Doug DeLieto - Vice President of Investor Relations Robert A. Bruggeworth - Chief Executive Officer, President, Director and Member of Corporate Development Committee William A. Priddy - Chief Financial Officer, Corporate Vice President of Administration and Secretary Steven E.

Creviston - Corporate Vice President and President of Cellular Products Group Norman A. Hilgendorf - Corporate Vice President and President of Multi Market Products Group.

Harsh N. Kumar - Stephens Inc., Research Division Harsh N. Kumar - Morgan Keegan & Company, Inc., Research Division Michael A. Burton - Brean Capital LLC, Research Division Edward F. Snyder - Charter Equity Research Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division N.

Quinn Bolton - Needham & Company, LLC, Research Division Jason Rechel - Oppenheimer & Co. Inc., Research Division Cody G. Acree - Williams Financial Group, Inc., Research Division Mark Kelley - Barclays Capital, Research Division Anthony J. Stoss - Craig-Hallum Capital Group LLC, Research Division James E.

Faucette - Pacific Crest Securities, Inc., Research Division.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to RFMD's Fiscal 2014 Second Quarter Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, October 22, 2013. At this time, I'd like to turn the conference over to Doug DeLieto, VP Investor Relations. Please go ahead, sir..

Thanks a lot, Vince. Hello, everybody, and welcome to our conference call. At 4:00 p.m. today, we issued a press release. If anyone listening did not receive a copy of the release, please call Samantha Alphonso at the Financial Relations Board at (212) 827-3746. Sam will e-mail a copy to you and verify that your name is on our distribution list.

In the meantime, the release is also available on our corporate website, rfmd.com, under the heading Investors. At this time, I want to remind our audience that this call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations.

We encourage you to review the Safe Harbor Statement contained in the earnings release published today, as well as our most recent SEC filings for a complete description. In today's release and on today's call, we provide both GAAP and non-GAAP financial results.

We provide the supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain noncash expenses or unusual items that may obscure trends and our underlying performance.

During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our website, rfmd.com, under Investors.

[Operator Instructions] Sitting with me today are Bob Bruggeworth, President and CEO; Dean Priddy, Chief Financial Officer. I'm also joined by Eric Creviston and Norm Hilgendorf, who lead our Cellular Products Group and our Multi-Market Products Group, respectively, as well as other members of RFMD's management.

And with that I'll hand the call over to Bob..

Thank you, Doug, and welcome, everyone. We're very pleased to report record revenue and solid financial performance highlighted by continued diversification, margin expansion and operating leverage. On a 6% sequential increase, gross margin expanded 110 basis points and operating income increased nearly 33%.

This supported earnings per share of $0.12 ahead of our original guidance of $0.10 to $0.11. RFMD's markets continue to grow with the expanding demand for high-performance broadband connectivity.

This is increasing our dollar content opportunities and enabling RFMD to grow generation-over-generation in the highest tier [Audio Gap] as well as in the highest volume entry phones and reference designs. In the September quarter, RFMD was very successful in expanding our dollar content in the world's leading smartphones.

Looking forward, we're very well positioned to continue to expand our content not only in smartphones, but also in entry-level devices and on reference designs.

For RFMD, the shift taking place in the entry-level from voice-centric 2G devices to 3G entry smartphones is doubling and even tripling our content opportunity with an even greater jump anticipated with the deployment of TD-LTE.

In the highest tier smartphones, the expanding band coverage is driving up the complexity and the content opportunity for RFMD. RF components like PA duplexes, antenna switch modules, diversity switches, antenna tuners, impedance tuners, APT and ET-capable PAs and ET trackers are creating new high-growth revenue opportunities for RFMD.

On top of this, carrier aggregation is expected to proliferate through all tiers of smartphones on the receive path followed in a few years by transmit carrier aggregation.

Fewer industry participants are able to solve the resulting system-level challenges related to system efficiency, thermal management, solution-side and multimode-multiband complexity.

This is creating new opportunities for RFMD, as our systems level expertise and our strength in envelop tracking, carrier aggregation, antenna tuning and other key competitive differentiators are enabling us to optimize the system efficiency and overall performance of our customers' devices.

As a result, we see multiyear opportunities for revenue growth and diversification across customers, product categories, market segments and air standards. And we are better positioned than ever to translate this diversified growth into margin expansion and operating leverage. We are tracking on or ahead of schedule with our key gross margin drivers.

Looking forward, we anticipate a fiscal year of record revenue, and we believe we are structured to deliver continued margin expansion even in a seasonally down March quarter. Next year, we anticipate another year of record revenue and continued margin expansion. Now let's look at some of our quarterly highlights by business group.

