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spk02: Welcome to the Corvo Inc. Q3 2021 conference call. Today's conference is being recorded. If there's time, I'd like to turn the conference over to Douglas DeVito, Vice President of Investor Relations. Please go ahead.
spk11: Thanks, James. Thanks very much, everybody. Welcome to Corvo's fiscal 2021 third quarter earnings conference call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor Statement contained in the earnings release published today, as well as the risk factors associated with our business in our annual report on Form 10-K, followed with the SEC, because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our website at corvo.com under investors. Joining us today are Bob Rugworth, President and CEO, Mark Murphy, Chief Financial Officer, James Klein, President of Corvo's Infrastructure and Defense Products Group, and Eric Creviston, President of Corvo's Mobile Products Group, as well as other members of Corvo's management team. And with that, I'll turn the call over to Bob.
spk07: Thank you, Doug, and thanks to everyone for joining our call. Corvo exceeded third fiscal quarter guidance on revenue, gross margin, and EPS. Our performance was supported by multi-year technology upgrade cycles and was broad-based across markets and customers. The Corvo team is executing very well and we are pleased with our operating performance. The growth drivers in Corvo's markets are supported by durable long-term trends in smartphones and 5G units are set to approximately double year over year. 5G also presents opportunities beyond smartphones with advanced network capabilities for more data, lower latency, and machine-to-machine communications. We expect our technologies will be increasingly critical to cloud gaming, connected car, industrial IoT, remote medicine, smart homes, and other growth categories. In Wi-Fi, We are early in the rollout of Wi-Fi 6, and industry analysts expect rapid adoption to continue. Our next-generation front-end modules and BAW-based filtering products are optimized for higher frequency and wider bandwidths of Wi-Fi 6 and 6E, enabling faster upload and download speeds, increasing capacity, and improving efficiency. Across our markets, complexity is increasing as functionality is added within shrinking form factors while more demanding next-generation specifications must be met. This is favoring higher performance, more densely integrated system solutions from proven suppliers with large-scale manufacturing expertise. Take, for example, the migration to dual-transmit architectures beginning in the premium tier of smartphones for 5G. Dual transmit architectures require integrated transmit and receive filtering in the traditional receive only diversity path. This requires better performing, more functionally dense solutions, making high performance ball multiplexing a proven differentiator. Industry analysts estimate there were over 250 million 5G phones sold in 2020. For 2021, we forecast approximately 500 million 5G phones. Within these phones, the front end content is increasing $5 to $7 versus 4G, including in the mid-tier where content can approximately double. The addition of 5G is driving a shift from discrete products to higher value content, including our highly integrated solutions. For the 5G reference designs ramping now Corvo was the first to integrate filters, switching, power amps, LNAs, and CMOS control in fully shielded compact solutions. In doing so, we address customer size, performance, and time-to-market challenges. Demand has been strong for these complete main path solutions, and customers are increasingly sourcing all three, including the low, mid-high, and ultra-high band placements. When combined with our P-Mix, tuners, antenna flexors, and dual connectivity modules, Corvo offers customers a compact front-end solution with minimal placements, delivering world-class performance. As a result, we enjoy increasingly collaborative relationships with our customers. During the quarter, we were recognized by two leading Android manufacturers with highly selective annual awards. Corvo was the sole RF supplier to win Vivo's Excellent Quality Award for 2020. And we were the sole electronics supplier to win OPPO's esteemed Joint Development Award. We're extremely proud of both honors. As I referenced earlier, during the quarter, we increased shipments of our complete main path solutions across the leading 5G baseband. We also secured new design wins for our next generation complete main path solutions in support of upcoming Android 5G launches. For the diversity path, we launched our first generation of dual connectivity module for the mid and high bands and commenced shipments to the leading Android smartphone manufacturer. We also released a next generation ball process, which reduces insertion loss, increases bandwidth in ultra high band, and Wi-Fi 6E applications. In mobile Wi-Fi, we began production shipments of our Wi-Fi 6E solutions to top Android OEMs, increasing capacity and lowering latency in a range of smartphones and mobile devices. In ultra-wideband, we extended our capabilities to include open, fully supported system solutions, enabling ultra-precision location applications in mobile, IoT, and automotive markets. During the quarter, we increased our ultra-wideband customer engagements in a broadening range of consumer applications, including tracker tags, smart speakers, smart TVs, and other smart home appliances. Customers and channel partners are evaluating a broad range of applications, and we