Skyworks Solutions, Inc.

Good afternoon and welcome to the Skyworks Solutions first quarter fiscal year 2023 earnings call. This call is being recorded. At this time, I will turn the call over to Mitch Hawes, investor relations for Skyworks. Mr. Hawes, please go ahead.

Thank you, JP. Good afternoon, everyone, and welcome to Skyworks first fiscal quarter 2023 conference call. With me today are Liam Griffin, our chairman, CEO, and president, and Chris Senesal, our chief financial officer. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. The results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the investor relations section of our company website for complete reconciliation to GAAP. With that, I'll turn the call to Liam.

Thanks, Mitch, and welcome, everyone. Skyworks delivered solid first fiscal quarter results with revenue exceeding consensus estimates, strong profitability, and record cash flow performance. Looking at Q1 in more detail, we delivered revenue of $1 billion and $329 million, drove gross margin of 51.5%, and operating margin of 37%. We posted earnings per share of $2.59, and we generated $773 million of operating cash flow, a quarterly record for Skyworks. In addition to the solid financial results, We expanded our design wind pipeline in several emerging high-growth segments. In IoT, we extended our broadening technology portfolio across a growing customer base. We partnered with AT&T to launch their first Wi-Fi 6 gateways, unveiled the industry's first Wi-Fi 7 networking system with TP-Link, and leveraged our advanced connectivity portfolio to support 6 gigahertz fixed wireless access points at Cambion Networks. Across infrastructure and industrial markets, we integrated power over Ethernet functionality in Cisco modular switches for enterprise networks. We ramped timing platforms to meet high precision and speed requirements for the leading data centers. And we delivered frequency generation and clock distribution technology for 5G massive MIMO deployments. In automotive, we achieved our sixth consecutive quarter of record revenue, strengthening our EV design wind pipeline with onboard charger content at a Japanese automotive supplier, and securing design winds for digital radio platforms with a top European OEM. Moving forward, the rapid expansion of mobile network traffic, advances in cloud and edge computing, IoT and the electrification of vehicles, are major trends that drive complexity and demand for our highly integrated and customized solutions. A few highlights underscore these remarks. Wireless connections continue to proliferate, with mobile network traffic doubling over the past two years. Market estimates project over 25 billion IoT devices to be installed by 2027. The automotive industry is undergoing a revolutionary shift towards electrification of autonomous vehicles, with EVs projected to make up over 30% of the U.S. market by 2030. Skyworks is well positioned to capture growth upon these opportunities in transformative markets, leveraging key technologies, human capital, and significant scale. Collaborating with our partners and customers, we are leveraging key technologies from PC saw to high-performance bulk acoustic wave filtering, gallium arsenide, and state-of-the-art packaging. These skills and capabilities position Skyworks to play a leading role in this fast-evolving, rapidly growing landscape. With that, I will now turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q2.

Thanks, Liam. Skyworks revenue for the first fiscal quarter of 2023 was $1,329,000,000, exceeding consensus estimates. Mobile was approximately 65% of total revenue with weakness in Android as customers worked down their inventory levels. Broad markets was approximately 35% of revenue with a strong contribution from automotive, infrastructure, industrial, and the global shift to Wi-Fi 6E and 7. Gross profit was $684 million, resulting in a gross margin of 51.5%, up 30 basis points year over year, and up 20 basis points sequentially. Operating expenses were $193 million, or 14.5% of revenue. We generated $491 million of operating income, translating into an operating margin of 37%. We incurred $16 million of other expense and our effective tax rate was 12.8%, driving net income of $415 million and diluted earnings per share of $2.59. Turning to the cash flow, first fiscal quarter cash flow from operations was an all-time record of $773 million. Capital expenditures were $64 million, resulting in a record free cash flow of $709 million and a free cash flow margin of 53%. We paid $99 million in dividends and repurchased approximately 1.8 million shares of our common stock for a total of $166 million and a quarter. On a trailing 12-month basis, we have returned $1.2 billion to shareholders through dividends and buybacks. Also today, we announced that our board of directors has approved a new $2 billion stock repurchase program, highlighting their confidence in our business and its ability to continue generating strong free cash flow. Now let's move on to our outlook for Q2 of fiscal 2023. We anticipate revenue between $1,125,000,000 and $1,175,000,000. Gross margin is projected to be in the range of 50 to 50.5 percent. We expect operating expenses of approximately 189 to 191 million. Below the line, we anticipate roughly 19 million in other expense and an effective tax rate of 12.5 to 13 percent. We expect our alluded share count to be approximately 159.5 million shares. Accordingly, at the midpoint of the revenue range of $1 billion, $150 million, we intend to deliver diluted earnings per share of $2.02. And with that, I'll turn the call back over to Liam.

Thanks, Chris. Skyworks delivered solid first quarter results, demonstrating strong profitability and record-free cash flow generation. Importantly, our technology-centric operational scale and expanding set of innovative solutions are fueling a robust design wind pipeline, positioning Skyworks to continue to outperform. Despite a challenging macro environment, Skyworks remains well positioned, with the most diverse customer and solution set in our history, a technically seasoned and talented workforce, a strong balance sheet, and predictable cash generation, underpinning our ability to fund future opportunities while returning cash to our shareholders. That concludes our prepared remarks.

Operator, can we begin the question and answer session?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have any questions, please press star 1 followed on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Given time constraints, please limit yourself to one question and one follow-up. Your first question comes from the line of Ambrish Srivastava from BMO Capital Markets. Your line is now open.

Thank you very much. Excuse me, thank you for the question. That was a pretty short, prepared remarks, Liam and Chris. Always appreciate it. But I just wanted to get a little bit of your thoughts on excess inventory. Corvo has talked about maybe a whole year before component inventory comes back in check. Media Tech has talked about finished good inventory in overall three and a half months, if I remember correctly, winding down to two months. So what's your take on the inventory, excuse me, your inventory as well as on the channel? And then a quick follow-up on your own balance sheet inventory was up quite a bit. How should we think about it going forward, Chris? Thank you.

Sure. Yeah, this is Liam. Of course, at Skyworks, we're a very operational-centric and technology company together. And a lot of our products, the lion's share of our products are done in-house in our own fabs, in our own assembly and test locations. So we have really good eyes and ears on the balances here, whether it be inventory on our sites or even with our partners. So we are very, very careful to ensure that we are aligning our revenue with natural demand. We always want to be right on step with our customers. I think our teams have done an incredible job. There are markets today right now that there has been some excess inventory, and we're letting that bleed down. And our exposure there is extremely small. Some of the markets in China are a little bit more volatile, but in those cases, we have very little exposure. So I think it's important to note that we can control our ship and our products, working with the best customers out there, lots of great communication with our with our customers as well so everybody's on the same page uh and we feel really good about that and i think it's something we'll continue to to work through uh and be well positioned for the back half of the year yeah and i'm brisa as it relates to the inventory on our balance sheet it's it's definitely somewhat at an elevated level but i'm very comfortable with the level of inventory that we have right now

you have to take into account that we came out of a period where supply chains were challenged. We definitely wanted to make sure we support all the customer demand. We've been increasing some of the buffer stocks. And now more recently, of course, we have seen some softness due to some microeconomic challenges. And we have been adjusting our wafer starts and factory loadings accordingly. We've been doing that for a couple quarters now proactively. Having said that, again, it's a little bit elevated, but you have to keep in mind that we are level loading our factories, and we do expect, based on known design wins, the business to bounce back, especially in the second half of calendar year 2023, and so we will continue to level out to support those big ramps based on known design wins. with many of our customers. We also do expect some of the Android-based business in Korea and China to bounce back in the second half of the year. And so we will continue to make adjustments. I do expect that the days of inventory will come down back to a more normalized level in the second half of the calendar year.

Got it. Thank you.

Your next question comes from the line of Blaine Curtis from Barclays. Your line is now open.

Hey, good afternoon. Thanks for taking my question. I had two. And obviously, you know, it's a tough mobile backdrop. I think these are pretty good results. I'm just curious if you could level set us for December. I don't know if you're willing to give how much your largest customer was. But then in the March guidance, if you could just, you know, talk through how you're thinking about the iOS versus Android there. I mean, does Android – bottom in December or March, and any thoughts on the recovery for Android?

Yeah, so as it relates to the large customer revenue, that large customer was approximately 68% of total revenue. That clearly demonstrates great execution by the team supporting that large customer in the ramp of their new phone lineup. We have some great content. in that phone, some really high performance complex devices, many of those devices leveraging our bulk acoustic wave filtering. And so I think we did really well in the December quarter, despite the fact that, as you know, the large customer talked about that, they were somewhat supply constrained due to some COVID related issues in China. But the team here executed really well in December with that customer.

Yeah, and Blaine, just to follow up, we are starting to get back on the saddle here with the Android portfolio. And as you know, we've actually been holding back because there was some inventory in that channel. I think there still is, but it's been bleeding. And the opportunity for us to have incremental gains there is very high, given the fact that we kind of stayed on the sidelines until these inventory levels got to a more normalized position. It's not about the product. The products are ready to roll. We've got everything we need to drive that business, but we just want to be careful as the markets move forward. But we have the design momentum for sure.

And then I wanted to ask you on broad markets, you know, whether you think that business would be up in March as part of the guidance. And I know you had a record INA quarter in September. Just kind of curious how that business is doing trajectory-wise.

Yeah, so in the broad markets, as we said, was in December roughly 35% of our overall revenue. It was slightly down on a year-over-year basis as we see similar things that some of our peers and competitors are seeing in that market due to some microeconomic headwinds. There's a little bit of a softer demand. But on the flip side, we definitely saw strength for Skyworks solutions in the automotive segment some parts of the infrastructure and industrial segments and as we said as well we see some really good traction in the upgrade to wi-fi 6e which is a big step up in content as well as some early design wins that are being turned into revenue for wi-fi 7. as it relates to The March quarter, we do expect group markets to be slightly down sequentially, somewhat in line with normal seasonality.

