The semiconductor and semiconductor equipment analyst here. Please have Grant Brown, Philip Chesley, and Dave Fullwood here from Qorvo. I love having a full suite of guys on stage. I never get to fill all the seats. This is awesome. Thanks for joining me. I appreciate it.
Welcome.
Thank you. Thanks for having us.
I think a good place to start is maybe with the state of the full business. Grant, could you walk us through what's going on with the ACG business? CSG and Philip, maybe with HPA. You guys can mix it up. Whoever wants to go first can start.
Sure. Thanks very much for having us. Always appreciate the opportunity. Maybe before I begin, I'd like to remind the audience that the safe harbor language that applies to our press release also applies to today's presentation and this discussion, and refer everyone to our filings, specifically Form 10-K and 10-Q, for any additional information and risk factors. I'll go ahead and start, and then I'll throw it over to Philip or Dave, who can elaborate. Looking across the full business, Qorvo's markets are underpinned by some significant global megatrends that we commented on at our investor day. Those are electrification, connectivity, mobility, sustainability, datafication, and AI, of course. Each of these unlock new functionality and new user experiences that are made available by the customers we serve and the products of ours that enable that.
Our customers require higher performance, greater efficiency, smaller form factors, all of this to enhance the user experience and extend their differentiation, and this creates opportunities for Qorvo in every end market that we address. Our strategy remains intact, just as we laid it out at our investor day earlier this year. If I take a quick look at each of the segments, and I'll start with ACG, where we have a strong position with our largest customer. They are the single largest opportunity in ACG, and we have a clear path for content gains over multiple years. In our Android business, the mix is shifting from mid-tier 5G to entry-tier 5G, as we've spoken about, and we are increasingly focusing on the flagship and premium tiers.
In HPA, and Philip can elaborate here, we continue to expand our defense and aerospace franchise, where we're building a broad-based business in power management as well. And for the full fiscal year, we expect HPA to grow in the mid-teens. Finally, in CSG, last quarter we saw strength in Wi-Fi, while we're continuing to invest in diversifying growth businesses, including a portfolio of automotive solutions and SoCs for ultra-wideband and Matter. And in ultra-wideband specifically, we're engaged with customers on some really exciting indoor navigation applications. And again, for the full year, we also expect to grow in the mid-teens for CSG. If I summarize and add all that together, our corporate strategy is to reinvest our cash flows into the most attractive opportunities and continue to focus on driving profitability. We're reducing capital intensity, and we're committed to delivering on our long-term financial model.
Finally, we continue to execute on our share repurchase as we evaluate other alternatives, such as inorganic growth in acquisitions. I don't know if Dave and Philip can elaborate when we get to those businesses too. Yeah.
I'm going to pass this over. We're all now on mic down here, so I'll keep it going. Now that we're at the year end, at least for the calendar year end, we can look back and talk about kind of content at the largest customers for this year, and then maybe your outlook into calendar year 2025. Could you level set us where did we end? Then looking out into next year, where can we go?
Sure. Let me start, and then I'll pass my mic over to Dave. So as you know, there's not a lot we can say about our largest customer. We're doing what we said at our investor day, which is to invest more and win more. This year, as we look back, we won the content that we expected to, and we executed exceptionally well during the large seasonal ramp. That content includes discrete placements like tuners, as well as integrated placements like ultra-high-band PAs, among other things. For reference, last quarter, our largest customer was just over 50% of total revenue, and we expect them to be at a similar level in the December quarter. It's seasonal, of course. It's seasonally down in March. But to put that into context, as we've stated, this is our largest opportunity in ACG, and we continue to invest there.
As we look forward into next year, we've secured sufficient wins to date that give us confidence in year-over-year content growth in our next year, and we're very excited about that and very well positioned. We're in, of course, as you know, based on the teardowns, all models, but we tend to be weighted toward the pro models, and you can expect continued strength there. Beyond next year, we've been invited to compete, and we're investing to grow content even further. In fact, we're engaged on more product programs today than ever before, and Dave, I know you wanted to say something, so.
