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spk15: Good day, everyone, and welcome to the Corvo Incorporated Fourth Quarter 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 of Investor Relations. Please go ahead, sir.
spk02: Thanks very much, Sarah. Hello, everybody, and welcome to Corvo's Fiscal 2022 Fourth 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 statements 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 the 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, Grant Brown, Interim CFO, Eric Creviston, President of Corvo's Mobile Products Group, Philip Chesley, 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.
spk12: Thanks, Doug, and welcome everyone to our call. Corvo delivered fiscal fourth quarter results above the midpoint of our outlook we provided on February 2nd earnings call. Demand drivers were broad-based across end markets, including 5G, IoT connectivity, defense, and power. Both mobile products and IDP grew year over year and sequentially. In mobile products, revenue was diversified across customers and supported by content and integration trends. Of note, I've known Corvo more than doubled revenue year over year at Samsung with growth across multiple product categories. We also expect content gains as the year progresses across Honor's smartphone portfolio with opportunities spanning multiple products and technologies. In IDP, revenue was broad-based across markets and included our newly added high-voltage silicon carbide solutions. We were pleased to see IDP return to year-over-year growth, driven by infrastructure, power management, and other markets. IDP enjoys an increasing number of long-term drivers in growth markets, including automotive connectivity and electrification, defense radar and comms, power management, comms infrastructure, and others. Now let's look at some of the quarterly highlights. In mobile products, we increased shipments to Samsung for mass tier and flagship 5G smartphone programs. Corvo products included RF Fusion, Wi-Fi 6 eFEMS, antenna control solutions, and RF power management ICs. We were recognized by Honor as their only core strategic supplier in the RF category, and we received the first production orders for our next generation RF Fusion solutions. At multiple China-based smartphone OEMs, we secure design wins covering a range of products, including complete main path and secondary transmit solutions supporting multiple basebands. In Ultra Wideband, we were selected by an existing Ultra Wideband customer to supply our first system-in-a-package, or SID, for multiple upcoming smartphone models. Our ultra-wideband SIP strengthens our product portfolio and offers customers a complete solution that integrates our SOC, RF front end, and software. Corvo's ultra-wideband offerings received a higher percentage of FCC certifications last year than competing solutions, and design activity this year has been robust. In automotive sensors, we received a design win to supply MEMS-based touch sensor solutions for smart interiors at one of the largest U.S.-based automotive OEMs. Moving to IDP and power devices, we continue to see strong design inactivity as silicon carbide technology expands across multiple markets. During the quarter, we received a multimillion-dollar order for a new silicon carbide power device solution for circuit protection in EV charging stations. In power management ICs, we achieved another quarter of sequential and year-over-year revenue growth driven by solid state drives and motor control solutions for power tools. In automotive connectivity, we received our first design win for a highly integrated V to X FEM, enhancing performance and extending range in a Shark Fin application for a leading European-based automotive OEM. In infrastructure, The business returned to year-over-year growth, and we secured design wins from multiple leading OEMs for massive MIMO small signal applications supporting C-band deployments in the U.S. In Wi-Fi, we sampled our first law-based Wi-Fi 6E filter, reducing form factors for CPE tri-band mesh networks. We also began ramping the industry's first wide-band FEM covering both Wi-Fi 6 and 6E for enterprise CPE customers. This new FEM enables configurability in RF chain management, increasing capacity, and maximizing throughput. In low-power connectivity markets, we secure design wins for a multi-protocol low-power wireless SOC integrating BLE, ZigBee, and Thread. These wins enable remote control applications for our leading Korea-based TV OEM, and leading US-based MSO. In support of the Matter connectivity protocol, we expanded customer engagements with retail and service providers to integrate Matter into Wi-Fi gateways. Matter is an open and universal smart home protocol expected to simplify and accelerate the adoption of seamless and reliable wireless connectivity. In both mobile and IDP, Corvo's markets are supported by multiple long-term secular trends related to connectivity, electrification, sustainability, and are increasingly digitalized. The Corvo team continues to do a fantastic job supporting customers while adjusting the challenges related to the war in Ukraine, supply constraints, and COVID lockdowns in China. While challenges persist, they are temporary in nature and not structural. Corvo remains laser-focused on the opportunities ahead, introducing new technologies, launching best-in-class products, entering new markets, and expanding our customer engagements. As an example, take Samsung, where we had previously been underrepresented and where the combined opportunity extends for years. Of note, our customer diversification in mobile is unmatched and affords Corvo an expanding set of opportunities as 5G continues to grow. Adding to that, an increasing percentage of Corvo's revenue exposure is to higher growth and markets. These include IoT connectivity, power management, power conversion, and defense, all of which are forecast to grow long-term in the double digits. So while we navigate these challenges, our current views suggest June is the bottom with sequential growth in revenue resuming in September. I'm proud of how the team is staying focused, advancing technology, and supporting our growth. With that, I'll now turn it over to Grant Brown, who I'm pleased has accepted the role of interim CFO. Grant has been with Corvo for many years, most recently as treasurer. Before that, Grant led our tax and FP&A departments, as well as other management roles. He has been a key contributor to Corvo's growth, and he has extensive knowledge of our business. I am confident Grant, the finance and IT teams, will continue to execute on Corvo's ongoing financial and strategic priorities. And with that, I'm glad to hand it over to Grant.
