All right, let's go ahead and get started. Good morning, and thank thank you for attending JPMorgan's 21st annual CES Semiconductor Technology in Automotive Conference. My name is Harlan Sur, I'm the Semiconductor and Semiconductor Capital Equipment analyst for the firm. Very pleased to have Carlos Bori, Senior Vice President of Sales and Marketing for Skyworks. We also have Mitch Haws, Vice President of Investor Relations here with us today. I've asked Carlos to start us off by spending a few minutes describing what the team is showcasing here at CES, given that Skyworks is a leader in cellular and IoT connectivity, with growing exposure to the automotive and industrial and infrastructure market. Gentlemen, thank you for joining us today. Carlos, let me go ahead and turn it over to you.
Okay. Thank you very much. I appreciate the opportunity to speak with everybody today. It's always great to begin the new year at CES, a terrific opportunity to get things going in the right direction. As always, we have some interesting demonstrations and releases planned for the industry this year. If I were to highlight a couple, I would start with the automotive segment, where we're showcasing our automotive-grade complete RF front-end system for 5G, inclusive of all the low, the mid, the high bands, the ultra-high bands for 5G, all supplied by organic, vertically integrated Skyworks technology, and we can talk more about that throughout the pre-presentation. We're also highlighting in automotive our power isolation portfolio, which is used for battery management systems, for motor drive, inverter, traction.
It's also used for battery management systems on onboard chargers, among other applications, and also timing solutions for automotive. You know, with all the new cameras and the lidar that you're seeing in these new cars, you're sending tens of gigabits per second of data around the cabin, and our timing solutions are being leveraged for those applications as well. In infrastructure, you'll see that we have a demonstration for our AccuTime and NetSync clock and timing portfolio, really initially generated for cloud applications, and we can talk about that too.
As the industry transitions to 5G core infrastructure, unlike today, where you're mostly using a 4G core and you're getting data on a 5G path, to really leverage the true differentiating attributes of 5G, which is the extremely low latency, the ultra-reliability, and the massive machine-type communication potentiality, you really need much more, much tighter clocking solutions that are synchronized at the endpoint, at the base station, and all the way back to the network. This is greenfield opportunity for us. We're just starting to see the revenue from design wins with the top three suppliers. You'll see demonstrations about that as well. We're also gonna showcase our new HBT gallium arsenide process for the base station wireless infrastructure, an industry that we've been supporting for years.
You'll also see some interesting things in audio. Again, you'll see the timing solutions that are gaining traction in the market for cloud and data center applications.
Perfect.
Yeah.
That was a great overview. Thank you for that.
Sure.
If I look at the overall business looking into this fiscal year or calendar year 2023, you know, the smartphone market is looking to be flat to down 5% in units. Auto and industrial trends, although still relatively strong, you know, looking to potentially weaken given a muted global macro environment. You know, the team seems very confident that they will continue to outperform the market given content gain, strong design win pipeline. Help us understand how you're thinking about 2023, right? Segments that are gonna be weaker and dynamics that will continue to remain strong within the Skyworks business.
Okay. I won't spend too much time on smartphones, but I feel like I have to hit on a couple points at least. you know, we began this cycle a couple years ago, and we benefited from a significant growth in FY 2021. We've also continued to grow our revenue with our number one customer.
Mm-hmm.
The phone after that, and we continue to expect growth at our top customer in the years ahead. I'd also like to point out in the smartphone industry that we're still in the midst of a 5G transition. You're still seeing a portfolio at Samsung, at the, at the top three China suppliers and other manufacturers ship to 5G. That's a tailwind for us. We don't do business really in 4G anymore. Finally, there are, you know, significant trends in complexity and performance that are still driving innovation every upgrade cycle, every new platform. People didn't expect to see satellite communications in phones this year. People didn't expect to see as much uplink, transmit, dual uplink transmit, last year and this year.
There's still, you know, significant trends that encourage us to believe we can continue to grow in the smartphone space. Beyond smartphones, I talked about automotive a bit.
Yeah.
We're well over $200 million run rate there. It's a healthy mix of 5G RF technology as well as power isolation and timing from the acquisition from Silicon Labs. You know, I'll try to move quickly here, but we knew we would have a differentiated approach in automotive because the requirements are so stringent and we controlled the process technology, we controlled the assembly and test technology, and we could provide a more credible story in terms of supply sustainment and, you know, performance over temperature, et cetera. We do our own gallium arsenide. The wafers are produced in suburbs of Los Angeles and Boston, Massachusetts. We do our own test and assembly in Mexico.