Is this working? Is this working up here, guys?
This one.
This one, for sure.
All right.
Yeah, thanks, Grant. I think it's important also to address some questions that have come up around some misinformation in a recent news article about our opportunity with the internal modem. To be clear, we don't do modems, we don't do transceivers, and we don't do millimeter wave. What the customer counts on us for is integrated RF modules, ET PMIC, antenna tuning, and discrete filters and switches. The incremental opportunity for us as they move to the internal platform is the ET PMIC. So I just want to make sure that was clear, because I know there's some confusion and a lot of questions about that.
Super helpful. So I'll sneak in a financial question. So at last earnings, you mentioned Android, mix shift, and utilization as gross margin headwinds in the December and the March quarters. Is there any updated visibility there, and what are the important levers for gross margin improvement to your target for the investor day, which is 50% + as we go into fiscal year 2026?
Great. Thanks. I'm here. Sure. Let me cover that one. We've described the mix shift in Android 5G from mid-tier to entry tier. This was anticipated over time but accelerated, and we've discussed that accelerated shift in the OEM build plans, and in the near term, our latest comments around utilization and gross margin reflect that dynamic, but looking beyond the next few quarters into fiscal 2026, content growth at our largest customer and growth in HPA and CSG will be masked by some of those declines in Android. However, there's no change in the strategy within ACG. In fact, we're investing in 5G advanced solutions there for flagship and premium tiers, and the market has really only expedited our plans, and we're taking some significant actions. The first action has been removing variable costs in response to the fluctuations in loadings. This has been done.
If you look at our guidance, even though we're down year-over-year in revenue in the December quarter, margin's up. So we're clearly taking cost out. Next, you can look to reduce fixed costs, and we've done that as we've reduced capital intensity, which is one element in an ongoing effort. You already know we've divested factories, and we're further consolidating our footprint. Our latest move is the transfer of GaAs wafer production from North Carolina to Oregon, and beyond the direct fixed costs, we are implementing a meaningful workforce reduction. We are committed to treating our impacted employees with respect and helping them through the transition. This process is currently underway. Employees have been notified, and it represents a meaningful reduction to our operating expense and our commitment to achieving our financial model.
In terms of business-oriented actions, we're not leaving Android or China, for that matter, but we've adjusted our Android roadmap to align with the flagship and premium tiers, which is part of that workforce reduction. Regarding our digital transformation, the rate and pace is guided by the economic benefits, and as always, it's been designed to follow the contours of our business, but versus our prior comments, the spend there will come down meaningfully. Our other operating expense line will come down, beginning in Q4 and extending into fiscal 2026, and we're reducing the scope of those projects to a smaller list of highly valuable items. Lastly, we, as you know, signed a definitive agreement to divest our silicon carbide business, which is both a gross margin and operating profit accretive move. These actions will carry into fiscal 2026.
In total, on an annualized gross basis, we expect to take out over $100 million with COGS and OpEx. We won't take all this to the bottom line, of course. Inflation, the cost of material salaries, and outside services will erode some of the savings, but we'll continue to invest in the business as well, specifically D&A, power, UWB, and then our largest customer, where we have significant opportunity. Specifically to the gross margin part of the question, we're committed to the financial model we laid out at our investor day, and we don't have to achieve a 50/50 revenue split, i.e., HPA plus CSG being 50% or more, to achieve our 50% gross margin target. Overall, business mix will improve margin. HPA, and specifically D&A, is margin accretive, and that will happen over time, given the differential in growth rates.
