Qorvo, Inc. (QRVO) Q3 2015 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Qorvo, Inc. December 2014 Quarterly Financial Results Conference Call. [Operator Instructions] Now I'd like to introduce your host for today's call, Douglas DeLieto. Mr. DeLieto, you may begin.

Thanks very much, Kelly. Hello, everybody, and welcome to the Qorvo December 2014 Earnings Conference Call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today as well as our most recent SEC filings for a complete description. You should also read and consider the risk factors associated with each of the businesses of RFMD and TriQuint and each company's most recent annual report on Form 10-K filed with the SEC because these risk factors may affect the operations and financial results of the combined company. 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 in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today, available on our website, qorvo.com, under Investors. Please note, the December results for Qorvo preceded the completion of the merger with TriQuint, and therefore, reflects only the financial results of RF Micro Devices. On today's conference call, we'll report the December results for RFMD and TriQuint separately. Then, we'll provide the outlook for the March quarter for Qorvo. [Operator Instructions] Sitting with me today are Bob Bruggerworth, President and CEO; Steve Buhaly, Chief Financial Officer; Eric Creviston, President of Qorvo's Mobile Products Group; and James Klein, President of Qorvo's Infrastructure & Defense Products Group. I'm also joined by other members of Qorvo's management team. And with that, I'll hand the call over to Bob.

Thanks, Doug, and good afternoon, everyone. I'm very pleased to welcome you to the first quarterly earnings conference call for Qorvo. With the close of the merger of RFMD and TriQuint, we have combined 2 companies globally recognized for driving growth and innovation in the greater than $10 billion and growing RF industry. As Qorvo, our expectations are to accomplish what neither of us could have achieved individually. We are a highly diversified and growth-oriented company with greater than $2.3 billion in trailing 12-month revenue and unique capabilities in mobile devices, infrastructure and defense applications. We've assembled a world-class team with a legacy of innovation and a sharp focus on superior financial results. Our expectations are to outpace the growth rate of our underlying markets and achieve our target operating model of 50% gross margin, 20% operating expenses and 30% operating margin. In the markets we serve, the demand for mobile data continues to expand, and Qorvo has a full suite of core enabling technologies necessary to help our customers accelerate their products to market. We have broad strength in premium filters, switches, low-noise amplifiers, power amplifiers, antenna tuners and RF power management, and we're able to offer our customers RF solutions that are highly integrated and highly differentiated, and therefore, much more valuable. We're leveraging Qorvo's best-in-class product portfolio, packaging expertise, process technologies and engineering scale to target new opportunities and expand our target market. Looking at just a few examples, we're leveraging our broad strength in high-performance filters, gas PA efficiency, LNA design, systems level expertise and internal assembly and test to expand our opportunities in mobile devices and network infrastructure. We're integrating filters and amplifiers for applications, including mobile devices, automotive and small cell. We're leveraging our WiFi and filter portfolios, coupled with our flip chip capability and manufacturing scale to create new product categories. Whether you're talking about mobile devices, radar, avionic systems or communications infrastructure like base stations, Point-to-Point radio or optical and cable networks, Qorvo is uniquely positioned to connect people, networks and things both wirelessly and over global wired networks. As our new tagline says so well, "Qorvo is all around you." And with that, we'll move to RFMD's financial results. And as Doug said earlier, the December results for Qorvo reflect only the financial results for RFMD. I'll report the December results for RFMD, then Steve will report TriQuint's December results and provide Qorvo's expectations for the March quarter. Looking at RFMD's December quarter, revenue grew 9% sequentially and 37% year-over-year to $396 million. CPG revenue was $342 million, and MPG revenue was $54 million. RFMD's 2 largest customers represented 40% and 14% of revenue. The larger of the 2 represents the aggregated demand of multiple subcontractors for 1 end customer. Gross margin for the quarter was 49.3%, and operating margin was 30.7%. Operating expenses were $73.8 million or 18.6% of sales. Non-GAAP taxes were approximately $12.8 million, and net income for the quarter was $108.4 million or $0.36 per diluted share, which compares favorably to RFMD's guidance of $0.33. Revenue, gross profit, operating income, operating margin and EPS were all record. Cash, cash equivalents and short-term investments totaled approximately $296 million. Cash flow from operations was $72.1 million, and free cash flow was $51.4 million. DSOs were 49.4 days and inventory was $170 million with turns of 4.9. Net PP&E was $228.6 million and capital expenditures for the quarter were $20.7 million, with depreciation of $13 million and intangible amortization of $5.5 million. Before handing the call over to Steve, I want to congratulate both organizations for staying focused, continuing to take care of our customers and delivering such strong financial results. I credit both RFMD and TriQuint, not only for outstanding performance in December but also for the operational excellence and dramatic improvement in financial results demonstrated by both organizations over the past 18 months. In the March 2013 quarter, when RFMD kicked off its margin expansion initiatives, the stated goal was for 300 to 400 basis points of improvement. And the time since, gross margin expanded by nearly 1,500 basis points. As Steve will tell you in a moment, the dynamic was similar with TriQuint. Both organizations executed successfully on long-term initiatives to affect systemic organizational change, and those continued efforts underpin our organization today. And with that, I'll hand the call over to Steve, who will review TriQuint's December results and provide Qorvo's guidance for the March quarter.

