Bob Bruggeworth – President & Chief Executive Officer Dean Priddy – Chief Financial Officer Eric Creviston – Corporate Vice President & President, Cellular Products Group Norm Hilgendorf – Corporate Vice President & President, Multi-Market Products Group Doug DeLieto – Vice President, Investor Relations.

Harsh Kumar – Stephens, Inc. Steve Smigie – Raymond James Edward Snyder – Charter Equity Research Mike Burton – Brean Capital Mike Walkley – Canaccord Genuity Vivek Arya – Bank of America Merrill Lynch JoAnne Feeney – ABR Investment Strategy Quinn Bolton – Needham & Company Cody Acree – Ascendiant Capital Tom Diffely – D.A.

Davidson Blayne Curtis – Barclays.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the RF Micro Devices F3Q 2014 Earnings Conference Call. (Operator instructions.) This conference is being recorded today, Tuesday January 28, 2014. I would now like to turn the conference over to our host, Mr. Douglas DeLieto, Vice President Investor Relations of RFMD.

Please go ahead, sir..

Thanks very much, Lilly. Hi everybody and welcome to our conference call. At 4:00 PM today we issued a press release. If anyone listening today did not receive a copy of the release please call Samantha Alfonso at The Financial Relations Board at 212-827-3746. Sam will email a copy to you and verify that you are on our distribution list.

In the meantime the release is also available on our corporate website www.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’ve provided supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or unusual items that may obscure trends in 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 www.RFMD.com under “Investors.” In fairness to all listeners we ask that each participant please limit themselves to one question and a follow-up.

Sitting with me today are Bob Bruggeworth, President and CEO; and Dean Priddy, Chief Financial Officer. I’m also joined by Eric Creviston and Norm Hilgendorf who lead our Cellular Products Group and Multi-Market Products Group respectively as well as RFMD’s management team. And with that I’ll hand it over to Bob..

Thank you, Doug, and welcome everyone. On today’s call we’ll focus on RFMD’s new operating model and the enhanced financial performance we are already delivering. RFMD has achieved more than 500 basis points of gross margin expansion in three quarters and in the March quarter we’re guiding for additional margin expansion to a gross margin of 40%.

This coming year we anticipate additional margin expansion, operating leverage and earnings growth as we execute on the long-term structural initiatives we’ve put in place. I’ll cover many of these initiatives and Dean will provide more color later in the call, but first let’s take a look at the December quarter.

Quarterly revenue was down approximately 7% sequentially. During the quarter we saw gradual erosion in order activity and customer pulls fell short of their forecasts.

The reductions in demand were primarily related to the very low end in China where RFMD has the majority share as well as progressive weakening throughout the quarter related to our two largest customers.

Despite this shortfall in revenue, RFMD delivered a quarterly record in gross profit and achieved our EPS forecast of $0.13, reflecting the changes we’ve incorporated into our operating model. On the balance sheet cash flow from operations was a very strong $70 million and free cash flow was $55 million.

Looking forward, customer order activity is strengthening. We anticipate double-digit revenue growth for the next fiscal year with 40% gross margin for the entire year.

Our confidence in our financial performance is tied closely to ongoing design win activity related to the industry’s marquee smartphones and tablets for which volume ramps will begin in the spring, accelerate in the September quarter and continue into the December quarter.

On our quarterly conference call nine months ago we committed to 300 to 400 basis points of gross margin expansion by the end of March, 2014. In just three quarters we’ve already delivered 530 basis points of expansion and we’re not done.

In March we anticipate gross margin of 40% and our internal goal is for industry leading gross margin with more predictability and less volatility in operating results.

To achieve our margin targets we’ve implemented a flexible sourcing strategy that is reducing our gas and silicon costs, and we’ve added assembly capabilities that have reduced our packaging costs.

We are reducing our usage of precious metals in our manufacturing processes and leveraging our new higher-unit volumes across our supply chain to reduce costs. Against this backdrop we are forecasting annual revenue growth of approximately 10% supported by multiple growth drivers.

RFMD’s underlying markets continue to expand driven by global macro trends, like the internet of things which can be viewed as a massive, overarching movement comprising multiple high growth trends including embedded connectivity, connected home, automotive WiFi, and wearable technologies just to name a few.

To accommodate the increasing requirements for always on broadband data, the top tiers of our market are adopting new technologies like envelope tracking, carrier aggregation], and transmit MIMO that increase our dollar content opportunities.

The carriers are deploying TD LTE and LTE Advanced as well as driving more LTE content in mid-tier smartphones, while in developing geographies consumers are continuing to migrate from 2G voice phones to high dollar content 3G entry smartphones.

Setting apart the RFMD story we are also capturing incremental content in new and expanding categories like antenna control solutions, power management circuits, diversity switches and a variety of new products integrating filters and duplexes.

At a very high level, RFMD is executing on multiple opportunities to increase our dollar content generation over generation in the world’s leading smartphones and tablets while materially enhancing our operating model.

In the March quarter we anticipate another quarter of margin expansion and year-over-year improvements in operating income and earnings per share.

While the launch of marquee smartphones and tablets is weighted towards the back half of this calendar year our visibility in the design win activity gives us confidence in delivering double-digit revenue growth, gross margins of greater than 40%, expanding operating margin and significant EPS growth.

