Good day, welcome to the Qorvo, Inc. second quarter 2020 conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Douglas DeLieto, Vice President of Investor Relations at Qorvo. Please go ahead.
Thanks very much. Hello, everybody, and welcome to Qorvo's fiscal 2020 second quarter earnings conference call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today, as well as the risk factors associated with our business and our annual report on Form 10-K filed with the SEC, because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance.
During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today, available on our website at qorvo.com under Investors. Sitting with me today are Bob Bruggeworth, President and CEO, Mark Murphy, Chief Financial Officer, James Klein, President of Qorvo's Infrastructure and Defense Products Group, Eric Creviston, President of Qorvo's Mobile Products Group, as well as other members of Qorvo's management team. With that, I'll hand the call over to Bob.
Thanks, Doug, and thank you everyone for joining us. Qorvo delivered another outstanding quarter as our technology investments, portfolio management, and operational discipline continue to yield strong and consistent results. Upside during the quarter was attributable to new product cycles across our largest customers. In Mobile Products, the trend toward integration is driving our industry, and integration is all the more important with the introduction of 5G. Qorvo is securing significant content in 5G smartphones with our premium technologies and our highly integrated modules, enabling our customers to enhance system performance, overcome design challenges, and bring their smartphones to market faster than ever. In IDP, our markets are supported by secular trends, including the deployment of 5G as well as the proliferation of IoT, the adoption of Wi-Fi 6, and the performance advantages of GaN technology in defense, broadband, and massive MIMO base station applications.
Looking at our September quarter by business, our performance in Mobile Products was driven by multiple customers and product segments. Samsung was a standout as we expanded our participation in their mass-market phones. Qorvo's broad portfolio of enabling technologies, coupled with our robust supply chain and solid product execution, is allowing us to solve our customers' most challenging problems across all tiers of their portfolio. To that end, we are enjoying significant traction with our four largest customers in China, designing our low, mid-high, and ultra-high-band solutions into their upcoming 5G smartphones. Our wins are broad-based and our solutions are mated with all the major chipset providers, including SLSI, Qualcomm, MediaTek, and HiSilicon. In mobile Wi-Fi applications, we are ramping our recently launched Wi-Fi 6 FEMs in support of multiple leading China-based smartphone OEMs.
Turning to IDP, in our defense business, we are a lead participant in a U.S. government program to advance the state of the art in RF integration, packaging, and tests. We are also increasing our GaN opportunities with the U.S. primes, and we secured wins for our GaN amplifiers and integrated front-end modules for X band and Ka band defense radar and communications programs. In infrastructure, the ramp of 5G appears to be rolling out faster than the ramp of 4G. Activity is primarily in the sub-6 gigahertz frequencies, Qorvo's GaN technology is increasingly the technology of choice. During the quarter, we secured new GaN design wins for sub-6 gigahertz massive MIMO deployments expected to span multiple years. Among China-based carriers, it's been widely published that China Unicom and China Telecom will share cell sites to accelerate 5G deployments.
This development will drive the need for broader band and higher power amplifiers, favoring Qorvo's GaN solutions. GaN enables operators to drive more power through smaller form factors and achieve better performance at higher frequencies. In IoT, the ratification of Wi-Fi 6 is a catalyst for the industry, and design wins for Qorvo's Wi-Fi 6 solutions are building. During the quarter, we launched the world's first Wi-Fi 6 dual-band front-end module and the world's first Wi-Fi 6 iFEM for CPE applications, expanding our product portfolio for retail, enterprise, and network operators. In automotive, we commenced production shipments of our Wi-Fi FEMs supporting multiple automotive OEM platforms, and notably our V2X coexistent BAW filters for 5.9 gigahertz were recently selected by a top automotive OEM for models shipping next calendar year.
With the continued expansion of IoT devices and smart home control, Qorvo is uniquely positioned to combine Wi-Fi 6 iFEMs with advanced filtering and multi-protocol SoCs into highly integrated solutions, reducing time to market and supporting smaller end devices. We expect many of today's gateway devices and voice assistant products to incorporate all of these technologies, enabling in-room control of the entire smart home. In programmable power management, Qorvo is at the forefront of multiple trends, including the trend towards brushless DC motors. During the quarter, we expanded our portfolio of integrated motor control solutions for brushless motor applications. Our power management solutions enable smaller, lighter devices that charge faster and operate longer between charges. On the design front, programmability enables our customers to lower product development costs and reduce time to market.
