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spk12: Good afternoon and welcome to Skyworks Solutions first quarter fiscal year 2021 earnings call. This call is being recorded. At this time, I will turn the call over to Mitch Hawes, investor relations for Skyworks. Mr. Hawes, please go ahead.
spk09: Thank you, Rob. Good afternoon, everyone, and welcome to Skyworks first fiscal quarter 2021 conference call. With me today are Liam Griffin, our president and chief executive officer, and Chris Senesal, 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. 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.
spk02: Thanks, Mitch, and welcome everyone. Skyworks delivered record quarterly results in the first fiscal quarter of 2021, leveraging our expansive technology reach and deep customer engagements. spanning both mobile and broad markets. We established new quarterly records for revenue, operating margin, and earnings per share, demonstrating both the power of our financial model and the unique opportunity to lead the global transition to more advanced wireless communications. Now, looking at the quarter in more detail, we delivered revenue of $1.51 billion, more than $455 million above the midpoint of our guidance. We posted earnings per share of $3.36, exceeding our guidance by $1.30, effectively doubling year-over-year earnings. We achieved gross margin of 51.1% and record operating margin of 41.2%. And we generated strong operating cash flow, totaling $485 million in the quarter. As our results demonstrate, The demand for always-on connectivity is accelerating and extending into new applications, including telemedicine, high-speed video conferencing, remote learning, autonomous transport, essential services for the infrastructure markets, store-to-door delivery, and touchless commerce. This is a global phenomenon where upgrades of key technologies are increasingly critical in the face of the ongoing pandemic. The investments we've made over the last two decades have prepared Skyworks to address these challenges. The mobile and wireless ecosystems will benefit from these dynamics, yet outsized gains will largely accrue to those companies that have invested deeply in core technology and scale. These gains are being driven by both a growing device count and an expanding content per device. in some cases doubling or even tripling for Skyworks. We are proud to play an instrumental role in shaping the fast-evolving landscape, collaborating with our partners and customers, leveraging key technologies from TCSaw to high-performance bulk filtering, SOI, gallium arsenide, and state-of-the-art packaging technologies. Our strong results in Q1 demonstrate our execution around these themes. Specifically, in mobile, we accelerated the ramp of our Sky5 portfolio, supporting the next wave of 5G launches at Samsung, Oppo, Vivo, Xiaomi, and other Tier 1s. In IoT, we captured design wins across a diversified array of new and existing customers. Specifically, we partnered with ASUS, delivering the world's first Wi-Fi 6E connected home router, We shipped Wi-Fi 6 solutions for access points at top network OEMs, including Cisco, Netgear, CenturyLink, and Aruba. We captured new wins at Google for their latest Fitbit smartwatch. And we delivered low-latency cognitive audio solutions, powering wireless gaming headsets at multiple Tier 1 accounts. In industrial, we ramped iTron's multi-standard ISM connectivity solutions for smart cities. In infrastructure, we deployed 5G amplifier and receive modules supporting multiple European base station OEMs. And finally, in automotive, we accelerated shipments of advanced connectivity solutions supporting the world's premier EV manufacturer. We leveraged V2X solutions with Volkswagen and Toyota for their enhanced safety systems and partnered with MediaTek for 5G reference designs, specifically targeted at automotive applications. Moving forward, we are seeing the confluence of multiple market developments, a significant rise in device complexity, an expansion in wireless spectrum and band count, combined with a technology bar that has never been higher. These trends directly translate to increased opportunity for Skyworks. with both new and existing customers. With essential technologies and scale propelling performance gains across a broad set of applications, our purpose-built solutions address all key network protocols, spanning 5G, Wi-Fi, enhanced GPS, and Bluetooth. Additionally, we expect the current C-band auction to be a catalyst with new spectrum creating significant content opportunities for our Sky5 platform. While smartphones were the first to embrace 5G, the performance gains will power a broad set of use cases, extending into billions of IoT devices. Looking ahead, we see 5G as a transformative technology, catalyzing new applications while acting as the universal connector. from the home to the car to the factory floor. In summary, Skyworks is solidifying market leadership as connectivity meaningfully alters the way we live, work, play, and educate, not just from home, but from anywhere. Our record performance clearly reflects this dynamic. With that, I will turn the call over to Chris for discussion of Q1 and our outlook for Q2.
