Good afternoon, and welcome to Skyworks Solutions Third Quarter and Fiscal Year 2019 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' 3rd fiscal quarter 2019 conference call. With me today are Liam Griffin, our President and Chief Executive Officer and Chris Senesol, our Chief Financial Officer. Before we begin, I would like to remind everyone that our discussion today will include statements and recent SEC filings, including our Annual Report on Form 10 ks, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. Additionally, the results and guidance we will discuss include non GAAP financial measures consistent with our past practice.
Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll
turn the call to Liam. Thanks, Mitch, and welcome, everyone. Skyworks delivered solid financial results in Q3 as the resiliency of our business model allowed us to maintain strong profitability and cash flow. Looking at the quarter in more detail, we reported revenue of $767,000,000 slightly above our guidance, drove gross margin of 50.4% and operating margin of 33%, while delivering earnings per share of $1.35 And our cash generation continues to be strong with operating cash flow of $950,000,000 year to date. Looking forward, our design win pipeline is expanding as we capitalize on the ramp of 5 gs in wireless infrastructure, smartphones and across IoT.
For example, in wireless infrastructure, Skyworks is now supporting a number of global 5 gs deployments. Our solutions address both 5 gs macro base stations and small cell radios and we are ramping today with leading European and Japanese infrastructure OEMs. In addition, Skyworks is enabling 5 gs massive MIMO base stations for customer. Across the IoT space, we are gaining share in new emerging categories with recent wins at Facebook for their Oculus VR headset and with VIZIO for their sound bars leveraging our analog SoCs and cognitive wireless radios. We also secured low power LTE CAT M design wins with the leading module providers, including Telet, Gemalto, u blox and Sierra Wireless.
And we are expanding our reach in the wearables market, where we are populating devices that combine our cellular and Wi Fi technology. We've also extended our Wi Fi leadership with several signature design wins in the last quarter, including Cisco with their Wi Fi 6 solutions, DIRECTV for their over the top streaming devices, as well as design wins with industry leaders such as Amazon, Nest and Netgear. Finally, in mobile, for the coming wave of 5 gs phones, we've deepened our engagements with key customers, leveraging our unique suite of solutions to support launches at Samsung, LG, Oppo, Vivo and others. As these opportunities demonstrate, the demand for advanced connectivity and the expansive nature of 5 gs are creating real time opportunities for Skyworks. With 5 gs now launched on 4 continents, operators are seeing the compelling economics that 5 gs services can bring.
And we expect momentum to continue building into 2020 beyond. To be clear, 5 gs is a technology, not a product and we expect the performance gains in speed, latency and network capacity to spawn a much broader ecosystem, where 5 gs becomes the universal connector. With the application scope going far beyond the smartphone, 5 gs is already driving new usage cases in emerging areas like industrial IoT, autonomous transport, smart cities and digital health. For Skyworks, this is a tremendous opportunity as our scale and experience across multiple technology generations position us to lead as 5 gs becomes a reality. Our capital investments have enabled us to build highly specialized vertically integrated supply chains, capable of meeting the complex demands of the world's most innovative customers.
We continue to advance our filter capabilities, creating leadership positions in SAW, in TC SAW and in Q3, we commenced volume production of BAW enabled devices. These devices will be shipping this quarter. Incorporating BAW expands our TAM in mobile and positions us to support a wider array of customers, markets and applications. And in addition to 5 gs, our capabilities in broad markets have grown, as we now serve an expanded set of global customers, including companies like Ford, Continental, LG, along with factory automation leaders such as Bosch, Honeywell, Siemens and GE. Today, we generate nearly $1,100,000,000 in annual revenues from our broad market portfolio.
That's a compound growth rate of 16% since 2013. So in summary, Skyworks is at the forefront of ubiquitous connectivity, leveraging our decades of experience, world class scale and customer relationships. We are well positioned to continue executing on our vision of connecting everyone and everything all the time. With that, I will turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q4.
Thanks, Liam. Skyworks revenue for the 3rd fiscal quarter of 2019 was 767,000,000 that is $2,000,000 above the midpoint of our June 4th updated guidance. Our 3rd quarter revenue reflects the impact of the U. S. Bureau of Industry and Securities of the U.