spk07: Thanks, Bob, and good afternoon, everyone. I'd like to start by thanking Mark Murphy for his leadership and many contributions to Corvo. Working alongside Mark and Bob for many years, together with the strength and experience of our finance team, has enabled a smooth transition. Turning to the quarter, Corvo's revenue for the fourth quarter fiscal 2022 was $1,166 million, $16 million above the midpoint of our guidance. Mobile products revenue of $865 million was up, both year over year and sequentially, on 5G content gains and higher flagship volumes. Infrastructure and defense products revenue of $301 million was up double digits both year over year and sequentially, driven by broad-based strength across the product portfolio and customer base. Non-GAAP gross margin in the March quarter was 52% in line with our guidance. Non-GAAP operating expenses in the fourth quarter were $229 million, up $15 million sequentially, due to seasonal payroll effects and increased spend related to technology infrastructure. Year over year, operating expenses were up $21 million, primarily related to recently acquired company op-ex, new product investments, and technology infrastructure, partially offset by lower incentive compensation. Non-GAAP operating income in the March quarter was $377 million, or 32.3% of sales. Non-GAAP net income in the fourth quarter was $340 million, and diluted earnings per share of $3.12 was $0.18 above the midpoint of our guidance. Cash flow from operations in the fourth quarter was $346 million. Capital expenditures in the quarter were $51 million and remain concentrated in core areas, such as BA and GAAS, where we see continued demand for solutions that include these differentiated process technology. Free cash flow was $295 million, and we repurchased 327 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, as of the March fiscal year end, we had approximately $2 billion of debt outstanding and $973 million of cash and equivalents. In our GAAP financials, as part of our annual assessment, we recognized a $48 million impairment of acquired goodwill. Regarding inventory, we ended the quarter at $756 million, which is near the higher end of our historical range. The inventory balance will be reduced over time, but while supply and demand and macro factors persist, our inventory is expected to remain elevated. Looking at the full year, Corvo reported strong results, having achieved record revenue and earnings per share. During fiscal 2022, we recorded revenue of $4.6 billion, up 15.7%, gross margin of 52.4%, up 30 basis points, operating margin of 33.4%, up 120 basis points, and earnings per share of $12.35, up 26.8% from the prior year. Corvo's full-year fiscal 22 performance demonstrates our ability to provide differentiated solutions for our customers' most challenging technology and product needs. As connectivity and electrification trends accelerate and product performance requirements increase, we're expanding our growth opportunities through technology leadership, portfolio management, sustained productivity, reduced capital intensity, and broadening market and customer exposure. Now turning to our current quarter outlook, We expect revenue between $1 billion and $1.5 billion, non-GAAP gross margin of approximately 50%, non-GAAP diluted earnings per share in the range of $2 to $2.25. Forecasted revenue of $1.25 billion at the midpoint incorporates our current view of the COVID lockdowns in China, the war in Ukraine, and existing industry supply chain constraints. We estimate IDP revenues of approximately 300 million, reflecting strong year-over-year growth and in line with our commentary last quarter. Since the COVID lockdowns occurred at the end of March, we are revising our forecast of 5G handsets in 2022 to between 650 and 675 million, which represents a reduction of 50 to 75 million units. Given our share and average content, we expect the impact to Corvo to be approximately $250 million. This revenue impact is expected to occur over this quarter and next as we adjust to demand and responsibly manage inventories. We project non-GAAP operating expenses in the June quarter to be approximately $245 million due to the impact of acquired company effects, higher employee-related expenditures, and investments in product development, including high-performance BAW-based integrated products. Below the operating line, other expense will be approximately $17 million, and our non-GAAP tax rate in the current quarter is expected to increase to approximately 9.5% up from 7.7% in fiscal year 22. Capital expenditures are projected to be approximately flat on a sequential basis, as we continue our discipline around capital intensity while expanding BA and gas capacity in support of long-term supply agreements with multiple customers. As we have discussed on past earnings calls, looking at our business by end market helps to highlight our long-term growth drivers. As a leading supplier of advanced cellular solutions for smartphones, we're positioned for years of content expansion as advancing technology standards drive RF complexity and integration trends. In broader connectivity solutions, we anticipate strong double-digit growth as connected devices increase and use cases proliferate. We have broad exposure across high growth IoT markets, including industrial automation, connected home, wearables, and automotive, where our product portfolio features a unique combination of technologies. Finally, we anticipate double-digit growth in infrastructure, defense, power management, and power conversion as 5G deployments increase outside of China, defense budgets mix to higher performance electronics, and requirements increase for power semis supporting renewable energy and electrification trends. At this time, please open the line for questions. Thank you.
