Skyworks Solutions, Inc. (SWKS) Q1 2011 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Skyworks Solutions First Quarter Fiscal Year 2011 Earnings Call. [Operator Instructions] At this time, I will turn the call over to Mr. Steve Ferranti, Investor Relations for Skyworks. Mr. Ferranti, please go ahead.

Thank you, Marvin. Good afternoon, everyone, and welcome to Skyworks First Fiscal Quarter 2011 Conference Call. Joining me today are Dave Aldrich, our President and Chief Executive Officer; Don Palette, our Chief Financial Officer; and Liam Griffin, our Senior Vice President of Sales and Marketing. Dave will begin today’s call with a business overview, followed by Don’s financial review and outlook. We will then open the lines for your questions. Please note that our comments today will include statements relating to future results that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially and adversely from those projected as a result of certain risk and uncertainties, including but not limited to, those noted in our earnings release and those detailed from time to time in our SEC filings. I would also like to remind everyone that the results and guidance we will discuss today are from our non-GAAP income statement, consistent with the format we have used in the past. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. I will now turn over the call to Dave for his comments on the quarter.

Thanks, Steve, and welcome, everyone. I'm pleased to report that Skyworks is off to a great start in fiscal 2011. Our strong first quarter results demonstrate solid execution by the entire Skyworks team and illustrate how our revenue diversification, technology leadership and our operational focus are improving our financial returns. Specifically during the quarter, we delivered revenue of $335 million, representing 37% year-over-year growth. We expanded our gross margins to 44.7%. We posted operating margins of 27.7%. We improved operating income by 78% year-over-year to $93 million, and we posted $0.45 in earnings per share. At the same time, we further strengthened our balance sheet by retiring our $50 million credit facility. We repurchased approximately 800,000 shares of our common stock, and we still improved our net cash position by $41 million. Looking forward, we are guiding to in excess of 30% revenue year-over-year growth in the March quarter, reflecting substantially better than normal seasonality. This is positioning us for accelerating earnings growth as we enter the second half of the fiscal year. In the December quarter, we continued to benefit from strong underlying demand in the mobile Internet, enhanced by ongoing share gains and by new product ramps. Consumer appetite for anytime, anywhere connectivity continues to grow exponentially. In fact, 2010 holiday sales underscore the strong demand for Internet-connected mobile devices that provide always-on access to social networking sites, gaming, video, music and Web access. Retailers have highlighted mobile devices as a bright spot in consumer spending this past holiday season, and we've certainly benefited from this demand. Clearly, adoption of smart phones is happening at an accelerated pace. With a growth rate of at least 4x that of the traditional cellular handset market, these devices represent a compelling value proposition across the supply chain. Our customers are experiencing brisk sales and keep raising the bar in terms of performance and in terms of capability. And consumers are lining up to get the latest models, and carriers are eagerly pushing and promoting these devices into consumers' hands as expanding mobile data revenues contribute to improving ARPU. Skyworks is in a unique position to capitalize on these healthy market dynamics, based on our unique product offering and our broad customer base. Our products support all smart phone and tablet operating systems including Android, Symbian, Windows Mobile and others. What's more is we believe that the momentum we have seen with 3G-enabled mobile devices will only accelerate with the commercial launch of 4G networks. While 3G exposed consumers to the concept of untethering the Internet, 4G will provide users a truly mobile broadband experience, with speeds rivaling those of the wired Internet. In fact, forecasts suggest that in the coming years, growth in global broadband subscriptions will be dominated by growth in mobile Internet subscribers. By its very nature, 4G is a technology that was developed to provide ultra-high-speed data rates and stream video. And in fact, for many consumers, 4Gs may be their only broadband connection. And what's especially exciting here at Skyworks is that 4G devices operate on a new and unique set of frequency bands beyond 2G and 3G, providing an incremental dollar content opportunity and expanding our total available market for years to come. This year's Consumer Electronics Show provided a preview of the pending wave of 4G products that will come to market over the course of 2011, and the rate of availability of these devices exceeding all our expectations. As an example, Verizon, which has already launched its commercial LTE service, plans to add 140 new markets in 2011, and they've recently announced a roster of Skyworks-enabled LTE devices, including smart phones, including tablets and mobile hotspots. Likewise, AT&T is accelerating its own LTE plans, and now intends to service initial markets later this year, along with 20 LTE devices over the course of 2011. As this next technology wave approaches, Skyworks has a clear early mover advantage, having already powered not only the world's first commercialized LTE USB modem, but also the first LTE-based phone on the market. Some recent examples of Skyworks' position include the DROID BIONIC, an Android-based LTE smart phone that was unveiled at CES by Motorola. We have also secured design sockets with HTC's EVO and Desire 4G platforms. These design wins complement our already well-established position across other LTE suppliers and platforms. So in addition to smart phones, we expect to see 4G connectivity getting embedded into tablets during the second half of 2011. And by combining the mobility of a smart phone with the performance and the processing power of a network PC, tablets are fundamentally changing the computing landscape. These devices have found a unique niche within the consumer electronics market and provide an ideal platform for mobile video applications. And we see mobile video as an exciting and enabling trend for Skyworks, not just within tablets but across a broad array of technology platforms. Content providers like Netflix and others are keenly focused on providing streaming IP video service to gaming consoles, to high-definition televisions, to Blu-Ray players and set-top boxes, as well as smart phones and tablets. Keep in mind, video delivery consumes a significant amount of network bandwidth and drives up performance requirements on RF architectures, and this plays squarely into Skyworks' technical strengths. And future developments will only add more of the same, including high-definition and eventually 3D video streaming, and will only serve to raise the performance requirement for these devices. Importantly for us, these macro trends are in the early stages of playing out. Smart phones in fact accounted for only about 20% of mobile device shipments in 2010, and we believe that smart phones could account for more than 50% global unit shipments by the year 2014. Now if you add to this, the tablet market is expected to grow at nearly 80% compounded rate over the next four years, so something less than 20 million units in 2010 to as many as 200 million units by the year 2014. All in all, we see a long runway today for these positive macro trends to continue. So given our momentum and the multi-year revenue drivers that we've discussed, we will enter the second half of 2011 poised to outpace the industry and the market growth, underpinned by new design wins, by strong product pipeline and by our scale advantages. So in summary, we believe that our strategy of diversifying across new vertical markets and new customers, while continuously driving operational execution, will translate not only to above-market growth but greater operating leverage and ultimately increasing shareholder returns. I'll now turn this over to Don for his financial review and outlook.