S. Department of Commerce placing Technologies and certain of its affiliates on the entity list. Skyworks ceased all shipments to Huawei as of the date Huawei was added to the entity list. After an in-depth review of the export administration regulations and the scope of the entity list restrictions, we ultimately determined that we could lawfully resume shipping certain products, which we did starting early July. However, we expect the business with Huawei to remain well below historical levels into the current quarter.
3rd fiscal quarter non GAAP gross profit was $386,000,000 resulting in a non GAAP gross margin of 50.4%. As noted in the financial statements attached to our earnings release, we incurred a GAAP only nonrecurring charge of $67,000,000 primarily consisting of inventory related write downs due to the addition of Huawei to the BIS entity list. Operating expenses were $134,000,000 better than our guidance and down slightly sequentially as we continue to effectively manage our operating expenses. We generated $252,000,000 of operating income, translating into an operating margin of 33%. 3rd quarter effective tax rate was 8.2%.
This drove net income of 234,000,000 dollars or $1.35 of diluted earnings per share. Turning to the balance sheet and cash flow. 3rd fiscal quarter cash flow from operations was $209,000,000 and for the 1st 9 months of the fiscal year, operating cash flow was $950,000,000 3rd fiscal quarter capital expenditures were $88,000,000 dollars We distributed $66,000,000 in dividends and repurchased 1,200,000 shares of our common stock for a total of $86,000,000 During the 1st 9 months of the fiscal year, we have returned approximately $710,000,000 to shareholders via share repurchases and dividends, and this represents 112% of the free cash flow we've generated this year. We ended the quarter with a cash and investment balance of just under $1,000,000,000 with no debt. Now looking ahead to fiscal Q4.
We are on track to deliver sequential revenue and earnings growth in the September quarter as we execute on strategic product ramps. Specifically, we anticipate revenue in the range of 815 dollars to $835,000,000 or $825,000,000 at the midpoint. The revenue outlook assumes Y Wave revenue remains at nominal levels given the uncertainty associated with ongoing trade related issues. At the midpoint of the range, revenue is expected to increase 8% sequentially despite significantly lower revenue to Huawei compared to the June quarter. Excluding Huawei in the June September quarters, we expect our revenue to increase 20% sequentially, reflecting strong seasonal ramps at our large customers as we demonstrate our expanding reach and ability to deliver complex and highly integrated solutions.
We expect gross margin in the range of 50% to 50.5%, approximately flat compared to the June quarter, despite the lower factory utilization associated with the reduced demand from Huawei. We expect operating expenses of approximately $135,000,000 as we continue to adjust our spending levels. Below the line, we anticipate roughly $3,500,000 in other income and an effective tax rate of approximately 8.5%. We expect our diluted share count to be 172,500,000 shares. At the midpoint of $825,000,000 in revenue, we plan to deliver diluted earnings per share of $1.50 Finally, today we also announced a 16% increase in our quarterly dividend to $0.44 per share, reflecting our confidence in Skyworks' business model and sustainable cash generation capabilities.
And with that, let me turn the call back
to Liam. Thanks, Chris. As a proven technology leader, we are leveraging our Sky5 platform and systems expertise to enable the billions of connections between devices and the cloud, providing the underlying foundation for an entirely new ecosystem in today's connected world. Looking forward, Skyworks is uniquely positioned with established leadership in growing markets and expansive and innovative set of 5 gs solutions, global scale and the deep customer relationships that are facilitating the mobile economy of tomorrow. That concludes our prepared remarks.
Operator, let's open the line for questions.
We have a question from
the line of Vivek Arya. Please go ahead.
I actually had 2 of them, if I could. First, Liam, I'm curious how do you expect your largest customer to do in September both on a sequential and on an year on year basis? I realize everyone in the industry is conservative on units, but I was hoping you could give us your insights on content growth that can perhaps help offset some of that unit conservatism. So to whatever extent you can, if you could help us give us some color on sequential and year on year growth at your largest customer?
Sure. Well, I mean, it certainly comes down to units, but I will say that the Skyworks team continues to work with all the most significant flagship phones and customers and we continue to do that this year. And a number of very exciting design wins have been consummated with leading customers. We're really proud of what we've done. We're continuing to expand the scope and the reach of the device count and the complexity of what we offer.
