All right, ready to go.
Okay. Good afternoon, everybody. Welcome to the Goldman Sachs Communacopia + Technology Conference. My name is Jim Schneider. I'm the Semiconductor Analyst here at Goldman Sachs, and it's my pleasure to welcome Skyworks CEO, Phil Brace to the stage. Welcome, Phil.
Thanks, Jim. Thanks for having us. Always a pleasure to be here.
Great. Now, Phil, you're in the final stages of closing a proposed merger with Qorvo. This is something investors have been very focused on as a landmark event for the industry. I know you expect the transition to close relatively soon here. You completed the financing to permit the disclosure. Where do we stand today in terms of finalizing close, any remaining conditions?
Yeah. Thanks for the question. Pretty consistent with what we said in the last earnings call. Certainly, we are very confident that we are going to close this calendar year. We are preparing to close this fiscal year. Subsequent to the earnings call, we talked about the fact we kind of issued an 8-K, said that the HSR waiting periods and the waiting periods for the U.S. Federal Trade Commission had expired without further action. We then also went out and raised the debt, at actually what turns out to be pretty good interest rates since we raised it since then. I wish to say that was with foresight, but sometimes it is better to be lucky than good. We are just waiting right now, I would say. These things are never certain. We are around the airport, just waiting for permission to land.
Hopefully it comes soon, and we are chomping at the bit, ready to go.
Hopefully we do not run out of gas.
Yes. If not.
Stepping back for a moment, what does success look like, say, two to three years after the close of the transaction? More importantly, more tactically, what are sort of the key milestones investors should be tracking to evaluate the success along the way?
Yeah, that's great. Look, I really think this is a transformative deal for both companies in the industry. We talked about, you mentioned it in your opening remark. This company coming together really does two things. It has a scale play and a diversification play. The scale play really gets us significantly more revenue, and then we're able to really financially do $500 million of synergies, which we get there. So we should have, I think we're at a roughly $5.5 billion mobile business, and then a $2.5 million, $2.6 million non-mobile business. The mobile business should have higher stability, better mix, because inside the mobile business, we're going to be skewing towards more of the premium tier side. Then on the non-mobile side, we have super attractive segments like aerospace and defense, which I'm really excited about.
Matter of fact, that one could be the grabbing the tiger by the tail from that side. So two, three years from now, you'd expect us to see kind of certainly getting to our business model target 50%, 55% gross margin, 30%, 35% operating margin, 35%- 40% EBITDA margins, very attractive capital structure, large and growing markets. Milestones to look along the way. Obviously getting to close will be one thing. OpEx synergies, how are we doing on that? We talked about $500 million total, 24- 36 months, probably front-end loaded OpEx side. The factory consolidation will take a little more time to go do that. So are we able to close? Are we able to start implementing some of these synergies? Is the Broad Markets growing faster than the mobile side? Are we generating some stability on the mobile business?
Ultimately, are we delivering the financial performance we talked about? It's an unbelievable transformative opportunity, and I just can't wait to get started.
Yeah. From a product and technology perspective, what are the things that the combined company can do they couldn't have done as independent standalone companies, and what does it mean for the product portfolio going forward?
Yeah, I think that's a really important question and something that we really haven't underwritten at all. When we looked at the deal and how we put it together, we really just focused on the synergies and what are the synergies we get. We haven't really talked about anything at all of what we can do at the one plus one equals two scenario. Some of that is because we still need to get under the covers and figure that else out. I'll give you an example. If we just look at the handset side today, Qorvo, the product lines are very overlapping. They have antenna tuning, envelope tracking, and PMIC. We don't have any of those technologies. When you think from the receiver all the way to the antenna, you might believe that bringing thousands of RF engineers might allow us to do things differently.
We know there are certain customers today where we have 100% of the RF front end, and we know we can do things differently. So I'm excited about that opportunity. The other one that I'm equally excited about, or more excited about really, is some of the GaN technology, because today our technology kind of caps out at about 12 GHz. With GaN, both power GaN and RF GaN, we get up to 20 GHz, 25 GHz, which gets us into a lot of the radar and a lot of the defense space that we don't have today. You might imagine there's some cross-selling opportunities that we could have with timing products and power products in the defense space that we haven't even explored.
To me, there's just a tremendous runway of just opportunities, both on the cost synergy side, but also as we bring the companies together to look for new innovation, new capabilities that we haven't even explored.
Yeah. You've pretty easily outlined the cost synergies. What about the revenue synergy side of things? What is that short-term, long-term?