With this RFMD expects to deliver robust growth and operating income as well as return on invested capital well above our cost of capital. And with that I’ll turn the call over to Dean..

we expect MPG to grow sequentially in the March quarter and in CPG, we’re forecasting growth at one top-tier customer and many mid-tier customers and across our China-base entry-tier customers. In fact, if not for a substantial sequential decline at one large customer we believe RFMD’s revenue would be growing sequentially.

And with that we’ll open up the call to your questions. Thank you. .

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions.) Our first question comes from the line of Harsh Kumar with Stephens, Inc. Please go ahead..

Hey guys, first of all congratulations on realizing the 40% goal, it looks like you’re guiding to it in March. Bob, I still wanted to understand the $30 million odd gap in the December quarter.

Is this China business on the low end of things, is it the culprit? Is it something that you passed on or is it something that just deteriorated? And do we expect it to come back; and then if it does come back, how does it affect the margins when it comes back?.

Harsh, two major points in the revenue decline. One was clearly the very low end in China, which as we roll out our new latest generation ultra-low cost CMOS PA that will have a positive impact on the margins. So we still look for that. I want to remind you as well as everybody else the 2G market is declining.

It has started to decline significantly and we are expecting that to continue next year. However, as I said in my opening comments a lot of that is migrating to 3G entry. But I also want to let you know that quite honestly at our two largest customers, they weren’t as strong as what we were expecting for the quarter quite honestly.

And I think now that they’ve both reported I think some of you guys have seen it as well..

Hey, got it – very helpful, Bob. And then my next question was in the press release and even in commentary you talked about sort of the 10% revenue growth rate hurdle and your comfort level with 40% margin.

Can I just get you to clarify if we can take that as guidance and sort of model to it, or these are just [hots] or should we just sort of go ahead and put Excel models to this?.

Harsh, I’ll let Dean talk a little bit about the model and how we should look at things because we also commented on OPEX as well. But clearly we are absolutely confident in achieving the 40% gross margin. I think that we can do that without the growth of double digits.

It’s clearly what we’re expecting to be able to deliver based on the forecasts that we get on all the programs that we believe we’ve already locked in.

But Dean, I don’t know if you’ve got any other modeling you want to give Harsh?.

Yeah, we’re not only confident in revenue growth for F2015, we’re very confident in margin expansion. We go back to last quarter’s conference call; we mentioned that we felt that our margin expansion initiatives weren’t nearly as tied to revenue as in the past years – and more specifically said they really weren’t tied to revenue.

The three big initiatives were not revenue-based and we’re in varying stages of recognizing the full benefit of those. The fab, yeah, we’ve recognized that full benefit but the ultra-low cost CMOS PAs, we’re definitely still in those lower innings of the ballgame in terms of that ramp.

And in terms of the assembly capacity in Beijing, yeah, it’s had a positive impact this quarter but we still have quite a bit of capacity there that we’ll be utilizing as we transition from external sources into our internal supply.

And this coupled with the 75 or so odd other projects that we’re working on, and all the work that we’ve done on modeling should cost analysis, best of breed benchmarking, zero based analysis, (inaudible) time analysis, total cost of ownership – I mean we’ve focused the organization on improving gross margin.

And we’re getting that margin today and we expect to get that margin next year, something with a 4 in front of it; and we don’t intend to stop until we reach industry-leading gross margin..

Hey guys, I’m really excited for your prospects. I’ll get back in line, thank you so much..

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

Great, thanks a lot and my congratulations on the good margin performance. I was hoping you can talk a little bit about the 40%, as you said some number with a 4 in front of it and lots of initiatives; but you also said 40% for the year.

Should I think that 40% is the minimum for the year and there’s room for that to be potentially nicely above 40% as we move throughout the year?.

Yeah, if you remember last quarter we said that we would grow our margins in this, the December quarter which we obviously did with over 300 basis points of improvement. We also said that we would grow our margins up in what would be a seasonally down quarter so we’re still guiding to that to get to 40% gross margin.

We said that we would at some point during the year, during one quarter achieve 40% gross margin last quarter. This quarter we’re changing that and we’re saying that we can achieve 40% gross margin for the entire year. So could it be higher than that? Obviously it could be we are committing to full year 40% gross margin. .

Okay.

And then sort of back to Harsh’s question and looking at the double-digit growth here, what would be different and what should we expect this year to hit that? I mean is it as you talked about the strong June and September quarters, really strong sequential growth or is it maybe March of next year is less seasonally down to get to that double-digit growth? Is there something particular you think is a more likely scenario there?.

Steve, this is Bob. Number one we didn’t talk much about the profile but we’re coming off a year where we’re growing significantly north of 10% year-over-year this fiscal year. And this quarter from a profile perspective, it all gets down to the timing of these key marquee phones for the most part.

And I really don’t want to get into that too much more than I said in my opening comments, but you know, they kind of begin in the spring and accelerate through September, and keep ramping through December. So how you want to model that, I wasn’t really making any comments about next March’s seasonality.

You know, what is seasonality anymore? It’s seemed to vary over the last three years quite significantly, and again, it gets back to the timing of the marquee phones..