So we really can't predict how the unit curve will look, but I can tell you that our ability to grow and gain content, especially in highly complex high margin areas is something that we'll demonstrate and we'll be very proud to show.
And as a follow-up, Liam, as you start fiscal 2020, I realized last year was a tough year for the industry with all the weakness in premium units and then the Huawei ban. But as you start fiscal 2020, how should we just conceptually think about growth? There's definitely benefits from the onset of 5 gs, but how material can it be? And if you could just give us an overall look at how you are looking at Skyworks' overall growth prospects for fiscal 2020? Thank you.
Yes. I think 2019, as you had been a difficult year for a number of reasons. There was some volatility early in our fiscal year that was kind of a macro issue. And then we've had the effects of this Huawei ban, which have been pretty significant, but we'll manage. But I do think there's tremendous momentum and excitement around mobile today and around 5 gs at a higher level.
So we're starting to see the rollouts on the infrastructure side. We talked about that in the prepared remarks. We're certainly working with all the customers that matter and helping them develop 5 gs capabilities in their smartphone devices. And we expect this to be an incredible catalyst for the industry. As I said in the prepared remarks, 5 gs is really a universal connector.
It is a technology. It's not a product. It will populate multi market opportunities for us. We have great, great solutions to make that happen. So, we're really excited about 2020 and beyond.
We also feel good in the near term right now. We just guided a 20% sequential quarter if we net out the effects of Huawei, which we really can't control today. As we look into our Q1, the December quarter, we see sequential growth coming again. So we feel bullish about that and the prospects of 5 gs are ahead.
Next question comes from the line of Craig Ellis with Bradley B. R. Please go ahead.
Yes, that's B. Riley FBR. Liam, let me just follow-up on the last comment. As we look at the December quarter, how should we think about normal seasonality for that business? And is the profile that you see right now, 1 quarter out trending favorable versus that seasonality or do macro crosscurrents at play mean that you would expect to be below normal seasonality?
Well, I think we will be able to deliver a solid seasonal ramp, Craig, coming into our Q1 here in the back half of the calendar year. And again, it is a number of customers involved here, not just one, but we feel good about the outlook during that timeframe. We have very good visibility by the way with respect to that timing. And we also have very good visibility on what we've consummated from a design perspective and the devices that we put forth in leading smartphones. So we feel good coming through.
And then the balance of the year, we'll see how things go. I think broad markets continues to be a strategic vector for us. And despite some of the challenges that we're enduring right now with Huawei, we think a lot of that demand in time is going to get redistributed and we'll be able to take advantage of that.
Okay. And then for the follow-up, let me just get to really clarification cleanups for Chris. Chris, can you give us the segment splits? And then just on inventory, days moved up pretty materially on hand was up about 5% despite the write down. So how should we think about the company's ability to work down inventory and get
it back into a normal level? Thanks guys.
Yes. Let me first give you the split. So broad markets in Q3 was 37% of total revenue, which was up low single digits sequentially as well as year over year. And you have to of course, keep in mind that in broad markets business was also impacted by the Huawei ban. Some of the Huawei revenue is accounted for in broad markets, the infrastructure part as well as some non mobile wireless connectivity solutions that we provide to Huawei.
Again, broad markets, it's running at more than $1,100,000,000 in annualized revenue. And I think Liam talked in the prepared remarks about a lot of the strength that we see in that market segment with the launch of Wi Fi 6, some of the wearable products, automotive and IoT in general. And so broad markets was 37%. On the flip side, mobile was 63%, which was down approximately 10% sequentially and our slowest seasonal quarter of the year. And of course, that segment was impacted even more by the Huawei shipment ban.
So that's the split. And then maybe on inventory. Inventory in the June quarter, which again is our slowest seasonal quarter of the year, was up $25,000,000 Days of inventory were up 13 days to 139 days. And so during our seasonal slowest quarter of the year here, we definitely have been level loading our factories in order to drive efficient usage of our equipment. And all of it, of course, in support of the new product ramps that we have with our key customers and where we talked about it, we see a 20% sequential growth into the September quarter, excluding Huawei and then even further growth into the December quarter.
