Welcome to the Qorvo Inc. Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, today's event is being recorded. I would now like to turn the conference over to Douglas DeLieto, Vice President of Investor Relations. Please go ahead.

Thanks very much. Hello, everybody and welcome to Qorvo's fiscal 2024 second quarter earnings call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today, as well as the risk factors associated with our business in our annual report on Form 10-K filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our Investor Relations website at ir.qorvo.com under Financial Releases. Joining us today are Bob Bruggeworth, President and CEO; Grant Brown, CFO; Dave Fullwood, Senior Vice President of Sales and Marketing and other members of Qorvo's management team. And with that, I'll turn the call over to Bob.

Thanks, Doug, and welcome everyone to Qorvo's fiscal 2024 second quarter call. Revenue, margin and EPS were all above the high-end of our outlook provided during our August earnings call. Customer demand during the September quarter improved versus our August guidance. The primary driver was a large smartphone customer ramp. In addition, channel inventories of Qorvo components across the Android ecosystem continued to be consumed with OEMs indicating inventory levels are approaching historical norms. Channel inventory digestion is allowing Qorvo to ship more closely to end market demand, even as pockets of channel inventory remained in markets such as base station. We have worked closely with our customers to address inventories, while continuing to deliver highly-differentiated products. They have rewarded us with new opportunities and new design wins and this underpins our expectations for growth this year and beyond. Across our three operating segments, Qorvo enjoys multi-year technology upgrade cycles supported by global macro trends, including connectivity, sustainability and electrification. New protocols and new technologies are offering improved performance and enhanced functionality and Qorvo is critical in enabling these capabilities. This is playing out in aerospace and defense, automotive, base station, broadband, connected home, power devices, power management, smartphones, Wi-Fi and other markets. Where the performance is measured power out, data throughput, talk time, battery life or distance between charges, customers increasingly require higher levels of power efficiency, integration and functional density. To enable their future architectures and deliver successive improvements in our next-generation products, they rely on Qorvo's best-in-class technologies and solutions. In HPA, we are a strong beneficiary of the trends in our defense and aerospace business towards what we call one to many. Put simply, Qorvo's technologies are supporting higher customer volumes requiring more electronics and higher levels of integration. This applies to unmanned vehicles like drones,…

Thanks, Bob, and good afternoon, everyone. Revenue for the quarter was $1.1 billion. Non-GAAP gross margin was 47.6%, and non-GAAP diluted EPS was $2.39, all exceeding the high end of our August guidance. Revenue increased approximately 70% sequentially and benefited from significant content gains at our largest customer. Consistent with our guidance, factory production levels improved but remained below historical averages. During the quarter, the impact from underutilization and factory-related variances was approximately 550 basis points versus approximately 800 basis points last quarter. The increase in gross margin above the high end of our August guidance range was largely the result of revenue upside and product mix. A larger portion of September revenue was manufactured at external silicon foundries and processed at third-party OSAPs. By comparison, our December and March revenue will reflect a larger percentage of higher cost inventories manufactured internally during periods of lower utilization and a lower percentage of products manufactured at external silicon foundries and OSATs. Beyond this fiscal year, we continue to see a clear path back to 50% plus gross margin initially during specific quarters and then on a full year basis. Non-GAAP operating expenses in the quarter were $246 million, slightly higher than our guidance due to performance-based incentive compensation. We are investing in new product development and targeting multi-year growth opportunities across all three segments. In addition to growth-oriented investments, we're also investing in enterprise-wide productivity initiatives. These multi-year efforts will support future growth and enhance profitability as we upgrade, modernize, and standardize around the latest tools and best practices. In total, non-GAAP operating income in the quarter was $279 million for 25% of sales, which increased from 7.2% last quarter. Breaking out operating margin by each segment, ACG was 34%, HPA was 17%, and CSG was negative 27%, which includes the…

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Tim Arcuri of UBS. Please go ahead.

Hi, thanks for taking my question. This is [Iman] (ph) jumping in for Tim. Just looking into fiscal 2025, I actually think about the trajectory of gross margin as utilization starts to come back, is there a certain level of revenue we should be thinking about for our core loan to be back at that 50% range?

