms to meet high precision and speed requirements for the leading data centers. And we delivered frequency generation and clock distribution technology for 5G massive MIMO deployments. In automotive, we achieved our sixth consecutive quarter of record revenue, strengthening our EV design win pipeline with onboard charger content at a Japanese automotive supplier and securing design wins for digital radio platforms with a top European OEM. Moving forward, the rapid expansion of mobile network traffic, advances in cloud and edge computing, IoT, and the electrification of vehicles are major trends that drive complexity and demand for our highly integrated and customized solutions. A few highlights underscore these remarks. Wireless connections continue to proliferate with mobile network traffic doubling over the past two years. Market estimates project over 25 billion IoT devices to be installed by 2027. The automotive industry is undergoing a revolutionary shift towards electrification of autonomous vehicles with EVs projected to make up over 30% of the U.S. market by 2030. Skyworks is well-positioned to capture growth upon these opportunities in transformative markets, leveraging key technologies, human capital, and significant scale. Collaborating with our partners and customers, we are leveraging key technologies from PC soft to high-performance bulk acoustic wave filtering, gallium arsenide, and state-of-the-art packaging. These skills and capabilities position Skyworks to play a leading role in this fast-evolving, rapidly growing landscape. With that, I will now turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q2.

Thanks, Liam. Skyworks' revenue for the first fiscal quarter of 2023 was $1.329 billion, exceeding consensus estimates. Mobile was approximately 65% of total revenue with weakness in Android as customers worked down their inventory levels. Broad markets were approximately 35% of revenue, with a strong contribution from automotive, infrastructure, industrial, and the global shift to WiFi 6E and 7. Gross profit was $684 million, resulting in a gross margin of 51.5%, up 30 basis points year-over-year and up 20 basis points sequentially. Operating expenses were $193 million or 14.5% of revenue. We generated $491 million of operating income translating into an operating margin of 37%. We incurred $16 million of other expenses, and our effective tax rate was 12.8%, driving net income of $415 million and diluted earnings per share of $2.59. Turning to cash flow. First fiscal quarter cash flow from operations was an all-time record of $773 million. Capital expenditures were $64 million, resulting in a record free cash flow of $709 million and a free cash flow margin of 53%. We paid $99 million in dividends and repurchased approximately 1.8 million shares of our common stock for a total of $166 million in the quarter. On a trailing 12-month basis, we have returned $1.2 billion to shareholders through dividends and buybacks. Also today, we announced that our Board of Directors has approved a new $2 billion stock repurchase program, highlighting their confidence in our business and its ability to continue generating strong free cash flow. Now let's move on to our outlook for Q2 of fiscal 2023. We anticipate revenue between $1.125 billion and $1.175 billion. Gross margin is projected to be in the range of 50% to 50.5%. We expect operating expenses of approximately $189 million to $191 million. Below the line, we anticipate roughly $19 million in other expenses and an effective tax rate of 12.5% to 13%. We expect our diluted share count to be approximately 159.5 million shares. Accordingly, at the midpoint of the revenue range of $1.150 billion, we intend to deliver diluted earnings per share of $2.02. And with that, I'll turn the call back over to Liam.

Thanks, Kris. Skyworks delivered solid first quarter results, demonstrating strong profitability and record free cash flow generation. Importantly, our technology-centric operational scale and expanding set of innovative solutions are fueling a robust design win pipeline, positioning Skyworks to continue to outperform. Despite a challenging macro environment, Skyworks remains well-positioned with the most diverse customer and solution set in our history, a technically seasoned and talented workforce, a strong balance sheet, and predictable cash generation underpinning our ability to fund future opportunities while returning cash to our shareholders. That concludes our prepared remarks.

Operator, can we begin the question-and-answer session?

That was a concise set of prepared remarks, Liam and Kris, which I always appreciate. I wanted to get your perspective on excess inventory. Qorvo mentioned it could take up to a year for component inventory to normalize. MediaTek indicated that finished goods inventory has been at about 3.5 months and may reduce to two months. What are your thoughts on your inventory and the inventory in the channel? Also, regarding your balance sheet, I noticed that inventory was significantly higher. How should we view this moving forward, Kris?