We expect to leverage our scale to drive growth in power tools, white goods, industrial equipment, and other product categories. Finally, after the quarter closed, we completed the acquisition of Cavendish Kinetics, expanding our technical leadership in switching and tuning. We intend to optimize and scale our RF MEMS technology for smartphones, and ultimately apply it to other growth segments. In summary, Qorvo is combining best-in-class products and technologies with operational excellence to drive solid, sustainable results. We are encouraged by customer design activity, and we expect a strong December quarter as we support our customers' next-generation product cycles. With that, I'll turn it over to Mark to provide additional color on the September quarter and our outlook for the December quarter.
Thanks, Bob. Good afternoon, everyone. Qorvo's revenue for the second quarter was $807 million, $52 million above the midpoint of our guidance, and driven by stronger than expected mobile demand. Mobile revenue of $623 million exceeded expectations at our largest customers. Demand strengthened through the quarter. IDP revenue of $184 million was down sequentially and year-over-year, primarily due to the effects of export restrictions. As mentioned last quarter, we expect IDP revenue to recover through the year on increasing defense volumes, the ramp of Wi-Fi 6, and broader 5G infrastructure customer demand. Qorvo shipments to Huawei in the September quarter exceeded expectations. Sales to Huawei ended the quarter at approximately 5% of sales. Non-GAAP gross margin in the September quarter was 46.5% at the high end of our guidance range, with better than expected manufacturing costs partially offset by higher inventory charges.
Non-GAAP operating expenses were $167 million and in line with our guidance. Non-GAAP net income in the September quarter was $181 million, diluted earnings per share was $1.52, $0.22 over the midpoint of our guidance. September quarter cash flow from operations was $173 million, CapEx was $38 million, yielding free cash flow of $135 million. Qorvo's first half fiscal 2020 free cash flow of $342 million is on record pace, we expect to maintain strong free cash flow through the fiscal year. We repurchased $165 million of stock in the quarter, our net leverage at quarter end stood at 0.4 net debt to EBITDA. After quarter end, we issued $350 million of 10-year unsecured notes to opportunistically lower our long-term cost of capital.
Following the quarter, we also completed the purchase of the remaining equity in Cavendish Kinetics, an RF MEMS company, for $203 million, further strengthening our technology portfolio for switches, tuners, and other product applications. Turning to our outlook. In the third quarter of fiscal 2020, we expect revenue between $840 and $860 million, or $850 million at the midpoint. Non-GAAP gross margin of approximately 48%, and non-GAAP diluted earnings per share of $1.67 at the midpoint of our guidance. Our revenue outlook for the December quarter reflects continued robust mobile demand, supported by an increase in 5G handset volumes and a return to sequential growth for IDP. For mobile, we expect December quarter sales to increase sequentially and return to growth year-over-year as 5G handset launches with our integrated solutions and a healthy channel support strong demand.
For IDP, we project December quarter sales to increase on higher defense business volumes, the Wi-Fi 6 ramp, and broader 5G infrastructure customer demand. While Qorvo's current near-term outlook is strong and channels are healthy, trade and other factors contribute to challenges and uncertainty forecasting the outlook. On gross margin, our December quarter guide of approximately 48% is up 150 basis points sequentially on improved mix and lower inventory charges. Non-GAAP operating expenses are projected to increase in the back half of the fiscal year to between $175 million and $180 million per quarter due to operating costs of recent acquisitions and increased product development costs related to growth in 5G. Following our recent debt issue, interest expense will increase sequentially approximately $4 million. We expect the December quarter and fiscal 2020 non-GAAP tax rate to be 8.2% or lower.
On capital expenditures, we continue to project spend of less than $200 million this fiscal year and remain highly disciplined on adding capacity. Spend remains weighted towards improving our BAW and GaN capabilities. As the September quarter results and our December outlook show, Qorvo is operating well as 5G, Wi-Fi, defense, and other markets strengthen. As a result of our market outlook, operating performance, free cash flow forecast, and other factors, Qorvo's board has authorized a new $1 billion share repurchase program. With that, I'll turn the call back over to the operator for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Please limit yourself to one question and one follow-up. We will pause for just a moment to allow everyone an opportunity to signal for questions. The first question will come from Karl Ackerman with Cowen. Please go ahead with your question.