spk00: Thanks, Liam. Skyworks started fiscal 21 with very strong Q1 results, delivering all-time record revenue of $1.51 billion, adding more than $550 million of incremental sequential revenue and exceeding the midpoint of the guidance for Q1 by $455 million. Revenue was up 58% sequentially and up 69% year over year, driven by increasing adoption of our mobile solutions with all smartphone OEMs, along with record broad market revenue and customer reach. Mobile revenue grew 80% sequentially, as well as on a year-over-year basis, largely driven by widespread content increases as 5G phones are ramping with all major smartphone brands worldwide. Broad markets revenue grew to 326 million, establishing a new quarterly record. This reflects revenue growth of 35% over Q1 of last year, benefiting from a diverse set of use cases, supporting work, play, learn from anywhere, and the increasing adoption of technologies such as Wi-Fi 6 and 6E, along with the continued momentum in our audio solutions business. Gross profit in the first quarter was $771 million, resulting in a gross margin of 51.1%, up 70 basis points sequentially and up 100 basis points year over year. Operating expenses were $149 million, or 10% of revenue, demonstrating strong leverage in our operating model while continuing our strategic investments in support of future growth. We generated $622 million of operating income, translating into an all-time record operating margin of 41.2%. Other income was $1 million, and our effective tax rate was 10%, resulting in net income of $560 million, or a net income margin of 37.1%. Top-line momentum and execution on both growth and operating margins drove record diluted earnings per share of $3.36, beating the guidance by $1.30. EPS grew 82% sequentially and doubled when compared to Q1 of last year. Turning to the balance sheet and cash flow, first fiscal quarter cash flow from operations was $485 million. Capital expenditures were $119 million, We paid $83 million in dividends, and we spent $196 million to repurchase 1.4 million shares of our common stock at an average price of approximately $139 per share. Additionally, as noted in our separate press release issued today, Skyworks Board of Directors has authorized a new $2 billion stock repurchase program. This new buyback plan reflects our board's confidence in Skyworks' business model and in management's ability to consistently produce strong free cash flow, allowing us to leverage share repurchases and dividends to generate higher stockholder returns. Now let's move on to our outlook for Q2 of fiscal 2021. We expect the continued and rapid adoption of multiple wireless protocols, and expanding use cases to drive strong year-over-year growth for Skyworks. Specifically, in the second fiscal quarter of 2021, we anticipate revenue to be between $1.125 billion and $1.175 billion, with non-GAAP diluted earnings per share of $2.34 at the midpoint of our revenue range. This translates into year-over-year revenue growth of 50%, at the midpoint of the revenue range, and year-over-year non-GAAP diluted earnings per share growth of 75%. Gross margin is projected to be in the range of 50.5% to 51%. We expect operating expenses to be between $150 and $152 million, and below the line, we anticipate roughly $1 million in other income and a tax rate of approximately 10%. We expect our diluted share count to be approximately 166.5 million shares. And with that, I will turn the call back over to Liam.
spk02: Thanks, Chris. Skyworks started the new fiscal year with record results, clearly demonstrating the breadth and depth of our business model, from tier one mobile to thousands of broad market customers. Importantly, the multi-year wireless transition is now underway. creating a burgeoning set of new opportunities and use cases. With deep customer engagements underpinned by decades of technology investments in scale, Skyworks is uniquely positioned to lead. Finally, our high levels of profitability and strong cash generation afford us the flexibility to invest and win while generating consistent returns to our stockholders. That concludes our prepared remarks. Operator, let's open the lines for questions.
spk12: As a reminder, to ask a question, you will need to press star 1 in your telephone. To withdraw your question, press the pound key. Given time constraints, please limit yourself to one question and one follow-up. And your first question comes from the line of Carl Ackerman from Cowan & Company. Your line is open.
spk07: Hey, good afternoon, gentlemen, and thank you for letting me ask your question. I guess with results and an outlook this strong, the elephant in the room is about sustainability, both in terms of revenue growth, but also profitability. We know that 5G handsets will increase this year, but I would really appreciate if you could talk perhaps qualitatively of how you see that outlook for the balance of the year, as well as your view on broad markets too. even what appears to be a multitude of design ramps across your Wi-Fi 6 portfolio. Thank you.