We leverage our IP and co-develop new processes and key technologies like SOI, and CMOS. We pull all of that complexity together in custom modules that we control. The uptake on 5G RFFE in the automotive industry has been actually better than we expected. On power isolation, it's going well too. Our alpha customer or Silicon Labs' alpha customer.
Yes.
-was the number one EV producer here in North America. We have low teens content and growing, we're benefiting from unit growth at that customer. We're also supplying that technology to BYD, the unit leader in China, to Volkswagen, other unit leaders like Hyundai, and Toyota, Nissan, the luxury brands in Germany. It's really just been a game of meeting the capacity requirements in 2021 and 2022, and we still are unable to close the gaps here in 2023. It's not just a content story, but it's also an EV unit story as well. Then in ICE, everything's going to 5G, and the timing requirements in ICE cars are just as stringent as they are in EVs as the automation trends pick up.
In the broader IoT space, we're seeing a huge uplift as the world transitions from Wi-Fi 6 to Wi-Fi 6E. We're well positioned as a partner with Broadcom. We did a press release a few weeks ago. We're seeing an upgrade cycle in 6E now. It's affecting carriers, commercial, consumer, and enterprise applications. It's even helping us in the smartphone space because as you double the available spectrum and you add, you know, more than what we had before in 2 and 5 gigahertz, and you cram that all between 6 and 7, these are all right next to the 5G ultra-high bands, making the performance requirements in smartphones high too.
But we're putting more PAs, more switches, more attenuators, more BAW filter technology in all of our Wi-Fi components as well. The big routers that serve as a hub in your home and in your offices, but in all the endpoints as well. We expect that business to continue to grow year-over-year. Generally in IoT, both fixed and mobile, people are down on the PC space, and I get that because units are down. For us, it's a growth segment this year because the attach rate of 5G wide area network is outpacing the declines in units. We can say that about a lot of spaces because ultimately that's the business that we're in, unwiring a lot of these applications. If you look at automotive, you look at...
I didn't say anything about the infrastructure or cloud. We're expecting to continue low double-digit CAGR, extending, actually it'll be a slowdown this year compared to last year, but still double-digit growth in our timing portfolio for the data center and cloud applications as well. You know, if you eliminate the Android headwinds that we are gonna continue to see, we're very positive about our outlook in calendar year 2023.
Many of the trends that you talked about are inside of your broad markets business, right? You've driven great diversification. It was 36% of your revenues in fiscal 2022. As you mentioned, automotive, IoT, industrial, data center, comms infrastructure, aerospace and defense, right? It's driven, I think, a 17% CAGR over the past 10 years. A combination of organic and inorganic strategy. If you could give us maybe just a rough breakout of the broad markets business by end market and how you see this segment growing within your overall corporate target of 10%-15% sort of annualized growth.
Okay. That's a good question. There's a lot to unpack there. I would say, it's gonna be over $2 billion. It was over $2 billion in FY 2022.
Yeah.
Again, that was 36% or 37%. Given the Android headwinds that we have in 2023, it's gonna absolutely outpace our mobile growth. I think that's gonna continue to happen into FY 2024 and 2025 just because of the EV growth.
Mm-hmm.
and the power isolation traction, the timing traction we have in that space. The data center, we've always wanted to index to the data center, and the cloud applications because we're at the endpoints. We're collecting and producing a lot of data with these smartphones, and we know it's all going back up to the cloud, being washed over with algorithms and sent right back down. So we think that space is gonna continue to grow for us. Just general IoT, the uptake. We're seeing more 5G cellular engines everywhere in smartphones. A growth vector this year that we didn't expect was Fixed Wireless Access. Verizon-
Yeah.
AT&T, Comcast, they're all producing products that use 5G cellular engines as backhaul instead of copper or fiber optic. We're seeing uptake in attach rates in iPads or other tablets. The energy grid management's also a growth vector for us. That could be wireless, that could be LoRa, that could be 5G. If you look at fixed and mobile IoT, cloud, auto, that's what's gonna be driving our growth, and that's where we're putting our money.
I believe you mentioned this, the team finished fiscal 2022 with automotive revenues annualizing at $200 million plus.
Yeah.
That's pretty significant growth. You augmented a growing auto connectivity business with the Silicon Labs I&A acquisition in 2021, and you've significantly expanded your auto content opportunity, especially around you know, electrification, right? EV, you know, the team has strong momentum, as you mentioned, power isolation, both for DC-DC conversion, your gate driver portfolio for the main traction inverter in EV. Take us through the auto portfolio, let's do a deep dive in the auto portfolio. You mentioned some of the customer logos, but mention some of the customer logos. More importantly, how do you see the growth of this segment over the next few years?