Thanks, Chris.

Your next question comes from the line of Gary Mobley from Wells Fargo. Your line is now open.

Hey, guys. Thanks for taking my question. There have been some teardown reports out there that have highlighted your content associated with, you know, the satellite link, I guess in particular with your largest customer, somewhere in the order of, you know, four or five specific sockets for you guys. Can you speak to, you know, the content opportunity for you, not only the iOS world, but as well the Android world?

Yeah, I think, you know, we – We are engaged with all the relative and meaningful applications. And I think if you're referring to SATCOM, is that right?

That's right.

Yeah, sure. Absolutely. So, you know, we have the technology, the IP, and kind of the building blocks to make that work. It's still early in the global market, but it's definitely an opportunity to bring more scale to units. And so we definitely are, you know, we're engaged, we're involved. We have the technologies to make some of these work. We also have the partnerships with the companies that can do some of the, you know, kind of the groundwork to have that network evolve. And it would be a great opportunity for a company like Skyworks. We have many of the building blocks. We understand the radio frequency space deeply and in the SATCOM world as well. So It's an evolving opportunity, and we will definitely be at the table. We are today, but more upside to come as the markets evolve.

Okay. This is my follow-up. I wanted to ask about utilization of your supply. It sounds like you won't have any underutilization charges associated with internal supply, at least not for the intermediate term. But maybe if you can speak to external supply, purchase commitments there, and your ability to fully utilize those without taking any sort of reserve.

Yeah, Gary, as indicated before, we have been managing this proactively for many quarters right now. And we are adjusting our factory loadings all the time, depending on the demand that we see. And of course, the earlier you do that, the more proactive you are, the more you can take the time to, of course, accordingly adjust your cost structure taking out costs where needed, while at the same time, of course, continue to work on operational efficiencies, yield improvements, and so on. We've done that with our internal factories. We've done that with our third-party purchasers and vendors as well, having an open dialogue, making sure we have, on one hand, enough capacity in place, but at the same time, not overcommitting

As well, and I think the team has has executed pretty well on that Thanks, Chris and Liam appreciate it sure Your next question comes from the line of Tashiya Hari from Goldman Sachs your line is now open Hey, thanks so much for taking the question Liam I was hoping you could provide a little bit more context a little bit more color around your broad markets business and I think you talked about record revenue in your automotive business and strength across comms and the industrial end market as well. But specifically, I was hoping you could size those individual buckets within broad markets in calendar 22, where you landed from a revenue standpoint across those key end markets and how you're thinking about the forward. And on the forward, I guess, you know, the commentary on automotive from most of your peers continues to be pretty bullish and pretty positive. But there are signs of moderation in comms and industrials. So I was hoping to hear what you're seeing in those markets as well.

Sure. Well, you know, we put a lot of energy into those markets, and we're getting, you know, great returns. And, you know, the size of the opportunity there is substantial. And some of those products and markets that were not really the purview of Skyworks two, three, four years ago, but they are now. So the automotive opportunity for Skyworks has been incredible. Leveraging some of the IP that we brought in with the slab INA deal, coupled with our own internal developments and design wins and technology partners. We've got a business now that is in the hundreds of millions of dollars a year. really at a time where EV and electrification of vehicles is really just starting. So I think this is going to be an incredible piece for us, one of the markets that will drive our broad markets portfolio. The other thing is the IoT space generally is really clicking now for us. And you've heard for years that if we think about our solutions, they're not just handsets. We leverage the handset because it's a great opportunity to demonstrate what benefits we could have as a user. but we're starting to drive the same types of technologies in IoT. Things like Wi-Fi, for example, GPS, many, many other sensor technologies that we can populate with our solutions. So some of that core wireless engines don't have to be specific to smartphones, but that technology, that know-how, that scale, and the ability for Skyworks to uniquely develop end-market solutions, I think, is quite a differentiator, and we're really... just getting the wheels turning on those opportunities. But there's definitely quite a large opportunity set for us over the next four to five years.

Got it. Thank you. And then as a quick follow-up, one for Chris on gross margin, in the December quarter, You know, your margins came in in line. They were up a little bit both sequentially and year over year, despite revenue declining both sequentially and year over year. So curious what were some of the positive offsets in December. And then, more importantly, for the March quarter, you're guiding gross margins down, I guess, roughly 100 basis points, give or take. Is that primarily revenue or something else going on? Thank you.

Yeah, first of all, I'm pleased with the fact that in December we did 51.5% gross margins, up 30 basis points year over year, up 20 basis points sequentially, despite the challenging macroeconomic environment. And I think, again, kudos to the team who continue to drive operational efficiencies into our factories with great execution there. And that's really... I think the main driver there, how we are able to keep up the margins where they are, again, despite some of the adjustments that we make in terms of factory loadings. As it relates to March, you have a little bit of a mix that comes into play. And some of those headwinds, right, the revenue, as you indicated, that translate into the adjustments we make on the factory loadings. But when you put it all together, I'm guiding margins in the low 50s. On one hand, I'm not happy with it. I wish it was 53, and we're going to continue to work hard to get it to 53. But on the other hand, I'm happy with where we are from a margin point of view right now.

Thank you. Your next question comes from the line of Matt Ramsey from Cowen. Your line is now open.

Yes, thank you very much. Good afternoon, guys. I wanted to ask about sort of inventory levels. There's been tons of conversation through this earnings cycle around inventory levels in the smartphone space, but I'm maybe more curious about the broad markets business. You guys mentioned a couple times the obvious macroeconomic things that are going on and maybe affecting that business, having it be down a little bit. How diverse is the inventory situation in the broad markets business? Can you just kind of walk through what business goes direct, what business goes through the channel, and how you're seeing inventory levels just for broad markets in the near term? Thanks.

Sure.

This is William.

The good news here is the broad market portfolio is very diverse, extremely diverse. And it's leading towards a lot of great opportunity in many different end markets. So we have a pretty decent play there. And our teams on the operational side are highly sophisticated. We have our own supply chains. We do most of our stuff in-house. So we have a really good read on inventories are and where they should be. And I think we're managing it quite well. There's certainly some pockets of inventory out there, but, uh, really, you know, nothing that's going to impede the progress of the business. I think the really cool thing is, is the number of new customers that we're bringing in. And, you know, there's a mixed issue when you, when you're doing kind of the tens and $20,000 accounts versus the million dollar accounts that you may have in some of the smartphone space. So a little bit of a different play, but the diversification, the margin profiles are outstanding. And like you know, Skyworks is an operator. We do just about everything in-house. And the ability to do that also includes great supply chain management, our sales teams being online, understanding where distribution plays versus direct. There's a lot of angles there that we can control. It's not easy, but it's the way we work this business. And I think we're starting to really see the benefits there in broad market and the diversification You know, we've talked about a few major new segments like automotive. Automotive is really tough. You've got to get certification. You've got to prove your ability to execute in challenging environments. There's a lot there. We've done all that work. And, you know, we've really kind of flexed our muscles in some of the tough cases in mobile over the years. But the efforts there and the knowledge that we built is applicable for so many other markets. So We look forward to it. There's always going to be a couple of bumps and a few wrinkles, but the diversification is playing well. The customer set is growing. And the lion's share of our top tier customers are really accounts and companies that matter. So we're looking forward to more as we go forward.

Thanks for the call there, Liam. Really appreciate it. Chris, just to follow up on that topic, you had said in your script about the business snapping back in the mobile business in the back half of the calendar year. And I think we're all kind of modeling that as we work our way through the inventory correction and smartphone. But just seasonally or based on the inventory comments that Liam just made, how do you think about the shape of the year potentially in broad markets? Is that a business that can still grow again for the fiscal year? And just how should we think about the shape of that as it comes back? Thanks.

Yeah, no, our broad markets business, as you know, it's a $2 billion or about $2 billion business on an annual basis. And despite some of those microeconomic headwinds and challenges and somewhat softer demand and maybe a little bit of inventory correction that is going on, we do believe that we can grow our broad markets business this year. And I'm not going to repeat what Liam just said, but We have strong design momentum. We play in some high growth markets with some really key technologies. And based on all of that, we do believe we can grow our growth markets business.

Your next question comes from the line of Edward Snyder from Charter Equity Research. Your line is now open.

Thank you. Sounds like you're doing very well at your largest customers and you plan to do well again this year. But real quick question about Samsung. First of all, did they broach 10% this quarter? More importantly, both in Samsung and in China, you've kind of missed a falling knife there because you don't really participate very much at all. I know that Samsung is converting over to modules in the mass tiers, etc. What are your prospects for let's say revenue growth, because everything is going to be content growth, specifically at Samsung this year, because, you know, phone demand is slowing for them. The ASPs in their flagship are way below where they were when they were doing a custom design. I know that the flip side is true for the Master, but you don't play big in the Master. So I'm trying to get a better profile of what you think seriously could occur this year, calendar year 22, at Samsung. given all the different moving parts and the fact that luckily you weren't playing much there at all in the last year or two. And then maybe you could break that down between flagship and master, what you think about each of those prospects. That would be helpful. And then I had a follow-up, please.

Yeah, just add, so Samsung was less than a 10% customer. I think it's very well documented. They are going through an inventory burn-off period right now. And again, proactively we have, reduced our shipments to that customer, especially in the December quarter. And I'll hand it over to Liam to provide some more color on Samsung.