Yeah, look, I've been cautious about doing that because, I guess, Jim, I'm a meat and potatoes kind of guy. Do what I say we're going to do and deliver that, and I think it was very quantifiable to do the cost synergies. The revenue synergies are something we need to work towards. The magic of this is that we're bringing together thousands of RF engineers that are super hard to get, very talented people, and I'm just excited about that opportunity. I mentioned some of them. Can we expand our defense business? Can we really expand the combination? Are there additional things we can do on the RF side, both on the Wi-Fi and the handset side, now that we've got all the way out to the antenna tuners? Is there new capabilities we can do with our BAW filters and other capabilities as well?
Then you've got the manufacturing and the assembly test. What can we do with new advanced packaging and other technology that we haven't been able to do before? So, I've barely even scratched the surface. I can't wait to get our PhD engineers out talking about things and what we could do, and it's exciting. At the end of the day, there's a lot of excitement about data centers, and I love our data center business as well, but it is a wireless world, and all that data center data has to get out to somewhere, and that somewhere is going to be done wirelessly, and I think we're going to be in a really good spot for that.
Yeah. So now I asked you about product portfolio, but competitively, how does the merger change your position versus Qualcomm, Broadcom, Murata, et cetera?
Yeah. Look, I think this is always going to be a super competitive market, right? Our customers are not just going to hand us business. But clearly this results in a different competitive landscape, and the landscape is changing, right? It's changing certainly at our largest customer, it's changed with respect to our position vis-à-vis Qualcomm and others. Right? I think that competitive landscape is changing, and that should benefit us. But it still is a situation where we have to execute and deliver, right? No one's going to just give us a pass just because we've consolidated with Qorvo. I do think that the improved technology base should allow us to compete, and I think that one of the things that I would say that I'm going to look to do is future technology development.
Today, I probably don't spend as much as I'd like to on some future technology development. One of the things I'm hoping to do is you might imagine that, how can I take some of the synergies that I'm going to get and actually further develop the roadmap farther out in time? We'll be looking to do things like that.
Yeah. Okay. Data center has emerged as one of your fastest-growing end markets—
Yeah
—along with many others. What specific problems are you solving to position the company to participate better in AI infrastructure spend?
Yeah. We've got two major. You're right, that's one of our fastest-growing. We said we're growing at least 50% year-over-year. And actually, those businesses are supply constrained right now. We could be shipping a lot more. The book to bill is greater than one on that. Two particular areas where we've got, one of them is on data center power, and this is really around power isolation. So when you think about back plane changes going from 400 V- 800 V, you want to make sure that power is isolated from your very expensive GPUs, and we have specific technology to do that.
That really comes from the heritage of the Silicon Labs acquisition we made many years ago, and they've got a long history of doing safety-related power devices, and so they've got a good track record there, and that seems to be going quite well. The other one is on the timing side, which are super high performance, very low jitter, and jitter means how much does the clock move around, clocks, which is super important for high performance things. And so when you think about some of the technology here, it's like black magic, right? Femtoseconds, which is light travels in a foot or something like this. It's some crazy thing. And those are really geared towards the optical 400 Gb, 800 Gb to 1.6 Tb kind of transitions, and some of the big customers there are some of the big optical networking guys.
Those are the two spots we've got. I wish the businesses were bigger. They're growing really nicely. They're great. We just got to continue to grow them.
How big can it be in three to five years?
Well, I think the future continues to be pretty bright. We talked about that growing greater than 50% year-over-year. We're ahead of that. I don't expect that to be slowing down anytime soon, so you kind of continue to grow at that space. I think when you take that, some of those businesses, combined with some of the aerospace defense business, combined with some of the auto and some of the Wi-Fi, you can really see how we can end up in a situation where we're getting into that zone where we got 50%, 55% gross margin, growing nicely and good operating income. That's going to be part of the strategy for how we get our blended mix up.
Okay, excellent. 10 minutes in, we haven't talked about smartphones yet, so let's do that. That's a pretty large part of your business today. Talk about some of the dynamics you saw in smartphones in the first half of the year, how you think that plays out into year-end.
Yeah, look, I think that. It's funny you say the beginning part of the year. I think I'll probably always remember the CES of 2026. That was the day that all the memory issues came to its head, and I think I've been dealing with memory issues ever since that time. Every quarter we've done nothing but beat expectations and continue to guide ahead a plan. We've been fortunate. If you look at where we play, mostly it's in the premium handset space. I think our largest customer has done a really good job of actually, frankly, gaining share versus Android in that space, and that actually should benefit us in the long term. The more devices that are in the iOS ecosystem, the better it is long term for us.