Yeah, one thing that we do know is that we’re going to be very well represented in the marquee phones from what we know today. So we do have the growth drivers in place and obviously a lot of it will depend on how well these phones do in the marketplace..

As well as the tablets..

As well as the tablets, exactly..

Okay, last question if I could – you talked about the marquee phones, well represented.

Should we be assuming that you’ve got a marquee one coming up here sort of in the middle of the year? Is there any chance that we should see the dollar content gains there for you guys as the industry looks like most of you guys should be having?.

I don’t think we’re going to comment on individual phone’s dollar content at this point, whether it increases or not; however we do know that we’re very well positioned to grow our revenues as the phones launch and ramp production.

So we’re not going to say anything specific about any particular phones at this point but we do feel confident in the revenue growth profile..

And we do continue to expand our dollar content in marquee phones. So don’t take what Dean said as we’re not, it’s just I don’t know which phone you’re talking about, which customer and I don’t want to get into code. But we continue to expand our footprint within smartphones and even broader than that..

We’re simply not allowed to talk about that kind of thing. That’s really what I was saying..

Okay, great. Thanks..

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

Thank you, hey guys.

A couple questions – BAW relationship, is this similar to how you set up the duplex relationship from last year in terms of the arrangement you have in securing capacity? And why BAW? What are you going to use BAW for?.

I’ll take the beginning of this and I’ll let Eric talk about the applications. But from an investment perspective I’m not sure how much you understood about the prior investment but I will say in one sense we made a significant investment to secure capacity, obviously source of supply and competitive pricing.

And I’ll kind of leave it at that, but Eric can talk about the applications of where we will and are already using BAW..

Sure, I’ll be happy to.

As you know, Ed, there’s really a growing demand for filtering of all types with all the new bands and modes that are being integrated into the advanced handsets, and we also see opportunities for various partitioning scenarios – so filtering combined with power amplifiers for example or combined with switches, or completely integrated modules which have all the functionality in it including all the bands and the filtering.

So what we’re really trying to signal and make sure you’re aware of is there will be no product segment that we’ll be shut out of. We have all the technologies to be able to address all the product segments that we see coming..

So you said multiple sources in your commentary – I think, Bob, you said that on the technologies. You talk about multiple sources to derive each of those technologies but not multiple sources for every one of them.

Specifically in regard to BAW there are only a couple of guys who actually make it, maybe two in the three and a half in the world; and then TC-SAW, again there’s only two or three guys to do it.

Are you suggesting you have multiple sources for BAW?.

Yes..

Okay. And then to your double-digit guidance, you sound very confident about the growth – not just that but the gross margin. But Dean, you said that you don’t need the double digits to hit your gross margin profile. Am I assuming that for the whole year or are you going to have to… I mean it sounds like you’ve got good visibility in some design wins.

Are you going to have to land those and they’re going to have to sell? Is the product mix for the design wins favoring your gross margin profile? So in other words, now that your other 70 projects are even in the works and you still have these design wins which I would expect to be some big phones, would your margin profile improve on that because of the product mix that you’re selling into that?.

I think the first order, we have to remember there’s ASP, average selling prices do tend to go down, so we would need some of those just to offset that. But I think in a very high level it’s not as mix-dependent. It is we’re reducing our costs..

So most of the gross margin upside is based on all these initiatives you’re doing and probably less so on revenue growth.

For example, if tomorrow we woke up and you sold no gas and you substituted all that gas revenue for SOI revenues it would be reasonable to assume your margins would move up nicely, would they not?.

Provided we dealt with our gas assets that we weren’t using and assembly capacity and all the other things, which is exactly what we would do because that’s exactly what we have been doing. So yes. We’re not looking for a mix shift to be able to drive our margins.

The team has done a fantastic job of reducing our costs in each one of the operations, and Dean outlined some of the techniques that we’re using..

Yeah, it sounds superb. I mean you guys exceeded expectations and we’ve talked about it, everybody’s talked about it over the last nine months or so but this is quite a bit of an upside. I just want to get an idea. RF Micro is not the same company you were two or three years ago in terms of your mix shift, your product lineups.

When you were (inaudible) UC I guess it was 2000 and who knows, I can’t remember – ’11 or ’12 when you announced [Fenon] and SOI and all that.

I mean your mix shift and just technology itself with SOI has picked up significantly in that timeframe to where, Eric, what do you think your mix in terms of wafers are at this point or product between silicon and gas?.

Bob mentioned last quarter, he just gave color on that. We’re shipping far more content in silicon versus gas today and there’s no question that the trend for that will continue. And like you said one of the exciting things is it’s not a matter of transition from one technology to another that’s driving the margin improvement.

We’ve got a full portfolio now with CMOS, SOI, silicon (inaudible) and gallium arsenide all shipping in production now, and we’re driving costs out in all of those. So it’s not a matter of transition from one to the other – every one of those technologies’ costs are going down year-over-year now..

Okay, final question.

Dean, is it reasonable to assume there’ll be a little ebb and flow in maybe some of your share with some of your biggest customers this year, maybe not overall, in aggregate? But leaving aside how popular or unpopular the marquee phones and their sales your share at those customers, do you expect to either gain share at both customers or keep your own, or maybe like I said some ebb and flow where some go down and some go up?.

