Good day and welcome to the Qorvo, Inc. Second Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Douglas DeLieto, Vice President of Investor Relations. Please go ahead, sir.

Thanks very much. Hello, everyone, and welcome to Qorvo's Fiscal 2025 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 our 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 have 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 our call. Similar to our first quarter earnings call, our prepared remarks tonight will focus on achievements and opportunities by end market. Qorvo's six end markets are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure and mobile. Our markets are underpinned by global megatrends such as electrification, connectivity, mobility, sustainability, datafication and AI. These trends make possible new functionality and new user experiences that are made available to end users by the customers we serve and the products we enable. Consistent with our comments at our Investor Day, in HPA, we continue to expand our defense and aerospace business during the quarter while building a broad-based business in power management. For the full fiscal year, we expect HPA will grow in the mid-teens. In the markets served by CSG, we maintained our Wi-Fi leadership during the quarter while investing in diverse growth businesses, including an expanding portfolio of automotive solutions and SoCs for ultra-wideband and Matter. We expect CSG will also grow in the mid-teens this fiscal year. In the mobile market, ACG supported a seasonal ramp during the quarter at our largest customer. As we said during our Investor Day, our largest opportunity in ACG is with this customer. They represent over half of the smartphone RF TAM and we are investing today to grow our share with them next year and in subsequent programs over multiple years. Within the Android ecosystem, Qorvo is a leading supplier to the flagship, premium and mid-tier 5G smartphones. While the flagship and premium tiers are holding up well, the mix in the mid and entry tiers has shifted towards entry tier 5G at the expense of mid-tier 5G. In our current view, we don't expect this mix shift in Android 5G from the mid-tier to…

Thanks, Bob, and good afternoon, everyone. Revenue for the quarter was $1,047 million, representing an increase of 18% sequentially. Revenue exceeded the midpoint of our guidance range, driven by double-digit sequential growth in all three operating segments. Non-GAAP gross margin of 47% matched the high-end of our guidance range. Non-GAAP operating expenses in the quarter were $280 million, which included approximately $7 million of spend associated with our digital transformation. Non-GAAP diluted EPS of $1.88 came in above the midpoint of our guidance range. On the balance sheet, as of quarter end, we had over $1 billion of cash and equivalents and approximately $1.5 billion of long-term debt. There is approximately $412 million of our 2024 notes that remain outstanding, which we currently expect to retire this December. We ended the quarter with a net inventory balance of $694 million, the lowest balance in three years, reflecting our ongoing inventory reduction efforts. This represents a decrease of $32 million sequentially and over $145 million on a year-over-year basis. Turning to the cash flow statement. We generated operating cash flow of $128 million and capital expenditures of $33 million, resulting in free cash flow of $95 million. As a reminder, our CapEx spend will vary quarter-to-quarter and reflects the timing of cash disbursements. Consequently, CapEx as a percentage of sales in any given quarter may be above or below our target of approximately 5% of sales. We repurchased approximately $81 million of stock at an average price of $110 per share in the quarter. The rate and pace of our share repurchases considers several key factors, including our long-term financial outlook, free cash flow, debt maturities, alternative uses of cash and other relevant strategic considerations. This approach ensures that our capital allocation strategy balances future growth with the return of capital…

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Tom O'Malley with Barclays. Please go ahead.

Hey, guys. Good afternoon. Thanks, Bob and Grant for getting me on the call here. So I just wanted to dig into the commentary in the press release on the content and ramp profiles varying by model. You had some comments on Android later. So obviously maybe more associated with the large North American customer. Can you just kind of parse that out. Obviously, headed into the year, you had talked about a good content outlook. But does mix mean a shift in units more towards the low end. Does that mean RFFE that's lower. When I look at like the first three quarters of your fiscal year, it seems like you're trending down year-over-year pretty substantially. So just maybe help me walk through what's actually going on there?

Sure. Thanks, Tom. This is Grant. Let me take that one. If we look at the year on the whole, as I said in our formal remarks, we expect fiscal '25 to be down slightly compared to fiscal '24, call it, maybe a few percentage points or so, very low single-digits. And that reflects the shift in Android 5G that we mentioned in the mass market area and the transition to some of the entry tier levels. Outside of that mass market, the flagship and premium tiers, as I said, are holding up well, and there are some unfavorable trends there in some of the variables like unit volumes, content by model, ramp profiles and other variables. And that's really any customer, we're not being specific, but it's across all of our customers in that tier. In the -- at least at our largest Android customer, our revenue in their highest volume fall models is less than it was last year and less than the design wins that we're actually looking at in the spring launch. So I feel comfortable and confident there about that particular handset. At our largest customer, there's little that we can say. However, we do expect a low single-digit decline in revenue there for that confluence of variables that I mentioned earlier. But as we look into next year, we continue to be enthusiastic about the breadth of our opportunities at our largest customer and we're engaged on more programs today than ever in investing to increase our content. So we're competing for products that we've supplied before and some placements that are new for us.