Sure, I'll take that. This is Grant. Thanks for the question. There are a large number of factors that can influence gross margins such as revenue mix and input costs including utilization impacts. So I wouldn't think of it in terms of an absolute revenue level. Some products carry a higher gross margin than others due to the nature of that business or end market. For instance, looking at our base station product line, which is generally accretive to gross margins, but with base station demand weaker, coupled with the excess channel inventories we've been talking about there, this is currently a headwind to margin versus historical levels. Product mix can also impact gross margin based on where it's manufactured. As I mentioned in my prepared remarks, for instance, last quarter we shipped a higher portion of products that were manufactured at external silicon foundries and processed at third-party OSATs, and those products are not impacted by our internal factory utilization, which as we've mentioned, is running below historical averages. Aside from product mix, unit cost is the other half of the equation. It's a bit more complex given that input costs can affect gross margin on a lagging or leading basis. For example, historical underutilization will create higher unit costs in that inventory and as it's sold in future period, that impact lags. Alternatively, in anticipation of lower future demand, production volumes can be cut and utilization will fall. And in that sense, the impact tends to lead those anticipated changes in demand. So there's a number of factors that impact gross margin. I, again, wouldn't think of it in terms of an absolute revenue level, but rather a time of us to move through our high-cost inventory, return utilization levels back to normal, run the factories efficiently, and we'll be on a path back to 50% plus.

Thank you.

The Next question comes from Gary Mobley of Wells Fargo Securities. Please go ahead.

Hi, guys. I wanted to pick up, Grant, with your detailed response to the last question. I know in your prepared remarks you said gross margin throughout fiscal year ‘25 will, at times, be above 50%. So I presume that would be in your seasonally strong periods. And -- but did you say that as well 50% or above is the target for the full year or just the specific few quarters of seasonal [peakness] (ph)?

Sure. I said that I think it will achieve 50% on a specific quarter before it achieves 50% across the whole year. And that's somewhat macro dependent and obviously the volumes will dictate at what levels we return to a utilization where that's possible.

Okay. And, Bob, you mentioned, I think, in describing the fourth quarter of this year in line with market conditions. And so your full year guidance implies no more than a 10% sequential revenue decline in the fourth quarter. So how would you call the seasonal trends in the fourth quarter? Are we talking about mid-single-digit, I think which is usual, or perhaps as much as double-digit percent declines?

Sure, Gary. I'll talk to -- at least the high level, just make sure we're clear on what we typically see in the fourth quarter, which as we've said all along, typical anymore isn't typical because it seems every time we're faced with something different from losing our second largest customer to COVID hits to various economic factors. What my comments were around is, given the current economic outlook, we're not expecting our markets to rebound. And as we work through all this general inventory that we talked about, we're going to hit the, what we think is the end market demand. Now, end market demand typically, and what we're forecasting now is -- what we see is our largest customer's rent continues to come down in March. We have a seasonal, usually the weakest quarter for our China Android business in March, and some of that is offset by a ramp at the largest Android customer that we have. So, as far as percentages go, I'm not going to call percentages, I'm just telling you that from our view, that's the dynamics that are driving most of our business. We -- Grant commented that our ACG business is growing year-over-year. Our CSG business will start growing this quarter and will be up in March. And really the lagging business for us is our HPA business and we've talked about what's going on there with primarily what used to be our largest business in the infrastructure side and we're not seeing that now. So when you integrate all that, we're still comfortable we're going to be up significantly in March year-over-year, and we're comfortable we're going to be up for the fiscal year ‘24 over ‘23. I don't know, Grant, if you want to add anything to that, while I’ve given all the moving pieces.

Sure. No, I think you covered it, Bob. I'd say, maybe 10%, but certainly not 15%, right? We're committed to the comments, any macro-related disruptions aside, that we see growth in fiscal ‘24.

The next question comes from Karl Ackerman of BNP Paribas. Please go ahead.

Yes, thank you. I have a clarification and a follow-up. I guess, just given the content gains in your largest customer, is it fair to say that customer now exceeds 50% of your revenue in the quarter?

