Qorvo, Inc.

Good day and welcome to the Corvo Q3 2022 conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Douglas DeLito, Vice President and Investor Relations. Please go ahead.

Thanks very much, Cody. Hello, everybody, and welcome to Corvo's fiscal 2022 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 and our annual report on Form 10-K filed 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 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, Philip Chesley, President of Corvo's Infrastructure and Defense Products Group, 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 it over to Bob.

Thanks, Doug, and welcome everyone to our call. Corvo delivered fiscal third quarter results above the midpoint of the outlook we provided November 3rd on our earnings call. Demand during the quarter was broad-based across markets, included multiple new product categories, including 5G transmit diversity, ultra-wideband, Wi-Fi 6E and 7, power management, and other power solutions. In mobile products, Corvo gained content in flagship and mass market 5G devices. The fundamental challenges and increased complexity lifting 5G content are being driven by network efficiency and carrier requirements for the device architectures. In addition to new 5G bands, requirements are increasing for carrier aggregation band combinations in both the transmit and receive to maximize bandwidth to and from the device. These are long-term trends impacting 5G devices independent of tier. New industrial designs like foldable phones are increasing RF challenges, demanding more advanced antenna management systems. Lastly, because Corvo's smartphone portfolio includes cellular RF, ETP mix, Wi-Fi, and emerging categories like ultra-wideband and MEMS-based sensors, Corvo can participate broadly across OEMs, product tiers, and chipset providers. Corvo offers a broad portfolio of key enabling technologies, and Corvo stands to benefit as connectivity continues to proliferate. More critically, Corvo is leveraging the same competencies that placed us at the forefront of connectivity to grow in new markets. In IDP, revenue increased sequentially and growth was broad-based across markets. The integration of United Silicon Carbide is proceeding well, and enhancing our opportunities in higher-voltage applications that demand maximum power efficiency. These include EVs, charging stations, and renewable energy systems. Now let's look at some of the quarterly highlights, starting with mobile. For a Korean-based smartphone OEM, we ramped shipments in support of flagship and mass-market smartphone launches. We expanded customer sampling of highly integrated main-path solutions as well as secondary transmission solutions, which increase content as these architectures are adopted more broadly. In ultra-wideband, we achieved an important strategic milestone, supplying our first complete ultra-wideband solution in an Android smartphone. This speaks to the strength of our core technology and highlights the opportunity across the Android ecosystem. For industrial and enterprise applications, we introduced a fully integrated module combining our ultra-wideband chipset with Nordic's BLE solution to address a wide range of industrial and enterprise applications. In Wi-Fi, design activity continues to be robust. For mobile applications, we've secured new Wi-Fi 7 chip-on-board reference design engagements and began customer sampling of Wi-Fi 7 FEMs, offering superior performance and design flexibility. For home and enterprise applications, we ran Wi-Fi 6E FEMs for mesh networks and released 5 gigahertz IFEMs with ball filtering for tri-band applications. In cellular infrastructure, Corvo was selected by Base Station OEM to supply 3.4 to 3.8 gigahertz 8-watt GaN power amplifier modules for massive MIMO 5G deployments in Europe. We see infrastructure markets strengthening in 2022 worldwide with significant growth in the rest of the world, excluding China. In automotive, Corvo was selected to provide cellular V to X connectivity for a leading Europe-based automotive OEM. In power, we secured design wins to supply silicon carbide for onboard chargers and DC to DC converters in support of leading automotive OEMs in Europe and in Asia. Sales of PNICs for video processors and solid state drives were strong, as were sales of motor control solutions for battery powered tools. To expand our power franchise, we are combining our power management and silicon carbide technologies to deliver superior levels of power efficiency in high power applications. Our first products, are from the defense industry, and we are broadening the portfolio to serve additional markets, including infrastructure and automotive. In bio, we were awarded a $4.1 million follow-on contract with the NIH RADx initiative, supporting a COVID flu combo assay and a COVID antigen pooling application. We also signed a channel partnership agreement for distribution in the U.S., and submitted a CLIA waiver application to the FDA to expand deployment in point-of-care settings. In both mobile and IDP, Corva is capturing diverse opportunities supported by multi-year secular growth drivers in 5G, IoT connectivity, defense, and power. We are operating well and expanding the markets we serve while investing to sustain product and technology leadership across our portfolio. With that, I'll hand the call over to Mark.

