Good day, ladies and gentlemen, and welcome to the Qorvo Q1 2016 Conference Call. Today's call is being recorded. I would now like to turn the call over to Doug DeLieto. Please go ahead, sir, Vice President of Investor Relations. .

Thanks very much, Catherine. Hi everybody, and welcome to our June 2015 earnings call..

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 the risk factors associated with our business in our annual report on Form 10-k filed with the SEC because these risk factors may affect our operations and financial results..

In today's release and on today's call, we provide both GAAP and non-GAAP financial results.

We provide this 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 other 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.qorvo.com, under Investors..

[Operator Instructions] Sitting with me today are Bob Bruggeworth, President and CEO; Steve Buhaly, Chief Financial Officer; Eric Creviston, President of Qorvo's Mobile Products Group; and James Klein, President of Qorvo's Infrastructure and Defense Products Group. I'm also joined by other members of Qorvo's management team..

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

Thanks, Doug. Good afternoon, everyone, and welcome to our fiscal 2016 First Quarter Earnings Call..

Led by strength in Mobile Products, Qorvo's June revenue -- quarterly revenue increased 6% sequentially and 23% year-over-year when compared to the combined revenue of RFMD and TriQuint in the June 2014 quarter..

We were please to see Mobile Products grow 12% sequentially and 35% year-over-year as we continue to successfully capture a broad array of opportunities supported by long-term trends.

In particular, the global demand for broad-based data continues to proliferate while front-end complexity and the performance requirements for RF solutions continue to expand..

The strength in Mobile Products was sufficient to offset a sharp sequential decline in wireless infrastructure related to a pause in LTE base station deployments. Outside of wireless infrastructure, IDP revenue grew approximately 9% versus last year..

Within this opportunity-rich environment, Qorvo is winning by leveraging our expanding portfolio of products and technologies and offering highly-integrated, system-level solutions to customers, channel partners and mobile operators.

As a broad measure of success, our Mobile Products grew, surpassed its operating model of 30% operating income on a preliminary basis. That's all the more impressive when you consider our Mobile Product portfolio in June consisted entirely of legacy RFMD and TriQuint parts. And we've yet to insource legacy TriQuint assembly, our largest cost synergy..

We're designing and developing an increasing number of differentiated system-level solutions that integrates our legacy capabilities, and these Qorvo parts will drive growth and improve profitability next fiscal year..

Some early examples include our BAW-based high-band RF Fusion, which secured multiple design wins during the June quarter; and our recently introduced BAW-based RF fusion iFEM for mobile WiFi, which was announced last quarter and has already received production orders.

These products demonstrate what our organization can achieve by leveraging our combined core competencies. There will be many more to come..

Within IDP, we saw a sequential strength across all our markets other than wireless infrastructure. In particular, I'd like to highlight some of our achievements in WiFi and GaN applications..

Qorvo is the leading supplier of RF GaN, and we have released over 100 GaN products during the past 18 months in both high-power and high-frequency applications. We offer the industry's broadest portfolio of GaN capabilities with advanced low-cost packaging techniques, and we are transitioning to 6-inch wafers this year.

With over 15 years' experience, Qorvo is the only GaN supplier at manufacturing readiness level 9, and we are recognized globally for environmental robustness and industry-leading reliability..

We continue to see strength in both the cable and defense and aerospace markets, where Qorvo is the GaN leader. We also sampled GaN custom macrocell power amplifiers to major base station customers, and we continue to see GaN as a disruptive technology displacing silicon LDMOS, which is the dominant technology today..

During June, GaN-related revenue increased 30% compared to the same quarter last year. In WiFi, the design pipeline, especially for 5 gigahertz in the enterprise WiFi space is very strong. Qorvo is expanding our strategic relationships with the major chipset providers as well as the leading suppliers of enterprise equipment..

In automotive, Qorvo was recently selected to be the preferred supplier of 4 out of 5 RF components in a next-generation automotive antenna. Leading participants from across the mobile daily ecosystem are engaging Qorvo to contribute more broadly and more strategically to industry growth given our ability to deliver best-in-class system solutions..

As we've discussed previously, we assigned multiple NDAs with leading customers, and in the June quarter, we pursued additional opportunities to layer on incremental revenue and removing aggressively to move these programs from the prototyping and sampling phase to production..

We're also working closely with the world's leading mobile operators to improve spectral efficiency and help them to maximize their investments in their available spectrum. We are engaged with dozens of operators, and we continue to add to our carrier program..

Because Qorvo offers a comprehensive suite of products in the industry's broadest portfolio of enabling technologies, we are uniquely positioned to implement system-level solutions that leverage both active and passive semiconductor content without a bias for any one technology or approach..

With all major technologies under one roof, we can match the optimum technology to each customer's application balancing the tradeoff between performance and cost. We're in the early innings of the deployment of received carrier aggregation, which improves spectral efficiency.

This is an important trend in the migration towards global and superregional devices. It's placing a significant premium on higher performance filters and switches, and it's giving Qorvo excellent visibility in the leading smartphone architectures for 2016 and '17..

As carriers focus increasingly on spectral efficiency, we also see transmit carrier aggregation driving RF content, first, in China and migrating elsewhere. Longer term, the global wireless industry is working towards a goal of 1 gigabit per second speed on the downlink and the uplink..