Appreciate the color there. And then the second is just on the gross margin profile. So if you look at your December guidance, you just gave some OpEx in the commentary, so it implies kind of 44% and change on the gross margin side. You're talking about some manufacturing changes as well to help optimize the business given the lower volumes that you're seeing in the mix shift of Android. But could you maybe talk about the structural long-term path to kind of get back to the mid-40s or to the high 40s. How long is that going to take or do you think that structurally kind of for the foreseeable future, the 44% gross margin level is the right way to think about things or does it get worse given their manufacturing decisions?

In terms of our long-term view, no change to our guidance at the Investor Day around 50% plus long-term gross margins. So no change there. On gross margin in the December and March quarters and into early '26, fiscal '26, we do expect to see the headwind associated with that mix shift and the entry tier for those Android devices. It will cause the utilization and gross margin to come down a bit versus our prior comments. But we still expect fiscal Q1 to mark the low point in fiscal '25 and we will report a full year for fiscal '25 with margins in the mid-40s as you pointed out, somewhat comparable to last fiscal year, plus or minus. But I do maybe just quickly note that in the December quarter, year-over-year, our gross margin will be up on lower revenue. So it really substantiates the hard work we're doing to pull costs out.

Thank you.

The next question will come from Tim Arcuri with UBS. Please go ahead.

Hi. This is Aman jumping in for Tim. I just wanted to double-click on the December guide and your comments for revenue being down year-over-year. I mean is that always like the mix shift inside of Android or is something happening at your largest customer in the last couple of weeks or potentially to cut units?

Sure. No comments on customer specifics. But generally speaking, as we said, we expected the premium flagship tiers to be holding up well. The Android dynamic is having an impact on us as we intentionally pivot away from the entry tier areas that are more margin compressed and focus ourselves on the higher tiers and the areas of the mid-tiers where we see the most value for us and our customers. So at least in terms of overall volumes, I wouldn't read it directional to any one particular customer.

This is Bob. I'll add to that. The CSG is also going to be down quarter-over-quarter. There's a few reasons for that. We can go into that later. I think that's also important to keep in mind. And historically, if you look at the last three years, we have been down in December just because of the profile of our largest customer.

Got it. And then in terms of the mix inside of Android, I mean does that change your longer-term growth targets for mobile moving forward like relative to what you provided at your Analyst Day?

As far as ACG goes, we're still sticking with our strong single-digit growth rate there. Grant had in his prepared remarks. So we don't see that affecting us long-term by any means. And in fact, we gained confidence every day, it seems that we're going to be able to grow that business while Android's declining, just to be clear.

Your next question will come from Christopher Rolland with Susquehanna. Please go ahead.

Are you there, Chris?

Hi, sorry about that. So I know it might be a bit early to talk about March, but seasonality, you guys have traditionally been down, I think, 10% or 11%, something like that. And I'm a little conflicted here how to think about this. It seems like in one way, you're more reliant on your primary customer. So as we look out, how might this outlook compared to traditional seasonality as you view it today?

Sure. Thanks for the question, Chris. The big seasonal drivers, as you point out, are pretty well known. But usually, the impact of the seasonality can vary year-to-year. So we don't provide formal guidance out that far in advance. But for modeling purposes, you could assume that we'd be down in the, let's call it, 5% to 10% range sequentially, which would fit in with our total company commentary around being down very modestly for the full fiscal year. Directionally, we would expect ACG to be down more than that just given the seasonal dynamics there. But we should expect both HPA and CSG to be growing in the March quarter. In fact, HPA substantially. So we have, as Bob pointed out, some record design activity there. And in fact, we actually had record billings activity as well. So feeling comfortable about our HPA business heading into the end of the fiscal year.

Thank you for squaring that circle for me. And then if I heard it correctly with your footprint change, I believe, I heard that you were anticipating growth in SAW. I was wondering if you could flesh that out a little bit? And then how do we think about the dynamics for you guys SAW versus BAW opportunities moving forward? Thanks.

