Skyworks Solutions, Inc.

Good afternoon and welcome to Skyworks' third quarter 2026 earnings conference call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President of Best Relations for Skyworks. Mr. Gill, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' third fiscal quarter 2026 conference call. With me today for our prepared remarks are Phil Brace, are Chief Executive Officer and President, and Philip Carter, Chief Financial Officer and Senior Vice President of Skyworks. This call is being broadcast over the web and can be accessed from the investor relations section of the company's website at skyworksinc.com. In addition, the company's prepared remarks will be made available on our website promptly after their conclusion during the call. 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. Additionally, today's discussion will 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 a complete reconciliation to GAAP. With that, I'll turn the call over to Phil Brace.

Thanks, Raji, and good afternoon, everyone. Today, alongside our June quarter results, we're making several important announcements related to the Corvo combination. One, an update on the regulatory process. Two, our financing plans. Three, the expected leadership team for the combined company. And four, a new capital allocation framework. Let me take these first. The regulatory process continues to move forward. In China, the review has advanced to phase three with SAMR, and we are working constructively with regulators in all remaining jurisdictions. We are now optimistic that we can close within the calendar year, and we will be preparing to close as early as within this fiscal year. As always, the transaction remains subject to regulatory approvals and customary closing conditions. In connection with the transaction, we anticipate raising approximately $2 billion of debt financing in the near term, subject to market and other conditions. Philip Carter will cover the details, including what's already reflected in our September guidance. We're also announcing the expected leadership team for the combined company. Philip Carter, Chief Financial Officer and Senior Vice President Philip Chesliff, Senior Vice President and President of High Performance Analog Karilee Durham, Senior Vice President, Human Resources J.K. Givens, Senior Vice President and General Counsel Secretary Yusuf Jamal, Senior Vice President and General Manager of RF and Mixed Signal Intelligence Solutions Reza Kasnavi, Executive Vice President, Chief Operations and Technology Officer Joel King, Senior Vice President and General Manager of Mobile Solutions Business Todd Lepinski, Senior Vice President, Sales and Marketing Frank Stewart, Senior Vice President and President of Advanced Cellular Bob Bergerworth, President and Chief Executive Officer of Corvo, is expected to join the Board of Directors of the combined company. This team brings together proven leaders from both organizations and the work that we've done to identify these leaders now means we're ready to execute from day one. Finally, our board has approved a new capital allocation framework for the combined company. Let me first remind you why we're in a position to do this. We deliberately structured the transaction so the combined company starts with a favorable capital structure with modest net leverage, and as we said in October, we expect it to be immediately and meaningfully accretive to non-GAAP EBS post-close. That financial strength is the foundation for the framework. This combination creates a company with robust free cash flow and adjusted EBITDA generation, and we intend to put that capital work wherever it creates the greatest long-term value, repurchasing shares, de-levering the balance sheet, and pursuing strategic and accretive M&A. We expect stock repurchases to be a key vehicle for returning capital shareholders, and to support that, the Board has replaced our repurchase authorization expiring in February 2027 with a new $2 billion stock repurchase program expiring in January of 2029. As part of this framework, we have decided not to declare a quarterly dividend going forward, redirecting that capital toward these higher return uses. Taken together, we believe this framework returns more value to shareholders over time with far greater flexibility. Stepping back, the strategic logic of this combination is simple, scale and diversification. In mobile, we're creating a best-in-class RF portfolio with complementary capabilities that expands our reach across platforms and drives greater revenue stability. In broad markets, we're building a larger, more diversified business across defense and aerospace, edge IoT, AI data center, and automotive, a key growth platform for the combined company. The same scale is what drives our cost opportunities. and we continue to make good progress in integration planning and remain confident in our ability to realize the anticipated synergies of $500 million or more. A lot of important news all pointing in one direction. With that update on the transaction and consistent with prior practice, we won't be discussing it in any further detail on today's call and we'll focus on our third fiscal quarter results and September quarter outlook. Now let me turn to the June quarter where the business performed well. We delivered solid results with both revenue and earnings above the midpoint of our guidance, revenue of $935 million, and non-GAAP diluted earnings per share of $1.08, five cents above the midpoint. Let me touch on the demand environment. What we see across our business is steady. Channel inventories are lean, demand in mobile remains solid as we head into the fall lunch cycle, and in parts of broad markets, demand is running ahead of what we can supply. On memory, I know it remains front of mind for many investors We're not a buyer of memory, so I'll speak to what we can see directly. Our demand signals have remained stable, and our September guidance reflects what we see today, consistent with what we said the past couple of quarters. We recognize these dynamics are still playing out across the industry, and we're staying close to our customers and monitoring order patterns as we move through the second half. Our content sits predominantly in premium high complexity platforms, which have historically been The most resilient part of the market. In mobile, we executed well in what is seasonally a lighter quarter, with revenues slightly ahead of our expectations, supported by healthy demand at our largest customer, and successful new product ramps at our largest Android customer. Looking ahead, we're well positioned for the fall season, and over the long term, the demands placed on RF front end continue to expand, which is why we're confident in our growth thesis. Let me spend a moment on those drivers. Uplink is becoming as important as Downlink. Real-time applications like video, cloud AI, and live translation demand higher transmit power and more sophisticated power amplification. Received paths are multiplying to carry more simultaneous data streams, and satellite connectivity is going mainstream, requiring entirely new bands and components. All of this adds RF complexity to every device, and complexity is what we do best. Turning to broad markets, revenue of approximately $403 million, up 8% year-over-year. Our three growth engines, Wi-Fi, data center, and automotive, again, represented nearly two-thirds of our broad markets business and collectively grew 15% year-over-year. Demand for these products continues to run well ahead of what we can currently supply, and we are actively working to close that gap. Wi-Fi, Wi-Fi 7 adoption continues as AI workloads move toward the endpoint, Design engagement is strong, backlog is solid, and our early collaboration with customers on Wi-Fi 8 positions as well. Automotive. The connected car and infotainment are grabbing growth today, with power and connectivity expanding our footprint over time. We are engaged with global OEMs and Tier 1 suppliers on multi-year vehicle platforms. AI Data Center. Our fastest growing business is tracking ahead of the 50% annual growth we outlined last quarter, even with supply constraints. We're engaged with leading customers on two fronts, high speed connectivity as the industry moves to 800 gig and 1.6 terabit platforms and power as it shifts to 400 and 800 volt HVDC architectures. Rising data rates and rack density are driving demand for our precision timing and advanced power delivery solutions. Together, these engines are reshaping the mix of our broad markets business and validating the diversification strategy We've been executing. To summarize, we delivered another solid quarter of execution, revenue and earnings above the midpoint of guidance, with continued traction in broad markets. The corporal combination is advancing. Regulatory reviews are progressing, and we are optimistic that we can close within the calendar year, and we will be preparing to close as early as within the fiscal year. We are preparing the combined company to execute from day one, with our financing plans set the expected leadership team announced, and a new capital allocation framework in place, centered on balance sheet flexibility. Demand is healthy, and channel inventories are lean, and the long-term setup is compelling. More endpoints, more content per device, AI at the edge, and growing exposure to secular growth markets, including data center, automotive, defense, and aerospace. With that, let me turn the call over to Philip to take you through our third quarter results and fourth quarter outlook.