Sure. This is Liam. At Skyworks, we are very focused on operations and technology. Most of our products are produced in-house at our own facilities, so we have a good understanding of our inventory levels both internally and with our partners. We take great care to align our revenue with natural demand and maintain a close relationship with our customers. Our teams have been doing an excellent job managing excess inventory in some markets, which we are allowing to decrease gradually, and our exposure in these areas is minimal. While some markets in China are more volatile, our exposure remains low. It's important to note that we can effectively manage our products in collaboration with our top customers, ensuring clear communication and alignment. We feel confident about our position and will continue to navigate these challenges as we move into the second half of the year.

Yes. Regarding the inventory on our balance sheet, it's somewhat elevated, but I'm comfortable with it at this level. We emerged from a period of supply chain challenges, and we aimed to meet customer demand by increasing some buffer stocks. Recently, we've noticed some softness due to macroeconomic challenges, and we've been adjusting our wafer starts and factory loadings accordingly for a couple of quarters now. While our inventory is a bit elevated, we are level loading our factories. We expect the business to recover, particularly in the second half of calendar year 2023, based on known design wins. We'll continue to level-load to support significant ramps associated with these design wins from many of our customers. Additionally, we anticipate that the Android-based business in Korea and China will also rebound in the latter half of the year.

I had two. And obviously, it's a tough mobile backdrop. I think these are pretty good results. Just curious if you can level set us for December. I don't know if you're willing to give how much your largest customer was but then in the March guidance, if you could just talk through how you're thinking about the iOS versus Android there? I mean, does Android bottom in December or March? And any thoughts on the recovery for Android.

Yes. So as it relates to the large customer revenue with that large customer was approximately 68% of total revenue. That clearly demonstrates great execution by the team supporting that large customer in the ramp of their new phone lineup. We have some great content in that phone, some really high-performance complex devices, many of those devices leveraging our bulk acoustic wave filtering. And so I think we did really well in the December quarter despite the fact that, as you know, the large customer talked about that, they were somewhat supply constrained due to some COVID-related issues in China. But the team here executed really well in December with that customer.

Yes. Blayne, just to follow up, we are starting to get back into the Android portfolio. As you know, we have been holding back because there was some inventory in that channel. I believe there still is, but it has been decreasing. The opportunity for us to make incremental gains there is very high since we have been on the sidelines until these inventory levels reach a more normalized position. It is not about the product; the products are ready to go. We have everything we need to drive that business, but we want to be cautious as the markets evolve. However, we definitely have the design win momentum.

And then I wanted to ask you on broad markets. Whether you think that business would be up in March as part of the guidance? And then I know you had a record I&A quarter in September. Just kind of curious how that business is doing trajectory-wise?

Yes. So in the broad markets, as we said, was in December roughly 35% of our overall revenue. It was slightly down on a year-over-year basis as we see similar things that some of our peers and competitors are seeing in that market due to some macroeconomic headwinds, there's a little bit of a softer demand. But on the flip side, we definitely saw strength for Skyworks Solutions in the automotive segment, some parts of the infrastructure and industrial segments. And as we said as well, we see some really good traction in the upgrade to WiFi 6E, which is a big step-up in content as well as some early design wins that are being turned into revenue for WiFi 7. As it relates to the March quarter, we do expect broad markets to be slightly down sequentially, somewhat in line with normal seasonality.

There have been some teardown reports out there that have highlighted your content associated with the satellite link, I guess, in particular, with your largest customer, somewhere in the order of 4 or 5 specific sockets for you guys. Can you speak to the content opportunity for you, not only the iOS world, but as well the Android world?

Yes. I think we are engaged with all of the relatives and meaningful applications. And I think if you're referring to Satcom, is that right?

That's right.

Yes, we have the technology, intellectual property, and essential components to make this work. While it's still early in the global market, there's definitely an opportunity to scale units. We are actively involved and possess the technologies necessary to implement these solutions. Additionally, we have partnerships with companies that can help develop the network. This presents a great opportunity for a company like Skyworks. We have many of the critical components, and we have a deep understanding of the radio frequency space and the satellite communication sector. This is a growing opportunity, and we will continue to be engaged, with potential for further growth as the markets develop.

Okay. Just my follow-up, I want to ask about utilization of your supply. It sounds like you won't have any underutilization charges associated with internal supply, at least not for the intermediate term. But maybe if you can speak to external supply, purchase commitments there and your ability to fully utilize those without taking these sort of reserve.

