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Executives

Doug DeLieto - Vice President of Investor Relations

Robert A. Bruggeworth - Chief Executive Officer, President, Director and Member of Corporate Development Committee

William A. Priddy - Chief Financial Officer, Corporate Vice President of Administration and Secretary

Steven E. Creviston - Corporate Vice President and President of Cellular Products Group

Norman Hilgendorf - Vice President of Corporate Development and President of Multi Market Products Group

Robert M. Van Buskirk - Former Corporate Vice President of Compound Semiconductor Group

Analysts

Blayne Curtis - Barclays Capital, Research Division

Harsh N. Kumar - Stephens Inc., Research Division

Mike Burton - Brean Capital LLC, Research Division

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Nitin Kumar - BNP Paribas, Research Division

Edward F. Snyder - Charter Equity Research

Quinn Bolton - Needham & Company, LLC, Research Division

Daniel Toomey

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

Ian Ing - Lazard Capital Markets LLC, Research Division

Aalok K. Shah - D.A. Davidson & Co., Research Division

Parag Agarwal - Topeka Capital Markets Inc., Research Division

Brad Erickson

Anne Edelstein

Anthony J. Stoss - Craig-Hallum Capital Group LLC, Research Division

RF Micro Devices (RFMD) Q3 2013 Earnings Call January 22, 2013 5:00 PM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the RF Micro Devices Q3 2013 Conference Call. [Operator Instructions] This conference is being recorded today, January 22, 2013. I would now like to turn the conference over to Douglas DeLieto, Vice President of Investor Relations with RF Micro Devices. Please go ahead, sir.

Doug DeLieto

Thanks very much, Ian. Hello, everybody, and welcome to our conference call. At 4 p.m. today, we issued a press release. If anyone listening did not receive a copy of the release, please call Samantha Alphonso at the Financial Relations Board at (212) 827-3746. Sam will fax a copy to you and verify that you are on our distribution list. In the meantime, the release is also available on our website, rfmd.com, under the heading Investors.

At this time, I want to remind our audience that this call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release published today, as well as our most recent SEC filings for a complete description.

In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain noncash expenses or unusual items that may obscure trends 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 corporate website, rfmd.com, under Investors.

[Operator Instructions] Sitting with me today are Bob Bruggeworth, President and CEO; and Dean Priddy, Chief Financial Officer. I'm also joined by Eric Creviston and Norm Hilgendorf, who lead our Cellular Products Group and Multi-Market Products Group, respectively, as well as other members of RFMD's management team.

And with that, I'll turn the call over to Bob.

Robert A. Bruggeworth

Thanks, Doug. Welcome, everyone. We're very pleased to report December quarterly results that reflect meaningful growth in both revenue and earnings per share.

By focusing sharply on product and technology leadership and leveraging our deep systems level expertise, RFMD is expanding our participation on the industry's highest-volume platforms and aligning our revenue more closely with our leading customer share of the market. This is enabling RFMD to capture market share across a broad set of customers and outpace our industry's underlying growth rate. You have to look long and hard for an industry this large expected to grow as fast as the data mobility market over the next 5 years.

As more and more devices connect to the Internet, more of them will need to be mobile, and more of them will require high-speed, reliable data connections. For RFMD, the implications are clear. Our products are the critical building blocks in this unwired world, and the problems they solve are at the very center of the mobility revolution.

In December, RFMD Cellular Products Group, or CPG, began to demonstrate how RFMD's product and technology leadership strategy can drive broad-based diversified growth. CPG grew approximately 40% sequentially, with robust growth and top customers and greater-than-expected demand for manufacturers of entry-level smartphones.

During the quarter, we enjoyed strong revenue growth and robust design activity for 4G LTE devices. This is especially meaningful for 3 reasons: one, the world's carriers are increasingly requiring LTE devices on their network; two, the growth rate for RF content in these devices over the long term will outpace device growth; three, the increase in frequency band combinations and the increasing requirement for new technologies such as antenna tuning, envelope tracking and carrier aggregation. RFMD has established clear market leadership in these next-generation RF technologies, and we are broadly engaged with the leading smartphone manufacturers and chipset providers to enable and perhaps accelerate widespread adoption.

Our customers' new products in development today leverage and increasingly require RFMD's unique core competencies including our deep knowledge of system architectures highlighted by our leadership and solutions for envelope tracking and carrier aggregation, as well as our manufacturing scale and our broad use of leading process technology. By delivering our customers highly differentiated RF front-end solutions, we are solving their most complex RF challenges, and this is positioning RFMD to expand our dollar content on flagship devices and key platforms anticipated this year and in 2014.

In the China market, local manufacturers of entry-level smartphones are drawing upon RFMD's industry-leading portfolio of entry solutions to achieve the optimum balance of cost, performance and flexibility in cellular front ends while also satisfying their most critical requirements of quality and reliability. Our product portfolio for entry-level smartphones is optimized with all major chipset providers, and our product offerings are expanding significantly with 2G and 3G and highly integrated 2G/3G multimode components. RFMD has long enjoyed a strong presence in China, and we expect our lead position on major reference designs will place RFMD at the forefront of China's smartphone revolution, as smartphones sold into China jumped to an estimated 300 million units this year. This encompasses 2G, as well as 3G, and it includes RFMD's multimode products for TD devices, which are ramping now.

Before discussing MPG, I'll provide a quick update on our acquisition of Amalfi. We are well into the process of combining their product portfolio and the proprietary RF CMOS and mixed-signal expertise with our sales channels and global supply chain. We are accelerating the adoption of these products in entry-level smartphones, and we intend to drive our RF CMOS technology and products into new markets and new customers. We anticipate this technology will provide us a path to lower costs and improved margins in entry-level handsets and smartphones.