But each of our individual business segments has their own specific margin drivers. Within ACG, the mix to premium and flagship will improve gross margin as we support all of our customers. In HPA, the divestment of silicon carbide, the growth in D&A and other items will improve the gross margin within HPA. And within CSG, we're transitioning the GaAs production to Oregon and exiting some lower utilization situations in the North Carolina fab. So each of the three business segments has their own independent drivers, as well as overall business mix at the Qorvo level. With all of those, I think we can get to, in seasonally strong quarters in fiscal 2027, the opportunity to achieve 50% gross margins. Rest assured, we're taking those actions, and we'll provide more detail on our upcoming calls.
But I wanted to make sure we stressed all of the things going on at Qorvo to help us get to our target financial model.
Very, very helpful. So just to synthesize there, $100 million that's across both spend and COGS. And in terms of where that's located across the business, you're going to give more detail, obviously, on the earnings call. But any color? Is that in relation to the Android business that you were talking about as well? So any color there would be super helpful.
Yes, exactly. It's heavily weighted toward the Android business, where we're refocusing our efforts to the premium and flagship tiers, but also business support functions, right? So everything that's company-wide, looking at profitability and how we're going to achieve our target financial model, we're committed to that success over the long term.
And then, in terms of the timing, is the last question on it? And just how quickly can that occur? Is that over the course of several quarters? Is that all going to come out at once? Anything on the cadence?
Sure. Those actions are happening right now, actually, and it'll carry into our Q4 and as well as into our fiscal 2026. So we're taking actions immediately. Some of the fab-related items take longer as we work through end-of-life products and supporting our customers. The product transitions also take longer as we support our Android customers in business we've already committed to, which will span into fiscal 2026.
Okay. Super helpful.
Hey, Tom. It's probably helpful to size our Android revenue going forward, because you're probably going to ask that. So in terms of our ACG revenue, our China-based Android revenue is down 75% from the peak. It's expected to be under $100 million this quarter, which we mentioned before, and it's going to be down year-over-year next fiscal year. So as the product pipeline narrows, as Grant described, and we only focus on those high tiers, you could think of our $100 million of quarterly ACG China-based revenue bottoming out around $50 million a quarter over the coming years. So anything above that would be upside if there's shift back towards mid-tier or AI upgrade cycles, those kind of things. But that's kind of how we're thinking about the Android business.
Super helpful. So I guess I think the perfect kind of segue is, so Android as a market seems somewhat structurally challenged. There's clearly a market dynamic that's occurring that's having you shift priorities from a spend perspective elsewhere. Where, as a company, are you doubling down your efforts in the total business? Where are your areas of growth? And do you feel like this is a time where you potentially would need to add to that growth profile? Or can you do it from an organic perspective? Maybe two different questions. Where organically are you focused? And then is there any areas where you would feel that you want to bolster the portfolio?
Yeah, great question. Thanks for asking. In fact, it's a perfect segue to Phil to talk about HPA. But before we do, I will say the $100 million we're taking out, we're doing exactly as you described, right? We're taking that out of our spend profile, and we'll be reinvesting that. Not all of it. We're going to take some of it to the bottom line, of course. But we are going to be reinvesting in areas like D&A, UWB, of course, our largest customer, flagship, and Android. But maybe it's a good chance for Philip to step in and talk about HPA.
Appreciate the segue. I think two areas where we are going to invest significantly is in D&A and in power management. And maybe I'll spend some time kind of going through each of those segments for you, Tom. So when you look at our D&A business today, it's on track to be about $400 million of business for us this year. And you look at it, it's gross margin, significantly gross margin accretive. The D&A business has mid-teens CAGR, and it's going to grow double digits this year. And I think when I look at the D&A business and the end market, what I see is the fastest technology insertion cadence that I have seen in 25 years of being and selling semiconductors into the D&A market. And I think maybe what's known, but maybe not as well known, is just what's driving a lot of that.
