Earnings Call: Q4 2015

Dec 2, 2015

Welcome to the Avago Technologies Limited 4th Quarter and Fiscal Year 2015 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Ashish Saran, Director of Investor Relations. Please go ahead, sir. Thank you, operator, and good afternoon, everyone. Joining me today are Hock Tan, President and CEO and Tony Maslowski, Chief Financial Officer of AVEGO Technologies. After the market closed today, AVEVA distributed a press release and financial tables describing our financial performance for the Q4 fiscal year 2015. If you did not receive a copy, you may obtain the information from the Investors section of Avago's website at www. Dotavagotech.com. This conference call is being webcast live and a recording will be available via telephone playback for 1 week. It will also be archived in the Investors section of our website at avagotech.com. During the prepared comments section of this call, Hawk and Tony will be providing details of our Q4 fiscal year 2015 results, background to our Q1 fiscal year 2016 outlook and some commentary regarding the business environment. We will take questions after the end of our prepared remarks. In addition to U. S. GAAP reporting, Algo reports certain financial measures on a non GAAP basis. A reconciliation between GAAP and non GAAP measures is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non GAAP financial results. Please refer to our press release today and our recent filings with the SEC for information on the specific risk factors that could cause our actual results to differ materially from the forward looking statements made on this call. At this time, I would like to turn the call over to Hock Tan. Hock? Thank you, Ashish. Good afternoon, everyone. I will start with a short summary of Q4 fiscal year 2015 business highlights, and Tony will continue with more details on our financial results. So fiscal 2015 was an important year for Argo where we saw a significant increase in our top line from a full year of LSI contribution, augmented by strong growth in wireless revenue. On this expanded base, we drove high levels of profitability through leveraging our larger scale, continual richer product mix and the full achievement of LSI acquisition cost synergies to deliver operating margins over 40%, in other words, mission accomplished. Our 4th quarter results exemplify this loud and clear. Revenue came in at $1,850,000,000 a 6% sequential increase and I continue to be very pleased with our execution, which drove the 4th quarter margins above the high end of our range and earnings per share to $2.51 We ended our fiscal year on a very strong loan, delivering record levels of revenue and profitability. Let us now turn to a discussion of our segments. Starting with Wireless, in the 4th quarter, Wireless segment represented 37% of our total revenue from continuing operations in this very typical strong seasonal Q4. As we expected during this seasonal upturn, revenue from our wireless segment grew by 10% sequentially with the customary product ramp at our North American customer, partially offset by the product cycle rollover at 1 of our large Asian customers. While there was an increase in overall RF content in the new phone model, Our Avago's RF content on a dollar basis in the new phone model remain largely flat, the same as it was in the prior generation. We had to walk away from supplying additional RF content in the new phone model because of our constrained filter manufacturing capacity. This will not happen again. Our long term expectation for our wireless business remains very strong and we expect our RF content per smartphone to increase at over 20% every year. We have concrete plans in place to address this. We remain on track with our plans to increase air bath filter capacity in fiscal 2016 by 50% as we convert our fab from 6 inches to 8 inches wafer manufacturing. We also expect our Fort Collins fab to remain at near full capacity as we start to pre build inventory to support anticipated new phone launches later in fiscal 2016. Now looking more short term at the 1st fiscal quarter 2016, unlike last year, we see we do see a seasonal decline in demand and expect our wireless revenue to sequentially decline in the low teens on a percentage basis. Last year, 1st quarter demand had held up, offsetting normal seasonality, but we don't see the same phenomenon this year. And therefore, on a year on year Well, that's just one part of our portfolio. Let me now turn to another segment of portfolio, which has been performing rather amazing, and that's our enterprise storage segment. In the 4th quarter, enterprise storage revenue grew by 9% sequentially and enterprise storage represented 35% of our total revenue from continuing operations. In the 4th quarters, we also saw strong growth from our RAID and SaaS products. We also benefited from increase in shipments into enterprise and data center hard disk drives. Despite macro worries, enterprise storage market held up quite well in fiscal 2015. And in fact, our core enterprise storage revenues in the 4th quarter grew close to 20% on a year on year basis. Looking at towards Q1 2016, we expect this segment to maintain its momentum from the strong Q4 and we expect revenue to be up slightly on a sequential basis. We also believe we may be gaining share in this segment. On to wired infrastructure. In the 4th quarter, wired revenue grew by 2% sequentially and the