Stephen Ferranti - David J. Aldrich - Chairman of the Board and Chief Executive Officer Donald W. Palette - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Liam K. Griffin - President.

Thomas Michael Walkley - Canaccord Genuity, Research Division Richard E. Schafer - Oppenheimer & Co. Inc., Research Division Vivek Arya - BofA Merrill Lynch, Research Division Cody Grant Acree - Ascendiant Capital Markets LLC, Research Division Sujeeva Desilva - Topeka Capital Markets Inc., Research Division Edward F.

Snyder - Charter Equity Research Anthony Joseph Stoss - Craig-Hallum Capital Group LLC, Research Division Timothy Long - BMO Capital Markets Equity Research Michael A. Burton - Brean Capital LLC, Research Division Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division Harsh V. Kumar - Stephens Inc., Research Division Craig A.

Ellis - B. Riley Caris, Research Division Ian Lee Ing - MKM Partners LLC, Research Division N. Quinn Bolton - Needham & Company, LLC, Research Division Alex Gauna - JMP Securities LLC, Research Division.

Good afternoon, and welcome to Skyworks Solutions Second Quarter Fiscal Year 2015 Earnings Conference Call. This call is being recorded. At this time, I will turn the call over to Steve Ferranti, Vice President of Investor Relations for Skyworks. Mr. Ferranti, please go ahead..

Thank you, Greg. Good afternoon, everyone, and welcome to Skyworks Second Fiscal Quarter 2015 Conference Call. Joining me today are Dave Eldritch, Don Palette and Liam Griffin. Dave will begin today's call with a business overview followed by Don's financial review and outlook. We will then open the lines for your questions.

Please note that our comments today will include statements relating to future results that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially and adversely from those projected as a result of certain risks and uncertainties, including, but not limited to, those noted in our earnings release and those detailed from time to time in our SEC filings.

I would also like to remind everyone that the results and guidance we will discuss today are from a non-GAAP income statement, consistent with the format we've used in the past. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP.

With that, I'll turn the call over to Dave for his comments on the quarter..

Thanks, Steve, and welcome, everyone. I'm very pleased to announce Skyworks strong financial results for the second quarter of fiscal 2015, with revenue and EPS exceeding our guidance, and significantly, outpacing normal seasonal patterns.

Our outperformance underscores the success of our diversification strategy, as broad-based contributions across our customer base, end markets and product lines drives growth well in excess of the market. Our business continues to perform at a very high level, as we capitalize on powerful drivers, fueled by the global proliferation of connectivity.

At the same time, by leveraging our architectural and integration leadership, we are enhancing our competitive differentiation, expanding profitability, while creating greater value for our customers.

This combination of strong industry tailwinds and an enriched value proposition enables us to consistently provide above-market growth and to deliver best-in-class financial returns with robust cash flow. Specifically, during the quarter, we produced revenue of $762 million, representing a 58% year-over-year top line growth.

We maintained gross margins of 46.7%, offsetting quarterly seasonal patterns, and up 200 basis points year-over-year. We also generated operating income of $259 million, that's up 99% year-over-year. We posted a $1.15 earnings per share.

And we guided revenue in June to be up to $800 million, that's 36% up year-over-year, along with a 130 basis point sequential improvement in gross margins and $1.28 in EPS. We are reaping the benefits of our dual H strategy of providing leadership and custom integrated solutions, while continuing to diversify into high-margin verticals.

And as a measure of our progress, in 2011, around 60% of our revenue came from single-function devices for mobile applications.

Today, more than 2/3 of our revenue is comprised of integrated mobile systems and broad markets, which are our fastest growth areas, driving improved financial returns, and putting us on a clear path towards 50% gross margins and above.

And as the leader in complex RF and analog integration, we're the primary beneficiary of the ongoing industry shift towards systems solutions. And as the communications architectures continue to advance in complexity, we're becoming an integral part of our customers' development roadmaps, providing more value in the overall supply chain.

This is creating a fundamental shift in our business model; simply put, more complex systems drive increased profitability. Now our Q2 design wins highlight some examples of the success we've had in capturing new high-value system-level opportunities.

In our broad markets business, we've recently won a complete Wi-Fi system module, integrating a third-party SOC and supporting Skyworks analog content for video monitoring solutions for Google.

We've won a suite of Skyworks products in Machine-to-Machine modules for industrial applications from CR wireless, and over $20 of content powering a new small cell base station platform. We also have multiple design wins for OnStar telematics platforms in GM's global fleet.

In Mobile, we're now enabling Samsung's Galaxy S6 platform with SkyOne Ultra as well as our switching and Wi-Fi connectivity products. We've ramped our SkyOne mini-platform with a numerous Chinese smartphone OEMs, expanding our SkyOne family. And we launched switching and connectivity modules in Google's Nexus 6 smartphone platform.