spk02: Sure, absolutely. Well, a couple things. The 5G cycle really is just beginning, and that's clear. And I think if you listen to Skyworks and what we've been saying, it's all about complexity, it's all about content gains, and the culmination of those coming together with a tremendous unit launch in 5G, and again, very early in 5G. The estimates for unit uptake at 5G, if you think about 2020, maybe there were 200, 220 million phones. Those numbers are going to be more than double going into 21, and they'll continue to move. You've got almost 7 billion subscribers on the planet, and the percentage that own a 5G phone are very, very low. So there's a tremendous upside there in our core business in mobile, and also advanced by great technology execution with our team. So that's one big driver. The second driver that's been bubbling up for a while is our broad market portfolio. We had tremendous gains in our broad market portfolio, 35% year over year, with a broad set of customers, names like Nokia, names like Honeywell, names like GE, Bosch, just an entirely new landscape of customers that we've been able to engage with. And then we talked a lot about usage cases here in the call, usage cases, new applications that require connectivity, whether it's Wi-Fi, whether it's Bluetooth, whether it's 5G. All of those trends are moving in the right direction for us, and they're sustainable.
spk07: I appreciate that very much. If I could, for a follow-up, one of the baseband companies in Asia the other day spoke about how they do not see any evidence of a build of inventory across the channel. Similarly, it's now well known that there remains tightness across the foundry and component supply chain. My question is, how are these dynamics driving your discussions on both pricing and volume commitments to your customers? Thank you.
spk02: Sure. Yeah, great question. And by the way, you're right about the tightness in supply and some of the challenges operationally. And I would say that The Skyworks team did an incredible job executing in the Q1 period, and I think we'll continue to see that opportunity extend into the full year. But I will say this. We have made the unique investments in capital and scale. We have our own 10 billion unit TC soft factory for customized filtering. We have bulk acoustic wave in-house. We have our own assembly and test and packaging capabilities that are unique and purpose-built for this market. So we were able to avoid some of the real challenges in supply chain because we built a lot of this in-house in our own factories. But there certainly have been some bumps on the execution side throughout the landscape, the technology landscape and the connectivity landscape. But we're starting to see that clear. And fortunately, we're able to execute through that in the December quarter.
spk12: And your next question comes from the line of Amber Srivastava from BMO. Your line is open.
spk06: Hi, thank you, Liam and Chris. I was fooled for a second. I thought I was reading a TI or ADI earnings release with that kind of operating margin. So that's pretty solid, guys. But let me address maybe a baby elephant that's running around, at least in our minds, which is China. So there's been a lot of talk about overbuilt in China, especially in the Vox complex and how they're trying to take share from Huawei. So maybe if you could just give us some sense quantitatively, how big was the China business and then qualitatively, just help us understand what's going on. And then I had a follow up for Chris.
spk02: Sure. Well, you know, we've been a key element, a key supplier for the Oppo, Vivo, Xiaomi ecosystem. And that continues. And we had great results with those accounts this year. There's a lot of opportunity to grow their 5G base as well. And that's something that we should be looking forward to throughout the year. And it's a multi-year cycle, of course. But again, one of the things that we continue to say here at Skyworks, and it really rings true, is our ability to get in and help these customers customize and configure the complexity around 5G and leverage solutions like Sky5 that really integrate a tremendous amount of components and complexity and make it easy for the customer to go to market. So we had some strong uptake there in the China space. We continue to see that looking good. Obviously, there you have a Chinese New Year opportunity here as we get into our new year. So I think there's going to be some good signs of growth. But we have a good position there today, and I think there's just more room to move on units as we go through the year.
spk06: What was the growth in China, Liam, to your review?
spk00: So our China business in the December quarter was up double digits sequentially and, of course, very strongly on a year-over-year basis. And, of course, looking into March, we will have stronger than seasonal growth double-digit growth, accelerating our year-over-year growth with those accounts.
spk06: Okay. And a quick follow-up for you, Chris, since you are on the line, is just remind us on the capital allocation priorities. Good to see the $2 billion buyback. But just kind of just walk us through Divi, buyback, and M&A, and I'm assuming M&A would mostly be in the broad markets. Thank you.