Another significant driver for the RF TAM is the migration from 3-mode to 5-mode and even 6-mode devices. Last year, it was estimated that less than 40% of 4G devices in China were 5-mode, and we expect 5- and 6-mode devices will represent the vast majority within the next few years..

Looking at diversity receive modules, an increasing percentage of these solutions are expected to combine premium BAW filters with high-performance, high-throw-count switches, 2 areas where Qorvo maintains a competitive advantage.

This market is valued at approximately $1 billion today and has forecasted to expand to approximately $2 billion over the next 3 years..

So the increasing global demand for data is driving an exponential increase in RF complexity, in RF content. While the trend towards superregional and global devices means greater performance and more functionality needs to be packed in the smaller-sized implementations..

The arrival of 5G projecting in the 2020 time frame will bring more advance and likely higher frequencies and even tougher RF challenges extending the long-term revenue growth opportunities for Qorvo..

Pulling back a little bit closer in, there are moving pieces impacting industry demand and our September guidance. First, the LTE base station market is soft. This is a continuation of what we saw in the June quarter, and we expect wireless infrastructure to be down sequentially in the September quarter.

For context, the infrastructure market provided about 1/3 of IDP revenue in March. It dropped approximately 40% sequentially in June, primarily to a pause in LTE base station deployments..

That said, the wireless infrastructure market remains a great market, where Qorvo can do extremely well. We're looking forward to the return of the wireless infrastructure market and bringing out new GaN and SOI products to support this market and a continued global rollout of 4G networks..

Second, we've seen a slowing among handset customers in China. Qorvo has secured excellent growth opportunities in China, and China, Inc. was our largest customer in June if you combine all China-based brands..

We currently believe some customers in China have a few weeks of excess inventory to work on, and this too is reflected in our September guidance. While the China market has great fundamentals, it can be choppy, and we're seeing a bit of that now. .

At a high level, looking across our businesses, we are very much looking forward to the release of several marquee smartphones throughout the remainder of this calendar year, and long-term industry fundamentals are strong.

Design activity is robust, engagements are expanding with customers, channel partners and carriers, and we're on track to achieve our financial model..

We're proud of our accomplishments in June. We expect to finished the calendar year very strong. We believe calendar 2016 will be an even stronger year and the best indicator yet of what Qorvo can achieve..

And with that, I'll turn the call over to Steve for an in-depth review of our financials. .

Thanks, Bob. In the June quarter, Qorvo grew revenue 23% year-on-year to $673 million when compared to RFMD and TriQuint on a combined basis. This above-market growth was led by mobile, up 35% to $551 million. IDP's revenue declined 13% to $122 million driven by a sharp decline in base station opportunities..

Outside of wireless infrastructure, IDP revenue grew approximately 9%. Qorvo had 2 10% customers, the larger at approximately 33% of revenue representing the aggregated demand of multiple subcontractors for this end customer. Our second 10% customer during the quarter was Huawei. .

Gross margin was a record 51.5%, up sequentially from 50.4% and up from 44.8% in the prior year period for RFMD and TriQuint on a combined basis. The improvement in Qorvo's gross margin is primarily attributable to favorable product mix and synergies. .

Operating expenses were $159 million for the June quarter. Year-on-year, operating expenses grew at half the rate of revenue growth. Within this, R&D grew 19% as we pursue opportunities in a healthy growth market, and all other operating expenses were flat..

The realization of synergies is allowing us to grow investment in product and process development while making solid progress towards our operating expense model. .

Operating income was $187.8 million versus $103.2 million in the year ago period for RFMD and TriQuint combined. This dramatic improvement was led by mobile, which on a preliminary basis, achieved over 30% operating income while growing the top line by 35%..

Net income for the June quarter was $168.5 million or $1.09 per diluted share. This compares favorably to the original guidance of $1 to $1.10..

We've been Qorvo for 6 months now, and there's a lot to be proud of. Revenue is up 33% over the combined TriQuint and RFMD revenue a year ago. The most exciting part is the growth in operating income, up 178%. Synergy achievement and operating leverage are driving real improvements in our business.

We continue to make good progress on achievement of our synergy goals and expect to exceed them in both years..

Looking forward, we see significant opportunities during calendar 2016 primarily in gross margin. We have a dedicated team and process focused on executing the cost reduction opportunities presented by the merger..

Total cash and investments was $558 million, and cash flow from operations totaled $141 million. Capital expenditures are $89 million primarily to address continued growth in customer demand for our premium filters..

The company repurchased approximately 602,000 shares at a total cost of $50 million..

Now let's turn to our business outlook. In Qorvo, we've created a new leader in RF that can outpace the growth rate of our underlying markets.

The total addressable market for mobile RF is forecasted to grow at a compound annual growth rate of 10% to 15% over the next few years driven primarily by unit growth of 4G phones and the associated increase in RF content and complexity.

It's noteworthy that Q1's year-on-year revenue growth of 23% easily exceeded this despite significant headwinds in the base station market. .

With the product portfolio serving the faster growing parts of our addressable market, we're excited about our growth prospects and feel we can exceed the industry's growth rate. Achieving 28% operating income reflects good progress towards our full year goal of 30%.