These design wins highlight our competitive edge in complex integration, and we'll positively contribute to our growth trajectory for the next few years. Now, I'll turn it over to Don for a more in-depth review of our financial results..

Thanks, Dave. And thanks for joining us, everyone. We appreciate that. Revenue for the second quarter was $762.1 million, ahead of our prior guidance of $750 million, and up more than 58% versus the year-ago quarter. Gross profit was $356 million or 46.7% of revenue, ahead of our guidance, and up 200 basis points from the second quarter of fiscal 2014.

We maintained gross margins on a sequential basis in spite of the seasonal revenue impact, highlighting the strength of our underlying business fundamentals. Operating expenses were $97 million consisting of R&D expense of $63 million and SG&A expense of $34 million.

We generated $258.9 million of operating income, roughly twice that of the year-ago quarter, yielding a 34% operating margin. Our cash tax rate for the quarter was 13.5%, resulting in net income of $224.6 million or $1.15 of diluted earnings per share as compared with diluted EPS of $0.62 in the year-ago quarter.

Turning to our second quarter balance sheet and cash flow statement. We generated $155 million in cash flow from operations, putting our first half total at $538 million. We also invested $84 million in capital expenditures with depreciation of $39 million.

We distributed $73 million to shareholders through our dividend and stock repurchase activity, and exited the quarter with just over $1 billion in cash on hand and no debt. Moving to our product mix for the second quarter of fiscal 2015. Power amplifiers represented 31% of revenue. Integrated mobile systems was 47%. And broad markets was 22%.

Once again, integrated mobile systems was our fastest-growing category, up 139% year-over-year, highlighting the ongoing shift towards higher-margin systems solutions, which is taking place across our customer base.

Our broad market product lines which serve the Connected Home, networking, media, automotive, and medical markets have grown at 27% year-to-date, and that's well ahead of the [indiscernible] analog market, helping to mitigate some of the seasonal trends in the mobile business. Turning to our third quarter business outlook.

We expect revenue to be $800 million, and that's up 36% year-over-year.

At this revenue level, we anticipate gross margin to be 48%, representing a 130 basis point sequential increase, and that's driven by a combination of growing adoption of our custom integrated solutions and precision analog products, increasing global scale, and enhanced vertical integration and our ongoing operational initiatives.

These factors have created new baseline for our business model, and we now recommend more than 55% incremental gross margin from the new Q3 level, providing a path to continued margin improvement ahead. And all of this puts us on a firm path towards our target of at least 50% gross margin for the company.

We expect operating expenses to be approximately $99.5 million; for other line, we anticipate around $100,000 in income from interest income and other expenses; and a cash tax rate around 12%. We project our tax rate to stay at this level for the remainder of 2015 fiscal year.

Looking forward, we continue to see a tax -- cash tax rate in a 14% to 15% range for fiscal 2016. We expect our share count to be around 195.9 million shares, and that results in a third quarter EPS of $1.28.

The stage has been set for a strong 2015, giving us a high level of confidence in our near-term trajectory and accelerating our progress towards $7 in annualized EPS. And with that, I'll turn the call back over to Dave..

First, there's an explosion in RF and analog complexity, and it's driving robust growth in our served markets and a consolidation of market share. Skyworks' mission is to simplify this increasingly more challenging technical environment for our customers.

Across the board, we see more content opportunities in each successive generation of device and integrated solutions displacing conventional discrete components. As this happens, a host of component providers, who lack our technology brand, our integration capabilities and system expertise, are simply unable to keep pace.

Second, we are rapidly expanding our footprint within existing customers and existing markets, increasing our serviceable opportunity. Our systems solutions enable us to sweep in an unprecedented amount of new Skyworks content, like filtering, like tuning and power management.

And a prime example is our high-performance filter portfolio, where our unique technology edge is enabling higher levels of system performance through tighter band spacing, less interference and a more efficient signal path.

On top of this, we're launching entirely new product categories like we serve -- like we see diversity modules, which support enhance download speeds and represent a substantial expansion of our addressable opportunities. Third and finally, we're leveraging our decades of experience in mobile.

We are enabling a growing array of devices in adjacent markets to become seamlessly interconnected, like wearable technologies, home automation and the connected car, utilizing enabling technologies like 4G, like GPS, local area networking standards and low-energy near-field protocols like ZigBee and Bluetooth.

So in closing, we remain quite optimistic about our prospects for the remainder of 2015 and beyond. And we created a unique business model, tether to the global wave of connectivity and combining consistent above-market top line growth, with the financial returns of a best-in-class, diversified analog company. This concludes our prepared remarks.

Operator, let's open the lines please?.

[Operator Instructions] Your first question comes from the line of Mike Walkley from Canaccord..

