Qorvo, Inc.

Good day and welcome to the Corvo Inc. Q2 2022 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Douglas Delito, Vice President of Investor Relations. Please go ahead.

Thanks very much, Todd. Hello, everybody, and welcome to Corvo's fiscal 2022 second 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 and our annual report on Form 10-K filed with the Securities and Exchange Commission 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 Bruggerworth, President and CEO, Mark Murphy, Chief Financial Officer, Eric Crevison, President of Corvo's Mobile Products Group, Philip Chesley, incoming President of Corvo's Infrastructure and Defense Products Group, and James Klein, outgoing President of Corvo's Infrastructure and Defense Products Group, as well as other members of Corvo's management team. And with that, I'll turn the call over to Bob.

Thank you, Doug, and welcome everyone to our call. The Corvo team delivered an exceptional September quarter, with revenue and EPS at all-time highs. Strength during the quarter was broad-based across customers and supported by new product launches. In mobile products, the multi-year migration of 5G continues to drive RF content and integration trends. What began in top-tier flagship phones is now playing out in the mass market, where the RF content increase is greater on a percent basis than in flagship devices. Corvo enjoys broad exposure to mass market designs at customers like Honor, OPPO, Pixel, Samsung, Vivo, and Xiaomi. As a preferred supplier with leading products and a robust technology roadmap, Corvo is well positioned as 5G devices and Android ecosystem contribute increasingly to the growth in the RF TAM. In other connectivity markets, ultra-wideband adoption in smartphones is serving as the infrastructure for a growing ecosystem of ultra-wideband-enabled devices. The opportunity set spans mobile, automotive, and IoT markets, creating a strong foundation for growth over the coming years. In Wi-Fi, the adoption of Wi-Fi 6E and the performance limitations of smaller-node CMOS integrated PAs are driving the migration to chip-on-board FEMs and IFEMs like ours. In Wi-Fi and other markets, Corvo's products and technologies are at the forefront of multi-year upgrade cycles, enabling new ecosystems and use cases and transforming the user experience. Now let's look at some of the quarterly highlights in our end markets, starting with mobile. For Google, we commend shipments of mid-high and ultra-high band pads, antenna tuners, and multiple connectivity solutions to support the ramp of their recently announced Pixel 6. For an upcoming Korea-based 5G mass-market smartphone platform, we received the first production orders for our mid-high and ultra-high band pads, Wi-Fi FEMs, and multiple high-performance discrete solutions. In mobile Wi-Fi, we secured a Wi-Fi 6 FEM design wins with multiple top-tier smartphone OEMs and began sampling Wi-Fi 7 FEMs enabling higher data rates and improved performance. In ultra-wideband, Corvo is advancing technologies for a diverse ecosystem of proximity-aware connected devices. We secured an ultra-wideband design win to enable real-time device tracking and other location-aware applications in home mesh networks. And we were selected to supply ultra-wideband solutions for enterprise access points as well. We also expanded our engagement with a leading provider of consumer IoT products across a broad set of connected home devices, including smart speakers, point and control fans, and air conditioners. In automotive manufacturing, Corvo was selected to supply ultra-wideband and Zigbee solutions with concurrent connect technology to an automaker in Korea, streamlining automation and manufacturing. In other connectivity markets, we began sampling a Wi-Fi 6 IFEM covering 5.2 gigahertz and 5.6 gigahertz and featuring an integrated BAW filter. Corvo's 5 gigahertz IFEMs enable higher capacity and improved efficiency and a reduced form factor. In broadband, we began sampling a triple output DOCSIS 3.1 amplifier module supporting network upgrades for major cable operators in the U.S. and in Europe. In infrastructure, design wind activity was strong across OEMs, including small cells and base stations. Winds included all of the RF transmit and receive path content, including BOS filters for 5G small cells at a major base station OEM. We see infrastructure markets picking up in 2022 with Corvo's SAM growing year over year. The SAM for Corvo outside of China will post significant growth next year, and support a strong double-digit CAGR through 2025. In aerospace and defense, we expanded our product portfolio with an industry-leading 125-watt S-band power amplifier module and a 1.8-kilowatt L-band radar pallet for commercial and defense radar applications. In RF-based biotechnology testing, we received our first commercial orders and commence shipments of our Omnia antigen test platform. During the quarter, the NIH RADx variant task force conducted an external study that demonstrated the performance of our Omnia antigen test platform in effectively detecting COVID variants, including the Delta variant. Although this is a new market for us, We believe we bring a novel technology that offers unique and real value as the world moves to more testing protocols, including for flu AB and other seasonal pathogens. Our platform offers a unique combination of accuracy and speed at the point of care with improved process flow, including real-time wireless delivery of results. We have seen its benefits in our own operations as part of our protocol for our own internal testing. After the quarter closed, Corvo acquired United Silicon Carbide, an innovator in silicon carbide power devices and a pioneer in silicon carbide JFETs. The combination will further differentiate Corvo's power portfolio, enabling more highly integrated power device solutions and expand our addressable market to include higher voltage applications that demand maximum power efficiency, such as electric vehicles, charging stations, and renewable energy systems. We welcome Chris Rice and his team and look forward to helping them accelerate the growth in their business. For Corvo, our ability to deliver more power more efficiently and using less current helped put us at the center of the digital transformation. We are eager to expand these competencies as global markets move to electrification and renewable energy. Corvo's technology portfolio is best in class, our product position is strong, our end market exposure is expanding, and we are operating very well. Yes, we are seeing constraints, and we are working closely with our customers and our partners. Mark will have more comments about the operating environment, and we look forward to discussions during your question and answers. Big picture, we see the industry working through this, as it always has. For Corvo, we see a business with unique competencies and expanding set of growth drivers, and we expect a continuation of double-digit growth over several years. Before handing the call over to Mark, I'm pleased to welcome Philip Chesley as president of Corvo's Infrastructure and Defense Products Group. Philip has a proven track record growing global semiconductor businesses with experience in RF, power, data communications, automotive, industrial, aerospace, and defense. We are very pleased Philip has joined Corvo to lead our IDP team. Also want to thank James Klein. Since the formation of Corvo, James and the team have more than doubled IDP revenue while creating a recognized industry leader. We thank James for his many contributions to Corvo and wish him the very best. James will remain with us through November to help ensure a smooth transition with the change in the IDP leadership. And with that, I'll hand the call over to Mark.