wired segment represented approximately 20% of our total revenue from continuing operations. The ASIC business was up slightly in the 4th quarter driven primarily by an increase in shipments into routing, especially edge routing. Our fiber optics business after strong maintained much of its momentum into the 4th quarter delivering a small sequential increase. We saw increase in fiber to the home shipments and stable deliveries into the enterprise OEM market. The addition of 5 wafer fab capacity at our Branixville, Pennsylvania, etchymating laser facility helped us better meet the increase in demand for fiber to the home market. In the final in the next quarter, Q1, we expect sustained performance from this segment and project our revenue to also be up slightly here. Moving on to Industrial. In the 4th quarter, Industrial and products represented 8% of our total revenues from continuing operations. Focusing on industrial, resales held up reasonably well during the quarter and were in fact up slightly. By region, Asia Pacific was quite strong with resales growing close to double digits. Europe also grew by near mid single digits sequentially, but Americas and Japan were both weak and resales declined in the mid to single digits sequentially in those regions. However, similar to a number of peers, we saw we took a cautionary tone from customers during the quarter and consequently reduced shipments into our distributors, which drove channel inventory down. As a result, our industrial segment revenue declined by 10% sequentially in the 4th quarter. And please keep in mind, we recognize revenue here on a sell in basis. As we look at 1st quarter, anticipating see the normal seasonal decline as well as, of course, lingering macro uncertainty, we plan to continue to reduce inventory in distribution. And accordingly we expect revenue for industrial segment to decline in the low single digits sequentially. In summary, therefore, after a strong close 4% sequential decline in consolidated Q1 2016 revenue, driven primarily by seasonality in our Wireless and Industrial segments, offsetting projected sustained performance from our wide and enterprise storage segments. With the LSI integration completed in fiscal 2015, we have created a very powerful business model that leverage our larger scale and increased diversity to deliver strong growth in earnings for the year. As Tony will provide more color in his summary, we expect our earnings strength to carry over into the 1st fiscal quarter regardless of revenue seasonality. And as we go into the rest of fiscal 2016, we expect this earnings machine to further strengthen with the pending Broadcom acquisition. With this in mind, I'd like to mention that the Broadcom acquisition process continue to progress very smoothly and day 1 integration planning, including identification of all key business leaders and supporting teams has been completed. We have made very good progress, in fact, on the regulatory approval front and expect to be in a position to close the transaction early in the Q1 of 2016. In fact, we believe that we could present an integrated set of financial results starting with our Q2 of fiscal 2016. With that, let me now turn the call over to Tony for a more detailed review of our Q4 fiscal 2015 financials. Tony? Thank you, Hawk, and good afternoon, everyone. Before reviewing Q4 fiscal year 2015 financial results, I want to remind you that my comments today will focus primarily on our non GAAP results from continuing operations unless otherwise specifically noted. A reconciliation of our GAAP and non GAAP data is included with the earnings release issued today and is also available on our website at www.avagotech.com. Revenue of $1,850,000,000 in the fiscal Q4 represents an increase of 6% from the prior quarter. Foxconn was a greater than 20% customer in the 4th quarter. Our 4th quarter gross margin from continuing operations was 62%, which was above the high end of our guidance range, primarily due to better revenue mix and continued high fab utilization. Turning to operating expenses. R and D expenses were 257,000,000 dollars and SG and A expenses were $81,000,000 This resulted in total operating expenses for the Q4 of $340,000,000 above guidance, primarily due to higher bonus accruals driven by higher profitability. On a percentage basis, total operating expenses were 18% of revenues, a reduction from 19% in the prior quarter. As a percentage of sales, R and D was 14% and SG and A was 4% of net revenue. Operating income from continuing operations for the quarter was $811,000,000 and represented 44% of net revenue. Taxes came in at $43,000,000 for the 4th quarter. 