You look at the upgrades that need to happen to the radar platforms, whether that's land, sea, air. There are new capabilities, new threat profiles that we have to address, and that's driving new architectures and adoptions at higher frequencies, which is all really good for Qorvo, because that is really kind of the bread and butter of our D&A business. The other area that is also really starting to take off is the electronic warfare side of things. In the past, I mean, electronic warfare has always been important, but most EW systems today are really built around an older technology called traveling wave tubes. They're big, they're bulky, they're not reliable, and really, there's a fast cadence to upgrade that capability. You guys all watch the news, you know why.
Qorvo actually has really the industry-leading wide-band solid-state PA technology that is absolutely required and enabling in the EW space. And it's a multi-billion-dollar SAM opportunity for us just in that segment. I just want to kind of maybe frame this for you. When you hear solid-state PA, it's not just a chip. It's a full system. I mean, it's a pretty big size. And we built all of that, from the MMIC that goes into it to the full system. We do that all onshore in our facility in Texas at AMMA, right? So you have that growth. And then we're seeing both the communication segment and the SATCOM area, again, also accelerating. And we have all of the filter technology that's required for that. We have all of the compound semi that's needed. We announced months ago that we bought an Anokiwave.
Why did we buy Anokiwave? We need beamforming technology, which kind of fills in a portfolio gap that we had in that space. So all of those market dynamics is really why we feel like we want to kind of double down in that area. And maybe just some fun facts for you that maybe isn't as well known about HPA and the D&A business. So we are the market leader in the GaN PAs and the RF front ends. We have the largest market share, right? So we're well positioned for the tailwinds that come to that end market. I talked about the wide-band SSPAs. We have really two different types of BAW filter capability, both the high frequency and the low frequency, all built onshore, right? We have really the only supplier that has the advanced packaging capability that can integrate all this stuff onshore, right?
And I think really an important point is that we bring not only all that capability onshore, we bring the commercial scale that we get from our ACG business, which allows us to really be able to ramp this up in a way that really no other of our competitors can do. And I think that's lost on a lot of people, because to the D&A market and to the DOD, having that production, that commercial and that D&A footprint, and the economies of scale that come with that is just mission critical, right? And so I think super important. I just want to reiterate why that is important. So I think a lot of tailwinds there. At investor day, I said, "Look, we want to grow D&A to $1 billion.
We're going to look at, we're going to do that organically, we're going to do that inorganically." And on top of that, that's why when I showed the charts on SAM for D&A, I mean, in just a few years, it's gone from a $3 billion SAM to a $5 billion SAM, right? So a lot of growth opportunities there. The other area that I'll touch on that we're investing in is in power management. We have a real successful franchise in ACG and power management, right? Our ET PMICs and everything else. And we're leveraging that capability to move into other areas. And today, again, I think maybe isn't as well known, we are one of the market leaders for PMICs for the solid-state drive market. So whether that's notebook or that's data center, we have a big footprint in those end markets.
We're going to invest much more on the data center side with that technology. We're also taking that PMIC technology and we're moving it into our customers, our handset customers, because not just in handset, they have earbuds and watches and everything else. It's really a perfect technology fit, both from a customer relationship perspective, but also from a technology perspective. We see a lot of growth and a lot of SAM opportunity there as well.
That's a great explanation and overview. I want to touch on CSG as well, but just to dot my i's and cross my t's here, so you had the asset sale this week. Maybe talk a little bit about that, and then now we have moving parts. You have $100 million coming out of the COGS and the spend. You have a little bit lighter Android, it sounds like, and then you have the sale, which I believe said closes in Q1, so all of those moving parts. Anything changing? I think you would have said up front in terms of the profitability in the December quarter. It seems like you're still within the range where you would identify that, and then how does that translate into March to the best of your abilities? I know you're going to update us a little bit more on the earnings call, but.
Yeah, sure. So we'll comment on the current quarter just as our typical process. But as we do look forward, as I mentioned, those savings are happening now. So as we talk more about the coming quarters, and then obviously we give a bit more color on the following year as we get closer to it, we'll provide a bit more detail on how that actually plays out. But again, it's going to be meaningful steps toward our achieving our target model and the profitability that we've committed to.