Just want to talk about the smartphone market. There's been some concern of inventory in China. I was wondering if you could comment on your China business, if you saw any impact from inventories related to March results or June guidance.

And also, there's been some concern of some Android OEMs, pausing the higher-end smartphones to avoid competition with the strong Apple and Samsung's new launch? I'm just wondering if you had seen any push outs from your Android customers? And how that might affect your September quarter's seasonal outlook?.

Sure, Michael. With respect to China, as you know, I mean, that is a very large multi-year growth opportunity for Skyworks. We're actually quite encouraged by the print with China mobile with 50 million LTE ads in the March quarter, that's real bullish for us.

And we see that's trending to the mid-250 level or higher, going into the balance of the year. Now on the near-term, there was some choppiness in the March quarter as noted, some of the 2G and 3G players lost some share, has some declines, 4G continued to ramp.

And we also saw some real strong performance with global Tier 1's participating in the China region. So net-net, it's a great cycle for us. It's an opportunity. We love the 4G upgrade. And we are well-positioned..

Right.

And just a follow-up in the -- with the ramp in LTE, any comments on September quarter seasonality as it relates to China and maybe your overall market trends?.

Well, like I said Dave, it's a little too early to be specific about September. As you know, the second half is the strongest part of the year in much of our business, and it's usually up sequentially high single-digit.

I think that the traction we have in China and the position we have with our SOC partners or our baseband partners will allow us to continue to ride that 4G wave, and we expect to have a very strong second half in China. But as Liam mentioned, there's also a competition from foreign brands, an fortunately, we are well-positioned there as well.

So I think we'll have a less volatility given OEM share shifts. But I do expect in the second half, the LTE upgrade cycle to continue to march towards, I don't know, call it, conservatively 250 -- 225 to 250 number for 2015..

Your next question comes from the line of Rick Schafer from Oppenheimer..

Just maybe first question is -- maybe just a quick update on the competitive landscape that you see, any changes there? And maybe specifically, what are you making some of the speculation out there that Murata had secured some content -- some bad content with your largest customer in the coming refresh later this year?.

We haven't seen much of change in the competitive landscape. But specifically, with respect to Murata, they are not a new competitor. They've been around for a long time. And their strength has traditionally been in passive, in SAW filters and in some modules, particularly on the receive side.

We do come across them in a limited number of fairly niche segments. And we've been quite successful competing head-to-head. We haven't seen any change in the competitive landscape. And our confidence that we continue to leverage more content and benefit from increasing complexity with more TAM is very solid for us..

May be a follow-up to that, Dave. You guys obviously had nice content with the latest Samsung, the G S6 refresh.

What are your expectation or can you give us any color on what your expectations are later this year with your largest customer on their refresh?.

Sure. Obviously, we can't comment on that specific customer. But in general, the architectures are getting much more complex. And we're very fortunate to have visibility out, 2; in some cases 3 years in terms of the overall architectures that are being deployed to deal with all this complexity.

We see nothing slowing that down, so it's obviously a tailwind for us. We're seeing more addressable content in those kinds of functions you typically think about for us, power amplifiers, duplexers, Wi-Fi, switching and control.

But we're seeing awful lot now in what we're able to produce in terms of complex, antenna tuning, devices on the receive path, lighting, power management. And I will say that, as an incumbent, we've been very successful and quite proud of it in maintaining and growing our footprint with each successive design with all our major customers..

Your next question comes from the line of Vivek Arya from Bank of America..

Dave, my question is, is there a way to contrast either the amount of content or the number of sockets that were addressable by you guys last year versus this year? I'm trying to get a sense for what is the diversity of the kind of content that you are going after versus, say, the last one or 2 years?.

Yes, it has been a steady March, Vivek, I mean, it's hard to talk about in one year cycles. But if you went back 3 years, we were very strong in multimode and discrete power amplifiers. We had a lot -- strong switch portfolio. And we were entering connectivity in our Wi-Fi portfolio. And we did an acquisition, in fact.

There, we also bought a power management company. And over the last couple of years, we've seen a huge increase in Wi-Fi connectivity, starting with our lead customers in flagship phones and now populating across the entire smartphone landscapes. That's been a huge upside for us. I think we've got about 51% or more of that market.

We just have the best overall solution. We can shield it. We can integrate it. We can lessen some of the interference impact of having more and more Wi-Fi, sitting side-by-side and next to more and more cellular bands. We've seen -- our power devices both at the display, at the camera flash, particularly dual-mode, that's been adding content for us.

So an AC upgrade cycle is very important to us, power amplifier duplexers. And we've seen -- we introduced SkyOne as an opportunity to fully leverage the breadth of products and the system capability of the company.