4th quarter net income was $737,000,000 and earnings per diluted share were $2.51 4th quarter interest expense was $41,000,000 other income net was $10,000,000 resulting from a number of items including cash from a legal settlement, interest income and gains from foreign exchange hedging. Our share based compensation in the 4th quarter was $63,000,000 The breakdown of the expense for the 4th quarter includes $7,000,000 in cost of goods sold, dollars 30,000,000 in R and D and $26,000,000 in SG and A. In the Q1 of fiscal 2016, we anticipate share based compensation will be approximately 65,000,000 dollars Just as a reminder, our definition of non GAAP net income excludes share based compensation expense. The non GAAP guidance for the first quarter fiscal 2016 also excludes estimated ticking fees of approximately 47,000,000 dollars related to debt commitments for the pending Broadcom acquisition. Moving on to the balance sheet. Our day sales outstanding were 50 days, an increase of 8 days from the prior quarter caused by linearity of our revenue across the quarter. Our inventory ended at $524,000,000 a $17,000,000 increase from the 3rd quarter. Days on hand were 68 days. We generated $582,000,000 in operational cash and ended the quarter with a cash balance of $1,800,000,000 which increased by approximately $400,000,000 from the prior quarter. Our 4th in our Q4, we spent $106,000,000 on capital expenditures. On September 30, 2015, we paid a cash dividend of $0.42 per ordinary share, which consumed $116,000,000 of cash. This dividend was raised by $0.02 from the prior quarter. Since the inception of our dividend program in the Q2 of 2011 to date, our financial performance has allowed us to increase our dividend each quarter. As a reminder, our Board reviews and determines our dividend policy on quarterly basis based on our financial performance and condition, the contractual provisions related to our outstanding indebtedness and other factors deemed relevant by our Board. Now let me briefly recap our fiscal year 2015 full year results. Net revenues increased by 60% year over year to $6,900,000,000 benefiting primarily from full year of contributions from continuing operations of the LSI businesses as well as strength in our wireless business. Gross margin increased 5% year over year to 61%, driven by an improvement in product mix with higher contributions from our FBAR related wireless products as well as comparatively higher gross margins from the Enterprise Storage segment. Net income for fiscal 2015 increased to $2,600,000,000 or $8.98 per diluted share as compared to $1,300,000,000 or $4.90 per diluted share in fiscal 2014. Now let me turn to our non GAAP guidance for the Q1 of fiscal year 2016. This guidance reflects our current assessment of business conditions, and we do not intend to update this guidance. This guidance is for results from continuing operations only. Net revenue is expected to be 1 point $78,000,000,000 plus or minus $25,000,000 Gross margin is expected to be 61%, plus or minus one percentage point. Operating expenses are estimated to be approximately 314,000,000 dollars Taxes are forecasted to be approximately 40,000,000 dollars And finally, the diluted share count forecast is for 295,000,000 shares. That concludes my prepared remarks. However, I would like to make one final comment. Earlier this week, VIVAGO became 10 years old as an independent company. Just as a contrast to today's results, our 1st year in operations, we had $1,510,000,000 in revenue and a non GAAP net loss of 108,000,000 I would like to personally thank all employees for their hard work and contributions in this 1st decade. Operator, please open up the call for questions. Our first question is from Vivek Arya of Bank of America. Your line is open. Thank you for taking my question and congratulations on the consistently strong execution. Hock, you mentioned on the wireless business that on the next year's flagship model, you expect at least 20% higher content. Can you give us some context what is driving that higher content and what is your differentiation and competitive advantage versus, say, another competitor who also has BAW filters and is also adding capacity? What can you do consistently that they cannot? So what's really driving up content and what's your competitive advantage? Well, let's start with content. Content keeps increasing in smartphones, especially the higher end smartphones because of, as I say, increasing number of bands, spectral bandwidth that come into play worldwide as carriers expand the bandwidth by which they connect phones, connect us to each other. A number of especially LTE bands are increasing even in places like Japan, where you have new introduction of new bands at band 21, which have not existed before. And of course, the same applies in China, where you have both TDD and FDD as well. So it's really the proliferation of LTE bands. And for high end smartphones, the need for the creation, especially towards the high end for phones that can roam. But adding on to this mix is the fact that 2 other things are happening that drives not just RF content, but our particular kind of RF content, which is the form of very narrow on a very accurate or I call it narrow basis, which is the problem of with that number of bands in one little device, you start to create the phenomenon of coexistence. And coexistence, which exists and exists not across cellular bands alone, but across Wi Fi, Bluetooth as well crossing cellular bands too, that coexisting issue creates a specific need for filters that can extract signals from a very cluttered airspace, Ethan from AirAsia. Then of course, you hear now about downlink carrier aggregation and next year on you start to see some of certain phone models with uplink Those what carrier aggregation meant and I may discuss it in previous calls is simply the ability to mask or demux multiple bands signals from multiple bands into 1 single channel in the phone or out externally. And in order to do that, you need new components, you need filters that are able to do the maxing and demuxing in the RF space. And that's where F bar filters come into their own. So because of all that, we have been