Now beyond cellular, our Multi-Market Products Group saw strength in high-performance WiFi, growing approximately 28% quarter-over-quarter. RFMD supported multiple applications, including smartphones, tablets, enterprise equipment, consumer products, and our growth was highlighted by shipments of 802.11n front ends and initial shipments of 802.11ac front ends. For the year, we are targeting an approximate doubling of our WiFi revenue versus 2012, and we expect both n and 802.11ac programs to support our growth with ac shipments ramping this quarter.

Looking across the whole company, RFMD's play-to-win strategy is resulting in unprecedented design win momentum. We have the right technologies, the right products and the right customers with the benefit of a large growing market. We have broadened and deepened our relationships with the smartphone manufacturers and chipset providers. We are supporting a record number of new flagship programs at marquee customers for this year and for next-generation programs in calendar year 2014.

In some cases, these wins are follow-on wins where our share is strong. And in some cases, very meaningful cases, these are new wins where our current share is low. We are building a leadership position in envelope tracking, and we offer the most complete ET-capable product portfolio as the only company with both ET solutions and ET-capable PAs. We have established leadership in the market for antenna control solutions, and we expect strong growth this year as our customer list expands this quarter to include an additional leading smartphone manufacturer. We also expect strong growth this year in switch-based products as customers adopt our innovative new antenna switch modules and switch duplexer modules.

In the March quarter specifically, our guidance reflects many of these expectations coupled with the benefit of significant customer product ramps. We expect to achieve further diversification, category expansion and content gains driving additional market share gains and above seasonal revenue performance.

And with that, I hand the call over to Dean.

William A. Priddy

Thanks, Bob, and good afternoon, everyone. Revenue for the December quarter increased 29.3% sequentially to $271.2 million. CPG revenue was $222.6 million, up approximately 40% sequentially, and MPG revenue was relatively flat sequentially at $48.6 million. Our robust sequential growth in Cellular Products continues to reflect our sharp focus on diversification, category expansion and content gains in all tiers of mobile devices. The partial quarter of sales for Amalfi Semiconductor, which closed November 9, contributed approximately $5 million to total revenue.

Gross profit for the quarter was $96.2 million with gross margin expanding to 35.5%. Operating expenses were $69.4 million with G&A of $10.5 million, sales and marketing of $14.4 million, and research and development of $44.5 million. RFMD's play-to-win research and development emphasis is resulting in content gains and category expansion across a broad set of smartphone manufacturers and chipset providers. The acquisition of Amalfi added approximately $1.5 million in expenses for roughly 1/2 of the quarter. Operating income for the December quarter was $26.8 million, representing approximately 10% of sales. Other income was $64,000, and non-GAAP taxes were approximately $5.6 million. Net income for the quarter was $21.3 million or $0.08 per diluted share based on 283.3 million shares outstanding.

Now going to the balance sheet. Cash, cash equivalents and short-term investments totaled $189.6 million. Cash flow from operations was strong at $43.3 million, nearly offsetting the net cash paid for the Amalfi acquisition. Free cash flow was approximately $30 million. DSOs were consistent with last quarter at 49 days, and RFMD's inventory balance of $159 million resulted in 4.6 turns as compared to 4.2 turns last quarter. Net PP&E was $170.9 million. Capital expenditures during the quarter were $13.7 million with depreciation of $11.6 million and intangible amortization of $6.5 million.

Now the business outlook and financial targets. RFMD expects to outperform normal seasonality in the March 2013 quarter, reflecting continued diversification, category expansion and content gains combined with the benefit of significant customer product ramps. With this, RFMD currently believes the demand environment in our end market supports the following financial expectations and projections. RFMD expects quarterly revenue to decrease approximately 6% to 8% -- 6% to 8% sequentially to approximately $250 million to $255 million. RFMD expects a non-GAAP tax rate of approximately 22%, and RFMD expects non-GAAP EPS of approximately $0.04 to $0.05.

And with that, we'll open your call up to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Blayne Curtis with Barclays Capital.

Blayne Curtis - Barclays Capital, Research Division

You've laid out the antenna tuning market. I think you've mentioned $100 million last year and $400 million this -- you laid that out about a year ago. I wonder if you could kind of update us on the size of that market. You mentioned a second customer. Is that kind of on track with your expectations? And kind of if you could talk about the competitive environment, where you see others entering the market.

Robert A. Bruggeworth

As far as the opening comments, I did comment that we are adding another leading smartphone manufacturer to our customers for the antenna control solution. So things are remaining on track. We're very optimistic about the growth in that market and clearly as more and more LTE handsets are brought to the market they will utilize the technology. I'll allow Eric to comment a little bit about the market and the competitive landscape as well. But clearly, we're still the largest leader in the market. Go ahead, Eric.

Steven E. Creviston

Sure. It's a very exciting market for us, as we've been talking about, and we did say we think it can be a $500 million market within 3 years. And it's very much on track for that. We do see multiple smartphone manufacturers adopting the technology for various reasons. In some cases, it's to basically be able to accommodate many, many more bands within a given space. And in other cases, it's to improve the actual radio [ph] performance and data throughput of the handset. Both are really critical parameters, of course, in new handset design. So we're glad to see the technologies maturing now. We're in very, very high-volume production, of course, in that product line, and it's beginning to now be designed in by virtually every smartphone and tablet manufacturer, I believe, in various models throughout the coming year.

