Good day, and welcome to the Qorvo Incorporated Second Quarter 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Douglas Dolito, Vice President of Investor Relations at Qorvo. Please go ahead.
Thanks very much. Hello, everybody, and welcome to Qorvo's fiscal 20 2nd 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 ks filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non GAAP financial results.
We provide the supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non GAAP results. For a complete reconciliation of GAAP to non GAAP financial measures, please refer to our earnings release issued earlier today available on our website atqorvo.comunderinvestors. 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. And 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 5 gs. Qorvo is securing significant content in 5 gs 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 5 gs 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 a 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 4 largest customers in China designing our low, mid high and ultra high band solutions into their upcoming 5 gs 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 PESQ. 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 5 gs appears to be rolling out faster than a ramp of 4 gs.
Activity is primarily in the sub-six gigahertz frequencies and Qorvo's GaN technology is increasingly the technology of choice. During the quarter, we secured new GaN design wins for sub-six 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 5 gs 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 1st Wi Fi 6 dual band front end module and the world's 1st Wi Fi 6 Ifem ISAM for CPE applications, expanding our product portfolio for retail, enterprise and network operators. In automotive, we commenced production shipments of our Wi Fi FEM 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 6iFEMs with advanced filtering and multiprotocol 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.
And 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, and good afternoon, everyone. Qorvo's revenue for the Q2 was $807,000,000 52,000,000 above the midpoint of our guidance and driven by stronger than expected mobile demand. Mobile revenue of $623,000,000 exceeded expectations at our largest customers and demand strengthened through the quarter. IDP revenue of $184,000,000 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 5 gs infrastructure customer demand.
Qorvo shipments to Huawei in the September quarter exceeded expectations, and 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 $167,000,000 and in line with our guidance. Non GAAP net income in the September quarter was $181,000,000 and diluted earnings per share was $1.52 $0.22 over the midpoint of our guidance. September quarter cash flow from operations was $173,000,000 and CapEx was $38,000,000 yielding free cash flow of $135,000,000 Qorvo's first half fiscal 'twenty free cash flow of $342,000,000 is on record pace, and we expect to maintain strong free cash flow through the fiscal year.
We repurchased $165,000,000 of stock in the quarter and our net leverage at quarter end stood at 0.4 net debt to EBITDA. After quarter end, we issued $350,000,000 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 Men's Company, for $203,000,000 further strengthening our technology portfolio for switches, tuners and other product applications. Turning to our outlook. In the Q3 of fiscal 2020, we expect revenue between $840,000,000 $860,000,000 or $850,000,000 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 5 gs 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 5 gs 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 WiFi 6 ramp and broader 5 gs 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 175,000,000 dollars $180,000,000 per quarter due to operating costs of recent acquisitions and increased product development costs related to growth in 5 gs. Following our recent debt issue, interest expense will increase sequentially approximately $4,000,000 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 $200,000,000 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 5 gs, WiFi, 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 $1,000,000,000 share repurchase program. With that, I'll turn the call back over to the operator 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 2, 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 I guess, how should we think about Huawei? And I have a follow-up.
Carl, this is Mark. So Huawei is somewhat consistent with what we had given guidance on the last call. So on the $52,000,000 variance we had in 2nd quarter to our guidance, roughly a $1,000,000 or $10,000,000 of it was related to Huawei. So Huawei was rather than what we thought would probably be 3% to 4% of sales ended up being closer to 5% of sales. As far as Q3, 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. And 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 pad 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 5 gs 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 4 gs to 5 gs. The vast majority of R and D resources are being put on 5 gs phones right now. And when you go to the 5 gs phones in China, across the board, they're going to fully integrated 4 gs solutions to support that.
So you get an increased RF content due to the higher levels of integration and taking 4 gs to LTE Advanced Pro. And in addition, you get the additional content from, of course, new 5 gs bands and even higher than we had expected requirements for multi carrier operation and so forth to support non standalone operation. So you put all that together and even on flattish units, you can see how the RF content can increase. And Coralville, in particular, we're real pleased with our position there, leading supplier to that customer base. And 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 Jaffray. Please go ahead.
Yes. Hey, guys. Congratulations on very strong results. I guess today being Halloween, thanks for making it fun and not terrifying. But hey guys, so on a serious note, both your results and guide are significantly very significantly better than the Street.
And we just wanted to kind of understand where is the outperformance coming from. Are you do you think you're taking share in the new models of 5 gs? Is it mostly China 5 gs that you're taking share in? Or is the tide rising for everybody and you're benefiting with it? Or 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 3 largest customers. So as you know, our 3 largest customers are in 3 different continents. So we'll just leave it at that. And as we look forward in the guidance, and I think Eric's answer to Carl's question about what's going on in China in 5 gs is where I think it's 2 steps.