Given our design visibility today we would expect to gain dollar content and share..

Okay, thanks guys..

Our next question comes from the line of Mike Burton with Brean Capital. Please go ahead..

Hey guys and all my congratulations on the margin improvement. I was wondering, Eric, if you could give us an update on the progress in envelope tracking. Obviously Qualcomm’s is in some of the teardowns.

Have you begun to ship your own solution or when should we start to see that ramp?.

Thanks, Mike. Yes, we’re of course ramping in production and shipping high volume of the power amplifiers for envelope tracking, both multi-mode, multi-band power amplifiers as well as various individual bands’ envelope tracking power amplifiers that go on the Qualcomm-referenced design.

And in addition to that we are in production now with our own power management IC, our own envelope tracker if you will. So that is in production now. It’s I think relatively low volume certainly compared to the Qualcomm volumes these days but we see it picking up significantly through this calendar year..

And is that something where the opportunity really is more on the fact that your power amplifiers are more likely to be attached to that? Or is it more like you see it as a significant revenue opportunity going forward?.

The majority of the opportunity is in selling the rest of the referenced design. It’s not just power amplifiers but the opportunity to have switching – there’s very advanced switch modules for carrier aggregation and so forth there; and also tuning in the platform. It’s a nice revenue opportunity.

It’s certainly a nice margin opportunity in the tracker itself..

Okay. And then a couple to Dean, just following up on the margin side. How should we look at, you’ve helped us in the past with contribution margins going past the March quarter.

And then sorry if I missed this but can you give us an OPEX forecast for how calendar ’14 will trend?.

Yeah, we can see the contribution margin somewhere north of 50% or so on improvements in revenue. And in terms of expenses we stated we’re going to be managing to a financial model, which our longer-term model is 20% of sales.

I think you’re going to see a significant closure from where we are today to that closer to 20% of sales by the end of our calendar year or the end of our fiscal year, either one. So very tight expense control, flat to perhaps down..

Great, thanks guys..

Our next question comes from the line of Mike Walkley with Canaccord Genuity. Please go ahead..

Thank you.

To get to your double-digit growth without talking about customers, maybe you can talk about within RF’s different areas you feel best about gaining content share this year?.

Yeah, I think from the perspective of cellular and MPG, we’ll kind of take them separate but I know one of the areas of growth continues to be our WiFi business.

So Norm, do you want to talk a little bit about that, and Eric, I guess you can talk about cellular growth?.

Sure, thanks Mike. Yes, WiFi is really a key growth driver for us and continues to be.

We had solid growth throughout this current fiscal year and we’re really seeing a strong uptake in the CPD category, the routers and access points, set top boxes and that category; and strong momentum in the current quarter where in the March quarter we’ll see quarterly growth in MPG largely driven by WiFi along with a couple other categories.

So we see the WiFi momentum really continuing to drive solid growth for MPG in the coming fiscal year.

Eric?.

Sure, in cellular of course one of the main drivers that we see in the year is going to be LTE adoption across multiple tiers. There’s several drivers I guess I could highlight.

First off, the LTE handsets driving from regional LTE to more of a global LTE footprint, so they’re usable in more regions – so that’s driving higher band counts of LTE and it’s in many different systems.

And then of course TD LTE – that’s really just emerging going from just a few units last year to somewhere well north of 50 million units this year. And this quarter I can tell you we’re seeing dramatic design and production ramp activity for TD LTE handsets for many of our customers in China.

So we expect that to be a real exciting environment that’s going to drive growth as well. And then as carrier aggregation rolls out that definitely drives more content, more advanced switching which we’re very much in the heart of.

It’s one of our major growth drivers throughout the year, supporting switch content and tuning for carrier aggregation systems in LTE..

Great, thanks. And just more on that, you’ve done a great job of getting a lot of share of switch content and tuning.

What do you think your share is now relative to competition for the switch market?.

I’ll go ahead and take that. Number one, I think today the market is continuing to expand significantly as we see again the complexity that Eric just talked about being launched into more phones. And today we would still say we’re the majority of the share – not all.

We’ve been pretty open about that but clearly we have the largest share and continue to invest in next process nodes and technologies to continue to drive performance. That’s one of the differentiators out there.

Second is with some of these complex systems having very close and intimate relationships with those customers so that we can design and optimize for their handsets. So right now number one and we plan to stay number one and continue to invest in the technologies to maintain that position. That’s just on some of the antenna control solutions.

When we look at switches I think it’s a surprise to many of you, if you open up the phones they’re not usually identified in teardown reports the number of switches that are being used in these complex phones, and you know, doing a lot of the routing and various routing to different antennas and things like that.

So switches ultimately continues to be a place where we have significantly improved are market share and are probably getting close to number one..

Okay, thanks, and one last question from me. You guys mentioned tablets as a growth opportunity this year, and some of our survey work started to show carriers being more aggressive in subsidizing tablets, especially with LTE connectivity.

Are you seeing an increased attach rate for LTE in tablets versus just WiFi only as part of the growth next year?.