Thanks, Bob, and good afternoon, everyone. In the September quarter, Corvo delivered the strongest quarterly revenue and earnings in the company's history. Corvo's revenue for the fiscal year 2022 second quarter was $1,255,000,000, $5 million above the midpoint of our guidance, and $195 million, or 18%, higher than last year's September quarter. When comparing September quarter numbers, recall that our fiscal year 2021 was a 53-week fiscal year, and the September quarter last year was a 14-week quarter versus this fiscal year's more typical 13-week quarter. Mobile products revenue of $996 million was up 32% year-over-year on the continued growth of higher content 5G smartphones. Infrastructure and defense products revenue of $260 million was slightly below expectations due to reduced supply from outsourced assembly and test operations in Malaysia and elsewhere. As expected, IDP was down year-over-year due primarily to last year's strong infrastructure build-out and the 14-week quarter. We expect IDP to return to year-over-year growth in the December quarter and growth to accelerate in the March quarter. Non-GAAP growth margin in the September quarter was 52.4%. above the midpoint of our guidance despite supply chain disruptions that worsened through the quarter. Non-GAAP operating expenses in the second quarter were less than expected at $222 million, or 17.7% of sales. The sequential and year-over-year increases in OPEX were driven by technology and product development expenses associated with key growth programs and recent acquisitions. Non-GAAP operating income in the September quarter was $435 million and 34.7% of sales. This was the fourth consecutive quarter of operating margin over 33%. Non-GAAP net income in the second quarter was $385 million and diluted earnings per share of $3.42 was 18 cents above the midpoint of our guidance. Cash flow from operations in the second quarter is $245 million. Our working capital includes an increase in payables associated with a long-term silicon supply agreement. The largest of these payments is a deposit, which we expect to recoup by the end of the agreement in calendar 25. This agreement is a structured way to advance our differentiated technology position, and simplify our long-term planning. Furthermore, it's only one of a number of examples whereby Corvo is building longer term and more collaborative partnerships to provide our customers supply assurance and meet their product and technology needs. Concurrently, our customer relationships are broadening and strengthening. allowing us to invest with more certainty. As we have indicated previously, the challenges the industry is currently experiencing are driving more constructive and longer-term relationships that we see enhancing the overall durability and value of the business. Capital expenditures in the September quarter were $47 million, lower than expected on spend timing and an earlier than expected reimbursement for a portion of our government-funded work on advanced packaging. Free cash flow was $198 million, and we repurchased $223 million of shares. Over the last two quarters, we've purchased $523 million of shares, which was 110% of our free cash flow. We continue to repurchase shares as our outlook is positive our free cash flow and ability to sustain investment in technology and growth is strong, and our leverage remains low. On the balance sheet, cash and debt remain largely unchanged from the prior quarter at $1.2 billion and $1.7 billion, respectively. In the December quarter, our cash is projected to decline following payments associated with the previously mentioned agreement, and with our acquisition of United Silicon Carbide. Now, turning to our current quarter outlook, we expect revenue between $1,090,000,000 and $1,120,000,000. Non-GAAP gross margin between 52% and 52.5%. Non-GAAP diluted earnings per share of $2.75 at the midpoint of our guidance. Our December quarter revenue outlook reflects broad-based challenges in supply impacting mobile and IDP, and near-term weakness in demand, principally in Asia. Starting with supply, we have several areas of constraint. Our external supply chain is still recovering from disruptions in September, including shutdowns in Southeast Asia. Beyond that, select materials, products, and production capacity remain tight. These are industry-wide issues affecting all suppliers, and our customers are challenged in producing matched sets for products. For example, in smartphones, even where channel inventory for certain parts is healthy, customers lack silicon chips to produce phones. This, in turn, creates changes in demand that add to constraints on our own production as we work to adjust mix. Mix changes are part of our business, But in a normal environment, Corvo can move swiftly to respond and