continue to believe ultra-wideband adoption in smartphones will be the catalyst for a growing ecosystem of connected devices. We see ultra-wideband proliferating quickly and representing an exciting opportunity for Corvo. In IDP, we're very proud to have been selected by the National Institutes of Health for its Rapid Acceleration of Diagnostics Initiative, or RADx, to add COVID-19 testing capacity. In this program, we will use our Omnia test platform, a complete test solution enabled by Corvo's high-frequency bot. This platform is currently pending emergency use authorization from the Food and Drug Administration. Corvo's antigen testing has demonstrated high levels of sensitivity and specificity in clinical studies. That means it's capable of producing accurate results with very low levels of false readings. We believe this BOS sensor technology may be able to deliver a new approach to diagnostic testing ultimately providing central lab testing accuracy at the point of care. Elsewhere in IDP, we continue to support a broad range of multi-year trends, including 5G, Wi-Fi 6 and 6E, GAN defense, radar and comms, programmable power management, C to V2X, automotive Wi-Fi, and ultra-wideband. Our team has done an outstanding job developing products and ramping production to support initial 5G base station deployments in Asia. Today, we're in the early stages of multi-year rollouts, and we have strong momentum as 5G continues to deploy. We've been selected by multiple OEMs to supply GaN PAs in addition to our small signal components and modules, and we see the focus on power consumption, bandwidth, and higher frequencies supporting the continued migration to GaN PAs. During the quarter, Corvo secured design wins with multiple base station OEMs to support 5G C-band in the US for which the spectrum options are in the process and initial deployments are expected later this year. We also received the Best Comprehensive Performance Award from ZTE. recognizing our 5G portfolio and customer support during the initial rollout of 5G base stations. In defense, we achieved strong growth in domestic radar and communications applications and GAN defense products for international radar programs. In connectivity, we ran shipments of our 5 gigahertz Wi-Fi 6 PAW filters and sampled are 6 gigahertz Wi-Fi 6E front-end modules for routers and gateways, maximizing throughput and range for high bandwidth applications such as video conferencing and online gaming. Demand for our Wi-Fi 6 solutions has been strong across MSOs and retail segments. And we see continued strength as Wi-Fi 6 deployments are still in the early phases. In the connected car, we were selected to supply 5G LTE, C, V2X, and Wi-Fi automotive qualified products to multiple OEMs, including Audi, BMW, and Volvo. In low-power wireless, Corvo was selected to supply the leading television manufacturer, our low-power multi-protocol SOC, and custom software, enabling a solar-charging remote control. Before handing the call over to Mark, I want to say a word about Corvo's workforce. The team delivered an outstanding performance in the December quarter. They adapted quickly in a dynamic environment and helped support exceptional results. I'm extremely proud of their responsiveness and dedication to our customer success. As 5G, Wi-Fi 6, and 6E, Ultra Wideband, and other connectivity protocols are rolled out globally. Corvo is well-positioned to delight customers and expand our technology reach. And with that, I'll hand the call over to Mark.
spk09: Thanks, Bob, and good afternoon, everyone. Corvo's revenue for the fiscal 21 third quarter was $1.95 billion, $35 million above the midpoint of our guidance, up 26%, or $226 million versus last year, and up approximately 11% sequentially adjusting for the 14-week September quarter. As a reminder, our fiscal year 2021 is a 53-week fiscal year, and the September quarter was a 14-week quarter versus a typical 13-week quarter. In the December quarter, mobile products drove the sequential growth with revenue of $826 million on seasonal demand effects and the ramp of higher content 5G smartphones. Infrastructure and defense products revenue of $269 million was up 30% versus last year on robust Wi-Fi demand and double-digit growth from defense, programmable power management, and IoT markets. Non-GAAP gross margin in the third quarter was 54.4%. which was above our guidance due to better than expected volumes, price, and mix, and lower than expected manufacturing and inventory costs. The combination of strong end market demand and our ongoing efforts to improve the portfolio, drive productivity, and carefully manage inventories yielded record results. Non-GAAP operating expenses in the third quarter were better than expected at $194 million and 17.7% of sales, largely due to timing on development programs. As a result, we forecast OpEx to pick up in the March quarter through levels previously guided. Non-GAAP net income in the third quarter was $357 million, and diluted earnings per share of $3.08 was 43 cents above the midpoint of our guidance. Cash flow from operations in the third quarter was $404 million, and CapEx was $36 million, yielding free cash flow of $368 million and free cash flow margin of 33.6%. We repurchased $160 million of shares during the quarter. As discussed on the last earnings call, we retired our 2026 notes during the quarter. We also called the remaining 2025 notes. We ended the quarter with $1.7 billion of debt and $1.2 billion of cash. Our leverage remains low. Our revolver is untapped. The weighted average maturity