Yeah, I mean, look, Samsung is a major player in the industry, and I think they got banged up a bit here in the cycle, as did some other Android players. So, you know, we've been working through that, Ed, and the irony is that we've actually – got some pretty good content in those phones. And so we look forward for, you know, the inventory to get cleared and we'll be up and to the right in terms of our business there. But, you know, I think some of that is just the volatility that, you know, the semiconductor industry and even beyond, I mean, the technology industry is going through and trying to sort through ways to get back on their feet, so to speak. And, you know, we're very focused on our own inventory and our own supply chain, so we have eyes and ears. We never want it too hot or too cold. We want to be able to deliver what the customers want. We stepped back a bit on Android as the inventory levels were building in the channel. We didn't want to be part of that. Sampler is a great, great customer. You know, just having some bumps, we're going to work with them and ensure that we can do everything we can to help, not only on the technology side, but even on the fulfillment side. So I think that's a temporary blip. Honestly, I think Samsung is going to continue to do very well. They're a significant company with a lot of technology and the markets in Korea are very dynamic and cell phones and technologies that we make are vital and viewed as a really critical asset for a person there. So we think that's going to blow over and we'll start to see more creative revenue in the second half.

And if I could, you've done particularly well with your ball. Actually, it was rather surprising to see you go head-to-head with some of the leading ball guys and actually win in that. So I'm trying to get my arms around second half of the year, say, content growth. We saw you took the satellite with your own teardown. We got your satellite part. I think we illustrated that you got twice as many ball filters in your TRX, your transmit DRX module, as last year. And I know it sounds from this call and from what we've picked up that you're pretty optimistic about second half content. Is it going to be a new class? Should we be looking for new classes of parts like you did with satellite? Or is it going to be more content, especially in the boss side of the business, with some of the existing capabilities spread? Because we're also obviously hearing, you know, Corvo didn't make no secret of the fact that they're going to gain some in areas they hadn't before, like antenna plexers. So I'm just trying to get my arms around that. how competitive the market is going to be in ball and where you guys think you'll fit in with that, given how well you've done the last couple of years. Thanks.

Yeah, no, that's great. That's great.

I mean, you know the business and you know the technology. So the nice thing here is, you know, I felt like some of the technologies were ready to go, but the market wasn't there, right? The appetite, the consumer appetite or the customer appetite wasn't really, you know, jumping all over this technology. But now you're starting to see as we get more and more nodes and we're starting to get more efficient in delivering high-speed data, and it's just becoming an opportunity for us now at a more broad level. And I think you're going to see a small set of players, of which we're going to be one, of course, that can do what needs to be done with these incredible customers. I mean, the customers today, it's changed so much from a standard cell phone that needs the requirements, the current consumption, the ability to roam globally. It's becoming more and more complex, and we love that. That's exactly what we want to see. We want to solve the tough problems. You know from the technology side, Ed, this stuff is not easy, right? When you're bringing in all these disparate technologies into one simple module, apparently simple, right? It's really hard to do, and it's one of the things that our teams here at Skyworks love to do, our technologists, our operational team, all the way to sales teams. And so we love that opportunity, we love that complexity, and the more use cases that emerge are great for us.

And just to illustrate that point, our revenue from devices that have bar filters inside is getting really close to a $2 billion analyzed run rate. And so it's definitely a major success story, and we believe that number will continue to go up to the right.

Great, thanks.

Your next question comes from the line of Chris Castle from Credit Suisse. Your line is now open.

Yes, thank you. Good afternoon. Question about the Android business in general and how that translates the linearity through the year. And you said last quarter that you thought that the China business would be the low point in December. Did that turn out to be true? Is that true in general for Android, either in December or March? And if that business is sort of bottoming out, does that have any implications for June? Do you think that March quarter would be the low point in the year for revenue?

Yeah, I think that's fair. December was low. March will continue to remain low as well. especially China, Oppo, Vivo, Xiaomi, and to a certain extent, Samsung as well, are still going through this inventory burn-off process. But then I think we will start seeing some improvements in the June quarter, and then for sure in the back half of calendar year 2023.

Got it. That's helpful. Thank you.

And maybe a little longer term. As we look at the revenue prospects over the next two years or so after we get through this inventory correction that's going on right now, what do you expect to be the relative growth rates between the mobile business and broad markets? I know you've spoken a lot about the content that you expect to get in the mobile business, but do you expect that you can grow the broad markets business at a faster rate and maybe two years out, what do you expect broad markets to be as a percentage of revenue?

Yeah, definitely, Chris, we're expecting double-digit top line in the broad markets for sure, mid-level top line. And we should be in the teens, I believe, given what we can do, what our products look like. And obviously, when the air gets clean, the markets will be stronger. I think we're going to be in great shape. And then even on the mobile side, you know, there's a lot of invention and unique technologies that are being brought up in mobile that people haven't really seen yet. But the best customers in the world know what they're doing. And there's a lot of incredible opportunity for the right types of technologies and the technologies that we make are those technologies. So I think we're going to have, you know, a nice combination with, you know, again, our strength in mobile, which is a disciplined approach. We know what we're doing. We're working with the right people. It's not easy. We've made great steps in capital. A lot of our CapEx is behind us right now. That's another key point. We talked about the free cash flow on the call already. And then the diversification theme, Chris, is really playing nicely. You heard questions about satellite, for example. You look at the broad markets. Think about our hundreds of millions of dollars of automotive revenue that we didn't have three or four years ago. So we have really core technologies that we can take across a broad set of mobile and connected devices, but this is an extrapolation now of new applications that is really driving the business, and you're going to see more and more of that as we go through. It's unfortunate right now that the market is just, you know, we're all in kind of a bit of a slowdown here as we're emerging, but we've got great stock that's ready to go and design wins that have been cemented, and those will roll out in the second half of the year for sure.

Got it. Thank you.

Our next question comes from the line of Carl Ackerman from BNP Paribas. Your line is now open.

Yes. Hey, thanks, gentlemen. Two questions, if I may. First, I know you have little exposure to China Android right now, but one of the investor concerns is that you may have lost content, and so perhaps you won't receive as much of a snapback as some of your peers when trying to demand eventually recovers. I was hoping you could address why those concerns might not be warranted. I have a follow-up.

Yeah, I mean, I'm glad you asked the question. We're ready to roll with Android. We have the technologies, we have the products, but we're not going to fill the channels, right? I mean, there was a bit of an overhang there. We want to run discipline in our business but I will say that inventory overhang is starting to abate already, we see it. We have product ready to go, high quality, top of line technology that we can move in. I can't tell you exactly when, but it's definitely happening and we're ready. It's an upside in our pocket that we haven't really rolled out, but we've had years and years of great position in China. OBX specifically, Oppo, Vivo, Xiaomi, and then Samsung on its own vector, which is a huge company. And it's just unfortunate that those markets got banged up. They're going through an inventory cycle now. But on our end, we never built the inventory up. We try to meet the demand as it is. We don't want to get ahead of it. And our teams were very disciplined. And you could see even in the last quarter, we talked about China revenue is below 5%. That's because the market didn't need more than that. And we didn't want to sell more than that. So I do think as we get through this quarter and starting to see towards the second half of the year, a more improving macro environment, we will be very well positioned to execute. And if things change, we can move faster if we need to. But it's not a technology issue. It's not an execution issue. It's really just trying to manage the business in the appropriate way for our shareholders.

Very clear, Liam. Chris, if I may, a question for you. More of a simple one, I suppose, but what's driving the big step down in CapEx in December? And I'm curious if this implies anything for content as we think about calendar 23. Thank you.

As it relates to CAPEX, we definitely expect our CAPEX trend to moderate compared to what we have been doing over the last five years. Just as a reminder, the last five years we were in the 10% to 12% of revenue. We've put a lot of capacity in place. We put a lot of technology-related investments in place, especially as it relates to bulk acoustic waves. And now we have to leverage that capacity. We are focusing on yield improvements. We are focusing on die shrinks. We can't create more capacity without putting more equipment in place. And as a result of that, you will see a little bit of a more moderate, less capital intense capex in the next couple of years here. But again, we feel good about the investments that we make. And it really will help to further improve our strong cash flow that we have already. We started the year very strong. We expect further strong cash flow the remainder of the year, again, based on some moderate capex. But we could drive our free cash flow over 30% in this fiscal year.

Yeah, and just to reiterate that, the capital base that we have, okay, it took a long time to get to this scale. We did a tremendous amount of work, brick and mortar, site level, in our own facilities, and it positions us now for kind of a downhill run from CapEx. We still have great technology, great equipment, but it's brand new, right? So we spent that money over the last four or five years strategically to build up a competency in bulk acoustic wave and other filter technologies. Very, very difficult stuff. It's not available in the merchant market. So it was a make versus buy approach. We did the make. And so we developed solutions that are purpose-built for Skyworks and purpose-built for our customers. The great news is the capital is up and running. It's humming along. And sure, there'll be incremental CapEx spend over the next several years, but it won't be at the level that you look back in the last three or four, because now those investments are in-house, at scale, and running.

Very clear, thank you.

Sure.

Your next question comes from the line of Brett Simpson from RIT Research. Your line is now open.

Yeah, thanks very much. Liam, I wanted to get your perspective on BGPP release 17, and also Wi-Fi 7 using 6 gigahertz. And when it comes to these upgrades, you know, when do you think they're going to ramp more broadly, particularly in smartphones and consumer devices? And then just maybe from a business perspective, how should we think about the overall RF content when you start to scale up Wi-Fi 7 and release 17 5G versus today's devices. It seems to be quite big architecture changes. So I was just curious how you think about this and the extent to which Skylux could benefit. Thank you.