Add in the substantial synergies yet to come, we feel confident we can hit our model while making substantial investments in the process technologies and great products that sustain and enhance our competitive advantage..

quarterly revenue of approximately $690 million to $710 million, up 4% at the midpoint; gross margin of approximately 50% to 51%; a tax rate in the range of 10% to 15%; diluted EPS in the range of $1.05 to $1.15 based on approximately 155 million shares.

Actual quarterly results may differ from these expectations, and such differences may be material. We currently expect to report September quarter results on November 5. .

With that, we welcome your questions. .

[Operator Instructions] And we'll go to Vivek Arya with Bank of America Merrill Lynch. .

Bob, when I look at the September guidance, it's a miss of about $40 million-plus or so. Could you help us quantify how much is the further weakness in IDP? How much is that excess inventory in China? How much could be weakness or any content changes at your large U.S.

and Korean customer? I think we really need this kind of detail to give us more comfort around what caused the miss and whether it's a short-term event or whether there is something else here. .

Vivek, thanks for your question. As far as changes to the outlook, again, we didn't guide for the September quarter until today. So I don't know that I can bridge to what was in your mind, but I had tried to size in my opening comments how significant the Wireless Infrastructure business is for us.

And it's well over off -- well over $20 million, almost $25 million from a high that we saw just a couple of quarters ago, so it's a very significant number. So obviously, no growth there.

It's at least $25 million of some of that growth and some of the slowdown that we've seen in China that we believe is going to be bleeded off over the next few weeks and will pick back up and will be back on track in the December quarter. We feel pretty good about that.

I don't know that I can size that because we didn't give any guidance for it, Vivek. But as far as content changes in any of the phones or major losses, I don't see anything changing in what our expectations are for what we felt we had won, what we had won and how we think it's going to play out for the rest of the year.

So I don't see any content changes more just what's going on in the market in China and then what we said in the wireless infrastructure market. .

Maybe if I ask that question in a different way, which is of the 4% sequential growth that you're expecting, how should we think about growth in mobile versus the sequential growth in IDP, first?.

I think that's a great question, Vivek. And again, that's why we spent some time explaining. Last quarter, if you remember, we said we thought that the IDP business will be down slightly. It ended up being down significantly, as Steve has pointed out, down about 13% quarter-over-quarter or thereabouts.

And that was more than made up from the strength that we saw in our mobile business. This quarter, we're expecting IDP to be flat, so all the growth is in the mobile business this quarter. .

Got it. And just lastly... .

Sorry, Vivek, if I could, what I said in my opening comments is we are expecting the wireless infrastructure to be down, offset, if you will, by what's going on in Jiangsu's other businesses. So IDP is roughly flat. .

Got it. And then lastly, in terms of OpEx.

I think it was -- where are we in terms of the cost synergies that you had outlined before? And how should we think about the OpEx trajectory for the next few quarters?.

Steve, you want to handle that. You have comments in your script. .

You bet. I expect OpEx to continue to be in the $150s, probably mid-150s as we kind of average over the quarters. We did spend a bit in R&D as we pursued some additional opportunities that came to our attention primarily engineering materials, prototype materials type expenses.

If you look year-on-year, or 6 months to 6 months, almost any of the comparisons, SG&A is flat year-on-year despite significant revenue growth. And it really reflects synergies offsetting inflation kind of cost. And R&D is up, less than our rate of revenue growth.

And the synergies there are allowing us to pursue some of these opportunities, which we feel very good about. .

Next question comes from Gabriela Borges with Goldman Sachs. .

Maybe just a little more color on the weakness that you're seeing in the China Mobile market. Is it primarily on the LTE side or on the 3G side? Any color whether it's compensated at a couple of customers and more broad-based than that, and if you have any sense anecdotally on when inventory could be back on more normalized levels. .

Sure. Thank you, Gabriela. Just in a high level, and I'll let Eric add in maybe a little more of the detail. I mean we're still very much enjoying growth in China. We think the market is, like we said earlier, in the very early innings of this migration to 4G. We're still seeing the trend of moving from 3 mode to 5 mode, 6 mode.

So all the macro things that we see in China are all intact. The market is continuing to migrate 2G to 3G and some going 4G, so subs are being added. We feel real good about that. We did see a little bit of strength last quarter in our China market, and they're digesting some of that. But I'll let Eric talk maybe a little more. .

I think you covered the high points really well. Long term, nothing changed. We think that the China market is very much on track and one of our greatest growth opportunities. We think our content there is set to grow as well as our share opportunities. We did have a very big quarter last quarter in China.

And prepped [ph], basically, all of the upside that we experienced through our expectations we did in China. And so consequently, we're kind of going through cooling-off here, digesting some of that growth. As we said, we think this is weeks, not months of a correction here.

So by end of this quarter, we expect things to be back on track heading out of the quarter. .

And maybe just a follow up then on the share position in China, maybe relative to 3 months or 6 months ago.

Any update on how you feel the traction for products like RF Flex and RF Fusion are materializing with all of these to expectations? And how you feel about your position that were from the supply end as well?.