Blayne Curtis - Barclays Capital, Research Division

And then you saw strong growth in WiFi, obviously, off of a smaller base. But if you could talk about where you see your share gains and kind of what's the size of that business and whether you expect that to kind of grow into Q1.

William A. Priddy

Sure, Blayne. Yes, on WiFi, that's been growing, obviously, tremendously for us for a while now. While we don't break out segment sizes specifically within MPG, I can say that WiFi is now the largest segment within MPG. And as Bob mentioned earlier, we are planning to double this business year-over-year. The drivers right now are -- what's shipping today is actually 802.11n base products, but most of the design activity is in 802.11ac, the next-generation WiFi. And there, we're seeing really broad-based activity and design activity in multiple platforms, whether it's handsets, tablets, consumer equipment, set-top boxes or CPE and enterprise equipment.

Operator

Our next question is from the line of Harsh Kumar with Stephens, Inc.

Harsh N. Kumar - Stephens Inc., Research Division

Just had 2 questions. First of all, relative to your guidance, Bob and Dean, these were pretty spectacular numbers. I'm curious where the single biggest point of outperformance came from. Was it a specific geography or a particular type of market? I'm just curious if you could elaborate a little bit more.

Robert A. Bruggeworth

Harsh, this is Bob. As far as where the growth came from, it was very broad based. We grew across about every major customer -- we did grow across every major customer we had. We grew in the entry market within China. We talked about the entry-level smartphone market as well, and across all products within cellular. And then you couple that with the growth that we saw on WiFi. It wasn't at any one customer. It was very broad based. So again, we're bringing out the right products with the right customers, and it's growing.

Harsh N. Kumar - Stephens Inc., Research Division

Okay. Bob, would you say that there was any one area that just outpaced everything else for you relative to your expectations?

Robert A. Bruggeworth

I would say the entry-level smartphone market was a little bit stronger than what we originally forecasted in the beginning of the quarter, and it's remaining very strong as we go into the March quarter as well.

Harsh N. Kumar - Stephens Inc., Research Division

Got it. And then I had a follow-up for Dean. Dean, your margins on a non-GAAP basis were up 30 basis points, if I did the math correctly. I'm curious if there was some kind of overhang from anything else that caused them not to go up any more. Any kind of color you could provide would be helpful.

William A. Priddy

Yes, good question, Harsh. First order, we're very pleased with our revenue and the top line performance. And ultimately, the top line will draw the bottom line, but we weren't satisfied with the contribution margin we saw at the gross margin level. It was something a little bit beyond the mid-30s, and we would expect something closer to 50%. It's really a combination of mix and utilization rates in our factory. And from a mix standpoint, we did have 1/2 a quarter of the Amalfi revenue this quarter, and I think we were pretty clear from the get-go that the original product that's shipping in volume is a relatively low-margin product compared with the rest of the company. So that was a bit of a drag on gross margins. MPG, just in general, did not have as high a margin structure as a group as we would normally anticipate. So that was also a bit of a drag. We're still seeing some continued weakness in the infrastructure markets and some of the other higher-margin markets whereas the lower-margin WiFi business is what actually grew this quarter. And from a utilization standpoint, year to date, we're still, on average, running somewhere in the 50s in terms of utilization of our wafer fab facilities. So clearly, that is a big impact on overall gross margin. So the question is what do we see going forward? And the good news is that we can see both of these improving throughout calendar year '13. I don't think it's necessarily going to be all of a sudden 1 quarter you're going to fix everything, but we will improve utilization rates. We will see a better product mix as LTE products ramp, as the low-cost CMOS PAs reach a critical mass and are over 50% of the total volume. We'll see a better mix within MPG, and we'll see a big 2G to 3G upgrade in the China market. So we're confident that as the year goes on, we will begin converging on our longer-term gross margin model, and we've got several, several initiatives underway to ensure that happens.

Operator

Our next question is from the line of Mike Burton with Brean Capital LLC.

Mike Burton - Brean Capital LLC, Research Division

I just wanted to ask. I have actually just one quick follow-up on the gross margin. There were several things you outlined, actually, when you acquired Amalfi that would actually improve gross margins. I wonder if you could give us an update on them, one of them being new higher-margin products to launch. Are we expecting to see those next quarter? Or is it later in the year? Also, bringing in in-sourcing assembly and test and lower cost of outsourced materials, can you just give us the status on that?

William A. Priddy

Yes, both of those are important. I think the first thing that you mentioned though, the product transition, is of greater importance to margin expansion. As I said, the current generation, which is shipping in high volumes today, is low margin compared to even our low-end gallium arsenide products. However, the new version, the low-cost version, that is beginning to ramp and is currently ramping in volume today and expected to increase in the March quarter and increase in the June quarter and throughout the year, that is a significant step-down in cost structure for the industry and will be actually very much accretive to the 2G margins that we see today in the rest of our business. So that's something we're going to see unfold over the next 3 to 4 quarters in a very meaningful way. As far as supply chain synergies, you know that we'll be out there negotiating wafer prices, test costs. If we don't get what we feel like we need, we can always bring some of that in-house for a lower price. So we have several additional handles we can turn on the actual cost structure. But also, remember that these products aren't just going to be stand-alone products. You're going to begin to see them showing up in other types of our modules that we offer, multichip modules that could have the silicone PA, along with GaAs PAs, along with SOI switches and so forth. So lots of ways we can improve margin there.

Mike Burton - Brean Capital LLC, Research Division

Okay, great, helpful. And can you also just give us an update now with Amalfi, the mix between 4G, 3G, 2G and then 10% customers?

Robert A. Bruggeworth

As far as the mix goes, as you know, we traditionally just break out what is 2G versus 3G, 4G. And we continue to run greater than 75% as 3G/4G. And as far as 10% customers go, Dean, you want to take that?