Hey, good afternoon, everyone. Thanks for letting me ask a question. I guess two, if I may. First, on Huawei, I guess what's implied in your outlook for December? I guess, do you think it's more appropriate to exclude revenue associated with the entity ban, or how should we think about Huawei? I have a follow-up.
Karl, this is Mark. Huawei is somewhat consistent with what we had given guidance on the last call. On the $52 million variance we had in second quarter to our guidance, roughly a fifth or $10 million of it was related to Huawei. Huawei was rather than what we thought would probably be 3%-4% of sales, ended up being closer to 5% of sales. As far as third quarter, we typically don't break down guide by customer, but on Huawei, what we said last quarter is we expected Huawei to be less than 5% per quarter going forward. We expect at this point for Huawei to run about what it ran in the second quarter, so close to 5%. We expect the second half to have Huawei at less than 5% of sales or around 5%.
For the full year, we still project Huawei to be less than 10% of sales compared to 15% last year.
That's helpful. I appreciate that, Mark. Shifting gears to China handsets, may you provide a bit more clarity on your opportunity to sell mid and high-band PAMiD to Chinese handset OEMs? I guess, are these contracts set in place today? We heard from the Korean smartphone manufacturer last night discussing the strength in China handsets, some of those OEMs procuring more memory, not only ahead of China tariffs, but also due to stronger demand. You're obviously levered very well to the China handset OEMs, but do you think the strength will prove to be ephemeral due to trade, or are there other factors we should consider? Thank you.
This is Eric. I'll address that. We have seen a significant increase in design activity on 5G with our Chinese customers, and we're not seeing a particular increase in overall units planned for the December quarter or March or going forward, but they are aggressively shifting the portfolio from 4G to 5G. The vast majority of R&D resources are being put on 5G phones right now. When you go to the 5G phones in China, across the board, they're going to fully integrated 4G solutions to support that. You get an increased RF content due to the higher levels of integration and taking 4G to LTE Advanced Pro. In addition, you get the additional content from, of course, new 5G bands, and even higher than we had expected requirements for multi-carrier operation and so forth to support non-standalone operation.
You put all that together, and even on flattish units, you can see how the RF content can increase. In Qorvo in particular, we're real pleased with our position there, leading supplier to that customer base. Clearly, when it comes to the integrated solutions, mid, high band in particular, we're getting the vast lion's share of that business.
Thank you for the question. The next question will come from Harsh Kumar with Piper Sandler. Please go ahead.
Yeah. Hey, guys. Congratulations on very strong results. I guess today being Halloween, thanks for making it fun and not terrifying. Hey guys, on a serious note, both your results and guide are very significantly better than the street. We just wanted to kind of understand where is the outperformance coming from. Do you think you're taking share in the new models of 5G? Is it mostly China 5G that you're taking share in, or is the tide rising for everybody and you're benefiting with it? Is there something going on perhaps in the U.S. market? Just some color would be appreciated, and I've got a follow-up.
Harsh, thanks for your comments and appreciate that. As I said in my opening comments for the September quarter, it was really driven by our three largest customers. As you know, our three largest customers are in three different continents, so we'll just leave it at that. As we look forward in the guidance, I think Eric's answer to Karl's question about what's going on in China and 5G is where I think it's two steps. One is the $ content for 5G phones is significantly increased over 4G phones. Also, as we've talked over the last couple calls, that we felt integration was key in being able to integrate the components that are needed for 5G phones. We do believe we're taking some share there from discrete players. That's really what's going on.
You're seeing the integration coming together in the 4G portion of a 5G phone plus for 5G. That's what's really driving it. It's the dollars per handset. The second area is we're seeing great growth at Samsung. In my opening comments, I talked about expanding into their mass tier phones as well, and we're driving a lot of business there, and that's going to be up very nicely year-over-year as well.
Thanks, guys. For my follow-up, you're within spitting distance of your high gross margins that you put up in December 2018, 49.5%, I think was the number. How do we think about gross margin? Your commentary suggests gross margins will be up from here. What's interesting is when you went from, call it $775 million in June to $807 million in September, your margins didn't go up that much, but when you go from September to December, they're jumping up quite a bit. Is that just integration and the new 5G products kicking in, or is there something else also going on?