We won't comment on any customers within the quarter, but we'll sum it up on the 10-K. The only thing I'd say about 10% plus customers is that we did have more than one in the quarter.

Thank you for that. For my follow up, MediaTek suggested that 5G units should grow double-digits next year, certainly above overall smartphone unit expectations of low singles. Most of your exposure to incremental gains in 5G do come from China Android OEMs. I was hoping you could address how you think Huawei does or does not impact your China Android opportunity, both near-term and longer-term? Thank you.

I'll take the first part of that, Karl, and I'll let Dave take the second part since he was just recently in China. Actually, a large part of our growth for 5G Android is still at the largest Android manufacturer being Samsung. The second point I would like to make is, you're right, we do have China exposure in 5G, but most of that is actually in the export market for what they're trying to do to build their brands outside of China. So just keep those two facts in mind. Dave was just in China just a couple weeks ago, and I'll let him talk a little bit more about that and what [at least] (ph) we're seeing, talking to all of our customers there, along with your comment about Huawei.

Yeah, thanks, Bob. And so, maybe I'll start with Huawei and kind of size what we're seeing for you. And prior to the ramp of the new phone that they just announced, they were doing about 2 million units a month. And so we've seen a typical premium tier phone ramp where that peaked up. Last couple of weeks of data, we're actually seeing that come back down. So they may be on the other side of that ramp. But if you look at the incremental growth that we see over what they were shipping previously, it's -- on an annual basis, it's about 10 million to 20 million units. So that's a pretty good growth for that customer, but it's not that meaningful when you look at a total market size of about 1.2 billion smartphones per year. Now, when it comes to our China customers, as Bob said, a large part of their business and a lot of their growth is coming from overseas business and so we're very well represented across our China OEM customers and certainly in that overseas business, that's where we see a lot of the higher share and growth opportunities. So it's not just a China domestic situation that you have to look at. You have to look at that overseas business. And many of those customers have pretty significant market share in a lot of those overseas markets.

The next question comes from Toshiya Hari of Goldman Sachs. Please go ahead.

Hi. Thank you. I just wanted to follow up on the China Android market. I guess specifically, what kind of trends did you see in the September quarter on a sequential basis? And what's embedded in your guidance for December? And related to that, we've been getting more questions about the competitive landscape in China. You guys have pretty good visibility and obviously you've got good relationships with your customers. As you think about models coming out in 2024, any concerns around market share, how should we think about gen-to-gen content growth, particularly as it pertains to your OEM's export business? Thanks.

Dave, you want to handle that?

Yeah, sure, Bob. Let's see, where to start. The China customer base in the export market as well as in the domestic market, they've got some pretty compelling products. As Bob said, I was just over there a few weeks ago, I got to meet with all of our customers. Our relationships continue to be very strong. They place a very high value on what we bring. And they all reinforce that Qorvo is their main global strategic supplier for RF. So we have deep discussions with them on roadmaps to align their needs to our product plans. And they're very highly engaged on our new low, mid, high S-PAD platform that we announced a couple quarters ago. Additionally, they're looking at expanding their business with us in other areas such as power management, sensors, and the L2 wideband. So the overall market, as Bob mentioned, the channel inventories are approaching normal, many of those customers are getting to pretty healthy levels. So as we've been saying all along, what was a headwind is now becoming a tailwind. So we're starting to see that growth. We had our largest bookings quarter in over two years. So our customers have now gotten past the concern about inventory and they're looking forward now and starting to place orders more aligned to what their true production plans and unit demand is. So that's certainly improved a lot. Now having said that, as Bob mentioned also, we're not anticipating any major rebound in the end market. We're just excited about the design wins that we've had and the inventory in the channel being cleared out and that's driving a lot of our growth as we go forward.

Got it. And then as a quick follow up outside of mobile, some of your broader analog peers have talked about signs of weakness or clear signs of weakness in industrial and parts of automotive. I think comms infra has been weak for a couple of quarters now. But I guess the question is, outside of mobile, what kind of trends are you seeing, and what sort of trajectory are you assuming as you sort of progress through the December quarter and go into March outside of mobile? Thank you.