In CPG, our product and technology leadership is helping us to drive diversified growth across customers, market segments and product categories. As I indicated earlier, we were very successful during the quarter in expanding our content in some of the world's leading smartphones.

As an example, we won multiple antenna tuners, an antenna switch module and an LTE pad earning RFMD the distinction of being the only supplier to deliver this customer all the critical building blocks of RF functionality, encompassing switching, tuning, amplification and filtering.

We also launched multiple new components incorporating our unique ET and APT technologies. We are engaged with multiple channel partners in support of upcoming smartphone, tablet and ultra-book launches, and we expect strong growth of our APT- and ET-capable PAs and our ET power management solutions.

RFMD offers the industry's most comprehensive ET product portfolio. And RFMD is the only PA supplier to have co-architected ET PAs with ET power management ICs or PMICs. This yields significant improvement and system efficiency not only when our components operate as a set, but also when our ET PAs are mated with third party ET PMICs.

We are already seeing the competitive field narrow around ET, as a result of the complexity and the requirements for customer and channel partner collaboration. In the entry tier, we enjoyed broad customer adoption of our new CMOS PAs extending our leadership in that segment and supporting our margin expansion goals for our 2G product portfolio.

In the market served by our Multi-Market Products Group, or MPG, we enjoyed broad representation across high-performance WiFi, wireless infrastructure, broadband networks and a diversified set of other Hi-Rel and specialized communication equipment markets.

Our WiFi products grew 49% year-over-year across a broad range of mobile and CPE applications, including routers, access points and set-top boxes. Compared to last year, MPG total revenue grew 12%, demonstrating the stable nature of MPG's industrial and communications end markets.

Looked at from a very high level, RFMD is executing on a strategy of product and technology leadership and delivering diversified revenue growth, margin expansion and operating leverage. And with that, I'll turn the call over to Dean..

Thanks, Bob, and good afternoon, everyone. Revenue for the September quarter increased 6% sequentially and 48% year-over-year to a quarterly record $310.7 million. CPG revenue was $255.4 million, up 7% sequentially and 59% year-over-year. MPG revenue was $55.2 million, relatively flat with the June quarter and up 12% year-over-year.

RFMD's robust growth continues to be a direct result of our sharp focus on diversification, dollar content gains and expansion into new product category and the large and growing market supporting always-on broadband data mobility. Gross profit for the quarter increased to $112.3 million, supporting gross margin of 36.2%.

On the sequential increase in revenues, we saw an incremental margin of greater than 50%. Two quarters ago, on our quarterly earnings call in April, we outlined our intent to expand RFMD's gross margins by 300 to 400 basis points by the March 2014 quarter. Now we expect to deliver on that goal this quarter.

RFMD has delivered 180 basis points of gross margin improvement since March, and we intend to deliver another 120 basis points this quarter. This is a result of an intense focus on cost reductions and our ongoing efforts in support of 3 key margin initiatives. First, RFMD has transitioned to a flexible GAAP sourcing strategy.

As part of this, we have sold our U.K. fab. We consistently stated that this will support approximately half of our gross margin expansion goal, and we now expect to achieve the full benefit of that goal this quarter.

Second, RFMD is seeing very strong adoption of our ultra low cost CMOS power amplifiers and next-generation handset platforms targeting emerging markets. Overtime, we intend to migrate all of our customers for 2G PAs to this product family. Third, we have installed and qualified additional assembly capacity in our Beijing facility.

And we've begun capturing the benefit of this investment in the December quarter. Looking beyond December, our confidence in margin expansion allows us to project margin improvement in a seasonally down March quarter.

Even more importantly, for the first time in recent history, we can look into the next calendar year and project achieving our quarterly non-GAAP gross margin model of 40%. The RFMD team is demonstrating crisp execution in support of our gross margin initiatives.

This underscores the significant operating leverage RFMD can deliver, given our expectations for diversified revenue growth, margin expansion and modest expense growth. Returning to the P&L.

Operating expenses were $75.1 million, compared to $74.7 million last quarter, with G&A of $12 million, sales and marketing of $16.2 million and Research and Development of $47 million. Operating income for the September quarter was $37.2 million, resulting in approximately 12% of sales.

Similar to the incremental gross profit, our operating fall-through was better than 50%. Other income was $100,000 and non-GAAP taxes were approximately $3.3 million. Net income for the quarter was $33.9 million or $0.12 per diluted share, based on 287.6 million shares. Now moving to the balance sheet.

Cash, cash equivalents and short-term investments totaled approximately $150 million. Cash flow from operations was $21.5 million. DSOs were 55.3 days compared to 47.1 days in Q1. RFMD's inventory balance declined by $22.6 million, resulting in 5.7 turns versus turns of 4.8 last quarter.

