Qorvo, Inc. (QRVO) Q1 2014 Earnings Report, Transcript and Summary

Doug DeLieto - Vice President of Investor Relations Robert A. Bruggeworth - Chief Executive Officer, President, Director and Member of Corporate Development Committee William A. Priddy - Chief Financial Officer, Corporate Vice President of Administration and Secretary Steven E. Creviston - Corporate Vice President and President of Cellular Products Group Norman A. Hilgendorf - Corporate Vice President and President of Multi Market Products Group Robert M. Van Buskirk - Former Corporate Vice President of Compound Semiconductor Group

Cody G. Acree - Williams Financial Group, Inc., Research Division Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division Harsh N. Kumar - Stephens Inc., Research Division Christopher Hemmelgarn - Barclays Capital, Research Division Edward F. Snyder - Charter Equity Research Michael A. Burton - Brean Capital LLC, Research Division Anne Edelstein Sameer Kalucha - JP Morgan Chase & Co, Research Division T. Michael Walkley - Canaccord Genuity, Research Division Tyler Radke - Lazard Capital Markets LLC, Research Division Thomas Diffely - D.A. Davidson & Co., Research Division James E. Faucette - Pacific Crest Securities, Inc., Research Division

Good day, ladies and gentlemen, thank you for standing by. Welcome to the RF Micro Devices Q1 2014 Conference Call. [Operator Instructions] This conference is being recorded today, July 23, 2013. I would now like to turn the conference over to Doug DeLieto, Vice President of Investor Relations for RF Micro Devices. Please go ahead, sir.

Thanks, Julia. Hello, everybody, and welcome to our conference call. At 4 p.m. today, we issued a press release. If anyone listening did not receive a copy of the release, please call Samantha Alphonso at the Financial Relations Board at (212) 827-3746. Sam will fax a copy to you and verify that you are on our distribution list. In the meantime, the release is also available on our website, rfmd.com, under the heading Investors. At this time, I want to remind our audience that this call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release published today, as well as our most recent SEC filings for a complete description. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide 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 unusual items that may obscure trends and our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today, available on our corporate website, rfmd.com, under Investors. [Operator Instructions.] Sitting with me today are Bob Bruggeworth, President and CEO; and Dean Priddy, Chief Financial Officer. I'm also joined by Eric Creviston and Norm Hilgendorf, who lead our Cellular Products Group and Multi-Market Products Group respectively, as well as other members of RFMD's management team. And with that, I'll hand the call over to Bob.

Thanks, Doug, and welcome, everyone. For RFMD's June quarter, we're very pleased to report quarterly operating results that continue to reflect the breadth of our product and technology leadership. Quarterly revenue was a record $293 million, representing 45% year-over-year growth. RFMD is capitalizing on the expanding demand for data-rich mobile applications and our products are at the heart of the high-speed data connections enabling always on broadband mobility, both in devices and consumer premise equipment and within the supporting network infrastructure. We are executing on multiple opportunities to increase our dollar content, generation over generation, in the world's leading smartphones. And we are benefiting from increasing participation in the highest volume entry level platforms in reference designs. Looking forward, we believe we are strategically well-positioned this fiscal year to deliver record revenue and improving financial performance. Given our expectations for diversification, content growth, category expansion and market share gains, combined with the benefit of new customer product ramps. From the highest tier flagship devices, to the entry-level smartphones proliferating in emerging markets, the RF complexity in these devices is increasing generation over generation and this is supporting an expansion in RFMD's dollar content opportunities. As a result of this and the diverse nature of RFMD's revenue base, our growth drivers are large, multiyear opportunities that are increasingly less reliant on the unit volumes of any particular phone in a given quarter. From a competitive standpoint, the playing field in our markets continues to narrow. In the high tier, our customers are seeking expertise in system-level architectures, envelope tracking, carrier aggregation and other technologies and capabilities that optimize system performance and improve our efficiency. In the emerging tier, our customers want to choose between cost and performance, while being absolutely assured about supply availability and quality. As a result, we estimate RFMD's average dollar content per handset has increased 40% in just 2 years, as we've expanded our dollar content from the high tier to the low tier. It's our intent to be the industry's most diversified supplier. Diversification that includes customers, product categories, market segment and air standards. Our 2 largest customers are the top 2 smartphone manufacturers. Beyond our top 2 customers, we also support multiple customers who each are low to mid-single digits as a percentage of revenue. These are all large accounts that can drive large volumes, and RFMD is at the heart of their next-generation product ramps. Very often, with a full suite of RFMD components further driving increased dollar content. As we said on our conference call last quarter, we have many accounts where we can grow a lot, and absolutely no accounts where we cannot continue to grow. With our product and technology leadership, our customer diversification and a growth orientation that's in RFMD's DNA, it's our intent to deliver long-term revenue growth that is profitable, predictable and sustainable. Now let's look at some highlights by business group. In our Cellular Products Group, we supported multiple high-volume smartphones across multiple customers, and we expect sequential growth in sales in the flagship devices in the September quarter, across a diverse set of RFMD products. In the higher-tier smartphones and tablets, it's difficult to find an LTE device that doesn't contain an RFMD solution. Soon this will include the TD-LTE standard that is poised for substantial growth beginning this year. RFMD is enjoying robust design activity in smartphones, and we expect to continue our dollar content expansion in this year's programs, as well as in the flagship programs of calendar 2014. In the entry segment, CPG benefited from our lead position on major reference designs in 2G and 3G, including TD-SCDMA. Design activity related to our new low-cost CMOS PA is accelerating, and we continue to expect this will improve margins in our 2G product portfolio by the end of this year. With 56% year-over-year growth, our cellular sales are clearly outpacing the underlying handset industry, and we expect this dynamic will continue into the foreseeable future. In MPG, we've delivered broad-based sequential growth across multiple markets, including WiFi, our broadband and high rel applications. MPG's first quarter revenue represented a 10.4% increase over the prior year. In high-performance WiFi, we achieved 77% growth year-over-year. RFMD's WiFi sales span a broad range of customers and markets. While WiFi growth in prior quarters was led by mobile devices, this quarter's growth was driven by expansion across consumer premise equipment and multiple applications including routers, access points and set-top boxes. Looking forward, RFMD is well-positioned to deliver diversified growth, margin expansion and operating leverage through product and technology leadership. We have exceptional customer relationships in large and growing markets, and we enjoy very strong participation on the industry's most critical platforms and reference designs. We are delivering the industry leaders the products and technologies they need to differentiate their devices, and we are enabling the high-speed data connections that support today's always on broadband mobility. This is driving very favorable design activity, suggesting a long-term growth trajectory and continued improvement in our operating results. And with that, I'll turn the call over to Dean.