Thanks, Phil. Skyworks delivered revenue of $935 million, above the midpoint of our guidance range. Mobile represented 57% of total revenue, supported by healthy sell-through at our largest mobile customer and strong execution of new product ramps at our largest Android customer. Our largest customer accounted for approximately 57% of total revenue. Broad markets represented 43% of sales and grew 8% year-over-year led by strong double-digit growth in data center and automotive. Gross profit was $420 million with gross margin of approximately 45% in line with our guidance. Input costs remain a headwind in the quarter consistent with what we discussed last quarter. And we continue to work toward containing these pressures through disciplined cost controls and selective pricing actions. Operating expenses were $238 million Slightly below the midpoint of our guidance as we continue to fund high return R&D programs while maintaining tight control over discretionary spending. Operating income was $182 million, translating to an operating margin of 19.4%. Other income and expense was roughly neutral and our effective tax rate was 10%, resulting in net income of $164 million and non-GAAP diluted earnings per share of $1.08, five cents above the midpoint of our guidance. Turning to the balance sheet, we ended the quarter with approximately $814 million in cash and investments and $497 million of debt, having retired $500 million of notes that came due during the quarter. The balance sheet is well positioned to support the Corvo transaction. In connection with the transaction, we anticipate raising approximately $2 billion of debt financing in the near term, subject to market and other conditions, in preparation for an earlier close. Now to our outlook. For the fourth quarter of fiscal 2026, we expect revenue in the range of $1 billion and $10 million to $1 billion and $60 million. We expect mobile to grow sequentially in the high teens range, supported by the seasonal ramp of new product launches at our largest customer, while broad markets is expected to grow approximately 5% year over year, representing approximately 39% of total sales. We expect gross margin in the range of 44% to 45%, This reflects the seasonal shift in mix towards mobile as new product ramps reach full volume. In addition, we noted last quarter input costs continue to rise, and we expect that dynamic to persist. We are working to offset this through cost reductions and selective pricing adjustments. We expect operating expenses of $235 million to $245 million as we continue to invest in our key technology roadmaps. Below the line, we anticipate approximately $6 million in other expense. which includes approximately 5 million of incremental net interest expense reflecting a partial quarter of financing costs for the Corvo transaction. We expect an effective tax rate of approximately 10% and a diluted share count of 152 million shares. At the midpoint of our revenue outlook of a billion and 35 million, this equates to expected non-GAAP diluted earnings per share of $1.27. With that, I'll turn it back to Phil for closing remarks.