This is Bob. Grant, I'll go ahead and take that. From a SAW perspective, as we talked about a couple of quarters ago that we released our next-generation SAW. And there are certain bands that are in the mid-band spectrum, if you will, where SAW performs quite well. That's our LRT SAW that is not a standard SAW or temp-comp SAW. So we see plenty of opportunities in that, whether it's in the transmit path or the dual on the TX DSM as an example on the secondary transmit. And for some opportunities, as we're seeing more and more people want Power Class 2 in some of the lower frequencies, it's another good technology there. So we just see many different sockets. Traditionally, when people think SAW, they think just the low band, we're seeing it now in the mid-band, high-band opportunities. Again, as you mix some of that mid frequency band, we see a couple of bands where it's absolutely the right technology.

Okay. So this sounds like it's SAW primarily for Android. Is that right, Bob?

It's available to any of our customers. Like I said, it's frequency dependent.

Excellent. Thank you, Bob.

The next question will come from Edward Snyder with Charter Equity Research. Please go ahead.

Thanks a lot, guys. So you mentioned we shouldn't read anything into the -- in volumes in your guidance for December, unit volumes in phones anyway. So it seems to imply there's a content shift that maybe was unexpected. Can you elaborate on that? Is that a fair conclusion, first of all or is content as solid as you thought it would be at the beginning of the year. When you guided you thought you'd grow year-over-year in content and then something else going on? Maybe you could help us with that.

Thanks for the question, Ed. I think the comment was a couple of quarters ago when we said we expected to grow slightly for the year. What's actually happened is primarily the Android is what's off from our expectations. That's what's off. Grant commented already a little bit about our largest Android customer for their spring launch. We did not do as well as what we had expected as in prior years, but we already know we're going to regain that back next year. So I feel good about that, but that definitely was a share loss that we weren't planning on. But also that whole dynamic that we've talked about, the mid-tier moving down and the pricing discipline that we're putting in intensely saying, we're not going to chase this bad business. So that's been the shift over the last six months or so and it's really been accelerated over the last probably four months.

Just to clarify, Bob, in our largest Android customers, the second half models, where our content is lower. We expect to gain that back in the first half of next year.

Correct. Thank you. Right.

Right. Okay. So if we sit back, Bob, I'm trying to see you strategically, I mean, when you were there during the GSM Day at GSM, the Wideband CDMA days in the early 2000s where it was kind of a zero-sum game because there just wasn't much content being added to phones. That all changed with 4G. And as we kind of expected when you first look at 5G, we're kind of turning to that model here where it's mostly a share shift. You're already seeing it just as you guys announced the day and we've seen it for some time that the Chinese are moving in that direction where they're taking value out of a lot of the phones. Samsung is clearly cut content in their flagships versus what they used to do two or three years ago. And now it sounds like competition in your largest customer has heated up significantly over the last couple of years. So, Bob, strategically, I mean, there's only so much you can do with the market that's kind of flattening out and modest growth here and there. What do you think you've got some great assets, especially in the defense side of the business? Is another area you can start engaging in or maybe pour more OpEx and R&D and to try to make up for kind of just, I would say, kind of a flagging handset business, which looks like it's going to continue for some time? Or I'm sorry to make this a paragraph long question, but are we looking at, well, I mean it's clear from talking to the handset OEMs that in the next couple of years, once your largest customer gets their own modem involved that we're going to start moving into AI enabled phones, which doesn't directly affect you, but it does kind of ancillary effect you in terms of the content is going to go up and the size is going to go down. Is that something that we can look forward to in driving more of your phone business?