During the quarter, we repurchased 2.4 million shares of stock at an average price of $5.03. Net plant property and equipment was $196.6 million and capital expenditures during the quarter were $16.7 million, with depreciation of $11.3 million and intangible amortization of $6.7 million.

Capital expenditures included investments in assembly capacity and equipment to reduce gold usage. Now for the financial outlook and business commentary. RFMD expects sequential growth in CPG, partially offset by sequential decline in MPG. RFMD expects quarterly revenue to be approximately flat to up 5% sequentially.

RFMD expects sequential gross margin expansion of at least 120 basis points. And RFMD expects a non-GAAP tax rate of approximately 15%. Finally, RFMD expects non-GAAP earnings per share of approximately $0.13 to $0.14. And with that, we'll open up the call to your questions. Thank you..

[Operator Instructions] Our first question's from the line of Harsh Kumar with Stephens, Inc..

Dean, I'm going to put you on the spot with this. I know you mentioned that gross margins will go up in the March quarter.

I'm wondering if you can talk about that and how we should think about the March quarter margin increases?.

Yes, thanks, Harsh. As we've been extremely bullish on gross margin expansion going out at the beginning of the year with 300 to 400 basis points of margin expansion in this fiscal year. We expect to achieve the 300 basis points or so in the December quarter.

And we intend to deliver on the other 100 basis points to get 400 basis points by the March quarter. And then we're not stopping there. We can see additional margin expansion, if you'd like to model perhaps 50 basis points a quarter until the time we get to our 40% target gross margin model sometime during calendar year '14..

Great. And maybe a follow-up for Eric or Bob. Guys, how many 10% customers were in the quarter this time? And I know that some of your customers are doing really well while others are drawing down inventory. I'm curious if you can give us some color on what you're seeing in your large customer sets..

Yes, Harsh, I can give you the 10% customers. There were 2 10% customers during the quarter, and perhaps Eric and Norm would like to share some -- or Bob on the other part of the question..

Sorry, Harsh. The only part I got was the top 10% customers.

You said some customers do a little better than others?.

Yes, I'm just curious. I know one of them was publicly drawing down inventory and the other's seeing a strong ramp. I'm curious if you want to give us any color on what you're seeing in those customer sets..

Yes, I think -- thanks, Harsh. I think since most of our customers haven't commented yet on their September quarter or their December guide, I think it maybe be a little bit wrong for us to get out in front of them.

However, with that said, I think it is safe to say that when we looked at the market to come up with our guidance, once again, we took conservative stance on the inventory drawdown. As what you said, and some of our customers clearly -- some of our customers are doing quite well.

And then we have one Tier 2 customer, BlackBerry, that I think, it's no surprised to anyone out there, that is quite challenged in the marketplace right now and has, from our view, we've taken a very conservative view and with our revenue quarter-over-quarter, we're expecting to be down about $10 million.

And then in MPG, and I'll let Norm talk a little bit about his marketplace, we're expecting to be down 5% to 6%, so another $3 million. So right there, if you will, the conservative view, we've got some that are winning, and we're doing well there and some other places, our customers are struggling..

I think you answered that perfectly for us. If I can ask you one last one. Your company is our proxy for the China handset market. I know that some -- there's a switch going on there to higher handsets but there were some inventory problems.

So any color you want to provide on that sector?.

Last quarter, as you know, we spent a fair amount of time talking about how we were taking a conservative view in China. We expect it to be off a little bit. And sure enough in the September quarter, we were down a little bit, and we're not really looking for much growth there. We're not forecasting any share loss there.

We're going to maintain or grow our share at many of those accounts in China. But I think, once again, we're taking a conservative stance..

Our next question is from the line of Mike Burton with Brean Capital..

I did want to talk a little bit -- I know a little early here to be talking about the March quarter, but now that so much of the market has moved to the top 2 OEMs and China are really dominating the market, how do you view normal seasonality as we head into that March quarter?.

Mike, I appreciate the question. I think as we always try to stay away from guiding out a few quarters and what's typical anymore with what we've seen, March is probably still typically down 10% to 15%. But as you pointed on, it also depends on the timing of new product or marquee phone launches. So that also impact things.

And then China, yes, depending on the Chinese New Year and the timing of all of that. But for right now, I would say a typical year is down 10% to 15%..

Okay, fair enough. And then you touched on the ET and APT portfolio, how really do you view the competition -- the competitive landscape right now both for your tracker, but then also for the PAs that are paired up with Qualcomm's tracker because there seems to be a narrowing of the field there.

If you could point out to who your main competition is going forward..