spk00: Yeah, we're not changing our strategy there. We did have a $2 billion buyback program in place that had a two-year life cycle, and so that came to an end. And so we are replacing that program with a new $2 billion buyback program. And so we will continue to return most of our free cash flow back to the shareholders, a combination of our dividend program and now the new $2 billion buyback program.
spk12: Our next question comes from the line of Timothy R. Curry from UBS. Your line is open.
spk03: Hi, thanks. I guess the first question is, you know, the beat was so significant and you guided just in early November. And you typically get pretty good visibility from your biggest customers. So I guess my first question is sort of like what drove the big beat? Was it a pull-in from your large customers? Can you just sort of double-click on what drove the beat? And then I had a follow-up. Thanks.
spk02: Sure. Yeah, well, it was certainly not pull-ins, that's for sure. I mean, it was a quarter that started a little slow and really accelerated through the period. A tremendous amount of technology execution behind this, you know, on the mobile side. But again, in broad markets, we had a record 35% year-over-year. So it's a culmination of strong 5G launches with the most important customers. Within those launches, an extended reach of technology from Skyworks, the content that we're putting forth right now is significantly more advanced and more impactful than what we've had in prior years. And that comes through our own technology fabs, our own investments in R&D, and in scale to make that happen. So you had a very strong mobile opportunity, and then you had a broad market opportunity in parallel that was leveraging some of the core technologies as well. But again, things like Wi-Fi moved. GPS, Bluetooth, all the connectivity protocols and new usage cases popped up, customers that we didn't have before emerged. So it was a culmination of multiple factors. But those factors are sustainable. I mean, those customers that we've won are going to stay with us as we go through the next couple of quarters and years. And, you know, we look forward to more opportunity there.
spk03: Okay, got it. And then I guess, Chris, oftentimes you give us what your largest customer was in terms of revenue in the quarter, I think. Last December, it was in the low 60s, so I imagine it's probably that or even higher in December. So can you give us that number?
spk00: Yeah, revenue with the largest customer in the December quarter was approximately 70% of total revenue. Obviously, it was a great quarter with that large customer that just launched their first 5G phones with very rich Coworks content inside. We talked about that, and we indicated that nine, 12 months ago. In addition to that, we do have some very nice and good content in some of their other products that that large customer sells as well. But again, so great execution there with a large customer. But as Liam indicated, the strength in the December quarter was not just with a large customer. All our other customers, all our other segments, every region, was up double digits sequentially and strong double digits on a year-over-year basis.
spk02: Yeah, and just to follow up with Chris, I think it is important to note that the growth with our large customer is also accelerating in their new application. So it's not all just about smartphones. A lot of other opportunities there that require the connectivity protocols that we bring to market, which is really great.
spk03: Got it. Got it. Yep.
spk12: Thank you. Your next question comes from the line of Blaine Curtis from Barclays. Your line is open. Hey, guys.
spk10: Thanks for taking my question and just truly amazing results. Maybe you can just help us a little bit with March. Obviously, your large customer, that very high number should have some seasonality. Curious your outlook maybe between mobile and broad market. Do you expect broad markets to, you know, I guess typically would be down, but within that outlook for March, do you expect it to be up?
spk00: Yeah, no, absolutely. So the guide that we provided for March has some seasonality with the large customer, as you can expect. But if you look at the revenue in mobile outside of the large customer, as well as the revenue in broad markets, it will be up double digits sequentially, which is actually stronger than normal seasonality, a lot stronger than normal seasonality. And it further accelerates our year-over-year revenue growth with all those accounts, so the Korean, the Chinese, as well as thousands of broad market customers.
spk10: Gotcha. And then I want to ask you also, I guess, within broad markets, but it has a mobile play as well. On Wi-Fi 6E, Samsung launched a phone with that. I'm assuming you'll see another mobile customer with that. And then I guess at some point you'll see access points. Can you just talk about the content specifically? driver for you for Wi-Fi 6E?