Thank you, Philip. Before we open the line, I want to thank our employees, customers, and partners for another quarter of outstanding execution. And to the corporate team, the closer we get, the more energized we are by what we can build together. Your dedication sets the stage for continued leadership and growth. Operator, let's open the line for questions.

Ladies and gentlemen, to ask a question at this time, you will need to press star 1-1 on your telephone and wait for your name to be announced. Once we draw your question, simply press star 11 again. Given time constraints, please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question coming from the line-up, Ruben Roy with Stifel, your line is now open.

Thank you for taking my questions. I understand sort of the commentary on memory pricing, and Skyworks is not a buyer of memory, but in May you said you hadn't seen pricing pushback. I'm wondering if you could just kind of give us, within the context of your guidance for the September quarter, how pricing has held up through sort of the fiscal 27 negotiating cycle, and it sounds like there's still potentially some moving parts. Is that sort of the way to read into your comments on at least mobile at your largest customer?

No, thanks for the question. No, I just want to, typically what happens is you go through a negotiation and it's negotiated at time of down selection. There typically is not any price negotiation that happens post that. That's kind of part of the whole package that you win. So there's no in-cycle negotiation on that. Now, the flip side of that is we don't have the ability to adjust when input costs go up as well. So what you're seeing there is is a little bit of pressure on the gross margin side, primarily driven by input cost increases that have been difficult. We've been working to offset some of that with our own cost reductions and selective price improvements elsewhere, but that's where we see that. On the memory dynamics, you know, look, we've been just watching this every quarter. We've been keeping our inventories low, and the demand reflects what we believe to be, you know, reflective of that in the current quarter.

Okay, helpful. And then as a follow-up on the broad markets, I hate to sound nitpicky here with the three gross engines happening, but with kind of the guidance into September, you mentioned the demand versus supply. There is a little bit of deceleration. Is there a way to think about sort of what you're shipping against, what the gap is between sort of demand against what you can get on the supply side and any specifics on components that are hard to come by?

Yeah, I can't really get into specifics. It's hard to come by. I would just say the demand has accelerated from the prior quarter. Particularly our data center demand is higher than the 50% we talked about last quarter. We've seen definitely, I would say, tightness across the board in some of those products that are growing faster. Offset that, we've seen some Thank you. Our next question in queue coming from the lineup. Carl Ackerman with BNP Paribas, Helene Smalford.

Yes, I have two. Thank you, Cameron. One of your competitors in mobile, Intracorder, announced a long-term supply agreement with your largest customer. How do you see their long-term supply agreement impacting your ability, if at all, to regain content opportunities within mobile? Another follow-up, please.

Yeah, thanks for the question. Obviously, we can't really comment on peers or terms of agreement between our customers and third parties. Frankly, we can't comment because we don't know the details. So that's number one. Number two, you know what to observe, right, just from what you can get disclosed. So this seems to be consistent with similar multi-year agreements that they've had in the past. Our position is earned design win by design win, platform by platform, and actually our engagement and design win pipeline with that customer remain unchanged. So I think what I can say as a combined company, we're going to have the broadest RF portfolio. I think nobody has shipped more RF components across the board than we have, and we're going to continue to invest in that, and I think that that breadth gives us a wider range of platforms that we'll be able to compete for, and frankly, some more improved revenue stability that I think is going to be important for us going forward as well.