of our debt is late 2029, and we have no material near-term maturities. With our financial flexibility, we can focus on developing technology, supporting customers, and making prudent organic and inorganic investments that support long-term earnings and free cash flow growth. To that end, we continue to advance our BAW, SAW, GAN, GAS, packaging, and other core technologies, and fund UWB programmable power management biotechnologies, MEMS, and other promising areas. Turning to our current quarter outlook, we expect revenue between $1,025,000,000 and $1,055,000,000, non-GAAP gross margin of 50.5 to 51%, and non-GAAP diluted earnings per share of $2.42 at the midpoint of guidance. Our March quarter outlook reflects sustained broad customer demand stemming from multi-year technology upgrade cycles. In mobile, demand for 5G is adding RF complexity and driving higher content. The breadth of our customer base and firm demand signals provide confidence and stability in our outlook. We forecast mobile revenue in the current quarter to be approximately $770 million at the midpoint or up over 35% year-over-year. In IDP, we project revenue of approximately $270 million in the current quarter, sustaining strong double-digit growth driven by Wi-Fi 6 demand and other markets, even as 5G infrastructure build-outs remain uneven. Our March quarter gross margin guide is in line with the gross margin outlook discussed on our last earnings call and up over 100 basis points year over year at the midpoint. Non-GAAP operating expenses are projected to increase in the March quarter to around $207 million. At the midpoint of our March quarter guidance, operating margin is forecasted to be over 30.5% for the third consecutive quarter. Our operating margin outlook for the year is 31.5% at the midpoint, clearing the lower end of the margin model we laid out previously. Corvo was built for the integration of advanced technology trends critical to customer success in 5G and other growth markets. With broad and robust end market growth, we're now leveraging a more focused footprint, our product portfolio is better matched to customer needs, and our culture of continuous improvement is thriving. We project our current quarter and full year non-GAAP tax rate to be below 7.9%. With our year-to-date earnings and March quarter EPS guide, our fiscal 21 EPS estimate is over $9.40 per share at the midpoint or up nearly 50% year-over-year. Capital expenditures will step up in the March quarter as we work to intersect near-term demand and support long-term supply agreements with multiple customers. We still forecast CapEx to remain below $200 million or less than 5% of sales in fiscal 21. Currently, we project free cash flow of approximately $1 billion this fiscal year. As the December quarter results and our March quarter outlook show, Corvo continues to operate well through a challenging period while delivering premium technology to a broad spectrum of customers in 5G, Wi-Fi, IoT, defense, and other growth markets. In closing, I'd like to join Bob in thanking Corvo employees again for their continued efforts during this time. Now I'll turn the call back over to the operator for questions.
spk02: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow us no to treat your equipment. We ask that you limit yourself to one question and one follow-up question. Again, press star 1 to ask a question. And we'll take our first question today from Gary Mobley with Wells Fargo Securities.
spk04: Hey guys, thanks for taking my question and congrats on a strong quarter and outlook. I wanted to first point out your strong relative performance to the rest of the smartphone market in your mobile business, calling out what appears to be 11 to 12% growth in that business for calendar year 2020, even after adjusting out for the extra week. And of course, I think it's a backdrop of a declining smartphone market. So my question is, You know, to what extent, you know, was that driven by 5G content growth? To what extent is it driven by overall market share? And how do those variables impact your outlook relative to the smartphone market in calendar year 2021? Thanks, Gary.
spk07: That was a good question. I'll go ahead and let Eric address that. Thank you for your compliments.
spk15: Sure. Yeah. As Mark had said in his opening comments, you know, Corvo was built for 5G. I think the complexity of the RF front end and the new handsets is driving a need for integration, which, you know, just naturally drives towards our strengths, given that we have all the leading technologies in-house. And I think that the team has done a really good job of bringing the right technologies to maturity in time and then integrating very well and building the right relationships with all of our customers to help them achieve their goals with what they're trying to do with their products as well. So it's coming together really well. We've got the tailwinds of the content growth, and it's not by any means over, as you know, we're in the very early innings. And we've got new generations of virtually all of our technologies coming out throughout this year to get even stronger as we enter next year. Okay.
spk04: And a follow-up question for Mark. hopefully at some point in this calendar year, we'll all be resuming our normal activities and traveling for work and whatnot. And with that in mind, you know, how should we think about your OPEX progression, you know, when we start moving more freely and, you know, in what ways have you benefited and what ways, you know, might it step up at some point?