Yes, we certainly are. I think it’s not been as rapid as at least I would have thought. I personally use a cellular-enabled tablet, I don’t know how other people live without it.

But I think if people really learn the LTE throughput rates and what you can do, and how it compares to having to log onto a WiFi network every single time I think the adoption will go much, much higher. It’s still roughly 25% penetration of cellular into the tablets; WiFi of course is everywhere and that’ll stay that way.

But we do see it increasing in the future significantly..

Great, thanks for taking my questions and great job on the margins..

Our next question comes from the line of Vivek Arya with Bank of America. Please go ahead..

Thanks for taking my question. I just wanted to get back to this goal of I think double-digit sales growth. The thing that I find curious is that when I look at high-end smartphones demand is clearly slowing down. We saw that in the results at Apple and the trends at Samsung have also been somewhat sluggish, and those are your two largest customers.

And the China market is supposed to be extremely competitive.

You just reported that some more lead-quarter guidance is also somewhat below expectations, so my question is why are you setting such a high bar for your business in the next fiscal year?.

Well, I appreciate you saying it’s a high bar. We look at a lot of the growth out there, and I think whenever you look at some of the products that we’re offering that also include the filtering you may be underestimating the amount of filter growth that’s required in a lot of these phones as they bring them out.

I think you also can see that each generation of smartphone continues to expand in the amount of RF dollars available to us. I’m not disagreeing with your comment that the number of handsets is slowing down but the RF dollars that are going into them continue to increase.

LTE is also moving down into the mid-tier which again is a lot of volume, so it’s not always just the high-end phones. We also just talked about LTE growing in some of the other connected devices such as tablets. So we’re seeing a lot of growth in other areas that maybe aren’t just the top guys.

Another reason for growth for us is just we already have a decent amount of volume with some of these players and quite honestly when you look at our year-over-year growth it will continue to be pretty significant because we didn’t have a lot of content in prior generations..

Yeah, and Vivek, I may provide a slightly different answer to your growth question. We internally don’t think that the 10% or double-digit year-over-year growth is that aggressive.

However, if you were a bit skeptical and you wanted to model something in the single digits, if you look at the margin expansion that we expect to get as well as the tight expense control with flat to down expenses, I think you’re going to see superior earnings power based on even less than 10% growth.

So I think when you do your modeling I think you will probably like what you’ll see in terms of EPS growth year-over-year, even if you are a bit skeptical on the double-digit revenue growth..

Understood, very helpful.

And as a follow up, I think you had mentioned the goal to get to industry-leading gross margins, and I know that you’re not giving specific guidance but what is industry-leading gross margins? Is it 42%, is it 45%? Just as we think about RFMD over the next number of years what is our aspirational gross margins you can get to and how much of that conceptually comes from your internal operational improvements versus just top line growth?.

At the beginning of this year we internally set a goal for ten points of margin improvement, and that was basically off of 35% gross margins. So that is our internal goal. We’ve already achieved half of that and we have initiatives in place that we believe will give us the additional five margin points.

Now obviously some revenue growth and increased utilization of some of our facilities are going to help that, maybe even get us to that goal faster. But we’re looking at the one- to two-year plan here in order to converge on that company-wide goal of 45%..

And one last question if I may. I think you had alluded to getting access to BAW filter capability. From what Avago and TriQuint have said publicly they seem to have the best yield, the best products in BAW and FBAR.

Are you starting to see other sources with good enough capabilities, competitive capabilities to what Avago and TrQuint have?.

This is Eric. I would say yes we are but I’d also remind you it’s not about the filter technology by itself. We won’t be selling filters alone so it’s about how we combine at a system level.

And we have clear leadership in the performance characteristics of several switches and power amplifiers for example, but also the system architecture – bringing filters together in different ways if you will to satisfy the end customer’s needs..

Got it, that makes sense. Thank you so much, I appreciate it..

Our next question comes from the line of JoAnne Feeney with ABR Investment Strategy. Please go ahead..

Yes, thanks guys.

A question for you on the low end China weakness – I’m wondering how much more exposure do you have to that market as a percentage of your revenues? And is that a good sort of cash cow type of business, or are these really low margin sales that you’re going to be quite happy to get rid of?.

Sorry, did you say Huawei MTT? I want to make sure we get the customer collections we’re talking about?.

No, I didn’t specify the customers but you remarked that part of the shortfall in sales was due to weakness in low end China handsets.

So I’m wondering how much more exposure do you have to the low end? Is this a business that’s a good margin business or is this something you’d rather get out of?.

Yeah, today that business as I said is declining. Part of that also is the market is declining significantly and 2G only is migrating to 3G entry. That is a market we really like and like the margins.

On the 3G entry market as Dean said we’re early on, only about the second inning in transitioning our gas PAs as well as some of our silicon PAs to ultra-low cost silicon PAs, and we like that margin structure as well.

So there’s two things actually going on there – one is the decline in the market; the other is transitioning of products from some of our gas and older silicon PAs to our ultra-low cost CMOS PAs. So it’s not something we’re running away from..

Right. And then during this transition from the gas to the higher-margin CMOS PAs, there have been some concerns that you might be losing share in that CMOS PA business to one of your Asia competitors.