Yep, appreciate that. For my follow-up, From my follow-up, as you indicated, one of the ways in which you regain content, we believe, is for the mix of the internal baseband modem share to increase over time, which we believe to be at 20% this cycle and 70% in devices this fall. Do you still anticipate SkyWars' content to be relatively flat this year? And then, as you address that question, if you could also just talk about any additional timing or incremental commentary with respect to the billion-dollar-plus Android win that you have, particularly through 2030. Thank you.

Yeah, I think the first one, obviously, what we said is we expect kind of blended content to be roughly flat. We're sticking with that. You know, obviously, we can't really comment on particular SKUs, particular timing, any of those sort of things. A, we don't know, and B, we don't know what's going to sell. So our guidance really reflects what we believe to be The best view of what we have in the quarter, inclusive of what phones are going to ship, the ramp, our content, all the rest of that kind of stuff. With respect to the Android win, this continues to be a very strong customer of ours. It's an existing customer of ours that we've had to date. It extends an engagement we've had through 2030. and I think it's really demonstrative of, you know, our strong RF position and what we see there going forward. I think it gives an indication of kind of the platform and the capability that we have.

Thank you. Our next question in queue coming from the line of Chris Sankar with TD Cowan. Your line is now open. Chris Sankar, your line is now open. Please check your mute button.

Hi, thanks for taking my questions. This is Stephen calling on behalf of Krish. Actually, first question for Philip on the new capital returns program. Just kind of curious, in terms of some of the assumptions that are baked into the new program, does it assume in terms of the mobile market that the end market returns to growth next year, or are you calibrating the program based on current conditions, first of all?

No, I mean, let's make a comment. This is Phil Brace. I'll take this, and then Phil Carter can get into specific details. Look, when we looked at the capital allocation framework for the company, we feel very strongly that the combined company is an incredibly strong position. And we looked at the uses of capital, and we believe that this is the most accretive thing that we can do and do this, both buying back shares, delivering the company, and looking for M&A to continue to diversify and expand the business. We're going to be disciplined and thoughtful by how we approach that. And it really was not reflective of any short-term dynamics, but represents kind of a longer-term framework for the combined company. And the new framework of $2 billion really gives us the opportunity to take advantage of dislocations we see in time. So it was not a short-term kind of view of any statement around that. It was a reflection of how we want to position the company going forward and the most effective use of capital to deliver value to the shareholders over the long term.

Understood. Thanks for that. And as for my quick follow-up, I'm just kind of curious on the selective price increases portion of the commentary earlier. I was wondering, is that more applicable to the mobile side of the business with the broad markets? And any additional specifics would be helpful. Thank you.

Honestly, we're trying to do it everywhere we can. I mean, we are trying to do our best to, you know, engage with all the customers and all the suppliers to make sure we do that, but, you know, to kind of minimize the impact the best we can. But, you know, we have been undertaking price increases where the cost, where we just simply can't absorb the cost anymore. We try and do our best to try and mitigate these price increases with other actions we take amongst ourselves, cost reduction efforts and the like. And, you know, we've been trying to do that. In certain cases, we just can't absorb them anymore. So we're working with our customers to help pass some of those costs along.

Yeah, and just to add to that, yeah, so it's mostly on the broad market side, as Phil mentioned earlier in the call, right? Our mobile business, we set prices pretty much annually, and so it's really focused on those long-life products that have long tails, and there's some selective price increases there. Some of them haven't taken effect yet, so they're kind of in the future as well.

Thank you. Our next question in queue, coming from the line of Srini Pachauri with RBC Capital Markets. Your line is now open.

Thank you. My first question is on broad markets. I think, Phil, you addressed it a little bit, but I'm looking for a bit more detail. You talked about consumer being a little softer. That makes sense. I'm just curious as to how big consumer market is, any additional detail, because even for the outlook, you're guiding for about 5% despite the fact that your data center and auto seem to be growing in the mid-teens. So just trying to understand how much of a headwind that is going forward.