Yes, thanks for the question. We did the announcement in the earnings release that we are in production with RF Flex. Last quarter, we had said we had design ins on how we're already shipping production just as we were exiting the quarter, so we are seeing adoption of that.

And we're having a lot of design and activity around Fusion both with our reference design as well as with the end customers there. So a great, great traction with the highly-integrated products, which gives us opportunity to address virtually all of the RF content in any of these handsets.

And we already have many of the flagship devices there with the leading suppliers in which we have multiple dollars of content, so we see a good base and a lot of opportunity to grow from there. .

We'll continue on to Mike Burton with Brean Capital. .

So first, sorry, 2-parter. I'm hoping you can help us understand how your orders tracked during the quarter and into the September quarter so far that's causing the below seasonal guide for the September quarter.

And then secondly, if there is some inventory in China, how do you expect the December quarter to look at this point versus normal seasonality? It rise -- it bounces a lot of -- bounces around quite a bit, but it's been right around the 5% range. And lastly, I guess just in line with that.

At a recent conference call, you guys spoke about second half representing roughly 55% to 58% of the revenues for the year. I'm assuming that's changed a little bit. I was wondering if you could update us on that. .

Thanks, Mike. A lot of parts to that, and I'll take a stab at that. As far as orders tracked in the quarter, other than the surprise that we saw in the wireless infrastructure, things pretty much were on track.

If you take the drop that we saw in the wireless infrastructure, I mentioned somewhere in the neighborhood of $25 million as an example, I mean, that's the difference between our guide and roughly an 8% guide quarter-over-quarter, which actually would be quite healthy this season.

We typically expect the September quarter over June to be in the mid-single digits followed by something a little bit higher, the December quarter. And we actually think again the mobile business, that's pretty much how our mobile business is running. And what we're seeing is the lack of the infrastructure business.

Well, like I said, we're seeing that down. So if you take with that down and add it to our guide over where we were a quarter ago, we're quite honestly tracking just like you said there. As far as the waiting between the 2 parts, I think we typically said more like 45%-55%.

And Steve, you want to take?.

Yes, I think 45%-55% is as good as any occasionally, and as in my prior experience at TriQuint, we would wander up into the 57%, 58%. I think though, long term, 55%-45% is a good metric to go with. And that's as good a guess as any. .

Okay. And then also just looking forward at the carrier aggregations comments that you made. Just wondering on the timing from what you're hearing from some of your customers as to when these are going to happen. Obviously, you mentioned first on TD-LTE, but then looking forward to FDD.

I was wondering if you could give us some visibility that you're hearing about when we would start to see that implemented into the high-end phones. .

So the comment I think you're referring to is on the transmit uplink side carrier aggregation, so I'll talk about that as well as on the receive side. So as you know, receive carrier aggregation is in the early innings but already beginning to rollout. And in fact, the premium tier, especially in the U.S.

We think the receive carrier aggregation continues to proliferate globally and actually hit to China as well early next year.

And then really what you'll get on the receive carrier aggregation side is a real proliferation of modes and band combinations as to try to build global SKUs, and that's one of the largest drivers for the RF TAM over the next couple of years.

Now the comments on key TX or uplink carrier aggregation, we do see that actually beginning in China by the end of next year. And then from there, we'll begin to go out to the rest of the world over '17 and '18.

So you're going to see most of the TAM driver and CA on the receive side for the next couple of years; and then on the transmit side, continuing after that. .

Okay. And then sorry, just a follow up on my first question again because just kind of running the math here real fast. I think the 45%-55% implies a pretty massive December quarter.

Was that comment really for how you expect the split to go on a go-forward basis? And then is the seasonal -- I mean are we expecting kind of a seasonal build of kind of in the mid-single digits, which then I think would put your year-over-year growth kind of flattish? Is that really kind of the right way to think about it at this point? Just any help there.

.

I think we're better off sticking to that as a general rule of thumb versus providing guidance for the fourth quarter, calendar fourth quarter. So please treat it as a general seasonality comment versus an attempt to guide the back end of the year. .

And we'll go to Harsh Kumar with Stephens. .

So the question I had is I think the big concern around your guide today is about your growth rate being less than the other guides that supply to your largest customer. We've got a couple of those guys' report, those companies' report.

Could you comment relative to your business with your largest customer if basically that business is up to your expectation and all is whole with that particular customer and the issues, first of all, are largely China and IDP? That's one question, and I have a follow up. .

Sure. Thanks, Harsh.

Eric, do you want to take part of that?.

Sure, yes. I would say just as Bob said earlier, there's no change in our content or expectations on any of the other platforms that we see ramping in the second half. .

Great. That's helpful. And then the second question. I want to come back to the next question. I think The Street seem that investors want to triangulate on some part to the mist.

Could you maybe tell us how many weeks of inventory is there in China? How much of a hit that was either in dollars or units and if it's 2G, 3G or LTE? And also maybe some similar commentary, how much of a hit do you think you're taking on the infrastructure side in your revenue guide?.

Well, revenue guide, I've talked about the infrastructure side. What I can't answer is what The Street expected the infrastructure business to do, Harsh. But what I've said is we're down $20 million, $25 million over where we were just a couple of quarters ago. I bet The Street was expecting that to grow. That declined significantly.