spk15: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We do ask that you limit yourself to one question and one follow-up. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question, and we'll pause for just a moment. And our first question will come from Harlan Sir with JP Morgan.
spk10: Good afternoon. Thanks for taking my question. You know, on the last call, the team was pretty confident, given your pipeline of new customers and content gains in mobile, combined with the sustained strength and IDP, that you guys would get back to year-over-year growth in September? And I know the COVID situation and Eastern European conflicts are new dynamics. You guys talked about sequential growth in September, but a lower 5G TAM outlook. So taking all of this into account, do you guys expect to get back to year-over-year growth in the September or December quarters?
spk07: This is Grant. I'll take that one. Yeah, thanks for the question. Given the temporary issues you mentioned, and as we'd already discussed, we're limiting visibility across the industry to prevent a precise view of timing. And so given inventories and the situation in China related to the COVID lockdowns, we're not providing any longer-term guidance until the continuing uncertainty around the world clears. Thank you.
spk10: Okay, I appreciate that. I guess along those same lines, and I know the forward outlook is a bit cloudy, but you do have some visibility on customer ramps, design wins, and like I said, IDP is sustaining pretty strong strength here, and I think you're anticipating double digits growth for IDP this year. But do you guys anticipate with the pickup in the second half at least driving back to 52% gross margins? Do you want to talk to it?
spk12: Eric, do you want to go ahead and talk about at least both of you guys talk about the business and then I'll do the gross margin.
spk08: Yeah, yeah, this is Eric. I'll start. Yeah, I think we're very confident and pleased with the content gains that we're seeing and we're broadly diversified across all customers adopting our fully integrated portfolio of RFFE solutions and more and more Wi-Fi content coming in, advanced tuners. So the portfolio we've put together over the past several years is really maturing nicely and So when we look at the second half of the calendar year, you know, there's no content gain issues at all. There's content. It's really come down to, you know, how many units end up getting sold through, especially at 5G where, you know, of course the RF content is greater. And just resolving all the issues today with getting, you know, materials and also getting, you know, consumers, especially in China, you know, back to buying phones. Right now so many lockdowns are really affecting in market demand. So, and of course, that's, as we said, pretty hazy and hard to predict the second half. But content-wise, we're very pleased with the design wins we have now. This is Philip on the IDP side.
spk03: You know, IDP is well positioned in multiple market segments that are growing, you know, double digits. And so if you look at Our power management business, which I'll break into kind of two pieces, our programmable power business, we continue to see strong design in and win and revenue growth for that business. You know, we have a unique digital power architecture that allows us to, you know, really add a lot of value in the motor control space. And we see that really driving our business going forward. And then, you know, on the United Silicon Carbide and the Silicon Carbide technology, we continue to see really strong design in funnel as well as revenue opportunities in that space. So that's one. On the defense side, you know, we see that business not only with, you know, kind of short-term tailwinds. We see that with long-term tailwinds as well. And if you look at the continued penetration of phased array radar systems in that segment, when you use phased array radar, you tend to use GAN. That's where we're positioned, so we see growth there. We have our SHIP program, which is really bringing, you know, packaging back to the United States specifically for RF and defense programs. That's a growth driver for us. So we're positioned well there. And automotive, again, I don't think I have to kind of outline the growth that we see there. So we like where we're at, and we foresee really strong future for the business.
spk07: That's great. So let me tackle the gross margin piece of the question. We ended the year on a pretty strong note, having achieved 52% gross margin in Q4. Sequentially, June is typically our low point, so the decrease there is very much anticipated as we see a shift to some lower margin mix within mobile. But beyond June, I certainly expect that mix to improve throughout the year, but be tempered somewhat by lower utilization. As we balance that customer demand and manage our inventory, Factor utilization will respond accordingly and likely leave some fixed costs unabsorbed. But once the near-term issues aside, there is no change to the long-term dynamics around margins. Certainly, our products are highly differentiated, and our customers value the performance advantages we help them achieve. From a cost perspective, the multi-year productivity gains that we've achieved still remain, and those benefits will be increasingly evident as volumes return.
spk15: Thank you. Our next question will come from Toshi Yahari with Goldman Sachs.