spk02: Sure. Yeah. I mean, we are seeing that roll out now very quickly. A lot of great design wins with key customers today now. And so, I mean, there's a technology pop there, Lane, when you look at the Wi-Fi 6E product. There's even bulk acoustic wave opportunity within those systems. And the data rates and speed are demonstrably more powerful. You can see that in your Zoom calls or whatever. So Wi-Fi 6E is a big driver for us, as is Wi-Fi 6. And that's one of the things to think about with Skyworks. It's really about connectivity. Connectivity can be 5G. Connectivity can be Wi-Fi 6. Wi-Fi 6E can be Bluetooth. All those protocols are there. But Wi-Fi 6 and 6E are meaningful and they are really now the product of choice in the work at home, work from anywhere dynamic. And I think that's an opportunity for continued gains for us and with content and also with adding additional customers.
spk12: Your next question comes from the line of Kevin Cassidy from Rosenblatt. Your line is open.
spk01: Thanks for taking my questions, and I'll add to the congratulations on this stunning quarter. For your outlook, is there any capacity constraints in your own manufacturing, or you brought inventory down. Is that a constrained number?
spk02: No, I think right now we are in good shape from a capacity point of view. In fact, I think You know, we've been able to broaden the aperture a little bit on execution and drive more technologies through our own fabs. So we should be in good shape. I mean, obviously, the December quarter really tested our mettle in terms of execution. The team did very, very well. You know, we still had to navigate some supply chain hiccups here and there that were outside of our supply chains. But for the most part, you know, we executed very well. And we can take that momentum and the lessons learned through the the December quarter to put us in better position to come through strong through the calendar year 2021. Okay, great.
spk01: Thanks. And just can you give us a timeline for the CBAN? You know, how does that move into revenue and what kind of percentage increase would you expect those handsets with CBAN have in it?
spk02: Yeah, no, that's a great question. So the C-band auction now is pretty much commenced. And what it does, which is great, is it opens up new spectrum in mid-band. So let's call mid-band 1 gig to 6 gig. There's a lot of opportunity there that had been really kind of tied up pre-auction. That will be very beneficial for Skyworks because we have a great portfolio of products in mid band we have we have great product in ultra high band and high band as well but c-band is going to be unique here it's going to be an important piece of the 5g landscape a very necessary piece going from low to mid to high kind of the layer cake approach if you will with low bit low band at the bottom mid band in the middle and then technologies like millimeter wave narrowly at the top so that c-band auction uh will will drive more technology We will be delivering 5G signals through that new spectrum. It will require upgrades in our Sky5 platform that we're ready to go on, and it will be able to add content.
spk01: Okay, great. Thank you.
spk12: Your next question comes from a line of Chris Caso from Raymond James. Your line is open.
spk04: Yes, thank you. Good evening. I guess the first question is just digging into, you know, what was different from your expectations going into the quarter again, and if I guess. The question may be a little differently. You know, we had talked about some supply constraints coming into the quarter. You know, was the nature of this beat just that you were able to get more supply out the door this quarter than you had expected? And otherwise, you know, when you're guided back in September that that, you know, perhaps more of this would have been pushed into the March quarter. But, you know, was it that, you know, either content or, you know, demand from your customers turned out to be better?
spk02: Yeah, Chris, it really is a lot of, there's elements of each comment. So first of all, there was an accelerating demand signal here in the December quarter, which was great. Things were a little bit slower in the Q4 period, and we started really seeing the wheels turn in the right way in December. And that accelerated. The December quarter was a quarter that accelerated. It didn't decelerate. We've had other periods where you know, we had launches that started out great and kind of tailed off. That didn't happen. And so what it did is it put a lot of focus on execution, supply chain execution. And fortunately, and if you look at, you know, obviously our filings, you know, we've been spending money on capital, on CapEx. And that really isn't just, you know, adding lanes of new equipment. It's actually bringing new technology to the market. So it was a culmination of Supply chain execution largely within Skyworks. And then we had a couple of hiccups outside. We don't make everything in-house, but most of it's done in-house. So owning our own factories, delivering within our facilities, being efficient there, managing the constraints, but then also bringing that technology up. And we learned a lot in that period. It puts us in a much better position as a company. The lessons learned, you know, when the intensity was high, I think are really key for us and will make us a better company as we supply further. But then some of the other things that Chris mentioned, this was not just the mobile launch. Mobile was great and was the highlight, but we really executed in our broad markets, and I'm really proud about that. Some of the customer names I already rattled off, but really high-quality accounts that were not customers of Skyworks a year ago, and they are today and they will be in the future.