And while that's become a diversified set of products within that family, it's really taking off in terms of being able to enable more filters, less filters, more switching. I would say, it's all of the same. As we commented on earlier, I think 15% is a good marker for existing TAM growth.

I think we can do much better than that, because we're not only riding that wave of existing TAM growth, but more functionality..

Got it. And then, Dave, how do look at the right mix of handsets versus the non-handset opportunity for Skyworks? Obviously, you are growing very well in both.

But is there a target mix as you look out the next few years? And do you think M&A, sort of, fits somewhere in getting towards that target mix?.

Yes, I think the -- I would look at it this way. It's not a mix of mobile, nonmobile. It's really a mix of integrated devices and nonintegrated devices.

So we see, kind of, if you look at broad-markets business, plus our integrated mobile business, that's where we are very sticky, where our customers see a great deal of value, where there's more and more content for us and far fewer competitors versus for example, a discrete PA.

So we look at that business, we like that mix of business growing to the vast majority of our company. And that's what's happening today, our PA business continues to get smaller, smaller and smaller. Our discrete business get smaller and smaller. And we're overwhelmingly becoming a systems solution provider.

And M&A continues to be and has been a central element of that. If you think about it, last few years, we bought a Wi-Fi business, connectivity business, we bought a power and lighting business, we also bought a high performance filter business. And those have all been part of a vertical market strategy, where we can add more value.

But an effort -- a concerted effort to be more sticky and to compete on the basis of system performance, where we have few, if any competitors, unless how good is our component..

And just one point I'd like to add. The exciting point of what Dave said to is, if you look at the way we've now split the revenues, that broad market pace is up 27% for the first half of this year versus last year. And there aren't any diversified analog companies growing like that. So I mean it's really, really got a lot of momentum behind it..

Your next question comes from the line of Cody Acree from Ascendiant..

Maybe follow-up on that question, just for the next quarter when you look at handsets versus the broad-based, when you look at your growth expectations, can you just, kind of, maybe talk about the contribution of each?.

Yes, sure. Well, we certainly expect growth in both segments, and we will deliver growth in both segments. You have a great opportunity in smartphones in our core markets and mobile, as we've outlined with our global Tier 1's and also the China cycle.

And as Dave mentioned, it really is about a growing TAM and our ability to capture more and more of this with sticky system solutions. On the broad market side, we are seeing a vast majority of the opportunities in new markets, automotive, wearable technology, and then, our core business in broad includes infrastructure and access points.

All those segments are moving up and will continue to be upside into the second half..

Yes, in the last quarter, we were up nearly 30% in the broad markets' business. And of course, if you track the diversified airline companies, their growth is nowhere as near to that.

So you can see that we're really focused on the right device categories, leveraging what we're good at it, mobile with some of these markets becoming interconnected in a wireless way or in a mobile way for the first time..

And just specifically to those segments that we split out, you've got broad markets and integrated mobile systems growing. And our standalone paid business is down -- flat to down slightly. So again, the growth is coming from those 2 areas when you look at the guidance..

All right. And Don, obviously, the gross margin expectations are getting very attractive.

Can you talk about operating margin leverage? Are you seeing, maybe a similar, I guess, delta from where you are today to what your expectations might eventually be?.

Well, there's a tremendous amount of leverage still in the model, and the best way to handle that is that we've now given you new guidance on a baseline of what we've just guided 48% margin, and you're going to drop that through on whatever, how you handicap the top line growth at 55%, the incremental margin.

And so that's going to trend very quickly to 50% and beyond. We're going to continue to see leverage on our OpEx base, I think we got a proven track record of being able to do that. So when you add those 2 things together, you're going to see some very attractive returns as you go forward..

Your next question comes from the line of Suji Desilva from Topeka..

Can you tell us where we are in the [indiscernible] option of diversely received modules versus just a switch for diversity received? How far long are we in that cycle? And then what's the content [indiscernible] as that takes off?.

Sure, Suji. We're actually in the very early innings. So on deployment of that technology, we have a great opportunity to advance data rates with this technology. Our customers love it. It's a significant content boost to our mobile portfolio.

But in terms of what we're doing right now, we have couple of meaningful design wins, but there's a whole slate of opportunities that we're pursuing right now. We're in sampling stage and development stage, high degree of customization, also bringing in technologies like filters and SOI switch and really interesting things being brought together.

And so you should look forward to more commentary on this as we go through the year..

Okay, great.

And then on the switch business, can you upgrade us on whether the supplies caught up the demand, yet? And how the demand has been in that business?.

In the switch business?.

Yes..

Yes, yes. No, I think we are certainly seeing a lot of appetite for switching. As you see, more and more of these bands and in traditional phones, where you don't have the diversity architecture, you're dealing with SOI or PM switching. It's been a robust run in that technology.