I mean, the first thing that comes to my mind, given your isolation and electrification products is, you know, if you look at the third-party estimates out there, I mean, EV growth is production is targeted to grow like 30% CAGR or something over the next few years.
Yeah, that's right. It's a little bit daunting to consider how fast that business is growing, really.
Yeah.
we're strapped on to the number one who I consider is the number one EV maker in the world.
Yeah.
We partnered with them early, and we're hanging on, because they're growing quickly, not just in units, but also in content.
Mm-hmm.
If you include BYD, and Volkswagen, and Toyota, a lot of these customers with which we have direct relationships with a lot, we benefit from having a historical strong relationship in 5G. I think given the digital isolation portfolio that we have, the technology that we inherited or that we bought from Silicon Labs is differentiated. It's not the same as what TI or ADI does. They're incredible-
Yeah.
Competitors in this space. I'm not here trying to say that we're better or worse, but it's differentiated. It's a different approach. It seems to be resonating with these customers. What we're really focused on right now is, you know, the mindset that we entered this acquisition with, which was we were impressed with the technology, we were impressed with the list of global leading brands, and we wanted to put scale behind it, and we're doing our best to do that. It's not happening as fast as we'd like it to happen. We were caught in the middle of a global chip shortage, as everybody knows.
I think it's gonna be a matter of continuing to invest, continuing to inspire this mindset, down in Texas, of taking risks, of doing things in a different, unique way, and then putting the muscle and the resources behind it that we know how to do well.
Your broad markets connectivity leadership, you know, has been a strong driver, you know, cellular, Wi-Fi, other connectivity technologies, Bluetooth, GPS, LoRa, Zigbee. Sounds like you guys have some content with LEO, those Low Earth orbit satellite-
That's right.
constellations. Where are the biggest opportunities for connectivity portfolio, again, within broad markets? Is it smart home? Is it smart factory? Is it smart car? I mean, where are the biggest opportunities for connectivity?
Okay. Well, I would say, right now, what's facing us in the next six to 12 months is the upgrade cycle from Wi-Fi 6 to Wi-Fi 6E to Wi-Fi 7.
Mm.
There's just twice as much bandwidth, which requires more content. It's more complex because you have coexistence challenges now that you didn't have before. Wi-Fi impacts everything. It impacts the connected home, it impacts office, enterprise, industrial applications. That's, that's a very broad-based vector, growth vector for us. We're also pushing the limits on Bluetooth. People want, you know, broader coverage. They want lower energy. We're seeing no slowdown in precision demand for GPS L1 and L5. We're seeing uptake of new technologies like LoRa by leading brands around the world. The only... I would say GPS and wireless and Bluetooth, broad-based adoption, uptake rates, all expected. We're seeing updated adoption for 5G cellular engines as well.
The disappointing thing about 5G, as everybody understands, I'm sure, is that we just don't have real core 5G networks in place yet. Once we do have core 5G networks in place, you'll see a strong uplift in our timing portfolio. Again, our NetSync and our AccuTime, which is really gonna be required to make those low latency, ultra-reliable, massive machine type communications, those applications possible. You'll also see a lot more demand for our 5G core engine technology as well. It's gonna happen this year. We're getting orders. We have backlog. It's not as fast as we'd like it to be. I'm not sure we're gonna have. I think the best is yet to come for 5G in broad market applications. Put it that way.
You mentioned Wi-Fi upgrade. We're going through the Wi-Fi 6E upgrade cycle now, which is pretty big. Wi-Fi 7 is the next big inflection. Obviously, the Skyworks team has always had a very, very strong partnership with Broadcom, who typically tends to drive these Wi-Fi transitions. What is the timing of the move to Wi-Fi 7?
We're in the midst of Wi-Fi 6E right now.
Yeah.
which is great for broad market applications because you do require new BAW filter technology, more amplification, low noise amplifiers as well. We think Wi-Fi 7 in broad market applications will begin to launch at the end of this calendar year. You mentioned Broadcom as a key partner.
Yes.
It's a big driver of the business that we've always had.
Mm-hmm.
-with Wi-Fi. It always gives us a leg up in the transition timeframe, which is important. The relationship is as strong as ever. In fact, I'd say it's stronger than it's ever has been. We just announced a press release a few weeks ago, a collaboration with Broadcom announcing a new product line from Skyworks called Sky-IQ. Incredibly low power consumption. It's the first time really ever that Broadcom and Skyworks have collaborated, not just on the hardware side, but on the software side as well, able to deliver a 30% reduction in current consumption for the new routers that you'll see coming out, enabling service providers like Comcast to really make the industrial ID a lot smaller, a lot more attractive.