consistently seeing over the last several years. And we see that trend continue over the next 3 years, say, because that's as far as can probably look with any degree of certainty, the increase in content, in RF content and in particular in the need for filters, which are not able to be integrated into one single chip. Each filter is a very discrete element. So that's pretty much what's driving what I postulate as perhaps a trend of 20% a year increase in dollar content of RF over the next several years for high end smartphones. Okay. And as my follow-up, Hock, you also mentioned good growth in your enterprise storage business. That's very different from some of the more sluggish, weak enterprise spending environment trends that we have heard from others. So I'm wondering what is helping you outgrow the broader spending environment in enterprise? Thank you. That's a very good question. And sometimes we sit there and wonder ourselves by the way. All we do know is it is and I suspect in specific areas there is market share gains on our side simply because we do a better product, simply because we are able to execute on the better products. But also we've been perhaps fortunate in being focused on certain customers, certain OEM customers in particular that have done better than others. And that allows us through that process by itself to gain share and we'll display that because, yes, we're fully aware of what's out there, what we hear out there on the metro side. But we are seeing its strength, particularly on the enterprise front, less so the cloud data center side. So maybe that's something to do with that as well. Thank you. Thank you. Ladies and gentlemen, we do ask that you keep your questions to one initial and one follow-up. Our next question is from Craig Hettenbach of Morgan Stanley. Your line is open. Yes, thank you. I had a question on the FR capacity expansion, in particular move from 6 inches to 8 inches I know it's early on, but that is an important factor for wireless growth in the back half of fiscal twenty sixteen. So can you just give us some early insight in terms of how that's progressing and the confidence of bringing that online? That has been progressing very much, very well. To be directed by the way, we're almost ready now. Give it a few more months for the back half. And but that will not be our full completion for back half. We will anticipate continuing that migration from 6 inches to 8 inches of our existing lines through even the first half of twenty seventeen in anticipation of the generation of phones in 2017, not late 2017, not just 2016. But we're pretty prepared right now. Got it. Thanks. And as my follow-up, good to hear that the integration of Broadcom is going smoothly and day 1 you can hit the ground running. Curious to get your thoughts more on the product side as you had more time to look at the portfolio. Anything stand out to you positively, particularly within their networking business and the prospects there? We love their products, We love their engineering. It validates entirely our premise, our investment thesis in making this acquisition as a position to really disclose it. And frankly, we're not I'm not in a position to really disclose it. I frankly want to do it not because I don't want to, but I think I'm not totally in the picture 100% until we really do have the operations under our Yes, thank you. A couple of questions. Yes, thank you. A couple of questions. First, Tony, I noticed that operating expenses are declining, I think about 7% in the January period, which really stood out to me. Can you talk a little bit about that? Sure. It's mostly due to two factors. We completely completed the Emulex transition, so there's some OpEx drop off from that. But more significantly, it's the reset on the bonus accrual. So on the bonus side, we're significantly above 100% attainment and that gets reset into Q1 at 100%. So you get some benefit from that as well. Now just to give you some perspective in 10 years of working here with the bonus is that it's not reset to last year's numbers. We have new numbers that are a little bit stretch targets for next year. So every year that we accomplish over 100%, it's a pretty herculean feat. So it's not that we go into it saying we're going to earn 150% in the next year and you'll have kind of expense catch up at the second half of the year. So it's a true reset and those are the two reasons for the expense drop off. Okay, helpful. Thanks. And Hock, you gave us a couple of data points on wireless. You said that RF content in high end phones would increase at 20% or so. And then you also told us that you're planning to increase capacity by about 50%. So putting those two data points together, how do we think about expectations for the wireless business, how fast it grows in fiscal 2016? Well, I don't know. I cannot really answer for fiscal 2016 because we don't give guidance on an annual basis. But I'll tell you the trajectory we have been seeing and continues I believe to be on. And I've taken pains in my opening remarks to clarify why this year, this end of 'fifteen, early 'sixteen, as we sit here, why there is more of an exception, hiatus, I call it, than the rule. But content, as we pump in all these additional spectral bandwidth into a single piece of a single device has increased content wise, physical content, what we're seeing is anywhere from 30% to almost 50% every year compounded