Thanks, Bob, and good afternoon, everyone. Corvo's revenue for the fiscal year 2022 third quarter was $1,114,000,000, $9 million above the midpoint of our guidance. Mobile products revenue of $848 million was stronger than expected on higher flagship volumes. Infrastructure and defense products revenue was $266 million, with infrastructure and programmable power management up sequentially and year over year. Non-GAAP gross margin in the December quarter was 52.6%, 35 basis points above the midpoint of our guidance on better-than-expected mix and yields. This was the company's fifth consecutive quarter above 52%. Non-GAAP operating expenses in the third quarter were $214 million, down $8 million sequentially on lower incentive compensation and timing of development programs. Year-over-year OPEX was up $20 million on new product and technology investments, including recently acquired company OPEX, partially offset by lower incentive comp. Non-GAAP operating income in the December quarter was $372 million and 33.4% of sales. Non-GAAP net income in the third quarter was $330 million and diluted earnings per share of $2.98 was 23 cents above the midpoint of our guidance. Cash flow from operations in the third quarter was $117 million, reflecting payments associated with the long-term supply agreement discussed on last quarter's call. As mentioned then, we believe supply agreements allow us to advance our differentiated technology position and simplify our long-term planning. Corvo is building longer-term and more collaborative partnerships to provide our customers supply assurance and to address their product and technology needs. Capital expenditures in the December quarter were $50 million and remained concentrated in core areas, such as BA and gas, where we enjoyed a differentiated position and see continued growth. Free cash flow was $67 million, and we repurchased $302 million of shares during the quarter. We continue to repurchase shares based on our long-term outlook, low leverage, and other factors. Turning to the balance sheet, in December, Corvo issued its first investment grade note. The proceeds from this $500 million three-year note were used in part to retire our $195 million term loan. As of the December quarter end, we had $2 billion of debt and $1 billion of cash. Our net debt to EBITDA increased to over half a turn. Now turning to our current quarter outlook, we expect revenue between $1,135,000,000 and $1,165,000,000. Non-GAAP gross margin of approximately 52% and non-GAAP diluted earnings per share of $2.94 at the midpoint of guidance. Our March quarter revenue outlook reflects an improving supply situation, high volume smartphone launches, and stronger IDP volumes. Forecasted revenue of $1,150,000,000 at the midpoint is up 3% sequentially and 7% year over year. We expect mobile to be flat sequentially and up around 5% year over year on flagship and mass tier phone launches, and content gains and a more stable supply-demand situation. We project IDP to return to year-over-year growth in the March quarter with broad-based demand supporting revenues over $300 million. Our March quarter gross margin guide of approximately 52% results in full-year fiscal 22 outlook about 30 basis points higher than last fiscal year. We project non-GAAP operating expenses to increase in the March quarter to approximately $232 million due to increased investment in core technologies and new capabilities, as well as early calendar year payroll effects. For the full fiscal year, our OpEx is projected to be just over 19% of sales, down from close to 20% of sales last fiscal year. Below the operating income line, other expenses will increase to approximately $17 million on the additional net debt. We project our non-GAAP tax rate in the current quarter to be approximately 7.5% and the full year rate to be 8.2%. Capital expenditures are projected to be around $55 million in the March quarter. as we manage spend to intersect demand and support long-term supply agreements with multiple customers. We are still supply constrained in some areas and forecast to remain so beyond our fiscal year end. We continue to expand bond gas capacity along with some assembly and tests to support growth. In summary, our results exceeded the midpoint of our December quarter guide Our March quarter guide is consistent with our previous comments, including sequential growth in the March quarter. At the midpoint of our current quarter guide, for fiscal year 22, we expect revenue growth over 15% and operating margin over 33%. We project our full fiscal year EPS to be approximately $12.18, up 25% year over year. Looking beyond this fiscal year, Corvo is well positioned to serve secular growth trends in connectivity and power and to deliver growth and earnings and free cash flow. As mentioned last quarter, looking at the business by end market highlights Corvo's growth potential over the next several years. We expect solid growth on our advanced cellular products for smartphones as 5G mix grows RF complexity increases and content expands. On broader connectivity solutions, we expect strong double-digit growth as connected devices increase and use cases proliferate. And finally, we expect infrastructure, defense, and power markets to support double-digit growth as 5G build-outs picked up outside of China Defense spend mixes to higher performance electronics, and requirements increase for power semis to support electrification trends. Now, Cody, would you please open the line for questions?

Absolutely. Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. In order to accommodate as many questions as possible, we do ask that you please limit yourself to one question and one follow-up before reentering the queue. Once again, that is star one if you'd like to ask a question. We'll take our first question from Tashiya Hari with Coleman Sachs. Please go ahead.