We're gonna continue that relationship, that collaboration moving forward into Wi-Fi 7 as well. In terms of timing for Wi-Fi 7.
Right.
We'll see it in broad applications at the end of this year.
Mm-hmm.
I think what you really have to look for to see broader-based adoption and for the units to really take off is, you know, keep an eye towards when the leading smartphone manufacturers.
Yeah.
start to adopt that. There's a lot of debate about when that's gonna happen. I would say we're not that far away. I'd say we're not that far away.
Perfect. Okay. Any questions from the audience? Maybe turning to your mobile business. You know, near the midterm, the team called out weakness in core mobile markets with your mobile business expected decline about 9%-10% sequentially, unpacking your guidance, driven primarily by weakness and subsequent inventory correction in the Android markets, China market, and weakness at Samsung. You're shipping below consumption here. How long does it take for your Android handset customers to clear inventories and drive a profile for Skyworks, where you and your customers are shipping to end market consumption?
Yeah. Wow, how extremely frustrating that experience was, right?
Mm-hmm.
We, it was December of 2021 where we began to be concerned looking at.
Yeah.
inventory levels. We started to correct in March. We hit the brakes hard in June. Didn't ship almost anything in September and didn't. We'll tell you about December, but the trend really hasn't changed. I. Let me just preface the next few comments on. It's not all Android. There's a new Android customer here in North America that we're partnering with.
Mm-hmm.
We're having great year-over-year sales with. It's really, you know, concentrated in our top Asia partners, really, and it started in China, and it's now impacting Samsung as well. If it weren't for bad behavior on the industry, right? Not us or anybody specifically, but everybody fueled in that inventory overdrive hang, and we seem to do it every, you know, we seem to have these boom and bust cycles. I really did think it was gonna be over by this December quarter, but I'm starting to think it may last into March, possibly even June. The amount of inventory that's still in the channel, regardless of whose it is, we know it's there, and it's gonna take some time to work through.
I think we've moved on from that, and we've now for a couple quarters have just accepted the reality, and we're focusing all of our time on new process technology, new optimizations, new iterations across gallium arsenide, across our TC-SAW filter line, our BAW line. We're trying to make our packages smaller and higher performance. In Mexico, we're focused on NPI velocity and ultimately, you know, capturing key design wins for these next generation five phone, next generation 5G phones that you'll see from Samsung, from Oppo, from Vivo, from Xiaomi. It's just a matter of time before that picks up again, and again, we're focusing on our design win footprint at this point, not so much prognosticating, because I just can't tell at this point.
Yes. That's a good segue into my next question, which is on the other side of this, right? Obviously you've taken down your China exposure to near zero, which is... As you mentioned, you guys were way more proactive in seeing this back in late 21 and managing down your inventories at Asia/China customers. Coming, you know, out of the back end of this, when things do start to recover, how is the design win pipeline? What is the engagement with the Oppo, Vivo, Xiaomis of the world coming out of this? Are you gonna be in a much better position content-wise, functionality-wise?
I'm glad you asked that, I'm stunned that I haven't brought this up earlier in this conversation. Primarily very encouraged and enthusiastic about coming out of this down cycle because we have significantly expanded our technology scope. We are now in position to extend our success in BAW filter technology from our largest customer to now the other global leading brands. It's too bad. I guess I should say, I wish we would've been able to do this sooner, the reality is everybody knows well that we had spent many, many years developing BAW filter technology, and we were very conservative with it, very careful. We launched it on the 11, the iPhone 11. We had a more substantial impact on the iPhone 12, the first 5G phone.
And you can see from the teardowns, we've increased our position on the iPhone 13 and on the iPhone 14 as well. We expect that trend to continue. What that success has done is, it's taken a conservative approach up front, because it's not good enough to have good SAW, BAW filter technology that you can leverage to make 1 million pieces or 50 million pieces. You have to have BAW filter technology that can hold up to the most aggressive, the most demanding, semiconductor cycle of the year- every- year, right. Producing 100 million devices, 17 or 15, however many we have, 100 million of each of them in four months, and you can't make a mistake. That drove the careful approach up front.
We just could not expand fast enough. We didn't anticipate that the uptake rate at our biggest customer would be as big as it was. We have been limited on that mid-high band primary path. The mid-high band receive path and some of the ultra-high band path at the other leading brands. As everybody knows, that's a large part of the smartphone RF opportunity. We're now ready to do that. When we come out of this, we won't come out of this. We'll come out of it with a larger, with a larger TAM, with a larger SAM, serviceable available market than we ever have before, that's making us feel pretty good.