Because you think there's probably 1.2 billion to 1.5 billion devices out there, and the refresh rate is anywhere, four-ish years. Well, any sort of shrink of that refresh rate just results in lots more units that we can refresh. So that one's been going pretty well. I think that our guide reflects that continued strength. From us, we haven't seen some of the other turbulence that other people have, primarily because our exposure to the premium segment.
Yeah. In past wireless cycles, every several years, there is usually a moment where RF content sort of spikes upward. Do you think an on-device AI could be that inflection point, someplace where upload complexity and build materials starts to step up again?
Yes, and we have seen it. This is one thing that is important to note. I think in the past call, I talked about a multi-generational design win with a large U.S. Android provider that takes us through 2030, probably products that will ship in 2031. That was significant for a couple of reasons. One, the customer had belief in our technology through that time. Two, we had partnership with another baseband provider, which demonstrates that collaboration that we have. Three, we have visibility through that. Four, we see that RF increase. We see it today. We see it with increased filters, increased transmit power, more uplink channels, direct-to-satellite links, and that is not even before you get to increased power levels in PC2 and 6G. We are seeing it today.
For the first time in many years, we are seeing increased RF complexity driven by some of the things you talk about.
Yeah. If your largest customer continues to use a larger share of internal modems on their products in the coming quarters, what does that mean for you on content, on the margin, more or less?
Yeah. Generally, that's a tailwind, because when you use the external modem, there were certain products that were bundled with them. Generally, it's a tailwind to do that. But once they transition completely off that, then that relative tailwind is behind us, right? But I think for us, when we look at what we're trying to do in the mobile segment, it's really continue to focus on the premium tier. So we'll have Android continue to win off. Our largest customer, the more that they use our internal modem, the better it is for us. Then the more technology that they put in there in terms of transmit capability and all those things should be a tailwind for us as well.
Got it. You sort of addressed this before, but if you take that kind of multi-generational design, when you mentioned ramping fiscal 2028 to 2030—t alked about a billion-dollar opportunity there.
What does that win tell you about your portfolio and about content trends in the premium market?
Yeah, I think it tells us a lot. First off, I would say that one particular customer is astute in that they recognize that there's opportunity costs that some of their partners have for their engineers and their capabilities and their talent. For them, this is also about securing a partnership with us for a long period of time. So it's a mutually beneficial relationship, and we work really, really hard at it. In many ways, their products are excellent products. We've been working closely with them. I think it says a lot about our technology, our capabilities, and what we want to do, and I think it bodes well for us.
If we set aside any one individual platform, what are the structural drivers of content growth at the premium segment over the next few cycles, especially in terms of the modes of wireless communication you see playing out, and especially if we really finally do get AI at the edge?
Yeah. I think that what we see, one of the biggest things that we see is much more transmit capability coming. I think that's due to a couple of reasons. One, more things are being uploaded to the cloud or to the AI work models or whatever, things like that. The other thing happening is it looks like it turns out that for those that aren't familiar with this technology, the transmit side on the phone is actually what determines how far you can stay away from the tower. When you think about microphones and speakers as analogies, microphones are on the receive side. You don't need a lot of power, and you can have pretty sensitive microphones with not a lot of power. The speakers are the things that communicate to the tower, and those take up a lot of power.
Figuring out how to improve the transmit efficiency really defines how much bandwidth you can get back and forth to the tower. There's a lot of focus on that, and I think that that's one of the technology drivers we see that certainly is tied to AI at the edge and workloads and things like that, right? The more complex workloads, the more upload you're doing, the better it is for us.
Yeah. Okay. Broad markets, your diversified analog business, that has been a pretty solid outperformer over the past several quarters.
Yeah.
To sort of level set people, can you just break down that business in terms of the largest buckets of revenue in that business and sort of what they constitute and maybe how your portfolio may be different from some of your analog peers that are more even broader base than that?
Yeah. I think our last quarter, the broad business was about 43% of our business. So it is a meaningful part of the business. Two-thirds of that are what I would call strategic growth engines. A third of it today is more consumer IoT-focused stuff, which is a little bit a drag on the growth today. But it is okay for us to be diversified there. Inside the growth areas, we have Wi-Fi, which is a big business there.