Thanks, Bob. In the December quarter, TriQuint delivered a robust 27% sequential growth in revenue to $344.9 million. Compared to the same quarter of the prior year, revenue grew 29%, driven by demand for 4G phones and supporting infrastructure. The sequential growth was led by mobile, up 37%. TriQuint's end market revenue split was 73% mobile devices, 17% network infrastructure and 9% defense and aerospace. TriQuint had 0.1% customer at approximately 50% of revenue, representing the aggregated demand of multiple subcontractors for this end customer. Gross margin was 48.8%, up sequentially from 46.6%. The improvement in TriQuint's gross margin was primarily attributable to improved deals and utilization. Operating expenses were $76.7 million for the December quarter, up $2 million sequentially. Net income for the December quarter was $89.6 million or $0.48 per diluted share. This compares favorably to TriQuint's original guidance of $0.40 to $0.45. Revenue, gross profit, operating income, operating margin and EPS were all records. Total cash and investments increased to $264.7 million during the December quarter. Cash flow from operations totaled $110.3 million while capital expenditures were $105.2 million, primarily to address continued growth in customer demand for our premium filters. Clearly, RFMD and TriQuint delivered terrific December quarterly results, and we're proud to be launching Qorvo on the strength of such exceptional performance. Similar to Bob's comments, I want to recognize the TriQuint team for the crisp execution and remarkable improvement in financial performance. Compared to the December period a year ago, gross margin dollars grew by nearly 70% and operating income tripled. The performance was phenomenal and we're eager to build on this solid foundation as Qorvo. Now let's turn to our business outlook. In Qorvo, we've created a new leader in RF that can outpace the growth rate of our underlying markets. The total addressable market for mobile RF is forecasted to grow at a compound annual growth rate of 10% to 15% over the next few years, driven primarily by unit growth of 4G phones and the associated dramatic increase in RF content and complexity. The exploding demand for data, and therefore, data traffic are long-term secular growth drivers that favor broadly capable suppliers, such as Qorvoand support multiple, diverse growth opportunities across mobile products, wireless infrastructure and optical applications. Qorvo is uniquely positioned to enhance the smartphone user experience, help device manufacturers accelerate the market with better-performing products and help operators expand network capacity and more quickly monetize their spectrum investments. In calendar 2015, we expect the growth profile for the industry to mirror prior years with March, the only quarter down sequentially, and the revenue weighted more heavily towards the second half of the calendar year. At our Analyst Day in November, we increased our operating model goals to 50% gross margin and 30% operating margin. A quick look at RFMD's and TriQuint's results for the December 2014 quarter helps demonstrate why we're optimistic we'll achieve that goal. You'll find that information in our earnings release under the heading Selected Non-GAAP Results. While the December quarter is seasonally strong and our goal is for the full year, we're off to a great start. We expect to make progress on our operating model this year while growing ahead of our markets and yielding significant free cash flow. Qorvo currently expects the demand environment in its end markets support the following non-GAAP expectations for the March 2015 quarter: quarterly revenue in the range of $615 million to $625 million, gross margin in the range of 46% to 48%, a tax rate in the range of 5% to 10% and diluted EPS in the range of $0.80 to $0.90. Actual quarterly results may differ from these expectations and such differences may be material. We're confident we can outpace our markets this year, and our revenue guidance for March implies greater than 40% year-over-year growth. Before opening the call for questions, we've got a few housekeeping items. For those of you modeling revenue, please note that going forward, Qorvo will report 2 segments: Mobile Products and Infrastructure and Defense Products. We expect to release our March quarterly results in early May. With that, we'd like to welcome your questions. Kelly?

[Operator Instructions] We'll move first to Harsh Kumar with Stephens.

First of all, congratulations on the formation of Qorvo and your first call. Bob, as I look to your company now that you've had it for, let's say, a month -- 1.5 months, as you look at midterm, what do you think is your biggest competitive advantage relative to the, maybe, the 2 or 3 guys that you compete against actively in cellular?