spk09: Yeah, Gary, we We've obviously incurred some additional costs. There are some inefficiencies that everyone's experiencing, but as you know, everyone's also benefiting from less travel, which can be material. So a lot of it sort of washes out. I think as we look forward and as we've talked about over the years, we're going to continue to work to get the best operating leverage we can And we're running at about 20% of sales OpEx for a year. We would expect next year to be at those levels and maybe slightly below. We're never going to be the lowest OpEx company in the space because, as you heard, the DNA of this company is innovation. So we're going to likely be several points higher than what I would call best in class as it relates to just cost. So I think that's what you can look forward to as we go forward on an annual basis.
spk03: Next, we'll hear from Craig Hettenbach with Morgan Stanley.
spk08: Yes, thank you. I just had a question on the smartphone market overall. The market made a comment about firm demand signals We know broadly capacity has been pretty tight. And so just, you know, what are some of the things you're looking at in terms of monitoring those demand signals and how much also does the step up in 5G, you know, kind of helping drive in that growth?
spk09: Yeah, Craig, maybe I'll start. You know, we've got very, you know, as I mentioned, very firm demand signals. Pricing's a bit firmer than normal as a result. And we see, you know, out to the June quarter, I'd say we're pretty confident. And, you know, we'll see how demand shakes out post-Chinese New Year. But demand signals are strong and the channel is very healthy. And as you can see, our inventory levels are very good. You know, we spend a lot of time – Fortunately for us, we've got a very broad customer base, and given our position in the market, so we see the space across customers and products and have very good visibility. So it explains why very early last year we called 250 million 5G handsets, and that's about where the number ended up. You know, further, we not only use, you know, our rigorous internal assessments, but we use, you know, external views to balance that. And we make the best call we can. You know, we were about 3% off on this particular quarter, but we're generally close. And so we feel good about, you know, the guide we have in the March quarter, 1040. And then we would think that we'd be somewhere near a billion if markets hold up in the June quarter.
spk08: Got it. Appreciate that color. And then just as a follow-up, with DecaWave on board for a few quarters now, just love to get your thoughts in terms of how that acquisition is playing out. I know it's mostly design stage today, but, you know, relative to, you know, the reasons to kind of buy that in the market opportunity, just what you're seeing and what are some of the milestones to keep in mind for ultra-wideband as we go through the year?
spk15: This is Eric. I'll be happy to take that. We're thrilled so far with the integration of the team and the response from customers as well. It's playing out at least as good or better than we had hoped. You know, they're the pioneers of the technology and just a fantastic organization for design and development. We're bringing the scale and the customer relationships to really, you know, take it to the top tier. So we've got, and then of course, you know, the acquisition of Seven Hugs to give the entire software stack has been a huge addition as well that's helping us. So all that's working really well. We're continuing to invest and hire more and critical resources that are enablers to cover all the opportunities. But You know, one of the things that has happened since we closed the acquisition nearly a year ago now is just much more interaction with the mobile handset providers. Of course, that's the channel that we bring. Everyone is looking to put this UWB into the next generations of handsets. So we're seeing the uptake we're expecting. And then a lot of people are lining up with devices that are going to talk to those handsets as well, right? So a lot of consumer electronics, smart home and and so forth, devices that we're talking to. And then, you know, the base of the revenue today is industrial IoT, basically. And that's continuing to grow and perform at least as well as what we had expected. And then we'll have auto coming in on top of all of that. So we're engaged as well with all the leading auto manufacturers. So it's a lot. We've got a lot going on. But the design activity, the reception is strong. And And really, I think adding the software stack to the equation just really takes it to another level in terms of what we're going to be able to do for the industry.
spk03: We now hear from Carl Ackerman with Cowen.
spk10: Good afternoon, gentlemen. Thank you for taking my questions. I have two. First, just on gross margins, you know, I understand that volumes are working against you in March, but mix does not appear to be a factor. And so, I guess, are there competitive factors at play or maybe other manufacturing costs that I'm not fully appreciating that is influencing your outlook?