Supply and demand are about in balance right now, and we still continue to do quite a bit of business in that segment..

Your next question comes the line of Edward Snyder from Charter Equity..

Several questions, if I could.

On the filter business, now that it's mostly internal here, is this -- would you say this is what your larger drivers for the margin, given you don't have to buy them in the open market anymore or is it mostly just integrated modules? And then to your DRx, receive diversity modules, are those active parts or those are mostly passive, and if they are passive, wouldn't you be competing with someone like Murata for those? And I have a follow-up for this..

Yes, just on the margin piece of that. We've got a lot of things that are driving that continued strong top line growth, because volume matters, clearly, in our business, this favorable mix towards integrated mobile systems growth, which have very nice attractive incremental margins, operational execution and the filters are part of it.

So there's multiple facets of the margin expansion, but filters are part of it..

And with respect to the receives or the DRx. The interesting part there is, obviously, you have complex, low-loss switching, a lot of filtering. And the filtering's becoming very tricky, and the need for very tight spacing and high-performance.

The other thing is, there are architectures that I think will begin to look for in that receive path, the amplification of very low noise amplifier that could be segmented around frequency band.

So I think the content there is, if I have to ask you a question, I think it's very understated in most peoples model, I think it's going to be a big growth driver. And the competitive nature is going to be very tough, because it's going to be a combination of active compound semiconductors, passive devices.

And it's going to be an MCM, I don't think it's going to be a slug of ceramic, I think it's going to be a complex, multi-layered MCM that pulls all that together. And as you know, we're quite strong there..

And then, if I could, in terms of filter capacity, I know it's been tough, and you've got the Panasonic asset now, which is a stellar asset, especially TC.

Dave, how do you -- you set a billion filters last last quarter, how is that, is your capacity keeping up or you're going to have to spend more to stay upon that given what you just said DRx is and a bunch of the other products now are going to be pulling through those filters and you are one of only 2 who can even make those products? So how should capacity look in that regard? And doesn't what you just said in terms of [indiscernible] eliminate many of your competitors, only maybe 2, maybe 3 people can do that part?.

It's in filters; and it's in modules. So you should expect us to continue to ramp that up, I think it will be more than a $1 billion this year in high-performance SAW filters. And I think next year, it's going to be where we hold on your hat, I think the filter demand is going to be really high.

And temp comp is really starting to tackle some pretty thorny system systems. We think we can deploy it in lieu of certainly a SAW filter; and in some cases, a bulk device..

Your next question comes from the line of Anthony Stoss from Craig-Hallum..

Two part.

I would love to hear your views on carrier aggregation and how you see that continue to play out going forward? I don't know if I missed this, Don, your CapEx spend last quarter and what to expect for the remainder of the year?.

Sure, Tony. I mean, certainly carrier aggregation is becoming more and more critical now as you go into these highly complex 4G phones, data rates are really in high demand, and the complexity in a system goes up.

So we have tremendous solutions, some of our SkyOne Ultra technology is actually building a carrier aggregation capability inside of this complex PAD module, that's one of the kind of nuances of our architecture, how we take this complexity and not only manage the amplification, but also, the switching and the treading together these bands that you see in carrier aggregation.

And that's another market where we've got some design wins, with a leading industry players, but we're starting to see more and more folks in China and other markets pick up the technology..

On the CapEx, we've spent $87 million in Q1, $84 million in the past quarter, so what we're seeing in the second half and that split we are making those investments both for filter and module capacity, that's typically where you are seeing the spending.

And based on our outlook, we believe that we could see second half levels probably somewhere what we've seen in the first half. The thing with the CapEx investments for us, it's clearly one that enables you, we've just said -- we've just made a step function change in the margin, both new starting point and the incremental.

And part of the benefit you're seeing is from these CapEx investments that we are making. So it's a very positive leading indicator for us and we're spending that money, we've got very good visibility in the volume and it's going to generate shareholder returns and benefits. So it's a positive thing for us..

Your next question comes from the line of Tim Long from BMO Capital Markets..

Two questions, if I could.

First, you mentioned the SkyOne and SkyOne Ultra traction, I'm just curious if you could give us a sense, do you think these wins are coming for new sockets for you or do you think it's just kind of upgrades from people that were using some of your more discrete products? So is it resulting in a market share by new wins? And then, secondly, if you could just talk a little bit about the Wi-Fi market, a lot of interactions there as well.

Do you think that wave 2 could potentially be kind of step function increase there with all the different radios? I'm just curious on your take on that and timing..

Sure. No problem. With respect to SkyOne, it's been a combination of upgrading existing customers and in many cases forging our initial engagement with SkyOne and new accounts. We're seeing the platform count go up.