spk06: Great. Thanks so much for taking the questions. I had two as well. My first one is on your business in China. I think based on your filings, you know, China was about a quarter of revenue in the December quarter. I'm curious how big or how small that region was in the March quarter. and what you're assuming for June, and I guess most importantly, what your thoughts are into the back half as your customer base kind of recovers from these lows, and you've talked about some of the wins in honor, so if you can kind of speak to that as well, that'd be great.
spk12: I'll take the first part as far as the business in China was down slightly as a percent of sales quarter over quarter, so just give you that. I'm not going to quantify it that much. One thing I will tell you, though, is Samsung is getting about as big as China right now at the levels we're at. And as far as things go forward, I mean, we're planning on it staying pretty much at historical lows. The last two quarters have been the lowest for us as China's percent of sales since we formed Corvo, to be quite candid about the math. So looking forward, you know, we're not expecting a significant bounce back anytime soon. Grant mentioned already we've got to, you know, work through some channel inventories and things like that. You know, they're Their business has really slowed down, and you know what happens when they're expecting more business and things like the shutdowns and consumer confidence in China's way down. Their export market has also been impacted. You know, Europe's not exactly firing on all cylinders right now as well. So, you know, we've got to work through that. So as we look forward, we're expecting, you know, it to stay low and possibly even lower than what it is now. But as far as, you know, the excitement that we have on the growth opportunities that some of those customers, I'll let Eric speak to that. It's just units, not content.
spk08: Go ahead. Yeah, similar to what I said previously. You know, great relationships and, you know, very, you know, long-term roadmaps together. They're, you know, helping to drive our roadmap. We're responding to that. And as Bob mentioned earlier as well, great to see Honor coming back as well. They've, you know, kind of worked through the inventory that they inherited from Huawei, beginning to now move to best-in-class integrated solutions. And And we've got great relationships there. We've known those guys for years since they were in Huawei. So really pleased to be bringing them back, you know, their business in the second half of the year. And notably, they'll be the launch customer for our latest version of RF Fusion. So they're starting with the best and latest and greatest technology from Corvo. And so that'll definitely be a tailwind in the second half for China.
spk06: Great, that's helpful. And then quickly as my follow-up, on the inventory side of things, as you guys noted, inventory was up on your balance sheet on a sequential basis. I think you guys talked about inventory potentially staying elevated for the next couple of quarters, but... If you can kind of confirm how we should be thinking about the cadence of any inventory drawdown on your balance sheet going forward, that would be helpful. And then if you can kind of also speak to how you would characterize customer inventory, both smartphone inventory and component inventory, that would be helpful. Thanks so much.
spk07: Sure. Let me take that one. As you pointed out, we ended the quarter with about 118 days' worth of inventory, which is near the high end of our range. around 81 to 125 days historically. So as we look to work down the balance, we'll do so over time. But as you pointed out, while the supply and demand challenges persist, our inventory is expected to remain elevated. It is important to consider, however, that we understand why it's up, and we have visibility into the demand that will consume it. In terms of your question specifically, I might try to answer it by comparing raw material and WIP. As you'll see when we file our K, those will be up, but they're based on our firm orders and supportive our largest customer's demand. Certainly beyond that, you'll see increases in our inventory related to supporting our new acquisitions and some growth areas such as power and defense, so healthy growth on the inventory side there.
spk08: I think Bob touched on already the channel inventories in China, so I won't. Yeah, I can add a little more color around China channel. Of course, we've got a mix in China of direct customers and channel customers as well. And we're working hard to maintain that channel in healthy levels of inventory. It's part of why we guide the way we do. But at this point, the component inventory is still a bit elevated over historical best-in-class timeframe. Again, we're managing it with the customers and working hard to make sure everything gets consumed and that we don't overbuild, of course, supplying more into it. And I think handset China inventory itself in terms of the finished goods handset is relatively healthy. It's a little hard to say with these significant near-term changes, of course, and disruptions in the supply chain, but that's really just a China local situation.
spk17: Operator?
spk15: Our next question will come from Blaine Curtis from Barclays.
spk18: Okay, guys, thanks for that question. Maybe just on IDP, I think, you know, obviously saw a nice recovery in March. I'm just curious on the flat outlook. I think you had previously kind of talked about it kind of continuing to improve. So just kind of tease through the different segments or any kind of color as to the flat guide in June.
spk03: Yeah, so, Blaine, this is Phyllis. So I think when you look at the flat guidance, I wouldn't take that directionally in terms of the rest of the year. We continue to see strong demand. I think that we still do have some supply challenges in IDP. And, you know, some of that is really kind of regulating, you know, what we can ship, you know, in the Q1 timeframe. So I think that's probably the biggest story in terms of kind of, you know, that number and that flat quarter-over-quarter guy.