Yes, Gary. As indicated before, we have been managing this proactively for many quarters right now. And we are adjusting our factory loadings all the time, depending on the demand that we see. And of course, the earlier you do that, the more attractive you are, the more you can take the time to, of course, accordingly adjust your cost structure, taking out cost where needed. While at the same time, of course, continue to work on operational efficiencies, yield improvements, and so on. We've done that with our internal factories. We've done that with our third-party purchases and vendors as well. Having an open dialogue, making sure we have, on one hand, enough capacity in place, but at the same time, not overcommitting as well. And I think the team has executed pretty well on that.

Liam, I was hoping you could provide a little bit more context, a little bit more color around your broad markets business. I think you talked about record revenue in your automotive business and strength across comms and the industrial end market as well. But specifically, I was hoping you could size those individual buckets within broad markets in calendar '22 where you landed from a revenue standpoint across those key end markets? And how you're thinking about the forward? And on the forward, I guess, the commentary on automotive from most of your peers continues to be pretty bullish and pretty positive. But there are signs of moderation in comms and industrial. So I was hoping to hear what you're seeing in those markets as well.

Sure. Well, we put a lot of energy into those markets, and we're getting great returns. And the size of the opportunity there is substantial and some of those products and markets that were not really the purview of Skyworks two, three, four years ago, but they are now. So the automotive opportunity for Skyworks has been incredible leveraging some of the IP that we brought in with the SLAB I&A deal, coupled with our own internal developments and design wins and technology partners. We've got a business now that is in the hundreds of millions of dollars a year, really at a time where EV and electrification of vehicles is really just starting. So I think this is going to be an incredible piece for us, one of the markets that will drive our broad market portfolio. The other thing is the IoT space generally is really clicking now for us. And you've heard for years that if we think about our solutions, they're not just handsets. We leverage the handset because it's a great opportunity to demonstrate what benefits we could have as a user but we're starting to drive the same types of technologies in IoT, things like WiFi, for example, GPS, many other sensor technologies that we can populate with our solutions. So some of that core wireless engines don't have to be specific to smartphones, but that technology, that know-how, that scale, the ability for Skyworks to uniquely develop end market solutions, I think, is quite a differentiator. And we're really just getting the wheels turning on those opportunities, but there's definitely quite a large opportunity set for us over the next four to five years.

Got it. And then as a quick follow-up, one for Chris on gross margin. In the December quarter, your margins came in in-line. They were up a little bit both sequentially and year-over-year despite revenue declining both sequentially and year-over-year. So curious what were some of the positive offsets in December? And then more importantly, for the March quarter, you're guiding gross margins down, I guess, roughly 100 basis points, give or take. I mean is that primarily revenue or something else going on?

Yes. First of all, I'm pleased with the fact that in December, we did 51.5% gross margins, up 30 basis points year-over-year, up 20 basis points sequentially despite the challenging macroeconomic environment. And I think, again, kudos to the team who continue to drive operational efficiencies into our factories with great execution there. And that's really, I think, the main driver there, how we are able to keep up the margins where they are. Again, despite some of the adjustments that we make in terms of factory loadings. As it relates to March, you have a little bit of a mix that comes into play and some of those headwinds, right, the revenue, as you indicated, that translate into the adjustments we make on the factory loadings. When you put it all together, I'm guiding margins in the low 50s. On one hand, I'm not happy with it. I wish it was 53%, and we're going to continue to work hard to get at 53%. But on the other hand, I'm happy with where we are from a margin point of view right now.

Yes. I wanted to ask about sort of inventory levels. I mean there's been tons of conversation through this earnings cycle around inventory levels in the smartphone space. But I'm maybe more curious about the broad markets business. You guys mentioned a couple of times the obvious macroeconomic things that are going on and maybe affecting that business, having it be down a little bit. How diverse is the inventory situation in the broad markets business? Maybe you just kind of walk through what business goes direct, what business goes through the channel and how you're seeing inventory levels just for broad markets in the near term?