Sure, Toshiya, this is Grant. Let me take that one. We don't explicitly guide by segment, but the views for each of those businesses is factored into our total guidance. I'll try to provide you a little bit of color there and then Dave can jump in and add. We have a pretty diverse collection of businesses that serve a number of end markets, and they're not all in phase. As Bob pointed out last quarter in fiscal Q2, ACG returns to the year-over-year growth that we expected, and we'll continue to see that for the rest of the year. And then this quarter, our fiscal Q3, we forecast our CSG segment will return to year-over-year growth. And then finally, in Q4, we expect HPA to return to year-over-year growth. So the businesses are a bit out of phase, if you want to think of them that way. Just continuing with HPA as an example, directly to your question, if you look inside of HPA, there's various trends within each end market. It probably won't surprise you, but the base station market being weak, is an example. Our revenue is down over 50% year-over-year for the last four quarters. A few years ago, actually, we hit $200 million in that business before the Huawei ban and the 5G base station rollout slowed. But outside of China, only 25% of that mid-band 5G infrastructure has been built, so there's a lot of opportunity. But that's one area where we continue to see some meaningful headwind and market weakness. Beyond that though, there's also the broadband area within HPA. We have a very strong position there, high level of share, but the DOCSIS 4.0 upgrade cycle may be a bit slower and there could be some pockets of inventory in the very end products there. So the situation within infrastructure is very different than, say, our defense and aerospace group where we're benefiting from significant strength and expect to grow in fiscal Q3 and fiscal Q4. So, there's a lot of cross currents there when you get into the details, but this is why we maintain a diverse set of businesses. And a lot of them share the same manufacturing footprint, which creates the operating efficiencies, but also scale and the diversification on the top line.

What I'll add to that is in the cellular IoT market, actually we saw this turn about two quarters ago down. So with CSG coming back, as Grant pointed out, growing next quarter, that's -- we're not expecting the IoT -- cellular IoT business to come back. That's been down for us and we've been working through inventory in that segment as well. So I think that's been some commentary as well.

Yeah, I think you mentioned automotive as well. And we're growing from a pretty small base there. So Bob talked about a lot of the design wins. We're pretty excited about the growth opportunity there. So that's all new programs. It'll be ramping over the next couple of years to help drive that growth for us. But it's coming off of a relatively small base. So we're not as exposed there to really maybe see some of the things you're seeing from some of our peers.

The next question comes from Ruben Roy of Stifel. Please go ahead.

Yeah, hi, thank you. Bob, I wanted to ask about the ultra-wideband marketplace. I think in the past you've had a few system wins in the Android ecosystem for ultra-wideband. I don't know if they were characterized as flagship back then, so maybe if you could talk about the [roll-out] (ph) opportunity in smartphones specifically that you're seeing and then expanding outside of handset? Again, in the past I think you've characterized the market as several hundred million dollars of opportunity. You're talking about a $250 million lifetime opportunity in the auto win. So has anything changed? Are you seeing accelerating development? And if you can give us an update on how you characterize the opportunity, that'd be great.

Sure. Thanks, Ruben. Extremely excited about what the team's accomplished and some big wins in ultra-wideband. One of the Android phone manufacturers, Google, we've been in for a couple generations now. So we've talked about that and that's -- you can get teardowns, I think from our comments who the next one is. What surprised us about ultra-wideband is, again, I think we said this a year ago or more than when we first acquired Decawave, that we were on the original platforms in our largest customers phones with the RF front-end for ultra-wideband. And what we believed was going to happen is it was going to take off in phones first and automotive second. What's actually happening is we're picking up a lot more in the automotive side and handset seems to be trailing it, at least in the adoption. Now, as you know, it takes a little bit longer to get to market in a car, so they're out winning platforms now and building those in. So our expectation is we're going to lead in design wins in automotive, but phones are going to come up fast. And Dave mentioned earlier in his comments that we're working with many of the other Chinese handset OEMs to introduce ultra-wideband. The thing I want to point out is in the Tier 1 German manufacturer that we won in, the current win is now to support a German Tier 1, but they will take that same platform to other US and other manufacturers around the world, that platform, plus we've been working with others on platforms that will also go into the automotive areas. So we see a lot of opportunity there. And placements in automotive can go from five or six up to nine or 10. So they can be big wins depending on how they adopt to use the ultra-wideband in a car. And it's more than just, ‘keyless entry.’ And I think that's what's really exciting about the opportunities there. So if I look at that and I look at handset, also a couple quarters ago we talked about ultra-wideband and access points -- Wi-Fi access points for indoor navigation, which is another exciting opportunity. And we're just seeing it now going into other types of products, we're working with various manufacturers, OEMs, for other things in your home that need that kind of technology. So we're very excited about the things that are going on there. Really appreciate your question.