Ed, thanks for the question. A lot to unpack there, but let me start at the highest level. As far as more competitors, our largest customer, I guess that's thanks to us. As Grant said in his prepared remarks, we're now working on sockets that we had not worked on before that are now, we believe, available as to win. So we're not seeing any new competitors there. I think it's the same people. I think as you've commented, we've shifted R&D dollars already ahead of, again, what we thought was going to be there ramp down in some of our Android business. It's just it's accelerating the decline faster than what we expected. So I wouldn't say there's new competitors that are largest customer. We feel good about that. As far as the flagship phones, we still believe we bring the technologies that's needed to be able to make a good margin there, which is why we said we'd stay focused on flagship and premium. And yes, maybe from an RF content, there may not be more being added in some, but there's still other areas that are being added in the RF section. We talked about terrestrial. But I think people are losing sight of. We still need more and better RF. I commented about Power Class 2. That can't be done with a traditional SAW filter. And we're seeing more and more Power Class 2. You've heard us talk about that over the years. So we still think there's a place for us to play with our technology so we can win. Now your comment about being able to invest in other areas, yes, we have shifted dollars. I'll remind the group that we've shifted the dollars into D&A as well as in the power management and HPA. We exited the infrastructure market with our -- where we were focused on our GaN for the PAs. As you know, that market has gone to roughly 4.5 customers that were available to us to 2.5 that being Ericsson, Nokia and a little bit of Samsung. So we've already shifted those R&D dollars. And we're -- we talked about our D&A business growing. And quite honestly, for the group to hear, our D&A business is now bigger than our China Android-based cellular business. So we're doing some of the things you've mentioned. And while I've got to stand right now. In CSG, we're looking for that along with HPA to both grow double-digits this year. And in CSG, as you know, we've been investing in ultra-wideband matter, along with the automotive area and again, maintaining our share in Wi-Fi. So feel good about how we're shifting the dollars, but as you know, growth first comes from our largest customer, then it will come from our D&A and Power business. And then lastly, in our CSG business. So thanks for the question, Ed.

Thank you.

Next question will come from Nicolas Doyle with Needham. Please go ahead.

Hey, guys. Thanks for taking my question. Just I guess a clarification on the entry segment of Android. Are you guys walking away entirely? Or I mean I'm thinking if Android is mixing down, you guys have talked about the LMH pad gain. So just wondering when that can start to offset. And also how long will the mix shift to entry phones be an overhang? Does it go away, does the overhang go away entirely? Or do you expect some stabilization at some point in calendar '25?

Thanks, Nick. This is Grant. Let me take the second part of your question and then I'll pass it over to Dave. At least in terms of the TAM, which I think you are hinting at, I believe it will be more like a reset and then we'll grow from there. And as we communicated at Investor Day in that single-digit range, but call it a reset of maybe $1 billion approximately in the TAM and we're seeing that in our fiscal Q3, Q4 and probably into Q1 of fiscal '26. And then from there, I think, we'll have readjusted rather intentionally via our pricing discipline, our position in the markets in some of the mid-tier. And as you pointed out, the LMH, which I'm sure Dave can talk more about. But it's very much an intentional move in order to prioritize profitability and focus on the customers where we're adding value, and they recognize and are willing to pay for those integrated modules to differentiate their phones. Dave?

Yes. So as far as that shift, as Grant mentioned, it's largely driven by the macro weakness and especially in China, but other markets as well where the consumer behavior has shifted. And so we're responding to that. And as it relates to the low, mid, high, we mentioned last quarter that we're just starting to ramp that. We now have design wins and POs with the top four OEMs in China. But our expectations now for that product family is that we will not participate in that, especially in that entry tier, as Grant mentioned, with our pricing discipline. It's not a market that we plan to participate in. So we're going through a bit of a pocket, that pocket may be a little bit bigger as we transition from the old architecture to the new low, mid, high architecture, but also as we come out of the other side of it, our expectations now for that family of products is certainly lower than what it was due to the TAM reduction that Grant mentioned.

Thanks. And then my second question is on the OpEx. Could you just expand a little bit on the reductions? I know you mentioned a couple of things in the prepared remarks. But I guess how does that impact the line item near-term, I guess, down $15 million or so next quarter? And does that continue trending lower? Thanks.

Sure. On OpEx, our guide incorporates the reductions that reflect that change in the Android business. Resource allocation, as Bob was pointing out earlier, is an ongoing process, right? It allows us to focus on and shift dollars to the best investment areas that we have. And I think that will continue as we look forward in time and continue to develop the plans and target areas for our OpEx dollars going forward. I won't guide OpEx any further than the current quarter, but it is definitely an area that we're going to use to realign ourselves with the highest and best use of our resources.

Thank you.

The next question will come from Krish Sankar with TD Cowen. Please go ahead.

Hi. Thanks for taking my question. I actually had two short-term and a long-term question. First one, Bob, on the short-term, over the next two quarters, when I look at your guidance relative to the consensus, it's like about $300 million below. How to think about it in buckets? How much of it is kind of related to the unfavorable mix in the content versus how much of it is related to weak volume ramp from your largest customer?