Thanks, Dave, and thanks for joining us, everyone. I will first provide a quick summary of our first fiscal quarter results and then outline our business outlook. Revenue for the period was $335 million, up 37% year-over-year and 7% sequentially. Gross profit was $149.9 million or 44.7% of revenue, a 250 basis point year-over-year expansion which was driven by an improving product mix, supply chain efficiencies, margin-enhancing, demand-driven capital investments, and continued manufacturing productivity enhancements. Operating expenses were $57 million, of which R&D was $34.1 million and SG&A was $22.9 million, yielding $92.8 million of operating income and a 27.7% operating margin, a 640 basis point improvement year-over-year. Our net interest and other expense for the quarter was $278,000 of expense, while cash taxes were $7.9 million, which is an 8.5% tax rate. As a result, our net income was $84.7 million or $0.45 of diluted earnings per share. Turning to the balance sheet, during the quarter, we invested $33 million in capital expenditures and back-end process investments, which complement our hybrid outsourcing model. As a reminder in virtually all cases, we anticipate these investments to pay back within the fiscal year while expanding margins and improving our return on invested capital. We also recorded $13.6 million of depreciation. We retired our $50 million credit facility, part of our broader strategy to reduce debt, and repurchased approximately 800,000 shares of our stock at an average price of $23.15 per share. As a result, our balance sheet is now virtually debt-free, and we still increased our net cash by $41 million and exited the quarter with over $450 million of cash and cash equivalents. These improvements highlight the progress we've made in our broader strategy to reduce debt and strengthen our balance sheet. As a reflection of this, over the last three years, we've improved our balance sheet from a negative $46 million net debt position to a positive $426 million net cash position. Now to our business outlook. Based on specific program ramps and backlog coverage, we are forecasting current quarter revenue of $310 million to $320 million. Assuming the midpoint of this guidance range, we suggest modeling gross margin of 43.8% and operating expenses of approximately $57.5 million to $58 million. Below the line, we expect $300,000 of net interest and other expense. We expect our cash tax rate for the remainder of fiscal 2011 to be 8.5%. In turn, we expect our operational non-GAAP diluted earnings per share to be $0.39 in the seasonally low March quarter, off of a base of 190 million shares. Well, that concludes our prepared remarks. And operator, go ahead and open the lines for questions.