spk04: Thank you. As a follow-up question, With the big revenue growth, what can we think about margins as we go into next year? And I know that you may have been leaning on some production outsourcing, given all the supply constraints and the big ramps that happened this year. With the investments that you're making now, will that allow you to get some more margin leverage on these very large revenue numbers? and start to grow the gross margin line as we go into next year?
spk00: Yeah, Chris, great question. And so first of all, I'm pleased with the fact that we delivered 51.1% gross margin, up 70 basis points sequentially, up 100 basis points year over year, and 35 basis points above the high end of what we guided, right? Despite the fact that, as you pointed out, it was a very tight supply chain environment, And keep in mind, we still have some COVID-19 headwinds out there as well. But as Liam indicated, great execution by the operational team, delivering more than $1.5 billion in revenue to our customers, right? And so as we move forward and as we move, of course, to our seasonal trends here, and as some of those headwinds I just talked about will abate over time, we definitely will see further gross margins improvements happening. And maybe just to add there, of course, I mean, we are focused on driving top-line growth, and we are focused on driving gross margins improvements all the time. But we also focus on overall profitability and operating margins improvements. And so there as well, very pleased with the delivery of the 41.2% operating margin in the December quarter. Great.
spk12: Thank you. Your next question comes from the line of Edward Snyder from Charter Equity Research. Your line is open.
spk05: Thank you. Excellent results, guys. Congratulations. Chris, I'd like to ask, if possible, I mean, obviously, you've got a big boost from your largest customer, the results yesterday, your comments on today's call, and I'll clearly, your revenue line showed that. But in terms of sustainability, why shouldn't we expect things to actually get entirely better? Because if you look at your content, I mean, you had big content increases. on the latest model, something like by our own teardown, about 20%. But you still have a lot of runway at the Korean and Chinese customers. We've been kind of under-earning last year. That seems to be coming back. So can you maybe help characterize revenue growth maybe to 21? You've got a very strong one with the domestic suppliers. What should we expect for the Koreans in China? Thanks.
spk02: Sure, and I'll take this for the first question, and if you have a follow-up, I'll throw it to Chris. Yeah, I mean, great question for you there. I appreciate it, and I think one of the things that you know very well is the complexity in 5G and the nuances around that technology, and really all key elements need to come together. So we were able to put that forward with, of course, our largest customer, but we're also gaining in China with key players, the Oppo, Vivo, Xiaomi's, We've got great attachment with MediaTek as well. It's still so early if you look at units in 5G versus where they could be in a couple of years. You've got 6.5 to 7 billion mobile subscribers. We're talking about a couple hundred million units of 5G phones in 2020. It'll probably double in 2021, but there's still a great opportunity for us at Skyworks. The other thing that we do well is we are an under-the-hood player. We get in there with those customers and and help them stitch together the necessary technologies to make it work in 5G. When you look at the Oppo, Vivo, Xiaomi, I mean, the people support that we provide is very unique. The SkyFi platform is highly integrated and really puts them on a fast timeline of market, which is ideal. You know, we're also seeing our large customer perform extremely well, extremely well, and taking share globally in our view. So there's a lot of positives there, and it's sustainable. 5G, again, still early innings. We believe this is a multi-year thematic cycle for us and others. And then the inflection towards other markets, automotive, IoT, so many other markets that will consume these technologies. I think it just comes together for a good long-term thesis here.
spk05: so it may be my fault then kinda hits on that issue I mean it was only what 18 months ago two years ago that people were fretting about Chinese OEMs replay or component guys replacing replacing the US suppliers after the Huawei ban which seemed ridiculous on its face and it's clearly not the case now right so what I'm trying to I guess the question really is is that the complexity that we've already seen to the largest customers and is now being designed into some of the Chinese phones require some of these more elaborate modules with all the system design, etc. That's also kind of porting into Wi-Fi 6E and almost every wireless solution in the current standard at this point. Are you seeing, is the competitive dynamic changing much at all? I mean, you, Corvo, less, to a much lesser extent, Avago, because they don't play in a lot of these things. Outside of that group, are you seeing anybody else, or is it the reverse content that they were providing, especially some of the quasi-discrete phones, is now accruing to you and the other leader?