Hi, guys. Good afternoon, and thank you so much for taking the question. I guess my first question is on the supply front. Mark, I think you mentioned that supply constraints eased a little bit, but you also noted that you expect supply constraints to kind of stay around beyond the current quarter. Can you kind of elaborate on what you saw in the quarter and what's embedded in guidance going forward? I think last quarter you talked about you know, gallium arsenide capacity constraints, which are internal to Corvo, and then also match set issues on the part of your customers. But if you can kind of describe what you're seeing from a supply perspective, that would be helpful.

Sure. I'll start, and others can add. Yeah, during last quarter's call to Shia, we were in the midst of the most disruptive supply chain effects of the past two years. And these effects... impacted and added further complexity to the demand picture we provide the best view we could and we've seen it play out largely as expected to your specific question on supply chain chain effects they did moderate in the quarter and we expect the supply environment to continue to improve through this quarter in the calendar year so um you know specifically on businesses we're still seeing Some chipset shortages in Wi-Fi, which impacted that business. In the defense supply chain, there's still some disruption, COVID-related. And then there's other pockets here and there. But Toshia, it did improve as we expected. And even though we expect some continued supply disruptions in the March quarter, we expect it to be less than the December quarter.

This is Bob. The only thing I'll add is we've made significant progress in bringing on our capacity in our gallium arsenide, and we're in pretty good shape there. We've made good progress there. In our IDP business, some of the silicon supply in our connectivity business there, along with some of our power management systems business there, we still see tightness there. So that's been impacting us. But as Mark pointed out, we do expect things to improve through the quarter and throughout the year.

Yeah, that's great. Thank you so much for the context. And then as my follow-up, for the March quarter, I think the guidance you provided for both mobile and IDP is pretty consistent with what you had guided to three months ago. I'm guessing, though, the mix, particularly within mobile, may have changed, may have evolved over the past three months. Can you speak to, you know, what you're seeing in sort of the respective regions in mobile in the U.S. and Korea and broader China, how you see those regions playing out. And as a quick follow-up to that, any sort of guidance on fiscal 23? I know it's early, Mark, but any revenue looks or gross margin guidance on fiscal 23 would be super helpful as well. Thank you.

Toshio, this is Eric. I'll start with the mix in mobile. No particular meaningful changes. We expected when we had our earnings call last quarter that we would see strength in Korea due to a lot of new design wins on ramping platforms across mass tier and flagship as well. And those are playing out very consistent with our expectations. We did see a bit of mixed shift within our China customer base. You know, it's clear looking back into the December sellout data in the channel, there was some mixed shift between them. So far, we're early in this quarter, but it's beginning to moderate back to normal. So, really, not any significant changes versus what we expected.

And, Toshi, on the outlook beyond this fiscal year, we'll plan to provide more on our fiscal 23 and the rest of the calendar 22 on our next earnings call. What we can say is, based on what we guided, We know this March 22 quarter is stronger than typical, and that's based on the timing of phone launches, content gains, and the profile of IDP demand.

Thank you. I'll take our next question from Carl Ackerman with Callen.

Yes, thank you. Good afternoon. Two questions, if I may. First, a clarification. May you comment on the overall revenue contribution of your largest customer contributed to in the quarter. And I have a follow-up.

Carl, as you know, we don't report quarterly what we do with our largest customer. You'll find that when we report the K at the end of the year, we'll clearly give you what our largest customer was.

Yep. I try my luck. I appreciate that.

Hey, Carl, we're consistent, though.

That is true. Hey, on the guide, one of the concerns from investors is that capacity constraints may limit the adoption of 5G handsets this year. While you have less control over the number of 5G phones being sold, I was hoping you could discuss The content opportunities you see collectively from UWB wins, design engagements across Android mid-range, as well as what sounds like share games and Wi-Fi for flagship devices. So if you could just discuss that, that would be helpful. Thank you.

Yes. So the first part of it regarding chipset constraints affecting the amount of 5G, I think to the extent that there are chipset constraints in the modem side of the business, I would assume those suppliers are going to prioritize 5G and, you know, latest technology. So, we doubt that's going to be a major factor. You know, when we look at, for example, our kind of customer base, you know, they're still, you know, well under half their shipments are 5G. So, you know, they've got a lot of 4G shipments, especially in the export market. That'll be more impacted probably than the 5G, I think. So, yeah, looking forward, we, you know, we're real pleased with, you know, the Pixel 6 launch, you know, and A lot of content there we talked about last quarter beginning across integrated modules and tenant control, but also, of course, UWB. That's a great foothold for us. It gets our software stack proven, and that makes it a lot easier to go across the rest of the Android ecosystem. We were already talking about wins in the consumer home devices for UWB. Xiaomi, for example, with their connected home products, and we're beginning to put the whole Android space together for UWB, so that's great. And then, you know, in addition to that, the integrated modules generally, power management, we definitely see both APT, average power tracking, and ETIC, power management systems, getting a lot of traction from Corvo. And then lastly, of course, our antenna control solutions continue to be strong, transitioning to MIMS-based as we exit the next fiscal year. So, yeah, a lot of potential areas for strength throughout the year.