every year. And but then there's always a value to some level of integration in terms of dollar translation, which is why in dollar terms, that content increase of 30% to 50% typically translates to I think 20% to 30% on an annual basis. That's really what it comes down to. Thank you. Our next question is from Vijay Rakesh of Mizuho. Your line is open. Yes. Hi, guys. Good quarter and guide on a given all the worries. I have a question on the RF side. As you look at China where probably handsets don't have of care aggregation today, where do you see care aggregation penetration in China by the end of next year? Probably some, but there is some carrier aggregation, a high level of carrier aggregation going on in China right now. Not as much perhaps as out here in the U. S, but there is. And there's a need to do that because that's where the operators in China want to go. And so we are seeing that now and we're selling some products, some are more discrete or module products that addresses downlink carrier aggregation. Uplink, that's a different matter, down probably out for a couple of years at least, if not longer for China. Uplink will happen here in some parts of the world faster. But downwind carrier aggregation is already happening in China. Got it. And on the FERC side, I should talk about 8 inches capacity. Is do you already have output on 8 inches FPA? Thanks. We have, at this point what I call pilot lines. We have been doing the conversion over the past 12 months, HECLIMO investment and developing the process. We're at a point that we are starting to go into production fairly soon. Great. Thanks. Thanks. Our next question is from Ross Seymore of Deutsche Bank. Your line Hock, back on the wireless side of things, you mentioned that the capacity constraint was never going to happen again and then you were kind enough to give us that 20% increase number. Is part of that 20% increase just simply your ability to address the sockets that you're limited on today? Or is that above and beyond the content increase that you're going to get on average with RF into phones? No, I'm basically it's almost 1 in the same without a sense of trying to be too arrogant or violent place, but it is 1 and the same because in order to integrate that kind of increase of content into a tiny little device and do it very well, not many people can do it is our view. And so as I say, it becomes almost 1 in the same, which is our perception of the trend last 3 years and forward 3 years is that content keeps growing up, keeps growing in that range, at least in dollar terms, and we're always able to capture that. But it's a broad trend we believe in our end smartphone market. And we do not see that changing over the next 3 years as it has been happening for as had been happening for the last 3 years. And I guess as my follow-up, another one for you, Hock. And I know you're not going to give full year guidance, and maybe it doesn't even matter once Broadcom comes into the mix. But as you look at your 4 segments, can you just walk us through some of the areas that you're most excited about going up in fiscal 2016 and then areas where you think there might be some headwinds as you look at your current portfolio of businesses? I'm actually most excited about networking, wired infrastructure, so to speak, and very excited about continue to be excited about wireless. And enterprise storage has been, as I mentioned, performing very well. And I'll be very pleased, but totally not disappointed if it doesn't hit the level it did in 2015 in enterprise storage. But definitely in wired and wireless, I believe those two areas will continue to grow and grow very well. Great. Thank you. Thank you. Our next question is from Ambrish Srivastava of BMO. Your line is open. Hi, thank you, Hock. Clearly, there is a tailwind on the wireless side and you've executed very well within that. I was just having a tough time understanding and trying to reconcile what you said at the top of the call regarding capacity. So you were constrained by capacity and so you said that you walked away from certain business. And I'm assuming that can't be at the high end because you have a very differentiated product at the high end. So what gives you the confidence then that the competition or the customer will come back to you for that content that you could not provide? And then I had a quick follow-up. Because we are very good at what we do and we are just about one of the very few people who can do what we say we do here. And really my purpose in explaining that at the beginning was that because this quarter and last, we saw, as you saw, a sort of a pause in that 20% growth rate year on year. And I took the pains to explain that as basically it's not about people catching up as much. It's our inability capacity wise to meet all of that needs for this particular short window of time. But otherwise, if in fact, the content, the demand will still keep going at that rough 20% a year rate. Okay. My follow-up then on the OpEx side, Tony, should be I just want to make sure I get it right. So we should use the baseline from the guide for the Q1 because Yes. So everything we have right now and again, this is assuming in a model that no Broadcom. So I mean in a full year, if you do just us, it's this new run rate. We'll have our midyear merit increases, which is a couple percent. And if we outperform our businesses, you'll see some bonus catch