Sure. This is Liam. The good news is that our broad market portfolio is very diverse and offers many opportunities across different end markets. We have a solid position there. Our operational teams are highly skilled, managing our supply chains mostly in-house, which gives us a good understanding of our inventory levels and where they should be. Overall, I think we're handling this well. While there are some inventory challenges, they are not likely to hinder our business progress. One exciting aspect is the influx of new customers we're gaining. There is a difference in approach when it comes to smaller accounts versus larger ones, like those in the smartphone space, but our diversification and strong margin profiles are impressive. At Skyworks, we handle nearly everything in-house, which allows us to manage our supply chain effectively. Our sales teams are adept at understanding the dynamics between distribution and direct sales, giving us multiple factors to control. Although it’s not straightforward, it’s our operational method. We are beginning to see positive results from our broad market strategy and diversification. We've discussed some new segments, particularly automotive, which is quite challenging due to certification requirements and the need to demonstrate our ability to perform in difficult conditions. We've put in the work and built our expertise in mobile, and that experience is beneficial across many other markets. We are looking forward to future developments.

Really appreciate it. Kris, just to follow up on that topic. You had said in your script about the business snapping back in the mobile business in the back half of the calendar year, and I think we're all kind of modeling that as we work our way through the inventory correction in smartphone. But just seasonally or based on the inventory comments that Liam just made, how do you think about the shape of the year potentially in broad markets? Is that a business that can still grow again for the fiscal year and just how should we think about the shape of that as it comes back?

Yes. Our broad markets business is approximately a $2 billion business annually. Despite some macroeconomic challenges, softer demand, and a slight inventory correction, we are confident that we can grow our broad markets business this year. We have strong momentum in design wins and are engaged in high-growth markets with key technologies. Given all of this, we believe we can achieve growth in our broad markets business.

Sounds like you're doing very well at your largest customers and you plan to do well again this year. But a real quick question about Samsung and first of all, did they broach 10% this quarter? More importantly, both in Samsung and in China, you've kind of missed a falling knife there because you don't really participate very much at all. I know that Samsung is converting over to modules in the masters, et cetera. What are your prospects for, let's say, revenue growth because everything is going to be content growth, specifically at Samsung this year because phone demand slowing for them, the ASPs in their flagship are way below where they were when they were doing a custom design. I know that the flip side is true for the master, but you don't play bigger than master. So I'm trying to get a better profile of what you think seriously could occur this year, calendar year '22 at Samsung given all the different moving parts and the fact that luckily you weren't playing much there at all in the last year or two. And then if you maybe you could break that down between flagship and master, what you think about each of those prospects, that would be helpful. And then I had a follow-up, please.

Yes, just add. So Samsung was less than a 10% customer. I think it's very well documented. They are going through an inventory burn-off period right now. And again, proactively, we have reduced our shipments to that customer, especially in the December quarter. And I'll hand it over to Liam to provide some more color on Samsung.

Yes. Samsung is a major player in the industry and has faced some challenges recently, similar to other Android manufacturers. We've been addressing that situation. Despite the difficulties, we have strong content in those phones and we anticipate that inventory will clear up, allowing our business to improve. This volatility is part of the broader fluctuations in the semiconductor and technology sectors as companies work to stabilize. We're closely monitoring our inventory and supply chain, aiming for a balanced approach to meet customer demand. We have reduced our focus on Android due to rising inventory levels, as we wanted to avoid excess. Samsung remains a great customer, and although they are experiencing some setbacks, we are committed to supporting them both technologically and in terms of fulfillment. I believe this is a temporary issue, and Samsung is well-positioned to succeed. They are a significant company with advanced technology, and the market for cell phones in Korea is very dynamic, with our technologies being essential there. We expect to see improved revenue in the second half of the year.

You've performed exceptionally well in your BAW segment, and it was quite impressive to see you compete successfully against some of the top players in that area. As we look towards the second half of the year, I'm interested in understanding the potential for content growth. You've managed to maintain your position in the satellite space, and it appears you've doubled the number of BAW filters in your transmit DRx module compared to last year. From this call and other insights we've gathered, it seems you're optimistic about content growth in the second half. Should we expect to see new types of parts like we did with the satellite segment, or will it primarily involve expanding content within the existing BAW framework? There's also the context of Qorvo's recent announcements regarding their re-entry into certain markets like antenna-plexers. I'm trying to gauge how competitive the BAW market will be and where you see your position after the progress you've made in recent years.