Yeah. Harsh, this is Mark. I'll provide a few different answers on this question around first the quarter sequential up second to third quarter, up 150 basis points. Two things driving that. One, we had around $10 million worth of inventory charges, what I'll call excess inventory charges in the second quarter. Three primary drivers. One, we had some excess parts on older generation handset products. Two, we had a very isolated quality issue in a non-core market. Three, we were unable to repurpose a portion of a customer-specific product. As our practice, we took those charges, and they're in our non-GAAP results. Second to third quarter, we're up 150 basis points. One is a major driver there is the inventory charge not repeating. Secondly, we have a more favorable product mix, second to third quarter.
Third to fourth quarter, I'll take this opportunity to address. We'll see what we typically see third to fourth quarter, and that is we'll see gross margins decrease third to fourth quarter, down 100 basis points or more, again, as we've seen in previous years. This is really a function of seasonal mix and then just the effects of fixed manufacturing costs and lower revenues.
Understood. Thank you, guys.
Thanks, Harsh.
Thank you for the question. The next question will come from Ambrish Srivastava with BMO. Please go ahead.
Thank you. Mark, maybe we just continue the line of questioning with you. Based on the comments and what you've done in December, would March be a worse than seasonal quarter, or you expect March to be seasonal? I had a follow-up, please.
Ambrish, I assume you're talking about the top line, or?
Yes. Sorry, top line because you addressed the gross margin.
The year outlook has certainly improved for us from our view over a quarter ago. I think you see that reflected, of course, in the September end results and December guide. The handset replacement cycle seems to have stabilized. There is a clearer picture in China, and we've got increasing 5G demand. We've got Wi-Fi 6 adoption starting. Our defense business is doing well. We've got growth in various IoT markets. There is great pull on our technologies, as you heard Eric talk about. Lastly, and this important point, the channels are healthy. We feel good about the December guide. As confident as we are in December, there are some challenges and uncertainty as we go further out, right? We're taking a very disciplined view on expanding the business. The rate and pace of 5G adoption will modulate.
China trade, we have to admit, remains a source of concern. If there are supply constraints around that situation, could that bleed over into our customer demand? We see second half revenue being roughly in line to down slightly versus what we did in the first half. Since you've got the December guide, using that midpoint, that would be a March seasonal decline of around 15% sequentially.
Okay. That's very helpful.
And then-
Yeah, sorry. Go ahead.
Just while I'm at it, I talked about gross margin down 100 basis points or more, which is typical for our business to have a sequential decline. I mentioned higher OpEx in the second half in my comments and the higher interest expense. Just at the segment level, won't go into much detail here, but Mobile will be up sequentially, in the third quarter and return to growth year-over-year. It'll be down the fourth quarter seasonally, sequentially, and then up double digits year-over-year. On IDP, we'll see very strong growth sequentially in third quarter. Again, Wi-Fi, defense, broader infrastructure demand expected to strengthen through the year. We're hoping to see year-over-year growth return to IDP, but that's a tougher pot.
Okay. I was going to say thanks for the transparency. That's a lot more, but really appreciate it as always. Quick one. Since you've been on board, Mark, you've been very focused on free cash flow. I just wanted to tie that back with buyback as well. Is there a target that you're willing to give for the year for free cash flow? Then the share buyback, is there a timing on that, please? Thank you.
Yeah. There's no timing on the buyback. As far as just, I'll make some comments, historically, over the past 12 months, we've generated over $755 million of free cash flow. Over that time, we've repurchased $716 million. Well over 90% of our free cash flow, we've repurchased shares. Over this time, we've also deployed over $500 million with the purchase of two companies. We're generating more free cash flow than we had been, and we're doing a good job of smartly investing in organically and then returning sizable amounts to shareholders.
On the capital return, at this point, given the market outlook, our operating performance, free cash flow forecast, other factors, we didn't have much capacity left. The board approved a new $1 billion program. I'm just not going to comment on rate and pace at this point other than saying that we'll continue to buy back shares.
Okay. That's good enough. Thank you very much.
Thank you for the question. The next question will come from Toshiya Hari with Goldman Sachs. Please go ahead with your question.
Hi, guys. Thanks so much for taking the question and congrats on the very strong results. Mark, you talked about your mobile business returning to year-over-year growth in the quarter. This is obviously in the face of overall smartphone units being down. Huawei obviously becoming a significantly smaller customer on a year-over-year basis. You guys, I think losing a fairly sizable socket at a big customer. I guess the question is what's driving the year-over-year growth? Is it all 5G? Is it you guys having better presence at Samsung and some of the mainstream SKUs? Is it something else? If you can talk about some of the drivers on a year-over-year basis for the quarter, that'd be great. I have a follow-up.