1 is the dollar content for 5 gs phones is significantly increased over 4 gs phones. And then also, as we've talked over the last couple of calls, that we felt integration was key in being able to integrate the components that are needed for 5 gs phones, we do believe we're taking some share there from discrete players. So that's really what's going on. You're seeing the integration coming together in the 4 gs portion of a 5 gs phone plus for 5 gs, and that's what's really driving it. It's the dollars per handset.
So and then second the second area is we're seeing great growth at Samsung. In my opening Thanks,
guys.
And then for
Thanks, guys. And then for my follow-up, you're within spitting distance of your high gross margin that you put up in December, 18%, 49 point 5%, I think was the number. How do we think about gross margin? I mean your commentary suggests gross margins will be up from here. And also what's interesting is when you went from, call it, dollars 775,000,000 in June to $807,000,000 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 5 gs products kicking in? Or is there something else also going on?
Yes. So Harsh, this is Mark. I'll provide a few different answers on this question around, 1st, the quarter sequential up 2nd to 3rd quarter up 150 basis points. 2 things driving that. 1, we had around $10,000,000 worth of inventory charges, what I'll call excess inventory charges in the second quarter.
Three primary drivers: 1, we had some excess parts on older generation handset products 2, we had a very isolated quality issue in a non core market. And then 3, we were unable to repurpose a portion of a customer specific product. So as our practice, we took those charges and they're in our non GAAP results. 2nd to 3rd quarter, we're up 150 basis points. One is a major driver there is the inventory charge not repeating.
And then secondly, we have a more favorable product mix, 2nd to 3rd quarter. Yes, 3rd to 4th quarter, I'll take this opportunity to address. We'll see what we typically see 3rd to 4th quarter, and that is we'll see gross margins decrease 3rd to 4th quarter down 100 basis points or more, again, as we've seen in previous years. And 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.
Hi, thank you. And Mark, maybe we'll just continue the line questioning with you. So 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? And then I had a follow-up, please.
So, Ambrish, I assume you're talking about the top line or?
Yes, sorry, top line because you addressed the gross margin.
Yes. So it is a the year outlook has certainly improved for us from our view over a quarter ago. And I think you see that reflected, of course, in the September and results in December guide. The handset replacement cycle seems to have stabilized. There's a clearer picture in China and we've got increasing 5 gs demand.
We've got Wi Fi 6 adoption starting. Our defense business is doing well. We've got growth in various IoT markets. There's great pull on our technologies as you heard Eric talk about. And lastly, and this is an important point, the channels are healthy.
So we feel good about the December guide. But as confident as we are in December, there are some challenges and uncertainty as we go further out, right? And so we're taking a very disciplined view on expanding the business. The rate and pace of 5 gs, adoption will modulate. China trade, we have to admit, remains a source of concern.
And if there's supply constraints around that situation, could that bleed over into our customer demand. So right now, as we see it, we see second half revenue being roughly in line to down slightly versus what we did in the first half. And 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. Thanks for all the yes, sorry, go ahead.
Yes. And then 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, I won't go into much detail here, but mobile will be up sequentially in the 3rd quarter and return to growth year over year. It will be down the 4th quarter seasonally, sequentially and then up double digits year over year.
And then on IDP, we'll see very strong growth sequentially in 3rd quarter, again, WiFi, defense, broader infrastructure demand, expected to strengthen through the year. And then 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. And I just wanted to tie that back with buyback as well.
So is there a target that you're willing to give for the year for free cash flow and then the share buyback, is there a timing on that, please? Thank you.
Yes, there's no timing on the buyback. And as far as just I'll make some comments historically over the past 12 months, we've generated over $755,000,000 of free cash flow. And over that time, we've repurchased $716,000,000 well over 90% of our free cash flow, we've repurchased shares. Over this time, we've also deployed over $500,000,000 with the purchase of 2 companies. So we're certainly we're generating more free cash flow than we had been and we're doing a good job of smartly investing inorganically 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, Board, we were out of capacity or we didn't have much capacity left. So the Board approved a new $1,000,000,000 program, and 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. And 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 and you guys, I think losing a fairly sizable socket at a big customer.
So I guess the question is what's driving the year over year growth? Is it all 5 gs? Is it you guys having better presence at Samsung and some of those 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 would be great.
And then I have a follow-up.
I mean, it's broad customer engagement. China and 5 gs helps, but I really think it's a technology story for us, and I'll turn it over to Eric.