Thanks Bob, and good afternoon, everyone. Revenue for the June quarter increased 4.4% sequentially to a quarterly record $293 million. CPG revenue was $237.7 million, up 5.3% sequentially and 55.8% year-over-year, and MPG revenue was $55.3 million, up 1% sequentially and 10.4% year-over-year. Our robust growth continues to reflect our sharp focus on diversification, category expansion and content gains in the large markets supporting data mobility. Gross profit for the quarter was $102.7 million, with gross margin of 35.1%. This is a great time to update you on RFMD's commitment to improve gross margin 300 to 400 basis points this year. We're off to a great start. We achieved 70 basis points of our goal in the June quarter, and we're tracking for continued margin improvement in the September quarter. There are 3 key margin drivers this fiscal year. And I'll give you the status of each. First, I'm pleased to report we have signed a definitive agreement to sell our U.K. fab. This is part of our overall flexible GAAP sourcing strategy, and this accounts for roughly half of the margin expansion goal. We expect the full benefit of this transaction will be realized in the December quarter. Second, our ultra low-cost CMOS PA has been fully released and is rapidly ramping production. We have demand for multiple millions of units in the September quarter, and that number is projected to more than double in the December quarter. This initiative represents approximately 100 basis points of margin expansion. Third, assembly capacity has been installed in our Beijing facility and is being qualified. We'll begin to realize the full benefit of this expansion during the December quarter. This represents approximately 50 to 100 basis points of the margin expansion. Our major margin drivers are all on or ahead of schedule. As a result, RFMD is pulling for significant financial leverage throughout the year as we anticipate revenue growth, margin expansion and relatively stable expenses. Returning to the P&L. Operating expenses were $74.7 million compared to $76 million last quarter, with G&A of $11.5 million, sales and marketing of $17 million and research and development of $46.2 million. Operating income for the June quarter was $28 million, representing approximately 9.6% of sales. Other income was $100,000 and non-GAAP taxes were approximately $2.5 million. Net income for the quarter was $25.6 million or $0.09 per diluted share, based on 287.1 million shares. Now going through the balance sheet. Cash, cash equivalent and short-term investments totaled $159.4 million. Cash flows from operations was $7.2 million. DSOs were 47.1 days compared to 46.6 days in Q4. RFMD's inventory balance of $166.9 million resulted in 8 -- in 4.8 turns, consistent with turns last quarter. Net PP&E was $193.3 million. Capital expenditures during the quarter were $27.2 million with depreciation of $11.6 million and intangible amortization of $7.2 million. Capital expenditures included investments in duplexer capacity, assembly equipment and equipment to reduce gold consumption. Now for the financial outlook and business commentary. RFMD currently believes the demand environment in our in-market supports the following financial expectations and projections for the September 2013 quarter: RFMD expects quarterly revenue to increase to approximately $305 million to $310 million; RFMD expects sequential gross margin expansion; RFMD expects a non-GAAP tax rate of approximately 15%; and RFMD expects non-GAAP EPS of approximately $0.10 to $0.11. And with that, we'll open up the call to your questions.