I think Eric would love to discuss the ET and APT PAs and his competition. So, Eric, go ahead..

Sure, I'd be happy to. Well, we are, in fact, launching production shipments this quarter for both our envelope tracker as well as many envelope tracking power amplifier system for various stance [ph], and those are being shipped to multiple customers. So we think we're out of the gate early in the industry.

As you know, we've been leading with the development there of the tracker itself and the co-integration of that with the power amplifier. As we've said many times in the past, I think it's playing out as expected. It will be a much narrower field of competition for these slots. There will be competition of course.

There are still a couple of strong folks competing for this, but not as broad a field as we see in the rest of the market..

Okay. And then last one for me. This is on carrier aggregation.

Can help us understand what the incremental content opportunity looks like for this next year? Is it mostly on switching? And if so, what does it do to the TAM? And does it affect anything else in your portfolio?.

Sure. So received carrier aggregation, which has actually begun already in Korea. We've supported the received carrier aggregation switch there in those models that are shipping today. We do expect that to begin to penetrate in North America and throughout the world in CY '14.

So in next year, we do see approximately a $2 content increase overall for the RFs in those handsets, and it is concentrated on the switching and the front end, as well as some filtering. There are a few bands in power amplifiers, as well, that have to be redesigned for more stricter requirements.

So a bit of a bump there, but it's primarily content in the switches and filtering content..

Our next question comes from the line of Edward Snyder with Charter Equity Research..

So, Norm, right off that bat. MPG looks to be weak next quarter. It sounds a little bit more than seasonal. Can you localize that? Is that WiFi given so large a part of the business. I'm just trying to get an idea of where you're seeing a weakness. And, Eric, a pads and ET question.

You mentioned in previous press releases duplexer capacity a couple of quarters ago. And now teardowns [ph] show that you guys got pads. You're clearly not having a stacked margin problem because of the margin both this quarter and what you're guiding to and it's -- that product has really got be a big part of your revenue mix.

Is that a sol [ph] part? And then should we just expect from now on that emerging markets sol-based [ph] pad you wouldn't have a stacked margin problem or are you doing something special? Is Michael doing something special that allows you guys to do a bit better on that than what we'd normally expect? And then the ET.

You mentioned that ET PA, you're seeing a narrower competitive environment.

Does that translate to premium ASP or just fewer competitors?.

All right, Ed, that's 3 parts.

Norm, why don't you take MPG, and his question was, what's driving your business today?.

Yes, looking at the guidance for the current quarter, Ed. The primary driver right now is our outlook on networking equipment, both wireless and wireline the cable TV networking. We had a nice increase last quarter in wireless infrastructure, primarily due to some China tenders for new equipment.

And so we had an uptick in our wireless infrastructure business last quarter. And we don't expect that to repeat in the current quarter. In addition, it's pretty common for us to see cable TV network buildout slowdown in the winter months, causing cable networking to be slower in the December quarter for us.

So overall, we're not real bullish in wireless and cable networking for this quarter..

Okay. And then, Eric, the second parts were along duplexers, pads, margins and then ET PAs and competition..

Right, so regarding the duplexer integration and the pads business, you're right, that's ramping quite strong right now. And we have been working closely with the duplexer supply base with multiple suppliers, in fact, to assure capacity and competitive pricing there.

I think in terms of your question about the stacked margins and the fact that despite a strong ramp of duplexer content we're seeing standing margins, I think you really need to decouple those.

On one hand, we're getting a fair price for the pad because we're integrating a lot of capability on the power amplifier side too and making sure that our performance is world-class at the final product so that we get a fair pricing.

But a lot of what you're seeing in the margin expansion is really coming from structural cost changes that Dean pointed to. And those are so powerful across the board, across the portfolio, that's really what's driving overall the margin improvement. Regarding the ET premium, we are, in fact, seeing a premium for ET.

So like-for-like ET versus APT, we see a 15% to 20% price premium for the ET version..

For the PA versus, like, the tracker?.

Correct. Yes, I'm referring to a power amplifier that could support ET mode versus one that supports APT mode..

Right, okay. And then, Dean, CMOS amps seems to be ramping nicely now which is -- and it's accretive, right, to CPG gross margins normally.

Where are you in replacing the old GaAs part or the old CMOS part in the 2G business? Are we halfway there? Do we have more to go overall? Or is most of it under your belt already?.

Yes, we're only in the first couple of innings of replacing the 2G product portfolio. So still quite a bit of improvement that we can see in the gross margin profile of our 2G business..

Ed, the thing I'd like to add to that is what we are very excited about is when we made the acquisition, we talked about taking that 2G CMOS PA to some of the Tier 1 OEMs. And that's on track and that's looking good for us to be able to do that..