I think from normal seasonality, that's a normal seasonal growth for us if you take what The Street had us in at 6. 65 [ph] going to 7. 45. [ph] That's much more -- that's closer to double-digit growth, so that's a lot greater than the industry. So just the primary delta that we see is the infrastructure business.

And just to be clear on the inventory in China, we said it's a few weeks. .

Our next question will be from Edward Snyder with Charter Equity Research. .

So Eric, if orders outside of IDP were fairly normal, why the excess inventory in China? And why do you think it's weeks instead of months of a correction there? Is it -- is that what your customers are telling you? Are these on hubs? Just give us a little feel, if you could, on why you're so optimistic that it's not going to be a long-term correction? And then James, big hit obviously to the infrastructure, and it sounds like it's going to be flat.

Why do you think it's going to be flat instead of down? Did the order patterns suggest that, that's firming up? And what other big areas of your business -- or do you have that kind of exposure to? I think Bob said it's like 30%.

So if you just help everybody to understand what are the big chunks that go up to make up your revenue, that would probably be helpful too. .

All right, James, you want to go or Eric go first?.

You go ahead, Eric. .

Sure, yes. It is a little hard to track exactly where all the parts are going in China. Most of our parts are sold across multiple customers as well as multiple base bands in some cases, and yet, there are shifts between base bands and also between customers and then within models at your customers.

It's not possible to track exactly where every part is going. So again, we saw a very, very strong June quarter in China and a very healthy ship in. And then we saw a lot of mix change at our customers.

And I think some of them in particular ended up with a lot more inventory than they were planning by the end of the quarter, and they just have to digest through that. .

Okay, Ed. Let me talk a little bit -- this is James. About wireless infrastructure. We're down, as Bob said, about 40% quarter-over-quarter. I think we faired a little bit better than some of our competitors in that marketplace where we were down about 40%.

Go-forward basis, we think we'll be down a little bit again this quarter, but it does feel like it's bottoming out. We are seeing some positive signs from the market. And really, our focus right now is to make sure we're ready for when it bounces back.

I mean we certainly see the demand will be there long term and come back, and there's no shortage of demand for the deployment of 4G around the world. So as far as other businesses, we had a record quarter in cable, optical and WiFi and automotive businesses were all strong.

Our Defense business was relatively flat quarter-over-quarter, but that's typically been fairly lumpy for us. And we're expecting in the Defense side to have a strong second half. So to Bob's note earlier, I think again it really was a wireless infrastructure pause for us, and we feel like we're starting to see the bottom of that. .

I think we're almost kind of a similar -- a little bit of a decline, but such a steep decline in IDP in the June period, which is typically much higher gross margins than your cellular business. And your cellular business didn't -- or the consolidated margins didn't tail off here.

Does that suggest that your blend in cellular has permanently increased to a higher margin? Is this the BAW business kicking in? Well, I know we talked about capacity expansions for the second half.

Is that happening at this point now? And your CapEx is just more of the same in the second half? Just trying to get an idea of how the margin mix now between the businesses, especially with regard to BAW, is shaking out. .

Your thesis is basically correct. We saw, as we had in other quarters, above-average growth in our higher-margin filters, premium filters, and switches portion of mobile. And overall, Eric and team and along with his friends at manufacturing has done a terrific job of improving the overall baseline margins in mobile.

So between those 2 things, we were able to overcome the hit in the wireless infrastructure market. .

So it's safe to assume your consolidated margins are still lower than IDP.

Correct?.

That's correct. .

So once IDP comes back, and assuming that it does, then your consolidated margin profile will be a little higher than June given the steep drop in IDP. Is that a fair assumption? If we were to come back to... .

Sure, that's fair. It will be accretive. Now mobile always has a capability of outgrowing James pretty handily, so your mileage will vary a little bit quarter-by-quarter. But again, your thesis is correct. Seeing the wireless infrastructure come back will be very helpful for our overall margin. .

And the last time we spoke about BAW capacity expansion, I think was -- in the December period, you were talking about doubling it by June. If I understand that's occurred now. It sounds like you're continuing to expand.

When do you run out of space in Texas?.

The big move next for enhanced capacity, and we're talking for the kind of handling the peak demand that we'd typically see a year from now will be a conversion of the substantial part of the BAW manufacturing line to 8-inch wafers. .

Historically, it's been a real nightmare. Where do you -- I know you guys have been working on it.

Where are you on that? Any idea at all when you have 8-inch running?.

Go ahead, Steve. .

We have a pilot line in place. We're comfortable with the progress. We think our architecture may make life a little bit easier than some of the other architectures out in the BAW market. .

We expect to be prototyping..

[Audio Gap].

and things are on track. .

And as you know, Ed, you'll not only get space savings, which has become more of an issue for us in the Texas side, and also get some fairly significant cost reductions. So we're pretty excited about it. It's an important program for us. .

This is James. If I could add we're also transitioning our GaN to 6 inch in Texas, and right -- that's right on the tail of moving our PM to 6 inch at Texas as well, so quite a bit of transition. .

James, can you talk about how big GaN is for you now?.

Well, I won't go into the detailed numbers, but we are #1 in the market in cable and in defense. We see both of those markets continue to grow pretty strong price. Defense is really our strongest near-term growth opportunity, and we're doing very well there both domestically and internationally.