Wi-Fi tends to be in waves. With the Wi-Fi 7, Wi-Fi 8. Today, we are in the middle stages of the Wi-Fi 7 ramp, seeing very good adoption. And what drives that technology is things like dual band, tri-band, quad band, more power, things like that. So we see that to be a good tailwind. Automotive, we play in the infotainment space and vehicle-to-vehicle connectivity, which is kind of a sweet spot.
We are not huge in autos from the grand scheme of things, but when you think autos, do you think autos will have more connectivity as time goes on? Yes. Do I think they will look more like computers as time goes on? Yes. So that seems to be going well. And then we have the data center side, which is power and timing we talked about. And then the combination of Qorvo, that gives us the defense side, which I think for me could be grabbing the tiger by the tail.
Right.
Yeah. So excited about that one.
Of those subsegments, where do you see the most upside? Or is it too early to say? And obviously data center, automotive have done pretty well, but do you expect that to kind of-
Yeah, the data center is going to continue to grow. I think for me, it's how to get that one bigger, and I think that we'll continue to invest there to grow that. I think that that business comes from a heritage in Silicon Labs that was mostly focused on the industrial side. And up until about a year ago, we shifted all the R&D towards the data center side. So we really haven't yet seen the payback for some of those investments. So I'm looking for that one to continue to grow. The combination with Qorvo, I'm definitely most excited about the defense space. I think that one just opens up a whole new segment for us that is growing like crazy, and, as I said, I think we could have grabbed the tiger by the tail on that one.
Yeah. So you mentioned aerospace and defense, obviously very strong growth area for everybody, especially for Qorvo. So how are you thinking about that business in terms of the combined portfolio? Specifically there, are there areas where you could actually accelerate the organic product portfolio and, I guess, maybe talk about an incremental—
Yeah
—additional M&A that you could use to kickstart that portfolio?
Yeah, I think it's early days, but that's an area we haven't done integration planning, so we haven't yet got into the whole details yet. You might imagine, we just talked about some of the power products and some of the timing products we have that Qorvo today doesn't have. Well, gee, those customers need power products and they need timing products. Maybe there's something we can or should do there. We have unique BAW capability, differentiated BAW capability. Maybe there's some interesting filter capabilities that we can do there. They bring some of the GaN technology that we don't have, that opens up frequency bands that we don't have. I'm most excited about bringing those thousands of engineers together to see what we can do. That's where some of the magic is.
Yeah. Okay. Final part on the Broad Markets business. You mentioned Wi-Fi. Where are we in the Wi-Fi 7 upgrade cycle? What's the right content uplift from 6 to 7? How do you think about the competitive environment in Wi-Fi specifically?
We're probably in the middle innings. So of a nine-inning baseball game, we're probably in inning five or six. Middle innings of that. I think that's been going well. The content uplift has been meaningful double digits per access point. Primarily because when you think about just going from two bands to three bands and then more power. As we look to Wi-Fi 8, I think we're going to have additional content uplifts from there. So that one's good. The competitive dynamic there, we are basically the front ends for Broadcom and Qualcomm and MediaTek. It's kind of how we work, and so we partner with them. It's a very competitive environment, but I think, certainly the combination with Qorvo, I think the competitive landscape changes a little bit, and so we're looking forward to that.
Great. Maybe a few numbers questions—
Sure.
—to close out. I was wondering if you maybe recap the financial model you laid out when you announced the transaction.
Yep.
We're sitting here just under a year after you announced it. Help us understand, first of all, the long-term growth rate you think that you can achieve, given the business mix across mobile and Broad Markets.
Yeah. We laid out at the top level, we laid out a business that's growing mid-high single digits, and we've got two major segments. We'll have the mobile segment that we've had low to mid single digits, relatively low, modest growth rate. What are we assuming there? We're assuming nominal unit growth rate. We're assuming decent content uplift offset by ASP pressures and Android decline. Kind of what we're assuming in that range that can go plus or minus, but it's not a heroic assumption. On the Broad Market side, we're assuming low double digits, and that's assuming good growth in the core growth areas and then offset by some of the more consumer-oriented that I talked about. And you end up with a mid-single digit kind of grower, 50%-55% gross margin, 30%-35% operating margin, and 35%- 40% EBITDA margin.
Very favorable capital structure, throws up a lot of cash. I think we're going to be in a really good spot. Should really result in really good EPS growth over time.
Yeah. I think Qorvo reported gross margins of 52.8% last quarter.
Yep.
How does that bridge to the 50-50s I've just talked about for the combined company, tailwinds and headwinds from here, variable cost, input cost, et cetera?