Super helpful. And then on the asset sale, I think that you went out of your way on the earnings call to identify that as an area that you would potentially be open to a sale. What occurred and why did you feel that asset had a better home elsewhere, I guess?
I think I'll answer that. It's a great technology. The end market in silicon carbide still, I think it's a growth area. But back to what I was saying, we have so many opportunities right now for growth that we just, I think, need to focus and pick our lanes. And given the opportunity that we have in both the D&A and the power management markets, we felt like, hey, this is an asset that probably could find a better owner. And we feel like selling the asset to ON, it's a win-win for both companies. For us, we get a short-term benefit as well. It's margin accretive for us, right? We reduce the spend profile of that business. So there's some short-term benefits to it, but it allows us also to focus. And really our sales teams as well, right?
I mean, we have to be able to kind of get our teams aligned where we see the biggest growth opportunities, and so it kind of takes us. That kind of focuses that as well, so.
Super helpful. All right, let's pivot to CSG. So I think you talked about the two sequential quarters here down in December and then grow sequentially in March. A lot of moving pieces in that bucket as well. Maybe talk through the puts and takes about why you're seeing that trend. And then specifically to the commentary on the full year and opportunities there, where are you seeing kind of 2025 growth drivers?
Yeah, so we had a strong September quarter in Wi-Fi, which really drove the top line for CSG. In the December quarter, we're on the other side of some very large Wi-Fi 6 and Wi-Fi 7 operator program ramps that occurred earlier this year, largely in India and the U.S. And we expect CSG to return to sequential growth in March. At a high level, there are multiple drivers. One that really excites us is our opportunity in ultra-wideband. Our ultra-wideband funnel for enterprise continues to expand, driven by a large number of use cases in real-time location services, indoor navigation, building access, presence detection. We started production ramp with a leading supplier in enterprise for market deployment starting early in 2025. And we've added a second tier one customer design win there. So we're really excited about that.
UWB adoption in automotive continues to expand as well with new features such as secure access, child presence detection, kick sensors, lots of other radar features. The addressable market's growing to over $1 billion, and we ramp production of our UWB solutions with two EV customers to date, but what we're really excited about is the partnership we have with a leading tier one to ramp UWB with a major German automaker that'll be late in 2025. We're seeing increasing adoption of Matter over Thread. We've got orders now for our newest BLE Matter SoC for a large European furniture retailer, and we have strong engagement with multiple tier one players in both enterprise and smart home. In Wi-Fi for enterprise and consumer, we're still on the very early stages of upgrades to Wi-Fi 7.
And in smartphones, we're happy to be the exclusive Wi-Fi 7 FEM supplier for MediaTek's new Dimensity 9400 chipset. In forward sensing, we're seeing strong engagement in design wins in automotive, laptop trackpads, and high-end audio. And in automotive connectivity, we've got strong funnel growth despite a weakening automotive market because we're growing from a small base there in mostly what's new content in vehicles. So these are multi-year drivers that will layer over time to deliver mid to high-teens growth rate for CSG.
Super helpful. In terms of manufacturing differences between HPA and CSG, could you call out anything from a semiconductor perspective that differs? If you talk about various locations for those productions, what do those customer sets expect? And then just as a follow-up, what does it mean to be a U.S. Trusted Foundry? I think that that's something that gets brought up a lot, but I don't think people fully understand. And you talked about electronic warfare specifically. As you look at what it means to supply some of these larger contracts, what does being a U.S. Trusted Foundry get you that others may not have?