Yes. We've got, as you know, a very broad portfolio, just a growing list of opportunities across all of our customers, including our largest customer as well. From the MainPath integrated transmit modules and so forth for both low band, mid high band and evermore increasing ultra high band activity, but also around tuning and around the antenna elements that there are a lot more signals trying to come and go from those 2 antenna elements. And so I think that's just an opportunity that applies across the board. But really, as we said, a standout really has to be Samsung.
I think we've traditionally been a very strong supplier there. We've got out of line or got out of alignment with the product roadmap and their architectures for a cycle or 2, but we're fully back in alignment across not only the flagship or marquee tier, but also the mass tier of handsets there. And just real pleased with the alignment we have and enjoying building that business back again.
Great. And then 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? And if you can kind of provide a bridge 50%, whatever the timeline is, that would be great. And then sort of related to that, can you give us an update on what your thoughts are on Pharma's branch from a timing perspective and how that could potentially impact CapEx?
Thank you.
Yes. So, Toshiya, we're obviously still working to achieve 50% or more. We believe it's an achievable target. And as I think Harsh mentioned, I'll remind you that we're at 49.5% about this time last year. And 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. And so we'd expect to see better utilization. I mean this year, the volumes have certainly been lower than we had originally anticipated and then 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. Also 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. And then we're doing a lot of product portfolio management as well. So that will improve that mix.
And 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. And 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, and I think James and I mentioned this, we're 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. And 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. And yes, that allows us to be more capital and cost efficient and it positions us well for the long term.
Thank you for the details and congrats again.
Thank you.
Thank you for the question. The next question will come from Bill Peterson with JPMorgan. Please go ahead with your question.
Hey, guys. And 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 sort of level set us. You've talked about an RF TAM increasing next year by about 1,000,000,000 dollars It sounds like some of the 5 gs opportunities are coming in maybe a little bit sooner than expected as you talk about December.
But trying to get a feel for how you think the RF TAM should grow next year in the shape of the ramp? Our assumption is it will be somewhat second half weighted. But and then within that, how should we think about your business, especially how it relates to the design wins you have? You talked about the 4 large China makers, if you can help level set the market context as well as the shape of your business in 5 gs. Thank you.
Sure. Thanks, Phil. Yes, we have been saying since our Analyst Day in 2018, we expected about $1,000,000,000 increase in the RF TAM in calendar 'twenty due to 5 gs ramping. And it's certainly looking like it's going to be considerably greater than that, much closer to $2,000,000,000 probably. And it's equally weighted from at least our view currently between more units than we had originally expected and more content per unit.
So we got both factors affecting it pretty significantly. And 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 4 gs 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 5 gs handsets knowing that the network will be available at sometime during the time they own that phone. So they're getting a real jump on it.
Obviously, it's Samsung as well as transitioning their portfolio rapidly to include 5 gs content. So that increases the number of 5 gs handsets well above the 200,000,000 or so that we had originally modeled a couple of years ago. But then in addition to that, as I said, it looks like across the board, all the 5 gs handsets so far without any going the other way. They're all going to fully integrated 4 gs systems inside them. And part of that is just to get the size.
I mean, 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. So that integration trend for all the base content in 4 gs also adds content. And then the last adder is the requirements from China Mobile and so forth for band coverage. And so having N79 in every phone, for example, the requirements for dual signaling and so forth, these are now being put in every single 5 gs handset.
So all that's coming together to increase the total TAM in CY20 well above what we had modeled previously.
Okay. And 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, what do you have enough sort of 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 WiFi 6, Defense and additional customers for the infrastructure?
Phil, this is James. Thanks for the question. The restrictions in the Huawei have definitely limited our ability to grow in the near term. However, 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, and that includes the adoption of massive MIMO and 5 gs, the adoption again in several different markets in the WiFi 6 coming on and IoT in both automotive and in the connected home. And 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. So 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. 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, but can you address that concern? And if you could also address if it's feasible without highly integrated components, do you think that even if they chose to do that, that it would be possible to do a 5 gs phone even for domestic sub-six in China without these highly integrated components?
Yes, 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. And 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.
So 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 it only the restriction only on 5 gs? Does it apply to 4 gs also? And actually one of the experiments you referred to that we've seen did use fully integrated 4 gs with a discrete 5 gs solution. So perhaps is that suggestive of you can't ship the 5 gs 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. But 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 are 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 Hettencatch with Morgan Stanley. Please go ahead with your question.
Great, thanks. In the IDT business, I know you've talked a lot about kind of 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?
Yes, this is James. So 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. WiFi has been a bit weak over the last couple of quarters as we have reported, but we are showing signs of recovery. The Wi Fi 6 standard released in October and it's fueled our 2nd quarter in a row of very strong design wins. And we think that's a great sign that that business will return back into a growth mode fairly soon.