Yeah, no, that's a great question. Those technologies are just starting to emerge now. And they do add a great deal of complexity. And you mentioned that in your words. The good news here for us is that we've been making, you know, in tandem investments and technology. So we've got, of course, the Wi-Fi cycle that's going from 6 to 6E and Wi-Fi 7. And that has its own set of incredible opportunities. And, you know, kind of on the launch pad there and the complexity and the newest cycles and the new devices has been incredible for us. So we can definitely hit that. And then back on other connectivity nodes, adjacent connectivity nodes are going through a similar space, and that's more on the IoT line. So those types of technologies, we can deliver to the end market solutions, and that would be a big part of our broad market portfolio. And some of the most relevant players in that space, we've already had design wins with them at earlier stages, and we have a good trusted partnership. It's definitely further into the year, but definitely an opportunity for us to get into 23, 24, 25 as we look out. But definitely another cycle that we can leverage. And as you said earlier, much more challenging from a technology perspective. But the consumer's benefit there would be amazing. So I think those new technologies, they're hard to do. We've got the IP, we've got the know-how, and they can create their own cycles within the next set of IoT devices.

And is that a meaningful step up in content, Liam? Just, I mean, Wi-Fi 7, for example, adding 6 gigs and, you know, quite a lot of changes on the modulation side and the MIMO side. So I'm assuming this should be a fairly healthy step up in RF content. But I don't know if there's any numbers you can sort of hear with us on that, on the upgrade to Wi-Fi 7.

Yeah, no, you know, it's hard to handicap the numbers, but it's meaningful. It's meaningful. I think you're going through and, you know, it's kind of a pretty long step from from Wi-Fi six to seven. There's a lot of work being done there. And so work also means a lot of technology being embedded. So I think we could get, you know, a 10 or 15 percent tagger on that segment. And then also kind of that's just on content. But then if we get the user count up. you know, you've got a double whammy. So that's kind of what we're looking for. And, you know, anything along the way there is going to be incremental.

And maybe just a quick one for Chris. Just on the ball filter, Apex moderating, can you talk a bit more about where the capacity for ball looks today? And how should we think about Skyworks addressing six gigahertz capacity? with your Boa technology, and are you able to address that going forward? Thank you.

Yeah, again, if you look at the CapEx over the last couple of years in the $500 million, $600 million per year, the vast majority of that CapEx was going into expanding our bulk acoustic wave filter operation, where we have, of course, from a small base doubled and doubled and doubled again the capacity there, Again, we're focusing really now on driving operational efficiencies, die shrinks, yield improvements, which gives us a lot more capacity leveraging the installed base of the equipment that we have, and we're not done. I mean, we're going to keep expanding that as we see fit, and we do believe that our revenue from devices that has bulk acoustic wave filters in will continue to grow very strongly and we're ready for that and we will not hesitate to put more capacity in place if and when needed.

Our next question comes from the line of Harsh Kumar from Piper Sandler. Your line is now open.

Yeah, hey, guys. You know, very incredible results, to be honest with you, in this turbulent environment. Liam, let me ask you about China. I'm sure you're tired of it, but I know that this is hopefully the last question on this topic. You de-risked China completely last go-around. I think the message was that it was very close to zero. But what do you think the China opportunity is, and do you even want this business, given the volatility, the geopolitical nature of it, And if you can remind us at the peak, let's say how much it got to, let's say over the last five years, you know, maximum as a percentage of sales, I just want to gauge where you're playing and what you're really going after. Yeah.

Yeah. Great question. Well, you know, we've, we've always been, we'll work with anybody that's, you know, that needs our technology, you know, we'll partner with anyone. So there really isn't any bias around where we're going to go in our markets. But, you know, China's been a challenge, I think, for ourselves and the peers in the U.S. here. And you think about even back to the Huawei situation, you know, with Huawei shutting down, that was a big business for a lot of companies in our space. It's been a volatile market operationally, and some of that is COVID and all kinds of things going on. But the technologies and the work that we're doing is applicable for anybody. There's no reason why the China opportunity is as good as any opportunity. But unfortunately, there had been some inventory here that we've all talked about, not specific to Skyworks, but just in general, where the markets kind of got out of sync and created a bit of an inventory overhang. And that kind of weighs on the sector, I would say. But turning it back to Skyworks, you've heard us talk about our operational efficiencies and our know-how and labs to fabs approach. Those aren't just words. That's how we run this business. So we're very keen on what we're doing with our customers. We want to be great partners, but we also want to stay in sync with the market. That's really important for us. And this is just a case like that now. I think we've got a situation in China where there was an inventory issue. There were some lockdowns. There were a lot of things that would impede the natural flow of revenue and engagement. And that's kind of where that market is. So we're standing ready to step back in. We have the technology. It's not a technology issue. It's not even a gross margin issue, really. It's about managing inventory and making sure that we're delivering to the right cadence. That's what we want to be able to do. So having said that, you know, long, long dialogue, I would tell you that we think things will get better. Things will get better as the markets start to really kind of recover. And the technologies that we have are really good. And we can populate just about anything out there with the solution suite that we have. So there's really, at this point, the bad news is flushed out for us. And the opportunity to grow into those markets and deliver incremental growth is right there. So we're looking forward to making that happen. And I think things are starting to warm up a little bit already. So we feel good about that as we exit.

Okay, Liam, can I just ask maybe the similar question in a different way? Is it fair to say that you mostly look to sell standard products in China? So it's not a lot of work for you outside of what you already do. And then you look to sort of service those customers while leveraging your own facilities. Is that a fair way to think about it without too much effort?

Yeah, I mean, sure. We can take the business and the technologies. I mean, every market has its own flavor and, you know, there's different technology nodes, higher to lower to more complex, and we're able to scale through all of it. So I would say that, you know, over time, the markets are going to get, the markets are actually going to embrace higher levels of technology. I think a lot of the stuff that we're talking about right now, two, three years from today, it's going to be much harder, much more difficult. And companies like Skyworks, I think, will have an incremental advantage. So I think you've got a China market that stalled some macro things that weren't specific to mobile. But as we wake up here and the markets start to recover, the technologies have not sat by on the sidelines. The technologies have gotten more complex and more challenging and more powerful for the user. So the one thing I would say is in the China market, have they been able to catch up? with that technology. I'm not quite sure it's there, but I know that we can do that with the partners. So it's not a technology gap with us. It's not a revenue issue. It's really getting the China market to get back on their feet and then get that partnership where it should be, where it's in a natural supply and demand view. And I think we can do that. We have no reason why we wouldn't want to do more business in China, but all those things that I mentioned need to kind of clear up a little bit before the markets and the opportunity for us is what we want to see.

Got it. And for my follow-up, you know, it's March. You probably know the content for the year because these winds happened about a year before. Units are going to be pretty depressed. I was curious if you could give us a sense of what, to the extent that you can, you know, a sense of content this year, and also maybe a sense of 5G units, whether you expect 5G units to be up this year. And then one for you, Chris, the 53% free cash flow number, that's a monster number, to put it bluntly. Is there something one time out here you talked about CapEx going down, or is this something sustainable for Skyworks?

So, Harsh, maybe I'll take the cash flow question first, and then I'll turn it back to Liam. Very happy with the very strong cash flow and free cash flow, obviously, in December. I would say three elements. Our world-class profitability level, 37% operating margin. Not a lot of companies and taxpayers doing that. Secondly, yes, great working capital management, although a good guy and a bad guy, right? Inventory is still somewhat elevated. We will work it down over time. But we definitely had strong collections in the December quarter, which is a little bit of a one-time item. And then thirdly, as we discussed earlier, some moderate CapEx in December and going forward. And the combination of those three delivers strong cash flow and will continue to deliver strong cash flow.

And then I'll turn it to Liam on the other question.

Yeah, so hard. Yeah, the content. Yes, exactly. So, yeah, when we think about content, The way we're seeing it now with the customers that we're working with now, especially at the high end, it's not more of the same thing. It's not, hey, we had two devices. Now there's three devices. It's really about what's going on inside. We're seeing a lot of innovation and performance in the new suite of technologies. Now, I'm not going to give you the timeline on this because this is kind of a cycle of improvement. So stay with me on that. But there's no question that if you look at where a high-end smartphone is today and the content that is available versus what we see one, two, three, four, five years out is going to be dramatically different. We really believe it. We have great engagement with customers, and they're all kind of in the same spot. Everyone has a different way to get there. So the units... I think are going to continue to be where they are. There'll be more growth. But the content and the usage cases are going to expand. And I say usage cases because that doesn't mean just a mobile phone. If you think about technologies like 5G, they're technology vectors. They connect things wirelessly. It could be an automobile. It could be connected to a data center, a Wi-Fi solution. There's so many different applications with the right use cases. And I think if you think about Skyworks, it's not just about mobile. Mobile is an important vector, but all the other technology vectors that we can work through IoT and other markets will continue to grow. And the other thing that's great about that is they're on their own cyclical path. It doesn't go through the same kind of annual cycle that we do see in mobile, which is fine. But the opportunity to have you know, an uncorrelated path in technologies that are not in a mobile phone. And I think we're going to see that more and more, things like automobiles and data centers and some of these other really interesting IoT devices. So keep that in the back of your mind because that part of the business is really moving. Mobile's doing great. We have super technologies. We're going to continue to do well. But the other side of the field is an incredible opportunity for our investors and the opportunity for Skyworks to deliver world-class solutions. So I'll leave you with that, Harsh. Thanks.

Appreciate it, guys. Thank you so much.

Ladies and gentlemen, that concludes today's question and answer session. I'll now turn the call back over to Mr. Griffin for any closing comments.

Great. Thank you all. I appreciate your participation in today's call. Look forward to seeing you in upcoming conferences. Take care.

Ladies and gentlemen, that concludes this conference call. We thank you for your participation.

You may now disconnect. Thank you. you Thank you. Thank you. Thank you.