[Operator Instructions] Our first question comes from Alex Gauna with JMP Securities.

I know you mentioned the Bionic for you and 4G. But Motorola also is refreshing along other lines, and I know had the Atrix at CES and the Xoom tablet. Can you talk about Motorola as an account and what’s happening even within the 3G segments for you?

Liam?

Yes, sure. Alex, this is Liam. Yes, Motorola continues to be a very important customer for Skyworks. Fortunately, their strategy now has been to go very deep in smart phones, which happened to be quite content-rich for Skyworks. So we are seeing ourselves line up with Motorola across a number of new platforms, some supported by Qualcomm, some supported by Infineon, typically Android-based. And we think the content gains that we're seeing now from Motorola look good, and hopefully, their unit volumes as they projected in 2011 will really accelerate the demand. So we think Motorola is going to be a grower for us in 2011.

And if I could, as a follow-up along those lines, can you give any color around maybe average selling prices overall you're seeing on the RF deck, and maybe what the opportunities are in some of these 3G and 4Gs with regards to average selling price bias?

Yes, the content -- we think about selling price, we think about the content we can derive from these smart phones. I mean, typically, we are seeing our 2G and EDGE-based products that could be $1 to $2 now move to $3, $4, $5 that we derive from more content in smart phones. And when we start to look at these devices that we've talked about with Motorola, with HTC and some others, they are incredibly rich in content, multiple bands, high-speed data, capitalizing on all of that media, that wireless IP that Dave articulated. So we are seeing that content per phone move into the $4 to $5 mark per device.

Our next question comes from Suji De Silva with ThinkEquity.

Can you help us understand at this point where your tablets are as a percent of revenues and what you think you’ll be exiting '11? I know it's kind of early. And is that the biggest factor in guiding above seasonal for the March quarter?

I would say that, it's clear if you look at the last year in 2010, tablets was a very small percentage of our revenue. I mean, a year ago, we weren't talking much about tablets. It's been sort of a natural extension of the smart phone phenomenon. I think that the growth rate and the pent-up demand for this class of device, the growth rate is going to be huge. We talked about in the prepared comments moving from perhaps less than 20 million devices in the year 2010, growing maybe as much as an 80% compounded rate. So it's a big growth rate, still a relatively small percentage of the total 1.3 billion, 1.4 billion units that are going to be sold in terms of cell phones and smart phones. So I think it's going to be a driver. We have disproportionate amount of content and we have a disproportionate amount of market share, giving the inherent complexity and the need for performance in these devices. So I think the market is going to be big, I think it's going to play out over the next several years, but starting from a small base.

Okay. And on the balance sheet, I think inventory was up more than revenues on a Q-over-Q basis. Can you talk about where do you think that's going to come out next quarter, and how you're managing that?

Sure, Suji, this is Don. Yes, our balance was up this quarter. And it was really geared in order, the balance was built in order to support some specific customer program ramps we have for the second quarter. But the important point when you look at our inventory is it's not that the balance is up. I mean, if you look at our balance sheet historically, as our end market demand and revenue grow, we're going to grow working capital. That's just a function of the business. But our turns are still above 5.5 this quarter, and we consider those best-in-class when you look at our sector. So very strong, still performance on the inventory side for us, as far as the velocity.

Our next question comes from Parag Agarwal with UBS.

First question, was your revenue or guidance impacted by any supply constraints of any other companies like displays of NAND Flash with the handset OEMs so that you could have shipped more if those constraints were not there?