[Operator Instructions] Our first question comes from the line of Cody Acree with Williams Financial.

Maybe, you can't say, and I know you addressed some of this in the prepared remarks but if maybe, to the extent that you can give us a bit in more detail, over just obviously, just the last few weeks we've been seeing some material indications of slowdown at the upper end of the smartphone market, and just as you look at your position in the emerging markets, your dollar content, your market share trends, what impact are you expecting through the second half if this smartphone slowdown continues?

This is Bob. Eric already made a few opening comments, because I made some of the comments. Number one, as far as we're concerned, the smartphone market remains extremely healthy. I think as you pointed out, there are several of the Chinese manufacturers that continue to migrate their way up the top 10 list. And in fact this year, we actually believe 4 of the top 8 manufacturers will be based in China. So we do see the smartphone market very strong throughout the rest of the year. We haven't changed any of our outlooks. And we continue to see our dollar content expand as the market transitions from 2G to 3G in the entry smartphone market as well. So we see both sides -- both ends of the market's extremely healthy. Eric, I don't know if there's any color you'd like to add?

No, I think that covers it. We're very, very excited about both ends of the smartphone market and the long relationships we've had, both with platform providers and the handset manufacturers in China give us a lot of opportunities as they begin to roll out LTE and eventually, TD-LTE systems and so forth, that where we see a lot of dollar content expansion.

I guess, Eric and Bob -- but as you look at your TAM, and maybe your bill of materials opportunity, if we're seeing is just little bit of a slower ramp of something like an S-4, or the iPhone 5, and knowing your dollar content and the subsequent generations. How much faster growth are you going to have to see in the emerging markets to maintain that base that you're replacing?

I guess you have an assumption that we're replacing something that I don't think we even commented on. So I'm sorry, Cody, I'm not sure exactly how to answer that. We see the smartphone market extremely healthy. We see our ability to expand our content hasn't changed. We continue to expand the products that we offer these people. They continue to advance and complexity continues to grow. In the press release, we talked about carrier aggregation. Funds are beginning to ramp with that, which expands our dollar content. I think we're still very bullish on the market.

And then lastly, just visibility into what we're seeing in China last -- this time last year, we started running into some sell-through issues, just a market as a whole. I think expectations were a little hotter than maybe what subscribers actually turned out to be. Just what your visibility of actual inventory or finished goods of it?

Yes, our visibility into our components. We've got very good visibility. We see strong uptake and I think last year, China for us, was still pretty strong at this point in time. I can't speak to "end product inventory." We don't have visibility into that, but our customers continue to pull very hard from our hubs, and we're seeing strength right now.

I think it might what it does, that we're not expecting the China market for our growth this quarter. We're not necessarily -- in China, what's strong during the June quarter, as far as the September quarter, we're not counting on the China market to continue to grow to -- for us to be able to hit our growth expectation.

Our next question comes from Steve Smigie with Raymond James. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: One of the things you guys talked about was a 40% increase in your dollar content. Can you talk about how much of your revenue at this point has experienced this big dollar content increase as meaning, do we still see a lot of that benefit yet to come in your revenue? Or it's maybe how the handsets are shipping with that?

I'll go ahead and take it, it was my comment. That's a rather straightforward calculation. It was actually looking at what our revenues were as a cellular industry, divided by the number of handsets that we believe were built. So if we look at that, that's how we come up with that. And clearly with where we're at, we've got a lot of room for growth as we continue to expand. Again, the products that we sell into the smartphones, coupled with our ability to grow our share. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay, great. And if I look at the gross margin opportunity here, you obviously did a good job of listing the opportunity. If I take sort of the midpoint or even the high end of those, it seems like there's quite a bit, and then there's also the -- it felt like there's some gold conversion coming. So it seems like there's a lot of opportunity there. So the 300 to 400 basis points seems like, you should pretty handily be able to beat it over the next several quarters. I was just curious, your thoughts on your opportunity there?

Well, the 300 to 400 basis points, we put that metric out last quarter as what we're committing to for gross margin improvement for the year. So I think with where we stand after the first quarter, and the initiatives that we've got, we clearly have checked one off with the sale of the U.K. fab. We're very far along with ramping the CMOS PAs. We've got the equipment installed in the Beijing facility. So we feel very comfortable hitting what we have committed to. Now obviously, our target gross model -- gross margin model, is, it's 40%. That's something that we're going to work hard to achieve sooner rather than later. And there are a lot of others initiatives that are underway that are going to help us achieve our target gross margin. That's something we're not committing to this year, because it happened. You could construct that scenario. But it would be something that I would expect achieving next fiscal year. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Great, if I could take one more, on just -- on the Multi Products Group. Obviously some signs out there that talk on equipment spending's picking up. Just hoping you could talk about the potential growth of that business over the next year or 2.