Yes, I think that's a great point. You have a solid understanding of the business and technology. The encouraging aspect is that while some technologies were prepared to be launched, the market wasn’t quite ready to embrace them. There wasn’t a strong consumer or customer demand for this technology at that time. However, as we expand our network and become more efficient in delivering high-speed data, it is now becoming an opportunity for us on a broader level. I believe we will emerge as one of a select few players able to meet the demands of these exceptional customers. Today’s customers have evolved significantly; their requirements for standard cell phones involve not just current consumption but also global functionality, which is increasingly complex—and we welcome that challenge. We’re eager to tackle difficult problems on the technology front. Integrating various technologies into a seemingly simple module is quite complex. It’s a challenge that our teams at Skyworks, from technologists to operations to sales, thrive on. We appreciate the complexity and are excited about the numerous use cases that are developing.

And just to illustrate that point, our revenue from devices that have BAW filters inside is getting really close to a $2 billion annualized run rate and so it's definitely a major success story, and we believe that number will continue to go up to the ride.

I have a question regarding the Android business in general and how it shows linearity throughout the year. In the last quarter, you mentioned that you expected the China business to hit its lowest point in December. Did that actually turn out to be the case? Is that also true for the Android business in either December or March? If that segment is nearing its bottom, what implications might that have for June? Do you anticipate that the March quarter will be the lowest point of the year for revenue?

Yes. I think that's fair. December was low. March will continue to remain low as especially China, Vivo, Xiaomi and to a certain extent, Samsung as well are still going through this inventory burn-off process. But then I think we will start seeing some improvements in the June quarter and then for sure, in the back half of calendar year 2023.

Got it. That's helpful. Looking at the revenue prospects over the next two years following the current inventory correction, what are your expectations for the growth rates between the mobile business and broad markets? I know you've discussed the content you anticipate for the mobile business, but do you believe the broad markets business can grow at a faster rate? Additionally, two years from now, what do you foresee broad markets representing as a percentage of revenue?

Yes, we're anticipating double-digit growth in the broad markets and a mid-level top line, likely in the teens, based on our capabilities and product offerings. Once the market conditions improve, we expect to perform strongly. In the mobile segment, there are innovative technologies emerging that haven't been widely recognized yet, but top customers understand their value, presenting significant opportunities. We have the technologies that align with these needs. Our mobile strategy is disciplined, and we’re collaborating with the right partners, making substantial progress with capital investments. Our capital expenditures are mostly behind us, which is essential for our outlook on free cash flow. The theme of diversification is also gaining traction, as illustrated by our rising automotive revenue, which has increased significantly over the past few years. We possess vital technologies applicable across various mobile and connected devices, which will drive business growth going forward. Despite the current market slowdown, we have strong stock and confirmed design wins that will materialize in the latter half of the year.

Two questions, if I may. First, I know you have little exposure to China Android right now. But one of the investor concerns is that you may have lost content and so perhaps you won't receive as much of a snapback as some of your peers when China demand eventually recovers. I was hoping you could address why those concerns might not be warranted? I have a follow-up.

I'm glad you asked the question. We're prepared to proceed with Android. We have the technologies and the products available, but we won't be flooding the market. There was some excess inventory, and we want to be disciplined in our approach. However, I can say that the inventory situation is already beginning to improve. We have high-quality products ready to deploy, and while I can't specify the exact timeline, it's definitely underway. We're positioned well for growth that we haven't fully unleashed yet. Historically, we've had a strong presence in China, particularly with brands like Oppo, Vivo, Xiaomi, and Samsung, which has encountered challenges due to current inventory cycles. On our end, we haven't over-extended our inventory; we've aimed to meet existing demand without exceeding it. In the last quarter, we noted that our China revenue was below 5%, reflecting the market's needs, and we didn't want to sell more than necessary. As we approach this quarter and look towards the second half of the year, we expect to see improvements in the macro environment that will facilitate our execution. If the situation changes, we can adapt quickly, but it's not a matter of technology or execution; it's about managing the business responsibly for our shareholders.

Very clear, Liam. Kris, if I may, a question for you, more of a simple one, I suppose, but what's driving the big step down in CapEx in December? And I'm curious if this implies anything for content as we think about calendar '23.