I’m wondering if you’ve seen a drop off in those sales that you expect to recover from as the transition progresses or if it’s just the total market that’s down..

Let me also remind you that in our comments last quarter and this quarter we also talked about transitioning our high-volume current CMOS customers that are tier one over into the ultra-low cost and that’s beginning. And then we’ve also picked up a second tier one and they drive a lot of volume.

So I don’t want you to think just “that China market.” We’re taking this into the tier one players that still use GS MPAs in their 3G phones along with their 2G phones. So it’s still a growth opportunity for us..

Okay, that’s helpful, thanks. And then if I can have a follow-up on the filter arrangement.

Given the supplier contract you have arranged what kinds of margins do you get in this arrangement? I understand you’re not selling them as discrete products but how does it affect the margin profile of the modules in which these filters will sit?.

Number one, a lot of the filters that we buy are not sold as discrete filters so they’re actually designed to be incorporated into our packaging technology. So from a margin structure, in many cases to us it looks just like we’re buying a semiconductor, whether it’s silicon or gas, from an outside supplier and packaging it.

So margin structure should be company average or better, or slightly worse depending on how good we are at designing out the cost to meet our customers’ applications..

Okay, thanks..

Our next question comes from the line of Quinn Bolton with Needham & Company. Please go ahead..

Good evening guys. I’ll add my congrats on the nice margin expansion. Eric, I just wanted to go back to the China market just so I make sure I understand what’s going on. You’ve pointed to China’s weakness both in certainly the December quarter.

Is that weakness both for the 2G business as well as low end entry 3G? Can you give us some sense what the mix is between 2G and 3G entry, and then specifically how you guys are positioned single core versus dual core versus quad core in some of the China markets? Guys like MediaTech have been real strong in the second half and it just doesn’t look like you’ve participated as much in those markets as you have in the past..

I’ll try to give you a little more visibility into that. First off the weakness that we saw in December was completely related to 2G alone. Our 3G business actually grew and as we said, it was our gallium arsenide section – as a matter of fact our CMOS PA business is growing as well.

So it was related to the legacy PAs that frankly our margin profile wasn’t that good on and we didn’t want to continue chasing that particular business.

When it comes to looking forward to new platforms we have a broad family of new products being released in fact this quarter; and in the coming quarters we’ll continue to release more and more products addressing that mid-tier 3G market.

But we are very well aligned with MediaTech across all their platforms in both power amplifiers, switches, impedance tuners and so forth. So we’re pleased with our footprint and our attach, and if anything that’s going to increase over the coming quarters quite well..

And then I might have missed it but just overall the split between CPG, what’s the split now between 2G versus 3G/4G?.

Yeah, so 2G is now under 20% of CPG revenues..

Okay, great. Thank you..

Our next question comes from the line of Cody Acree with Ascendiant Capital. Please go ahead..

Thanks, guys, and thanks for taking the questions. I guess with the differential in the consensus and the revenue I’d just like to maybe get a look at timing of when revenue came in and maybe why we didn’t see it pre-announcement..

The quarter from a linearity perspective was fairly linear. So Cody, it just didn’t quite materialize as we expected. Typically as we’ve said before, things increase throughout the quarter and quite honestly they didn’t – if anything they actually softened throughout the quarter.

So I think that’s about as best I can give you from what transpired in the quarter..

And then on the China 2G/3G question, so if the trend continues I guess when do you think we see a real handoff to where that 2G is a small enough piece of business that what you’re seeing in your low-cost CMOS as well as your 3G business is really overriding that?.

It’s 80/20 now, and we’re expecting 2G again, just from an inventory perspective, to continue to decline. My comment was a lot of the 3G entry phones still use a GS MTA, but 2G only handsets continue to decline..

And most marquee smartphones also have a standalone CGTA, so that’s not something that’s gone away either. We don’t include that in that category..

And I think we’re even modeling a further decline in March in that 2G segment. I think we commented that overall we expect to grow in China in March..

Right..

Okay, very good. And then lastly, a lot of companies are talking about the internet of things and you mentioned WiFi specifically on the cellular side.

I was just wanting to talk about the MPG group and maybe what you’re seeing outside of WiFi in cellular as a driver maybe in the near term and not so distant future?.

Sure, thanks Cody. A couple other things that we see as key drivers in MPG outside of WiFi is we see wireless infrastructure is actually strong right now.

We see a real big uptick in China LTE builds, so the cellular base station requirements for LTE are driving some strong building right now and we’re pedaling as fast as possible to keep up right now. So wireless infrastructure is going well right now. We’re also seeing continued good uptake in our new high-powered gallium nitride based products.

For the nine month year-to-date we’re up in the 35% to 40% range over last year when we look at our RTN based products shipments across all sectors and types. So we see that continuing to grow into next year. And so those are probably the biggest runners that we’ve got for MPG..

Any color on the gross margin addition that those might bring versus what you’re seeing in cellular?.

Sure. For us the WiFi business is running right around the average gross margin for MPG, it may be slightly under. It’s not very dilutive to margin. Both the high-powered GAN products also tend to run around our average gross profit margin, and wireless infrastructure is accretive to our overall margins..

Great, thanks guys and congrats on the gross margins..