It's broad customer engagement. China and 5G helps, but I really think it's a technology story for us, and I'll turn it over to Eric. Yeah. We've got, as you know, a very broad portfolio. It's just a growing list of opportunities across all of our customers, including our largest customer as well. From the main path integrated transmit modules and so forth for both low band, mid, high band, and ever more increasing ultra-high band activity, but also around tuning and around the antenna elements. There are a lot more signals trying to come and go from those two antenna elements. I think that's just an opportunity that applies across the board. Really, as we said, a standout really has to be Samsung. I think we've traditionally been a very strong supplier there.
We got out of alignment with the product roadmap and their architectures for a cycle or two, but we're fully back in alignment across not only the flagship or marquee tier, but also the mass tier of handsets there. Just real pleased with the alignment we have and enjoying building that business back again.
Great. On gross margins, Mark, you guys have done a great job over the past several quarters executing to margins. Can you remind us what some of the initiatives are in place today that hopefully get you to 50% over the medium term? If you can kind of provide a bridge to 50%, whatever the timeline is, that would be great. Sort of related to that, can you give us an update on what your thoughts are on GaN's plans from a timing perspective and how that could potentially impact CapEx? Thank you.
Toshiya, we're obviously still working to achieve 50% or more. We believe it's an achievable target. As I think Harsh mentioned, I'll remind you that we were at 49.5% about this time last year. As far as I won't do a specific walk, because there are just too many variables, but starting with our December guide as a baseline at 48%, we would expect volume growth for many of the reasons that Eric mentioned and James can talk about. We expect volume growth. We'd expect to see better utilization. This year, the volumes have certainly been lower than we had originally anticipated. The mix has sort of weighed on our in-house capacity.
Next calendar year, we'll also have the consolidation of our fabs, largely complete and most notably Florida will be closed and those products rolled into Greensboro, so those period cost effects will subside. Over time, we would expect the mix at IDP to improve and be a larger part of Qorvo, certainly compared to the December quarter guide, this 48% baseline that I talked about. We're doing a lot of product portfolio management as well, so that'll improve that mix. That's the purpose of our select and high tech investments. Finally, we're operating, I'd say, as well as we ever have, and that's allowing us to drive, I would say, better productivity than we were even before. To the extent we're doing that above inflation and price erosion, that would be incremental benefit to gross margin.
As far as Farmers Branch, our current view, given the outlook and efficiency gains that we've seen in Richardson, we won't need Farmers Branch at scale until late next calendar year or even the following year. As we've mentioned previously, I think James and I mentioned this when we were in New York in September, due to these gains and the flexibility we have at Richardson, and that's a great fab, it's allowed us to revisit our original manufacturing concept in Texas. We've gone from what was going to be a copy-exact idea for Farmers Branch to more of a single fab concept for the whole Dallas area. That allows us to be more capital and cost efficient, and it positions us well for the long term.
Thank you for the details. Thank you.
Thank you.
Thank you for the question. The next question will come from Bill Peterson with JP Morgan. Please go ahead with your question.
Yeah. Hey, guys, thanks for letting me ask a question and nice job on the results and guidance. My first question is in Mobile, and I guess I was hoping that Eric could sort of level set us. You've talked about an RF TAM increasing next year by about $1 billion. It sounds like some of the 5G opportunities are coming in maybe a little bit sooner than expected as you talk about December. I'm trying to get a feel for how you think the RF TAM should grow next year and the shape of the ramp. Our assumption is it'll be somewhat second half weighted. Within that, how should we think about your business, especially how it relates to the design wins you have? You talked about the four large China makers.
If you can help level set the market context as well as the shape of your business with 5G. Thank you.
Sure. Thanks, Bill. Yeah, we have been saying since our Analyst Day in 2018, we expected about a billion-dollar increase in the RF TAM in calendar 2020 due to 5G ramping. It's certainly looking like it's going to be considerably greater than that, much closer to $2 billion probably. It's equally weighted from at least our view currently between more units than we had originally expected and more content per unit. We got both factors affecting it pretty significantly. The higher units are really driven by this really rapid adoption and switchover of the handsets in China. It's clear from what we're seeing there that the 4G handsets that are going to be released are going to be dropping significantly in the very near term.