I think as we sample -- Bob talked earlier about sample of products into the base station OEMs, and we believe we're positioned well for revenue really to start in that market in 2016. So overall, very positive. I think we'll grow faster than what we see the GaN market predicted to grow. .

We'll go to Steve Smigie with Raymond James. .

And just wanted to follow up quickly.

So as we look out to December, is it possible you get something sort of in the $800 million revenue range? And if that's the case, does that require a recovery in the telco equipment business? Or could you do that in wireless?.

Steve, as you know, we don't guide out 2 quarters. I think it's safe to say that we are comfortable with it as we can keep up with the industry growth rates. And it's obviously, we've stated our plans to grow slightly faster than that, and we're going to stay with those comments at this time. .

Okay. Fair enough. And you guys said you started to see a little bit of recovery in that telco business.

So does that suggest to you maybe Q4 is the quarter -- I know that everybody is trying to get this across multiple semiconductor suppliers, but does it seem Q4 like a good quarter where you could see some of the bounce back from that sharp decline and/or maybe more Q1?.

Well, again, I think it's important that we feel like we're seeing the bottom, and we're starting to see some signs that it's going to start picking back up. And I'm certainly not projecting that we'll be back into strong revenue in Q4, but I do feel like we're on the uptick and things are starting to get better.

And I agree, a lot of reports whether it's going to be Q4 or Q1 or when that business returns. .

Is it fair to say that I mean -- obviously, dropped of sharply largely due to China, is it fair to think that might recover sharply? Or are we just at somewhat lower levels?.

No, I think it's fair to think of this as recovering quickly, and that's really the genesis of my comments earlier about making sure we stay very close to our customers, and we're ready for the return. .

If you remember the underlying expansion of 4G phones in China hasn't slowed down a whole lot, right? And at some point, those phones are going to need base stations to communicate with, and so we think that this is a disturbance, if you will, in the market caused by some extra activities versus a permanent reduction of demand for these products. .

Great. And if I could sneak one last one in. And Bob, I apologized because you already -- I already bugged you about Q4 and I'm going to have to push it by going into Q1. You sound like -- did it sound like you were saying in Q4, no reason you wouldn't see industry standards.

So is that fair to sort of think at this point for Q1 that sort of seasonal or industry performance is what you'd expect in Q1 also?.

As you well know and everybody else on the call knows, March is typically a down quarter, and nothing that we've seen is changing what we currently expect for the industry. I guess the primary thing I want everyone to understand is we don't feel we've lost any major sockets since the last time we talked to you.

We haven't seen any opportunities that we thought we were going to win that we can still win or have won. From all of those perspectives, from the mobile business, we feel very good about our position, and we believe we continue to grow faster than the market this year as well as next fiscal year. .

I'd add to that. I think '17 has every chance of being a great year than calendar 2016. We're going to see some truly integrated [indiscernible] shops, where you really bring switches and filters together, for example, to serve customer needs.

And you're going to see us really starting to add to the COGS synergies as we move x TriQuint mobile parts into our new China assembly and test facilities, among other things. But that's the largest synergy that's yet to come. So I think calendar 2016, fiscal '17 is really going to have a lot going for it. .

And we'll go to Vijay Rakesh with Mizuho. .

And just a question on your second half.

When you look at your September, December quarter, you said calendar September, December quarters, will mobile revenues show you a trend? Do you usually have December quarter stronger than September quarter? Or do you split equally?.

Typically, we see mid-single-digit growth in September over June and pushing high single-digits in December. So typically, December is much larger than the September quarter in growth -- growth rate. .

Got it. And as if you look at your capacity that you're adding on the BAW side, what's your -- have you changed the expectations there? How much capacity are you adding on the BAW side for the year? And if you thought about next year as well. .

Steady as she goes. We've completed the major ads supporting this busy selling season. As stated earlier, we're working on the conversion of substantial part of a manufacturing to 8-inch capability to support a year from now. .

We'll continue on with Quinn Bolton with Needham & Company. .

Just wanted to follow up on the sort of split of revs between September, December. I think, Steve, back at TriQuint, you guys often sort of cautioned investors that the timing of the ramp of the largest customer if it shifted out a week and really sort of affect the timing of revs between September and December.

I'm just wondering is that at all in play here for the September quarter guide? Or are you taking sort of a more cautions view on the timing of that ramp? Or is it what you might call a more normal ramp for the largest customer and really doesn't have any impact on the timing of revs between September and December? And then I've got a follow up. .

Yes. So Quinn, your memory is excellent. I often do caution and I continue to caution that very large customers ramp timing can and has moved a week here and there and really pushes the sequential comparisons around. I don't believe that's a factor in our guide today, and doesn't mean it's not going to happen.

But it means if it's going to, we don't know about it yet. .

Got it. Understood. Okay, great. And then for Eric, you talked about the transmit to CA starting to drive content late in 2016. Just wondering if you might be able to give us some sense.

What's the dollar content increases of phone implements transmit carrier aggregation?.

In the first wave of transmit carrier aggregation, it will be done interband, which means within the same band, and so there is minimal impact. Think of it as $0.50 or so of additional content. I mean that's still significant on the type of units we're doing.