Sure. Maybe I'll start and then fill up on it. You go into maybe the more specifics. The overlap in factories is a meaningful phenomenon. Within CSG, we have a large Wi-Fi business. That's a gallium arsenide process. That's moving from North Carolina to Oregon. It's in the same Oregon general location as we do some defense business. CSG also has a large silicon-based business for UWB and other things. The acquisitions that created those businesses are done externally. So there's not as much capital intensity. But there's a significant amount of overlap between the production for all of the different segments in the business. And we benefit from those economies of scale. And then maybe specifically.
Yeah, I think in particular, for HPA, most of the internal factory footprint is driven around D&A. And I think that one of the things that Qorvo has, again, that is really unique is that we have all of these assets located in the United States. Whether that's Texas, whether that's Oregon, we have multiple sites there. I think that as we see the country of origin question, whether it's defense or something else, is just a really incredibly important topic right now that most in our industry are dealing with. And I think for us, because we have all that footprint already in the United States, that is really why a real competitive advantage for us in terms of why we're able to scale up a lot of this D&A business.
Now, on the trusted foundry side, so trusted foundry really at its core means that you have the security infrastructure, you have the certificates, you can be trusted with sensitive information. It's not necessarily something that the U.S. government says, "Okay, hey, we're going to move X into this fab because it's trusted." It doesn't really drive that. It's more table stakes. If you don't have it, you're probably not going to be taken as a real supplier into that market. And so that's why for us, trusted foundry is something that we take serious. We have that in most of our locations that do D&A business. But it's really a table stake, I think, certificate and capability more than anything else.
Very nice. Just broadly speaking, I just wanted to touch on ACG just really quickly. So I think in the preamble, you talked about your ET portfolio and how that, if I remember historically, when Intel was internal, you guys would always see a content bump there. Outside of that ET portfolio, where are areas at the large customers or your largest customer? I know you can't talk super specifically that you can also see content increases outside? Because I think the obvious assumption is, "Hey, if you move to an internal modem, you're going to get ET increase that could help with content." But elsewhere, you've seen some product reuse. You guys have not seen as much of that. But where can you see content increases? Is it really just ASP uplifts in your existing sockets, or is there any room for expansion outside of the ET socket?
Sure, so maybe I'll start, and then Dave, you can fill in. The RF section is agnostic to the modem and transceiver. Again, areas of the business that we don't do. So for us, moving to a new modem and transceiver would open up, actually, in fact, the ET PMIC as an incremental opportunity for Qorvo that we're not serving today. So that is one area where we can see some increased opportunity. Outside of that, there's a significant amount of strength. Qorvo has probably the broadest capability set across all of the different subcomponents in one of these highly integrated modules, and we're looking to expand across all of those different areas and all of our customers in the flagship and premium tiers, as well as, of course, at our largest customer, and Dave, I don't know if you want to comment any further, but.
Yeah, no, I think that's good, Grant. And so if you think about the RF modules, that's the real growth opportunity for us. We've said we've been underrepresented there. We've been, for multiple generations now, supplying the ultra-high band. There's SKUs now that have a second ultra-high band, so we've benefited from that. Most recently, in the recent years, we've been more focused on or present in the Pro Models. And so we expect to continue our position there. So it's really about growing our other RF module business into other parts of the phone.
And more specifically in the Pro Models, I think that Doug and I used to joke about this all the time, the chips you can't see during your teardown. Specifically speaking, where are you seeing more of that content? Can you be specific as to what you're getting more of in that Pro Model?
Specifically on the ultra-high band, we're the supplier there on the Pro Models, not in the consumer SKUs. Then, as you know, we're a leader in antenna tuning. We're well represented across all SKUs there. You can tear them down and try and count the number of tuners that are in each of the models, but we're well represented no matter which consumer or pro.
And then maybe I'll just intercept a little. I'll say that, again, we've secured enough to give us confidence in winning content gains next year. But without going into any specifics, we'll leave it at that.
Absolutely. I didn't think that we'd go ACG last, but I appreciate all the color. Thank you all for being on stage today. Thank you for the update and look forward to a great 2025.
Thank you very much.
Thank you.