Yes. No. As it relates to CapEx, we definitely expect our CapEx trend to moderate compared to what we have been doing over the last five years. Just as a reminder, the last five years, we were in the 10% to 12% of revenue. We've put a lot of capacity in place. We put a lot of technology-related investments in place, especially as it relates to bulk acoustic wave, and now we have to leverage that capacity. We are focusing on yield improvements. We are focusing on die shrinks. We can create more capacity without putting more equipment in place. And as a result of that, you will see a little bit of a more moderate, less capital intense CapEx in the next couple of years here. But again, we feel good about the investments that we make. And it really will help to further improve our strong cash flow that we have already. We started the year very strong. We expect further strong cash flow the remainder of the year, again, based on some moderate CapEx but we could drive our free cash flow over 30% in this fiscal year.

Yes. To reiterate, the capital base we have took a long time to build to this scale. We invested significantly in our facilities and are now positioned for a reduced need for capital expenditures moving forward. Our technology and equipment are new, having been developed over the last four to five years to create expertise in complex filter technologies that aren’t available in the merchant market. We chose to create rather than buy, resulting in solutions specifically tailored for Skyworks and our customers. The good news is that our capital is currently operational and performing well. There will be some incremental capital expenditures in the coming years, but they will not reach the levels seen in the past few years, as our investments are now in-house, at scale, and operating effectively.

Liam, I wanted to get your perspective on new 3GPP Release 17 and also WiFi 7 using 6 gigahertz. And when it comes to these upgrades, when do you think they're going to ramp more broadly, particularly in smartphones and consumer devices? And then just maybe from a business perspective, how should we think about the overall RF content when you start to scale up WiFi 7 and Release 17 5G versus today's devices? It seems to be quite big architecture changes. So I was just curious how you think about this and the extent to which Skyworks could benefit.

Yes. No, that's a great question. Those technologies are just starting to emerge now, and they do add a great deal of complexity, and you mentioned that in your words. The good news here for us is that we've been making in-tandem investments and technology. So we've got, of course, the WiFi cycle that's going from 6 to 6E and WiFi 7. And that has its own set of incredible opportunities and kind of on the launch pad there, and the complexity and the newest cycles and the new devices have been incredible for us. So we could definitely hit that and then back on other connectivity nodes, adjacent connectivity the IoT line. So those types of technologies we can deliver to the end market solutions. And that would be a big part of our broad market portfolio. And some of the most relevant players in that space, we've already had design wins with them at earlier stages, and we have a good trusted partnership. So it's definitely further into the year, but definitely an opportunity for us to get into '23, '24, '25 as we look out. But definitely another cycle that we can leverage. And as you said earlier, much more challenging from a technology perspective, but the consumers benefit there would be amazing. So I think those new technologies, they're hard to do. We've got the IP, we've got the know-how and they can create their own cycles within the next set of IoT devices.

Is there a significant increase in content? For instance, with WiFi 7, I believe there are 6 gigs and numerous changes regarding modulation and MIMO. Therefore, I expect this to represent a substantial increase in the IF content base. Are there any figures you can share with us regarding the upgrade to WiFi 7?

Yes, it's difficult to predict the numbers, but they are significant. I believe there's a long journey from WiFi 6 to WiFi 7. A lot of work is being done, which involves embedding substantial technology. I anticipate we could see a 10% to 15% compound annual growth rate in that segment. This is just concerning content. Additionally, if we increase the user count, that would provide a significant boost. That's our target, and any progress along the way will add incremental value.

Yes. Again, if you look at the CapEx over the last couple of years in the $500 million, $600 million per year, the vast majority of that CapEx was going into expanding our bulk acoustic wave filter operation, where we have, of course, from a small base, doubled and doubled and doubled again the capacity there. Again, we're focusing really now on driving operational efficiencies, die shrinks, yield improvements, which gives us a lot more capacity, leveraging the installed base of the equipment that we have. And we are not done. I mean we're going to keep expanding that as we see fit. And we do believe that our revenue from devices that have bulk acoustic wave filters in will continue to grow very strongly. And we're ready for that, and we will not hesitate to put more capacity in place if and when needed.

Very incredible results, to be honest with you, in this turbulent environment. Liam, let me ask you about China. I'm sure you're tired of it, but I know that this is hopefully the last question on this topic. You’ve de-risked China completely last go around. I think the message was that it was very close to zero. But what do you think the China opportunity is? And do you even want this business, given the volatility, the geopolitical nature of it and if you can remind us at the peak, let's say, how much it got to, let's say, over the last 5 years, maximum as a percentage of sales. I just want to gauge where you're playing and what you're really going after.