Good afternoon and welcome to the Skyworks Solutions first quarter fiscal year 2023 earnings call. This call is being recorded. At this time, I will turn the call over to Mitch Hawes, investor relations for Skyworks. Mr. Hawes, please go ahead.

Thank you, JP. Good afternoon, everyone, and welcome to Skyworks first fiscal quarter 2023 conference call. With me today are Liam Griffin, our chairman, CEO, and president, and Chris Senesal, our chief financial officer. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. The results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the investor relations section of our company website for complete reconciliation to GAAP. With that, I'll turn the call to Liam.

Thanks, Mitch, and welcome, everyone. Skyworks delivered solid first fiscal quarter results with revenue exceeding consensus estimates, strong profitability, and record cash flow performance. Looking at Q1 in more detail, we delivered revenue of $1 billion and $329 million, drove gross margin of 51.5%, and operating margin of 37%. We posted earnings per share of $2.59, and we generated $773 million of operating cash flow, a quarterly record for Skyworks. In addition to the solid financial results, We expanded our design wind pipeline in several emerging high growth segments. In IoT, we extended our broadening technology portfolio across a growing customer base. We partnered with AT&T to launch their first Wi-Fi 6 gateways, unveiled the industry's first Wi-Fi 7 networking system with TP-Link, and leveraged our advanced connectivity portfolio to support 6 gigahertz fixed wireless access points at Cambion Networks. Across infrastructure and industrial markets, we integrated power over Ethernet functionality in Cisco modular switches for enterprise networks. We ramped timing platforms to meet high precision and speed requirements for the leading data centers. And we delivered frequency generation and clock distribution technology for 5G massive MIMO deployments. In automotive, we achieved our sixth consecutive quarter of record revenue, strengthening our EV design wind pipeline with onboard charger content at a Japanese automotive supplier, and securing design winds for digital radio platforms with a top European OEM. Moving forward, the rapid expansion of mobile network traffic, advances in cloud and edge computing, IoT and the electrification of vehicles, are major trends that drive complexity and demand for our highly integrated and customized solutions. A few highlights underscore these remarks. Wireless connections continue to proliferate, with mobile network traffic doubling over the past two years. Market estimates project over 25 billion IoT devices to be installed by 2027. The automotive industry is undergoing a revolutionary shift towards electrification of autonomous vehicles, with EVs projected to make up over 30% of the U.S. market by 2030. Skyworks is well positioned to capture growth upon these opportunities in transformative markets, leveraging key technologies, human capital, and significant scale. Collaborating with our partners and customers, we are leveraging key technologies from PC saw to high-performance bulk acoustic wave filtering, gallium arsenide, and state-of-the-art packaging. These skills and capabilities position Skyworks to play a leading role in this fast-evolving, rapidly-growing landscape. With that, I will now turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q2.

Thanks, Liam. Skywatch revenue for the first fiscal quarter of 2023 was 1,329,000,000, exceeding consensus estimates. Mobile was approximately 65% of total revenue, with weakness in Android as customers worked down their inventory levels. Broad markets was approximately 35% of revenue, with a strong contribution from automotive, infrastructure, industrial, and the global shift to Wi-Fi 6E and 7. Gross profit was $684 million, resulting in a gross margin of 51.5%, up 30 basis points year over year, and up 20 basis points sequentially. Operating expenses were $193 million, or 14.5% of revenue. We generated $491 million of operating income, translating into an operating margin of 37%. We incurred $16 million of other expense and our effective tax rate was 12.8%, driving net income of $415 million and diluted earnings per share of $2.59. Turning to the cash flow, first fiscal quarter cash flow from operations was an all-time record of $773 million. Capital expenditures were $64 million, resulting in a record free cash flow of $709 million and a free cash flow margin of 53%. We paid $99 million in dividends and repurchased approximately 1.8 million shares of our common stock for a total of $166 million and a quarter. On a trailing 12-month basis, we have returned $1.2 billion to shareholders through dividends and buybacks. Also today, we announced that our board of directors has approved a new $2 billion stock repurchase program, highlighting their confidence in our business and its ability to continue generating strong free cash flow. Now let's move on to our outlook for 2022 or fiscal 2023. We anticipate revenue between $1,125,000,000 and $1,175,000,000. Gross margin is projected to be in the range of 50 to 50.5%. We expect operating expenses of approximately 189 to 191 million. Below the line, we anticipate roughly 19 million in other expense and an effective tax rate of 12.5 to 13%. We expect our alluded share count to be approximately 159.5 million shares. Accordingly, at the midpoint of the revenue range of $1 billion, $150 million, we intend to deliver diluted earnings per share of $2.02. And with that, I'll turn the call back over to Liam.

Thanks, Chris. Skyworks delivered solid first quarter results, demonstrating strong profitability and record-free cash flow generation. Importantly, our technology-centric operational scale and expanding set of innovative solutions are fueling a robust design wind pipeline, positioning Skyworks to continue to outperform. Despite a challenging macro environment, Skyworks remains well positioned, with the most diverse customer and solution set in our history, a technically seasoned and talented workforce, a strong balance sheet, and predictable cash generation, underpinning our ability to fund future opportunities while returning cash to our shareholders. That concludes our prepared remarks.

Operator, can we begin the question and answer session?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have any question, please press star 1 followed on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Given time constraints, please limit yourself to one question and one follow-up. Your first question comes from the line of Ambrish Srivastava from BMO Capital Markets. Your line is now open.

Thank you very much. Excuse me, thank you for the question. That was a pretty short, prepared remarks, Liam and Chris. Always appreciated. But I just wanted to get a little bit of your thoughts on excess inventory. Corvo has talked about maybe a whole year before component inventory comes back in check. Media Tech has talked about finished good inventory in overall three and a half months, if I remember correctly, winding down to two months. What's your take on the inventory, excuse me, your inventory as well as on the channel? And then a quick follow-up on your own balance sheet. Inventory was up quite a bit. How should we think about it going forward, Chris? Thank you.

Sure. Yeah, this is Liam. Of course, at Skyworks, we're a very operational-centric and technology company together. And a lot of our products, the lion's share of our products are done in-house in our own fabs, in our own assembly and test locations. So we have really good eyes and ears on the balances here, whether it be inventory on our sites or even with our partners. So we are very, very careful to ensure that we are aligning our revenue with natural demand. We always want to be right on step with our customers. I think our teams have done an incredible job. There are markets today right now that there has been some excess inventory, and we're letting that bleed down. And our exposure there is extremely small. Some of the markets in China are a little bit more volatile, but in those cases, we have very little exposure. So I think it's important to note that we can control our ship and our products, working with the best customers out there, lots of great communication with our customers as well. So everybody's on the same page and we feel really good about that. And I think it's something we'll continue to work through and be well positioned for the back half of the year.

Yeah, and Ambrisa, as it relates to the inventory on our balance sheet, it's definitely somewhat at an elevated level, but I'm very comfortable with the level of inventory that we have right now. you have to take into account that we came out of a period where supply chains were challenged. We definitely wanted to make sure we support all the customer demand. We've been increasing some of the buffer stocks. And now more recently, of course, we have seen some softness due to some microeconomic challenges. And we have been adjusting our wafer starts and factory loadings accordingly. We've been doing that for a couple quarters now proactively. Having said that, again, it's a little bit elevated, but you have to keep in mind that we are level loading our factories, and we do expect, based on known design wins, the business to bounce back, especially in the second half of calendar year 2023, and so we will continue to level out to support those big ramps based on known design wins. with many of our customers. We also do expect some of the Android-based business in Korea and China to bounce back in the second half of the year. And so we will continue to make adjustments. I do expect that the days of inventory will come down back to a more normalized level in the second half of the calendar year.

Got it. Thank you.

Your next question comes from the line of Blaine Curtis from Barclays. Your line is now open.

Hey, good afternoon. Thanks for taking my question. I had two, and obviously, you know, it's a tough mobile backdrop. I think these are pretty good results. I'm just curious if you could level set us for December. I don't know if you're willing to give how much your largest customer was. But then in the March guidance, if you could just, you know, talk through how you're thinking about the iOS versus Android there. I mean, does Android – bought them in December or March, and any thoughts on the recovery for Android?

Yeah, so as it relates to the large customer revenue, that large customer was approximately 68% of total revenue. That clearly demonstrates great execution by the team supporting that large customer in the ramp of their new phone lineup. We have some great content. in that phone, some really high performance complex devices, many of those devices leveraging our bulk acoustic wave filtering. And so I think we did really well in the December quarter, despite the fact that, as you know, the large customer talked about that, they were somewhat supply constrained due to some COVID related issues in China. But the team here executed really well in December with that customer.

Yeah, and Blaine, just to follow up, we are starting to get back on the saddle here with the Android portfolio. And as you know, we've actually been holding back because there was some inventory in that channel. I think there still is, but it's been bleeding. And the opportunity for us to have incremental gains there is very high, given the fact that we kind of stayed on the sidelines until these inventory levels got to a more normalized position. It's not about the product. The products are ready to roll. We've got everything we need to drive that business, but we just want to be careful as the markets move forward. So, but we have the design momentum for sure.

And then I wanted to ask you on broad markets, you know, whether you think that business would be up in March as part of the guidance. And I know you had a record INA quarter in September, just kind of curious how that business is doing trajectory wise.

Yeah, so in the broad markets, as we said, was in December roughly 35% of our overall revenue. It was slightly down on a year-over-year basis as we see similar things that some of our peers and competitors are seeing in that market due to some microeconomic headwinds. There's a little bit of a softer demand. But on the flip side, we definitely saw strength for Skyworks solutions in the automotive segment, some parts of the infrastructure and industrial segments. And as we said as well, we see some really good traction in the upgrade to Wi-Fi 6E, which is a big step up in content, as well as some early design wins that are being turned into revenue for Wi-Fi 7. As it relates to The March quarter, we do expect growth markets to be slightly down sequentially, somewhat in line with normal seasonality.