But when we get to the next phase after that, kind of 2017, 2018, that's where we'd begin to see multiple power amplifier pads, and you can easily get to $1.50 of additional content beyond that.

So in the near term, the receive carrier aggregation driving more like $1 to $1.50 in content happening and then another $0.50 with the interband TX and another $1.50 on top of that with interband after that.

All of that as China is also migrating from the majority today, 3 mode going to the vast majority being 5- or 6-mode over that same time period. That's why we're excited about being at the very beginning of a long-term growth in the overall TAM at China. .

And Eric, just to -- another follow up on that.

Would that mean if you have interband transmit carrier aggregation, you might actually have multiple PAs for frequency band or for frequency band range? Is that where the extra content comes in?.

That's exactly right. As well as additional content in the switches, of course, to drive that and filters and everything that comes along with it, basically. So there is a lot of things under the planning now.

This is a big part of our work with the carriers and our program to work with the mobile operators and drive these requirements and understand the benefits of it and which bands we want to operate at the same time. We're helping to define what can be done, and of course, we're encouraging to make the RF requirements very stiff, make it really hard.

And because we've invested technologies to enable that and look at the BAW's return on their investment when they do. .

Our next question comes from Tom Diffely with D. A. Davidson. .

First, Steve, on the margin side.

How much margin variance do you have inside of mobile? And is volume discounting the biggest variable there?.

Sorry, your last comment was volume discounting?.

I just wondered if volume discounts were the biggest variable inside of -- inside the mobile margin structure. .

No, I wouldn't characterize this as volume discounting. Most of our higher volume -- many of our higher volume parts are custom, so there's not really a comparison like that. There is reasonable variation amongst our margins both by customer and by product and by product type, so there's not a really very easy answer there.

So -- but yes, mix is a factor both within both IDP and mobile and between the 2. .

I guess just on an absolute basis, a few hundred basis points variant is common or what kind of range would you expect inside of mobile?.

It really depends on the mix. I can't give you a simple answer there. Too many parts, too many customers, too many products. .

Okay.

And on the BAW filter side, what's your view of just the market right now, the total market kind of the supply/demand equation were for BAW filters?.

Yes, we still see that. Of course, that's one of the most exciting parts of the market growing very rapidly. We do see a lot of potential new applications for BAW. We've talked about diversity receive modules, for example, the WiFi-integrated Fusion modules in which will be really anchored around our BAW filter capability.

Again, working with the mobile operators, looking out further and further, we see a lot of bands that were traditionally done in SAW or TC-SAW that may require BAW going forward because we're trying to get more throughput out of the frequency range. So all this adds up to kind of more of the same.

It's one of the fastest, maybe the fastest-growing part of the RF TAM for the next few years. And in terms of the supply, I mean we're just keeping up with demand. I mean it's a very rational market right now. We have pretty good visibility into the requirements. And we're keeping up, just keeping pace. .

Okay. It sounds like your competitors are just keeping pace as well, so it's not -- you don't get periods of glut in the marketplace. .

That's exactly what it feels right now. It's a very good balance demand and supply, managing through a pretty high-growth market pretty well. .

And Cody Acree with Ascendiant Capital. .

Eric, maybe with the excess inventories in China.

Do you have a balanced view of 2G, 3G versus LTE?.

Sure. I think we're really talking about 4G here. 2G, 3G is, I think we said last quarter, de minimis to us less than 5% of revenues basically. So 3G is falling off pretty rapidly in terms of units being replaced by 4G. And the dollar content difference between 2G and 4G is dramatic. So really, what we're talking about here is wholly 4G in our case. .

And are you seeing any positive or negative impacts of the baseband market share shifts particularly with some of the largest OEMs?.

Long term, it doesn't make that much of a difference to us. We have great opportunities on all of the basebands out there including the vertical ones and the major independent ones, of course. Now of course, in any given quarter, the mix between those bands and which customers are using them and which models you're in can definitely have a big effect.

But it's not fundamentally because of the shift between baseband. It's more of just mix and churn in the market and how things end at the end of the quarter. .

And Steve, just any timing on the layering in of some of the larger gross margin improvements, the insourcing or some of this new products coming out for next year. .

It's a little bit -- a little too soon to say. But I -- right now, I'd just fly ratably through the year. .

And will now hear from Tim Long with BMO Capital Markets. .

Two questions, if I could. First, any new changes in the competitive landscape, particularly any traction at all with any of the CMOS players in the market? And then secondly, if you could touch on the other large vendors, Samsung, I mean they had been a double-digit greater than 10% customer.

They are no longer, but it seems like the latest around the hands did have more content though.

Could you talk a little bit about what might be happening with the other large handset vendor?.

Yes, this is Eric. I'd be happy to. So first of all, regarding the competitive landscape, no significant difference at all, and certainly, no change in terms of traction with CMOS and so forth. So overall, very, very similar landscape to what we've been dealing with this year. So that's on track.

The question regarding Samsung, we talked, I think last quarter as well, we definitely see that as one of our greatest opportunities for growth. We're not at all happy with our share there this year, and we've got a lot of room for growth next year.