Whether there's coverage or not, consumers are going to be buying 5G handsets knowing that the network will be available at some time during the time they own that phone. They're getting a real jump on it. Obviously, as Samsung as well is transitioning their portfolio rapidly to include 5G content. That increases the number of 5G handsets well above the 200 million or so that we had originally modeled a couple of years ago. In addition to that, as I said, it looks like across the board, all the 5G handsets so far, without any going the other way, they're all going to fully integrated 4G systems inside them. Part of that is just to get the size.
These are really cramming an awful lot of functionality into these handsets, so they need the integration for that, but it also helps them get to market faster and improves performance. That integration trend for all the base content in 4G also adds content. The last adder is the requirements from China Mobile and so forth for band coverage. Having N79 in every phone, for example, the requirements for dual signaling and so forth, these are now being put in every single 5G handset. All that's coming together to increase the total TAM in CY 2020 well above what we had modeled previously.
Okay, thanks for that. Moving to James. James' business has obviously seen really rapid growth that's decelerated here in the last few quarters, including the guide. You talked about the potential return to year-on-year growth, but I guess, with Huawei significantly lower, do you have enough you mentioned you're broadening out your wireless infrastructure coverage customers, but how should we think the growth of that business as we look into next year with March maybe returning to growth and then progressing through the next year, given that we have Wi-Fi 6, defense, and additional customers for the infrastructure?
Bill, this is James. Thanks for the question. The restrictions on Huawei have definitely limited our ability to grow in the near term. As Mark stated, we hope to return to year-over-year growth in Q4. We're going to take a good step in that direction in Q3 with double-digit quarter-over-quarter growth. Longer term, we remain really positive about the underlying trends in the markets we serve. That includes the adoption of massive MIMO and 5G, the adoption of GaN in several different markets, the Wi-Fi 6 coming on, and IoT in both automotive and in the connected home. The addition of power management has also improved our long-term outlook. In fact, that business grew quarter-over-quarter about 40% and is very much on pace to how we looked at it prior to the acquisition.
With all that combined, my expectation is that we will return back into double-digit growth mode as we get on into our out years.
Okay, thanks for that.
Thank you for the question. The next question will come from Chris Caso with Raymond James. Please go ahead with your question.
Yes, thank you. Good evening. The first question is that there's been some lingering concerns since the trade restrictions were put in place that the Chinese OEMs and Huawei in particular, would backslide into discrete RF solutions, either because they couldn't get access to U.S. components or because they were worried that they wouldn't be able to in the future. Your results don't seem to point in that direction. Can you address that concern? If you could also address if it's feasible without highly integrated components, do you think that even if they chose to do that it would be possible to do a 5G phone even for domestic sub-6 in China without these highly integrated components?
Yeah, this is Eric. We have seen, of course, customers experimenting with full discrete solutions and even trying to go as far as to build handsets without any U.S. semiconductor content, for example. Those experiments are out there. You'll see them in the field. I think that experiment was enough to really fully validate the fact that you can't make a competitive handset without using U.S. content. Further, really, you can't build a compelling handset without going to integration because the solution size is so large and power hungry and poor performing that it really degrades the selling factor for the handset. Experiments happen, it confirms the thesis and generally people are returning to integration in full force.
Well, thank you. As a follow-up to that, perhaps if you could clarify the restrictions on what you can and can't ship to Huawei, both in the handset and the base station side. Is the restriction only on 5G? Does it apply to 4G also? Actually, one of the experiments you referred to that we've seen did use fully integrated 4G with a discrete 5G solution. Perhaps is that suggestive of you can't ship the 5G solution?
Chris, this is Bob, and I think we addressed this the last call as best we could, and I wish I could get into a lot of details. It's quite complicated. We spent a lot of time making sure that we comply with all the legal requirements that we can ship to Huawei, given the export restrictions. The restrictions are such that we are able to ship components that go into their phones. We have shipped components that go into their infrastructure side. I don't think I can get into a really serious discussion without a lot of help and understanding from a lot of people on what is good and what is bad to ship. I think the important thing is we are able to ship to them. We're fully in compliance with the export restrictions that are required to support them.
All right. Got it. Thank you.
Thank you for the question. The next question will come from Craig Hettenbach with Morgan Stanley. Please go ahead with your question.