Thank you for all that detail, Bob. I have a quick follow-up for Grant. Just in terms of inventory, and I see the on-balance sheet inventory coming down, ahead of hopefully and potentially a growth year next year. Do you have sort of a target level either in DOI or dollar for inventory or how you're thinking about that as you go forward post December quarter?

Yeah, sure, and we usually have commented on our target around four turns. So high threes to four would be a pretty typical range for us to look to achieve.

The next question comes from Edward Snyder of Charter Equity Research. Please go ahead.

Thanks a lot. First, a housekeeping. Can you give us a percentage of revenue for each of the three businesses? Sorry, if I missed that. And then, Grant, if I take a look at your China revenue over the years, actually, it looks like if you exclude the arrow when you were over shipping and the arrow when you're under shipping, your average is probably close to $250 million to $300 million a quarter. And I know you did about $150 million last quarter. We haven't seen the [cadence] (ph) for September yet, but doesn't it suggest you're dealing with maybe $100 million, $150 million of inventory burn per quarter? I'm just trying to bracket those numbers.

Yeah. Sure, Ed. I can help you with the percent of revenue, but we haven't commented on the China revenue in the quarter. ACG was 77%. HPA was 14% and CSG was the balance of about 9%. And yeah, we haven't commented on what a normalized level of Android revenue or China revenue would be outside of the comments we've already made, but I don't know if there's...

All we'd add is we are still under-shipping to end demand best we can tell. But we're coming up near the end of it.

Right. But when it snaps back to something more normal, you said inventories are normalizing, and I know demand changes year-over-year, but given your kind of incumbent position as a preferred vendor for most of those phones being sold...

Yeah. We've been -- and maybe this will help -- as we bring it down, that means revenues do go up. I mean, it's not -- we haven't been shipping. So we've been up the last two quarters.

Yeah. And maybe, Ed, I would also make the distinction between channel inventory and our own inventories. So channel inventories, we think, are relatively healthy, maybe even earlier than we had commented on in the past where we thought it would take until December. So that's an improving situation. Our own inventories as we're selling through them requires us to achieve the mix shift that we're going to see in the second half. So we'll start selling through our own high-cost inventories in Q3 and Q4 largely and we do expect growth in Q3.

When you said you saw the largest bookings in two years in the last quarter and normally those bookings are for what, a year out or so, I know it varies, but...

No, not a year ahead.

Yeah.

Normal lead times for us.

The next question comes from Srini Pajjuri of Raymond James. Please go ahead.

Thank you. Just a clarification on the China business, either Bob or Grant. I think one of the comments is that, yeah, the inventories are coming down and businesses from the trough levels is growing sequentially. But at the same time, I think, Bob, you said in your comments about the March quarter, you're expecting China to be seasonal. Given that inventories have kind of pretty much normalized, I would have thought China would be better than seasonal in March. So just if you can give some clarification on why it will only be seasonal in March?

Because what I meant was from a demand perspective, in March, that's typically a seasonally low point for China. That's what I said.

Okay. But, doesn't mean that your business is going to decline seasonally in March quarter -- your China business?

What I also said is we've come -- we pretty much cleared out most of the inventory. So we are seeing growth, which is what I just said to Ed this quarter in our Android business in China.

Got it. Got it.

Yeah. Maybe I'll restate what Bob had commented on earlier. Just in terms of next quarter, we do see growth in Android. But March, we do expect to see the typical decline there, which is on the other side of our largest customer's ramp and March is also historically a seasonally low point for handset sales in China. So those two factors are somewhat offset by the largest Android customer and their timing of phone launches, plus the fact that the channel is healthier. So with all that said, we do think it will be better than typically seasonal. But again, it's anyone's guess as to what seasonality means.