Thanks, Harsh. So from a cellular perspective, I would say much like my opening comments. I think there's 4 areas. I would talk about technology, products, internal manufacturing and some of our customer relationships. From a process perspective, I think we do have some industry-leading technologies whether that's access to SAW filters, temp-comp SAW filters. We talked about 0 drip. We talked about BAW filters. We talked about the work that we've done with SOI to lead the industry and continue to improve performance there as well. Also, outside of cellular, gallium nitride is clearly a technology that we're able to differentiate and gain business. So from the technology side, I think we've got, if you will, palliative technologies that our engineers can choose from to develop tremendous products that give us that breadth across all different tiers of smartphones or different applications whether that's WiFi, and also, in IDP. Again, using gallium nitride in some of those same technologies to take care of our customers in those areas. So tremendous product breadth by bringing the 2 together. But I think you're going to see as we come together and operationalize our 2 organizations -- growing the business there. Then when I talk about internal manufacturing, I think it has been a significant advantage for us and some of our competitors do have that, but we're going to be able to the insource a tremendous amount of work that currently was done outside in assembly and test as we bring up our second factory in China to improve our margins. So that also is something. It's a little bit different than we're going to be able to do. And then clearly, the customer relationships that we both bring are deep. We talked about the 3-way NDAs. Customers were excited about bringing us together. But again, we're able to engage where that customers' across their full product portfolios from their entry-level phones to their mid-tier, to their high-end smartphones. So I think we're going to be well diversified with a broad product offering with the right technologies, Harsh.

And as a follow up, I can't help but notice when I look at your numbers and TriQuint's numbers for December, you're already very close, and I know December is a big quarter. But you're not that far from some of your long-term goal. And you still have all the $150 million or more -- $150 million cost savings left. Is it conceivable that you could actually do better than your goal in the mid- to longer term?

Hey, that's a great question, Harsh. And as you remember, we raised those goals in November after noticing the same -- really critical trends in the business both -- across both businesses. And we think the prospects continue to be good for achieving synergies on the cost side to insourcing our assembly and test, working with our suppliers to get to Qorvo level pricing and a variety of other opportunities we have. So I feel real good about that. And then we actually have some really good opportunities from a revenue synergy standpoint. So I think there are good opportunities to have a good year this year, and an exceptional year in '17 as we see the full power of the merger come into play.

We'll move next to Vivek Arya with Bank of America.

Bob and Steve, good December quarter execution. When I look at the March quarter guidance just too sort of nitpick, I know it's above Street estimates. But I believe it's down about 16% sequentially. That's sort of the lower end of the 10% to 15%. I'm wondering if there's anything more to read into that, or it's just nitpicking from our side.

Thanks, Vivek. I think if you really look at what's going on in the marketplace today, if you look at some of the leading smartphone manufacturers, and you look at what they're going to be down, you look at our exposure there, and you look at timing of some other new program ramps, looking at the China market, et cetera, I think we're very comfortable with the guidance we gave. I think, again, if you look at it year-over-year, we are up greater than 40%. Clearly, that's more than the market, and we feel good about our position to grow this year.

Got it. And as a follow-up, if, Steve, you could you give us some sense of non-GAAP OpEx in Q1? And how you're looking at the trajectory over the next few quarters?

Yes. I think non-GAAP OpEx will be down slightly from the prior quarter. It's a little higher than it would otherwise be because it is the first quarter of the calendar year. We have a lot of FICA expense that comes back into play. And then as you know, we've had a fair amount of performance vested shares and options that have either vested or being exercised in the first quarter, which also raises the FICA expenses as we match that W-2 income. So I think it will be down, maybe a couple of $2 million or $3 million sequentially. And then we'll see some opportunity as that FICA effects and washes out.

Got it. And then finally on gross margins as my last question. As you look at the milestones to get towards your longer-term targets, what are sort of the near-term milestones we can track? What are some of the longer-term milestones?

Sure. I think the -- there's just a lot of blocking and tackling in getting the synergies driven into cost of goods sold. And Dean Priddy is doing a phenomenal job of organizing and focusing those projects and leading the execution of them along with the rest of the Qorvo team. So I think whether it's assembly and test or supplier cost reductions or some other consolidation opportunities across the whole Qorvo, it's blocking and tackling. It's a little bit of work every day. And so I think you'll see it show up over time in our gross margin, along with all the other factors in the business, whether it's a product mix, pricing. All those are elements, but you'll see those play out over the course of the next 18 months.

We'll now go to Mike Burton with Brean Capital.

Congrats on the great December numbers. Follow-up on Vivek-- just on the March quarter guidance. Just wondering if we could get a little more detail there. Is it down slightly more than seasonal? Were there any production issues that you guys can point to? I think there's been some talk about that, at least, at one of TriQuint's largest customers. And then maybe if you could help us understand how we should expect mobile versus infrastructure to play out. And then the last part of that one is really just the -- on China, you mentioned that Bob. Do you expect that to be down in Q1? And how big is China for you guys now?