Yes, sure. Hi, this is Norm. The -- in wireless infrastructure, things have actually been rather kind of moving in a measured pace, I would say, for the last few quarters. We've been expecting a big buildout for quite some time, to deal with the crush of data going through the networks. And yet, there seems to be a fair amount of pent-up demands there. We're seeing a pretty good pace of LTE equipment builds in North America. We will also see some signs of increases, requirements over in China for TD LTE. But Europe continues to be pretty soft. We do see some consolidation or structural change in the industry as well, with some of the OEMs as well. So we're still a bit cautious, I think, but hopeful for some strength in the second half.

Our next question is from Harsh Kumar with Stephens.

Had a couple of questions. First of all, we're seeing a lot of positive activity in China. We're also starting to hear about couple of the large handset guys starting to ramp. I'm trying to put your guidance together with the historical seasonality as I know it, call it 7% to 8%. And I'm wondering if you guys have given yourself a lot of room in the guidance. I'm curious if you could comment on that, Bob or Dean.

Harsh, Dean alluded a little bit to that. But I think it's safe to say we've taken a conservative stance with our largest customer, the China market, and the timing of new product brands. So I think that's a fair assessment. However, we'll wait and see how the quarter plays out.

Totally, very helpful. And then maybe one for Dean, and then I'll get back in queue. Dean, you talked about the 300 to 400 basis points of gross margin increases. I'm curious if you could help us out in terms of thinking how much might drop in September. It sounds like a lot's going to drop in December, but just how should we think about when we model the next 2 quarters?

Yes. Clearly, December is a quarter to really watch for, in terms of us converging on the 300 to 400 basis points. I think in the September quarter, you could look at our contribution margin on the additional revenue, something similar to what we saw this past quarter, approaching 50%. And with that, if you would -- if you do the math, you're somewhere around what we achieved this quarter. In terms of a basis -- 50 to 70 basis points in margin expansion this quarter, so somewhere in that range. So we're, position ourselves about halfway to the low end of our guidance midway through the year.

Thanks for the color Dean, and if I can sneak one more in. Your CapEx of $27.2 million, does that contain a lot of kind of one-time things as you get to gold conversion, and maybe some other things. Do we expect the CapEx to drop off in the future quarters?

Yes, we're not going to stay at the same rate and pay. So $2 million of that CapEx was for duplexer capacity. The other 2 significant chunks were gold savings. That's a one-time investment. And the other for additional assembly capacity in Beijing, we don't expect to be investing in additional assembly of, this -- again, this fiscal year. So we're going to expect to see CapEx come down very, very quickly, with the long cart [ph] being, we could see some additional investment in duplexer capacity.

Our next question comes from Blayne Curtis with Barclays.

This is Chris Hemmelgarn on for Blayne. Two quick questions. The first is, so you mentioned you were seeing really good traction with the new multi 2G CMOS part? Could you talk a little bit about any plans and timing around a ultimate 3G CMOS part there?

Sure. This is Eric, be happy to. First off, regarding that Amalfi part, just to remind everyone as well, that is the new ultralow cost part. It's about a 40% lower cost structure than what we've been shipping, either in GaAs or in CMOS up to this point. So it is really a disruptive new low-cost technology. We've been able to iron out the wrinkles and get it to a complete -- shipping millions this quarter, and tens of millions probably next quarter. So it is a very exciting product ramp and all the engineers now are completely focused on completing the 3G part as well. We expect to be sampling that pretty soon. And revenue's certainly possible this fiscal year.

Then a last, quick question. I could be doing the math wrong here, but the 77% year-over-year growth in wireless, looks like growth is slowing a little bit on a sequential basis. Am I right in seeing that? And if so, I guess, could you talk a little bit about the trajectory there, going forward?

So for WiFi, we'll let Norm go and answer that.

Yes, that's right. So we're talking WiFi, and relative to a year ago, the number is correct. Up 77% on all the WiFi and there's mobile, CPE, automotive, everything all in there. The first ramping area we had was for -- really is in handsets earlier -- late, late last year. And currently, a lot of the growth is driven by CPE. We're seeing a big move for more infrastructure out there. So the routers and access points are driving a lot of the requirements here. Set-top boxes, and other consumer equipment as well. So we saw a real strong push this last quarter in the CPE area, which is a -- it was a good fit, as we've got a very broad sales network reaching a lot of customers there on WiFi. Relative to kind of quarter over quarter trend, yes, we're -- as the numbers get bigger, the percentage increases do appear smaller. But we still have very strong growth in the coming quarters.