Our largest customer has the largest impact on March. So let's see how their sales do.

Got it. Got it. Makes sense. And then this year has been in terms of the content expansion for you, Bob, it's been pretty impressive. And I think some of those content gains also came from share gains. So as you look out to the next six to 12 months, how are you feeling about, because I do get this question about sustainability of some of the content gains from this year. So if you could help us maybe to the extent you have visibility, how should we think about your content gains both in premium as well as in the mid-tier.

Yeah. I can speak to the high-end phones. And I'll start with our largest customer because it's been questioned before. But our growth this year and our largest customer really speaks to the strong position we have there, and we are one of their trusted suppliers as well as the investments we've been making to deliver them these great technologies and products. This year, we grew mostly from new content and gained some share in sockets that we held for many years. So we feel good about that. Now remember, they are a performance-driven customer. We're winning where we're bringing strong capabilities and have consistently done well. Now if you look at the available TAM there, we remain underrepresented. So clearly, that's a target of growth for us, and we'll continue to invest to be able to win there. Now that's also regardless of the baseband they decide to use. We enjoy multiple opportunities to grow our content not only in the areas where we've been strong in the past, but also in areas that will be new sockets for Qorvo. Again, that's about our largest customer. In my prepared remarks, I talked about the leading Android smartphone manufacturer and our ability to continue to gain share there. and we talked about ultra-wideband along with all those types of components. Dave also spoke about in China and bring out our new technologies where we've integrated the mid-high band plus the diversity received into that module. That's going to be the ability to grow there as well. Dave also talked about ultra-wideband in some of those handsets, some of our sensors, power management. So I think as we look across the portfolio, we feel pretty good at our ability to continue to grow our dollar content in handsets whether it's a flagship premium tier or the mass market.

The next question comes from Vivek Arya of Bank of America Securities. Please go ahead.

Thank you for taking my questions. For the first one, you were guiding December sales down 9% sequentially or so. I thought the original intention was to kind of stay flattish. The large customer, I imagine, should be flattish. And I think one of your competitors mentioned a sharp ramp in terms of their China shipments getting into December. So I'm curious, Bob, what is leading you to kind of guide sales down when some of these big customer trends seem to be growing sequentially? Or is it just conservatism? Or is it noncellular market that's guiding that outlook?

Thanks, Vivek. And I know I've said this before, but I'll remind you and the audience, we ship a majority of our parts that are not on the motherboard. So the timing of when we see the ramp is different than maybe you're talking about a baseband customer, I don't know. They're on the motherboard. A lot of what we have goes to the flex circuits. So they build those ahead of the motherboard. So our timing can be different. So I just want to make sure that. That's also, if it's the baseband customer, if you remember, they had an inventory build that they blamed at that customer. We didn't see that build. So therefore, we naturally follow the progression of the builds. They may have had a pause. And as you point out, the inventory will go down, then they would see a quick ramp up. So I can't comment on their business, but I can tell you the timing, we typically lead the ramp because of how much product we have on flex circuits, which is different than most of the products that are on the motherboard.

Maybe, Vivek, I'll just pick up from there. In terms of our prior discussion around the December quarter, the flat comment was relative to $1 billion Q2, and we've just exceeded that by $100 million. So to Bob's point on timing, plus or minus a couple of weeks that our largest customer can make a very big difference. But those two quarters combined are still ahead of where we were communicating previously. So on the net, a positive trend in the top line.

Got it. Makes sense. And then on gross margins. So December, 43.5%, I guess, at midpoint. March, I guess, seem to be implying closer to 41%. And I think the explanation you're giving is that because these two quarters, you are using your internal high cost inventory. So does that impact get over by March as we start conceptually thinking about modeling gross margins from June onwards. What is that starting baseline that we should keep in mind? Is it low 40s? Is it mid-40s? I understand you're not going to give guidance for next year, but I just don't know how to think about what is normalized gross margins as we start thinking about your next fiscal year?