And so we in the September December quarter, we do expect the days of inventory to come down as we will consume some of that inventory. And going forward, I do expect inventory to fluctuate between 110 days to 140 days depending on where we are in the seasonal cycle. And so that is slightly higher than historical levels, but you have to keep in mind that what was it 4, 5 years ago, none of the filters we were making in house. We were all purchasing them from 3rd parties. And maybe 2 years ago, we got to roughly 50% of the filters in house.
By now, we are getting close to 95% of the filters in house. And so that's obviously is driving some higher levels of inventory. But again, inventory is fully in line with what we expected and days of inventory will come down in the September December quarter.
Next question comes
from the line of Craig Hettenbach with Morgan Stanley. Please go ahead.
Yes. Thank you. Liam, as we think about 5 gs from a design perspective, any color in terms of the traction you're seeing on the smartphone side? And then also just a rough estimate of how that's playing out in dollar content in the initial wave?
Sure, Craig. Absolutely. Well, we see an expanding opportunity in 5 gs in a number of areas. There's just a great deal of complexity that needs to be resolved in the system. Our customers are looking for integration and kind of cohesive solutions.
So platforms like Sky5 that we develop are perfect solutions for these customers. They're configurable. We can resolve a lot of that complexity. And we also have to deal with the challenge of backward compatibility into 4 gs and 3 gs. So if you look at a 5 gs enabled phone, you're going to have 5 gs bands and 5 gs technology, but you're also going to need to be interoperable with 4 gs and 3 gs.
There's a physical device there's a physical challenge in the design of the phones. There's a battle for current consumption and coexistence within the device. A lot of complexity that we're working on today with our customers. We're lining up with the critical baseband providers as well, so our solutions could be somewhat agnostic around the baseband ecosystem. And adding some of the technologies that we've developed in house, the DRX technologies will be even more vital in 5 gs.
We've got ultra high band devices that we're shipping. We've got BAW technology that we just commenced shipping now that we spoke about. So we're in very, very good position. But I will tell you that 5 gs is difficult. It's challenging.
And our customers are reaching out to partners that they trust and partners that have been here. And that's what we want to be, one of those partners that help our customers be successful.
Got it. And then just as a follow-up update on Avnera. I know when you bought them, I mean, in terms of the context of Skyworks having a much larger platform, bigger customers, how are you seeing that play through in terms of design work that they're doing? Are you able to leverage that in terms of some of the momentum for new designs at Avnera?
Sure, Craig. That's a great question. And that portfolio is doing very well for us. One of the designs that we mentioned in the opening remarks was powered by Avnera. They've got some very slick SoC technology that we're leveraging, certainly some great performance in audio.
But overall, right now, we're very pleased with what we've seen from that acquisition. It's fully integrated with Skyworks, so we're able to take advantage of a larger sales and marketing organization and a little more strength on the operational side. But so far, it's looking very good. Appreciate that.
The next question comes from
the line of Chris Caso with Raymond James. Please go ahead.
Yes. Thank you. Good evening.
Just a question on Huawei and just trying to get a little more color on what you had said. From the preannouncement earlier in the quarter, it seems that you took out about $60,000,000 out of what you said was a 12% customer in the quarter, which would kind of work out to maybe $40,000,000 of remaining shipments to Huawei in the June quarter. I guess we're to understand that those shipments are minimal as you go into the September quarter and therefore that's the sequential headwind that you're facing. And then maybe as a follow on that, others, it seems like every company has had some difference in terms of what they can and can't ship to Huawei. Some folks are also applying for some licenses for additional shipments.
Can you just have some more color on what you can and can't ship and then the potential for being able to ship more?
Yes, Chris. So maybe I'll provide some more color on Huawei. So in Q3, Huawei's revenue was slightly above 10% of the total revenue and that was all shipped prior to the ban being effective. We didn't ship after the ban was effective. And as you know, we did adjust our guidance and we took out roughly $60,000,000 of revenue when we updated the guidance.
So definitely in Q3, it's a stronger seasonal quarter typically for Huawei. And so we did expect actually more revenue than what we've seen in the first half of the fiscal year. And so looking forward to Q4, we do expect very minimal revenue with them. We are or we can legally ship certain products, but the demand signal that we get from Huawei is actually very low. We expect revenue to be probably below $10,000,000 in Q4.