Thank you.

Thank you. We'll hear next from Vivek Arya with Bank of America.

Thanks for taking my questions. On the first one, just to clarify, I thought, Mark, you said that March is stronger than typical. So what does that say about June versus seasonal trends?

Yeah, Vivek, it's a good question. And as I answered the earlier question, We're going to refrain from talking about next fiscal year in any sort of detail until we finish this fiscal year. You know, I think it's just in this environment, it's too early to call the June quarter. It really depends on volumes and some of the supply situation that we've discussed earlier. And as you point out, given the strength of March, you know, we may see a sequential decline in June. But again, it's too early to call. And in any case, we would expect a return to year-over-year growth in September if that were to happen. So that's all I'll say at this point.

And the follow-up to that, just a clarification on inventory. If my model is right, it is up to, I think, over 114 days or so. I imagine the supply chain is tight everywhere, but... what's happening with your balance sheet inventory and how should we think about your, you know, the direction of that inventory, you know, what that implies for utilization and, and, you know, its impact on gross margins over the next several quarters.

Sure. And, and you're right on, it's about 115 days. So as you point out, we, we ended the quarter at over 700 million of inventory and, I think the first thing I would say is this was in line with our forecast. And when viewed historically, it's high, but it's within the range of experience that we've had. Having said that, given our focus on cash flow and capital returns and risk management, it's certainly higher than we want it to be and higher than it's run over the past year and a half or so. We have clear line of sight in bringing it down. It's elevated for a number of reasons, including build-aheads for ramps that you're seeing now, and sustained volumes in flagship, and also content gains in flagship and mass tier, and the increases in IDP and their other demand factors, such as supply-demand alignment in China. There's some share shifts there. But we're working through those. We understand why it's up. We've forecasted it. We have a plan that rolls off over the next few quarters, and we expect more normal turns as we move through the year.

Thank you. We'll take our next question from Blaine Curtis with Barclays.

Hey, thanks for taking my question. I'm going to try again on June a little bit. I respect you don't want to give a number out. Qualcomm just guided it down in June. Cirrus is talking about just a down. Maybe you could just talk about you have a lot more higher exposure to Android market. So maybe without giving us an actual amount, can you maybe just talk about that Android market? Obviously, there's some new ramps in terms of new modems from some vendors that you should do well with. You're clearly growing in March. It may not be the same iOS story that others are indicating. I just kind of try to if you can walk us through the kind of moving pieces for June, that would be helpful.

Eric, do you want to take a shot? Yeah. Because, I mean, we have two parts to our business, Blaine. We have our IDP business and our mobile. So I think we'll let Eric talk a little bit about the mobile side.

Yes, I think, yeah, to your point, Blaine, the Android ecosystem is pretty exciting right now. And in growing, especially, you know, growing exports, it's not just a China story by any means. And You know, high-end products from Google, for example, and Samsung, obviously, we believe is going to be a very good story for us this year. And our alignment there, we'll start out, you're beginning to see the phones, you know, come to market. You'll see a portion of the content, I think, throughout the year will continue to grow content as more devices move out from them. You know, that'll be a good story for us this year. And we mentioned Wi-Fi earlier as well. Wi-Fi, you know, across the Android ecosystem has really opened up for us. Since you go to 6, 6E, and 7, it's getting harder. You know, the filtering is definitely getting harder, and they're implementing it with chip-on-board front-end solutions instead of fully integrated modules. So that's a very good trend for us, and we're seeing broad traction across Android with very complex Wi-Fi front-end modules now. So, you know, all of that, you know, goes to, you know, what we think is going to be a good year for us in content growth in Android.

Okay. I guess my follow-up, I did want to ask about the growth you're forecasting in IDP for March. You know, I think the connectivity part of IDP has been kind of blasted down. So, I know supply has been a big issue. Can you talk about the drivers for that double-digit sequential growth for IDP for March?