spk02: Yeah, you know, Ed, it was even in the prepared remarks, you know, we are seeing a consolidation. I mean, this stuff is, it's great technology. It's wonderful. It's amazing for the consumer, but it's really, really hard. And for those companies that have the ability to invest and scale in technology are going to win. And it's not for everybody. I mean, it's not for everybody. And it's, you know, we're not the only game in town. I think we've done a great job of advancing in that area and developing the technology. And, you know, You know, we build our stuff in-house, which has been strategically advantageous for us. But when you look at China, you know, we provide the perfect recipe. We can scale. We can provide content. We can provide coaching and flexibility in the architectures and bring them to market in a technology that is just incredible today. So all that comes together. And as you said, the smaller players right now, it's a difficult task. It's a difficult task. The technology bar is really, really high in 5G. So, you know, it's not a slogan, right? It's not a technology. It's a really, really high bar to get there. So I think fewer and fewer companies can do it. Those that can are going to be successful, and we want to be part of that. Thank you.
spk12: Your next question comes from a line of Harrison Barrett from Everte Research. Your line is open.
spk11: Hi, guys. Thanks very much for taking my question. Sure. I just wanted to ask about millimeter waves. So what steps, whether it's partnerships or investments, what steps have you taken towards millimeter wave capability? And from your perspective, how do you see the adoption curve changing over the next couple of years?
spk02: Yeah, it's a great, well, certainly it has been launched. It is available with certain carriers and certain phones. It is still a bit of a challenging technology today. There's line-of-sight issues, there's power consumption issues, and there's cost issues. So it is early innings for millimeter wave. In time, over time, it's possible that that footprint could expand and millimeter wave become more pervasive in the smartphone. But I'll tell you the interesting thing, though, is this C-band auction here opens up new spectrum that will allow immediate lanes of transmission back and forth that just haven't been there today. that could step up and provide another path for 5G. So I think millimeter wave will continue to move on. And it's a great application in certain environments, line of sight environments, campus environments, large stadiums, things like that would be perfect. But it's a bit more difficult for a broad stream technology. So it's quite possible that as we build out 5G and the advancements are made, you're going to see that layer cake, low band, mid band, and then millimeter wave at the top for certain applications. So I think all technologies there can play. Millimeter wave right now is probably the lowest in terms of introduction and exposure, but I think there's opportunity for it to grow. And we're making investments in millimeter wave as well here at Skyworks to make sure that we're close to the action and doing what we need to do to support our customers.
spk11: Great, thanks. And as a follow-up, how should we think about M&A at Skyworks? over the next couple of years. Are you guys looking to bolster board markets further at this stage?
spk02: Yeah, no, great question. You know, first of all, we love our organic outlook. We love our business. And, you know, the markets that we play in have been incredible. They've been dynamic, they've been challenging, but they've been incredibly rewarding for us. And so what we do, though, is as we pursue opportunities and work with customers, ideas and M&A opportunities come about, right, naturally. So we continue to have our eyes and ears open in that front. You know, the opportunities do pop up. We have a tremendous cash machine at Skyworks. You heard the data with our free cash flow margin and just the net cash that we have. So if the right opportunity comes together, we'll be ready to take advantage.
spk11: Thanks again.
spk12: Your next question comes from the line of Tristan Guerra from Baird. Your line is open.
spk08: Hi, good afternoon. In the three and a half gigahertz pad, as we see more bands being added and some of that will come from the new C-band opportunity, at which point over the next few years do you think that module moves from saw filters to bar filters, and how do you think your position ahead of that transition?
spk02: Yes. If you think about the transition here as we move forward, we have great technology in TC-SAW, standard SAW. and also ultra-high band bulk acoustic waves. So we have the ability to play along that spectrum, that frequency spectrum, and capture more and more opportunities. I think where you're going to see probably the most incremental growth on the Skyworks front is the bulk acoustic wave technology. And if you look back at our company a couple years ago, we talked a little bit about Bob, but we were honest and we said, look, we just don't have the scale, you know, a couple years ago. Now, we're shipping hundreds of millions of units of bulk acoustic wave. And that technology is purpose-built for mid and high band spectrum. So that is being laid out. You're seeing it now in some of the teardowns or some of the phones that we're working with today that are on the shelves. And you'll see further advancement in our bulk acoustic wave technology embedded in new phones as we go out to the next set of devices in 2021, 2022.