And I mean, Leo, do you want to add something? Yes. I mean, just to
be clear, so Chris, I mean, when the ban came out, we stopped shipping immediately, and we did not ship again for the balance of Q3. As we entered Q4, doing a little homework with our legal team on reaching out to SIA and some other associations to get guidance, we felt comfortable with certain products being shipped and we've been commencing shipments, but it's been at a very low level. So that's kind of the difference between what we've done. I know other competitors may have played it differently, but that's how we played it. We still feel very good about the business we have today, net of Huawei.
If Huawei comes back, that's great. But the guidance that we provided with a 20% sequential netting out Huawei in Q3 and Q4, I think, says a lot about the organic business and a read into what we can do.
All right. That's very helpful color. Thank you for that. Just as a follow-up, what are the longer term implications here? And I guess for 1, do you feel like as 5 gs comes out next year, you'll be able to ship components to Huawei 5 gs phones under the current rules.
And if there are still restrictions, we've been hearing for some time that the highly integrated solutions by yourselves and other U. S. Manufacturers are really necessary to enable 5 gs phones. Are there alternatives? In other words, are there potential for if this situation doesn't get resolved, some of these opportunities will just disappear for the long term?
Yes. That's a great question. The way I look at it is and you're right. I mean the technologies that we provide and I know you understand us are very, very complex. We're not a discrete component player.
We haven't been that company for years. So the kind of things that we offer to companies like Huawei are very, very complex and very hard to displace. Having said all that, I don't think this is going to stop 5 gs. I think there could be certainly some challenges in China, specifically around 5 gs and access to technologies. But I think from a global perspective, the power of the 5 gs catalyst here and the investments and the opportunities for connectivity are just so powerful that that's going to continue.
Could there be a bit of a pause leverage with the China issue? Sure. But I don't think it's going to stop the industry globally from executing on this vision of moving up into 5 gs and the latency and speed and benefits that it provides. So we'll stay with that. And the other thing here is the demand can move around.
If some companies or regions are impaired, yes, it will hurt in the short term. But overall, I think that that revenue and that opportunity can get redistributed and we'll be right there for that as well.
Next question comes from the line of Blayne Curtis with Barclays. Please go ahead.
Hey, guys. This is Tom O'Malley on for Blayne Curtis. My first one is around the China handset business outside of Huawei. Some of the industry through this earnings period have talked about how Huawei is looking internally in China and maybe taking some share there and that could affect you guys. How do you guys view that market right now?
And are you seeing that trend play out where other Tier 1 players and Tier 2 players are seeding some market share?
Yes, that's a great question. We've had a good position with Huawei, but we've also had a very strong position with Oppo, Vivo and Xiaomi. And so far, the business there has been promising and been kind of on track, still developing some interesting new solutions for those customers as well. And we've been able to build those partnerships over a year. So that part of the China ecosystem at this point looks pretty good.
Great. And then my second one is more maintenance. Can you guys give us the percentage of your largest customer in June? You guys have been pretty helpful about that in the past.
Yes. So in June, the largest customer was well over 40% of total revenue. Again, the June quarter is somewhat of the slower seasonal quarter there. And as we ramp with the large customer in Q4, obviously, that will go up.
Yes. And obviously, with some of the Huawei revenue out of the pie, the ratios get skewed a little bit as well, Tom.
Question comes from the line of Karl Ackerman with Cowen. Please go ahead.
Good afternoon, gentlemen. If I may, I'd
like to follow back up
on the previous question. So your China based smartphone customer is seeing very strong domestic growth through the June quarter given nationalistic support. So I'm curious, does your outlook for the September quarter and beyond contemplate ramifications of that perceived nationalism to your mobile opportunity at other smartphone OEMs where you have higher content? And I have a follow-up.
Yes. To the extent that we can, yes, we feel we've talked about of the other players in China and the demand outlook there looks steady. We talked about Huawei and the issues that we have right here. And that could get resolved. And if it gets resolved, we're right back in.
But we're still very aggressive in gaining success and design wins globally across the board. The only exception right now is the Huawei situation where we're kind of stuck. But beyond that, we're active. We're developing solutions. We're gaining design wins.