Our next question is from Edward Snyder with Charter Equity Research.

Dean, I know there's been a lot of design activity that's kind of driven OpEx. Can we expect that to tail off? Or do you expect this run rate or higher in the December period? And of course, in the first year when you get this stuff opening in...

As I pointed, the OpEx actually was down a bit in the June quarter. Going into the September quarter, we've got a very high rate of R&D activity going on. Now, I don't think it's going to break the bank. I think we're going to get back closer to what we were in the March quarter. So somewhere around $75 million to $76 million, probably for modest, $76 million would probably be a good number for modeling. So once again, stabilization of expenses, as we pointed out last quarter, something consistent for the rest of the year.

So you basically think you'll remain fairly flattish after this growth design activity for the rest of year, and then we'll talk about '14 when we get there?

Yes, it could bump along in any given quarter. Up a $1 million or down $1 million. Just like we saw this quarter was down, this coming quarter might be up a little over $1 million. But there's something in that range.

Okay, and Eric, historically, even one of the smaller players in pads, is that going to change for the next year? And can you give us some idea of SOI, how large of that -- how much did that come, say for CPG, and will that change, set a run rate level by the year end?

And this is Bob, and I'll take the first part. Because I'm sure Eric would absolutely love to be able to answer that question. But, as you know, that's a very sensitive topic, and we really can't answer that. But I'm sure Eric can speak to the SOI question.

Yes, absolutely. We've -- you're right. It's been a big part of our growth up to this point. It has actually, sequentially now, we were up a bit as well in the June quarter, but not as the rapid rates that we've experienced in the past. We're currently expecting that to turn and head back up to fairly rapid growth again, beginning in the September quarter. So we still see a lot of opportunities for the SOI product. Of course, antenna control, tuners and so forth, but even more expansion of our Antenna Switch business and Received Diversity Switches. We mentioned in the press release, the bullet about our Carrier Aggregation Switches. We've been working on carrier aggregation for 3 years now, since AT&T first told us they wanted to put it in the network. And they have a very broad portfolio of antenna switch -- Antenna Switches, Received Diversity Switches, Antenna Tuners that are all carrier aggregation capable. And that's evidenced in the first LTE advanced handset that's ramping, and we're going to see a lot more of that activity in the coming quarters as everybody really tries to ramp the LTE capability to the point where really, your wireless mobile device is your fastest way to get data. And LTE has kind of gotten neck to neck with wired networks, the LT advance and carrier aggregation pushes it to the point where it's going to be much faster to get to your data over your wireless device than your wired home network, and that's really the breakthrough that everybody's driving and that's really driving directly towards our SOI activity.

Okay, so then Bob, if you're going to answer Eric's, and I'll just give you one, anyway. Strategically then, it sounds like my expression on the CPG side of the business, and of course, MPG's always, is using less of the internal GaAs foundry. I know utilization is going to go up over the aggregate utilization when the U.K. fab is closed. Do you see that utilization rate over the next year or so as maintaining? Or growing substantially, or given all the SOI and all the GaN, et cetera, can we nominally expect that you have plenty of capacity in Greensboro without any, like additional expenses?

Ed, I think I've got this. Now, yes we expect our GaAs utilization to go up. We also expect our GaN business, as you mentioned there, to go up and that's also running the same fab so that will also help drive utilization. We do expect the SOI and CMOS, as well as Silicon Germanium, for that matter, to become a larger part of our portfolio. So we do not anticipate any significant capital to expand fab capacity over the next year or 2. I mean, our utilization is still nowhere near running optimal.

Plus, we have outsource partners now that we qualified that could bring surge capacity if we start bumping up against headroom in our Greensboro facility. So very, very good shape from a generating the revenue standpoint and in gallium arsenide.

Dean used the term partners, so that sounds like there's more than one. Are you qualified, ready to roll those, or you going through the qual process now?

We are qualified.

Great, and sorry, one more, final question. $10 million on duplexer capacity here. Of the 3 types of duplex filters that you could buy with that, BAW, TC SAW and SAW, is it fair to assume that's mostly SAW?

I think, Ed, it's fair to assume we will have access to saw, 10 comp SAW and BAW.

Our next question comes from Quinn Bolton with Needham & Company.

This is Joe, calling on behalf of Quinn. Some of your competitors, namely Qualcomm and Skyworks, have introduced some pretty highly integrated pieces, namely RF 360, and Sky 1. Wondering if you could comment a little bit on, if you have something in the pipe geared towards that, or how you plan on competing with those kind of solutions?