Okay. I would say that we have seen some certain component lead time stretch. We've seen some tightness in assembly, test and some of our wafer supply. We've taken steps to expand our internal capacity. Remind you we have a hybrid model that allows us to pull, in some critical processes, pull volume internally, and we've done that in some cases when we've needed to. It allows us to flex our own utilization as demand fluctuates. I would say, from component supply into Skyworks' modules, the answer to that would be no, but we were able to work through those. Now whether or not our customers could have shipped more, if there were other component shortages, products we didn't provide that truncated their ability to ship, I think there probably was some of that. But it didn't affect the supply chain into Skyworks' products.

Okay, fair enough. Secondly, about your account receivables, they were up again this quarter. Just wondering what is the aging profile of that account receivable? And if any one of your customers have a higher than average concentration in that accounts receivable number?

Parag, this is Don. The increase in receivables, when you look at that again, it's the comment on inventory, it's driven by our end demand and overall revenue increase. And our balance -- the increase in the balance this quarter was driven by a higher Q1 revenue and a combination of the customer linearity and customer mix, because we do, in fact, have different payment terms among customers. So based on that mix and when that mix occurs during the quarter, it does impact the overall velocity measures. But I want to step back and say, when you look at the improvements we've built in the balance sheet over the last two to three years in the business, and I take a look at the asset base both from an inventory standpoint and a receivables standpoint, it's as strong as it has ever been. So the quality of that asset growth is extremely good.

Our next question comes from Jonathan Goldberg with Deutsche Bank.

Just a quick housekeeping question first. Have you broken out linearity as a percentage of revenue?

No, we haven't yet, Jonathan. The breakout is the mobile Internet access was roughly about 60% of our revenue, 2G-feature phones about 20%, and linear products roughly 20%.

Okay. And then, Liam, I think a question for you. Could just talk a little bit about market dynamics you're seeing in China? How are your products faring there? How do you think your share is trending this quarter?

Sure. Yes, I mean what we're seeing right now in China is that the 2G market is really going through some changes. The local manufacturers of the indigenous Chinese sources are really contracting. But at the same time, we're actually seeing some share gains from some of the traditional Tier 1s, Nokia, Samsung and others going back into China at the low end. So that's one of the dynamics. For us, we obviously approach China conservatively. We know there could be some volatility. But at the same time, we're doing quite well with companies like Huawei and ZTE in the infrastructure space. We're making progress now in data cards, 3G data cards. And jumping into Taiwan, we're seeing some really nice potential and new design wins at HTC.

Our next question comes from Ittai Kidron with Oppenheimer & Company. Ittai Kidron - Oppenheimer & Co. Inc.: I wanted to focus on the sequential transition from December to March and compare and contrast it this year versus last. In last year, you managed to deliver a very well below seasonal pattern of down 2.9% sequential on the top line, and this year, you're guiding to double that, whereas this year, the tablet impact on your business is much more significant, and I would say versus probably immaterial last year. Also, Don, your gross margin is declining. Your guidance implies a declining gross margin into March, whereas last year, it increased. So, I mean, what's so different about the transition into the March quarter this year versus last year? My gut and my intuition would have told me it should have been at least on par on last year, if not better from a sequential movement.

Well, okay. Let me try and answer multi-part question. Don can jump in on the latter half. We think that we're modeling market seasonality for March to be down 9% or 10%. That's what we see. We've guided to down about half of that, so much, much better than seasonality. With revenue, the year-over-year will be over 30% up or north of 30% up. So clearly there's a lot of share gains going on. And we like to guide conservatively. We guide for fully booked backlog, as I mentioned in the prepared comments, we're fully booked to deliver that range. And we think that, that's prudent. So I think that is clearly above the market. And you're right, we are seeing strength in these new program launches, but we do see the traditional business with a degree of market seasonality, and we wanted to factor all of those, all of that into our guidance.