And as we mentioned in some of the prior questions, the products that we make are not commodities, they're not interchangeable. They're very complex custom commodities or custom devices that are necessary for 5 gs and even higher end 4 gs networks.
That's helpful. As my follow-up, in your prepared comments, you discussed early shipments of 11ax products. What's your view on the competitive landscape on 11ax given recent M and A in the space? And how do you see the adoption of 11ax within enterprise access points and consumer applications over the next few quarters? Thank you.
Sure. Well, 11ax right now is probably it's an early stage, but it's definitely the technology that you want to be in for Wi Fi, for higher speed Wi Fi. So the 11ax engines that we have today are doing quite well. We named some of the design wins that we had Cisco as one for example. And what we do is we have great partnerships with some of the SoC players.
So we're able to basically calibrate our solutions with the SoC providers and together kind of take advantage of the overall market and lever those solutions broadly with SoC partnerships. It's similar to what we do with baseband partnerships. We also have really good technology in Wi Fi. We've been a market leader from the beginning in Wi Fi and have been able to take the solutions up over the last several years to higher and higher performance levels. The customer reach that we mentioned continues to expand and Wi Fi has been a pretty big catalyst in our broad market portfolio and that's a portfolio we mentioned.
It's been growing at about 15% CAGR. So there's a lot of strength in that outlook in that portfolio. And we're seeing more and more customers and applications adopt 11ax. Still early innings for 11ax, but I think we're very well positioned for that.
And next question comes from the line of Edward Snyder with Charter Equity. Please go ahead.
Thanks a lot. Liam, there's a lot of talk about 5 gs, but I'd like to get more specifics, especially regard to handsets. Other than the ultra high band pad and maybe band 41 at this stage, maybe we could throw in, if you want band 71. Other than those three areas, are you seeing any 5 gs content in phones today? I know it's going to expand.
You don't do millimeter wave today. And are you working on that with your largest OEMs?
Thanks. Well, there are elements of 5 gs in certain company launches, Ed, this fall. But you're right, I mean, 5 gs is really going to be more of a 2020 release, I think in the market. There will be some phones that will have some capabilities. But the real upside to 5 gs is more of a 2020 and beyond opportunity.
And we're well positioned for that with our SkyFi platform. We've got a really unique portfolio of devices that can be harmonized and customized depending on the bands and depending on the carrier and depending on the needs of the OEM. So I we look good there. But you're right, I mean, the 5 gs opportunity is more of a 2020 play. We are working now on the design wins that will support that 2020 and beyond launch, of course.
So and then just to be clear, do you see yourself participating in the millimeter wayside? I know Qualcomm is the only game in town and that part's atrocious in terms of performance wise. And so if you're a large OEM, your largest customers, well, they want to fuel the phone using that product. They don't want to suffer their battery life problems and the heat problems we're already seeing now. They're going to have to do something other than CMOS.
Are you working on something now? And do you think Qualcomm's control of the base band would impede you from winning a slot if you were?
Well, I
mean, we certainly see millimeter wave as another opportunity in mobile here as we go to 5 gs. There's opportunity on the infrastructure side, an opportunity on the handheld side. So we're looking at both. I don't believe we're going to be impeded by any baseband. I mean, we've been interoperable across the board here for years years with all customers, including our largest one.
So we'll ensure that we're able to be flexible there. But those technologies, I don't think they're going to be widespread early on. But over time, millimeter wave could be a catalyst in the industry. Again infrastructure and within the handset and we'll continue to work on those opportunities.
Next question comes from the line of Harsh Kumar with Piper Jaffray. Please go ahead.
Yes. Hey, guys. First of all, congratulations on commercial BAW shipments. Liam had a quick one on that for you. I think your largest customer is widely speculated to have their 5 gs phone out next year.
How would you rate the readiness of your BAW portfolio? And then as a follow-up to that, for example, in like a Sky5 solution that you mentioned in your press release, how much of the BAW is internal versus externally sourced?
Yes. So great questions. And I think what you're going to see is kind of a blending in of the technology over time. When you look at Sky5 and the incorporation of BAWP, we're going to start to see that really roll off roll up as we move out. We're delivering solutions now this quarter that I mentioned.