We do think even on soft to down units that the dollar content, Samsung is going to grow nicely year-over-year. So we are really lined up with our investments, fully staffed, a lot of programs to capture significant value in handsets with that customer we'll be launching early next year. .

Okay, and what do you think the main challenge with Samsung for you has been this year making it a tough year?.

Yes, it's really that the architecture just that they made going to a higher loads of integrated modules did not favor RFMD and TriQuint products, and we basically missed the generation now. Of course, that's why we formed Qorvo, is to fix this problem.

And now those are the exact products that we're focused on, and they're probably the best positioned best position to gain. And so we just -- they made the architecture shift a generation sooner than we thought they would. It's good news for us in the long run, but we've got to close those product apps in and get our fair share next year. .

And Ian Ing with MKM Partners. .

So Eric, earlier you mentioned the mix change led to some excess inventory at the China handset customers.

Was that a shift between different types of SKUs or tiers?.

And I was referring not only of that, but primarily, between customers. It's pretty remarkable how volatile the actual customers' share can be, the winners and losers, so to speak. Within the quarter, it can change fairly significantly.

And I think overall, again, we've got tremendous opportunities to grow with all these customers, but there's still a great variation between one customer to another or one model to another. So you can see this choppiness really affecting what you end up with in terms of inventory exiting the quarter. .

So only some China OEMs are overinventoried right now, it sounds like?.

Yes. .

Exactly. .

Okay, great. And then my follow up. I mean you talked about some co-developed part showing up in the second half of this year. What levels of co-developments are possible each model here. I think initially you're talking about multichip packages doing some integrations there.

I mean when are full monolithic parts possible and you can do just everything potentially out there?.

Well, yes, that's an interesting question. So the interesting thing about RF and especially the way we approach it is that each individual component has its own technology, which is unique to it.

So we're not looking at monolithic integration as much as multichip module integration, right? Which gives us not only the best performance but the best flexibility to really customize the parts for each individual customer.

And today, at Qorvo, we're very fortunate to have the broadest portfolio of those individual technologies, which allows us to address virtually every single socket in the market, right? So we're focusing investments on the ones that we think we've got most differentiation, obviously BAW filters, high-performance switching and high-performance power amplifiers, envelope tracking.

These are the areas where we see leadership today. We're focusing first on these modules. We talked a lot about the high band RF Fusion awards in the press release. We're seeing a lot of traction for that.

And what's exciting is it's not just a top tier flagship guys going with that kind of Fusion, which is full of capability module, but it's also going into the midtier and into many other handset customers and reference designs and even into China before we know it.

So the Fusion level of integration, which is power amplifiers, switching, all the filters and power management, all integrated into one high-performance, small placement module. That is definitely the trend, and it's certainly an opportunity-rich environment for us now to execute on that. .

And we'll go to Blayne Curtis with Barclays. .

I just want to follow back up. I think you said earlier in the call that no change to your context expectations in the second half. So to the extent that you can comment, I know it's always tough. We've already -- pictures of your largest customer's phone, and it looks like there's a high-band pad.

So when you say no change to your expectations, could you comment on what you expect your content to be with your largest customer? Because obviously China is weak for you, but that seemingly should be going well for you. .

Blayne, as you know, it's always difficult to talk about our largest customer. What I can tell you is that we have, between us, continued to gain share if you could have the 2 companies together year-over-year-over-year. It's our current expectation this year. It's our current expectation next year. .

Okay. And then a similar comment. The opportunity for you in the second half was to gain share. You just talked about Samsung but also China, some of the MediaTek platforms and such.

Does this inventory correction delay that? Or are you still able to gain some content with those customers as you look at December?.

Eric, you want to take that?.

Yes. It's -- I guess I haven't thought of it as a delay because I mean any one in particular slot, everything is still on track. But with the inventory and the mix shift between slots, I guess, you could look at that as a delay. Not a significant change in the trajectory, just in sort of the timing of all those slots.

Our content, growth opportunities on each of the platforms are still very, very high. .

Great. And then I want to ask you, Bob, another tough question, so don't hate me. As you look out to next year, obviously, for the large platforms, you have to submit your parts already. How are you feeling about the road map that you have in place? Obviously, the combined parts are coming together now.

Did you have the right parts in place in terms of performance to continue your content gains with the largest customer?.

Blayne, not that tough a question, so I appreciate that one. And I wanted to clarify my comment on the prior question. I should have said content that we expect to build or grow our content this year and next year.

And I would broaden this to not just our largest customer but many of the customers marquee phones next year is really where we get our technology road maps and capabilities between what was legacy TriQuint and legacy RFMD online. So we're feeling very good about next year's models that marquee phones that'll be launched.

We're very good about our positioning for those phones. .

And at this time, I'd like to turn the conference over to management for any additional or closing remarks. .

Thank you for joining us on our first quarter call. Even as we achieved our initial synergies and deliver robust leverage, we believe Qorvo is just beginning to demonstrate what we're capable of.

We're excited to build on our success as we introduce new products combining our legacy capabilities, outgrow our markets and realize the full run rate of our synergies and achieve our financial model. .

Thank you, and good night. .

Thank you. And again, ladies and gentlemen, that does conclude today's conference. Thank you all again for your participation..