Okay. And then finally, China overall, I know some of the infrastructure business might be weak there but -- and you had some very good quarters in the last couple of them.

Is China, would you say, overall down, flat or up, any chance?.

Yes, I think we're looking at roughly flat-ish this quarter, Ed. We were down last quarter, as we said we were taking a very conservative view of China. And right now, we're just looking flat-ish. But again, we could be up..

Our next question comes from the line of Steve Smigie with Raymond James..

I just wanted to follow up on the Q4 seasonality answer. You guys are guiding margin up for the March quarter, and it sounded like you're sort of guiding down 10% to 15% for March.

And so I'm just curious is that down 10% to 15% a likely the scenario, or you're just saying that could happen? And if that's the case, how does the margin come up in that quarter, what's the offset there?.

Dean, I'll take the first part. I'll let you answer the margin part. The question was around what's normal seasonality? And looking at last year, we had the timing of a Marquee phone that was launched, and that impacted the seasonality from our perspective.

And what I was saying was a typical seasonal decline in our industry is about 10% to 15%, and it all depends of what's happening with Marquee phones. And what we've said in my comments, along with Dean's and the press releases, even as sequentially down quarters.

So if that quarter you modeled for us down 10% to 15%, we still expect to be able to expand our gross margin in the March quarter..

The 3 things that we've been highlighting is major margin expansion initiatives to get to the 400 basis points are not really very revenue dependent. So it's more execution-oriented. I mean we've already have sold [ph] away for fab. We've already installed assembly equipment and are beginning to utilize it in the December quarter.

We're already transitioning our CMOS PAs to the low-cost PAs. But looking beyond that, we have multiple projects that are -- they're keenly laser focused on cost savings, which again, are not as dependent on revenue as they are on simply execution by the teams here in RFMD.

Now if we were to see an increase in capacity utilization or fabs and revenue expansion, it will only accentuate what we believe will be a good year, good solid year for margin expansion..

Great. And I guess, if you could just maybe just some thoughts on growth opportunity for 2014 as a whole. I mean, you guys have been -- you had a -- at least this quarter was up 48%, so obviously very strong growth for you guys.

So obviously maybe a seasonal Q1, but do you feel fairly confident you have a pretty strong growth year in 2014? And if so, what sort of opportunity do you see?.

Yes, I think at the highest level what we've talked about and I'll let Norm and Eric both add in -- is with each generation of Marquee smartphones, we've been able to gain share. I think also if you look at each next generation phone, we've been able to grow content in the types of products.

And as we highlighted, we now have PAs, filters, switches, tuners, and we expect to be able to continue to grow that and clearly, as they add more and more bands and that complexity increases, we expect to be able to grow our dollar content and gain share across the board there. But I'll let Norm comment on MPG and Eric on CPG.

Norm?.

Yes, so with regard to MPG growth opportunity, certainly WiFi is a major growth driver for us. We've had some very exciting wins in the last quarter. And we see a number of these programs beginning to ramp towards the end of this quarter and into the March quarter and given us some very good momentum going into our next fiscal year.

And it's a combination of both WiFi and -- WiFi for mobile applications and for CPE. Earlier this year, we saw a lot of early adopters and mobile 11ac applications.

Now we're happy to really see a lot of activity on enterprise equipment, building out the infrastructure that we all need to be able to experience the high data rates with our consumer devices with WiFi.

So we're seeing a very strong uptake on the CPE side, that's the consumer premises equipment with routers and access points and even set-top boxes supporting a wide expansion and WiFi infrastructure. That's a key area for us along with mobile WiFi as well where we have very strong customer relationships and a number of good engagements ongoing.

So we see a strong year ahead of us in the next fiscal year for MPG. And I'll turn it over to Eric to talk about cellular..

Yes, I guess I can answer that in 3 different ways. The first I think is to look at our footprint, our product portfolio. We're a very broad base supplier now in the RF front end. Certainly, not just PAs anymore.

You've seen us stamp out a footprint in antenna control solutions and tuning, real leadership position there, and that market is really just beginning. Also, in switches, broad-based in both antenna switch modules and receive diversity in carrier aggregation switches and then in power management as well.

So we're really serving the entire spectrum of the RF front end. We're not a niche supplier at all. Secondly, as we look at the customers we serve, we have lot of customers, which are going through an upgrade cycle in their portfolios as well.

So some of the people we've been working with for many years in 2G are now shipping 3G and beginning to design LTE handsets. So a big change in terms of their product portfolio. The challenges are very high for them, and we're very well suited and integrated into their engineering teams to help them make this transition.