Sure, this is Eric again. Yes, we've been working on complete system solutions now for several years, actually, in various levels of integration, multi-node, multi-band amplifiers and so forth. And increasingly adding filters and duplexers into our products. But more importantly, I think what we're all driving towards is helping the customer implement the incredible complexities that's coming from what I mentioned earlier, in trying to make sure your wireless device is your fastest data device. So that entire solution is what we're all providing to people at various levels of integration. I do think the products that you mentioned that raised the bar in terms of discussions with customers and helping them at a higher level, and that's right up our alley. I mean, it's more than just repackaging those components into a single package. It's a lot bigger than that. It's about solving the system-level problem, and we're comfortable with our architecture system's engineering expertise, the relationships we have with the platform providers that enable these things, that we are solving the problem at the right level and offering all the options the customers are looking for.

Our next question comes from Mike Burton with Brean Capital.

First, what percent of revenues was China in the quarter? Sounds like it was pretty strong. And then, if you can help us understand it, I know you said that you weren't expecting a lot of growth there. But is that business expected to be up or down, heading into Q3?

Yes, the -- what you had called about, the white-box manufacturers in the China market was in the low 20s or so as a percentage of revenue. And like I said, you might expect a little bit of a breather in the China market, in the September quarter. We could be a bit conservative there and could actually see some upside. But we're not counting on the growth that we forecasted from the China market, but last quarter was actually a very, very strong quarter for the China market.

Okay, helpful. Then, can you update us a little bit on that duplexer investment? Has that gone into production for revenues? Or, help us to gain an understanding of when we could expect that you'll start to see a return on that investment?

I think it's safe to say we do expect to see a return on the investment, but as my comments earlier, this is a very sensitive topic and I think for now, I'd rather not comment.

Okay, fair enough, then and Dean, was wondering if you could also help us with the contribution of model going forward into next year.

Yes, well, next year will depend on several factors. And rather, we're sourcing the material internally out of our gallium arsenide facility or externally. Suffice it to say we expect continued margin improvement into FY '15. So I think that we'll just stick with the roughly 50% contribution margin. That would be a good number for now.

Okay, perfect. And then the last one for me, 10% customers on the quarter and the percent of 2G versus 3G, 4G?

Yes, 10% customers, we had 1, and 80% was 3G, 4G. And I did want one clarification on the China market. I wouldn't make the assumption that, that was primarily 2G. I think it was split pretty evenly between 2G and 3G entry. So we're seeing quite a bit of uptake of 3G entry in the China market.

Our next question comes from Vivek Arya with Bank of America.

This Anne Edelstein calling in for Vivek. Just a question on -- that if, so your revenues grew at 45% year-over-year, but we only saw about 100 bps of gross margin improvement. Can you just walk us through that?

Yes, let's start with -- it was under the utilization of wafer fabs, and that overhang, which is now gone away or a big part of it. So we've laid out our margin improvement initiatives. We're very confident in achieving 300 to 400 basis points this year. And by the time we get to the end of the year, we're not going to look anything like last year.

All right, fair enough. And then also as the China market continues to heat up, and you see a fair amount, more competition there. It seems like some of your baseband partners are ready to employ some pretty aggressive pricing pact x to maintain leadership there. Can you provide any color on how you see that playing out, and how that might impact your own margin expansion efforts?

Maybe Eric, you can just comment about ASPs and what's going on there, because...

Yes, I'm not exactly sure of the context of the question, you mentioned heating up and seeing more competition there. It couldn't get much hotter than it has been over this 10 years or so we've been doing this in that market, but, it's actually seems to be cooling down in terms of competition going forward, certainly in the 2G space, that's very consolidated now. And so there's not nearly as much competition there. And in 3G, the bar is quickly being raised to LTE, and again SOI switch capability and tuning and all the things we're seeing in the traditional smartphone market is now becoming very important down market and even in the entry category. So I guess I don't see the trend that you're referring to.

Coupled with Eric, I know earlier in the call, she may have missed it, your comments about how much lower cost this next generation CMOS PA is, at 40% less cost, I mean...

Yes, so when you talk about how it might impact our profitability initiatives, I mean that's actually one of our profitability initiatives, is to ramp that ultra low-cost capability into that incredibly high-volume market. And so we -- I guess the bottom line is you're right. It's an aggressive, competitive market, as it always has been. However, it's a fastly growing market with lots of units and a lot of opportunity to make a lot of money.

The next question comes from Christopher Danely with JPMorgan. Sameer Kalucha - JP Morgan Chase & Co, Research Division: This is Sameer Kalucha calling in for Chris Danely. I have a question on the LTE side of things. I know recently, Verizon and the other couriers have talked about moving to all LTE phones. I wonder, how does that impact you in terms of content performance? Does it increase? Or if it does, I mean, how much does it increase for you?

Sorry, your question is?

Without this LTE would that it's hard to find a phone that doesn't have RFMD content. But I think Eric's better positioned to...

I'm sorry, I just didn't catch the actual question. Sameer Kalucha - JP Morgan Chase & Co, Research Division: When we move to all LTE phones, including voice-over LTE, how does your content get impacted there?