spk18: And then I just wanted to revisit the gross margin, the 200 basis points. Is that more of that maybe some premium products are down and the mix is negative, or are you seeing – in terms of new ramps, lower margin on those. And I guess, can you just help us a little bit with the recovery through the year? Is it something that will come back to that 52 range fairly quickly, or is it something that's going to have to work throughout the fiscal year?
spk07: Yeah, so on gross margin throughout the year, we expect it to increase and improve as the mix improves over the balance of the year. Yields have been very good across the year. And, you know, as we look forward, we will have some utilization that will leave some fixed costs unabsorbed in the factories. And so that will weigh against the mixed improvement over the course of the year. But certainly we expect it to trend up.
spk15: Our next question will come from Joe Moore with Morgan Stanley.
spk14: Great. Thank you. I wanted to ask, in terms of the Thinking about the full year for mobile products, and again, I know you're not guiding beyond June, but just to sort of understand the dynamics, understanding that 5G handsets are lower than you thought, they're still up well north of 100 million units since last year. You've talked about good content gains. I would think you would get pretty good growth out of mobile products with that dynamic, assuming handsets are only down slightly. Is there something I'm missing in that in terms of connecting inventory from last year, inventory from this year? Is this just very back-end loaded? Again, I'm not looking for guidance. I'm just trying to understand what the drivers are of the full year and making sure I understand them. Thank you.
spk08: Yeah, I think you're really right on the money. We've got all the right underlying business factors, right? Great content, growing content. 5G will be growing year over year, to your point. It really does just come down to managing the inventory levels. We've said it's a bit elevated right now, so that's what we have to work down. But otherwise, no other particular headwinds.
spk17: Got it. Thank you.
spk15: Our next question will come from Edward Schneider with Charter Equity Research.
spk04: Thanks. Eric, sounds like most of your problems in China are primarily if not exclusively demand-driven, right, versus lack of supply? And if not, how would you split those up between the two? And Philip, was defense your largest segment again this period? And then I have a follow-up. Thanks.
spk08: Yeah, so starting out in China, first of all, I agree, all of our issues are in China. And in China, right now, it's hard to separate demand from supply, right, frankly, because um you know our internal supply uh is is in pretty good shape and said customers have other uh supply issues here and there but uh with the with the lockdowns their ability to produce just getting people to their factories uh getting supply chain moved throughout the country as various cities are going in and out of lockdown many people have printed this i mean it's uh it's a challenging environment and getting a supply chain to work smoothly is really challenging right now so that that becomes a demand problem for us only because our customers can't keep their factory running in some case but then on the other end of that is they do produce phones a lot of consumers are being very very cautious right now in China and it's a it's a challenging environment for folks as large cities are being completely shut down for weeks at a time and it's not an environment where consumers are feeling frothy by any means and you know buying the latest and greatest 5g handsets so So it's a period in time that we're in right now. As we said, it's not a structural change. It's a period in time, and we have to get through it and get to the other side. Ed, this is Philip.
spk03: So we don't disclose individual segments, but I will say that defense came in very, very strong, healthy, and it has a very healthy backlog to it. But it's not the only business. You know, we see strong backlog, as I mentioned, in our power management business. We see strong backlog in our Wi-Fi business, automotive. It's pretty much, you know, most segments, you know, we see strong growth. And so, you know, I think, you know, as we look forward, it will be a fun battle between which ends up being the biggest segment over this coming year.
spk04: Great. And as a follow-up, I could, Eric, To you, Samsung's growing nicely. It sounds like it's all playing out. Their reorganization of their handset business and then move to modules. Can you provide us any kind of color on what they were as a percentage of revenue? And is most of the game that you're seeing now going to be from the flagship line? Or can we expect that the master is now really kicking in and you're getting a much bigger contribution from that? And then Grant, nice talking to you again, bud. A couple questions. It sounds like you have an inventory problem and unutilization. Doesn't this ice farmer's branch for now? I mean, if you're going to be dealing with unutilization through the rest of the year, what are your plans for farmer's branch in regard to bringing that on for ball? I imagine mostly it's a ball still factory, too. If you could provide some color on that, I'd appreciate it. Thanks. Wow.
spk12: Ed, three questions. I think if I understood them all, but I think Eric will go first.
spk08: Right. Yeah, you laid it out well in your question, Ed. Samsung is going very well for us now, and part of it is their realignment of their product portfolio and their technology strategy lining beautifully up with our roadmap. We've had, as you know, very good long-term relationships there, so the pump was primed, and we're really excited to ramp across our full integrated module portfolio as well as power management, tuners, and so forth. But it's not just in the flagship tier. In fact, I mentioned last quarter that we're beginning more in the mass tier, and then we'll be adding throughout the year new models we'll be ramping in. So it's the beginning. It's a very strong first couple of quarters here of the new business ramp with Samsung, but it's all coming in fast. in line with what we had hoped it would for the year.