And then lastly, the integration level in the industry, if anything, is going on. So we have the opportunity to integrate and aggregate more content around each of those footprint placements we have, whether it's adding filters in with our switches, filters with PAs or doing modules that, in fact, include the entire RF function.

So with those 3 ways, I think we stand to have a very nice year next year..

So, Steve, kind of when you add all that together, in my opening comments, I talked about another year of record revenues as we look forward to 2014 calendar year and fiscal 2015 and couple that with Dean's comments on the gross margin expansion of roughly 50 basis points a quarter. You can see why we're pretty excited about the next year..

Our next question is from the line of Quinn Bolton with Needham & Company..

Bob, I just wanted to come back to the seasonality question for a second. Based on your comments here, and the December quarter certainly doesn't feel like RFMD's losing share in December yet. You're kind of guiding overall revs up, flat to 5%. And I think normal seasonality in December quarter has been stronger than that.

I guess my question is, do you think that we might be pulling some of the traditional March seasonality into the December quarter, so that we might see a shift in sort of that first quarter seasonality on a go-forward basis?.

I'm not sure I'm ready to say that, Quinn. Again, I think until many of our customers have reported and given you guys how they view the world in September's quarter, along with December's, I think little far from us to say that.

But clearly, from a cellular perspective, we have broad representation across a wide range of customers, phone tiers, air standards. And from a more specific customer perspective, we're either maintaining or growing share, so we'll have to wait and see what their buying habits are in the consumer and how that really flows through to our revenues.

But from today's perspective, too soon to tell..

Okay, great. And then just a couple for Eric. First, Eric, on the baseband -- sorry, the envelope tracking, can you talk about some of the baseband partners? Clearly, you've got one large baseband customer that's got a pretty comprehensive ET portfolio.

But the shipments both for the tracker, as well as the PAs, are you shipping that now primarily aligned with one baseband partner? Or are you seeing some of the other LTE baseband guys moving to volume launch and that's who you're more partnered with?.

Yes, that's a great question. You're right. Our PA portfolio is ramping, of course, with one particular baseband partner that does have their own envelope tracking capability. But then when we look at shipping our tracker with our PAs, there are multiple baseband manufacturers we're working with.

We'll be ramping production this quarter with only one of them, but we're engaged with several others. And to be fair, several of them may launch first edition basebands with envelope tracking with another solution. There's competing envelope trackers out there.

And most, if not all, cases, even if they're ramping on someone else, we're engaged with them for the next generation. So this is a technology that takes a lot of co-integration and quite a bit of architecture development.

And so it will -- it's something that we expect to continue to add engagements and roll-out with new partners throughout next year..

Great. And then just a last question, Eric, on the opportunity for TD LTE. Obviously, you get into China band 38, 40 have some pretty good filter content.

As you see that opportunity for RFMD, are you looking at it mostly from additional PA content? Do you have a play on some of those filter-based opportunity, especially with Band 38 and 40?.

Yes, we do. There are some cases in which those could be shipped as integrated PA duplexer products. So we'll see some customers preferring the integration level to be done and others prefer to stay discrete..

Our next question is from the line of Rick Schafer with Oppenheimer & Co..

It's Jason Rechel calling in for Rick. Just wanted to ask competitively about both SkyOne and RF360.

And when you guys go in and are working with your customers, could you maybe just give us some color about what your customers are telling you in terms of when they design in either of those platforms or when they don't? And more specifically, what you guys are seeing traction-wise from RF360?.

So I can't speak specifically to the traction of their products. You'll need to ask them about that.

But I can say that generally there is a lot of discussion, as I said earlier, about the integration levels going up, and in some cases, we are working with customers on fully integrated modules that have PAs, switches, filters and everything in them, in various future architectures that, as we look out, have various versions of that level of integration.

But I think right now, today, the industry is trying to solve some really fundamental problems first. And we need to get the tuning really working well in the industry and adopted broadly. So antenna tuning and impedance tuning and all that and getting that mature, and we're close to that point.

Carrier aggregation has just begun, and there's a lot of work to really iron out all the front-end details there and get that mature and envelope tracking ramping right behind it, of course. And that there -- also has its own level of complexity.

So what we're hearing from customers are [indiscernible] get things solved first and then we'll get the integration [indiscernible] probably the right timing for that..

Okay. And then just one on gross margins in our models here.

Do you guys have a specific revenue target for where we should be thinking about that 40% margin? Or is it just kind of a linear fall-through of the incremental 50% number?.

No, we don't have a specific revenue target to achieve the type of margin profile that I was discussing..

Our next question comes from the line of Cody Acree with Williams Financial..

Bob, getting back to your caution that you're taking in China after a down September quarter.