spk09: Yeah, so Carl, this is Mark. The outlook is basically on top of what I talked about last quarter. So we've become pretty good at being able to forecast where we're going to be. Now, I think we got to acknowledge that we missed by quite a margin this December quarter. So I think you need to understand that in order to understand the March quarter. So the March quarter really isn't a surprise where it's landing. It's more of the December quarter is much stronger than we expected. And we're really pleased about the December quarter. I want that to be clear. We've talked about our approach. you know, over the years and what we're striving to do about investing in technology, actively work in the portfolio, driving productivity, exercising capital discipline. And the December quarter shows what's possible with the business. And it's years of hard work. It's just excellent execution by the team. And it's those things intersecting with favorable market conditions. So just about, you know, You know, a lot went right in the December quarter, and the result is that 54.4. So, you know, volumes were stronger and, more importantly, stronger than we expected, and the outlook stayed strong. So that helps us sustain loadings and the associated fixed cost absorption. Span control remains excellent. which is especially noteworthy given the tough operating environment that our operations team has to work with. I mentioned earlier the pricing environment is a bit, I guess, more favorable than normal. The market's tight. We're doing the best we can to serve customers in the time that they're expecting us to get them product. And then, you know, Mix, we continue to move towards integrated modules. And that's helping us greatly. And our particular advantage in mid-high band and ball-related integrated products is pulling in some other integrated modules in the wind. So we're benefiting greatly there. And then we've got, of course, other highly differentiated products that are helping. And then there were a number of other favorable items in the quarter, favorable yields. We had lower inventory charges than we expected. and a number of other items. Again, generally, things went the right way. As we look forward to the March quarter, we do expect gross margin to drop to about where I said. We got it to 50.5, 51 today. That's up 100 basis points year over year, which is what we've been striving to do is show margin expansion, but we're down sequentially due to a number of factors. We're trying to keep inventories low, so that'll keep a check on absorption. We're ramping some lower margin products to Cali. We're just still working down the cost curve on those. They're important longer term, but some of those products are coming into the March quarter, and then that actually continues on into the June quarter. And there are some other mixed dynamics as well, including some less defense in the March quarter. and some other things. And then we just can't assume that all these other things go our way as they did in the December quarter. The pricing environment may probably turn into a more normal state. The inventories write-offs will probably be more normal, and we've assumed that. So we feel good about what we did, comfortable with the guide we have, and I'll leave it at that.
spk10: Very helpful, Mark. For my follow-up, with results and an outlook this strong that you've just described, the elephant in the room is about sustainability, with some investors arguing that this is a peak. But I'm not asking you to discuss your peers, but it would be very helpful if you could share your perspective, whether your order book is outstripping your ability to supply near-term And then second, how you are managing the demand pull from multiple customers across multiple markets because, as you described, there appear to be quite many of them across both smartphones and IDP with Wi-Fi 6. So if you could discuss those, that would be very helpful. Thank you.
spk07: Carl, this is Bob. I'll do my best to answer your question because, as usual, it's not as simple as what many people from externally believe when you're working in the business. Number one, yes, there is tightness in the supply chain. I think it's quite well known in the industry that silicon is constrained, whether that's in the communications industry or automotive. So in many ways, that is a governor on what's going on in the situation. And, you know, we've been very fortunate that our team has excellent relationships and agreements with our suppliers externally and feel pretty good about how we've done that. And I'm quite confident we've left some, you know, revenue out there for us still to get. But Mark mentioned in his opening comments that we've been getting long-term agreements with our customers so that they feel pretty confident in their demand. And when we do our market model, which Mark also talked about, and we feel we have a pretty good handle on the market based on our comments all the way through last year that many people believed that it was not going to be turning out the way we projected in just the number of 5G handsets. So when we look at our market models, the orders we already have, you know, the migration, as you've already commented on 5G, more than doubling, looking at Wi-Fi, looking at Wi-Fi 6, pod in every room, going from two streams to three streams, that being 2.45 for communicating to the client, and then for the backhaul, using a third stream, which adds a lot of content if it's eight channels feeding it back to the main access point. So, you know, when we integrate all this and look at our customer orders, we feel pretty good about the commitments they're making to us. So, you know, and I want to remind everyone, you know, the sudden change at Huawei, who was not using best-in-class components, as you guys remember, we talked a lot about how that they started to, and rightfully so, because of the U.S. government, try to use local sources. Well, the people that are picking up their share are are using best-in-class components, which is what we said Huawei would have done if it was available to them. So when we look at everything that's going on, as Mark said, we feel good. You know, we can already comment on June, which he did. So I think as we lay out the year, you know, we'll see how sell-through is in Chinese New Year and all those conditions and the pandemic and the vaccination. But, you know, we feel good about what we're communicating today, very good about it.
spk02: Tosha Hari with Goldman Sachs has our next question.