Yeah. If you look at—o bviously, Qorvo's still an independent company. I just got to look at their public financials. I think what they've talked about is the Android business is going down, which is very low margin, and it's kind of been swapped out with high margin defense business, which is a trade I'll make every single day. I think that that mix alone should help us. So when we think about gross margin mix inside the mobile side, which is structurally lower than the gross margin side, but inside the mobile side, we're going to have a mix shift there towards the premium side. Then on the Broad Market side, we're going to add on defense and aerospace, which also should bring the mix up there as well.
We've got some mix-related items, and then we've got the growth of the Broad Markets business, which should expand, grow past the cell phone business. Headwinds. Good you asked. I think one of the headwinds certainly has been input costs. That's been something that's been pressuring our gross margins. I've been actually really proud of the team the way we've handled that, and we've done a lot of different mitigation things. We've got to do that, including price increases where we can, expedite fees, and longer lead time stuff. But that's just a headwind that we probably didn't expect from a year ago, and our go-forward model kind of assumes that that will continue to be, and we're just going to need to work. That's something we're just going to need to battle every single day.
Yeah. Overall, I think you pointed a picture where you expect the transaction to be accretive to growth margins, OpEx margins, and earnings.
Yep.
You talked about $500 million in planned cost synergies. What has changed from a synergy perspective since you announced it, revenue or costs, as you've kind of sharpened your pencil and worked through the proposed integration details?
Yeah. I think my confidence in the synergies has gone up. I think I really believe that we've got a really good opportunity to meet those. And you might imagine I've got some internal targets on that, but I'm a meat and potatoes kind of guy. I'm just going to do what I say we're going to do, and as soon as we get in there, we'll start delivering the numbers and then see where we go from there.
My confidence has gone up a lot. I think some of the other structural things we talk about them even before we started, both of us have already started doing some, we will call it pre-synergizing work, such that when we hit the ground running, we are already going to be at a run rate where we should be better than either company was previously when you add them together. I think I feel good about that. You just have to stay tuned, measure us on how we have done, our results.
Yeah, exactly. Capital allocation. You announced recently a new framework for that for the combined company, $2 billion of new share repurchases, but a decision not to declare a quarterly dividend going forward. Maybe help us understand the board's thinking on that point and how you weigh share repurchases, deleveraging, and M&A from here. Specifically, should we expect more kind of diversifying M&A in Broad Markets?
Yeah, that is a good question. That was something I personally spent a lot of time on. We had external advisors give us advice on. It was a recommendation I made to the board, and the board supported my recommendation. Part of it was a multifaceted evaluation of where I think we needed to go, and I think one of it came back to, for me, it just became very clear that it is much more accretive. If I did nothing but just buy back my stock, because with the dividend money, it is way more accretive. In fact, I went back and looked at older material, and I think if you just did the math, even through the ups and downs, it would be way more accretive to do that.
We were trading at a dividend yield something like 4.75% or something like that, something approaching Chevron dividend yields, which just was not there. When I looked at the capital allocation, I think we are going to be biasing certainly towards buyback. For M&A, look, both Qorvo and Skyworks have been in the same cul-de-sac for a decade more. There are several companies that look like us 15 years ago, and I think that we would be better off looking for accretive M&A that will help us to continue to grow the gross margins and diversify our base. Keep in mind that I am going to be very focused on doing things in a disciplined fashion, measured fashion, and I think that should we deliver the synergy we talked about here, I think we are going to get investor support.
I think the stock price post that decision is kind of reflective of us getting some support from some major long-onlys. I feel good about it.
Okay, excellent. Last question, very big picture. If we're sitting here on stage five years from now, investors look back, what's the one thing they're going to be surprised about?
They wish they bought more stock today.
Okay.
I don't know, many things.
Maybe some of them will be very happy.
Yeah, well, that's the idea, right? I'm not here to keep things the same. I am singularly focused. I think one of the things that surprised me, I guess, coming in, I started on this particular transaction. If you look at some of the changes we've made in 18 months, right? Six quarters in a row of beating raised, and the biggest deal the company's ever done, transformative deal, changed the capital allocation of the company. I am singularly focused on growing the stock price. I wasn't brought here to do anything else, and I'm just not going to sit still. I'm just going to execute and deliver one step at a time. You're not going to see me chase butterflies, and I'm not one of these hyperbole guys, but I'm just going to show up and deliver and do the work every single day.
That's what we're going to do.
Excellent. I think we're looking forward to see what's next for the company.
Yeah. That's great.
Thanks, Phil, for being here.
Thank you so much.
Thank you.
Thank you.