capture demand. These supply-driven gaps are making recent demand softness in select areas, such as our Asia smartphone customers, harder to quantify. We see the industry working through this situation with some supply effects beginning to moderate this quarter, and supply-demand alignment improving more broadly through the March quarter. Given these supply and demand effects, we now see 5G smartphone volumes coming in below 550 million in calendar 21. Corvo's December forecasted revenue of $1,105,000,000 at the midpoint is down 12% sequentially and up slightly year-over-year. We forecast mobile revenue in the current quarter to be approximately $830 million at the midpoint, down 17% sequentially and flat year over year. In the March quarter, we expect mobile to be up slightly sequentially as a typical seasonal decline is offset by improved supply and demand. In IDP, we project revenue to increase in the December quarter to $275 million, and the segment to return to year-over-year growth. We expect IEP to be over $300 million in the March quarter. Our December quarter gross margin guide at 52.25% at the midpoint is up versus the view we provided last quarter despite a more challenging supply-demand environment than expected. We see our technology and product mix and operating and capital efficiency yielding a gross margin above 52% for the fiscal year. We expect the March quarter to be around 52%. We project non-GAAP operating expenses to increase slightly in the December quarter to approximately $224 million, reflecting higher investments in core technologies and expanding capabilities in new businesses, including the addition of the United Silicon Carbide team. We now project our current quarter and full year non-GAAP tax rate to be between 8.5 and 9%. Capital expenditures are projected to exceed $70 million in the December quarter as we work to intersect demand and support long-term supply agreements with multiple customers. Currently, we are supply constrained and project to remain so through our fiscal year end. We continue to expand BAU and gas capacity as well as biosensor production capacity to support our growth projections for fiscal 2023. In summary, we expect year-over-year revenue growth in the December quarter, though less than we had expected previously. The current supply challenges and near-term demand weakness are acute, but more temporary than durable. We expect supply effects to moderate starting this quarter and improved supply-demand alignment early next calendar year. For full fiscal year 22, we expect revenue growth over 15%, gross margin over 52%, excuse me, we expect revenue growth over 15%, gross margin over 52%, and operating margin of approximately 33%. Looking beyond this fiscal year, we expect double-digit growth to continue as Corvo's premium technology, product portfolio, and operating capability support 5G, Wi-Fi, IoT, defense, power, and other growth markets. Overall, we are investing to grow mobile and IEP at or above market. Looking at our business by end markets instead of operating segments helps highlight the strength of our portfolio and market position. On advanced cellular RF front ends for smartphones, Corvo's technology and product breadth is world class. We expect this part of Corvo's business near $3.3 billion this fiscal year to deliver high single digit to low double digit growth as increasing RF complexity and integration trends support years of content expansion. Next, looking at other connectivity beyond cellular solutions for smartphones, Corvo enjoys exposure across multiple wireless protocols and serves industrial automation, connected home, automotive, and other high-growth IoT markets. This fiscal year, connectivity solutions spread across our mobile and IDP segments combined to approximately $700 million and can grow in the strong double digits. Finally, Defense, infrastructure, and power solutions support multiple long-term secular growth drivers. These include the multi-year build-out of 5G infrastructure, increasing semiconductor spend in defense, and worldwide demand for power semis driven by megatrends like electrification. We expect to sustain long-term double-digit growth in this business from a base of over $600 million this fiscal year. Our December quarter is off what we expected previously, but still guided up year over year, as is our view of the March quarter. We expect the business to strengthen through the second half of our fiscal year and contribute to a record full year performance, including earnings growth over 20%. Longer term, the outlook is bright. Corvo is exceptionally well positioned to deliver earnings and free cash flow growth serving the large and growing need for more efficient power and greater connectivity. Now, Todd, would you please open the line for questions?