Yes, Ittai, this is Don on the revenue. Yes, if you go back to last year, we were essentially flat on the margin. But the revenue decline from Q1 to Q2 was a little bit less than it is this year. And we also, when you look at the change from Q1 to Q2 last year, we were also starting to get benefits from the six-inch ramp that are already embedded in the baseline overall margin of the company. So when you're looking at comparisons, there were some things going on that muted that revenue change. It was lower to begin with than what you're seeing this quarter, quarter-to-quarter. So that's really what's driving it. Just keep in mind on the margin front, margin expansion for us is still a key element for us to be able to get to 30%. So being down this quarter is based on the revenue decline, the seasonality and the mix that we have in there, and as we go forward in order to get to 30%, it's still going to be a combination of leveraging OpEx and continuing to drive margin expansion. That's what's going to happen to get us there.

Our next question comes from Nathan Johnsen with Pacific Crest Securities.

Just wanted to talk a little bit more on smart phones, just clearly been doing well, high-end and developed markets, but certainly much has been made on the part of Android OEMs on lower tier smart phones. Wondering if you guys have seen much traction with those phones, particularly in emerging markets? Is that a meaningful part of revenue now? Or is that a potential growth driver that we should expect to happen in the future?

Sure. I absolutely believe, this is Liam, that the emerging markets represents a significant upside opportunity for this industry. You look at a subscriber base today in China and India that's invariably holding a 2G phone that has maybe a dollar-based fee content for us. They will move up. Those subscribers want to move up. They want Internet access. They don't have DSL at home. They don't have cable at home. So a smart phone really represents their path to the Internet. So we are seeing some of our OEMs develop specific platforms to address those markets. They're platforms that may not have all the bells and whistles that you may see in the U.S., but still compelling. And all that for us is outstanding, because it moves our dial up substantially from our baseline, and we think there is tremendous growth opportunities there over the next several years.

And if I'm hearing you right, there's almost kind of none of that revenue in your run rate currently?

Oh, very minimal, yes, literally small numbers here. And some of our OEMs that we're working with right now are just starting to get those phones in the prototype stage and sampling stage with the carriers in China.

Our next question comes from Quinn Bolton with Needham & Co. Quinn Bolton - Needham & Company, LLC: First question, just back to the Analyst Day in the fall, you talked about the multimode, multiband platforms, I think go into production in the March quarter. Just wondering if you could provide an update whether that's still on track? And then a follow-up question is just, can you list the 10% customers in the quarter?

Okay. The multimode, multiband designs, and keep in mind, Quinn, that there's a lot of different configurations. It's everything sort of a fully converged platform which is not going into production yet, but perhaps the most complex for a certain segment of the market, most likely the lower end of the market, to what's more prevalent, which is sort of a hybrid between certain discrete bands, while at the same time, more integrated amplifiers, switch and filter functionality, and then there are pure discrete designs. Because the different flavors of these multimode architectures are going into production will continue to roll out throughout 2011, 2012, and even some we’re talking about now into 2013. So I think that trend is on track. I think the fully converged platforms, those are very complex, and there's a lot of moving parts with those. And so for that slice of the multimode market, we don't see that becoming a major driver here for some time.

Our next question comes from Tim Luke with Barclays Capital.

I was wondering if you could frame what you think the lift may be as you begin to see LTE come into the marketplace, and where do you see that beginning to get deployed? And when do you think it could become something that might be possibly material? Also separately I think from the prior question, if there was a -- just clarifying the 10% customers. I'm not sure if you gave that.

I forgot to answer that. I'll go ahead and start with that, but the 10% customers for the quarter were Samsung, Nokia and Foxconn.

Tim, with respect to LTE, I mean, one of the important elements here, it's not just a new standard. It's a standard that runs on unique frequency bands as incremental RF content to the devices. So you will have devices, smart phones, and I think eventually, tablets will be a really important driver for LTE, where you will have LTE frequency bands 2.6 gig, 3.5 gig, backward-compatible to 3G, that could be three or four devices, and then even backward-compatible again to add your GSM. So it's an extension of bands and it's an extension of content. They run on discrete frequencies. So it's really an important part of the story. It will probably just get off the ground here in 2011. 2012 and 2013 could become a very significant driver for us.