We are open to working with anyone who needs our technology, and there is no bias in our market approach. However, China has posed challenges for us and other U.S. companies. For instance, the situation with Huawei was significant for many organizations in our field. The market has been volatile, influenced by various factors, including COVID. Our technologies are relevant for all markets, and China's potential is as strong as any other. That said, there has been some inventory buildup affecting the market overall, not just specific to Skyworks. We have discussed our operational efficiencies and our labs and fab strategies, which play a key role in how we operate. We strive to be excellent partners while staying aligned with market dynamics. Presently, in China, inventory issues and lockdowns have impacted our revenue flow. While we are prepared to re-enter the market, the focus is on managing inventory and ensuring timely delivery. Overall, we anticipate improvements as the markets recover. Our technology is robust, and we can offer solutions across various sectors. The negative aspects seem to be behind us, and we see opportunities for growth. We're optimistic about the future and are already observing positive changes as we move forward.

Okay, Liam, can I ask the same question in a different way? Is it fair to say that you primarily focus on selling standard products in China? It seems like there isn't much additional work for you beyond what you're already doing. Then, you aim to service those customers while utilizing your own facilities. Is that an accurate way to look at it without requiring too much effort?

Yes, we can certainly adapt our business and technologies. Each market has its unique characteristics, with varying levels of technology complexity, and we have the ability to scale across all of them. I believe that over time, markets will start to adopt more advanced technologies. What we're discussing now will likely evolve into more challenging situations in the next two to three years, and companies like Skyworks will likely gain a competitive edge. In China, some broader issues that aren't specific to the mobile sector have been addressed. However, as the markets recover, technology has become increasingly complex and powerful. I'm uncertain if the China market has fully caught up with these advancements yet, but we are capable of achieving this alongside our partners. It’s not a matter of having a technology gap or revenue issue for us; rather, it’s about helping the China market regain its footing and fostering genuine supply and demand dynamics. We are eager to expand our business in China, but we need to see resolution on several issues before we can fully leverage the opportunities there.

Got it. And for my follow-up, it's March. You probably know the content for the year because these wins happen about a year before. Units are going to be pretty depressed. I was curious if you could give us a sense of what to the extent that you can, a sense of content this year? And also maybe a sense of 5G units, whether you expect 5G units to be up this year and then one for you, Kris, the 53% free cash flow number, that's a monster number, to put it bluntly. Is there something onetime out here? You talked about CapEx going down? Or is this something sustainable for Skyworks?

So Harsh, I'll take the cash flow question first, and then I'll turn it back to Liam. Very happy with the very strong cash flow and free cash flow, obviously, in December. I would say three elements. Our world-class profitability level, 37% operating margin, not a lot of companies and tax base doing that. Secondly, yes, great working capital management, although a good guy and a bad guy, right? Inventory is still somewhat elevated. We will work it down over time. But we definitely had strong collections in the December quarter, which is a little bit of a one-time item. And then thirdly, as we discussed earlier, some moderate CapEx in December and going forward. And the combination of those three delivered strong cash flow, and we'll continue to deliver strong cash flow. And then I'll turn it to Liam on the other question.

The content is important. When we consider content now with our high-end customers, it's not simply an increase in devices. The focus is on the advancements happening internally. We're witnessing significant innovation and performance improvements with new technologies. I won't specify a timeline since it follows a cycle of improvement, but there's no doubt that the capabilities of high-end smartphones will be vastly different in the coming years. We truly believe that. We're experiencing strong engagement with our customers, all of whom are navigating their own paths. While unit sales will likely remain steady with some growth, the content and use cases will broaden. It's essential to note that use cases extend beyond just mobile phones. Technologies like 5G are connecting various areas wirelessly, including automobiles and data centers, and there are numerous applications with suitable use cases. For Skyworks, while mobile is crucial, other technology sectors like IoT will keep expanding. It's also noteworthy that these technologies follow their own cycles, which differ from the annual patterns we see in mobile. This presents an opportunity as areas outside mobile, like vehicles and data centers, grow. While mobile is performing well with our advanced technologies, the other sectors represent an incredible opportunity for our investors and for Skyworks to provide top-tier solutions.

Great. Thank you all. I appreciate your participation in today's call. Look forward to seeing you in upcoming conferences. Take care.