spk12: Ed, in your question on size of Samsung, we did have two 10% customers. You also read in the K that we had two for the year, and I think you'll see who it was. I think you've got a good feel for our business, Ed, so I'll let Grant talk to you about Farmer's Branch.
spk07: Sure, thanks. Ed, on Farmer's Branch, we don't have any or anticipate bringing Farmers Branch online, but it really depends on a number of those global issues we already discussed and how those play out. It's a multifaceted decision, as I'm sure you understand, and not entirely volume-based, right? It's a function of die, shrinks, yields, and efficiently using Richardson.
spk17: And our next question will come from Timothy Arcuri with UBS.
spk13: You just spoke to what's going to be in the K, you know, customer-wise. I wonder if you can give us, for the fiscal year, what your largest customer was as a portion of revenue. Yeah, it'll be in the K. It'll be in the K. Okay, okay. And then I guess I wanted to go back to a question about September. I know you don't have a lot of visibility, but would you agree that sort of normal seasonal for, you know, mobile products is up about 20%, And I guess within that, maybe can you talk about what the puts and takes are around that? If things do open back up in China, I mean, I would think that that would be a tailwind to a normal seasonal 20%, just given how depressed June is. Can you just kind of talk about that relative to what a normal seasonal is?
spk08: Yeah, I don't, frankly, I'm not sure there's such a thing as normal seasonality anymore, honestly. I mean, we don't have the kind of repeatable sort of ramp patterns that we used to have. We have such a diversified customer base and so many people moving integrated modules, but timing of large product ramps too can impact it significantly. We have some products that are built in sub-assemblies that then go on to the main boards, which affects timing ahead of the ramp. There's just too many variables, so I can't really comment on what normal seasonality in September means anymore.
spk15: And we'll now take a question from Matt Ramsey with Cowen.
spk01: Thank you very much. Good afternoon. Thanks for taking my question. I had a follow-up question on Samsung. It sounds like in the Galaxy 22 going forward, there may be a fairly significant shift from the in-house baseband toward San Diego. And I wonder... It was interesting to juxtapose that against the commentary that you guys made. My understanding, at least from the San Diego crew, is that they're pulling a decent amount of RF attached with that new share that they're getting. Maybe you could address your relative position and content on the internal baseband platform and the one at Qualcomm going forward in the Galaxy S22, given the change there. Thank you.
spk08: Yeah, we can't comment on Samsung's strategy for basebands, obviously. I can comment on our content, and we have content across all tiers and all basebands that ship into Samsung. So, of course, it varies model to model, but with such a broad portfolio we have from power management through antenna tuning and all the RF bands of coverage, there's content on every single baseband platform that they ship.
spk01: Got it. No, thanks. I appreciate the sensitivity there. As my follow-up, I was interested to hear – I guess, more expanded commentary in the script about some of the different IOPT protocols around ZigBree thread matter. And I wonder, like, could you give us a little bit of flavor? I mean, we all follow what's going on in 5G because of the big numbers per unit, but what the sort of RF content and the connectivity content trends are in that IoT market just from a content per unit. It's a very diverse space, but just trying to understand the TAM growth there and the content per unit growth that some of these new protocols roll out. Thank you very much.
spk03: Maybe Eric and I, Phillip will maybe tag team this a little bit, but we think matter is important. We think that this is kind of the standard that's going to help kind of drive You know, interoperability across different, you know, IoT segments in the home. You know, we see that content and, you know, the connectivity piece of that growing nicely for us. We see that both on the Wi-Fi side, but also on the Bluetooth, you know, the ZigBee and the Thread side. And we're seeing actually more and more where, you know, you need kind of both in each of these applications. So, you know, we're pretty bullish on that segment, you know, over time. We think that's going to grow nicely. And so... I don't know if that answers your question, but maybe Eric, you want to add?
spk08: Yeah, looking at it from our perspective with Ultra Wideband coming in as well, it's a key enabler to a lot of these IoT ecosystems. And when you look at it, they are actually getting quite meaningful. Several of these verticals, whether it's access points either in the enterprise or in the home, as well as kind of wearable applications which affect your interface with the IoT, hearables for the audio, and then also just all the compute platforms. And each of these can be hundreds of millions of units. So when you put them together, you're looking at a market that's quickly approaching mobile in terms of scale. And we think Ultra Wideband is going to be a key enabler for various reasons. I mean, the precise location will add all kinds of feature sets to a lot of these ecosystems and the way they interact with each other. Also, it's a very low latency, high data rate connection, and that's got a lot of applications in smart home where you want to reduce latency for gaming applications, for example, or audio applications. So I think across all of Coralville, we've got a lot of pieces of the puzzle coming together and what is emerging as a very large market.