William A. Priddy

Well, Amalfi is pretty well diversified.

Robert A. Bruggeworth

I think he meant just for the company.

William A. Priddy

Just for the company. We had two 10% customers, and they would be the 2 leading smartphone manufacturers in the world.

Operator

Our next question is from the line of Dale Pfau with Cantor Fitzgerald.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Quick question. As you look forward, your guidance was actually a little better than I expected, down sort of less than seasonal. Could you talk about -- you mentioned product ramping. Are these for your major customers, across all customers? Or are we getting some lift out of the white box guys in China for that -- for the March quarter?

Robert A. Bruggeworth

Dale, as far as what's offsetting seasonality, we do expect our WiFi business to grow, so I don't know if you considered that in your model, number one. Number two, we're not expecting the China market -- we're expecting kind of more of a seasonal market phenomenon there. So it's some new products in some smartphones across a few customers.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Okay. And should we expect another 10% customer in the March quarter?

William A. Priddy

It's always possible. But I think you can expect more customers in the 3% to 4% to 5% to 6% of revenue range. Because when I look at our customer mix now, we're probably the most diversified from a customer standpoint in -- maybe in the history of RFMD as a public company. So we're becoming very well distributed across the entire customer base. So that provides us, I believe, a great deal of comfort in terms of less revenue volatility.

Operator

Our next question is from the line of Nitin Kumar with BNP Paribas.

Nitin Kumar - BNP Paribas, Research Division

I have a quick question on the inventory in the channels, specifically in China. You mentioned, Bob, that you were continuing to see strength in the Chinese market in the March quarter. Any view on the inventory in that channel?

Robert A. Bruggeworth

Everything seems to be in pretty good shape. Like I said, we are expecting the China market to be down seasonal, but inventory seems fairly normal. We didn't hear any rumors of any problems. We have not seen any change in our customers' buying behaviors. Things look good.

Nitin Kumar - BNP Paribas, Research Division

Okay. And not to belabor the point on margins, I think you did a great job, but you have laid out the long-term target of 40% as you move back to like 275, 300 levels of revenue. Clearly, it's taking a little bit longer perhaps with the acquisition. Any update on the timeline there?

William A. Priddy

Yes. We're going to work as hard as we can to get margin improvement as quickly as possible. Like I said, a lot of it will come down to mix and utilization rates. But you don't have to go back too many quarters in the company's history to find a very, very good margin performance. So we do know that it's available for us, and we're going to do everything possible to pull it in, if anything.

Operator

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

Edward F. Snyder - Charter Equity Research

Bob, ET, you obviously lead in that field with PowerSmart and have done it for some time, but a number of vendors are going to be using their own solution and are working with you and others, I expect, on custom amplifiers that I know will be released this quarter or next quarter. Are you going to get any margin or revenue boost from a custom amplifier for ET? Is it pretty much a general pHEMT, that's just tweaked a little bit? And when do you expect revenue from just those parts for, say, PowerSmart? And then I have a follow-up.

Robert A. Bruggeworth

I'll go ahead and let Eric answer that, if you would, Eric, please.

Steven E. Creviston

Sure, absolutely. And for those of you on the call that aren't familiar with the envelope tracking, just to bring everybody up to speed, the technology is a very advanced form of power management that is specific to the RF front end. As Ed mentioned, we've been a leader in power management and use that to build our PowerSmart solution, for example. The effect is to bring the battery life -- or extend the battery life in LTE handsets by about 25%. So it's very, very significant, attacking one of the real industry issues that we have today. So a lot of people are working really hard in getting these solutions to market. We expect that the significant penetration will start next calendar year. The design activity, of course, is happening already this year. We do expect that we will see some bump in the available market, not only because we will have an ET converter ourselves to sell, but also, there'll be far fewer people that are able to do this. It's not just a simple tweak on a discrete PA. It requires very deep system integration with the transceiver, and it requires a very advanced modeling capability to be able to get the optimum performance in this type of environment. We think that having the converter ourselves puts us in a very good position to make the best power amplifiers for anybody's converter because we understand the technology very well. So we're really looking forward to that technology transition.

Edward F. Snyder - Charter Equity Research

So, Eric, is it mostly a bump in the TAM, or are you going to see better revenue margins than you would for a standard PAM? And then, Dean, on Amalfi, obviously the strongest player in 2G, and as you pointed out, the current product seems to be lower margins, they've got this new one coming out. Is this going to be accretive? Let's say this gets up and running, and before you start integrating it with your MMPAs with GaAs, so it's just a straight Amalfi product. Is this going to be accretive to corporate margins or to what Amalfi was doing previously or to CPG? I'm just trying to get an idea of where that will fall before you start blending it in with some of your own GaAs products.

Robert A. Bruggeworth

I have 2 questions there. I think you go ahead and finish on the EP and margin for those PAs.

Steven E. Creviston

Yes, we certainly expect those to have higher margin on the ET PAs just completely due to the fact that there'll be fewer competitors there.

Robert A. Bruggeworth

And then, Dean, comment a little bit about where we think we can drive these CMOS PAs with the discrete 2G market.

William A. Priddy

Yes. We can drive the low cost CMOS PA close to current company average but well above where our 2G business is today. So as the net effect of that, we will improve overall corporate averages. So we're very excited about this new product ramp and, obviously, we're doing everything possible to convert new customers over. But I think we've been -- try to be very clear that it's not an overnight sensation. It's going to take something in the order of 3 to 4 quarters to get that fully, fully implemented. But when it is fully implemented, it will be noticed.