Great, thanks. In the IDP business, I know you've talked a lot about aerospace, defense, and infrastructure. Can you touch on just kind of the broader-based IoT business, kind of the scope of that business today and opportunities that you're seeing?
Yeah, this is James. The market in general is still maturing. Several different standards have been competing, Wi-Fi, Zigbee, BLE, Thread, and NB-IoT. We're positioned pretty well across all of those different aspects of the market. Our strategy has effectively been to try to supply in the connected home and in the automotive space. Our automotive business, although is small, is growing at a very nice clip, and in fact, grew well into the double-digit range year-over-year in this current quarter. Wi-Fi has been a bit weak over the last couple of quarters, as we have reported
We are showing signs of recovery. The Wi-Fi 6 standard released in October, it's fueled our second quarter in a row of very strong design wins. We think that's a great sign that business will return back into a growth mode fairly soon.
Got it. Thanks. Just a follow-up question for Mark. Appreciate the color on just some of the OpEx with the RF MEMS acquisition. Can you share just from a revenue perspective, how that settles out?
I'll give you an update, Craig, on both our acquisitions. On the recent RF MEMS business, that's not financially accretive in fiscal 2020, and that's reflected in our guide. It's an increase in OpEx, and there's no income accretion there. On the programmable power management business, I think it was last call I said, the $50 million of revenue in our fiscal 2020 and slightly accretive. As James mentioned, that's very much on track. It's delivered on expectations in the September quarter. Our guide reflects the previous guidance I gave around that business.
Got it. Thanks.
Thank you for the question. The next question will come from Edward Snyder with Charter Equity Research. Please go ahead with your question.
Thanks a lot. Eric, you've talked a lot about the rapid move to phase 6 in China now. I know they experimented with it last year on the high end. Now it sounds like they're going en masse to keep up with 5G, which I guess is to be expected. That poses a problem here, because if the handset OEMs are going en masse to this, you have to buy these modules from Skyworks, Avago or yourselves, how does that work with Huawei? Are these components not covered by the ban? Is Huawei being left out of this shift? Have they found a substitute for these products? James, if I could, you've got up next quarter, led by defense, and you called out GaN and X-band. Are you looking at production now of some of these large systems like SPY-6V or GATOR?
Is it more development work? If it's the former, can you give some kind of color on the run? I know this stuff has been in development for many years now, but some of these are very large systems with big unit volumes in the long term. I'm just trying to get a feel for how defensive play out over the next, well, long term, actually, the next 12 months or so. I have a follow-up.
To your first question about Huawei and the highly integrated modules, while staying completely consistent with export regulations, we're able to ship the highly integrated modules across all frequency bands to Huawei's handset division.
James, do you want to take the second part?
Yeah, Ed, for defense, the defense business has been a solid growth engine for us, and I think it's really gonna have a nice back half and fuel the recovery we talked about earlier. GaN related, there are numerous production programs for GaN. We announced one this quarter. That was the arrangement with Lockheed Martin on Q-53. Again, you can read what that system is, but there are numerous other production programs using our GaN capability.
Okay, Eric, might come back. You talked about ultra-high-band wins, which we kind of see dabbling of that last year or so. I know it's showing up here, you also talked about higher content in 5G than you had expected. Is there something being added to the 5G section, or are you talking more of the halo effect of 5G on 4G, for example, in the tuners, antenna plexes, that sort of thing? I'm just trying to get my arms around, given the phones you've seen, the bands and the teardowns, what additional actually pure 5G content could you be talking about when you say that 5G content is higher than anticipated? Thanks.
Great question, Ed. The halo effect with 4G was largely contemplated. I think that's on track for the most part. Additional tuning is definitely higher than we had expected. I think the primary new content in 5G proper are bands like, as I mentioned as an example, N79 being required across all China handsets, not just China Mobile, for example. The requirements for the dual signaling for non-standalone operations, so you have to be able to transmit on 4G and 5G at the same time. Once that was fully incorporated into the architectures, it turned out to take more switching, more complex RF than was expected. By the way, we don't see any of this going away. Even if China immediately went to standalone 5G, all the architectures we're seeing are gonna keep that dual signaling mode.
They'll use that 4G carrier to transmit even more data on. We don't think that this is just sort of a one-time blip in content. It's going to continue to ratchet up from here going forward.