Can you just help us understand of your mobile solution sales, you know, how much of those solutions now integrate one or more Skyworks BAW filters and, you know, where you see future opportunities for your BAW technology? I think you already mentioned mid, high band and others and, you know, some of your Asia and other emerging customers, but talk about some of the future opportunities. More importantly, just curious as to the attach rate that you're seeing currently now with some of your flagship customers.
Okay. let's break down the numbers then. We just finished 2022, our fiscal year, right, in September. We did $5.5 billion. $2 billion of it was broad, there was about, I guess, three and a half billion dollars of mobile business in our fiscal year 2022.
Yes.
$1.5 billion of that required BAW filter technology, and it was all concentrated at our largest customer. We need BAW for everybody else. We need it for Samsung. We'd like to sell it to Oppo, Vivo, Xiaomi, but we're also seeing it in broad market applications. As you move to Wi-Fi 6E, you need BAW.
Mm-hmm.
In cell phones, when you move to seven, you'll need BAW. In the automotive press release, that we just announced with MediaTek, there is BAW. You need it in cars as well. You need it almost everywhere and for us-
Industrial, right.
Industr-
Industrial applications.
Oh.
Yeah.
Industry applications as well. We're seeing it in advanced robotic manufacturing, in areas that are deploying core 5G networks. So we need it everywhere, and it's just a matter of scaling it now. I, like I said, we've reached the tipping point, we can now extend it, and we're excited about it.
You talked a lot about your larger customers, North American and Korean customers. How should we think about the forward content opportunities in the ultra-premium end of the market for Skyworks?
How should we think about the opportunity in the ultra-high performance space?
Mm-hmm.
Okay. That's getting more complex, right?
Yeah.
Like I said before, we're now dealing with satellite communications. You're gonna see attach rates pick up at other OEMs. You're gonna see other satellite providers get in the game. Wi-Fi 7 is going to be disruptive.
Yeah
...in smartphones. We have over 1 gigahertz of new bandwidth right next to the ultra-high band 5G bands. That's gonna increase complexity. What we're focusing on now, and we can't do it fast enough, but we're iterating every process technology that we have. We're optimizing and iterating our HBT GaAs for different types of applications, for Wi-Fi, for 5G, and within bands, it changes as well. We're iterating and we're optimizing our TC-SAW technology. We're trying to make it better, smaller, consume less energy, put multiple filters and duplexers on the same die. We're doing the same thing with BAW. We're working with our upstream partners as fast as we can to iterate and optimize SOI and CMOS. The investments in Mexicali I think are often overlooked and underestimated.
We take all of those different processes and materials, and technologies and put them inside one package right next to one another, and we solve the coexistence problems necessary to meet specs for the most demanding, the most discerning customer in the industry. Again, we do it at very high velocity, 100 million sets in 3 or 4 months. We are continuing to do that as fast as we possibly can, and the focus is on energy consumption and space because we are seeing such a compelling uptake in things like 5G applications for smartwatches. We expect to see significant movement in the next three to four years in AR and VR, and there's gonna be a need for a very small RF 5G front end somewhere in a set of glasses or a set of VR goggles.
I think the trends are coming very fast, and we're doing everything we can to prepare in advance, be in position to meet those.
On the financial front, even with your guide down in the December quarter, you know, gross margins are holding up extremely well, right? Are expected to hold around that sort of 50%, 51% range, even through a potentially weaker first half of this year. I know the team's level loading strategy helps smooth out the internal utilization throughout the year, what are some of the other puts and takes to keep gross margins potentially steady, even in a weak top-line growth profile year?
The, the level loading is important, and that's an operations issue. I think we do that quite well, supported by great data analytics and customer relationships. But what's, what's most critical, what's central to the strategy is we need to capitalize on the complexity trends, on the demand for integration and smaller packaging. If we can optimize everything, iterate everything, pull it all together, deliver these smaller packages in a way that enables our end customer to differentiate their product, in a way that drives compelling value, then we're gonna continue to win, we're gonna continue to do well, and so will our customers. What we just can't do is stand still. We are not interested in doing. We're not good at doing last year's technology.
We need to stay at the front end and continue to drive the envelope in terms of per-performance. It's a mindset that's cultural. We have confidence, and that's the way to keep the margins up.
Yeah. Very insightful discussion. Thank you, Carlos. Appreciate your participation today.
Thank you.
Thanks, Mitch.
Had a great time. Thanks, everyone.
Thank you.
Thanks.