If I may just to follow up on the general relationship with Nokia, could you just bring us up to speed with how that has been proceeding? And whether if you moved forward through this calendar year in general, you perceive a sort of broad adjustment in your customer mix and the ongoing broadening of it?

Well, with respect to Nokia, as we've articulated in the last few calls, we continue to make very good progress in diversifying and gaining share across that customer. We have a great position in 3G. We have recently extended that into GSM. Our position in EDGE is also solid. And we are trending towards steady market share gains throughout this year. And I think we have an opportunity to secure as much or as great, perhaps greater than 1/3 of their overall PA share.

Our next question comes from Craig Ellis with Caris & Company. Craig Ellis - Caris & Company: Don, you've got quite a bit of balance sheet flexibility now. You used a little bit of that to finish out the debt pay-down and buy back some stock. But how should we think about the way you'll put excess cash to work going forward?

Yes, absolutely, if you kind of look back over the last, since to the first quarter of 2009, over the last two years, we've actually improved the net cash position by about $310 million. So absolutely, with a strong balance sheet and the strong performance we've had on our financials, it gives us an awful lot of flexibility. You've seen to date that we've focused on taking the debt down. We're virtually debt-free. And we also initiated this quarter that we started to utilize the $200 million share buyback program that the board approved for us several quarters back. So we did that. We'll continue to buy shares selectively. We'll look at the right opportunities to do that. And we're virtually debt-free at this point. So what's left with the cash is to look at very selective M&A opportunities. And we've said this numerous times, we've very conservative on the M&A front. For us to do any acquisitions, they've got to be instantly accretive and they've got to drive shareholder value. That means expanding not only our operating margin and our EPS, but our return on invested capital, and we just don't want them to be a distraction to how well our overall business is running right now. And we will focus on accretive bolt-on acquisitions like Freescale and Axiom, as well as any analog niche opportunities that come along. So it's clearly something that we look at on a regular basis. Craig Ellis - Caris & Company: Okay, great. And then a lot of understandable focus on tablets so far. Liam, I don't think I've heard any comments on energy efficiency and automated meter readings, so can you bring us up-to-date in terms of the prospects for growth in that business this year?

Yes, Craig, absolutely. Yes, the smart grid and the smart energy, and now the complementary home automation markets continue to move forward for us. They are very strategic with respect to our vertical initiatives. We've added a few critical customers, key customers that we had been pursuing. We're starting to see a little bit of improvements in Europe as well as the U.S. And we do expect the adoption to continue. The meters are rolling out, that's happening. We're starting to see now that peripheral market, the appliance makers, the LG, Whirlpool, GEs adopting ZigBee, in some cases, Wi-Fi, to tether back to those smart meters. So we definitely see this as a continued area of focus in our Linear business. It's good margin and it has legs here for the future.

Our next question comes from Anthony Stoss with Craig-Hallum.

Dave, this is probably directed to you. I'd love to hear your thoughts on capacity, what your plans are for the remainder of this year and into next year? And also give us a sense of what AWS [advanced wideband systems] is doing and how you feel, comfort level with that?

Sure. So if you look at where we are today, we're outsourcing roughly 20% of our volume, if you were to combine assembly and test services with wafer foundry, gallium arsenide wafer foundry costs we outsource also. We, during the last six quarters or so, have completed a six-inch expansion of our HBT [heterojunction bipolar transistors] facility. We've added substantially to our pHEMT switch capability, and we've added a lot of the back-end assembly and test capabilities. So we have no bricks and mortar constraints, and we continue to incrementally add. But we've made the big bucket expansion in our foundries over the last six quarters, and the fact that we have a hybrid approach that allows us to flex our external partners allows us to take the revenue much higher, without having to deal with any material capacity constraints, although we'll continue to invest in bottlenecks in assembly and testing. At AWSC [Advanced Wireless Semiconductor Co.] and our other outsourced partners, they're doing terrific. It’s a copy exact process. The quality meets our standards. We monitor them daily, weekly, hourly. And we're extremely happy with the performance of those partners.

Our next question comes from Tore Svanberg with Stifel, Nicolaus.