And what you're going to see now is the BAW technology that we're delivering is organic. The technologies that we mentioned in the prepared remarks about shipping this quarter, those are organic solutions. They're BAW enabled devices in a system level solution. They're not discrete filters. They're integrated with other elements.
And it's Skyworks organic stuff. We've been working on this for years. And just to do a quick commercial on our filter business, we're doing $10,000,000,000 temperature compensated soft filters a year. We're doing 100 of millions of devices in our Mexicali site. We've got a Singapore location that's also driving some very sophisticated packaging test.
So we have all of the critical supply chain elements to make it work. We've been very conservative about talking about BAW, but now we're there and we're delivering. And we expect it to be the beginning of some real significant opportunities as 5 gs moves along and the complexity of mobile phone continues to go up.
Okay. Thanks for the color, Liam. And then for my follow-up, a West Coast competitor, namely Qualcomm, effectively talks about there being some kind of a benefit in them having a 5 gs baseband and tying their RF to it. First of all, do you see any validity in that statement? And then secondly, do you run into them as far as design wins or competition is concerned in 5 gs?
Sure. Well, we compete with lots of companies, lots of companies. So and we're used to that and I think it's healthy. And we've done our best to garner the lion's share of design wins in areas that we can play. So we're not at all concerned about that.
That's a normal thing. But I will say that in most cases, we've got very collaborative basement providers that work with us and understand that ultimately the work that we're doing as semiconductor providers is to try and make our customers' products the best. So that's the way we look at it. So we're working shoulder to shoulder with baseband partners, endeavoring to produce tremendous phones for our customers and tremendous technology. We're going to continue to do that.
And it's made us who we are at Skyworks. There's a lot of really interesting things happening in 5 gs, a lot of very, very difficult challenges to resolve. We got great people on our side. We got great partnerships with most of the baseband players and the ecosystems there. And we'll be able to deliver the products that our customers want.
Our last question comes from the line of Shawn Harrison with Longbow Research. Please go ahead.
Hi. Thanks for taking my questions. Mainly a focus for Chris here. Capital intensity is running about 12% of sales year to date. How do you see that tracking in Q4 and then into next year considering all the 5 gs launches that will be coming up?
Yes, you're right. So CapEx is running in the 12% range to revenue right now. And of course, we will have to take into account reduced demand signal from Huawei as we look at factory utilizations and CapEx into that. Now on the flip side, of course, we will continue to make the necessary investments to advance the technology and to increase our capabilities in part in our back end operation, but also as Liam just talked about that, especially in our filter operation, not necessarily expanding capacity, but upgrading and making our technology more robust in TCSAR. And then of course, as we execute on our bar ramp and get more and more BAW integrated products out there, we will have to expand our BAW filter technology and capacity as well.
Going forward, I expect CapEx to maybe trend below 10% of revenue, but there's a lot of elements that play into that.
And then second as a follow-up, I think you mentioned there's some underutilization drag of the Huawei weakness. I was hoping you could maybe qualify what the impact is at least here in the near term from that drag on gross margin?
Yes. So gross margin in Q3 came in at 50.4 percent and we guided Q4 now, the September quarter to 50% to 50.5%, so flat to maybe slightly down. And so first of all, I think we continue to execute very well on driving higher value added and higher complex products into the market. And that typically translate into higher gross margin. And we continue to execute really well on cost reductions and operational efficiencies as well.
And we do have a little bit of a mix benefit. Having said that, the addition of Huawei to the entity list and a strongly reduced demand single from Huawei is becoming somewhat of a headwind for gross margins and gross margin expansion. I just I mean, Huawei was running on or about 15% of total revenue, and most of that product was running through our fabs, the front end fabs, the back end fab and some of our filter fabs as well. And so that vendor utilization is becoming a little bit of a headwind. We, of course, will see how the whole Huawei situation plays out and what the future demand will be.
And of course, we will not hesitate in the near term to take the necessary very strong operating margins well above 30% and very strong EBITDA margins on or about 45%. And that will definitely remain one of our main focus items.
Ladies and gentlemen, that does conclude today's question and answer session. I'll now turn the call over back to Mr. Griffin any closing comments. Please go ahead.
Thank you. And thank you all for participating on today's call. We look forward to seeing you at upcoming investor conferences and other events during the quarter.
Thank you. Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.