Okay. Mike. We may not be able to get all these, but I'll do my best. I don't know of any production issues that are limiting revenue, so I'll just categorically say that. I know you asked about China. I think it'd be good if Eric and James comment a little bit about China business. So they can roughly size that for both mobile products as well as IDP. [indiscernible]

Yes. Sure, I'll go first. So regarding China. We're looking at a very exciting year in China. The rollout of 4G, as you know, was quite strong in 2014, and we're in the very early innings there. So in general, we have a backdrop of a great growth and a lot of opportunities in China this year. The March quarter itself -- we're counting on basically flattish sales for our sales into China, growing in 4G, but we still have 2G and 3G business that is rolling down quite significantly.

James, any comments about China market from your perspective?

For us, like we expect -- into China, we just -- mainly for me by base station and the fill in of the rest of backhaul to have another strong year going forward. And so we expect continued strength in the marketplace.

Great. And then, if, Eric, if I could just follow up on RF Fusion progress. Skyworks talked a lot about what they're doing with their product, and I'm just curious if you're seeing any RF360 out in the marketplace as well. And if you could just give us an update on where RF Fusion is.

Sure. Thanks, Mike. The Fusion, as we mentioned in the press release, we are ramping in the production with our first high-volume opportunity today. It's pretty exciting opportunity too. This product that's ramping actually supports 6 modes and 18 bands of operation, is carrier aggregation and ET capable, and it's just the beginning of a family of devices. We're engaged with many OEMs right now in various classes of models, mostly in the mid-tier for this RF Fusion category. And of course, as Qorvo, we have a lot to bring to the table. We're very uniquely positioned for these high-level integrated modules with, as Bob said, a broad family of filter technologies, literally, every type of technology we'd need for every band. And of course, leadership, and switching, and tuning and power amplifiers as well. So we're really excited about our Fusion, and I think we're getting some great traction.

And from Ascendiant, we'll go to Cody Acree.

Congrats on the performance. Maybe back to gross margins. Could you talk about the puts and takes in the first quarter with the range getting all the way down to maybe a lower end or where maybe some of the expectations have been? And then as you look through the rest of the year, how big does facility consolidation play in your plans? And how long before you might make a decision on your gallium arsenide capacity?

Yes. So the gross margin is slightly softer, primarily just due to a little bit of lower revenue in the period. And so I think it's a modest effect, and I think we continue to make progress this year towards a 50% gross margin goal we outlined earlier. I feel very good about that. And then in terms of facility consolidation, I don't expect that to be a meaningful factor during fiscal '16.

And then just to follow-up. If you look at where you're positioning China and you gave some percentages for some size. But as you look at the market share shifts from some of the larger international players and some of the local vendors, can -- maybe, Eric, can you just talk about some of the positioning you're having with the local vendors versus some of the more dominant global players?

Sure. I'd be happy to. We're actually quite well positioned with the local suppliers. Of course, as you know, we've had a very long-term relationship with China. We've had a tremendous amount of R&D over there over the years as well as factory footprint and great relationships with, of course, with MediaTek as well as the Qualcomm resources there in China. So we work closely across all the reference design. I think what we're really excited about is -- especially the second half of this calendar year, a lot of the China majors are going to be growing, and the references on -- the ones we referenced in the press release will really start kicking in, in the second half. I think our overall attachment rate and share across kind of the leading reference designs for the China handset OEMs is only going to grow throughout the year.

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

I'll have my congratulations on the great results. Can we talk a little bit about gross margin as we go into June? Because, obviously, as you've answered in the last call, we've kind of had a down seasonal quarter. But is it fair to argue you have a pretty decent pop into June, and we march up from there? I guess, does that tie into your comments about 50% for the year?

I don't really want to guide the subsequent quarter. And as you know, margin has a little bit of a correlation with revenue. But again, I think we're going to make good progress over the course of the full year towards our expectation of having a 50% gross margin over a full year period. So I think that -- so I think we'll make good progress, but I don't want to give you a specific number for the next subsequent quarter.

That's helpful. And could you give us some color on what the gross margin might be by the 2 major business units?

Just directionally, the infrastructure and defense tends to be a higher gross margin and a fairly similar operating margin, as you will see when we start reporting by segments.

Okay. The last question was just a housekeeping item. As we look at that tax rate, is that sort of the rate we should be assuming that the one that you guided for the March quarter, is that what we should be assuming for Qorvo going forward?

I think for this year, it's a decent modeling assumption. Beyond that, I would think we would level out more than a 10% to 15% as our tax position normalizes.

We'll now go to Edward Snyder with Charter Equity Research.