We've got about 8 products in production right now, and by the time, we exit the calendar year, we'll probably have 10 more platforms in production. And again, the ability to customize and put the specific bands, leveraging our filters in many cases, has been one of the differentiators. So that portfolio is doing quite well.

And this is really a turning point in our SkyOne architecture and our SkyOne traction. With respect to Wi-Fi, Wi-Fi continues to be a leadership portfolio for us at Skyworks, it hits the IoT space, it's been hitting mobile, we're seeing opportunities in media over the top boxes, we're guessing opportunities in automotive that we've mentioned.

And we see 11ac strength that we bring to market as one of our differentiators, and it will be a portfolio that grows well in the second half through 2016 and beyond..

Your next question comes from the line of Mike Burton with Brean Capital..

I just wanted to talk a little bit about pricing, it looks like the low and mid-tier smartphone segments have been hurting us at the expense of the high end, where you guys have been clearly gaining content.

Just wondering if you are seeing any change in any of the pricing dynamics?.

Nothing, in particular, as we have -- as we've migrated our portfolio into the devices, we've been describing in this entire call, whether it's SkyOne, Ultra SkyOne any for the open market in China, and so on, so forth. They're really not products that are subject to the same kind of pricing dynamics.

So we see kind of gentle low- to mid-single digit pricing on a year-over-year basis for most of our devices. And I don't see anything changing there at all..

And then, also, on follow-up on previous comments on China. Obviously, Liam mentioned that there's been some pockets there.

I'm just curious as to how Q1 performed for you guys versus your expectation for Q2, and if you're seeing growth in Q2, is it really -- are you starting to see more of a mix up from 3 mode to 5 mode devices in that segment?.

Yes, sure. In fiscal Q2 at the March quarter, we were flattish, may be down 1 point or 2, but in the current quarter, in the June quarter, we are seeing growth, and it's coming across a number of platforms.

We do a really good job of working with all the chipset providers, Mediatek's, [indiscernible] Qualcomm, we're seeing some success with names like Xiaomi and Lenovo and even Huawei and ZTE.

So while we feel really good about the second half in China, a little bit of a bumpy start, we were able to navigate through that with our heavy allocation towards 4G, but we start to see the momentum come back into that market..

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

It seems like one of the big drivers here is the shift to LTE. And -- so something you could talk a little bit about how you see LTE rolling out regionally over the next couple of years, I'll see China hopeful this year.

How does that expand -- extend over the next couple of years?.

Sure, yes. We speak a lot about China with some of the developed nations, United States and Europe, et cetera. LTE has been rolling for a while, and china is a great opportunity because you have nearly 1 billion subscribers, and less than 20% are carrying an LTE product.

So there's a huge upgrade cycle, and that upgrade cycle will then create additional turnover in years to come, so that's why we make such an important distinction around the China market. And if you think about, you've got a band count increase for sure, you have a filter count increase that we can leverage in the modules.

You also have more switching arms, you have the carrier application technology we talked about, the ability to deliver high-performance receive technology with DRX, power management, and when you build this kind of an engine, invariably there's a Wi-Fi attached.

And so we're trading that opportunity against what we were 2, 3 years ago, 2G and 3G phones in China that may have had 150 to 250 of content. So that's really where you see that opportunity..

I think you should think about is being, something that will sweep into all territories over time, throughout the world, and it's really the same dynamic that will drive an N from an ac implementation, 802.11, I think there's 5G behind it by the way.

We're doing architectures today that are sweeping millimeter wave functionality, as the world kind of looks for allocation of more frequency, the problem is bandwidth at high speed.

And bandwidth at high speed is only going to be solved as consumers demand it more and more and more, and carriers find it as a way to follow the money, that you're going to see it sweep across the entire world. And there will be a generation of technology right behind it because it's all about bandwidth..

Okay, great. That's very helpful. And then, the numbers were good I am just trying to think another way, but I was just curious, is there any FX impacts that you guys had as well with numbers have been.

Maybe you know a little bit better, without any FX headwinds?.

No. I mean, all of our top lines in dollars, so the only impact we have is dollar-peso for Mexicali expenses and a little bit now at the end with filter acquisition as they are actually -- because they are liability positions with a strong dollar that was actually favorable, so it’s not material, but we haven't had any analysis..

Your next question comes from the line of Harsh Kumar from Stephens..

Dave, I was wondering, if I can get some put and takes around your U.S.-based customer, you're large Korean customer in China, as you look into the June guidance?.

As you know, June is typically kind of the transitional quarter. We're going to be up because as we've mentioned we see some growth in China, we see some portion of reasonable growth going into June, in China. We see quite a bit in abroad markets continuing to chuckle along, so a sequential growth and year-over-year growth.