Blaine, this is Philip. Yeah, so we are seeing really strong demand in most of our end markets. If you look at the cellular infrastructure side of the business, what you see is really the deployments moving into the U.S. and into Europe. We are strongly positioned in those segments, and so we're seeing some of those tailwinds. When you look at our defense business, defense and aerospace business, Again, we continue to see big programs coming in that we're positioned well on, and so we are excited about what that business looks like going forward. And then on power, we continue to see a lot of strength, both on the programmable power management side of the business, but also on the United Silicon Carbide side of the business. You know, we kind of lump those two together. You know, we feel that we have a real strong advantage, both from a technology and product side on the United Silicon Carbide side, but also as we put the, you know, silicon side of power and create system level solutions for our customers. You know, we see, you know, a lot of opportunities for SAM expansion in that market as well. So, you know, we feel we're positioned well and we like where we are right now.

Yeah, Blaine, I would just add that, as Philip said, the growth is broad-based, and virtually every business line in IDP is up sequentially and year over year. The exception is Wi-Fi, and that's related to some of the chipset issues we talked about earlier. But we expect that business to pick up in FY23. Thank you.

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

Hi, everyone. Thanks for taking my question. I wanted to go back to the next question and double-click on the inventory topic. Are the days of inventory up primarily because of you anticipating some good growth in fiscal year 23, or is it up in relationship to some of your long-term supply agreements? And maybe you can give us a little more detail on how you plan to roll off that inventory.

Sure, Gary. It's not related to the supply agreements. It's a combination of, one, to support the growth that's in front of us. And we've talked about the flagship and mass tier and the success we've had there and the strong, the atypical growth profile you see here in March. So there are absolutely demand factors. You know, there is a, you know, there's a demand realignment in China. And we've, you know, we've all seen that. We feel great about our position in China. And over time, you know, on the other side of that alignment, we're in a great position. And We've got agreements in place that will support the demand and working down that inventory. So we've got a good plan. We've got the guidance I've given before on our target 52% gross margin. That is still something we adhere to and we're working to expand off that. And then we'll provide you more guidance in the next earnings call.

Okay. As my follow-up, I wanted to ask about some of the emerging revenue opportunities, perhaps on the silicon carbide side. Can you give us a sense of where you may be at on an annualized revenue run rate as we perhaps exit fiscal year 22? And then on ultra-wideband, Is there an opportunity here in the automotive end market? I know that hasn't necessarily been a big end market for you, but should we think about UWB as being primarily smartphone-centric for Corvo?

So, yeah, this is Philip.

So, yeah, so, Gary, I'll take that. So, in terms of United Silica Carbide, you know, I don't think we are, you know, giving out, you know, specific kind of revenue numbers on that business. But I can tell you that, you know, the number of opportunities that we see coming in to our sales funnel is impressive. And, you know, We feel like we have a real significant opportunity there. When you think about the world as we electrify, as we go towards more carbon neutral systems, energy efficiency is one of the key factors that's driving that. And with that drives this, you know, this power need to look at, you know, compound semi-type solutions. And really that's in our wheelhouse at Corva, right? That's what we do. And so, you know, we feel really good about that business. And, you know, the opportunities continue to scale. On UWV, I'm going to pass that over maybe to Eric.

Yeah, sure. When we did the acquisition of DecoWave, I know one of the key markets we talked about was automotive, and that certainly hasn't changed. There's no question that next generation key fobs will be UWB based and that will, you know, grow throughout the years. Up to seven UWB points in each car plus one in each key fob. So it's going to be a great market. In terms of units, of course, you know, it's, you know, a couple hundred million a year sort of automotive units. So for us, you know, anchoring in the handset is super exciting when you look at the, you know, the one to one and a half billion handsets available. and anywhere from three to five accessories for each one before we even start talking about connected home things. So, you know, it's going to take some time for a new technology like this to roll out. There's a lot of activity in the standards bodies now. Everybody's on board. It's clearly happening. So that's a broad area. We also, we mentioned one of our strategic highlights was around a module combining our UWB with the Nordic BLE and targeting a completely different segment which is you know sort of enterprise and industrial IOT applications and there's hundreds of use cases for these these sorts of devices around the enterprise for asset tracking and also an industrial applications for similarly asset tracking and other other things like tags but so it's a broad it's really a broad broad market in applications and really based on a very, you know, similar radio architecture. So there's a lot of leverage in our core technology development in UWB, both in the software and in the hardware.

Thank you. We'll now move on to our next question from Edward Snyder with Charter Equity Research. Please go ahead.