spk13: Good afternoon. Thanks for taking the question, and congratulations on the strong results and the strong outlook. Thank you. Maybe first one for Eric, and I guess, Bob, you sort of kind of addressed this in your response to the prior question, but just curious, how are you guys thinking about seasonality in your mobile business? Um, it's clearly a very odd year with, uh, you know, supply constraints and, uh, new products being introduced later than usual and other moving parts. But to the extent you can comment, how are you thinking about, I mean, March, obviously you're thinking, you know, better than seasonal for your mobile business, but what about June and potentially September? And then I got a quick follow-up.
spk15: Right.
spk13: Right. Yeah.
spk15: As you pointed out, yeah, as you pointed out, uh, the, uh, the, the, the March seasonality clearly is, is muted from, from normal. And, you know, to Bob's point, it's really going to, you know, depend upon supply in the near term, not just our own, you know, through our supply chain network, but the rest of the bill of material that our customers have to get. So, you know, it's really going to be sort of a demand, or excuse me, a supply-limited climate at least for the next few quarters. And then once things are, you know, fully opened up again, you know, we're extremely bullish about the opportunity, of course, for 5G to take off and So that's why we still think, even in the worst case, we'll see 5G double this year.
spk13: Got it. Thank you. And then as my follow-up on gross margins, Mark, great job in December. To your point, you've got multiple moving parts, and I guess margins can be very lumpy on a quarter-to-quarter basis. But when you think about calendar 21 in its entirety or maybe fiscal 22, I realize it's kind of early. But how are you thinking about gross margins? It's pretty clear that structurally and through cycle, you're doing a lot better. But can we sort of extrapolate the trajectory that you've been on? Or are you sort of approaching peakish kind of levels as it relates to gross margins? Thank you.
spk09: Yeah, totally. You know, it's this time of year, because we're a March fiscal, we sort of get these calendar 21 or a calendar year fiscal, next fiscal year questions. So I appreciate that. And as you say, you know, it's a bit early. So we expect to provide more details on our next earnings call when we'll wrap up fiscal 21 and start fiscal 22. But maybe before I get into gross margin or margins overall, Maybe just talk a little bit about fiscal 22. As we sit here today, for the most part, demand's firm, as Bob and Eric have talked about. Our business is broad, and you see that reflected in the December results, March quarter guide. And then we all know the markets that we serve, 5G, Wi-Fi, defense, IoT, other markets. We obviously expect those to grow multi-year. We believe that Corva's technology and products and our ongoing customer engagement positions really well in those markets. So we've talked about feeling very comfortable about the June quarter. As Eric just mentioned, kind of more of a supply constraint situation than demand constraints we see at this point. We're reasonably confident for a near billion dollar quarter. And again, we'll see what happens on the other side of Lunar New Year. Keep watching the channels, but keep an eye on it. On the rest of the P&L, as you can imagine, well, the rest of the year and certainly the rest of the P&L, it's just a lot more difficult to give anything. We're in our planning cycle now. There's just a number of factors. You know, what happens to the outlook, the effect on loadings and absorption, mix effects in the business yields, inventory, so forth. And then just on the OPEC side, investments we want to make in the future. So any number of factors are going to impact the results, and we just need to finish the planning. We've given a March guide, and we've given a June revenue guide, or revenue indication, supply constraint. I think on the June quarter, we actually see margins going down a bit. We actually see the June quarter gross margin below 50. We see operating margin below 30. And again, that's price mix, cost factors. But I would say for the year, we still expect clearly operating margins to be above 30%. We cleared that this year. we're committed to continue to work to expand operating margins and I think we will say that for this call and provide more detail in the next call.
spk03: Next we'll hear from Edward Snyder with Charter Equity Research.
spk06: Thank you very much. Eric, you're shipping a lot of main path modules, tuners, I guess some ET, and the one-off received DRX. Are you in production on antenna plexers now, and when do you expect to be in productions on transmit DRX? And secondarily, was the transmit DRX part of your $5 to $7 TAM increase for 5G for yourself or for the industry, or is it going to be incremental? to those numbers. And if I could, James, it sounds like infrastructure is cooling again a bit. I'm particularly curious about the build-up. There's been a lot of feedback that China's slowing because they go to the rural areas and the U.S. has not quite picked up yet. Is that kind of the trend you're seeing here? And if so, do you anticipate when the U.S. starts building out C-band, are they going to be using a lot of GAN or MIMO, actually, and see if or will we expect to see kind of a little bit of a whole form of things?