At this time, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you were using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up question. Again, to ask a question, press star 1. We'll take our first question from Toshi Yahari with Goldman Sachs.

Hi, guys. Good afternoon. Thanks so much for taking the question. I have two, if I may. My first one is probably for Mark. The 17% sequential decline you're guiding to in your mobile business for December, is probably hard, but can you sort of break that down into supply factors and demand factors to the extent possible? And then on the demand side, you talked about weakness in Asia, but if you can elaborate on that, that would be super helpful. And then I've got a quick follow-up.

Sure. So, Tashia, we decrease our December number about about $150 million, as you can see. And about $135 million of that was in mobile, where we went from roughly $965 million to $830 million in the December quarter. The balance of the decrease was IDP. IDP is the most straightforward. It's all supply in IDP. So just keep that in mind. Of the 135 roughly in mobile, as we characterize supply constraints, which is our suppliers not having supply for us, our customers not having the chipsets, thus not able to build their product and use our product. And then finally, our own internal constraints. We see up to 100 million that we would characterize as supply-related of that 135 million. The balance, so 35 million, we would view as net demand. Some demand is up, and we're able to intersect that, but some demand is clearly down, and I think that's well publicized, particularly in parts of Asia. So broad brushstrokes were three-quarters or less down on supply in mobile and one-quarter or more related to demand. Now, if you add in the IEP, which is all supply, then that proportion is stronger. So that's our view to share. Yeah.

Great. Thanks for the color. And then as my follow-up, you guys talked quite a bit about having constructive, longer-term conversations with your customers. You also talked about your long-term silicon supply agreement. As you kind of compare and contrast the visibility you have today versus three years ago, five years ago, I mean, how would you characterize the key differences? I'm sure you've had long-term agreements in the past, but how much bigger are they as a percentage of your backlog, and how enforceable are they going forward relative to history? Thank you.

This is Eric. I'll take that. I think one of the silver linings in this environment is how constructive the conversations have gotten in terms of much longer term, so not just one or even two years, but in some cases up to three years of discussions about how we're going to outline the both our technology and supply roadmap to our customers' product roadmaps, their markets, and what they expect to ship. And of course, there's no crystal ball. It's not perfect, but at least we have ranges of alignment and sort of volume bars, share windows, and things like this that we can talk both to our customers and to our suppliers. And I think for suppliers, it's a great benefit to them and us to have more stability. And for our customers, of course, supply assurance is paramount. And for us to have more confidence in our growth of the businesses is, of course, very important as well. So it's a very different environment driven by all the factors we've talked about already on this call.

Got it. Thank you.

We'll take our next question from Vivek Arya of Bank of America.

Thank you for taking my question. For the first one, I'm curious, given the supply constraints in the industry, does that change the competitive landscape in the RF side in some way as we look at next year? So for example, you know, if one of your competitors can bundle their apps, processors, and modems along with the RF side, do you think that gives them perhaps an advantage from a competitive perspective as we look at next year?

This is Eric. I don't think so. technology decisions are still critical to enable next-generation phones, and, you know, best-in-class RF is still going to win in the front-end section. So, you know, I don't think we're, you know, competing against people that have advantages of bundling across the boundary, if you will, from, you know, the apps and modem side to the RF side, really. And I think, again, just as in the last question with Tashia, I think the long-term visibility we have and kind of planning our technology roadmaps, we're getting no No signs that there's any change, if you will, in terms of the bundling or the architectures that would change that.

Vivek, this is Bob. Thanks for your question. I think the other point that's interesting is that a lot of the things that our customers are waiting on are from some of those very people you mentioned. So I think we need to keep that in mind. It's not us. The primary reason is we have the parts. We can get the parts for them. They've been saying, as we've mentioned many times through last quarter as well as this quarter, the challenges our customers have with match sets or kitting, whatever vocabulary you want to use, that's been their bigger problem is in SOCs, not with RF front ends, at least not from us.

Got it. And then on the acquisition that was announced, I was hoping you could give us some more color in terms of what is the right way to reflect that in the model. And, you know, our sense of the silicon carbide and the power semispaces, of course, it's in front of a very large growth opportunity and autos and industrials and so forth. But it's a very capital intensive space, right? And a number of the established players have margins well below your corporate average. So what's the right way to think about the strategy, and is it going to be accretive over time for you?

Yeah, let me take some of the financial elements, Vivek, and I'll turn it over to James. First of all, we're not in the capital-intensive part. We're in the device manufacturing part, so that's the expertise, and we're leveraging our silicon carbides. you know, GaN and silicon carbide knowledge and, you know, which will be an advantage here. So that's maybe the first thing is realizing that, you know, this is, these are things that we can foundry and source the material. There'll be more disclosure in our queue tomorrow, but, you know, it'll be over $200 million that we're paying for United Silicon Carbide. And it is dilutive initially. but we expect that to be a creative, you know, maybe at the end of next fiscal year, and we expect it to be a, you know, significant business for us several years out. James?

Yeah, this is James. So as you stated, we like the aspect that it gets us into several fast-growing markets like electric vehicles, industrial power, and data centers, maybe in longer term, even in things like circuit protection. We see it in current year expanding our adjustable market by almost a billion dollars. And we think that, you know, that certainly continues to grow at a high growth rate as we go over the next several years. We do believe that we have industry-leading performance in efficiency and in die size. So we think when we compare those differentiated type capabilities, with our existing power management capabilities, we really do believe we have the ability to continue to grow and scale the business.

Thank you.

Thank you. Our next question comes from Blaine Curtis of Barclays.