We're actually seeing decent deployment so I guess if you can provide a little more color as to why the caution is -- is it primarily an inventory issue, if not a components level, maybe it's a handset level?.

Yes, I think, Cody, we'll incorporate all those into our answer. I mean, we've been watching what we thought was a little bit of a buildup, if you remember, when we gave guidance for the September quarter. I think we're at the tailwind of that in some of the inventory builds.

I also think some of the white-box manufacturers are still quite challenged as they migrate their own product portfolios from 2G to 3G. So all of the above. We don't always have good insights as we commented on the last call into their finished goods and how things look.

Factoring all that, we just said, we'll just roughly look at the market as roughly flat this quarter. But what's most important is obviously, if it takes off, we can respond..

And, I guess, just remind us seasonally what -- as we head to the Lunar holiday, when do you typically see a peak for those build patterns, so that if you're going to see it, we know when to expect it..

Yes, it's December and January and with Lunar New Year being late, that could be some of the delay and some of the demand as well..

And then maybe, to your larger customer, your largest customer going through such a heavy inventory correction in the summer months and typically going through a Q4 rebalancing.

I guess, how broadly did you see that customer go through in inventory adjustment? And do you think that, that has or will likely impact the Q4 rebalancing?.

I think it's safe that we don't comment on whatever our largest customer is going through. I think my comments that we took a conservative view in our outlook with them is probably the best answer I can give you. I really don't want to get too far ahead of them, Cody, because they haven't really said much publicly..

I guess when you did see their adjustments in the summer, how broadly was that? Or was it more combined geographically or a bit skewed?.

I think what I will answer from this perspective is we saw significant mix changes which we see mix changes all the time. But I think I'd rather answer it, we saw significant mix in the portfolio of products that we sold to them..

And then lastly just, Dean, if you could help us with expectations for OpEx trends next year..

I think this quarter, we're flat and maybe down $1 million or so, and expect the same thing going into the March quarter of flat plus or minus $1 million or so..

Anything we should look for next year? Any spending that you're expecting with the changes one way or the other?.

Yes, I think our spending level is appropriate to support $350 million per quarter-type revenue run rate, maybe even slightly ahead of that. So you could see some slight growth here and there, but certainly, as we would define it, very modest expense growth going into fiscal year '15..

So the growth in OpEx would be significantly lower than the revenue growth we're expecting..

Our next question comes from the line of Blayne Curtis with Barclays Capital..

This is Mark Kelley on for Blayne. My first question is on carrier aggregation.

I guess, as you're starting to see first deployments overseas and we're expecting that in early '14 in North America, what bands do you think are causing the most problematic -- are proving the most problematic right now? And I guess, what's being done to kind of work on that?.

I'm not sure, Eric, how we would want to answer that. Problematic carrier aggregation in itself is a challenge for the industry. We're working with various handset manufacturers, baseband manufacturers and carriers around the world, so I'm not sure I want to call out any one of those..

Okay. That's fair.

And I guess is there maybe a bigger picture difference between the transmit and the receive side for carrier agg that's making it more of a 2015 story there?.

Sure. I'll let Eric go ahead and go through at least what happens to our TAM and the challenges for both the carrier downlink and uplink..

Yes, that's right. There's various ways to look at the transmit carrier aggregation. In either case, they'll certainly be longer to market versus receive carrier agregation. But especially in cases where you actually do need to add 2 parallel transmit pads, that adds a lot of complexity. And of course, costs [ph] into the handset as well.

So we're working on various architectures and band combinations that will help reduce some of that impact and enable Tx MIMO or Tx carrier aggregation to be implemented. But it's going to be least CY '15 before we really see any significant traction there..

Our next question is from the line of Anthony Stoss with Craig-Hallum Capital..

Two part.

With RIM affecting you here, are we at a point where RIM is really a very small portion of your revenue where it's not going to impact you much going forward? And then secondly, for Eric, any ASP pressures that you see right now? And also, love to hear your thoughts on the fact that things are getting a lot more complex and you're doing a lot more custom work integration.

Is that going to positively impact gross margins here heading into 2014?.

Thanks, Tony. And to your first question concerning BlackBerry, I think it's safe to say that, no, there won't be an impact going forward. We would love for them to be successful. We have great share there. We'd love to grow with them again.

But I think as we've learned when a large customer declines, you take a conservative view, and that's what we've put into our plans.

Eric, do you want to comment?.

Yes, the first question on ASP, really nothing to report there. Business as usual in terms of ASPs across all the tiers I would say.

And then on the question of complexity, yes, there's a lot of exciting new products coming out, I think, where we do combine various functions into the different partitioning for different customers that are trying to achieve different things in their portfolio basically.