So when we move to all LTE phones, including voice-over LTE, how is our content affected? So it depends upon your baseline. I suppose, of course, it continues to grow. If you went from 2G to 3G, and then on to 4G and then to LTE as well. Our content is tied not only to the LTE versus 3G, but also to whether it's got a carrier aggregation and, for example, and how many tutors and what sorts our employees in the antenna and so forth. So our content is not just tied to just the system standard and it's not just power amplifiers anymore, by any means. We have a very broad portfolio, switches and antenna tutors and power management to come along in WiFi, of course, in addition to that. So it's just much broader than speaking about just when it becomes LTE how much does our content go up. Sameer Kalucha - JP Morgan Chase & Co, Research Division: I guess the number I was looking for, maybe you said like $5 to $7 for mass production phones and does that go up to like $10 or $12 or $15, in that range?

Just as you see in each of these trends, there's a broad range, right? So I mean, you're actually beginning to see entry LTE phones on the drawing board as well, right? So they'll be LTE phones as well that might have a lower content than you're expecting in the smartphones today. There are definitely a large volume of LTE phones so they have $10 to $12 worth of our [indiscernible] content, that is absolutely true. So the average content goes up generation over generation.

Our next question from Mike Walkley with Canaccord Genuity.

For your September quarter, guys, I was wondering if you could elaborate a little more on some of the mix shift for the quarter. It sounds like you have a little bit of the initial lower cost CMOS shipping. Can you elaborate just on maybe some other mix shifts that might be favorable or unfavorable to gross margins, and also just touch on, do you expect those divisions to kind of grow at this 5% midpoint for the quarter?

From a high-level perspective, we are expecting CPG to grow faster than MPG. So we'll start with that. So from a gross margin perspective, as you know, CPGs margins are a little bit lower than MPGs, so that's kind of going against us. Your point on the CMOS PA, we're beginning that ramp, the majority of that is still legacy products. So it will have some favorability that as well.

Okay, that's helpful. And then, I know it's early for December quarter guidance but last year, you had some timing shifts with key customers that led to very large sequential December quarter guidance in order to hit some of your 200 to 400 basis points gross margin expansion. Is there at least a double-digit revenue growth sequential expected in the December quarter?

Well, if you look at the key margin drivers that we outlined, they're more or less independent of volume. And I wouldn't say that's a complete vacuum, but you don't need a lot of revenue growth to achieve the benefit of the sales in U.K.'s facility, or the CMOS PAs are really going to be replacing other parts that are currently in high-volume production. That's just a replacement, if you will, in a much lower cost version. And finally, the assembly in Beijing is just a matter of utilizing that versus using an external supplier. So those 3 things are more or less independent of volume. And if we were to get that volume upside, that could be a nice additional boost to margin.

Our next question is from Ian Lee Ing with Lazard Capital Markets.

This is actually Tyler Radke calling on behalf of Ian. Just wanted to go back to your comments, specifically on China, kind of taking a breather. As you said in September, and how you're not really relying on that for growth, so, how should we think about your comments about sequential growth at your main customers, and then, I mean, how much of conservatism or derating do you guys apply to the forecast for upcoming builds?

Well, I'll start, and guys, feel free to jump in. China, as we discussed, I think we've taken a conservative view on the demand there. You also commented that at our largest customer, we've taken a conservative view and also being careful on the timing of new program ramps. Let's be honest, all our customers are different. That's what we get paid to do, is to help our judgment on how this is all going to play out, and that's how we came up with our guidance.

Okay. And then staying, in China with your low-cost 2g, can you just remind me where the margins, I mean, obviously it's going to be a big driver for you on the gross margin side of things. But is it, or should we think of it as it's a margin near corporate average, above or was it like a very, very low margin product and now it's just going to be less of a headwind.

Well it clearly is a very low margin product currently, and the one we're ramping would be accretive to current margins.

Okay. And then lastly, given just with respect to your reference designs with spread trim, any kind of implications on the recent acquisition?

Business and relationship remain strong. So we haven't seen any change.

The next question is from Tom Diffely with D.A. Davidson. Thomas Diffely - D.A. Davidson & Co., Research Division: First a question on the product side. When you talk about the CMOS, the ultra low cost CMOS part, do you have a feeling for how that now compares to the competitor offerings, both here in the U.S. and also in Asia?

We're pretty confident. It's by far the lowest cost, lowest solution available on the market and we obviously see them all in benchmarks. And so yes, we're pretty confident we'll have by far, the lowest cost to manufacture a 2G transmit module. Thomas Diffely - D.A. Davidson & Co., Research Division: Great, okay. And then, when you look at the TD LTE market, do you think that's a growth driver for the next few quarters? Or is that more of a 2014 story?