Hey, good afternoon. Thanks for my question. I just want to go back on the supply issues. You know, if you look at the shipments from the two major modem companies, I guess they're up. And you're seeing a correction. So I'm just kind of curious, there's a couple ways that could happen. Just kind of curious if now in retrospect, did you ship more RF than maybe modems in the first half of the year and that has to correct? Or just kind of curious your thoughts on that. I know you probably haven't seen Qualcomm's guide, but that MediaTek, they're not seeing as sharp of a decline in December. Just kind of thoughts between the disconnect there.

Yeah, hey, Blaine. This is Eric. Yeah, it's a good question. And I think to a certain extent, there's some of that. And I think a lot of it comes down to mix as well. I think we did a good job of responding to customer demand. Now, we still have several parts where we're on allocation as well and chasing and behind, of course, as we talked about. But for the most part, we did a pretty good job of satisfying customer demand. But what happens is as the mix shifts, I mean, they're essentially taking every baseband shift they can get, regardless of which RF it's on. So, yeah, it could be that net we shift a bit ahead up to this point.

Okay. And then just your perspective on it.

Go ahead. Well, I was just going to add, Blaine, that, you know, listen, we're disappointed with the December guide, but I think it's also to reinforce our commitment to keep the channel healthy and, you know, and give you a guide best we see on, you know, the supply and demand fronts. But, you know, it's never easy, but admittedly, it's more difficult than usual, you know, environment right now. I do think it's important with this adjustment to step back, not lose sight of how good a business we've got. For this fiscal year, we called down, and we missed, but there was an aged consensus that clearly the supply environment worsened through the quarter, particularly in mid to late September. And then these, you know, publicized weakness and demand emerged. You know, we see things improving. We think December is, you know, as bad as it gets for us. And we see improving in March and broadly. We had given a guidance range of 15 to 20%. And with this 2.5% adjustment for the year, we're down at the lower end of that range. So we're still in the range that we had provided. Listen, our gross margin outlook is intact around 52%. OpEx is in control, and we're investing in the future of the business. That's both traditional parts of the business and newer parts of the business. And in the end, we're taking EPS roughly a dime above $12 to roughly a dime below $12. And so there is a bit of a correction there, but I would say it's the right thing for us to do. If we look into next year and beyond, we just feel great about our position. Premium technology and products, serving attractive end markets, growing double digits, and we expect to grow double digits. We're operating well, sustaining margins over 52%. expanding operating margins. So lots of talk about the positive beyond this quarter.

And I guess when you look at your supply constraints on your business, I mean, you did grow inventory in September with that level of sales. So I guess I'm looking at now sales down teens. So I guess I'm kind of wondering, I guess, Did the supply situation get that bad between September, December, or is there another factor there? I'm just trying to understand those moving pieces.

No, it did get worse in mid to late September, Blaine, for sure. And that's what we've tried to explain. And, you know, first it was, you know, the supply environment, which has been tough for a year and a half, you know, almost two years now. The supply environment got worse. And then demand, you know, over the past, you know, three weeks or so has deteriorated. But, you know, our work are, you know, and some of that inventory is just, again, it's mix match of sets and so forth like that. But having said that, our inventories are okay. I mean, our turns are at the high end of historical range. And even with the slowdown, the turns will be within the normal historical range. So we, yeah, this is why we're dealing with this now, and again, we think it's a short-term issue that we work through and are in better shape in the March quarter. Thanks.

Thank you. We'll take our next question from Carl Eckerman with Cowan & Company.

Yes, thank you. For your December quarter outlook, Are the bottlenecks you described, at least for mobile, are they concentrated in the Android ecosystem? And then, if I may, just as a follow-up, you know, if you could highlight whether the growth trajectory of Android into December is better or worse than your guide of down 17 for mobile. That would be very helpful. Thank you.

Yeah, Carl, this is Eric. I don't think we can break them up between ecosystems like that and give any more color given the concentration of the ecosystem.

Okay. If I may then, just going back to this acquisition you've made in silicon carbide, I understand that most of United6 products are aimed at high voltage server and general industrial power supplies where you have some Pretty good customer overlap today. But could you discuss your plan to go to market for UnitedSIC and whether they have existing relationships with Tier 1 automotive OEMs? Thank you.

Yeah, so today you're right. I mean, it's predominantly, I would say, on the lower voltage scale, and it's in power supplies around automotive and data center applications. If you look at how we plan to take the business on a go-forward basis, Certainly, we'll use our channels to expand substantially. As you know, we've got a broad base into the automotive, and in many other places like the defense market, we'll be able to take this technology over the long term. We'll also be scaling the technology up in voltage, which will allow us to enter other parts of the automotive space, motor controls and things like that, on a go-forward basis.

Thank you.

Thank you. We'll take our next question from Gary Mobley with Wells Fargo Securities.