Sure. And, now some of this depends on the inventory, as you pointed out, that we're carrying the high unit cost inventory that we sell through and the mix of that in the March quarter. Some of this also relates to the utilization within the March period as we start to look forward to the demand that we see in the coming year. So it's a difficult or complex question to answer prospectively. But nonetheless, in terms of the gross margin for the March quarter, as I mentioned, our full year guide of 44% and now saying a bit better than that could imply that we have upside to the March to what you've just described. And then in terms of our fiscal '25, it's going to be a gradual continuation from there upwards, I would expect, because the June quarter is still seasonally weaker for us as we head into the larger ramp in September from a seasonal perspective. So hopefully, that gives you at least some idea of how we're going to track into fiscal '25. Maybe going back to some of my prepared remarks, I did say that I believe we could achieve 50% gross margin at first on a quarterly basis and then subsequently on an annual basis across an entire year when we get through the inventory as well as return utilization levels to more normalized levels.

The next session comes from Chris Caso of Wolfe Research. Please go ahead.

Yes, thank you, good evening. The question is on cash flow and on your ability to start ramping the cash flow again once the market comes to a fuller recovery? I suppose that's going to depend a lot on what the CapEx needs are and for how long. And so if you could talk about that, the kind of expectations for cash flow and for how long you can kind of keep the CapEx at lower levels, so you can drive some cash in the next cycle.

Sure. So obviously, we'd expect cash flow to improve materially given the improvement in the P&L. It's a bit of a lagging indicator as we collect receivables. So we should see that. I wouldn't expect anything different in terms of our guidance on CapEx at around 5% of sales or less. Again, that can fluctuate, of course, but I wouldn't expect too much difference there from a free cash flow perspective.

Okay. Thank you. Just as a follow-up, if you could talk about the competitive environment some and one of the things that was noted with the Huawei phone that came out as there was some Chinese RF there, and it's a very different architecture from the phones that you're supplying into your China customers. But I guess the question is, are you seeing anything different with regard to the capabilities of some of the local Chinese suppliers that would have some effect on the market?

Yeah. I think from a capability standpoint, I mean, we don't see anything out of the norm. I mean there's certainly some key technology areas that they're definitely behind in. And so -- and I think if you look across the phone, even outside of the RF, there's probably a lot of areas that the technologies behind and maybe even up to years behind. So I think from a competitive environment, we don't see any big change just because of that Huawei phone ramp.

The next question comes from Blayne Curtis of Barclays. Please go ahead.

Hey, thanks for squeezing me in. And I apologize if you said this earlier. But in terms of the September quarter, mobile came in a bit better than you were expecting. I believe the expectation was that you weren't going to see much Android growth. Can you just clarify if that upside came from Android to your largest customer? And I don't know if you gave the percentage [of two 10%] (ph) customers? So are you willing to give those out?

Yeah. Thanks, Blayne. This is Grant. No, we didn't give out the percentages. We'll do that annually, but I just did mention that we had two. In terms of the quarter, the upside in revenue was largely driven by ACG and it was predominantly our largest customer, but not entirely so.

Got you. And then I wanted to ask, just follow back up on that gross margins. I'm trying to understand, I guess, your mix has shifted dramatically to this largest customer, and I'm just trying to figure out if that, how much of an effect does that have on your gross margins, the customer mix versus the utilization of your fabs? Does that have any impact or not?

Yeah, sure. So maybe if we just look at bridging Q1 to Q2, so there is 470 basis points of improvement there sequentially. Of that, maybe 2.5% was moving from the 800 basis points of underutilization to 550 basis points. So there's 2.5% and that was largely anticipated in the guidance of 45% to 46% for Q2. And then that leaves a little over 200 basis points left. Now that included some quality and other items, but it was primarily the product mix that I mentioned in the prepared remarks, where we are producing that product on silicon foundries outside of Qorvo’s factory network and then processing them at OSATs that are third parties. So, that doesn't carry the same burden as the higher cost inventory we'll be selling in the second half.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

We want to thank everyone for joining us on today's call. We appreciate your interest in Qorvo and we look forward to speaking with you at upcoming investor events. Thanks and have a great night.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.