Thanks a lot. I've got a couple. Mark, it's clear there's a large overshoot on shipments to the Chinese OEMs last year. You guys were shipping everything you used your hands on, I guess, in March and June, and then we had an overshoot. It was reflected in last quarter's guide and this quarter's inventory. I know you don't have hubbed inventory with any of the Chinese, so your visibility into what's actually happening there is very limited. But you've already got a quarter now underneath your belt. What do you think – given that – one quarter and what the burn rate is going on, what you see now. When do you think you'll get more back to a normal inventory level and your shipments into China will start reflecting really sell out versus what we've seen so far, which is just they'll take everything they can get. And then Eric, if I could, given the big changes in Samsung's business with Broadcom out now, and then move to modules in the mass tier. Can we expect Samsung will break the 10% revenue level for Corvo this calendar year? And as kind of a sub-question, given all these shifts, who do you think you're taking share from, especially in the mass tier, given that was more of a quasi-discrete design? You're gaining there. Who do you take it from? And then I have one for IDP.

So I'll start, and then Eric can even add more color on the China channel. But I think we've got better visibility than you may think, and we're certainly monitoring it very closely. There are actually some positive signs in the December quarter. Sell-through is decent. We've been looking at the phone and phone inventories, and they're actually very healthy. So it's just a matter of some of the components kind of working its way way through and, and we've got a, an eye on how that will play out. And, uh, we're certainly minding the channel and, and adjusting our own, uh, manufacturing as, as a result. Um, you know, we've also got these long-term agreements and that's gonna, that's, that's, you know, as intended helpful in managing the process. Um, you know, I, I cannot, you know, overstate how excited we are about the market long-term. So, yeah, we're optimistic about that growth, the exports that they do, and then on our position serving it. So we'll work through this over the next couple of quarters and be in, I think, in decent shape by sometime in the summer.

And regarding Samsung, it's a broad family of products. As I touched on earlier, there's a lot of ball content there. And I think you'll see us kind of starting out in flagship and expanding towards, excuse me, starting out in more mass tier and expanding toward flagship as the year progresses with heavy ball content. But also the power management aspect is also very, very significant. And antenna tuning, which we've always been quite strong, that will continue to be strong. And then Wi-Fi, as we've been mentioning, the chip-on-board trend. So I'm not going to speak specifically to who we're taking share from, but it's not any one thing. It's a broad product portfolio alignment, which has been in the works with Samsung for some time. It's good to see it finally come to fruition.

Do you think you'll break 10% with Samsung this year, calendar year?

We had two 10% customers in the quarter, but that's all I'd say.

Thank you. We'll now move on to our next question from Ambrish Srivastava with BMO.

Hi, Mark. I wanted to come back to the cash flow statement and balance sheet again. Your free cash flow as a person of sales, you have spoiled us delivering double-digit for my model almost froze. I had to go back to 2018 when you actually had a single-digit free cash flow to sales number. So I get the inventory increase and then payables went down quite a bit as well after shooting up the quarter before. Is that kind of related to the obligations that you talked about or securing supply in advance? I just want to make sure I understood all the moving parts for free cash flow to sales being six odd percent versus the double digit that you've been posting for several quarters.

Now that you've got it on breach, it's as I talked about last quarter, we signed this long term agreement which. Had a considerable payment to make, which we made in the December quarter, and so as you pointed out, there was the increase in payables which I mentioned last quarter, and then we we paid that out in the December quarter and that was disclosed in the in the queue filing as well. a number of noted our inventories were up. So, uh, you know, excluding these two effects, you know, we have what is our normal, very strong free cashflow generation. And, and we've talked about, um, you know, the nature of both of those. And so I would, I would expect free cashflow this year to still end up, uh, you know, near 900 million. And then I would expect it next year to grow.

Got it. I had a quick followup on inventory, Mark. Um, See, I just want to make sure I understood. When you're talking about there's been realignment, we are aware of that. My head is not in the sand, but I want to make sure I understand what you're talking about. You're talking about customer change from what was a lot of shipments, well, a big market share at Huawei, and then everybody else was trying to grab that market share. So that's been one shift. The other has also been some sort of Kind of like a bifurcation in low-end versus high-end. Is that what you're referring to, or is it something else, and is there a risk of a write-down coming on the inventory side?