spk08: Okay, great. And then as a quick follow-up, how would you characterize inventory level at, you know, in the smartphone supply chain, notably in China, as some of the OEM you've mentioned are basically battling for market share, you know, taking grabs from Huawei?
spk00: Yeah, inventories are still at a record low level, both internally at Skyworks, but also in the supply chain and in the distribution channel. Keep in mind that there still has been somewhat of a demand-supply unbalance, although that is improving as we now move into the March quarter. But given all of that, the inventory in the channel is extremely low.
spk08: Great. Thank you.
spk12: And our final question comes from a line of Craig Ellis from B. Reilly Securities. Your line is open.
spk13: Yeah, thanks for taking the question, and congratulations on the tremendous revenue strength and getting gross margins back up to 51% first time in eight quarters. Nice to see. Liam, the question I wanted to ask, and I typically wouldn't ask it this early in the year, but it really seems to be big given the strength of the business in the December quarter and in the March quarter. As we look ahead at the calendar year, I think we'd typically think that seasonally the business would be down a few percent in the calendar second quarter, just given the pause between first half built and second half builds. But you did mention earlier the doubling and 5g smartphone units and ongoing content gained. And you and Chris both touched on the secular dynamics and broad markets. And, and, and so the question is in part, just how are you thinking about the gives and takes as we look towards the middle of the year and, and then given the strength we're seeing to start the year, can we still expect to see the typical type of seasonality we would expect in the second half of the year? Are we just starting so robustly that for whatever reason, linearity would be flatter?
spk02: Yeah, yeah. That's a great, great set of questions here, Craig. I think, you know, what we're seeing now is, again, you know, great adoption right out of the gate with our 5G portfolio. We're thrilled to see that early inning. So it's a lot to do. And then in parallel, these broad market opportunities are really scaling right now. We talked a lot about Wi-Fi 6. We've got Bluetooth. We've got GPS. And we're in platforms that are just proliferating. Even with our largest customer, the amount of revenue derived in non-cellular devices is incredible. And that's a new area for us to see. So that's continuing to advance. And broad markets, again, 35% year over year, incredible numbers. And that's a market that there's so much share that we haven't captured. It's compelling to continue to make those investments in people and in technology to grow that. And then the mobile business will continue to do very, very well. If you look at where we see the market, we continue to see new content opportunities that we chase and invariably win. We've got a China position now that I think is going to inflect higher as the content there on a relative basis is still lower than it is in other markets. So there's a great opportunity to move. And then the expansion of use cases. So it's customers and use cases that we just haven't seen. Some of that came through the pandemic, a difficult period of time. And some of that were technologies that just emerged. And you think about Zoom, you think about Peloton. store-to-door delivery to your house, touchless payments, all of this stuff is not going to go away. It's not going to go away, but it's also going to be powered by connectivity. It's going to be connected by the kind of things that we offer. Again, whether it's Wi-Fi, whether it's 5G, whether it's Bluetooth. So there's a parallel market here that is building and creating unique momentum. I'm incredibly excited about the 35% broad market number. In a period of time that typically was you know, all about mobile. So, we're really demonstrating the ability to create diversification, but still, in many cases, use common technology cores that run through our factories.
spk13: That's really helpful. It's, you know, it's pretty amazing to think that by late this year, those two businesses could be annualizing at $5 billion and $1.5 billion each. So, my follow-up really is for you and Chris on the Share Buyback. So, Nice to see the $2 billion buyback. The question is this, with $700 million remaining on the existing buyback, can you just give us some color on why now with the new authorization and what was it that dictated the $2 billion was the right amount versus, say, one or one and a half or even two and a half to three?
spk00: Yeah, it's very simple. The time expired on the prior authorization. It's a $2 billion program for two years. So that previous plan was put in place in January 2019 and expired in January 2021. And so we are putting in place a new $2 billion program covering the next two years.
spk13: Really helpful. Thanks much, Guns.
spk00: Thanks, Frank.
spk12: Ladies and gentlemen, that concludes today's question and answer session. I'll now turn the call back over to Mr. Griffin for any closing remarks.
spk02: Thank you all for participating on today's call. We look forward to talking to you at upcoming investor conferences during the quarter. Thank you.
spk12: Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.
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