I believe that we're in the enviable position of not needing to worry too much about OEM share shifts, because if you look at the content and teardown reports, whether they're MediaTek enabled, indigenous OEM [indiscernible] or if it's Samsung or others. We just continue to look to drive that content higher.

We're very well positioned and I just don't worry too much, in terms of Skyworks overall financial performance about the overall OEM share shifts, but we are well positioned among the flagship models that I think you're referring to..

That was helpful. And as a follow up, if I can ask you, you're clearly diversifying into non-handset markets.

What is the most exciting non-handset market, by end market that you see for yourself and Skyworks?.

It's been really around the home, so if you think about it, if you look at the devices, thermostats, it really kind of started with smart meters, and it moved into all kinds of categories from gaming, now lighting the 802.11ac space with these really complex home routers, it's a huge opportunity for us, these media gateways that are being provided by the various cable and wireless service providers have many dollars of content for us.

So that's exciting. I like variables a lot, because the consumer content there is high, and we've got a good entree with our low-power Wi-Fi and switching products. And automotive has been a bit of a sleeper.

We've had high dollar content with high margin, but only recently if we start to see with the advent of smart automobile, that kind of connected hub environment that exists in the car. We're seeing a lot of design activity there, and a lot of very high margin win.

So it's not -- it's no longer a trivial amount of our revenues, it's becoming rather meaningful..

Your next question comes from the line of Craig Ellis from B. Riley..

Don, I want to go back to your guidance on incremental gross margin switches, very robust and at a level that I think a lot of us thought was possible, and you're giving a nice run way there.

As you look at the underlying drivers to those incrementals going forward, integrated solutions mix, the scale, and operational advantages that you have, it seems like one is more related to pricing for functional value, and other related to driving your unit costs lower.

How should we think about the relative contribution of those different factors over time?.

I mean, everything that we've talked about is important, our volume hubs in the strong top line is always going to allow us to improve the incremental returns.

The favorable product mix is probably right now with the value-add proposition you described, that's probably slightly ahead of some of the operational execution, they're both critical and important, and when you add filters and they're all driving, but I would say the number one driver is, this going to system solution and the value add for the customer.

Because that's in our ability to package solutions, which really drives the cost down for us. So I mean, that -- at the end of the day that's probably the number one, but they are all important. You need the model to move the incremental 55%..

That's very helpful. And the follow-up is somewhat related to that. It’s more of a philosophical question. I'll direct it to you Dave. The company has done a very good job moving the mix of business towards integrated over time. There's still quite a ways to go.

Are there any discontinuities either with capital intensity or with R&D intensity? Is the portfolio shifts that you see on the horizon?.

Yes, a philosophical question. Okay.

Well, the discontinuities have been kind of -- may be ongoing for the last several years, we are seeing the need to have more direct engagement with our customers, with feel folks and business unit people, who have a much broader set of experiences around how to optimize the overall system performance right from the SOC to the antenna and back.

So that's been new for us, so we have been kind of upgrading our capability, hiring a lot of folks. So that's a discontinuity, I think we got it.

I think we got it under control, I think capital really isn't the issue because fortunately for us the investments we've made in these complex multi-chip modules, really are allowing us to kind of dove tail into a nice mix of internal production versus external production, keep that flexible model, but we're really able to leverage what our customers want and use in MCM-type approach for a much of it.

And I guess, in terms of the skills, so the skill upgrade cycle we've been going through has been ongoing for a while. Probably the biggest discontinuity for us that we needed to solve and we are well on our way to hopefully doing that is we really needed to have more of filter passive offerings within our active portfolio.

And that was a change for us, that hasn't been traditionally our skill, we've avoided those discrete markets because they tended to be very gross margin challenge, but now it's part of an overall system solutions, they become an intricate set of capabilities for us. And that was a discontinuity that we're continuing to work through..

Your next question comes from the line of Ian Ing from MKM Partners..

And -- that question, not the most exciting parts of smartphones, but there's trend towards thinner flagship smartphones, perhaps, do you have any advantages in your shielding and packaging solutions you might be able to exploit.

I mean, it seems heat dissipation is a big issue, especially for these big chipsets on the digital side?.

Yes, that's right, and it's such a good question actually, because while at the same time you've got heat dissipation, you've got more bands, you've got more things amplifying that want to interfere one another. There's a tremendous amount of pressure on size, both the x and y-axis.

So it is a challenge, it's kind of a fun challenge for our engineers, and so you -- but you need to have an arsenal of capabilities that allow you as you say to shield, to mold, and overmold, to thin, and so on.

And so -- yes, it is a challenge, it is an opportunity because it's really hard, if not impossible to architect using a set of components, no matter how good those components are.

You need to find a way to create a module or set of modules and ICs that interplay well together, they can drop on that PCB and not add a lot of multilayers and we can do it in-house, which is unique..