And it does require a lot of systems architecture and systems engineering and real leadership at the component level.

We believe one of the things that RFMD has done well over the past several years is understand what's driving the industry and investing well ahead of it, years ahead of that in fact, to develop intellectual property, and also key manufacturing technology, so [indiscernible] going to have leadership at the component level and then the RF systems architecture to put it together.

And we've been selling for a couple of years now reference designs, which provide all of that architecture capability to our customers and those always end up being customized reference designs [ph] production basically.

So now the opportunity is to take those reference designs and basically package them together and find ways to further improve performance and take cost out and, in particular, reduce size. So, yes, it's an exciting part of the portfolio, and it does require an awful lot of confidence to pull that off and very close customer relationships..

And lastly, Dean, if you wouldn't mind, what percentage of your revenue -- total revenue is China-based right now -- or last quarter I should say?.

It's around 20%, if you take out Huawei and the 2 top-tier manufacturers, Huawei and ZTE..

Our next question is from the line of James Faucette with Pacific Crest Securities..

Just following up quickly on China.

Just so I'm clear, you're roughly 20%, excluding Huawei and ZTE, is that correct?.

That's correct..

Okay, and then, some of the other component makers and vendors out of China, OEMs out of China, indicated that they had seen issues for demand on product that they in turn export to places like India and Indonesia because of weak currencies in those markets.

Do you have much visibility on the impact, or how that may have curtailed demand for you here in the September quarter and what the opportunity is for a bounce back? Those currencies also recover..

Actually, I'm not sure we would agree maybe with some of those commentary about the currency. I think a lot of the white good guys that we work with didn't quite see some of the same experiences. I think it might have been as much maybe as -- we said, we were down in China. I think they were down in China.

And I think there might have been some other issues there. I can't comment on what exactly they saw, but I don't think we can collaborate some of what you've said..

Okay, that's great. That's really useful. And then as you think about the market going into next year, how are you -- clearly there are opportunities particularly with -- for increased RF component requirements, et cetera.

How are you thinking about the overall production environment and overall units next year? And how -- what kind of tailwind that can provide for you?.

I guess, Eric, do you want to hit a high level? Just talk about some of the tiers and how we see them growing in the dollar context..

Yes, it's challenging to answer the question as stated because units will be going up for sure. But the complexity is what's increasing really, really rapidly.

So we're integrating a lot more functions into the same package essentially, so we definitely see an improvement in terms of density, if you will, functional density within the product, which drives a lot more manufacturing base and scale..

Our next question is a follow-up from the line of Edward Snyder with Charter Equity Research..

I didn't get to my second question. Eric, ASPs for the tracker, the ET tracker, you are the only ones who produce it besides -- commercial production. So just trying to bracket how much we can reasonably expect it. You saw the tracker.

And then how much of CPG's revenue, would you say, is GaAs related these days? I know you've got a lot of SOI content at this point, too.

Is the mix still very heavily weighted to GaAs?.

I can -- Ed, at least from a square millimeters perspective, because as you know, we have modules that have both CMOS and GaAs. But we clearly produce 3 to 4x more silicon in square millimeters as we do GaAs. So you can interpret that however you would like.

And on the envelope tracker question, Eric, you want to take that?.

Yes, I sure don't want to get too specific as, you're right, it's a nascent market and we're one of the few people actually shipping, so we can't be too specific. It's several times more content versus, a say, an APT tracker, if you will. And so....

What about relative to like a 3G PAM. Just trying to get a scale of the opportunity for you. If we say a 3G PAM selling for, say, $0.32.

Are we on the order of a 3G PAM or 2x, 5x generally?.

Yes. it would be in that 2 to 4x, that type of common [indiscernible] range..

Okay. And then you said you are getting a premium for the PA at this point. Is that across the board with all vendors? Or is it -- I mean, I know it's going to be relatively limited in the release initially. I think Samsung and LG, the first guys out there with a product.

Or is it with the smaller players? Or how does that break out?.

My comment was sort of across the board..

Gentlemen, at this time, I'm showing no further questions. I'll turn the conference back over to you for any closing remarks..

Thank you for joining us tonight. RFMD is executing on multiple opportunities to increase our dollar content on the highest growth and highest profile smartphones and reference designs. We anticipate a long-term revenue growth trajectory producing multiple points of gross margin expansion and continued improvement in our operating results.

Thanks again and good night..

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1 (800) 406-7325 or (303) 590-3030 using the access code of 4644159 followed by the pound key. This does conclude RFMD's Fiscal 2014 Second Quarter Conference Call. Thank you very much for your participation. You may now disconnect..