spk17: Great.
spk15: And we will take our next question from Christopher Roland with Susquehanna.
spk00: Hey, guys. Thanks for the question. Some of our contacts in Asia have talked about Chinese handsets maybe despecking their 5G phones, kind of eliminating some of the sub-6 RF, making them a little bit more simpler, almost like 4G+. I was wondering if you guys had seen this in any segments, this change in any segments, maybe even mid and low and in China and whether there are any effects for you guys.
spk08: Yeah, I don't think that that's a trend. To the extent something like that has happened, it would have been a reaction probably to the shortages that we were experiencing in supply last year. I mean, we were, as we've talked about last year, you know, we were having a hard time keep up with demand. And so we had some of our customers go to you know, kind of fall back to skinny-down architectures, discrete architectures and things, because that's what they could get. I don't think that's a trend by any means.
spk00: Great. And then also, you guys had great free cash flow in the quarter. I was just wondering how you guys are seeing M&A right now with kind of the market sell-off here. Are there any kind of, you know, fat pitches here, so to speak? Or conversely, just remind us on kind of your cash return strategy?
spk12: From an M&A perspective, I think we pointed this out before and demonstrated it. In IDP, we look for tuck-in acquisitions. And the latest one we did was United Silicon Carbide, where we thought we were a better owner, helped them scale and grow that business. And we'll continue to look at opportunities like that that are out there. And in mobile, for the most part, we've acquired technologies, whether it was the RF MIMS and Cavendish or You know, you look at what we're doing with ultra-wideband, it's a great new technology that, you know, we thought we were a better owner and could scale that. So from an M&A perspective, I don't see any changes on the horizon. And, you know, when we see good opportunities that we think we're a better owner and we can drive good cash flows off of the assets that we acquire, that's what we're going to look to do. I'll let Grant talk a little bit about other uses of cash.
spk07: Yeah, thanks, Bob. So generally the approach to capital allocation is something of an ongoing exercise in balancing the needs of the business, i.e., working capital, et cetera. And then we looked at internal growth, so CapEx, R&D, then external growth, M&A, as Bob touched on, and then finally some return of capital, which we do in the form of repurchase. So acquisitions are a bit opportunistic exercise and have to be evaluated case by case, but generally looking for a good fit strategy and culture.
spk15: Our next question will come from Atif Malik with Citi.
spk11: Hi, thank you for taking my questions and welcome Grant. Grant, I have two questions for you. You talked about 250 million revenue impact from lower 5G smartphone units from COVID lockdowns spreading over June and September quarter and I was curious if you can further elaborate how much of that impact is in June versus September. And the reason I asked that question is because your peer yesterday was baking in most of the impact only in the June quarter. And then I have a follow up.
spk07: Yeah, sure. So, I think Eric touched on the fact we can't separate supply and demand impacts. But as you pointed out, in aggregate, we're looking at $250 million. And I'd also point out that's after the COVID-related lockdown. So you're right to size it in June and September. It's probably heavier in September than in June and primarily affecting our China-based OEMs.
spk11: Great. And then as my follow-up, it sounds like you and Mark were very much aligned on key initiatives like gross margin expansion at Corvo. Are there other areas that you think Corvo can improve upon?
spk07: Yeah, I'd say Mark and I are very much aligned on gross margin. I would say, you know, in terms of what drives the business, ultimately it'll be free cash flow. So, you know, looking at our capital intensity, continuing to drive that, I'd say productivity enhancements, whether it's in COGS or OpEx is another area where we see very much eye to eye and certainly, you know, the predictability and control of our of our internal finance operation and forecasting going forward are areas where, you know, in addition to many others, but at least those are top of mind.
spk17: Our next question will come from Rod.
spk15: Our next question will come from Roger Gill with Needham & Company.
spk05: Yes, thank you for taking my question. Just to follow up from Atif's question on the $250 million impact over those two quarters. So even despite that reduction in revenue related to the decrease in 5G smartphones, you still are expecting kind of sequential improvement off that trough base in June. Is that correct?
spk07: Yeah, our current view is we expect to return to growth in September or over June. But we're not providing anything beyond the detail I already talked about in the 5G.
spk05: Ray, what's driving that sequential improvement if you're seeing kind of a fairly big drop-off in terms of your mobile revenue related to the reduction in 5G? Because that's where a lot of your RF content exists.