Eric, I know you've got a lot of 2G/3G in China. How much more do you have in China to go, given it seems to be pressuring your sales in that region, maybe offsetting some or a lot of your 4G? And how much of that 2G/3G, especially the 3G, do you think is share loss given your large competitor seems to be growing really well on 3G GaAs at this point. And then, Bob, you pointed to shares. Your largest customers is one of the reasons for a little more than seasonal down in March. Is that spread across both of your largest customers? So it's like overall demand for handsets, or is it more of a share shift thing between handset OEMs? And then I've got a follow-up for Steve, please.

Yes. So the transition of our China business towards 4G as of the March quarter, it plays out. The way it's looking right now, 4G will be more than 85% of our sales in China. So we'll -- at most of the headwind, they're past us. But I don't know if that's really a share loss as much as the overall trend in the industry there. We're seeing a lot of users, I think, converting directly from 2G to 4G. And -- so the dimes, the dollars conversion opportunity for us we've been talking about. So we're really focused in getting a lot of traction on the 4G side of the business there.

And to answer your question, what I was talking about was no secret that the largest player in the industry and the one that spends the most money announced that their handset units are going to be down pretty substantially. And my comment would be actually with our second largest customer quarter, if they're only going to be up this quarter, they just don't put as many dollars on the phone. Hope that helps, Ed.

And Steve, March is normally a slower period, but do you expect maybe higher excess capacity charges at some of your plants in March, especially the Florida plant? Or is that about normal? And as a follow-up, Eric. Given now that you've got the BAW business under your belt and given the demand, and more importantly, the margins in your BAW products, would you expect that -- I would've expect that have a bigger impact on the next few quarters, especially given that Texas can add capacity incrementally. You don't need to put bricks and mortars in there. Are you not seeing that? Is it -- or is it capacity limit? Or you just don't have the demand for a widened BAW starting to -- I would think it will form. That's just your revenue growth but your margin profile in CPG more in the next quarter or 2.

That was such a long question. I almost forgot what you asked me, Ed. Let me try. With lower revenue, we do have a bit of a few fixed costs in operations. And so gross margin does have a little bit of -- has a little impact about our little revenue, not the least of which you divide that fixed cost by a lower revenue number. So very modest effect, but there is an effect there.

I think, Ed to your question on the BAW filters and margins, clearly, as we ramp that, it will improve the margins of the business. No doubt about it. I think we've been just careful when making sure that you don't get too far ahead of yourselves in modeling how we expect to get to our 50% gross margin, which is our commitment to you guys, and that's what we're going to.

I think -- okay. But TriQuint, it said, they're going to double capacity and their BAW plants starting, I guess, they give the guidance in October. And that will be completed by, say, the 4th of July. And you did about $480 million by the end of the year. And Steve, I think we talked about this previously, you're about 425 or you already added some capacity. And then we'll come on incrementally versus your large competitor BAW which has to put in a big brick and mortar facility. So if BAW is increasing every quarter because you're adding incremental capacity in Texas and the margin profile is anything close to what, I think, most people expect it to be, you would think -- I know as that sizes the revenue of kick for CPG that you would start seeing some of that. Before that, my question is, are you still capacity limited and that's why it's not having a bearing? Or is the demand profile slowing down a little bit? Or is there something else happening?

Yes. I would say demand and supply are fairly well matched right now. And as you know, the peak demand, it tends to be in the fall. And so we're benefiting both from some incremental adds to capacity and the seasonality in the mobile business.

I would also add that we are continuing to diversify the customer base for that.

We have JoAnne Feeney with ABR Investment Strategy -- has our next question.

Congratulations. I just wanted to follow-up on the question about the LTE and comp infrastructure situation in China. Do you think it's going to be strong this year? I'm wondering if you could elaborate, and if you're seeing yet, any new orders come in for that buildout?

Yes. This is James. So we expected to have another strong year. I think we've guided in the past that we saw a big ramp going into last year, and we expected to be flat -- relatively flat this year. They're very, very strong year. We're also seeing growth in small cell and in GaN adoption. So those are both also helping us a bit. And now we're starting to see backhaul products come into play as well to affect both our optical and point-to-Point business. So in general, to reiterate, I think another strong year for us in infrastructure buildout in China.

Are you seeing, though, any orders yet in the cading of [indiscernible] pickup? Some have commented that there was a bit of a slowdown at the end of the year. I'm just wondering if you're seeing anything concrete that suggests that's turning around?

I think, yes. I think nothing materially different at this point in time. I mean, generally, this time of year in China, with the new year, we see a little bit of a gap there. But I don't think it's anything different than we would have seen in other years.

Okay, great. That's helpful. And then if we could just go back to the operating expenses this year and the merger integration, can you elaborate a little bit on the timing and what we might expect over the course of the year to delivering those savings from the merger that you anticipated? Is that something you expect still to get done in 4 to 6 quarters? Or has the progress you've already made largely gotten to where you think you need to be from the merger synergies?