Sure. This is Grant. Let me take that one. So we haven't bucketized it, but a considerable amount is related to the underutilization charges. They were approximately 170 basis points in the quarter and we'll probably grow by 100 basis points or so into Q3 and Q4. So we can add that back and you get quite a ways towards our 50% target. Beyond that, some of the other structural changes that we're making, if you have to find their way into the cost of goods sold line. We talked about moving to 8-inch BAW. We've talked about migrating our capacity for gas to Oregon, those will begin to help as well. And then as our product portfolio pivots, we'll have a higher percentage of revenue coming from HPA and CSG, where we expect some margin accretion there just from a business mix. So quite a number of factors happening at various stages sequentially. And so those should all factor into the long-term achievability of our 50% gross margin target. Just by means of reference, if we do look at some of that business that we're talking about in the Android space, right now, China-based Android is under $100 million and expected to trend lower over the course of fiscal '26. So our exposure to that has grown smaller. It is -- if you look at our China-based Android revenue down over 75% from the peak and Android revenue in general is down 50% from the peak. So significant reduction in exposure there already. And as we move forward, we'll be adding in or looking to add in more margin-accretive revenue going forward.

Got it. Thanks for that Grant. I think you kind of answered my next question which is the long term, which is kind of like about the 50% gross margin because it looks like some of the headwinds you are facing it, there is some cyclical content-related stuff. There's also some structural changes. So with the TAM reduction, et cetera, is it fair to assume restructuring plus focus on profitable opportunities is kind of what gets you to 50% or do you think there are other levers that you could pull?

It's a fair mix of both. I'd say it's the business mix exposure to HPA and then improving profitability in CSG and as well as a focus on profitability within the Android ecosystem, especially as we target some of the premium flagship and the upper end of the mid-tier where highly integrated devices and our gross margin is better.

Got it. Thank you very much.

Thank you.

Your next question will come from Peter Peng with JPMorgan. Please go ahead.

Good afternoon and thanks for taking my question. If I look at where consensus expectations versus the guidance for the ACG segment. It seems like it's about $400 million for Shortfall. Maybe if you can just bucket into the bucket that you described. How much of that is just a shift to the lower tier? How much of that is just different content and rental?

Thanks for the question, Peter. It's hard for us to bucket anything against analyst consensus because we don't model analyst consensus. So I don't have a good baseline to compare it to. As we look at it, a healthy portion of it is simply related to the models, mixes and associated volumes there as they impact Qorvo specifically. A large portion of it is related to our pricing discipline. And as we look into the second half, the trend toward the entry tier Android 5G, which has a, as I mentioned, $1 billion impact on TAM, and we have a meaningful market share there, call it, in the 20% to 30% plus market share. So it has a very meaningful impact on Qorvo specifically.

Got it. Okay. And then a follow-up is on your largest customer, does your content vary across the different SKUs or do you have a certain index over index exposure to certain SKUs?

This is Bob. I'll go ahead and take that one. It's obviously public if you've done teardowns. We have various content depending on the models and the SKUs and where they go and that's continued through the year. So mix and models within the current year, the prior year, the year before that, that all gets into the mix and models that Grant was talking about. So yes, our content varies. It's not the same in every phone they make.

Thank you.

Your next question will come from Karl Ackerman with BNP Paribas. Please go ahead.

Yes. Thank you, gentlemen. I have a clarification question and a follow-on. I'll just ask at the same time if I may. What is the right way to think about the mix you have of mid-tier Android of that $100 million per quarter you're running at today? And the reason why I ask is I guess how much of the change in your outlook on China Android is driven by competitive dynamics from Chinese RFP vendors versus market demand dynamics shifting to different smartphone OEMs that you may not have exposure with today? Thank you.

Yes. This is Dave. Historically, we've been more concentrated in the high tiers and down to the mid-tier. And with the shift into the entry tier, that's obviously a headwind for us. So what was the second part of your question?

One other questions I think he was asking is a competitor where we don't play, maybe he is hitting at Huawei, I mean that's playing out as we expected.

Yes. I mean, Huawei is definitely playing out as expected. I mean they're on track for what we had projected earlier in the year to do about 45 million units. So I don't think that's meaningfully different than what we thought. The big change is with this shift into the entry tier and the competitive dynamics there as you go down in the tier, the discrete solutions become more prevalent. And the pricing environment, as Grant mentioned, is tougher there. So we don't tend to compete there. The other dynamic is our customers tend to outsource the lower end phones to the OEM channel, which we don't traditionally participate in. Historically, that's been mostly 4G. We're seeing more and more of that is 5G entry tier phones as well. And so as they outsource those phones, that directly comes out of our available market.

Got it. Thank you.

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

We want to thank everyone for joining us on tonight's call. We appreciate your interest and we look forward to speaking with many of you at upcoming investor events. Thanks again and have a great evening.

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