Our next question comes from the line of Tom Diffely with D.A. Davidson. Please go ahead..

Yeah, good afternoon.

Maybe just one more question on the China 2G market – when you talk about the weakness there, is it mainly just a unit-driven weakness or are you seeing weakness in pricing as well?.

Again, I think in terms of the weakness that we saw it was primarily involved in the product transition that we saw. So we basically end of life’d our gallium arsenide legacy products as we encouraged the market to transfer to our new product portfolio and that transition happened slower than we expected.

So it’s not about pricing for sure; it’s more about units and in particular the transition of our product portfolio..

Okay, thanks. And then obviously you had very strong margins in the quarter.

What if any was the impact of the shortfall of revenue on margins then? What could it have been if you were at the high end of your range?.

You know, we would have had what I think would have been a breakout quarter from an earnings standpoint with revenue at the high end of our range. While we’re not happy with the revenue we are very happy that we were able to control the things that we could control and deliver on the EPS number.

So when the revenue comes back it’s going to have a significant impact on our financial model in a positive direction..

Okay. And just finally, you talked about a tax rate of 10% to 15% for the quarter.

Is that what you’re looking at for the year as well?.

Looking into next year we’re probably in the 15% range plus or minus..

Okay, for the full year F14 or F15?.

F2015, yes..

Okay, great. Thank you..

Our next question comes from the line of Blayne Curtis with Barclays. Please go ahead..

Hey, good afternoon guys and I apologize if this was answered earlier, but on the full-year outlook if you could just talk about what the primary drivers are. I think you were focusing on filters but then there was discussion about BAW. I just wanted to make sure I understood here what you’re actually communicating.

Clearly you like your design wins but if you can talk about what products are really driving the uptick..

Hi Blayne. What we talked about earlier was in MPG’s growth and I’ll let Norm repeat what he said; and Eric, if you would pick up on what’s driving your growth as well..

Sure. So yeah, Blayne, in short growth that we’re hitting in MPG – WiFi, we’re getting a strong uptake in both mobile and CPG WiFi applications. So that’s cellular, tablet, access points, routers and set top boxes – it really runs the gamut there for WiFi with some strong new design traction there.

In other categories as I mentioned a few minutes ago, gallium nitride based products – we’re seeing a good growth in that category as well, running 35% to 40% over last year. And wireless infrastructure is strong on the back of the China LTE build-outs. .

And for CPG we talked about really LTE driving a lot of growth for us during the year, both in the high tier with global LTE handsets with higher band counts; also TD LTE really entering multiple tiers in China and a dramatic year-over-year growth there with a lot of our content; and carrier aggregation as well driving us forward.

And across products it’s multi-mode, multi-band power amplifiers that have also advanced, switches and antenna control components..

Eric, just I mean the commentary on securing additional filter capacity, can you wrap any kind of magnitude around that like you did last time? And what type of driver is that for you this year?.

So number one, Blayne, we made a multi-million dollar investment to secure capacity which is what we talked about. And as far as driving revenues obviously we expect to get a good return on that investment. So we haven’t sized any revenues so I’m not sure..

Is this incremental to the one you’ve already talked about? I just apologize, I was on a couple calls..

This is a separate investment in BAW filter technology. The first one was in SAW filter technology so they’re separate investments..

I got you. And then just finally for Eric, China up in Q1. Do you expect the market to be up in Q1 and you know, or is that more content and the shortfall that you saw in Q4, is that continuing and you’re just able to offset that with some of the tailwinds from either units or content? Just any color there, thanks..

Yeah, we’re seeing if I could a very aggressive ramp in the TD LTE business in particular which is offsetting the decline in 2G primarily..

Okay, thanks for that..

We have a follow-up question from the line of Steve Smigie with Raymond James. Please go ahead..

Great, thanks a lot. Just on MPG growth can you talk about, now that you have this strong growth coming on the infrastructure side, what does that make that growth look like? I mean strong growth, unfortunately the market hasn’t seemed to grow that much for anybody recently.

Is strong growth 5% or is it something better than that on an annual basis?.

Sure, relative to our typical run rates in wireless infrastructure I’d say on a quarterly basis it’s having an impact in the order of 10% to 15% higher than our recent run rates for that category..

Just to be clear we’ve talked about it’s not growing, to your point, all throughout the year. Earlier in the year we talked a lot about we were down year-over-year and quarter-over-quarter in that business..

Okay.

And then just on WiFi, can you talk about what that is as a percentage of revenue and how much is kind of cellular or handset type stuff versus internet of things or anything else?.

Yeah, sure. For MPG overall the WiFi business today is running around a third of the total MPG business. And as far as the split between mobile and the CPD category it’s roughly 50/50 today. It bounces around from one quarter to the next and the mix can swing – sometimes one quarter the cellular in mobile has a higher share and CPD less.

This last quarter CPD was actually a higher share than the mobile sector. So it’s roughly 50/50 on average I would say..

Okay. And as we think about sort of the internet of things, you come back from CES and you see all the refrigerators and washing machines with WiFi.

Is that actually a real market yet or is that a while to come? And obviously you can do it with WiFi but can you put your power amplifiers on anything – ZigBee, any other wireless standards?.