Great. And for my follow-up, I know your integrated mobile business is doing really well here.

Can discrete PAs, at one time, you set a target of maybe growing modestly up say 5%, is that still the case, and perhaps, could you remind us where discrete PAs are still doing very well, like in future phones and perhaps, nonmobile applications?.

Yes. The discrete PAs will continue to grow through this year, and foreseeable future. It's got -- Sony got the lowest growth rate and -- so the dollars are going to grow year-over-year, it's going to become a smaller and smaller percentage of our total revenue mix. That's clearly going to -- that's been happening every quarter.

But they will grow, there's still growth there..

Your next question comes from the line of Quinn Bolton from Needham & Company..

Dave, I wanted just to come back, you guys now for a couple of quarters have highlighted the opportunities you see in the diversity receipt modules. I just sort have of a question for you, I mean, the receive diversity has been around for a while. I think it's been pretty common on Qualcomm chipsets for a number of years.

What's really driving the opportunity? Are you seeing greater attach with received diversity and other chipsets, is it really just a greater percentage of phones now shipping with LTE, where received diversity is more common place?.

I think it's even simpler than that in a sense, Quinn. It's really all about the capability of streaming, and being able to do it with multiple high-performance, high-speed bands, high-speed paths to that antenna.

So first of all, the filtering, as more bands to filter on the received side and those filters have to have -- be able to accommodate tighter spacing, which we think, really tight skirt, if you will, in using filter lingo. That means you're going to have a very high performance filter even on the receive side, which is a lot higher dollar content.

In the past, you could take it off a passive duplex or it was good enough, it's nowhere as near good enough.

And the other thing is because of the performance is starting to the de-embed or disintegrate, the low noise amplifier that receive power boost that you need, because it needs to be narrow band -- narrower band around the desired frequency and to introduce less loss that you could do on a typical bulk CMOS.

So that adds a lot more device category capability for us. So that's really what it is, it gets itself to [ph] -- think of it as just you've going to stream video in that phone over multiple bands, you can't do it through a sloppy duplex or in lossy switch..

Yes, I mean, I think the application of the real lot benefit here is substantial increase in data, right.

Think of it as MIMO architecture for receive, and it has a radical improvement in performance, now it’s not cheap, there's a lot of complexity, there's a lot of value, but we are seeing the high-end customer adapt this quickly and we're also seeing a lot of opportunity in mid-tier. So that's essentially the benefit that we see..

So just a follow-on question. It sounds like it’s really team expansion on a diversity receive, but wondering if you also think there's a share gain opportunity as part of your strong outlook on the diversity received market..

Yes. It is a share gain opportunity. First and foremost because it's not part of the SOC. It's not part of the SOC, so it is in the domain of the analog module combination of the compound semiconductor passive, and integration of multilayered things like PCBs and LTCC. So it is not the domain of the SOC. And there aren't many companies around.

You've got companies that do duplex or a company who could do a passive or could do a switch. Aren't very many companies who can have pull together at the right price point, and that's kind of performance sensitivity that we can..

And your final question comes from the line of Alex Gauna from JMP Securities..

You were talking a little bit earlier about the Internet of Things, the Wi-Fi opportunity, I'm curious of interop tradeshow, and seeing exactly what you're talking about, we now have a/a on the table, and multi-user MIMO coming.

I'm just curious back in a previous day, you used to break it out by analog, which kind of captured some of the Wi-Fi attach and it seems to be growing as fast as cellular, is that still the case when I think about this Wi-Fi opportunity, the Internet of Things opportunity, is that commensurate with your cellular growth and any chance you give us ballpark about what kind of that percentage contribution it is to the business model?.

Well, maybe if we can do this with Liam. We said, in the last quarter, it was up 27% year-over-year. So it's been growing very rapidly, much of that is connectivity, it’s the upgrade cycle to ac, it's new device category to outperform on the factory floor and automobile, it's kind of all of that..

And it's in the market, so if you think about that from a product perspective, Wi-Fi, Bluetooth, switching, creating connectivity, and the applications that it's serving now is proliferation of IoT, whether it's media devices, automotive machine to machine variable, energy management and we're seeing that roster expand each and every quarter.

So it's a combination of great technologies and then, also hitting a market that's on a growth curve..

Okay. And then, the follow-up on that. I'm kind of curious, obviously, people have already noted the spectacular gross margin with profitability you're putting out.

Is the Internet of Things, the Wi-Fi opportunity, is that commensurate with your gross margin profile or is that a negative way difference what you're achieving globally?.

No. Is accretive to the -- it's in line with the incremental returns at a minimum. It's depend upon a specific application, but it certainly doesn't bring that number down..

And at this time, there are no further questions..

Okay. Well, thank you, everyone, for listening and participating and I'll look forward to seeing you soon..

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect..