Thanks for joining. I'm Blayne Curtis. Happy to have with me Liam Griffin. He's the President, CEO, and Chairman of Skyworks. Welcome. Thanks for joining. You know, I thought maybe just start off, I mean, we'll obviously get in the supply chain part of it, but I wanted to talk on just the overall handset market, right? This was one of the markets that we a year and a half ago-
Yeah.
For various reasons, you know, we're entering the fifth year of 5G, so we're all getting older, and so is 5G. I'm kinda just curious your perspective, you know, outside of any inventory adjustments, you know, what's your feeling on the market growth, areas of 5G adoption beyond what we've seen today? You have the U.S., you have China kind of fully penetrated. Where are you looking to for further growth?
Sure. Well, overall, I think the opportunity for growth is still very much in sync here for us. The technology and the burden of technology has never been higher now. We continue to see more complexity in the device. Obviously, mobile is a big driver for us, but we're also seeing IoT nodes blossom, doing a lot more in the broad markets business, and a great setup going into 2023, despite some of the headwinds that we're seeing across the globe that we all know about. You know, we've never been more diversified. The I&A business that we acquired has been running incredibly well. We're scaling that. Our Bulk Acoustic Wave technologies are growing right now and capturing more and more technology as well with the larger customers.
We feel really good about it, but the market, of course, is a little bit bumpy. As you know, we're a company that does a lot of our work inside. We have our own fabs, our own labs, and we craft our solutions, you know, one account at a time. There's a lot there, but, you know, we feel really good about the opportunity as we go forward.
When you look at the handset market, you took the Android market, particularly the Chinese vendors, down almost nothing.
Yes.
I think you've even seen the Korean customer correct as well. Clearly you're under shipping the market. When do you think this clears up? When can we look at some sort of rebound back to whatever that normal rate is?
Yeah, no, that's a great question, Blayne. It really is. For us, you know, we've been in this business a long time, and obviously the mobile business for us is key. Broad markets is great, but the volatility in mobile, you really have to understand the market and the nuances. What we were seeing in what we call the OVX, the Oppo, Vivo, Xiaomi market, within Android, we started to notice kind of an overbuild in that market, in that segment, and we just de-risked. We de-risked that business over that period. You can even see in our filings that, you know, the revenue there was virtually zero. It doesn't mean that the opportunity is virtually zero, but we just wanted to make sure that there was no inventory build on us.
Moving away from that, other Android customers still have great opportunity. The Samsung portfolios are gonna be extremely important as they are now. We think we can do a lot more in content. A company like Google never really played in mobile very much. We have Google design wins that are, you know, up to $15 in content with a company that has scale and firepower to do some amazing things. I like that. The de-risking of China is happened already, there's no downside for us. It's only upside from here on that end. Also continuing to push, you know, 5G into other markets. I like to always tell investors, think about 5G as a technology, not a product.
It's a technology that can go into an automobile, it can go into an IoT position, it can go into a mobile phone. That's what we wanna be able to do, and create that usage case, right? Embody usage cases for our customers so that they can do more flexible things.
I wanna ask you about the content piece, 'cause the storyline in RF was always the handset market's gonna have some modest growth.
Yeah.
RF should grow faster. Clearly 5G helped, but there was, I think, you know, this tail after 5G where you're adding more bands or more capabilities. I think people are now kind of confused as to, is that still true? How do you think about just the... I understand the other markets will be additive, and we'll get to those.
Yeah.
Right? For just handsets, is it still a handset plus market, and is there anything you can point to as to where that content's coming from?
Yeah. No, great question. What we're seeing is if you go back three or four years ago, you know, you had spectrum, you know, 2.5 Gb up to about 3 Gb, you know, populating that spectrum in 5G. What's happening now, though, is that we're seeing a much higher demand for quality and technology. When you wanna move up, even though it looks like the same handset, the technologies inside, the performance inside requires unique solutions. One of the things that we've done over the last few years is move from, you know, a standard SAW, Surface Acoustic Wave device within filtering, then a Temperature-Compensated device, TC SAW, all made in-house. After years of work, we were able to unveil Bulk Acoustic Wave at a level that is among the best.
That technology is not only really important because it opens up new spectrum and content and value, but it's really, really hard to do. We were working on this for years, you know, behind the curtain at Skyworks, and then when we were ready to go, we stepped out and won some really big programs. Bulk Acoustic Wave is gonna be important in automobiles. It's certainly gonna be important in smartphones. It'll be important in other vectors across the technology space. You know, we really like what we've been able to do. A lot of the capital assets that we needed, the capital funding that we needed to make this happen, to actually build the fabs, that was really hard, and it drove a lot of cash.
The upside is that has been peaking now, so we're kind of at the top of the hill here on that. We'll do better on the cash flow side. We're gonna have a great technology involved. We're already shipping this, and we're also taking Bulk Acoustic Wave and moving it into other markets as well.
I would say, I mean, I don't think I was the only one who was a little skeptical when you came into the BAW market, whether you'd be successful. I mean, you look now, you shipped, I think, three different modules at your largest customer. They include some form of BAW within it, right?
Yeah.
hundreds of millions of units. you know, I think one of the struggles, at least from my side, you know, looking at your business, has been on the Android side, you don't find as many customers who wanna pay for the performance and have as many bands. you know, kind of are you think about leveraging that BAW in an Android? You mentioned Google, but, I mean, are you seeing anything broader in terms of that higher-end capabilities, which would pull you back into some of these customers in a way?
Yeah. No, that's a great point. I think a lot of it, Blayne, comes down to the coaching. We do this stuff actually. If we can demonstrate with a customer, literally, like in the lab, and show this is the difference between this level of performance and this level of performance, and this is what, you know, the cost delta will be. We work with these customers to try to get to the right answer. I think what's very helpful with Skyworks and what's unique with Skyworks, and you've heard us say it before, we really wanna make the right choice for each customer, so we don't have the same recipe for everyone. If you think about the OVX Android portfolio, that is ripe for more content. I mean, it just needs to be.
Mm-hmm.
It's falling way behind. We've already talked about the inventory. We've managed that. The opportunity, $2, $3, $4 of incremental opportunity could really make a big difference. The nice thing there is a lot of units.
Mm-hmm.
You could get a content plus unit gain in that part of the business. We know how to do that right now, and then complement that with some of the other vectors that we talked before, Samsung, Google, and then obviously continuing to do well with the largest customer.
You mentioned, and I just wanted to put a finer point on it, in terms of the CapEx that you did spend for BAW, how much was that? I think is the point you're making that that CapEx spend can come down and you can, you know, as you're returning profits or, what was the kind of point you're making in terms of your level of BAW investment and what you're looking at in the future?
Yeah. What we had here is, you know, pretty steep investments, and we're talking about like factories too. I mean, this isn't just technology. Technology investment, of course, on the R&D side.
Mm-hmm.
Physical plant capabilities, like real scale, to develop. You know, if you think about Bulk Acoustic Wave, it is a vertical structure. It's different than temperature compensation, which is basically laminate and layers. BAW is a vertical structure, really, really hard, and you have to have different equipment and different types of technologies within that fab. That was a big, big nugget to go through, and we're still working it. The good news is that that funding is paying for itself now with the execution of BAW and the heavy CapEx burdens are behind us right now. We're gonna continue to grow as a company, but on a ratio basis, the heavy CapEx burden is behind us, and we'll have an opportunity from the cash flow side going downhill from here.
I gotta ask on your largest customer. You can answer as you may, obviously, it's always challenging.
Yeah.
In terms of, you know, people look at what happened in Android and say, "Well, why hasn't it happened with this customer?" I think you when you gave guidance, you kinda gave a high level, kinda some conservatism overall. Just how are you thinking about that supply chain? What can you say? I mean, obviously, there's been a lot of, you know, in the news about shutdowns and issues in terms of production. I know you can't really speak to that, can you speak to the fact of, I mean, are your parts on like a hub? If they have lines that are down, those parts don't come through. How does that mechanics work and, you know, kind of what can you say about how you think about that risk over that standpoint?
Yeah. Well, you know, the good news is that we're kind of battle tested, operationally at Skyworks and, you know, vertically integrated. We have very good, you know, processes around inventory and execution and being really close to the customer. We do everything we can to try to match the real demand. Really important for us to do that. We have great relationships with the large customers and, you know, the communication is ongoing daily. It's a really deep collaboration and communication. No one wants to be out of balance. We all wanna grow, we all wanna, you know, deliver the right level of material.
Right.
win the business. We're also vigilant on what we've even with some of the distributors, and we have to be very careful about that. We don't want any overbills or underbills, and we manage that all the time. You know, we do a great job with our own supply chain. I've talked about that before. Again, 75% of our products are made in a Skyworks facility, gives us a lot of control. I think we do a good job on the ups and downs. There's always gonna be volatility in this market, and not just handsets. I mean, you can look at any industry. I think on the operational side, we've got some really good talented people, that really understand how to run supply chain in this business. It's big.
I mean, these are really big dollars that we're talking about.
It's a great lead in. I was gonna ask you this later, but I'll ask you now. In terms of the supply chain, you know, clearly, you know, you have your own factories. You do buy externally-
Yeah.
for some components. You know, you see now, you know, I think everybody knows that semis were short, but you're now starting to see like inventories build on everyone's balance sheet, right? There must be some catching up that companies are seeing. I mean, how do you think about that balance in terms of like if you do see further weakness, can you keep these factories and utilizations high and build inventory? You know, are there any areas that are still tight for you? I guess when you look at the inventory going up on your balance sheet, you know, is that just like different components? Do you still have one? You know, walk us through that.
Yeah. No. Good question. A couple of things. I mean, obviously, you know, there's volatility still in supply chain, where there are some gaps where everything is ready, and then there's a component over here that's not available. It may not be our component, but some other thing that can create some headwinds in supply chain. You know, that's one thing. Behind that, you know, our teams are really focused. We really actually have a team that is focused on cash execution to a high degree, so we're very careful with that. You know, we're looking at ways to be leaner but also effective and get the highest returns.
You know, the way we look at our technology nodes and the investments that we have, you know, our engineers and our operations team and our finance team, we talk about, you know, what the model is gonna look like. If we're gonna go spend more money in a certain zone or expand capacity in a fab, we do our diligence internally to figure out, okay, what's the right best answer? Also communicate with our customers who actually wanna ride on that wave. It isn't, you know, it isn't a knee-jerk approach, but it's something that has worked well for Skyworks. You know, the other, the other part of this is that, you know, you kinda build...
In these kinds of technologies, you every year, you try to improve the process and move up a level. Again, having the know-how, having the in-house capabilities, having the funding to get it done is one of the reasons why we win business with customers right now.
Right. Do wanna ask you just the competitive landscape. You know, you've had a couple of moving pieces. Clearly, you know, Qualcomm did enter the market over the last-
Mm-hmm.
five years when, you know, particularly 5G attached. I think as the China market moved up to more, you know, module approach, maybe some of the domestic suppliers went the other way.
Yeah.
I'm kinda curious, like, where you see, you know, kind of looking forward here, you know, I think just overall the competitive landscape, do the domestic China players come back? It's always been the fierce as long as I've known you.
Yeah.
never really amounted that much. Qualcomm was the risk, right?
Right.
They were ruining the market. I guess they're not gonna report it as much these days going forward.
Yeah. Yeah.
You know, kind of just level set us as to where you think, you know, the biggest risks are, and, you know, do you think it's 'cause that share is gonna move around all that much?
Yeah. I think the share is gonna get tighter. I think that, you know, there'll be three or four companies that are really gonna drive this business, for good reason. I think it's just if you look at the capital intensity in some of these markets, you know, the scale, the intellectual property, there's a lot there. You know, I'm speaking about Skyworks, but to be honest with you, I think about Mobile, and Mobile, you know, gets discounted. It just does, and it shouldn't, but it does.
Right.
You know, we continue to do what we need to do. Mobile has been, you know, a tremendous market for us, and I think it will continue to, I think, create amazing things in technology. I mean, you know, we're talking about things like automotive, of course, data center, data center opportunities. A lot more stuff out there that, you know, is just kind of emerging outside of what we have today in our business today. Our business today is really solid. So there's a lot more going on there-
Mm-hmm.
That doesn't always get, I don't think it gets fully complemented within the valuation of the business.
I wanna just change gears because there is a bunch in broad markets I wanna talk about.
Yeah.
I wanted to talk about the acquisition of I&A. We were talking a little about it before. Maybe we should recap that conversation 'cause it's quite good. You know, you now have this asset. It was supply constrained when you bought it. You know, walk us through the asset a little bit and, you know, kind of talk about where you see opportunities where maybe under the prior ownership, they weren't, you know, applying those technologies to the same customer base and markets.
Yeah. Yeah, sure. Good question. As you and I know, and you, we just talked about it. You know, we are a company that we're not an M&A machine. That's just not hasn't been our DNA, right?
Right.
Doesn't mean we can't jump in there every once in a while. To be honest with you know, we've looked at a lot of opportunities and we often look in the mirror and say, "Look, we can do better ourselves. We could deploy the cash in a different way." Fortunately, in this transaction, we were able to carve out a really unique situation with this, the I&A business of Silicon Labs. We paid about $2.75 billion for that. It has been... Believe me, we're conservative, but it has been... I won't say a home run, but it's a triple at least, okay. Really, really good results. We're really happy about it. Great people. Great people, smart people, a ready-now team. There were no synrgies, by the way.
This was not a deal where we came in, you know, broke the windows, gotta take the goods. This was a transaction, very unusual, a transaction where we kept just about everybody. We added people. We commingled, you know, human capital from Skyworks in Woburn, Skyworks in Newbury Park, in Irvine and in Texas to create a really good new business. It has been going really well. Now, the cool thing about it, where you have, like, kind of the opposites, where the core Skyworks were big game hunters. That's just the way it is. That's been the way it's been forever. I mean, you go back to the Nokia days, right? Before we were dealing with, with our friends in, in the North here. We've always been going after the big game. That was our thing.
When we got into the deal with Silicon Labs. It was kind of just a different. It was like a right brain, left brain kind of thing, different mindsets. On the Silicon Labs side, great technology, but the scale was low. And the thing about these businesses, once you get the part. Once you have a part that really works, you can take it anywhere. Our view was we weren't seeing in the transaction the ability to take those really good parts and bring them to the bigger accounts. That's what the Skyworks team was able to unlock. The Silicon Labs team created really high performance, unique technologies, but those technologies hadn't really blossomed in the scale and the dollars that we would want.
That's now changing. We're collaborating where we can take great stuff that they have already, and we can take those technologies and bring them to the customers that we have. Not just the mobile guys.
Right.
The relationships that we have in broad markets, in our $2 billion broad market business. We take that $2 billion+ the I&A business, bring them together. It's been really working well. You know, again, from that team, they were used to doing great work, but it was at a low level of revenue. That was fine in that business. When you go into a $5.5 billion Skyworks, you gotta put some dollars out there.
Yeah.
That's what happened. We were able to cultivate the sweet spot within I&A, bring it to customers that we already know and trust, or they trust us to drive more and more revenue in different markets. That's kind of the overview of that.
We all see, you just had record revenue, right?
Yeah.
In the I&A business. We're looking at, wow, we're talking about corrections and that was record revenue. Do you think this stuff you're talking about, is that in as part of this record revenue? Or is the reason that you're at record revenue on wins that they had even before the deal and you just were able to get supply or whatever, and everything you're talking about is additional to it? Like walk us through this timeline?
Yeah
...and how we're sitting here at record revenue.
Yeah. No, exactly. A couple things. I think, look, we got the business at a certain level. We put a lot of people, a lot of bodies, a lot of smart people from the core Skyworks business to get in there and work. There were a lot of supply chain issues that were just globally, and they were hitting the I&A portion pretty significantly as well, just not as many people and resources on that. We were able to kinda get in there and drive that really hard to kind of unlock some of the capacity.
Right.
That was one thing. That helped revenue. Adjacent to that, the I&A team on their own had some really good technologies, but they, again, the difficulty with supply chain, that hurt. Also kind of a bit of a lack of the big accounts. What we were able to do is help mitigate some of the supply chain constraints with our relationships with some of-
Right
...the companies that we don't things that we don't make inside. I mean, some things, you know, we had to negotiate with TSMC or another outside fab occasionally. Most of the stuff done in-house. We were able to drive that and open that up a little bit to give them a little bit more room, get some more product through. Our supply chain teams at Skyworks are awesome. I mean, we've got great people in operations. We're able to not only leverage the relationship, but actually, you know, we had people that would go down in Austin and just drive, you know, the solutions together now, so with more scale. The next part of it is the design win execution. I mean, we talk about the numbers right now.
The business, we haven't had this business that long. To have the numbers move this quickly is a real testament of the customer demand more than anything else.
Mm-hmm.
We're really excited about it. You know, M&A is always hard, and you're always kinda, you know, you're second guessing, and maybe this is just me, but you're thinking about you have a good business, and like, well, you know, do we wanna dilute this? This has been a transaction that, you know, we had our own bar internally, and it has been absolutely, you know, in execution right now, we've jumped over that bar. It's also it gives our team, you know, a sense that we really can do more on the M&A side as well, given what we've gone through. The carve-outs are harder than-
Yeah
straight up acquisitions, right? It's really hard to do that. Team's done a great job exceeding the numbers that we expected. You know, again, we gotta continue to do it. It's still, you know, it's a good size business, but, you know, we want it to be bigger. But it's a great, for us, it was a great litmus test and execution around diversification and M&A.
I was gonna ask you this later, but I'll ask you now 'cause it's a good lead in. I mean, in terms of... I mean, I'm sure you're not happy with the multiple your stock trades at, and I had Akash Palkhiwala sitting right where you are.
Yeah
...you know, their multiple is quite depressed as well. Clearly, mobile, you know, has this burden. I think even beyond some of the supply chain issues, people really, you know, just subscribe a lower multiple on that, right? When you look at M&A, obviously there's the financial benefits, and you've passed on a ton of deals. Then there's, you know, Qualcomm's talking about diversification and, you know, what percentage could be outside of mobile. How do you think about that? Does that matter to you? Do you wanna see the business, you know, 50/50, you know, in a decade or more, or, is it not really? 'Cause when I first had you here, I had to check the dates because I'm losing-
Yeah
...my mind, in old age, but it was 2016. You said-
Yeah
I got enough when I play with mobile. You know, it was kind of.
Yeah
you actually walked away at the time for some deals that could have been done.
Yeah.
Is it different now, or you look at it still the same lens that you have enough in mobile?
Yeah.
If something comes along like this great deal, fine, but it's not.
Yeah
...priority.
You know, no, that's a great question. I would say to you, at that time, we had a full plate of opportunities that were ready now that needed to be addressed. If you look at the revenue, I mean, you go back. We haven't talked about revenue here, but if you go back and just think about where we were a few years ago, you know, even go back to, like, 2020, we were at one point. We grew our business $1 billion in 1 year. I mean, we put up some unbelievable growth. That was kind of the priority. We had opportunity in front of us, so we just went after it.
That propelled the company from, you know, going from a $3.1 billion, going through COVID to get to $5 billion, and now we're at $5.5 billion with an $11.24 EPS for the year, which is unbelievable. If you look back at what the market expected from us two, three years ago, look back at analyst reports, they had nowhere near an $11 EPS for us. When our stock was at 150, 160, 170, you know, the EPS was much lower, yet the valuation is where it was. Yeah, frustrating, but it's the reality, right? The flip side of it is it's a great opportunity right now, given where we are. We're gonna continue to work on that.
When it comes to deals, you know, the nice thing with the I&A business, it was cash. It was an all-cash deal. You know, we're a generator of cash. Skyworks has always been that way. To do something more, you know, substantial, it's absolutely within the cards. I would say to you, there's no, you know, hard and fast rule that we're gonna go this way or we're gonna go that way, but we definitely do know from the investors that, you know, diversification is an important vector for us.
Right.
an important element in the strategy. We hear that, and we're, we should expect more of that tone going forward. Again, I&A was one example.
Yeah.
not just one.
We're only have, like, time for one more question, so I'll wrap two into one. Just when you look at the rest of the broad markets, we spent all the time talking about I&A.
Yeah.
you know, wireless LAN, as already timing, has seen some corrections along the way.
Yeah.
That's a big part of that. you know, within broad markets, wireless LAN is a big part of the revenue stream. You talked about that supply chain, I really wanna know kind of where else do you point to. You've mentioned particularly, in the intro, you know, things like autos and-
Yeah.
IoT and Edge and all that. You know, kind of just what's a quick answer to, like, what are you most excited about within broad markets?
Automotive. This is another really tip of the hat to the guys at SLAB. We're gonna be, you know, $200-$250 in automotive revenue in the next 12 months. I mean, that wasn't, you wouldn't have that at Skyworks two, three years ago. It's not all SLAB.
Mm-hmm.
They actually had good relationships there. The technologies that you start to see now with EV, you know, ADAS, these kind of technologies require the things that we do well. We can call it whatever we wanna call it. We won't call it mobile, the technology vector to connect these vehicles is right in the sweet spot of what we do. We think that market, we know that market is gonna add significantly to us, and we're gonna invest more in that area. You know, IoT broadly, a lot more opportunity. I mean, Wi-Fi, Wi-Fi is going through its own cycle. As we go into Wi-Fi 6E, the performance levels there, the data rates, the speed is gonna be a real driver for the consumer.
If you look at what's happening right now, you know, even simple things like, you know, look, just look at streaming as just one little thing, right? Everyone's gonna be having a streaming TV set. It's, it's gonna be done. It's like, it's not gonna be five years from now. It's happening now. It's gonna turn over markets. Those kind of things, when the performance levels are good enough, you can unwire. You can just completely unwire all this stuff, right? It creates a great opportunity for the customer and the consumer, and it can create a unique cycle the way we had in 5G, but doing in a different market in Wi-Fi.
All right. Always a pleasure, Liam. Thank you.
All right, Blayne. Good to see you, my friend.
Take care. Yeah.
Thank you.
Bye.
All right.