Operator

Our next question is from the line of Quinn Bolton with Needham & Company.

Quinn Bolton - Needham & Company, LLC, Research Division

Dean, I'm wanting to go back to that gross margin question and sort of the contribution. I mean historically, we've sort of thought about the business as about a 50% contribution on incremental margin. For you to get to 40%, do you need to continue to grow the top line or are there ways at sort of a mid-$270-kind-of-million revenue that you can get the gross margin up into the high 30s? I guess, you look at the business. It looks like you're mixing to a greater use of outsourced foundry customers. And so I'm just kind of trying to get a sense how do you drive that margin if a greater percentage of the business is going outsourced and does it have to come through over all top line growth or are there other things you can do to manage that mix?

William A. Priddy

Well, we're planning to grow our gallium arsenide PA business this year. We grew this quarter, and we grew year-over-year with gallium arsenide PA. But you are right. More and more of our business is being outsourced, and in some cases today, that is higher margin, higher than corporate average margin structure. And in some cases as we've outlined with the current generation of Amalfi products, it's lower than current company averages by a fairly wide margin. So we felt like we've got a lot of knobs to turn here as far as -- when we look at certain events in the future that could drive gallium arsenide consumption and also continuing to drive some of our more advanced switch technologies and antenna control solutions to new customers. So suffice it to say, we're sticking behind our comments that we will see an improved mix, and we will see better utilization as the year progresses.

Quinn Bolton - Needham & Company, LLC, Research Division

Great. And then just a follow-up for Bob. You mentioned sort of the better-than-normal seasonality in March being driven by new products and smartphones, talked about sort of the antenna control, ramping in another customer, WiFi growing. Can you give us some sense is, is one of those new products really driving that better than normal seasonality? Or are you seeing good penetration and increased share on traditional PAs, as well as the ramp of some of these newer products?

Robert A. Bruggeworth

We're actually seeing fairly broad-based PA growth, including WiFi, across a number of different customers. So a little more broad-based continuing to what I said we saw in the December quarter as well, so not being driven by any one product.

Operator

Our next question is from the line of Daniel Toomey with Raymond James.

Daniel Toomey

This question is on behalf of Tavis McCourt. Just wanted to see your thoughts on, you're obviously outpacing the market and your guide for the quarterly revenue to be down 6% to 8%, where do you see the overall market's sequential growth for next quarter?

Robert A. Bruggeworth

As far as the cellular market goes, units are probably going to be down between 10% and 15%, probably close to 13% quarter-over-quarter. So the TAM, depending on mix and some of the smartphone changes and what's going on there, could be a little bit more.

Daniel Toomey

Okay. And multiproduct?

Robert A. Bruggeworth

As far as MPG goes?

Daniel Toomey

Yes.

Robert A. Bruggeworth

As far as the overall market goes, quarter-over-quarter, Norman, would you take that?

Norman Hilgendorf

Sure. With regards to overall expectations in the MPG market, I think that we've got a couple of key categories here. First, we've already talked about WiFi. We expect continued market growth in the coming quarter, which would probably be against the seasonal trend there. In wireless infrastructure, which has been a key market for some time, the general consensus is there's a lot of pent-up demand here for infrastructure build. 2012 has been a bit disappointing in a lot of areas, so there are thoughts that, that should be returning, but that might be later in the calendar year when that really starts to come back. I think we see some other areas like the catalog business and some of our cable business areas that's probably reflecting more of macro trends, so as the macroeconomy goes, we think that that's going to be reflected in some of our more general market categories.

Daniel Toomey

Okay, and one follow-up. I guess given seasonality last year for the quarter was back-end loaded, do you expect more strength earlier in the quarter this year?

Robert A. Bruggeworth

I was actually expecting, other than the Chinese New Year for some of our manufacturers, a fairly level quarter.

Operator

Your next question is from the line of Vijay Rakesh with Sterne Agee.

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

On this one additional smartphone antenna switch module that you're trying to ramp, is that starting in the March quarter?

William A. Priddy

Yes, it is.

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

The one additional antenna switch module ramp, is that starting in the March quarter here?

William A. Priddy

Yes, it is.

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

Okay, great. And when you look at your 10% customers, any change in the contribution mix as you go into the March quarter? Are you seeing pretty steady mix there also?

William A. Priddy

We don't project 10% customers going forward. We just report them backwards looking.

Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division

Got it. And last question on the Amalfi, as those new products ramp, when do you see them ramping? Can you lay out the road map there on those ramps through the year?

Robert A. Bruggeworth

You want to take it? Go ahead, Eric.

Steven E. Creviston

Sure, yes. I'll take that. The new products is actually beginning to ramp today. We are already shipping in high volume. The rate and pace of it I guess is what Dean was referring to in particular is dependent upon new product cycles at our customers because in general we don't retrofit backwards. We wait for it -- as the new handsets come out, they will adopt the new product, and that's why it does take a couple of quarters to get the whole portfolio transitioned over to the new low-cost cost structure.

Operator

Our next question is from the line of Ian King (sic) [Ing] with Lazard Capital Markets.

Ian Ing - Lazard Capital Markets LLC, Research Division

Ian Ing. So you cited some entry-level smartphone demand. Do you think the domestic China market in 2G, 2.5G should eventually switch over fully to 3G? Looks like there's some attractive price points in 3G at this point. And what's the impact again on your share margin and ASPs here? Would $1 go to $2 to $3 of opportunity?