Yes. Thanks, JoAnne. I think we'll make pretty consistent progress over that 4- to 6-quarter period. Some savings have been achieved pretty much right off the bat. Others take time to occur. One of the milestones for us will be integrating our 2 SAP systems and improving -- that we've completed that process successfully. But it'll happen over the process of time. And I think that it'll happen in the way that we meet our objectives of $75 million run rate savings after year 1 and the same after the second year. So again, Dean's running a very extensive collection of projects and many of those involve operating expenses of various sorts, and I think we're in good shape to achieve our objectives there.

Great. That's really helpful. One final question if I could. I'm wondering if you're seeing any ASP pressures on your components in the handset space?

Eric, any comments on the pricing environment?

No. I'd say, pricing is kind of a steady as she goes, nothing unusual.

We'll hear next from Sid Sinha with Canaccord Genuity.

Bob, RFMD and TriQuint in the past have had a good track record in consistently growing or maintaining intent in next-generation smartphones with the prior recreations. Since you stepped into 2015 and giving your current design win pipeline, would it be fair to assume that, that is still the expectation?

As far as this year, you're saying calendar '15 just to be clear?

Yes.

Yes, yes. Eric, do you want to comment about smartphones and our ability to continue to expand our dollar content, given all these new toys you have to play with?

Sure. I would be happy to. The trends, as you know, would be the exploding demand for mobile data. It's really driving a lot of opportunity in the RF front-end, and it's a great time in this industry. In particular, if you do have the ability to take all of the core components that are best-in-class and offer customers higher levels of integration. And so to the trend that you were referring to, we are able to do that, especially in a differentiated way. You just have access to a bigger piece of the market, and that's what we intend to capitalize on this year.

I'll just add in Eric's comment. I think we believe that most of the growth in the market over the next 2 or 3 years is going to come from highly integrated solutions, not from discrete components. And Qorvo's breadth of process and product offerings really play to our customers needs from our highly integrated solutions.

Great. And then just any color on the IDP business for the March quarter? Is it sequentially going to be up or flat or down versus December? And then just looking out longer term, during the Analyst Day, you talked about a 5% to 10% annual growth rate for this -- for the IDP business. Is that still a fair growth rate assumption?

So 2 questions -- it's James again. We're expecting quarter-over-quarter to be relatively flat. And as far as the growth rate to model the business, we've typically said the mid- to high single-digit growth rates for the market.

And we'll move on to Ian Ing with MKM Partners.

Great. First question, just housekeeping. What part of share count should we think of from March? I get a 151 million on a straight conversion of shares. And what should the range be going forward as you manage the 4G?

Yes. I think for the quarter, on a fully diluted basis, you should think in the range of 154 million, 155 million shares. And for the full year, I think, it might be just a little bit more than that. We'll give you more information as we go forward.

Okay. And question on premium filters. I mean, where are we with TC-SAW and BAW potentially getting into some previously unreachable bands? I noticed some tough bands to do like 25 and 41 in North America. I think some bands -- the specs are getting loose ends. Just where are you with getting in this previously unreachable bands?

Yes. So that's really the highlight for the LowDrift and NoDrift filter technologies we're talking about. I think we're leading in the industry of giving our customers the ability to address those bands with both temp-comp SAW as well as temp-comp BAW now, and in fact, really NoDrift. That allows the filters to pass a lot more energy in the past band while still rejecting those very close, thin frequencies, and for the kind of inoperability issues you're talking about in coexistence of WiFi, and public safety bands and so forth. These are really, really tough requirements. And you're right, I mean, up until the time of our release of these filter technologies, the customers have had to back up power levels and so forth to meet those requirements. And we're going to allow our customers to have much better performance in their band of operation while still coexisting with those bands.

Do you have a sense of your coverage at this point of the bands out there? Is it 80% or 90% or something? Or...

I think it's fair to say that we have the ability to cover 100% of the band. In fact, that what we have in production today, I don't have a good sense for it. But I think we have the ability to cover all the bands.

N. Quinn Bolton with Needham has our next question.

Congrats on the quarter. This is Krysten Sciacca for Quinn Bolton. Just one quick question for you. Given the supply tightness on the filter side, doesn't it -- do you guys think that you left any demand unfulfilled in December?

Question was, do you think with tightness -- was is in the filter capacity versus demand? Did we leave any revenue in December -- that we weren't able to capture in December? I believe that was the question. Is that correct?

Yes. That's correct.

Yes. I think we had tightness across several commodities, not just filters but also slides [indiscernible] for example, and our teams who are working really hard to align supply with demand. I think at the end of it potentially, a little bit, it would be very little. I think for the most part, as Steve said, we've kind of got some clarity now with supply and demand.