This is Eric [ph] calling in for Tore. Real quick, just on what you talked about earlier, where do you see the overall handset market growth rate in 2011? And with today's news or comments out of Nokia pulling its XM smart phone out of the AT&T lineup, does that have any sort of impact on where you see the smart phone opportunities for you guys with Nokia?

Sure. Well, we see 2011 in terms of handset units to be roughly 8% to 10% up. That does not include the tablet number, and it also doesn't include other embedded wireless applications. But I think what's important is we look at the unit number, but more important to us is the PAM number. So what is the available PAM that we see for amplifiers and switches in the devices that we can market and sell. We see that number going up 15% to 18% off of an 8% to 10% growth, by virtue of content gains.

Great. And real quickly on linearity in the quarter, can you maybe just address that? And was there any kind of late orders that you saw taking place?

No, there wasn't anything specific or unusual that drove that. I mean, linearity in a quarter changes month-to-month in the forecast and it changes quarter-to-quarter and it changes year-to-year. So there wasn't really any specific dynamic to discuss that drove it. It was just the way the overall customer demand of when they needed the product and when we shipped and who those customers were, all of that ended up driving some impacts to the working capital, really nothing more complex than that.

Our next question comes from Richard Shannon with Northland Capital Markets.

I guess, first question, kind of another way to ask one of the previous ones, which at Analyst Day here a few months back, you talked about an operating model, I think it was $375 million to $400 million per quarter, and suggested that, that time frame for achieving that might be later in the calendar 2011. Is that still very much your plan? Has your confidence on that increased since that time frame? Any thoughts on that, please?

Yes. Well, Richard, the way to think of that, and it would have been, I think, pretty clear when we've communicated the new mid-term model is that, in order to achieve it, we needed the $375 million to $400 million per quarter as you mentioned. And historically, if you look back at the three times we've put mid-term models, communicated those externally, we've achieved those within four to six quarters. So that's the way to think about that.

If you look at what we just delivered in the December quarter was just under 28% operating income. And so we remain very comfortable with that model.

Okay, great. Appreciate that. And then second thing just on the pricing trends you're seeing in your base handset business. How have those trended? I presume they're coming downwards on some sort of trend. Has that trend kind of continued what you've seen in the past year or so? Or has that moderated some, like down less? Or how has that been recently?

The pricing environment, right now, actually we feel is in line with our expectations. The demand profile has been pretty good for the industry. One of the things that we do here is we really capitalize on complexity, and we turn our portfolio over very quickly at Skyworks. So there's a lot of new technology being deployed to the market, which really helps insulate us from some of that typical commoditized ASP curve.

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

First off, Nokia is now above 10%. You guys are doing fairly well there. I think it's generally understood that the delay in the platform that you're on, which is now shipping, gave RF Micro a much bigger share in past years. They’re actually not even on Lynco [ph] and you guys have got that. Do you see this going back the other way in the year or so as Nokia tries to balance up their supply chain? Or do we have a fundamental shift at Nokia, where they're going to achieve a more balanced approach to suppliers, maybe 30% each for an office, you and RF Micro. I know they probably don't lay it out that way but I'm just trying to get your feelings on how you think the dynamic there works? And then I had a question on converge.

Okay. Ed, I'll take the Nokia question. Ed, our position at Nokia continues to be really solid, and I understand the platform discussion that you noted. Right now we're seeing continued growth in share gains as we articulated I think with another caller. So our position in Nokia now is we're marching steadily towards achieving at least 1/3 of their share of PAs. We've created the diversification that we need across multiple baseband partners across 3G, EDGE, and now GSM. We don't see anything sliding back. We've worked closely with that customer for a great deal of time. We've executed incredibly well from a supply chain point of view, from a technology point of view. We think our position is looking great.

Ed, could you repeat the -- you mentioned something about converge?

Yes, I had a follow-up. But before I get off that, Liam, what you just said then, are those share gains generally because Lynco [ph] is ramping and you're on Lynco [ph] and they're porting it to more phones, or are you winding up on other platforms, too?