Robert A. Bruggeworth

What we have seen is the market is moving over to the majority becoming smartphones as we commented about 300 million this year new smartphones. The vast majority of those are still 2G with WiFi. There's still -- the entry-level 3G market still remains healthy. We saw strength in 3G entry for that market, and we also saw strength for the TD market, which is 3G as well, and that's also continuing with China mobile. So overall, that all is good. And clearly, the dollar content goes up with the need of WiFi, also as 3G entry as you commented, complexity goes up, multiple PAs and switches, so things do continue to improve there.

Ian Ing - Lazard Capital Markets LLC, Research Division

Okay. And then shifting over to MPG, once comm infrastructure does recover, could you talk a little bit about the small cell content versus macrocell content? It seems that RF and analogs, there's less falloff in content versus some of the baseband trends there.

Steven E. Creviston

Sure. When we look at small cells, I think there's a lot of different scenarios that are yet to play out here. Whether we are talking about femto, pico, micro or other different formats. In general, the small cells have much lower emitted power. So you're looking at things that tend to have 1 watt to 4 watt size type output devices. And so -- but there's also much higher volumes than macro-based station in the market. So the macro-based station market tends to run in the kind of 6 million to 8 million transceivers a year kind of a number, and we see forecast for small cells in another 3, 4 years at some multiple of that number in each year. And that kind of volume is very good for us cause we're really focused on the front-end category within the small cells, so that's got some upside for us.

Robert A. Bruggeworth

We'll talk about WiFi in small cells as well.

Robert M. Van Buskirk

Yes, certainly, WiFi is also considered to be an important element within small cells. Hence the key challenge is handling data and looking at WiFi as the key component to offload data consumption within the cellular networks. So when we talk to the providers in this area, they all anticipate that there'd be an important WiFi component in this as well.

Operator

Our next question is from the line of Aalok Shah with D.A. Davidson & Co.

Aalok K. Shah - D.A. Davidson & Co., Research Division

In terms of the Amalfi revenue for the March quarter, is there any guidance you can give us as to what you're looking for and what's embedded in your guidance?

William A. Priddy

Yes. On an annualized run rate, we're probably going to be around 50 million for the March quarter, in that range.

Aalok K. Shah - D.A. Davidson & Co., Research Division

Okay. So you think it could be fairly linear for them for the year next year as around that $50 million, so we should be not really assuming much seasonality for Amalfi?

William A. Priddy

For the quarter or for the year?

Aalok K. Shah - D.A. Davidson & Co., Research Division

For the quarter.

Robert A. Bruggeworth

Yes. Well, we didn't give any guidance for the year. I think what Dean is referring to is whenever we had our call when we acquired Amalfi, we talked about a $50 million run rate, and we're on track for that for this quarter.

William A. Priddy

So in other words, somewhere between $12 million and $13 million. Yes, $12 million plus in revenue for the quarter, to be more clear.

Aalok K. Shah - D.A. Davidson & Co., Research Division

Okay, great. And so if I strip that out, I mean we're looking at your core CPG business then on an organic basis, probably down in that 10% to 12% range. Is that how I should think about it?

Robert A. Bruggeworth

No.

William A. Priddy

My math would get...

Robert A. Bruggeworth

There was $5 million, so you're only up $7 million quarter-over-quarter.

Aalok K. Shah - D.A. Davidson & Co., Research Division

Okay, I'll double check that. And then just real quick, in terms of -- we saw a peak of revenue or your revenue here similarly was back in March and I guess June of 2010. And the cost structure of the company on the SG&A side and R&D side or OpEx side was a lot less than where it's at today. If we assume this mix doesn't change and you guys don't see any real improvements to your gross margin structure, are you guys going to make some improvements on the OpEx side to kind of get us back to where we were 1 year or 2 ago?

Robert A. Bruggeworth

I'm not sure I know how to answer that question. We're playing to win. We're winning, and we expect that trend to continue, so I wouldn't say we have any plans to cut the OpEx. We're playing to win, and we're winning, and we expect to continue to grow. We talked at the last call that we were investing $300 million a quarter with the addition of the Amalfi with that operating expense. We're looking well north of $330 million. We can see it in front of us. We're actually chasing business that's even larger than that. There's no need to cut back.

Operator

Our next question is from the line of Parag Agarwal with Topeka Capital Management (sic) [Markets].

Parag Agarwal - Topeka Capital Markets Inc., Research Division

Quick question on Amalfi. How should we look about -- look at the OpEx for this company going forward? What is the incremental OpEx that we should include for Amalfi?

William A. Priddy

Well, Amalfi was about $1.5 million for roughly 1/2 a quarter, so you can basically multiply it x2. But once Amalfi -- I mean, we're going to probably stop referring to Amalfi. I mean, now that it's been completely integrated into the company and it's part of a business unit within the company and again they're working on things now that were not even on the roadmap to begin with, especially with our multichip module capability and our use of Optimum Technology Matching, where we could use RF CMOS, we could use SOI, we could use gallium arsenide and so forth.

So it's really a very, very good tool in the tool kit for our design engineers. But overall company expense levels, I think, Bob was pretty clear. We expect to maintain these levels because the opportunities are unprecedented. And when you're inside the tent at every major channel partner and customer throughout the world and have chances in, in some cases, to actually influence the architectures of the future then that's a very powerful position to be in, and we have to make sure we can follow through.

Parag Agarwal - Topeka Capital Markets Inc., Research Division

Okay. The next question is about 4G or LTE. You said that you saw a lot of strength in the fourth quarter. Just wondering if the strength came from gallium arsenide side or from the switches or from both?

Robert A. Bruggeworth

Eric?

Steven E. Creviston

Certainly from both, no question about it. Switches have grown in our portfolio to roughly 1/3 of our portfolio now. But the power amplifiers, and particularly gallium arsenide based power amplifiers are the other 2/3. So the growth was represented in both of them very strongly.