[Operator Instructions] We'll move next to David Duley with Steelhead Securities.

Congratulations on a spectacular quarter. Just a couple of questions here. As far as your 2 largest customers, now that you've combined the company, do you see content increase capabilities with your integrated products for those 2 large IDM customers?

Yes. We sure do, of course. And that's, of course, one of the primary motivations behind the merger was to put these 2 companies together and come up with a portfolio which is unprecedented, and our largest customers tend to benefit from that. And we've mentioned several times previously, there was -- we were requested to sign up 3-way NDAs even before we were able to close so that we could begin that development even sooner. But I think there's a lot of excitement across the entire customer base really, not just our largest customers but even in these 4G handsets in China and some of the lower-end reference designs. The trends are towards higher levels of integration. And we've been talking a lot today about filtering, and you think of these advanced, like really tough bands and some of the coexistence problems. And a lot of that surrounds just getting cellular to work next to WiFi. And even entry-level phones have to do that. So the opportunities to leverage the premium filters with all the other capabilities we have in integrating to higher levels, that really affects all tiers of our market.

James, do you want to add a little bit? Because it also applies to you.

I would add as well. I mean, we're seeing benefits in several -- of the different markets to be able to integrate. Example would be WiFi where we're able to address segments of the market that perhaps we weren't able to as separate companies. We're now able to put together some great amplifier technology filter and switching and that offer integrated solutions. So it's been a benefit really across multiple different market segments.

Would you expect your customer concentration with those 2 customers to go up, down, sideways, going forward, given that you seem to be able to pick up incremental slots from those guys?

I think at one level, you have to decide how well they're going to do in the market. Let's be honest. What I think -- as we see other players bring out LTE phones, and we've also discussed about the China OEMs also starting to build their brands, normally within China but outside of China. We've grown very nicely, both companies have in the past. So what we expected to be able to drive our share consistent across all the customers so our exposure will be more or less with the end OEMs' exposure as with the markets. But clearly, our 2 largest today, we believe, we can continue to grow with them and expand our content there. But I also want to make sure everybody understands, there's tremendous growth outside of the top 2.

And just as a follow-up housekeeping question, what sort of utilization rates are you guys seeing in your internal capacity for filters? And I guess, what other key power amplifiers, however you measure it? If you could just help us understand what the utilization rates are and how you're going to have to spend money going forward to address the growth.

I'll start with gas capacity. Both companies have been running very comfortably and continue to take on more business. So I can't expect to be adding gas capacity. As far as assembly and test goes, as we said earlier, part of the synergies was to insource the assembly and test of a lot of the product that TriQuint currently produces in our supply base. So from a CapEx perspective, RFMD has already started building a second factory in China. So as Qorvo, we will continue to do that, facilitize it, bring in equipment and insource that work. And it has a tremendous return, a quick payback, and you'll start to see that in the gross margins as we continue to bring production in the second half of this calendar year. Then as far as filters go, TriQuint had already been on an expansion plan in Texas as well as in Florida. And as Qorvo, we will continue to make those investments that we've already outlined, actually, to the -- on last quarter's conference call.

We'll take a follow-up from Edward Snyder with Charter Equity Research.

Eric, I just wanted to go back to China again. Normally, how large was China for CPG last quarter? And maybe if you could give us kind of a guesstimate on the sequential growth in China. You may have seen it. You didn't see any decline in 2G at all. And then, Bob, we've heard a lot of talk from you and Skyworks and a bunch of other guys on integration, higher-density modules, which certainly seems to be the trend in architectures. When does that start showing up in performance? When do we start seeing your revenue or margins start to improve materially based on integration? I know a few people have taken -- a few lanes have take samples of a bit and some [Audio Gap] So 1 out of 3 questions, you didn't hear them?

No. We've got enough to answer if you like us to start.

Go ahead.

So the first question was about our China business. It's roughly 25% of Qorvo mobile business today.

And if you hadn't seen any 2G decline, Eric, would have it been up substantially? I mean, you talked about direct 2G to 4G and dimes to dollars, so you would not lead us to expect that we would see a significant uptick in China just based on the 4G migration. Sounds like there's been pressure, and you're not alone. But between 2G and 3G on blue skies [indiscernible] there were guys who supplied it. So could you just -- rough end, guesstimate what China would've been if you hadn't seen 2G decline?

No. Our 4G business was up about 10%. So yes. I mean, you would see a bit 10% on the 25% of the business. So it might affect it by a couple of points as a percentage of the total. 2G is just not a big business for the company these days, and it's really down to under 5% of CPG or mobile revenues.