Hey, guys. Thanks for taking my question. I wanted to pick up with some line of questioning on the acquisition. James, your core competency historically in wide band gap semiconductor materials, correct me if I'm wrong, has been in GaN power or, I'm sorry, GaN RF. And so, you know, silicon carbide's core competency, of course, is in the So can Carbide and the companies always outsource manufacturing to XFAB? And so my question is, is the plan to eventually bring in the manufacturing internally, leveraging some of the Corbeau's historical wideband gap processing capabilities? And related to trying to penetrate the automotive market, it has been important so far for car OEMs. to align with silicon carbide providers that are vertically stacked with bowls, materials, and power devices for supply chain security. And so my question is, as a matter of strategy, is that the intent long-term for this business?

Let me take the second one first. Certainly, we'll use our very large and strong supply chain to make sure we supply that in a And, of course, you know, we have expertise also in very high-power packaging. So we'll combine that with the power control that we have, you know, from the active semiconductor acquisition that's been a couple of years ago now. And we really intend to take this business much more into a module play where we'll have that integrated capability. And, of course, we'll use our supply chain to make sure we've got stable supply of raw material and the ability to manufacture the wafers and things like that. As far as moving inside, you know, we'll certainly, as we go over the period of scale in the business, we're going to take a hard look at what makes sense and what doesn't make sense. I think there's parts of that process that maybe will adapt well to some of our internal capabilities and some that may be a bit more of a challenge. And I think we'll just look at that as we go through the next several years as we scale to see what makes the most economic sense go forward basis. Yeah, thank you.

And correct me if I'm using the wrong term here, but the prepayment of waiver. Sorry, Gary, the question? Looks like we lost Mr. Mobley. Oh. I'd like to go to the next question. Sure. Next question comes from Edward Snyder with Charter Equity Research.

Thanks very much. Eric, it's clear that Qualcomm is gaining some share in the low and mid-high in the low in China and Samsung's mass market. How can you be sure that some of your demand weakness is in share loss in a few slots in that area? I know they don't participate as much in the two innings, but I was trying to figure out how you figure that out, given some of their gains. And then Mark, I'm really puzzled by this sick power acquisition situation. buying wafers from pre and foundry through XFAB will work if it's, it would seem if it's like the industrial market or more of a diversified analog, but you face a huge disadvantage in scale against ST, Infineon, and especially Wolfspeed's new foundry in New York. So I'm just curious, where do you see this going? What levers do you think you can pull or lever do you have for this new acquisition to get you into EV? Because it isn't going to be cost and given the the size of the fab and the fact that there'd be fabbing on wafers you can't even get, the 200-millimeter wafers, you're going to be facing a big issue in terms of scale, too. So I'm just trying to get a little bit more clarity on what markets you're addressing and what I think. And then I have one final question for James before he leaves.

Okay, I'll start with the question about share and how we can be certain about our share gains or losses. And It's fairly straightforward for us. I don't think there's a phone platform of any significance that we don't have content on. So we know exactly how many phones in every model are being built. And so we know exactly what our share is. We do all the teardowns and figure out what all the other slots are if we don't already know. And it's easily trackable. And I can assure you it's not a share issue at all. In fact, we're excited, you know, as we exit December quarter and go into March, I think We've got some very nice content pickups with Samsung in particular, new platforms that we're really happy about that tailwind. But right now, to your question, I think we're quite certain of our share position, especially against Qualcomm or, frankly, any AR supplier.

Ed, this is James. I'll take on the acquisition question. So for us, the technology benefit there is low loss and, therefore, smaller die size. We agree, you know, competitive market, but we are sort of the high-end performance side of that side of the market. So, you know, it's going to take that customer set that's really, really looking for a high-performance part. Now, go-forward basis, we'll take both the power management things that we have in the prior acquisition and our packaging capability, and we'll move more into a module space. And again, we'll do that, you know, selectively where we see parts of the market that are really going to be driven by performance.

So we're not trying to take on the world.

So you're going to be high performance application specific in the module side of it, but you did mention EVs quite a bit. And all EVs are built into big modules for power consumption.

Well, there'll be high performance applications in that space as well. OK.

And I hate to see you go. I know it's time to retire. Everybody's got that time. But I'll miss coming down and bugging you. But before you get off and push off into the prairie, I had a question about your 5G. You guided or the guide for IDP was outside of China. You're going to expect to see growth. But given how pervasive China was to the 5G infrastructure business and how it's not coming back and the U.S. looks to be a lot more skittish about, what's the long-term – next year – on 5G for IDP. Will you get back to the point where the 5G MIMO stuff is at parity where you were in China, or do you expect that to be a longer haul? Thanks.