up in the second half. So yes, this is the I would consider a stable run rate. Again, we throw that all out the window when we do Q2 and we start integrating Broadcom. Got it. Thank you very much. Thank you. Our next question is from Doug Friedman with Sterling AG. Your line is open. Hi, guys. Let me echo the congratulations on the excellent execution. I guess, Hock, sorry to beat a dead horse here a little bit, but I'm getting a sense that your approach to the FBAR business may have changed here with your commentary about not wanting to supply constrain the market going forward. I did notice intra quarter in the cited as being for wireless. Can you give cited as being for wireless. Can you give us sort of maybe the timing of getting Oregon up and running? And whether you have in fact changed your strategy to not supply constrain the FR market? And if so, how quickly do you think you remove that constraint? Well, I guess our strategy was never to want to constrain the market to first of all to make that clear. What probably I'm implying in the corollary to what you just said and is true and what I just said is, we are seeing the market grow even faster than we had originally thought. And again, consistent with one thing to constrain the market we want to address those specific high end smartphone markets. We are taking steps to make sure we will never constrain it again. Okay. Moving on And that includes that potential fab up in Oregon. So just to complete that thought and tying with what you said, yes. That include that plan of ours to address that longer term includes that facility. And that's a long term plan because we don't expect that to if we once we get that going, if we get that going, that won't come into play come into line until more towards 2018, guys. 2016 2017, what we have in Fort Collins 8 inches conversion is pretty cool. 2018, uncertainty, we better get this additional Oregon fab. I guess as my follow-up, what capacity addition does that Oregon fab enable, if you could, on a percentage? Is that going to double your FFR capacity going forward? We generally don't want to disclose that, Doug, sorry. Okay. Thank you. I tried. Thank you. Our next question is from Srini Pajjuri of CLSA Securities. Your line is open. Thank you. Hock again on wireless. I know you said you have visibility into the next 2 to 3 years on design wins and also on the architectures. I'm just curious as to how much visibility you have on the pricing front because obviously to say that your content is increasing 20%, you got to assume some pricing curve. And the reason I'm asking is given that your competitors are also adding capacity, what's the risk that your pricing assumptions could go wrong here? You're right. Again, I'm approaching it from a very that 20% is what I've been achieving and have been able to achieve and achieving. And there's nothing really that we see out there, though I should never take it for granted because each one is an interesting challenge by itself. I'll be honest, the products we do in FR, in front end module, pads as they call them, are very, very difficult things to do. I mean, I'm not saying they are moonshots, but they're not that far from there. And we spend an enormous amount of money, talent doing it. So the best way to describe it is we don't see anything that dramatically change, though each one is a tough one by itself. So if I've seen it the last 4 years, I'm basically commenting that it sure looks that for the next 2, 3 years, we'll see a continuation of this trend. And we see that as I answered an earlier question through more bands to the problem increasing issue of coexistence across bands in handsets plus just as much the phenomenon of downlink and uplink carrier aggregation as operators need to run their network and base station much more efficiently. All that is happening. It's not pie in the sky. Great. Thank you. And then Tony, on the balance sheet side, I guess, once you close the Broadcom deal, I think you told us you're going to have the leverage ratio around 2.5 times or so. My question is, if an opportunity comes along to do additional M and A next year or some other time, first, what's your strategy in terms of additional M and A here? And then how much debt capacity you think you have? Thank you. Okay. Additional M and A here? And then how much debt capacity you think you have? Yes. So take it in reverse order, we definitely have the debt capacity to However, the However, the Broadcom acquisition, there will be a digestion phase for Broadcom. And as we've said, we don't wake up every morning looking for the next acquisition. We're very opportunistic on the acquisition front, and we'll look at it as we go. But again, I think we have flexibility with a starting point at 2.5 to do what we need to do. And if something opportunistic comes along, we'll take advantage of that. Our next question is from Amit Daryani of RBC. Your line is open. Yes. Thanks a lot and congrats on the good quarter guys. A question for me, I guess if I go back to the wireless segment, Rob, I assume you can talk about when you add capacity in the near term over the next 12 months call it, are you doing it based on the design wins you have? Or do you have much more form purchase commitments from your larger OEMs and hence adding capacity? It's a judgmental process. That judgment tends to be very tight to slug bias conservatively, but you're right, it's tied to