Yeah, I don't think we break too much of that, much more detail down on that, Srini. I think, you know, the way that I kind of think about that is, like, our growth engines, our data center business is growing, you know, faster than what we got it before. Our overall growth engines are growing at 15% year over year. That is actually supply constrained at that point, and the headwind really represents some more of the IoT consumer-related devices where we're seeing some softness. So that's about kind of the level of breakout we're given at this point.

Okay, fair enough. And then on the acquisition closure, I understand there are sensitivities about additional details here, but you sound definitely much more confident than three months ago. So I'm just trying to understand what changed in the past couple of months that's giving you this confidence. You did talk about, you know, phase three being completed. I guess, you know, just to give us some pointers as to what are the next steps and how many more phases, if any, are there in terms of this approval. Any additional color, I think, would be really helpful. Thank you.

Yeah, thanks. I think, as everyone knows, the regulatory process is, you know, inherently uncertain, right? So you're not really kind of Going through that. But we have, you know, we continue to move forward. The phase three of SAMR is, in fact, the final stage of that process. And we are working actively and constructively with the two, you know, remaining jurisdictions. And I think that, you know, based on the discussions we're having with them and based on the progress with SAMR leads us to believe an increased closing is possible. And frankly, we're preparing to close as early as this fiscal fiscal year.

Thank you. Our next question in queue coming from the line of Tom O'Malley with Barclays. Your line is now open.

Hey, guys. This is Kyle Bluestein on for Tom O'Malley. Thank you for taking our question. So in mobile, June and September, both coming in seasonally, just when I think of long-term about the industry, given all the memory, what's going on with memory and the different voice and customer bill plans, is there anything that you can kind of comment on Long-term, if anything's changing your view on either build plans or a normal seasonality?

No, this is Philip Brace. I don't think there's anything. I mean, we just guide one quarter at a time, and I think the memory topic has been one that's been coming to the forefront of investors' mind probably starting in CES of this year, and we've just been kind of keeping a close eye on it. We've been trying to guide one quarter in advance, and I think some of our customers are You know, if you look at certainly our largest customer, I think they've been doing ahead of some of the, you know, some of the unit projections from that side. So, you know, we're guiding the best of our ability like we've done in the past couple quarters, and that's keeping a close eye on inventory and the customers and just watching it as often as we can.

Yeah, and just to add to that, I guess, as we look at kind of sequentially mobiles up high teens, our largest customers growing well above the blended rate on the seasonal ramp. We do see that partially offset by our Android customer, which was very strong in Q3. But to Phil's point, our demand signal seems steady. Our book-to-bill is above one. Inventory in the channel remains lean. So, I mean, we're keeping a close eye, but we don't see anything at this point that would change our kind of go-forward consensus rate.

Thank you. That's helpful. And just for the follow-up, you talked about adding more AI uplink into the phone. In the past, you guys have talked about Thank you for joining us.

and when I talk about that is when we look out in time, what we see, and we have some visibility in the industry out many years as you might imagine, what we see is increased RF content over time. How that actually plays out in terms of ASP and content and all the like is still a chapter in the book to be written, but what's in the rear view mirror is content shrinking over time. What's in the headlights and in the windshield now is RF content growing. And I think we see that as a change from what's been happening in the past. And that's what we're getting excited about. And we see a lot of that change coming around, as I talked about in the prepared remarks, you know, multiple bands, satellite bands, transmit complexity. For the first time in many years, we're seeing an increase in RF complexity, which should lead to kind of increased content.

Thank you. Our next question, coming from the lineup, Joseph Moore with Morgan Stanley. Your line is now open.

Great, thank you. You just mentioned Android being strong in the quarter. Can you talk about the Android prospects in the second half, and what's different about that versus your biggest customer?

Yeah, so this is Phil Carter. In terms of our Android business, We announced the design win last quarter, and this quarter we saw great strength. Some of that is just the typical seasonality with our largest U.S. customer. On the flip side, in our kind of Asia Android business, we are seeing that come down this quarter as well as next quarter again, but that's being mostly offset by strength in the U.S. Android customer. So we are still seeing strength. This quarter was somewhat of an anomaly based on their own seasonal patterns, so it won't repeat next quarter, but we are seeing an offset by the rest of the mobile space and that sequential growth there.