Yeah, I think on 5G specific, I suspect it'll be a bit of a longer haul, but I will tell you, Ed, I'm really pleased with the progress we've made. We've had significant wins outside of China in that MIMO space. We've begun... getting out our first integrated modules, or what we call PAMs, power and fire modules, and really pleased with those wins and the performance that we have there. If you do look at the core, the IDP business minus the infrastructure side, this year we'll grow north of 20%. So it really is the story for us is just the lack of deployments going on in China. If you look at that base station business outside of China, it's actually growing way up over 30%. So it really is a story for us about slowdown in China is the IDP story. The rest of it, the rest of the business is doing very, very well. And, hey, on your comment about my retirement, I want to say a few words. First of all, I really wanted to thank the Corvo team for all the work over this past decade or so. They've done just an absolutely tremendous job, and we've been able to accomplish a tremendous amount. I also want to thank Bob for all of his leadership in building Corvo. I have a lot of pride associated with the company that we built, and I want to thank Bob for, I guess, guiding us through that, maybe dragging us, but I want to thank him very much. And third, I want to thank Philip for accepting the challenge to lead the IDP team. I'm really confident that he's going to do a great job in the future with the organization, so I want to thank him for joining us.

Thanks, James.

Thanks, James.

Thank you.

We'll take our next question from Christopher Roland of Susquehanna.

Thanks for the question, guys. I did want to kind of go back to Blaine's earlier question. So, Qualcomm did post some very impressive RFFE numbers. They're now at about $1.2 billion a quarter and probably going up from there. And they actually said that their supply constraints were lessening and had been better than initially expected. So I did want to circle back on the differences between you and them and what you're seeing here in December. I think you guys did say it could be a timing, it could be an inventory issue. But I'd really love to flush the rest out here. Is there a difference tied to more media tech modem-centric customers or different OEM customers here? Is there anything else that would mark the difference between the two?

Hey, Chris, this is Bob, and I'll make a few comments and obviously let Eric add some color. But, you know, without seeing what they said or understood, it's a little bit difficult. But I believe in that number you gave, there is the millimeter wave front ends that they do sell to our mutually largest customer. And, you know, if they broke that out, that probably would be helpful. And, you know, yes, we do see them out there. We don't see them on any MediaTek platforms, that's for sure. But, you know, we sit alongside them. They don't have the entire RF at the same customers as Eric already outlined. So I think we've got a pretty good handle of what's going on. So, you know, yes, they have more RF content, I would say, at our largest customer. That's a fact. So that could be part of it easily. But, Eric, if you think there's anything that I may have missed.

No, just maybe the distinction. You know, I'm not saying Qualcomm's not doing well. They've got some drivers, of course. I think my response to Ed is that I know it's not at our expense. So we're not losing share to them was the question.

Yeah, thank you for that. And indeed, the millimeter wave is a big portion for sure. And then I did want to switch to M&A for a second and congrats on the acquisition. You know, it's this, Union Silicon, United Silicon, sorry, and DecaWave. These do appear to be somewhat niche businesses. And I guess my question is, do you guys have a desire for more broad-based businesses or even a catalog business, you know, whether it's analog or microcontroller or mixed signal, something like that. And, you know, what is your desire to move in that direction?

Well, let me start with Chris. I appreciate the question. And, you know, I think we said before we'll never telegraph the areas that we want to go after, that's for sure. I think Eric would probably take exception, and I'll let him talk about it, but call ultra-wideband a niche is probably a different view than what we have. That's for sure. We think that is a nice growth area. And I'll let Eric speak to that because I think what we demonstrated with the bullets in our press release and my own comments, I think this is proliferating a lot greater than what most people thought. Eric?

Yeah, maybe to kind of take a step towards your question, I think, you know, we're always looking for opportunities that allow us to leverage our scale in mobile and then use that same technology at an unfair advantage everywhere else in smaller markets, right? I mean, that's one of the advantages we have with our corporate structure. So, UWB fits that perfectly. The mobile phone itself, of course, is going to drive, you know, billions of units, but around that, there'll be five, six, seven things that talk to those billions of units, right? So, the whole connected home ecosystem and so forth. It will be a major franchise over time. And continuing to expand into industrial, some of the things we talked about in the press release, you know, there's industrial things like auto manufacturing, autos themselves. So certainly not a niche business to Bob's point. And we're thrilled with the progress that we're making with ultra-wideband today.

Yeah, and I would, Mark, I would just add that we're looking at this several years out. And they're most definitely not niche businesses at that point. I mean, the TAM that we see associated with the $1.6 billion or so acquisitions that we've done over the last several years, and I'm including this recent $200 million plus on United Silicon Carbide, we see that TAM at about $5 billion. We see that TAM doubling to $10 billion or more over the next several years. So we expect these businesses to be material and enjoy that growth, which is significant. And that's not including biotechnologies.

Very good points. Thanks a lot, and congrats on the acquisition. Thanks, Chris.

Thank you. We'll take our next question. We'll take our next question from Rajvindra Gill with Needham & Company.

Raj?

Sorry, our next question comes from Raj Bindra-Grill with Needham & Company.

Hi, guys. Can you hear me? Yes. Great. This is Dennis on for Raj. So I just wanted to ask you guys a question regarding the comment you made about mass market handsets and the content increases. Could you provide some more color, please, about what you're seeing, you know, how much of a difference you're seeing in percent? I think you'd mentioned that it was higher versus the high-end kind of 5G handsets. Can you guys please talk a little bit more detail about that?