sockets, Our belief in sockets that we will win over the next 12, 18 months. And you're right, sometimes we have scramble to put capacity in place because of that kind of approach. But we believe that we prefer to be conservative than the other way around. But it is but at the end of it all, it's all based on judgment. And we tend to be rather conservative in lagging capacity build outs behind what we see as demand. We might have, based on the earlier statement, started to behave a little differently, Basically, we are very conservative creatures is what we know we are. But it's all based on judgment. And obviously, our judgment is that we will use up the capacity that we're putting in place for the next 2, 3 years. Got it. And then on the enterprise side, you talked about share gains and business being better. I'm curious is that more on the HDD side or is it more fiber channel adapters from Emulex where you think you might be picking up more share? I think it's more on the connectivity side than the HDD side. HDD market doesn't change very much. Thank you. Thank you. You. Our next question is from Harlan Sur of JPMorgan. Your line is open. Hi, good afternoon and congratulations on the solid quarterly execution. On the wireless business, typically calendar Q1 is when your large Asian smartphone customer ramps production of its flagship platform. So the question is, are you seeing some of this ramp in your fiscal Q1 or is that typically seen in fiscal Q2? And then, Hock, in line with your commentary, are you anticipating 20% plus content gains on their new flagship smartphones? Answer is yes to all 3. Yes, there is an uptick there late Q1, probably Q2, our fiscal, not calendar, fiscal Q2, more like fiscal Q2. And yes, we do see improvement in content. That's great. And then industrial, you had anticipated revenues to be down kind of low single digits in Q4. It came down 10% sequentially, but I think it was obviously a good decision to be prudent and take down inventories in the 4th quarter. As you think about Q1 and another quarter of inventory reduction, can you just help us understand your expectations for sell through and also any commentary on demand by geography that you would expect in Q1? Yes, good point. Keep in mind, maybe the first simplest way to answer is our Q1 is November, December January. So as you probably know, industrial seasonality is down late at the end of the year and up again beginning of the year. So for Q1, I only have 1 month, not much. So that's why we continue to be to forecast and be conservative in our guidance of industrial revenue, whether they be resale or shipping. On the resale front, yes, we kind of see industrial it's hard to break out between seasonality versus secular in this case. All we see is that industrial is kind of struggling even to stay flat at this point. We saw our Q4, as just to emphasize, was actually August, September, October. So we only saw part of the downturn of the back end of the year. And so even though our shipping was down, our resale, as I indicated, wasn't that bad. So I would expect our resale Q1 to be not so good. And so that's why I use the word struggle to even say flat, which is why we believe we better guide our ship in, which is our revenue at down single digits. And we could have and not more or less, let's put that way. Because the resale may be down even more, but our shipping is less because we already pulled on the spring last quarter. Thank you. Our last question is from Edward Snyder of Charter Equity Research. Your line is open. Thank you very much. Hock, you said 8 inches should probably take you through the transition at about 2017. Hynix fab in Portland probably wouldn't get turned on and I think you indicated until 2018. It seems kind of be the flat spot between the 2. I was just curious, the silicon saw stuff that you've been working on, is that there to take up the slot to take some the pressure off of your BAW fab by moving some of the lower end stuff into that? Or is that more of a push by Avago to expand your filter offering beyond just traditional BAW into something maybe that would be more competitive in the soft front? And I have a follow-up please. Well, I think we think we have planned it pretty well now because you're right. At 8 inches will take us all the way through product generation of 'seventeen and which will just be in time for the fab up in Oregon to come in for 'eighteen. So it's straight on. And it's all largely focused on filters, all these fabs. Okay. And then the 20% increase, I know it's more of a general number for the TAM growth overall, but it sounds like you're pretty enthusiastic about that for the next year. In 2015, as it specifically applies to a Vago, will more of that come from, say, the MUX filters? And is that really a content gain, like you getting more parts? Or is it more of an ASP boost given how tough these are to do, maybe not more die size itself, but you're just getting paid better for it? No. We're very nice people to our customers. We basically there'd be more content and we actually give a discount as on a per filter basis. It's a lot more content, a lot more filters. Great. Thank you. Thank you. Thank you, operator. Thank you for participating in today's earnings call. We look forward to talking with you again when we report our Q1 fiscal year 2016 financial results. That concludes Lago's conference call for today. You may now disconnect.