spk08: I think it comes down to, you know, we talk to all of our customers. We get, you know, a combined view from our customers what products they're planning to ramp. And, of course, when we're looking at our total revenue, we're looking across all of our customers, not just our China customer base, and looking at timing of handset ramps and where we expect the impacts to be and how we expect them to kind of deteriorate and be less meaningful in certain ramps than others. I mean, we put that together, and that's the outlook. Got it.
spk05: I appreciate it. And just one quick follow-up on IDP. You mentioned that you're seeing some growth in the infrastructure business. I was wondering if you could kind of elaborate there in terms of, you know, development and interaction on the GAN base stations. Thank you.
spk03: Yeah. So, you know, we continue to see the C-band deployments. you know, in U.S. and in Europe, really most places outside of China. You know, I think China is still a bit of a wild card. You know, they continue to be really more focused on the macro side right now. But, you know, with the infrastructure spending that we expect to happen in China this year, we, you know, We'll see what happens in that market. You know, for us, we have a strong footprint really in the small signal and a growing footprint in our GAN PA business. But I think really what's exciting about that business for us is that when you combine those two and you add the module capability that we have in our mobile business, that we can move into the base station market where we can integrate all this technology into kind of a small form factor, higher performance solution. That's really the end game of where we're going with this business. So we like where we are today, and obviously a lot of work to do. We can't really control the C-band deployment piece of it, but we're working hard with our customers to deliver these innovative solutions to them.
spk15: Our next question will come from Vijay Rakesh with Mizuho.
spk09: Yeah, hi. A lot of the questions have been answered, but just the last couple here. Are you seeing any elongating replacement cycles on 5G in China? And also, as you look at this inventory kind of picking up in the March quarter, and I think, I'm not sure if it stays flat in the June or goes up, but Any risk of a write-off on the inventory side at all? That's it, thanks.
spk08: Starting with the China replacement cycle, it's a little hard to say. I'm not sure if you're referring to the 5G over 5G or 5G replacing 4G. So replacing a 5G with a... Yeah, so like somebody buying their second 5G and if that's longer than it would have been in 4G or is that what you're referring to?
spk09: Yeah, yes.
spk08: Yeah, I think that's really hard to sort out at this time. There's no reason to believe this cycle will be any different. If anything, pace of innovation, new applications, need for faster data rates and better coverage and so forth, and new ID factors and all that. If anything, I would expect that it would be at least as short or shorter, but I think it's too soon, especially with all these other disruptions we've talked about, to try to nail that down.
spk07: Yeah, and I'll take the inventory one. If there was any excess or obsolete inventory at quarter end, we would have written it off during our standard quarterly review. We monitor it closely and follow a very robust process. So, currently, our view of forecasted demand supports the consumption of existing inventory.
spk17: Great. Thank you. Thanks, Vijay.
spk15: Our final question will come from Edward Schneider with Charter Equity Research.
spk04: Thanks. Sorry for the follow-up real quick, though. Eric, I just want to drill down a little bit more on Samsung because that's your big growth engine this year, it sounds like, overall. And I know there was a bunch of questions in the last one, so I'll try to keep it to one. In terms of growth, are you seeing most of your gains this quarter, next quarter, and maybe through the rest of this year in the flagship as it moves to module? Sorry, in the mass tier as it moves to modules, or is it equally distributed between the flagship and the mass tier?
spk08: Yeah, so, you know, I personally don't look at that split, so I can't answer it analytically. It's, you know, we've got a portfolio of products going into a portfolio of phones. I think just based on the numbers and the scale of it, I would have to say mass here is probably driving the growth. But, of course, the opportunities in flagship are very attractive as well. Just obviously the volume numbers are lower in that tier. But I think across all those tiers, we have everything we mentioned. You know, we've got power management. We've got advanced tuning coming in, as well as band coverage and highly integrated modules across every band. So, you know, I think, well, Wi-Fi, too. I should have mentioned Wi-Fi. It's another great growth area for us now across all their Wi-Fi baseband suppliers. So it really is broad-based.
spk04: I mean, based on that answer, then, it sounds like for the first time in memory, they're using the same, generally the same components for both master and flagship, where previously the flagship was all custom. Is that a fair assessment?
spk08: In some cases, sure, yeah. I think that, yeah, the difference between a flagship and a master will be less than it has been in the past. That's true.
spk04: Great, thanks.
spk17: Thanks, Ed. Thanks, Ed.
spk15: And that does conclude today's question and answer session. I'd like to turn things back over to management for any additional or closing remarks.
spk12: We thank you for joining us today. We appreciate your interest, and we look forward to seeing you at our upcoming investor events. Thank you, and have a good night.
spk15: And that does conclude today's conference call. Once again, thanks, everyone, for your participation. You may now disconnect.
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