spk15: Okay. This is Eric. I'll go first. And we're actually in production already with both of the categories you mentioned, antenna plexers with multiple customers. And we expect, of course, that portfolio to continue to grow out. And we've got multiple generations of BAW in process right now to continue driving those over the next couple of years. And then the, as you call it, TXDRX, it's what we call the dual connect modules. And we've referenced dual connect modules in some of our discussions. There's a marquee Korean handset that's launched recently. You'll find we're providing the dual connect module capability there. So to your point, that's real exciting because it gets us into that diversity path, which typically has been RX only. It's typically been, you know, saw filters and heavily competitive. We've, you know, with this you're looking at, multiple TX channels at once. You're looking at ball filter content and a higher frequency range. So it's a really interesting new category that's emerging, and we're happy to be leading off with it.
spk03: This is James.
spk12: Our base station business is on a pace to set all-time record for physical revenue for the year. So we'll be up about 60% full year over full year with the guide that we provided today. It was driven mainly by strength in deployments in Asia and the adoption of massive MIMO antennas, where GAN has been selected many, many times over LDMOS. And, of course, we've been able to support many of the major frequency bands that have been rolled out in China. Looking ahead, I think you're pretty close. You know, deployments will slow during the first half of the calendar year, and then we expect those to start to accelerate into the second half. And additionally, with the C-band auctions nearly complete in the U.S., we do expect deployments to start later in the year, and we do expect those to include both massive MIMO antennas and GaN power amplifiers. And then, obviously, we're in the early stages of 5G deployment, and we expect those deployments to continue both in China and around the world as we go through the next several years.
spk03: We now hear from Harsh Kumar with Piper Sandler.
spk01: Yeah, hey, guys. Congratulations. Solid results, solid guide. We appreciate the execution. There's been no normal in this year with respect to revenue and seasonality, but I think your guide for March is less seasonal than a typical March. I was curious if you could point to the factors maybe relative to what you guys are assuming for China in March versus U.S. business. That was question number one. I had another one.
spk03: Thanks, Horst. Yeah, thanks, Horst.
spk07: I mean, typical seasonality, as you know, is the IDP business roughly flat. That's roughly what we guided, the mobile business seasonally down. We're not going to break it out of geographies or customers, but obviously our mobile business is not going to be off as much as normal. I think we do know the timing of marquee phones has maybe shifted a little bit from prior years, and then layering on top of that, you know, the China business is doing well. And like we said in our comments already answering questions, we'll see how Chinese New Year goes. But that's the way I'd like to answer that.
spk01: That's fair. And you guys in your press release had a comment on low band, mid band, ultra high band and Android and the wins you guys are seeing. I was curious if you could elaborate what kind of phones you're seeing this in and if you expect this kind of functionality to make it to mid and 5G phones by some point in 2021 this year.
spk15: Yeah, so Harsh, this is Eric. In fact, primarily we are shipping these into 5G phones today. As 4G became more complex over the past couple of years, the move towards integration began to take off. And then when 5G emerged, there really was no looking back for our customers that are bringing out high-performance handsets. So a lot of the main path, including ultra-high band, the low band, the mid-high band, We're selling fully integrated modules, in many cases, all of them into the same handset to support the 5G ramps right now.
spk03: Our next question will come from Raji Gill with Needham & Company.
spk14: Yes, thanks, and congrats as well on the great momentum. Just a question, again, on the infrastructure. You guys really had kind of strong dominance in GAN base stations and have kind of been riding that wave. I wanted to get your update on GAN proliferation across the other base station vendors outside of, say, ZTE in China. What would the adoption rate is outside of that customer? And how do you think about the competitive landscape? It does appear that one of your other competitors on the LDMOS side are starting to ramp their GAN solution. I'm wondering how we think about those dynamics as we go into the second half of this year and going to next year as well. Thank you.
spk12: Yeah, thanks for the question, Rozzy. This is James. You know, we are definitely engaged across really all of the major OEMs and what most would consider even Tier 2 OEMs with GAN programs and being incorporated into both macro and massive MIMO antennas. And we've got, you know, production shipments that have occurred into numerous of those OEMs. So I would say adoption is pretty broad across the industry. And, you know, we're obviously very bullish about our technology. We've got a tremendous amount of products. I think last time I counted, we have over 200 products that are released in our GAN technology covering a broad range of, you know, frequencies and markets and everything like that. We've been in GAN for well over 20 years and, you know, continue to focus on developing the technology and and bringing new capabilities in and really focused on scale and cost. So, you know, I'm certainly very confident about where we stand with the technology and excited about all the markets that are adopting it going forward. So I think, you know, long-term it's going to continue to be a great thing for IDP and for the company.