Sure. Looking at the RF content and, you know, as 5G proliferates down, we've said there's like a $5 to $7 increase, you know, from 4G Advanced Pro, for example, up to the 5G. And what we said previously is what's interesting is we see that $5 to $7 consistent as the phones go down. So, you know, on a high-tier phone, high-tier smartphone, you might be looking at $30 to $35 RF bomb. You're adding $5 to $7 to that. That's a good growth. But as you go down into the mid-tier, you're adding that $5 to $7 on top of maybe $13 or $10 in some cases, right? So I think that was, like, you know, the interesting, you know, kind of content growth story as you go down. some of the fundamental RF challenges in 5G that drive a lot of complexity around filtering and multiband, multimode operation, you know, receive diversity requirements going up, transmit diversity coming and so forth. You know, all of that are sort of independent of tier because they're not, a lot of them aren't driven specifically by consumer features and things that you see. It's driven just as much by sort of network infrastructure efficiency in economies driven by the carriers. So I think that's the essence of the comments we made in the past that you're asking about.

Yeah, that was perfect. Thank you. And then for my follow-up, I just wanted to ask you regarding the gross margins. So you mentioned that kind of gross margins are holding above this quarter despite challenges. Can you discuss the chief drivers of this resilience in the gross margins, please?

We've covered that at length in previous calls, and it's the same factors, which is what we had hoped would happen. So we have premium products, and those allow us to price better and compete where we most want to compete. We've maintained the utilization of our factory network. We continue to drive productivity programs aggressively. And it's these and other factors that have contributed to the gross margin quantum improvement and then the consistency we're seeing.

I appreciate that. Thank you.

Thank you. We'll take our last question from Ambrose Srivastava of BMO Capital Markets.

I had a question on the demand side. What are your assumptions for the Asia market in the March quarter? Are you assuming a snapback or what is embedded in your guide for what you think about that market? And then you made a comment on holding back to keep the channel healthy. Can you talk a little bit about, give us some color on what the channel inventory looks like? And for my follow-up, Mark, given all the tightness, you have kept cap intensity very low for a while. Does that change in fiscal 23? Thank you.

Right, so first of all, looking at the mobile market, you asked about Asia specifically in March. I mean, clearly, I think, as you saw from our guide, this is not a normal year, right? We're bucking seasonality in our projection in March going up. So I think that there's no normality here to the seasonality. We're expecting that it'll be, you know, roughly in line growing a bit over December quarter most likely.

And the channel inventory?

Oh, sorry, the channel inventory. Yeah, that also varies dramatically by part numbers as we talked about. We have some where we're back up to healthy levels for sure. Others that we're still absolutely hand-to-mouth there. or even, you know, constrained on in some cases. So there's a wide range. But, you know, we've been saying, I think, over the past quarter or two that, you know, we're beginning to see channel inventories begin to get healthier. And in some parts, we've definitely gotten there. And that's where we're making sure that we don't, you know, over-ship into the channel, to Mark's point.

And, Ambrish, on your... Yeah, Ambrish, go ahead.

Sorry, go ahead, Mark. Go ahead, please. Sorry.

I was going to ask your CapEx question, but if you had a follow-up.

I did have a follow-up. Eric, we've heard the memory guys talk about bills in the Vox complex. Is that specific to the memory guys, or are you seeing that kind of manifest in your business as well?

Inventory, did you say at Vox? Is that what you said?

Yeah. Yeah, because the memory guys have called that out, you know, without taking the names that they've talked about and the desire to take share.

Well, one thing in which I don't think we've touched on in this call yet, we do see very, very lean inventories in the finished goods channel. So in terms of phone inventory in the channel from Evolf and Xiaomi, we see pretty tight discipline there. We don't see overbuilds in phone inventory building up. I'm not sure if you're asking that or whether they're building up a stockpile of memory chips. I don't know.

I can't comment on that. If you saw anything on the component side.

I don't think they're intentionally doing that. They're dealing with mix shifts due to supply changes week to week, which base bands they can get depending on which phones they can ship. I think that's the key factor.

I'll breach on your CapEx question. It's still our our long-term goal to keep our capital intensity as low as we can as we grow and stay around that mid-single digits as a percent of sales. Now, that will move a bit up and down as we're going through various investment cycles, but that's the long-term goal. I do think it's important to call out that our CapEx is staying at sustained levels And through this weaker period in December, because we see on the other side of it, and we're only talking the March quarter where we see things riding, we see next year as being a good year. And so we need to invest capacity to realize that growth potential.

Got it.

Thank you.

Thank you. At this time, I'd like to turn the call back to management for closing remarks.

We want to thank everyone for joining us today. We look forward to speaking with you again at upcoming investor conferences. Thanks again and have a good night.

This concludes today's call. Thank you for your participation. You may now disconnect.