Operator

Our next question is from the line of Brad Erickson with Pacific Crest Securities.

Brad Erickson

I got a couple of questions following up. You said earlier about China being basically largely seasonal -- sounds like in the March quarter. I'm just curious if you could kind of provide some additional color on where the better-than-seasonality demand particularly for the low end you're seeing. I was curious if it was -- if we were talking low end say in developed markets, North America and Europe or more other emerging markets outside of China?

Robert A. Bruggeworth

Brad, this is Bob. I'm going to be a little careful in answering that being that none of our major customers have gone yet, and they also play in these markets, so I prefer not to address that.

Brad Erickson

All right. That's fair enough. In terms of the mix -- obviously, you commented on the margins and understand the combination of the mix and utilization being a bit of a headwind in the near term. Are you noticing any incremental pricing pressure as the mix shifted downwards a little bit? Obviously, the high end typically cares -- we hear solely about performance versus pricing becoming more sensitive as the mix heads downstream. Have you noticed anything relative to one quarter ago? Any increased pricing pressure there?

Robert A. Bruggeworth

I'll go ahead and let both Norm and Eric address that for their separate businesses because they're a little bit different. Go ahead, Eric.

Steven E. Creviston

Nothing unusual in cellular. As you said, there is a bifurcation between the tiers. But in both cases, they're pretty much business as usual today.

Norman Hilgendorf

And for multi-market area, within the growing areas such as WiFi, we see normal pricing pressure there, nothing out of the ordinary. And then within the other areas where the demand has been a bit more muted, I would say that the ASP pressure has actually lessened a bit of late because of less demand there.

Brad Erickson

Maybe if I could just follow on that, and I understand the reservation on the first question. I guess more just to clarify when you referred to sort of entry-level handsets. Are we talking entry-level developed markets or emerging markets?

Robert A. Bruggeworth

My comment about the China market would be for the entry level within China by the white-box manufacturers.

Operator

Our next question is from the line of Vivek Arya from Bank of America.

Anne Edelstein

This is Anne Edelstein calling in for Vivek. Question on the envelope tracking technology. Just wanted to know how large of an opportunity you think that is over the next couple of years? And how widespread the adoption of that technology is likely to be, if you can quantify maybe like dollar content per phone, that sort of thing? And then also just -- do you think that technology is going to be adopted just for smartphones, or could it also see some exposure on the entry-level phones as well?

Steven E. Creviston

Sure. This is Eric. I'd be happy to take that. So the ET technology, again, with the capability of extending battery life by about 25%, that really applies for all LTE modes even if you're doing Voice over LTE it's all packet-ized data. So it will extend the battery life whether it's voice or data operation if it's in an LTE network. So we believe it applies very, very broadly. And we believe penetration next year could reach approximately 25%, and that's for calendar 2014. And then it'll continue to grow from there as much as 50% the following year, probably, and getting up to 2/3 to 80% percent of the market within a few years. So we see it as being a very widely applicable technology. Once it's developed and mature, it should flow throughout all the tiers.

Anne Edelstein

Great. And then I guess also could you just talk a little bit about how you've seen your market share grow in the 802.11?

Robert A. Bruggeworth

Sure. Norm, you want to talk about our market share gains in 802.11? You had a good year.

Norman Hilgendorf

Sure. The key thing that's happening here is really I think we've had renewed energy behind the activities with our reference partners. When you look at the key platform providers in the WiFi market companies such as Broadcom, Qualcomm, et cetera, the newer standards place such a premium on performance that they're driving significant new capabilities within the front end, especially in the high band, at that 5 gigahertz. And so the capabilities that we have with the high-performance PAs and high-performance front ends for these -- the newer WiFi standards is driving tremendous activity out there with both our reference partners and now with the key OEMs.

Anne Edelstein

And then just also quickly, is that 802.11 front-end module that you're shipping out right now that was mentioned in the press release, is that the same product that might be helping out sales going into the next quarter?

Norman Hilgendorf

Yes, absolutely. The products that we're shipping within -- for our WiFi market are almost entirely integrated front-end modules. So it looks very much like many of the front-end modules that we ship in the cellular group encompassing LNA, PA and switch.

Operator

[Operator Instructions] And we do have a follow-up from Edward Snyder with Charter Equity Research.

Edward F. Snyder - Charter Equity Research

Eric, you mentioned that ET was going to be really broadly based. But that's all LTE. You won't be applying that to 3G only or certainly not EDGE phones. Is that correct?

Steven E. Creviston

That's correct. There are applications that people are looking at for 3G, but in general the benefit is not nearly as strong. So you'll see it in some 3G applications, but not nearly as widespread. So my comments about penetration was purely penetration of the LTE segment, that's right.

Edward F. Snyder - Charter Equity Research

What about outside of smartphones? I know that some of the other private companies that are working on ET solutions or looking at PCs or some of the other power control requirements. Even in smartphones, perhaps processors where they're trying to squeeze out 1 engi [ph] I imagine you probably looked at that. Is there a market, a natural market for that or is it something much further out?

Steven E. Creviston

It's definitely further out. It's a possibility. This is very complex technology, and it's very kind of application-specific. So it requires more R&D to apply it to other industries, basically. But as you said there's a lot of people looking at that. So we know it's a possibility.