Great, thank you. And then separately, I'm just kind of curious how you're thinking long term about M&A. Obviously, you're going to close this deal. You know, what's the timeframe to sort of integrate that? And do you still sort of diversification M&A still part of your long term objective?

Yeah, that's a good question. Thanks for asking. Look, right now, we are laser focused on getting this deal closed, integrating it and delivering the benefits, you know, with respect to that and proving to ourselves and to our stakeholders that we can deliver value from that. You know, I think long-term when we look at capital allocation framework, we talked about the fact, you know, share repurchases, de-levering, and frankly, strategic M&A. We're going to continue to work to diversify the company and bring some more stability there. And that's going to be an important part of our playbook going forward. So that's kind of our priority. Cut the deal closed, integrate, start showing the value, and then look where we go from there.

Thank you. Our next question in queue coming from the line of Edward Snyder with Charter Equity Research. Your line is now open.

Thanks a lot. I just want to check one fact. You mentioned that mobile was up 57% of revenue, but then you said your largest customer was 57% of revenue, which makes sense given how large it is in September. Given that, it's down, what, 12% year over year, which was expected given all that's going on with I wanted to ask you, Philip, of that decline, because you're coming off a week, March also, of that decline, how should we read into that? How much of that is content shifts that we've been plagued with in the past? How much of that is Maybe just a different unit build, etc. So I'm just trying to get my arms around how to think about your client. And your guidance for next quarter kind of suggests more of the same. I mean, the way you've guided mobile comes out to about $625 million. Last year in September, Apple was $737 million in the September period. And again, this is expected, but I just want to be very clear how much of this is content, how much of this is just the cadence of how it's all going to be built.

Thanks. Hey, this is Phil Carter. In terms of the specifics of content and whatnot, we're not going to go into the details of specific SKUs or anything like that, but what I can say is in February when we announced initially the content loss, we were indicating 20-25% decline. Now we're looking at somewhere in the low teens, and so we are seeing some strength in units to offset that. Separately on a compare, when we look at the current quarter as well as the next quarter, if you recall from the prior year, the prior year was benefiting from a higher, richer mix of legacy SKUs. that were driving up the numbers. And if you recall, we actually outperformed the high end of our revenue guidance, a lot driven by the largest customer unit sales. And so as we look at the current quarter and the next quarter, we're comparing against some tough compares in the prior year. And low teens does not seem overly significant in light of that. As you also look at the next quarter guide, there was a 14th week in the prior year. So that's roughly $80 million for the prior year quarter. That puts us roughly above. and a year-over-year growth situation for our guide at about 1% when you take that into consideration.

Okay, great. And then you've mentioned it, so I want to dig into this a little bit more. We've been tracking pretty closely what the standards are doing, what people are looking at in terms of the two- or three-year roadmap for phones. AI is obviously a big topic, but it seems to be, in our opinion, a farce to continue on. Thank you for joining us. The connectivity between the phone and the cloud is going to be significantly more important than what maybe had been previously expected. So I'm just trying to get a feel for the things that you mentioned, like more transmit diversity received, which is a very big issue. Satellite's kind of an ancillary point, but then also download. Of those areas, Skyworks has typically been very, very strong in the diversity side of the business. There was some upset about the share loss to Vago previously. But if that isn't, in fact, the case, that transmit diversity we see is going to be a big issue, and I think it is, and power, why shouldn't we expect that in the next year or so the content wind is going to be at your back as we move to more, especially as a large customer tries to move to more AI in their phone? I think it could be.

I don't think your thesis is necessarily incorrect, Ed. I think that's what we see. You know, we need to execute and deliver on that, but I certainly, I think, I don't think you're necessarily wrong.

Thank you. Our next question in queue, coming from the lineup, Christopher Rowland with Siska Hanna, Yelena Smalopin.

Hi, guys. Thanks for the question. And perhaps just adding on to an earlier question on M&A, do you guys have some sort of end market or just broad product category that you would be considering that is most desirable strategically for you guys? And perhaps if you could talk about valuations. whether you're comfortable with valuations out there as well.