Oh, yes, absolutely. Lynco [ph] is a very small piece of Nokia's converge in 3G architecture right now. It's going to grow, but that's a small element. I think if you look at the overall volume, there's tremendous volume still in their traditional 3G. Some of the newer platforms they're going to launch this year, as well as EDGE and GSM. So it's well-balanced. We're diversified. If a platform moves away from us here or there, that's fine. But the position is diversified and looking strong going forward.

And then on the converge, Don, you pointed out that -- no, Liam, you said that 8% to 10% in unit volumes but you're looking at 15% to maybe 20% or 18% on content. But as converge picks up, I mean RF Micro's got Power Smart out there. And I know it's not really ramping yet but it will be. And I think the pricing philosophy is to undercut a four- band phone for a price of a three. So at some point, and I know the OEMs are talking about trying to get some of the dollars that are flowing to the RF band someplace else and doing that to converge. So the question is, to the extent that converge has become successful, but when we start seeing content become compressed a bit?

Well, I think that the way to look at this, Ed, is that there will be multiple architectures, and when you talk about converge, there will be different architectures within converge, different approaches within converge. And then there will be hybrid approaches for higher performance aimed at perhaps a certain band or frequency or network. And then there will be various degrees of more discrete that will go into tablets and other higher-end smart phones, where they really need performance across multiple bands and frequencies. And so you are right that the beauty of converge in these various approaches is that we can sweep more functionality into a smaller footprint, do it in a way that conserves battery talk time, and do it in a price point that allows the build material to go down into the phone OEM's handset lineup. So the way I view converge long-term is that it's going to enable a build material price point that's going to eat into the mid-tier and ultimately low end of the market. I personally believe, as we said in our prepared comments, that smart phones go from less than 20% to 1/2 of the market. They do so by penetrating what we might call emerging markets or large untapped markets where we can take a product that today may only have $1 of Skyworks content and triple the TAM. That will be $8 or $10, but that's not the point. The point is the blended ASP will go way up as these converge and other architectures allow a build material price point. The performance won't be as good as a hybrid, it won't be as good, but it will facilitate the penetration of smart phones much deeper into the phone OEM's lineup and that's going to be tremendously good for our industry.

Our next question comes from Aalok Shah with D.A. Davidson. Aalok Shah - D.A. Davidson & Co.: On the Linear business, Don, can you give us a sense of what the seasonality of that business looks like? And is that having an impact in your gross margin guidance for Q1 or for the March quarter and are we seeing a little bit of a seasonal downtick in Q1 for the Linear business?

No, not particularly. The Linear business looks very strong. The energy management, some of this home network business we talked about in our prepared comments looks really good. It's a little bit further out but the early stages are being placed now and you can see a little bit of that going into the March quarter. But I think, as Don has articulated, our gross margin is nothing more than, we're forecasting less than seasonality, but some seasonality in traditional business and that revenue as it flexes has a certain contribution associated with it. So the gross margin will be high, but it will tick down slightly from December as you would expect when revenue drops a little bit.

And another way to think of that is, the guidance of $315 million is almost dead on to Q4 actual of $313 million, and we were at $43.8 million. So this isn't any real erosion of what the performance was two quarters ago, so you really need to keep in that context, I think, when you look at the numbers, too. Aalok Shah - D.A. Davidson & Co.: How much networking business is in Linear do you think, like the traditional guys, like Cisco and Juniper?

Yes. Actually, most of our networking businesses is in the cellular infrastructure space, companies like Huawei, ZTE, Nokia, Siemens, Ericsson. But it's an interesting question because we do have aspirations here, and we think we have the technology and the DNA to start to move into the backhaul and potentially the wire line accounts here over the next few years. So there's right now, today, Cisco, Juniper, very little. There is some Wi-Fi business with Cisco, not very significant. But over time, I think the work that we've been able to do in the cellular infrastructure market positioned us well to kind of move into more of the wire line side.

Thank you. And that concludes today's question-and-answer session. Mr. Aldrich, I'll turn the conference back over to you for any closing remarks.

Okay, well, thank you, and thank you, everyone, for participating. We look forward to seeing you in upcoming conferences.

That concludes today's conference. Thank you for your participation.