spk14: For my follow-up, regarding content increases, last year there was a significant increase from 4G. I'm wondering how you're thinking about the content increases this year as there are more 5G smartphones in the marketplace, so the upgrade cycle is still strong, but it's coming off a little bit of a higher base. So how do we think about the RF content gains and, you know, from a dollar perspective year-over-year, say, versus 2020 versus 2019? Thank you.
spk15: So at the – I assume you're referring to the smartphone space, right, the mobile space? Smartphone, yes. Yeah. So in terms of, you know, a 4G to 5G transition, no real change in the outlook, as Mark said, I think, or Bob at the beginning. You know, we said across tiers anywhere from $5 to $7 worth of additional content when you take a 4G phone and then make it 5G capable. We think that's holding out this year as well. And so that, you know, the main difference is, you know, you'll have another 250 million handsets or so layered on. to the TAM versus what we had this year. But no change in the actual 5G adder that we're forecasting.
spk02: Our final question will come from Bill Peterson with JPMorgan.
spk05: Yeah, thanks for taking the question. Nice job on the quarterly execution and guide. First question for Eric in mobile. you mentioned that you have the new dual transmit. I'm wondering how the design pipeline is beyond this customer. How should we think about this being proliferated across the mobile ecosystem? And additionally for mobile, you talked about antenna plexing, less spoken about the deck wave today, but there's other drivers too in the business. I'm hoping you can help rank these in terms of the opportunities you see as we look out through the year.
spk15: Right, right. So, you know, when we look at just the coming year, if you will, you know, it's going to be highly leveraged towards, you know, BAW-based products in particular. Our R&D team is bringing us fresh technology on a regular cadence now, and we're taking that into, you know, highly differentiated discreets, as we talked about with antenna flexors, but then also those can help, you know, make multiplexers as well that sell not only in discrete, but enable these highly integrated modules. So, You know, we're going to be focusing on places where we can take that ball technology and leverage it into larger modules to a large extent. And then continuing to really leverage our franchise around the antenna. You know, we are clear leaders at helping our customers manage their antenna networks, whether it's, you know, tuning or, you know, we've got impedance tuning. We have aperture tuning. We have the antenna flexing that we've talked about. and it's getting to be more and more of a problem for our customers as new GPS bands and new bands are added in C-band and CBRS spectrum and so forth. So there's a lot of work around that antenna, and we've got a lot of very unique capability to bring technology but also modeling and app support there. So these are large opportunities for us in the near term, really leveraged on the complexity of 5G and our basket of technologies, which is broad and unequaled in a lot of ways. The UWB we look at is more of a driver in the next two years to three years, really, where it begins to get to the scale because we're starting very, very low now, of course, as an industry and just beginning to take off. But no question in our mind, that's going to be a large driver. If you look out two to three years from now, it's going to be a big part of our business.
spk05: Thanks for that. And then secondly for James, and just apologies, it's somewhat of a multi-part question, but First unpacking the near term, you've called for, I guess, a flat guide. And I think earlier you mentioned defense down and maybe weakness in infrastructure. So what's growing? Is it automotive and Wi-Fi? What's directionally growing? And then if we think about the full year or fiscal year, should we still think of the market environment as a 10% to 15% grower and I guess within that, should we still think again as outgrowing that trend based off what you're seeing as infrastructure and defense kind of returns to growth as we move through the year?
spk12: Yeah, thanks. Thanks, Bill. As far as current quarter we're in, a lot of strengths going into the quarter. Certainly, as Bob talked about, defense will be off a bit. But our Wi-Fi business is growing very nicely. Our power management business is also growing very nicely. And, you know, several of the other markets like our broadband business as well. So quite a few of the underlying markets driving the business. And if you kind of look, you know, history for the first three months of the year compared to those same three months of last year, we're up almost 47%, I think. And almost all of those underlying businesses are up double digits. So We've got a lot of strengths. We ebb and flow a bit as we go through each quarter, but I would say pretty significant strength in our Wi-Fi business as Wi-Fi 6 continues to roll out. As far as long-term, I'm still very confident of the underlying trends in the business, and we'll have some unevenness as we go quarter to quarter, but the things like the adoption again and the proliferation of massive MIMO, the rollout of 5G and Wi-Fi 6, All those are great trends that I think will continue to allow the business to grow.
spk02: That will conclude today's question and answer session. I will now turn the conference over to management for any additional closing remarks.
spk07: Thank you for joining us this evening. Corvo will be presenting at multiple investor conferences in the coming weeks, and we invite everyone to listen in. Thanks again, and have a good night.
spk02: That will conclude today's conference. Thank you for your participation. You may now disconnect.
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