Edward F. Snyder - Charter Equity Research

And then finally, I know there are 3 main camps in this area. Qualcomm's got their own. You've got R2, you've got Quanta. And then if you -- same kind of thing, the basebands, right? Qualcomm is basebands. R2 is playing with Broadcom. And I think Intel is doing their own. You seem to be well represented in most of those camps. How do you feel this is going to evolve at this point? I mean, you've got PowerSmart, which is a turnkey solution, but most of the players are choosing to do their own power control and then partnering with a GaAs provider, of which I think you're one of the favored ones. In 1 year or 2 from now, would you venture a guess how much of your mix from ET is going to be just doing the amplifier part of it or for the whole turnkey or I imagine a long shot selling the power control by itself?

Steven E. Creviston

There's no question. First and foremost, we're here to sell the power amplifiers, the switches, the filters and all the rest of the RF front end like we do today. The ET converter is a great enabler. And absolutely, there's a lot of baseband partners looking at us today to bring it in. But our job, first and foremost, is to focus on the rest of the RF content today. So that's definitely going to be where our focus is. I do think within the ET converter space, you're going to see a shakeout. I don't think there's going to be as many people within a few quarters as what you're seeing today, because the industry is down selecting on a couple of solutions. We think were looking pretty good in that down selection for the ET converter. But in any case with the power amplifiers across all solutions that you mentioned, I think, we've got a place at the table.

Edward F. Snyder - Charter Equity Research

And finally, on the 2G market with Amalfi, I know you're not going to refer to them in the future as Amalfi, which is probably good, but this turns this whole business -- this 2G business, which is a kind of an Achilles' heel for you for a while since probably late 2011 into, is it fair to say, a growth business for you at all? And certainly if you get the new products from Amalfi and then who knows what the integration of that is going to be with GaAs, but at the very minimum, this becomes a pretty attractive margin play. And I understand 2G to 3G, but a lot of these phones are going to be using CMOS to try and reduce some cost. So isn't this going to be more of a -- can I characterize it as a growth engine, maybe not a top line, but certainly on the margin line? And what do you -- can you venture a guess on the top line?

Robert A. Bruggeworth

Ed, this is Bob. I think it's safe to say that we'll be able to improve the margins in our 2G business as Dean's outlined. And I think, as you well know, every phone made has a 2G PA. So as you pointed out, absolutely it could be growth because all these smartphones need a 2G PA. Some are discrete, some are multimode, multiband. So we'll just have to wait and see how it plays out, but it is absolutely a cost driver for us to improve our margins.

William A. Priddy

And the other thing, Ed, is it opens up new top-tier customers for this technology that initially would not adopt something from a "start-up company." So we plan on taking this thing to all of our customers, where our customer relationships do 2G. So that does, in some sense, open up a growth opportunity for RF CMOS in the 2G world.

Robert A. Bruggeworth

And, Ed, as we talked about when we were making the acquisition, I mean, we're moving into WGPRS with it, we're looking at entry-level wideband CDMA as well. So more than just a 2G play -- I don't want you to just consider it just 2G.

Operator

We do have a question from the line of Anthony Stoss from Craig-Hallum Capital Group.

Anthony J. Stoss - Craig-Hallum Capital Group LLC, Research Division

Two-part question for you. On both WiFi on the gross margin side, as well as antenna control solutions, do you expect that to be accretive to corporate margins from here? Also maybe, Eric, if you wouldn't mind sharing your view on LTE content. If now kind of the design wins you talked about for 2013, is there more bands being added in those phones than you were anticipating even months ago or just kind of your view on -- if that's going up or down?

Robert A. Bruggeworth

Dean, why don't you go ahead and take gross margin. I think it was WiFi and antenna control solutions. And then, Eric, you take the LTE and increasing band.

William A. Priddy

Currently, WiFi is in family with our cellular products. But as 802.11ac is adopted, we see a mixup to a lot of the CPE equipment, and that typically has a higher margin structure. So we'll have to watch that trend very closely throughout calendar '13 and what the mix is between the CPE and the home networking equipment that utilizes ac versus the more traditional handset modules. Any way you look at it, though, it's a significant increase in dollar content, and we believe will ultimately be a way to expand margins in our WiFi business. And antenna control solutions, we're generally okay with where the margins are today versus the corporate averages that we worked very hard from an R&D standpoint to get ahead of the curve here. So that's a good business.

Steven E. Creviston

And regarding the LTE content expansion, we are I would say on track with what we are expecting. Last year at Mobile World Congress, for example, we were talking about the transition from regional LTE to global LTE over the next couple of years, and that's exactly what we're seeing today. So the phones of last year of which there were several LTE handsets that were ramping, they in general had 1 or 2 bands of LTE on top of 3 or 4 bands of 3G and 2G backward compatibility. As you're going through this year, you'll begin to see a lot of those 3G bands convert to LTE, so you've got 6 to 7 bands of 3G, 4G in addition to all the 2G backward compatibility and a lot of design work that we're looking at now and working with partners on is to get to 8 to 12 bands of 3G and 4G in addition to the 2G of course. So pretty much on track. We're heading towards about 12 bands in 2014 in terms of the phones that will be rolling out.

Operator

And we have no further questions at this time. I'll turn it back to management for any closing remarks.

Robert A. Bruggeworth

Thank you very much for joining us tonight. RFMD is executing on a product and technology leadership strategy to drive diversification, category expansion and content gains. We intend to capture increasing content in the industry's highest volume platforms and achieve an extended period of sustainable revenue growth, improving financial performance and greater shareholder returns. Thank you again and good night.

Operator

Ladies and gentlemen, this concludes the RF Micro Devices Q3 2013 Conference Call. If you'd like to listen to a replay of today's conference, please dial 1 (800) 406-7325 or (303) 590-3030 with the access code of 458-7278. We would like to thank you for your participation. You may now disconnect.

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