No. No, no. No, and if there were a risk, we would have written stuff off in the quarter. Our view, and Eric can expand on this, you know, I'll bring it back to our last call. We had a substantial dislocation in supply and created pockets of components in the supply chain. And so that's one factor. And then concurrently, you have a demand factor where you have both a realignment amongst OEMs in China and some share shifts associated with that. It'll shake itself out here and it's ongoing. And no matter what scenario plays out, we think we're fine. I would say a third factor has been over the past few months, there probably has been some macro effect to end consumer demand and pick up and lock down. So there's probably that factor, though we're not as concerned with that because end phone demand is actually pretty lean. So I think, Albrecht, it's just a case of this will settle out. We've got agreements in place. We've got firm orders. We have line of sight on the inventory working down. And I believe we'll be in a good spot in several months.

Got it. Thanks for all the clarification.

Thank you. We'll take our next question from Christopher Roland with Susquehanna.

Hi, guys. Thanks for the question. I think last call you guys mentioned that maybe you were opening up farmer's branch again. Just wanted to confirm that was happening, that that's ramping, and where might utilizations go there as we move through the year?

It's a good question, Chris. And, of course, we're continuously looking as to whether we need investment or not. And, you know, there has been some reduction in loadings because, obviously, we've got some inventories and we're right-sizing the factories. But in the case of Farmer's Branch, yes, we are still planning to turn that on and utilize that in fiscal 23. Great.

And secondly, Qualcomm, I think, has an Ultraba product coming, maybe working into parts of your market there. I know you guys really haven't seen too much there so far, but have you seen a little bit more over the past few quarters? And would you expect, are you preparing for more competition in 22? Thanks.

Well, we haven't seen a lot, frankly, at this point, and so I can't comment on competitiveness and so forth. I think we're continuing, you know, head down, pushing hard to advance our technology and, you know, already sampling 7 gigahertz ball and integrating a lot of it into modules, which we'll be shipping soon. And then, as we've talked about many times, it's not just about what frequency you can get to with the filter. It's about how well you can combine them and working in multiplexing and combining multiple fitter technologies together in the same module. And there's a lot of complexity going on. But it's a very valuable and key part of the communications market. So there's going to be a lot of people investing in it and trying to build capability.

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

Yes, thank you for taking my questions. I appreciate it. The gross margins continue to be resilient in a challenging environment. I think last quarter you mentioned that you were benefiting from premium products, better pricing power, and maintaining utilization of your factoring network. Wondering how to think about margins as you migrate to a better demand supply dynamic throughout the year. And also, we'd love to hear a little bit more about the pricing situation as you kind of move upstream with respect to your products.

Yeah, Robbie, I'll start. We've been talking about this 52% level for several quarters. And GM gross margin is going to move around quarter to quarter, of course, based on you know, customer, product mix, business mix, yields, factory loadings, price, and other factors. Yeah, we do believe that the current business setup of the products we've got, our footprint, productivity efforts, and so forth, support this 52% level. But we are definitely working to improve that over time. You know, I think... All I can say is we're going to try and do the same things we've been doing, applying that same discipline of investing in the technology to maintain leadership, actively managing the portfolio and producing products where we're valued most. I would add that some of the new areas we've talked about today, power, defense, UWB, they all have favorable gross margin profiles. Yeah, we're driving productivity. That's especially important in this period where there's pockets of inflation. And then the last question about farmer's branch, we're always looking for ways to make sure we're supporting the business in the most capital efficient way. And that should hopefully allow us to sustain and expand from here.

Great. And for my follow-up, you had mentioned that you expect 5G infrastructure build-outs to begin to kind of re-accelerate throughout the year outside of China. I wonder if you could elaborate further in terms of what you're seeing specifically, which region. And you were very successful in China with the penetration of your GAN base stations. and your dominance in GAN technology. So I want to get a sense when you're thinking about the build outs outside of China, how that is affecting your kind of IDP business and kind of your market share position in GAN.

This is Philip. I'll take that question. So, you know, when we look at the overall market, you know, this year, you know, this calendar year, you know, what we see is, you know, kind of China being similar to what it was, you know, in, you know, last calendar year. But really where we see most of the real deployments and growth is in Europe and in America. And, you know, we've We spent, you know, a tremendous amount of time and energy, you know, creating a family of technologies and products that really are kind of optimized, you know, for those markets. You know, we see our GAN technology is, you know, a critical piece to that. Same with kind of our small signal product families that we have. And so, you know, we like how we're positioned. And, you know, we right now, if you were to look at kind of, you know, backlog and where things are in that business, You know, we're excited about that. So hopefully that answers your question, Rajiv.

Thank you. We'll take our next question from Alice Malik with Citi.