Got it. Thanks. And just a follow-up question for Mark. Appreciate the color and just some of the OpEx with the RF MEMS acquisition. Can you share just from a revenue perspective how that settles out?
Yes. So I'll give you an update, Craig, on both. So both are acquisitions. So on the recent RF Men's business, that's not financially accretive in fiscal 2020 and that's reflected in our guide. So it's an increase in OpEx and there's no income accretion there.
On the programmable power management business, I think it was the last call, I said it would be $50,000,000 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. And 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 move to rapid move to Phase 6 in China now. I know they experimented with last year in
the high end and now
it sounds like they're going in mass to move to 5 gs, which I guess is to be expected. But that poses a problem here, because if the handset volumes are going in mass to this and you have to buy these modules from Skyworks, Chicago or yourselves, how does that work with Huawei? I mean, are these components not covered by the band? Is Huawei being left out of this shift? Or are they found a substitute for these products?
And then James, if I could, you're guiding up next quarter led by defense and you called out GaN and XPAN. Are you looking at production now some of these large systems like SPICE 6V or GATOR? Or is it more development work? And if it's a 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.
Just trying to get a feel for how defense will play out over the next well, long term, actually, the next 12 months or so? And I have a follow-up.
So 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?
Yes. Ed, for defense, so the defense business has been solid growth engine for us and I think it's really going to 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 Q53.
And again, you can read what that system is. But there are numerous other production programs using our GaN capability.
Okay.
And then Eric, if I come back, did you talk about ultra high band wins, which we kind of see dabbling of that last year or so, I know it's showing up here. But then you also talked about higher content in 5 gs than you had expected. Is there something being added to the 5 gs section? Or are you talking more of the halo effect of 5 gs on 4 gs, for example, in the tuners, antennaplexers, that sort of thing? So I'm just trying my arms around, given the you've seen in the bands and the teardowns, what additional actually pure 5 gs content could you be talking about when you say that the hot 5 gs content is higher than anticipated?
Thanks.
Yes. Yes. Great question, Ed. The halo effect with 4 gs was largely contemplated. I think that's on track for the most part.
Additional tuning is definitely higher than we had expected. But I think the primary new content in 5 gs 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 4 gs and 5 gs 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. And by the way, we don't see any of this going away.
Even if China immediately went to standalone 5 gs, all the architectures we're seeing are going to keep that dual signaling mode. They'll use that 4 gs carrier to transmit even more data on. So, 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 like year over year how much they grew or didn't grow? Thank you.
No, Tim. We had 1 10% customer in the quarter and I can't give details about that specific customer's growth.
Okay, awesome. And then do you have any sense maybe James about if you have any forecast that you're sort of thinking about for the global 5 gs handset build for mostly obviously sub-six 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 sort of a global TAM will be so we can think about how big things could actually be for you next year in 5 gs?
Thank you.
Yes. I'll take that handset side and then let James chime in on the infrastructure side. I mentioned earlier that we had a baseline around about $1,000,000,000 adder in the TAM for the calendar year 2020 and that was roughly 200,000,000 handsets at $5 So we were projecting that back in 2018 even or earlier. And so what we're seeing now is maybe not quite $300, but approaching $300 in terms of units likely and the content being a little above $5 as well, probably $6,000,000 $7 worth of additional content. So that's we're, as we said, much closer to $2,000,000,000 now based on customer forecast to us and the architectures we see ramping next year.
On the base station side, we see about $1,000,000,000 of TAM being added, and it's all associated with 5 gs 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. And 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 Raji Gill with Needham and Company. Please go ahead.
Yes. Thank you and I echo my congratulations. You mentioned in terms of the portfolio of the Chinese handset fairly seeing a, I guess, a jump in the actual units, rather the RF content is going up. To the earlier question about the TAM, I'm just wondering if this the replacement cycle that you're expecting to see in 5 gs will actually also result in higher incremental units for the overall Chinese handset market? And how do we think about that?
When do we expect maybe like unit growth to start to kind of increase as a result of the transition to 5 gs?
So 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.
So this is just primarily going to be driven by purely RF content gains to support 4 gs, but also the new bands?
Yes, that's right. Exactly. So total number of handsets more than being 5 gs versus 4 gs without more units and then 5 gs having higher content.
Higher content, got it. Okay. And then 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 are 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 integrated power amplifier versus the PAM ID architecture?
You want me? Yes. Yes. Number 1, I want to make sure we understand that in China, let's understand they export phones as well. So for anything they're exporting, they're going to compete with obviously Samsung and others.
So they're going to make sure they buy the best RF. And as you well know, the RF does influence drop calls, battery life, things that we as consumers recognize and judge phones by. So that's important distinction. 2nd, even in China, they're building their brands and want to make sure that they can compete with Huawei. And 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 Q3 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.