Sure. When we talk about internet of things and merging all these different appliances, you also get into advanced meters for industrial meters like water and electrical meters; we’re seeing a variety of standards emerge.

You’ll see ZigBee’s used where lower power is applicable, is good enough, but as you’ve probably experienced in your own home higher power gives you better range and better connections. So we’re often seeing WiFi used even in low data rate applications just because it’s so effective and prevalent and has good range.

So we’re seeing WiFi being tested in a number of these different applications. TVs in particular, we’re seeing a good uptake in that area and a very rapid uptake in that area. And we’re just starting to see it I think in other appliances, and I think it’s going to be some time before we see what really emerges as the preferred approach.

It’s going to vary by application. Automotive is another category where we’re seeing very good uptake in activity and design for the internet of things and the expanding WiFi. We’re seeing WiFi as really the key platform for automotive connectivity..

you guys are outsourcing now.

What percentage of your manufacturing or front end at this point is outsourced, and will you be outsourcing back end as well?.

Since a large majority of our semiconductor content is silicon I would say the majority of it is outsourced. And on the backend we do a little bit of that, not a large percentage..

Okay great, thank you..

We have a follow-up question from the line of Harsh Kumar with Stephens, Inc. Please go ahead..

Hey, guys, thanks for squeezing me in here. I started modeling your commentary guys about 10% revenue growth and I’m sort of trying to figure in the commentary about marquee customer ramps. That leads to some pretty substantial backend sort of CPG growth rates.

I’m curious if you can just elaborate on your comfort level – are these designs locked in, guys, or why this high level of comfort with the ramp in September and December?.

On the CPG side we’re of course engaged with many of our customers, especially the larger ones that drive a lot of volume over multiple cycles. So we have some fairly good visibility. Certainly I can’t say that all the design wins are locked in for the second half of our fiscal year.

We do know the basic architectures and which products we’ll be selling and so forth. The final design list has not been placed yet but we’ve got a fair amount of confidence in our second half..

I’ll come at it from a different point, Harsh. We’re confident that we will continue to gain share at the key customers, both our two key customers. It’s our expectation to go and continue to grow our shares across their portfolios. .

I appreciate it, very helpful, guys. Thank you..

We have a follow-up question from the line of Edward Snyder with Charter Equity Research. Please go ahead..

Great, thanks a lot.

Just to be clear here, Eric, when you say that less than 20% of our revenue is 2G are you talking about handsets or interfaces? So in that statement does “2G” mean 2G-only phones or 2G amps into any phone?.

It means 2G-only phones..

Okay, and the margin structure on BAW which I think everybody is well aware is a very expensive technology, but it sounds like you’re going to do fairly well – at least at even.

Is that primarily because of the packaging setup you’ve got with that? It sounds like you’re getting raw dye and doing your own packaging?.

That’s a potential model. I think the bigger factor here is the fact that the BAW filter will be one piece of many inside the product that we sell it in. And so it’s got a very good technology that helps us differentiate the product, but we have a lot of other content and value that’s wrapped up in the product as well..

Okay.

And then Norm, what products are you shipping into wireless infrastructure? Is it a module, is it a transmitter? I’m just curious on what that product… Or is it spread out? Is it fragments of different products?.

It’s a number of different products.

It ranges from single-function power amplifiers, typically mimics that get sprinkled throughout the transceiver cards to some integrated modules, some new SOI-based modules with variable attenuators and variable gain amplifiers that are some integrated modules for the wireless infrastructure and base station cards..

So everything from discrete parts to functional blocks?.

Yes, that’s correct – discrete blocks to multi-function modules..

Similar to the WiFi products, are almost all your WiFi products PAs?.

No. Actually we really don’t sell that many discrete PAs in WiFi. One of our key advantages is the integration that we can provide in the frontend. So the functionality we’re typically providing is an integrated frontend module that incorporates the transmit PA, the receive low-noise amplifier, and a switch plus sometimes some filtering as well..

So much more involved.

And then what portion of MPG revenue is GAN?.

Oh, it’s in kind of like the mid-single digits percentage today but rising..

Okay, and then a final question back to you, Eric. So just to be clear on the CMOS question, I think you cleared it up on the 2G side of it – now when we’re talking 3G that’s a 2G PA into a 3G handset.

Does RF Micro have an offering of a 3G CMOS part today?.

So we have a broad portfolio of silicon technology as I mentioned earlier, and for the 3G entry market we are today shipping silicon-based power amplifiers for sure..

Okay, excellent. Thanks guys..

I would now like to turn it back to management for any closing remarks..

Thank you for joining us tonight. RFMD is expanding our content generation over generation in our customers’ devices while at the same time materially enhancing our operating model. In the March quarter we expect continued margin expansion and year-over-year improvements in operating income and earnings per share.

This coming fiscal year we expect approximately 10% revenue growth, additional margin expansion and significant growth in operating income supporting return on invested capital well above our cost of capital. Thank you again and good night..

Ladies and gentlemen, this concludes the RF Micro Devices F3Q 2014 Earnings Conference Call. If you’d like to listen to a replay of today’s conference please dial 800-406-7325 and enter access code #4660651. AT&T would like to thank you for your participation; you may now disconnect..