Great. Thank you.
Thank you for the question. The next question will come from Timothy Arcuri with UBS. Please go ahead.
Thanks a lot. Mark, I guess the first question, can you give us a sense of your largest customer, how big they were maybe in the quarter and maybe not if you don't want to give us numbers, can you talk about year-over-year how much they grew or didn't grow? Thank you.
No, Tim, we had one 10% customer in the quarter, and I can't give details about that specific customer's growth.
Okay. Awesome. Do you have any sense, maybe James, about if you have any forecast that you're sort of thinking about for the global 5G handset build for mostly obviously sub-6 next year?
The numbers are all over the map. There's some are at 175, and some people talk about 300. Can you help us think about what a global TAM will be so we can think about how big things could actually be for you next year in the 5G? Thank you.
Yeah.
Go ahead.
speak to the handset side and then let James chime in on the infrastructure side. I mentioned earlier that we had baselined around about a $1 billion adder in the TAM for calendar year 2020, that was roughly $200 million handsets at $5. We were projecting that back in 2018 even, or earlier. What we're seeing now is maybe not quite 300, but approaching 300 in terms of units likely. The content being a little above $5 as well, probably $6, $7 worth of additional content. As we said, much closer to $2 billion now based on customer forecast to us and the architectures we see ramping next year.
On the base station side, we see about $1 billion of TAM being added, and it's all associated with 5G add-ons, and most of that is attributed to the adoption of massive MIMO. We expect over the next several years that somewhere in the range of 30% of the base station deployed will use massive MIMO technology. As I've talked about before, that's about a 10x content gain for us in each one of those base stations.
Awesome. Thank you so much.
Thank you.
Thank you. The next question will come from Rajvindra Gill with Needham & Company. Please go ahead.
Yes, thank you. I echo my congratulations. You mentioned, in terms of the portfolio of the Chinese handset phone customers moving to 5G from 4G, but fairly seeing a, I guess, a jump in the actual units, rather the RF contents going up. To the earlier question about the TAM, I'm just wondering if the replacement cycle that you're expecting to see in 5G will actually also result in higher incremental units for the overall Chinese handset market. How do we think about that? When do we expect maybe unit growth to start to increase as a result of the transition to 5G?
We're not modeling an increase in unit growth, going forward. We did see replacement cycles kind of moving out. That was part of a bit of a drag over the last year. They've stabilized now, for the time being, at least. We aren't modeling them necessarily kicking back. If units go up, that means replacement cycles have got to be shortening, and we're not modeling that overall.
This is just primarily going to be driven by purely RF content gains to support 4G, but also the new bands.
Yeah, that's right, exactly. Total number of handsets, more of them being 5G versus 4G without more units, and then 5G having higher content.
Higher content. Got it. Okay. For my follow-up question, I guess it is to the earlier question about the risk of Huawei and other Chinese handset OEMs using non-U.S. filter companies. You had mentioned that there's some experiments out there, but the results are that there's a pushback to an integrated solution. Knowing the fact that these RF designs pretty much have already been locked in for the phones next year, if we look at it 2021, is there potential risk that these OEMs will move to more of a FEM architecture ID without an integrated power amplifier versus a PAMiD architecture?
You want me?
Yes.
Number one, I want to make sure we understand that, in China, let's understand they export phones as well. For anything they're exporting, they're gonna compete with, obviously, Samsung and others. They're gonna make sure they buy the best RF. As you well know, the RF does influence drop calls, battery life, things that we, as consumers, recognize and judge phones by. That's important distinction. Second, even in China, they're building their brands and want to make sure that they can compete with Huawei, so far we have not seen anyone that is willing to sacrifice, if they have the ability to buy from U.S. suppliers, to sacrifice performance and tarnish their brand.
The other thing I just want to caution you on is that there are many phone designs that are still left to be done in the second half of this year, and their direction, at least in the architectures we're seeing, are still with the integrated products that we've been talking about.
Very good. Thank you for the insight.
Thank you for the question. We've reached the end of our question and answer session. I'd like to turn the call over to management for any further or closing comments.
Thank you. We want to thank everyone for joining us on tonight's call. We hope to see you at upcoming investor meetings, and we look forward to speaking with you again when we report our third quarter results. Thanks again, and hope you have a good night.
Thank you, ladies and gentlemen, this concludes today's event. You may now disconnect your lines.