Thank you for taking my questions. And Mark, I hate to beat you on the China demand realignment commentary, but when you guided the December quarter last year, you broke out the supply impact as well as the demand impact. And my question is, for the March quarter guide, are you seeing similar demand or supply impact or no because the March quarter is in line with what you were thinking last year?

Yeah, we – last earnings call, we broke it out with the specificity we could, and it is – you know, the March quarter is playing out as we expected. I will say that, you know, there are both supply factors still. There are demand factors still. And, you know, that balance is probably more equally distributed now than it was then. It was certainly predominantly a supply issue then. But we still have both, and, you know, it's reflected in our guidance.

Great. And then another question on supply. If you're expecting supply to improve through the rest of the year, does that lower your competitors' ability to bundle RF front ends to apps processor as the supply eases?

I'm not sure there's a direct correlation to that necessarily.

I mean, there's a lot of things that go into the customer's buying behavior. There are certain times when there are bundling factors, of course, but I don't think this is necessarily a main theme of it. I mean, it's a broad market and we're selling across many different base bands and And so, yeah, it's a bigger picture than that, I think.

Thank you. And I'll take a follow-up from Edward Snyder with Charter Equity Research.

Thank you very much. I had a question on IDP. I have to say I'm a bit confused by your silicon carbide power business at all. I know you guys acquired the United. But maybe you could articulate what the strategy is here. Gann, I get. I understand what you're doing with Gann. You're a huge supplier of defense. That's a U.S.-based business, really, with U.S.-based suppliers. You used to be your biggest competitor. Cree's kind of dropped by the wayside. Wolf's now. But on silicon power, it's the other way around at this point. They're about to turn on their new New York fab, which will make them the largest silicon carbide device power manufacturer on the face of the earth in their cost basis. is 50% lower than anybody else. So you're buying wafers from them more than likely. Maybe one of the folks, and you're going to pay twice as much as they're paying, and they're addressing this market on a scale and a cost-wise that even STMicro and On are going to have a problem with. So is it that you're selling sick power into niche markets that want to diversify away from them? I don't understand the marketing game of this at all because you're going to be an underscaled player purchasing materials from the guys who are producing The device is on a scale that you can't compete with. So maybe you can articulate what you think this is going to do for Corvo. How does it fit in with your model in the long term? Thanks. Well, Ed, there's a lot there.

Don't tell me you should just go home now. There's a lot there. You can pick and choose. Just pick what you want to answer in that home. In five minutes, I don't know if I can get through all of that. And then I have a follow-up. Oh, geez.

So, you know, Ed, look, I think that when we look at the business, okay, and we look at it from a capability perspective, you know, what we like about our silicon carbide technology is, one, you know, we have a leadership position in efficiency, you know, in the specific technical, you know, areas that drive that efficiency. And I think that's important. And I think that capability is why you see, you know, the business having, you know, quite a bit of traction. I mean, you can see in the release, there's, you know, announcements about onboard charging winds and automotive and DC to DC. I think the other piece to it is that when you look at the technology that we have, you know, we can generate, you know, about twice the revenue per wafer, silica carbide wafer than our competition can. So, you know, because of that advantage, we feel like we have, you know, the ability to, you know, use more of a foundry model as opposed to, you know, an in-house model right now. And when you look at, you know, specifically the silicon carbide substrate supply, what we see is, you know, more and more, you know, investment in that area. And we see more and more, you know, entrance coming into that space. which we think will make that more competitive over time. So, I mean, those are some of the economic dynamics that we see, okay? I would also say that, again, you know, silicon carbide is in our wheelhouse. You know, we are a compound semiconductor company, right? We have a lot of those relationships. So, you know, I hear you. You know, I understand your view. But, you know, we think there's a real opportunity there for us. And the market, let's just talk a little bit about the market. It's a very, very large market. And even what you may be calling niche, and I would assume maybe you're talking outside of automotive, you look at IT infrastructure, you look at other areas, it's still a very, very large opportunity. And so we feel like we have the opportunity to build a meaningful franchise. And then when you combine that with our programmable power management program, where I can build systems. I can put that into module capability, which is at the core of what we do. We feel like maybe we have a better shot at it than you're giving us credit for right now. But that's short and sweet. And I guess one last thing. I've been an executive in the power business and analog, and I've been doing this for 25 plus years. And You know, I think there's something there. I really do. I'm excited about it. And I think it can be a meaningful franchise for us here at Corva.

Great. Thanks.

Thank you. And that does conclude today's question and answer session. I'd like to turn the conference back over to management for any additional or closing remarks.

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

Thank you and that does conclude today's conference. Thank you all for your participation.