Yeah, look, this is Phil Brace. Our number one goal is close this transaction as quick as we can, get started on delivering the synergies, and prove to ourselves, our customers, our stakeholders that we can deliver value from that transaction. When you zoom back out, I do think that continuing to grow and diversify our business and doing so strategically and creatively is going to be an important playbook of that. We're not setting any timeline. We're not drawing any particular guardrails around it. I think you should expect me to be a discipline allocator of capital. I've done that since I've been CEO here. This transaction should be immediately accretive, and the things we'll look for, you know, you might expect it to be gross margin accretive, operating margin accretive, EPS accretive, and those kind of things, right? So we're not going to get into any specifics beyond that at this point.

Excellent. And then perhaps two balance sheet or cash flow questions. CapEx was a little bit higher. I don't know if this is a new level or not and whether it's related to some of the supply constraints you talked about. And then lastly, DOI is also high. I know you have this seasonal ramp, but it's even higher than prior years. Anything to read into there?

Yeah, so this is Phil Carter. To your point, it is mostly related to planned inventory build ahead of the September mobile ramp for our largest customer. you know if you look at the last year our inventory levels ran a little lower than we would have liked and provided less flexibility and we have had some kind of stock outs and shortages that we've been dealing with as well as moving having to move more towards our third-party manufacturers and so to your point increasing internal capacity is definitely some of the increasing capex and with that we do have an inventory build as well I think if you look at more of a longer average a billion dollars is not out of the norm especially in this period of the of the cycle and year So yeah, we are also monitoring the channel inventory, and we do see that that's relatively lean. So as those numbers go down in the channel, we do maintain a little bit more buffer stock on our balance sheet to mitigate that risk. And we've seen more kind of mixed changes, I'd say more recently, as companies move their product lines around. So we have to have enough inventory to offset that risk as well.

Thank you. Our next question in queue, coming from the line of Cody Akrib with Benchmark Sloan, Exiolanus Nelson.

Yeah, guys, thanks for taking my questions. I'm just curious, given that your prior dividend yield is at the highest end of the industry, I was just curious as to your thought process to eliminate that completely. And have you gotten any pushback from those shareholder base that relies on that dividend?

Yes, Phil Brace. Obviously, a lot of discussions went in with my board, our board about that. We spent a lot of time thinking about it. I personally spent a lot of time thinking about it. As you know, since I've been CEO, I've returned at least $800 million of capital in terms of short buybacks, plus the dividend, plus authorizing Corvo to buy back $400 million of their own stock. I think you've seen me to be a very disciplined allocator of capital. When I looked for the strategic you know framework in terms of the combined company going forward and I look for the best opportunities to deliver value for the shareholder it was you know done in conjunction with the board a lot of analysis went into the discussion and we determined that we would allocate the the kind of that capital towards both share repurchases delivering the balance sheet and you know strategic opportunistic M&A to help continue to diversify the businesses and That's how we looked about that. It was just kind of a framework that we're using to deliver value to shareholders, and we think this is a much more creative way to do it.

All right, thanks.

And then lastly, just any puts and takes into your gross margin assumptions, quarter to quarter, knowing that you've got some of your higher input costs, but it does sound like you've got some price increases and Utilization rates should be trending higher. Some positive offsets as well.

Yeah, this is Phil Carter. Yeah, I would agree with that. We do have some positive offsets. Every year we set out to reduce costs, increase efficiency, and every ramp cycle, you know, we look to reduce costs, right? We set our prices essentially at the beginning of the year, and then we go into a new ramp where we have to ramp new technologies, new products, and we look to get efficiencies to bring up our gross margin. As we look right now, the input costs have been going faster than we're able to save on other areas. In terms of mix, looking quarter to quarter, if that's what you're looking at, we do see a higher mix of mobile and Q4 where it's 61% of revenue versus 57%. But yeah, I think we're always looking to have more cost savings. The other 40% of our business, broad markets, where we have more opportunity to increase prices, there have been some price increases already. and we are looking at other areas where we could take action and selectively increase those prices as well to pass on the cost that we're incurring on the other side. Longer term, we are sticking with our 50-55% combined company longer term and we're really focused on that as a combined organization and how we can achieve these cost synergies as a combined org.

Thank you. And that concludes today's question and answer session. I'll now turn the call back over to Mr. Phil Brace for any closing comments.

Great. Thank you. Thank you for everyone attending the call. I look forward to seeing you in the coming quarter at the conferences and out there in the market. So thank you very much.

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