And Ed, your question on margins and integration, I mean, both companies have been shipping power amplifiers with filters and various numbers of filters, and then over the time, we both have significantly improved gross margins. So I would point out that I think we've already started seeing that. And from an RF Fusion perspective, we're just in the beginning of that ramp as well, and as we've said, we expect our margins to increase as Qorvo.

I think it will certainly help with the historic TriQuint pads and such to have of the advantage of using the internal test and assembly facilities in China.

And then, Steve, while we're at it. You mentioned that you saw BAW pretty well balanced at least for TriQuint in terms of supply and demand this quarter. Does that change your expansion plans for Texas? Are you going to wait and see how the things develop. Obviously, I'm a little cautionary on the filter business. So if there was a full steam ahead [indiscernible].

No. It's pretty much what we expected, right? It's a seasonally weak period and then -- and that provides a little bit of relief. We're continuing to add capacity on an incremental basis, so we would remediate bottlenecks as we go along. And we expect to be ready to roll for a seasonally strong second half of the calendar year.

How do you feel in TC-SAW? You have ample, you are short, you're really short? How was it?

TC-SAW?

Yes, TC-SAW.

TC-SAW is in a reasonable balance right now.

As you know, that was an area of shortage in the fall. Along with[indiscernible] I think we managed through it.

Yes. And then the thing I would to point out there is we actually spent a lot of time down there on some lean manufacturing. The team down there did a fantastic job of significantly increasing the output without spending the capital. So it's not always just about spending capital. It's more efficient use of the capital, and the team down there in Florida did a fantastic job in the December quarter.

We'll hear now from D.A. Davidson's Thomas Diffely.

First question, getting back to your insourcing of the assembly and test. Is the main driver there cost? Or is it really capabilities that you have versus an outsourcing model?

Primarily is cost. Clearly, we also have some technologies that we have insourced that are not outside. Some of the shielding technologies that we do have is more and more of this highly integrated modules need shielding capabilities, so that customers don't have to place shields on their phones. But the primary driver is cost. We also pick-up cycle time in our ability to respond quickly to customers' fluctuations in their demand as well.

Okay. And is that specifically that can, I guess, is there a variable component that can ramp up and down with the cyclicality and fixed quality of the business?

It's for -- it's no different than what we historically have done. RFMD and even in down quarters, we're able to improve margins. So we're able to do a pretty good job of that. It's significantly cheaper than the outside as well. So even if you're not at full utilization, it's still cheaper to produce it inside.

Okay. Good to hear. And then second question on the competitive front, I'm curious more about the kind of the second-tier Asian competitor. Have you seen any progress that they've made on integrated solutions to date? Or are they still pretty much a point solution or a discreet solution at this time?

I don't know who you're talking about. I'll assume they've made no progress.

Okay. And then, I guess, on the same front, would you expect ASPs to remain fairly strong for integrated solutions until you get or if -- unless you would get more of a hungry competitor?

Sure. There's no reason to expect anything to change in -- within the near term horizon for the integrated solutions. There's very few people capable of doing this, and we're all investing to invest to the R&D and so forth to expand the industry. So I think that's going to be the continuing model.

Now we'll take a follow-up from JoAnne Feeney with ABR Investment Strategy.

Just a couple of housekeeping items. I'm hoping you can help us out on the full year outlook for CapEx.

Yes. So CapEx, I think, will be normal CapEx rate over expenditure. For Qorvo's, probably going to be in the 5% to 6% of revenue. I think it might be a little bit higher this year, as we round out our investment in China assembly, and test and their premium filters. So if you modeled 7% to 8% of revenue for this year, I think you'd be in the ballpark.

Okay, great. And then how about depreciation and amortization for the year?

Yes. So depreciation is probably going to run around $160 million for the year. And I guess amortization might be another $10 million. We don't report amortization on our non-GAAP results.

Okay, perfect. And then with -- in terms of the new segment breakdown, I believe that's just a straight combination of the segments of the 2 companies. Was there any shuffling around between whether now the fund is mobile on the other one?

You're right, JoAnne. There is some minor shuffling, but it's in the rounding areas. So I think it's a pretty safe assumption to combine the 2 companies' Mobile Groups and the 2 companies' Infrastructure and Defense and that will be our segments going forward.

Okay. So if it's sufficiently minor then, there's no need for you to publish historical data on that breakdown?

Correct.

And at this time, I'd like to turn the conference back to management for closing remarks.

Again, I want to thank our team for the incredible journey we've been on and express how enthusiastic we are to build on our shared strengths and deliver superior long-term shareholder value. Qorvo is uniquely positioned to capitalize on the proliferation of 4G and capture the increasing RF content and connected devices. We intend to outpace our underlying growth markets, deliver robust operating leverage and continue to improve upon our strong financial performance. Thanks again, and good night.

Again, that does conclude today's conference. Thank you, all, for joining us.