That's absolutely ramping during this calendar year, beginning to ramp, and we think it'll continue to be a driver throughout next calendar year for sure. But it will drive volume this calendar year, we believe. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay, and then finally, when you look at the possibilities on having another nice sequential ramp in the fourth quarter, are you going to have to build inventory levels in the third quarter to support that?

I think it's safe to say we typically build inventory ahead of major flagship phone ramps.

Our next question comes from James Faucette from Pacific Crest.

A couple of clarifying questions. First on, when you talk about the -- your percentage of revenue coming from China, I think you called out that, that was for the white box makers. When we think about players like Huawei and ZTE and some of the larger Chinese handset makers that are also exporting, are you including them within that 20% figure, or would they be in addition to that number? And then also, I'm sorry, also on China, how should we think about the opportunities as we transition from TD-SCDMA to LTE? I guess it would be understandable if we saw new base band suppliers and new suppliers into that mark and just wondering how that might impact you.

Yes, Huawei and LTE are in addition to the white box numbers that we talked about. And by the end of the year, there may be a couple of more major manufacturers in China that we begin to break out as well, to be determined. But you're -- a few percentage points of revenue there for Huawei and ZTE.

Yes, I think, Eric, you want to address the migration from TD to LTE?

Sure, so I think you're correct in assuming it could mean a different mix of basebands, if you will, share, if you will, in the TD market as that ramps. However, in terms of implication starts in [indiscernible], we really don't see that as being too impactful, because we are truly represented on all of the manufacturers that are shipping into both TD-SCDMA and TD LTE as well.

And then, my final question, just as you start to ramp the CMOS products, can you talk a little bit about, I guess product portfolio management, and mix and just trying to manage that -- those pricing dynamics and what the demand might look like. I guess the concern might be that, that could end up being somewhat cannibalistic, but just wondering how you're thinking about that.

We're targeting to hold our overall share roughly where it is today, at about 50% overall in the 2G space. And the goal of course is to maintain pricing where it is today, as we transition from the GaAs parts to the CMOS parts. So just see, basically holding share, minimal impact on revenue as margins improved.

And we have a follow-up question from Harsh Kumar with Stephens.

Bob, you talked about carrier aggregation earlier on the call. I'm curious it's -- as to what kind of -- when is that phenomena going to finally hit the market place? Are we talking late this year, are we talking late next year, or even beyond?

Yes, Harsh, 2 things Eric loves to talk about is envelope tracking and carrier aggregation. I appreciate that. As we said, and I think Eric even commented on it, we've already began shipping that, but I think the majority of the volume's going to be next year, and increasing throughout the year. But I'll let Eric add some color.

Yes, absolutely. It is pretty exciting. Again, we were on the leading edge of carrier aggregation from the beginning in terms of total system architecture on the front end, and the whole thing was delivered twice the day rate to the consumers in their mobile devices. So we've got a fairly good visibility into the carrier aggregation rollout. The system providers I think are ready, and so they're ready for devices to be rolled out. You're going to see multiple devices. You've seen, the first LTE advanced phone now shipping at -- in Korea with RFMD parts in it, to support carrier aggregation. But it really begins to roll out in earnest, first half of next year, I think, is when it's going to be basically table stakes for LTE devices to have carrier aggregation and throughout the year. It'll grow to about 25% of the total LTE shipments probably during 2014.

That's great. And then on your 2G 40% low cost, sort of Amalfi product, Eric. Are you taking share from the local Chinese guys? Are you taking the share from other GaAs guys there?

Well like I said in general, our 50% share in 2G is about where we want to be. So with that ultra low cost CMOS, we're basically improving the profitability of our own portfolio through that transition. There may be opportunities to pick up more share, but where we are today, we're going to make sure that we're holding ASP erosion as low as possible. There's considerably less competition in that space now, and so we're going to be very sensitive to maintaining pricing where it is, and just drive cost out to get more profit.

So Harsh, we'll be migrating over the legacy CMOS product along with our GaAs products to this ultra low-cost CMOS PA.

There are no further questions at this time. I would like to turn the conference back over to management.

Thank you very much for joining us tonight. RFMD is increasing our content and our customers' flagship programs. We are generating multiple points of margin improvement, and our OpEx is flattening. Accordingly, we believe we are well-positioned this fiscal year to deliver record revenue and significant operating leverage and earnings growth. We look forward to updating you on our progress and meeting with investors at upcoming investor conferences. Thanks again, and good night.

Ladies and gentlemen, this concludes the RF Micro Devices Q1 2014 Conference Call. This conference will be available for replay after 7 p.m. Eastern time today, July 30, at midnight Eastern time. You may access the replay system at any time by dialing 1 (800) 406-7325 and entering the access code of 4627660. Thank you for your participation. You may now disconnect.