Thanks, Chris.

Your next question comes from the line of Gary Mobley from Wells Fargo. Your line is now open.

Hey, guys. Thanks for taking my question. There have been some teardown reports out there that have highlighted your content associated with, you know, the satellite link, I guess in particular with your largest customer, somewhere in the order of, you know, four or five specific sockets for you guys. Can you speak to, you know, the content opportunity for you, not only the iOS world, but as well the Android world?

Yeah, I think, you know, we – We are engaged with all the relative and meaningful applications. And I think if you're referring to SATCOM, is that right?

That's right.

Yeah, sure. Absolutely. So, you know, we have the technology, the IP, and kind of the building blocks to make that work. It's still early in the global market, but it's definitely an opportunity to bring more scale to units. And so we definitely are, you know, we're engaged, we're involved. We have the technologies to make some of these work. We also have the partnerships with the companies that can do some of the, you know, kind of the groundwork to have that network evolve. And it would be a great opportunity for a company like Skyworks. We have many of the building blocks. We understand in the radio frequency space deeply and in the SATCOM world as well. So It's an evolving opportunity, and we will definitely be at the table. We are today, but more upside to come as the markets evolve.

Okay. This is my follow-up. I wanted to ask about utilization of your supply. It sounds like you won't have any underutilization charges associated with internal supply, at least not for the intermediate term. But maybe if you can speak to external supply, purchase commitments there, and your ability to fully utilize those without taking any sort of reserve.

Yeah, Gary, as indicated before, we have been managing this proactively for many quarters right now. And we are adjusting our factory loadings all the time, depending on the demand that we see. And of course, the earlier you do that, the more proactive you are, the more you can take the time to, of course, accordingly adjust your cost structure taking out costs where needed, while at the same time, of course, continue to work on operational efficiencies, yield improvements, and so on. We've done that with our internal factories. We've done that with our third-party purchases and vendors as well, having an open dialogue, making sure we have, on one hand, enough capacity in place, but at the same time, not overcommitting as well, and I think the team has executed pretty well on that.

Thanks, Chris and Liam. Appreciate it. Sure.

Your next question comes from the line of Tashiya Hari from Goldman Sachs. Your line is now open.

Hey, thanks so much for taking the question. Liam, I was hoping you could provide a little bit more context, a little bit more color around your broad markets business and I think you talked about record revenue in your automotive business and strength across comms and the industrial end market as well. But specifically, I was hoping you could size those individual buckets within broad markets in calendar 22, where you landed from a revenue standpoint across those key end markets and how you're thinking about the forward. And on the forward, I guess, you know, the commentary on automotive from most of your peers continues to be pretty bullish and pretty positive. But there are signs of moderation in comms and industrials. So I was hoping to hear what you're seeing in those markets as well.

Sure. Well, you know, we put a lot of energy into those markets, and we're getting, you know, great returns. And, you know, the size of the opportunity there is substantial. And some of those products and markets were not really the purview of Skyworks two, three, four years ago, but they are now. So the automotive opportunity for Skyworks has been incredible. Leveraging some of the IP that we brought in with the slab INA deal, coupled with our own internal developments and design wins and technology partners. We've got a business now that is in the hundreds of millions of dollars a year. really at a time where, you know, EV and electrification of vehicles is really just starting. So I think this is going to be an incredible piece for us, one of the markets that will drive our broad markets portfolio. The other thing is the IoT space generally is really clicking now for us. And you've heard for years that if we think about, you know, our solutions, they're not just handsets. We leverage the handset because it's a great opportunity to demonstrate, you know, what benefits we could have as a user. But we're starting to drive the same types of technologies in IoT, things like Wi-Fi, for example, GPS, many, many other sensor technologies that we can populate with our solutions. So some of that core wireless engines don't have to be specific to smartphones, but that technology, that know-how, that scale, and the ability for Skyworks to uniquely develop and market solutions, I think, is quite a differentiator. And we're really... you know, just getting the wheels turning on those opportunities. But there's definitely quite a large opportunity set for us over the next four to five years.

Got it. Thank you. And then as a quick follow-up, one for Chris on gross margin. You know, in the December quarter, you know, your margins came in in line. They were up a little bit both sequentially year over year despite revenue declining both sequentially year over year. So curious what – What were some of the positive offsets in December? And then, more importantly, for the March quarter, you're guiding gross margins down, I guess, roughly 100 basis points, give or take. Is that primarily revenue or something else going on? Thank you.

Yeah, first of all, I'm pleased with the fact that in December, we did 51.5% gross margins, up 30 basis points year over year, up 20 basis points sequentially. Despite the challenging macroeconomic environment and I think, again, kudos to the team who continue to drive operational efficiencies into our factories with great execution there. And that's really, I think, the main driver there, how we are able to keep up the margins where they are, again, despite some of the adjustments that we make in terms of factory loadings. As it relates to March, you have a little bit of a mix there. that comes into play, and some of those headwinds, right, the revenue, as you indicated, that translate into the adjustments we make on the factory loadings. But when you put it all together, I'm guiding margins in the low 50s. On one hand, I'm not happy with it. I wish it was 53, and we're going to continue to work hard to get it to 53. But on the other hand, I'm happy with where we are from a margin point of view right now.

Thank you. Your next question comes from the line of Matt Ramsey from Cowen. Your line is now open.

Yes, thank you very much. Good afternoon, guys. I wanted to ask about sort of inventory levels. I mean, there's been tons of conversation through this earnings cycle around inventory levels in the smartphone space, but I'm maybe more curious about the broad markets business. You guys mentioned a couple times the obvious macroeconomic things that are going on and maybe affecting that business, having it be down a little bit. How diverse is the inventory situation in the broad markets business? Maybe you just kind of walk through what business goes direct, what business goes through the channel, and how you're seeing inventory levels just for broad markets in the near term. Thanks.

Sure. Sure. This is Liam. The good news here is the broad market portfolio is very diverse, extremely diverse. And it's leading towards a lot of great opportunity in many different end markets. So we have a pretty decent play there. And our teams on the operational side are highly sophisticated. We have our own supply chains. We do most of our stuff in-house. So we have a really good read on inventories are and where they should be. And I think we're managing it quite well. There's certainly some pockets of inventory out there, but really, you know, nothing that's going to impede the progress of the business. I think the really cool thing is the number of new customers that we're bringing in. And, you know, there's a mix issue when you're doing kind of the tens and $20,000 accounts versus the million-dollar accounts that you may have in some of the smartphone space. So a little bit of a different play, but the diversification, the margin profile is are outstanding. And like you know, Skyworks is an operator. We do just about everything in-house. And the ability to do that also includes great supply chain management, our sales teams being online, understanding where distribution plays versus direct. There's a lot of angles there that we can control. It's not easy, but it's the way we work this business. And I think we're starting to really see the benefits there in broad market, in the diversification You know, we've talked about a few major new segments like automotive. Automotive is really tough. You've got to get certification. You've got to prove your ability to execute in challenging environments. There's a lot there. We've done all that work. And, you know, we've really kind of flexed our muscles in some of the tough cases in mobile over the years. But the efforts there and the knowledge that we built is applicable for so many other markets. So We look forward to it. There's always going to be a couple of bumps and a few wrinkles, but the diversification is playing well. The customer set is growing. And the lion's share of our top-tier customers are really accounts and companies that matter. So we're looking forward to more as we go forward.

Thanks for the call there, Liam. Really appreciate it. Chris, just to follow up on that topic, you had said in your script about the business snapping back in the mobile business in the back half of the calendar year. And I think we're all kind of modeling that as we work our way through the inventory correction and smartphone. But just seasonally or based on the inventory comments that Liam just made, how do you think about the shape of the year potentially in broad markets? Is that a business that can still grow again for the fiscal year? And just how should we think about the shape of that as it comes back? Thanks.

Yeah, no, our broad markets business, as you know, it's a $2 billion or about $2 billion business on an annual basis. And despite some of those microeconomic headwinds and challenges and somewhat softer demand and maybe a little bit of inventory correction that is going on, we do believe that we can grow our broad markets business this year. And I'm not going to repeat what Liam just said, but We have strong design momentum. We play in some high growth markets with some really key technologies. And based on all of that, we do believe we can grow our growth markets business.

Your next question comes from the line of Edward Snyder from Charter Equity Research. Your line is now open.

Thank you. Sounds like you're doing very well at your largest customers and you plan to do well again this year. But real quick question about Samsung. First of all, did they broach 10% this quarter? More importantly, both in Samsung and in China, you've kind of missed a falling knife there because you don't really participate very much at all. I know that Samsung is converting over to modules in the masters, etc. What are your prospects for let's say revenue growth, because everything is going to be content growth, specifically at Samsung this year, because, you know, phone demand is slowing for them. The ASPs in their flagship are way below where they were when they were doing a custom design. I know that the flip side is true for the Master, but you don't play big in the Master. So I'm trying to get a better profile of what you think seriously could occur this year, calendar year 22, at Samsung. given all the different moving parts and the fact that, luckily, you weren't playing much there at all in the last year or two. And then maybe you could break that down between flagship and master, what you think about each of those prospects. That would be helpful. And then I had a follow-up, please.

Yeah, just add, so Samsung was less than a 10% customer. I think it's very well documented. They are going through an inventory burn-off period right now. And, again, proactively, we have, reduced our shipments to that customer, especially in the December quarter. And I'll hand it over to Liam to provide some more color on Samsung.

Yeah, I mean, look, Samsung is a major player in the industry, and I think they got banged up a bit here in the cycle, as did some other Android players. So, you know, we've been working through that, Ed, and the irony is that we've actually – got some pretty good content in those phones. And so we look forward for, you know, the inventory to get cleared and we'll be up and to the right in terms of our business there. But, you know, I think some of that is just the volatility that, you know, the semiconductor industry and even beyond, I mean, the technology industry is going through and trying to sort through ways to get back on their feet, so to speak. And, you know, we're very focused on our own inventory and our own supply chain, so we have eyes and ears. We never want it too hot or too cold. We want to be able to deliver what the customers want. We stepped back a bit on Android as the inventory levels were building in the channel. We didn't want any part of that. Sampler's a great, great customer. You know, just having some bumps, we're going to work with them and ensure that we can do everything we can to help, not only on the technology side, but even on the fulfillment side. So I think that's a temporary blip. Honestly, I think Samsung is going to continue to do very well. They're a significant company with a lot of technology and the markets in Korea are very dynamic and cell phones and technologies that we make are vital and viewed as a really critical asset for a person there. So we think that's going to blow over and we'll start to see more creative revenue in the second half.

And if I could, you've done particularly well with your ball. Actually, it was rather surprising to see you go head-to-head with some of the leading ball guys and actually win in that. So I'm trying to get my arms around second half of the year, say, content growth. We saw you took the satellite with your own teardown. We got your satellite part. I think we illustrated that you got twice as many ball filters in your TRX, your transmit DRX module, as last year. And I know it sounds from this call and from what we've picked up that you're pretty optimistic about second half content. Is it going to be a new class? Should we be looking for new classes of parts like you did with satellite? Or is it going to be more content, especially in the boss side of the business with some of the existing capabilities spread? Because we're also obviously hearing, you know, Corwood didn't make no secret of the fact that they're going to gain some in areas they hadn't before, like antenna plexers. So I'm just trying to get out my arms around how competitive the market is going to be in ball and where you guys think you you'll fit in with that given how well you've done the last couple of years. Thanks.

Yeah, no, that's, that's great. That's great.

I mean, you, you know, the business and you know, the technology. So, so the nice thing here is, you know, I felt like, you know, some of the technologies were, were ready to go, but the market wasn't there, right? The appetite, the consumer appetite or the customer appetite wasn't really, you know, jumping all over this technology, but now you're starting to see, as we get more and more nodes and we're starting to get more efficient in delivering high-speed data, and it's just becoming an opportunity for us now at a more broad level. And I think you're going to see a small set of players, of which we're going to be one, of course, that can do what needs to be done with these incredible customers. I mean, the customers today, it's changed so much from a standard cell phone that needs the requirements, the current consumption, the ability to roam globally. It's becoming more and more complex, and we love that. That's exactly what we want to see. We want to solve the tough problems. You know from the technology side, Ed, this stuff is not easy, right? When you're bringing in all these disparate technologies into one simple module, apparently simple, right? It's really hard to do, and it's one of the things that our teams here at Skyworks love to do, our technologists, our operational team, all the way to sales. And so we love that opportunity, we love that complexity, and the more use cases that emerge are great for us.

And just to illustrate that point, our revenue from devices that have bar filters inside is getting really close to a $2 billion analyzed run rate. And so it's definitely a major success story, and we believe that number will continue to go up to the right.

Great, thanks.

Your next question comes from the line of Chris Castle from Credit Suisse. Your line is now open.

Yes, thank you. Good afternoon. Question about the Android business in general and how that translates the linearity through the year. And you said last quarter that you thought that the China business would be the low point in December. Did that turn out to be true? Is that true in general for Android, either in December or March? And if that business is sort of bottoming out, does that have any implications for June? Do you think that March quarter would be the low point in the year for revenue?

Yeah, I think that's fair. December was low. March will continue to remain low as especially China, Oppo, Vivo, Xiaomi, and to a certain extent, Samsung as well, are still going through this inventory burn-off process. But then I think we will start seeing some improvements in the June quarter, and then for sure in the back half of calendar year 2023.

Got it. That's helpful. Thank you.

And maybe a little longer term. As we look at the revenue prospects over the next two years or so after we get through this inventory correction that's going on right now, what do you expect to be the relative growth rates between the mobile business and broad markets? I know you've spoken a lot about the content that you expect to get in the mobile business, but do you expect that you can grow the broad markets business at a faster rate and maybe two years out, what do you expect broad markets to be as a percentage of revenue?

Yeah, definitely, Chris, we're expecting double-digit top line in the broad markets for sure, mid-level top line. And we should be in the teens, I believe, given what we can do, what our products look like. And obviously, when the air gets clean, the markets will be stronger. I think we're going to be in great shape. And then even on the mobile side, you know, there's a lot of invention and unique technologies that are being brought up in mobile that people haven't really seen yet. But the best customers in the world know what they're doing. And there's a lot of incredible opportunity for the right types of technologies. And the technologies that we make are those technologies. So I think we're going to have, you know, a nice combination with, you know, again, our strength in mobile, which is a disciplined approach. We know what we're doing. We're working with the right people. It's not easy. We've made great steps in capital. A lot of our CapEx is behind us right now. That's another key point. We talked about the free cash flow on the call already. And then the diversification theme, Chris, is really playing nicely. You heard questions about satellite, for example. You look at the broad markets. Think about our hundreds of millions of dollars of automotive revenue that we didn't have three or four years ago. So we have really core technologies that we can take across a broad set of mobile and connected devices, but this is an extrapolation now of new applications that is really driving the business, and you're going to see more and more of that as we go through. It's unfortunate right now that the market is just, you know, we're all in kind of a bit of a slowdown here as we're emerging, but we've got great stock that's ready to go and design wins that have been cemented, and those will roll out in the second half of the year for sure.

Got it. Thank you.

Our next question comes from the line of Carl Ackerman from BNP Paribas. Your line is now open.

Yes. Hey, thanks, gentlemen. Two questions, if I may. First, I know you have little exposure to China Android right now, but one of the investor concerns is that you may have lost content, and so perhaps you won't receive as much of a snapback as some of your peers when trying to demand eventually recovers. I was hoping you could address why those concerns might not be warranted. I have a follow-up.

Yeah, I mean, I'm glad you asked the question. We're ready to roll with Android. We have the technologies, we have the products, but we're not going to fill the channels, right? I mean, there's a bit of an overhang there. We want to run discipline in our business but I will say that inventory overhang is starting to abate already. We see it. We have product ready to go, high quality, top of line technology that we can move in. I can't tell you exactly when, but it's definitely happening and we're ready. It's an upside in our pocket that we haven't really rolled out, but we've had years and years of great position in China. OBX specifically, Oppo, Vivo, Xiaomi, and then Samsung on its own vector, which is a huge company. And it's just unfortunate that those markets got banged up. They're going through an inventory cycle now. But on our end, we never built the inventory up. We try to meet the demand as it is. We don't want to get ahead of it. And our teams were very disciplined. And you could see even in the last quarter, we talked about China revenue is below 5%. That's because the market didn't need more than that. And we didn't want to sell more than that. So I do think as we get through this quarter and starting to see towards the second half of the year, a more improving macro environment, we will be very well positioned to execute. And if things change, we can move faster if we need to. But it's not a technology issue. It's not an execution issue. It's really just trying to manage the business in the appropriate way for our shareholders.

Very clear, Liam. Chris, if I may, a question for you. More of a simple one, I suppose, but what's driving the big step down in CapEx in December? And I'm curious if this implies anything for content as we think about calendar 23. Thank you.

Yeah, now, as it relates to CapEx, we definitely expect our CapEx trend to moderate compared to what we have been doing over the last five years. Just as a reminder, the last five years, we were in the 10% to 12% of revenue. We've put a lot of capacity in place. We put a lot of technology-related investments in place, especially as it relates to bulk acoustic waves. And now we have to leverage that capacity. We are focusing on yield improvements. We are focusing on die shrinks. We can't create more capacity without putting more equipment in place. And as a result of that, you will see a little bit of a more moderate, less capital intense capex in the next couple of years here. But again, we feel good about the investments that we made. And it really will help to further improve our strong cash flow that we have already. We started the year very strong. We expect further strong cash flow the remainder of the year, again, based on some moderate capex. But we could drive our free cash flow over 30% in this fiscal year.

Yeah, and just to reiterate that, the capital base that we have, okay, it took a long time to get to this scale. We did a tremendous amount of work, brick and mortar, site level, in our own facilities, and it positions us now for kind of a downhill run from CapEx. We still have great technology, great equipment, but it's brand new, right? So we spent that money over the last four or five years strategically to build up a competency in bulk acoustic wave and other filter technologies. Very, very difficult stuff. It's not available in the merchant market. So it was a make versus buy approach. We did the make. And so we developed solutions that are purpose-built for Skyworks and purpose-built for our customers. The great news is the capital is up and running. It's humming along. And sure, there'll be incremental capex spend over the next several years, but it won't be at the level that you look back in the last three or four, because now those investments are in-house, at scale, and running.

Very clear. Thank you.

Sure.

Your next question comes from the line of Brett Simpson from RIT Research. Your line is now open.

Yeah, thanks very much. Liam, I wanted to get your perspective on BGPP release 17 and also Wi-Fi 7 using 6 gigahertz. And when it comes to these upgrades, you know, when do you think they're going to ramp more broadly, particularly in smartphones and consumer devices? And then just maybe from a business perspective, how should we think about the overall RF content when you start to scale up Wi-Fi 7 and release 17 5G? versus today's devices seems to be quite big architecture changes. So I was just curious how you think about this and the extent to which Skylux could benefit. Thank you.

Yeah, no, that's a great question. Those technologies are just starting to emerge now and they do add a great deal of complexity. And you mentioned that in your words. The good news here for us is that we've been making in tandem investments and technology. So we've got, of course, the Wi-Fi cycle that's going from 6 to 6E and Wi-Fi 7. And that has its own set of incredible opportunities. And, you know, kind of on the launch pad there and the complexity and the newest cycles and the new devices has been incredible for us. So we can definitely hit that. And then back on other connectivity nodes, adjacent connectivity nodes are going through a similar space, and that's more on the IoT line. So those types of technologies we can deliver to the end market solutions. And that would be a big part of our broad market portfolio. And some of the most relevant players in that space, we've already had design wins with them at earlier stages, and we have a good trusted partnership. So it's definitely further into the year, but definitely an opportunity for us to get into 23, 24, 25, as we look out, but definitely another cycle all that we can, that we can leverage. And as you said earlier, you know, much more challenging from a technology perspective, but the, but the consumers benefit there would be amazing. So I think those new technologies, they're hard to do. We've got the IP, we've got the know-how, uh, and they can create their own cycles within, within the next set of IOT devices.

And is that a meaningful step up in content, Liam? Just, I mean, Wi-Fi 7, for example, adding six gigs and, you know, quite a lot of changes on the modulation side and the MIMO side. So I'm assuming this should be a fairly healthy step up in RF content. But I don't know if there's any numbers you can sort of share with us on that upgrade to Wi-Fi 7.

Yeah, no, you know, it's hard to handicap the numbers, but it's meaningful. It's meaningful. I think you're going through and, you know, it's kind of a pretty long step from from Wi-Fi 6 to 7. There's a lot of work being done there. And so work also means a lot of technology being embedded. So I think we could get, you know, a 10% or 15% TAGR on that segment. And then also kind of that's just on content. But then if we get the user count up, you know, you've got a double whammy. So that's kind of what we're looking for. And, you know, anything along the way there is going to be incremental improvements.

And maybe just a quick one for Chris, just on the ball filter, Apex moderating. Can you talk a bit more about where the capacity for ball looks today? And how should we think about Skyworks addressing six gigahertz with your ball technology? And are you able to address that going forward? Thank you.

Yeah, again, if you look at the CapEx over the last couple years in the $500 million, $600 million per year, the vast majority of that CapEx was going into expanding our bulk acoustic wave filter operation where we have, of course, from a small base doubled and doubled and doubled again the capacity there. Again, we're focusing really now on driving operational efficiencies die shrinks, yield improvements, which gives us a lot more capacity leveraging the installed base of the equipment that we have. And we're not done. I mean, we're going to keep expanding that as we see fit. And we do believe that our revenue from devices that has bulk acoustic wave filters in will continue to grow very strongly. And we're ready for that, and we will not hesitate to put more capacity in place if and when needed.

Your next question comes from the line of Harsh Kumar from Piper Sandler. Your line is now open.

Yeah, hey, guys. You know, very incredible results, to be honest with you, in this turbulent environment. Liam, let me ask you about China. I'm sure you're tired of it, but I know that this is hopefully the last question on this topic. You de-risked China completely last go around. I think the message was that it was very close to zero. But what do you think the China opportunity is? And do you even want this business, given the volatility, the geopolitical nature of it? And if you can remind us at the peak, let's say how much it got to, let's say over the last five years, you know, maximum as a percentage of sales, I just want to gauge where you're playing and what you're really going after.

Yeah. Yeah. Great question. Well, you know, we've, we've always been, we'll work with anybody that's, you know, that needs our technology, you know, we'll partner with anyone. So there really isn't any bias around where we're going to go in our markets. But, you know, China's been a challenge, I think, for ourselves and the peers in the U.S. here. And you think about even back to the Huawei situation, you know, with Huawei shutting down, that was a big business for a lot of companies in our space. It's been a volatile market operationally, and some of that is COVID and all kinds of things going on. But the technologies and the work that we're doing is applicable for anybody. There's no reason why the China opportunity is as good as any opportunity. But unfortunately, there had been some inventory here that we've all talked about, not specific to Skyworks, but just in general, where the markets kind of got out of sync and created a bit of an inventory overhang. And that kind of weighs on the sector, I would say. But turning it back to Skyworks, you've heard us talk about our operational efficiencies and our know-how and labs to fabs approach. Those aren't just words. That's how we run this business. So we're very keen on what we're doing with our customers. We want to be great partners, but we also want to stay in sync with the market. That's really important for us. And this is just a case like that now. I think we've got a situation in China where there was an inventory issue There were some lockdowns. There were a lot of things that would impede the natural flow of revenue and engagement. And that's kind of where that market is. So we're standing ready to step back in. We have the technology. It's not a technology issue. It's not even a gross margin issue, really. It's about managing inventory and making sure that we're delivering to the right cadence. That's what we want to be able to do. So having said that, long dialogue, I would tell you that we think things will get better. Things will get better as the markets start to really recover. The technologies that we have are really good and we can populate just about anything out there with the solution suite that we have. At this point, the bad news is flushed out for us and the opportunity to grow into those markets and deliver incremental growth is right there. So we're looking forward to making that happen. And I think things are starting to warm up a little bit already. So we feel good about that as we exit.

Okay, Liam, can I just ask maybe the similar question in a different way? Is it fair to say that you mostly look to sell standard products in China? So it's not a lot of work for you outside of what you already do. And then you look to sort of service those customers while leveraging your own facilities. Is that a fair way to think about it without too much effort?

Yeah, I mean, sure, we can take the business and the technologies. I mean, every market has its own flavor and, you know, there's different technology nodes, higher to lower to more complex, and we're able to scale through all of it. So I would say that, you know, over time, the markets are going to get, the markets are actually going to embrace higher levels of technology. I think a lot of the stuff that we're talking about right now, two, three years from today, it's going to be much harder, much more difficult. And companies like Skyworks, I think, will have an incremental advantage. So I think you've got a China market that stalled some macro things that weren't specific to mobile. But as we wake up here and the markets start to recover, the technologies have not sat by on the sidelines. The technologies have gotten more complex and more challenging and more powerful for the user. So the one thing I would say is in the China market, have they been able to catch up? with that technology. I'm not quite sure it's there, but I know that we can do that with the partners. So it's not a technology gap with us. It's not a revenue issue. It's really getting the China market to get back on their feet and then get that partnership where it should be, where it's in a natural supply and demand view. And I think we can do that. We have no reason why we wouldn't want to do more business in China, but all those things that I mentioned need to kind of clear up a little bit before the markets and the opportunity for us is what we want to see.

Got it. And for my follow-up, you know, it's March. You probably know the content for the year because these wins happened about a year before. Units are going to be pretty depressed. I was curious if you could give us a sense of what, to the extent that you can, you know, a sense of content this year, and also maybe a sense of 5G units, whether you expect 5G units to be up this year. And then one for you, Chris, the 53% free cash flow number, that's a monster number, to put it bluntly. Is there something one time out here, you talked about CapEx going down, or is this something sustainable for Skyworks?

So, Harsh, maybe I'll take the cash flow question first, and then I'll turn it back to Liam. Very happy with the very strong cash flow and free cash flow, obviously, in December. I would say three elements here. Our world-class profitability level, 37% operating margin, not a lot of companies and taxpayers doing that. Secondly, yes, great working capital management, although a good guy and a bad guy, right? Inventory is still somewhat elevated. We will work it down over time. But we definitely had strong collections in the December quarter, which is a little bit of a one-time item. And then thirdly, as we discussed earlier, some moderate CapEx in December and going forward. And the combination of those three delivers strong cash flow and will continue to deliver strong cash flow.

And then I'll turn it to Liam on the other question.

Yeah, so hard. Yeah, the content. Yes, exactly. So, yeah, when we think about content, The way we're seeing it now with the customers that we're working with now, especially at the high end, it's not more of the same thing. It's not, hey, we had two devices, now there's three devices. It's really about what's going on inside. We're seeing a lot of innovation and performance in the new suite of technologies. Now, I'm not going to give you the timeline on this because this is kind of a cycle of improvement, so stay with me on that. But there's no question that if you look at where a high-end smartphone is today and the content that is available versus what we see one, two, three, four, five years out is going to be dramatically different. We really believe it. We have great engagement with customers, and they're all kind of in the same spot. Everyone has a different way to get there. So the units... I think they're going to continue to be where they are. There'll be more growth, but the content and the usage cases are going to expand. And I say usage cases because that doesn't mean just a mobile phone. If you think about technologies like 5G, they're technology vectors. They connect things wirelessly. It could be an automobile. It could be connected to a data center, a Wi-Fi solution. There's so many different applications with the right use cases. And I think if you think about Skyworks, it's not just about mobile. Mobile is an important vector, but all the other technology vectors that we can work through IoT and other markets will continue to grow. And the other thing that's great about that is they're on their own cyclical path. It doesn't go through the same kind of annual cycle that we do see in mobile, which is fine. But the opportunity to have you know, an uncorrelated path in technologies that are not in a mobile phone. And I think we're going to see that more and more, things like automobiles and data centers and some of these other really interesting IoT devices. So keep that in the back of your mind because that part of the business is really moving. Mobile's doing great. We have super technologies. We're going to continue to do well. But the other side of the field is an incredible opportunity for our investors and the opportunity for Skyworks to deliver world-class solutions. So I'll leave you with that, Harsh. Thanks.

Appreciate it, guys. Thank you so much.

Ladies and gentlemen, that concludes today's question and answer session. I'll now turn the call back over to Mr. Griffin for any closing comments.

Great. Thank you all. I appreciate your participation in today's call. Look forward to seeing you in upcoming conferences. Take care.

Ladies and gentlemen, that concludes this conference call. We thank you for your participation. You may now disconnect.