TriQuint Semiconductor (TQNT) CEO Discusses Q2 2013 Results - Earnings Call Transcript

Jul.24.13 | About: Qorvo, Inc (QRVO)

TriQuint Semiconductor, Inc. (TQNT) Q2 2013 Earnings Conference Call July 24, 2013 4:30 PM ET

Executives

Steve Buhaly – CFO

Ralph Quinsey – President & CEO

Grant Brown – Director of IR

Analysts

Edward Snyder – Charter Equity Research

Anthony Sotss – Craig-Hallum Capital Group

Matt Ramsay – Canaccord Genuity

Steven Smigie – Raymond James

Michael Englund - D.A. Davidson & Co.

Quinn Bolton – Needham & Company LLC

Tyler Radke – Lazard Capital Markets

Anne Augustine – Bank of America Merrill Lynch

Bill Dezellem – Tieton Capital Management

David Duley – Steelhead Securities

JoAnne Feeney – ABR Investment Strategy

Operator

Good afternoon. My name is Dustin and I will be your conference operator today. At this time I would like to welcome everyone to the TriQuint Semiconductor Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now hand the call over to our host Mr. Steve Buhaly. Sir, you may begin.

Steven Buhaly

Thanks Dustin, good afternoon everyone and welcome to our Second Quarter 2013 Conference Call. With me today is Ralph Quinsey, our President and Chief Executive Officer and Grant Brown, our new Director of Investor Relations. During the call, we will make forward-looking statements about TriQuint’s business and projected financial results. Actual results could differ materially from our projections based on various risk factors, including those described in the press release we issued earlier today and our reports in Forms 10-K and 10-Q, and other filings with the Securities and Exchange Commission.

All financial measures presented today are on a non-GAAP basis. Non-GAAP financial measures report tax on a cash basis and exclude equity compensation charges, entries associated with acquisitions and other specifically identified non-routine items. These non-GAAP measures are provided to enhance understanding of our core operating performance. A full reconciliation of these non-GAAP measures to our GAAP results is in our press release and in the Investors section of our website.

I will now turn the call over to Ralph to provide an overview of the quarter.

Ralph Quinsey

Thanks Steve and good afternoon everyone. I will start the call with a brief overview of our second quarter results including comments our market, products and outlook. Steve will follow with a detailed review of our second quarter financial performance and specific forward-looking guidance. I will then make a few closing comments and open the call for questions.

It is an exciting time for TriQuint. I am confident we’ve turned the corner and will now see improved financial performance beginning this quarter. Our results for the second quarter were $190.1 million in revenue and a loss of $0.07 per share which is $0.04 better than our April guidance. But, more importantly it marks what I believe is the beginning of our next phase of growth.

Over the last two years we’ve completed meaningful changes at TriQuint. We’ve improved our execution and refocused on our core competencies of innovation, technology and complete RF solutions. For example, we have developed a leadership position in GaN, which we believe is a next generation high power RF process.

Our GaN technology is widely recognized as the industry’s most reliable process and is being designed into both defense and commercial applications today. Crowded spectrum, carrier aggregation and expanding LTE content remain our largest opportunity for mobile. In response we’ve continued to expand our BAW capacity doubling it this year and we have accelerated the release of new product that contains BAW.

In fact, we’ve significantly improved new product execution across the company as compared to 18 months ago. Year-to-date we have released 86 new products and we’re on track to double our release rate as compared to 2011. TriQuint has a reputation for high performance products in many of our markets, in these markets we have high share, healthy margins and long product lifecycles. Some examples include optical modulator drivers, decent amplifiers, premium filters and high performance standard products.

Additionally TriQuint remains a trusted foundry supporting strategic partners in the defense industry and new market. As the premier foundry in our industry, our strategic customers create their own custom designs that they run in our factories. These products support a vast array of applications including radar, communications, electronic warfare in emerging markets will re-partner with industry leaders to create new advanced product.

I should note that we made the decision in 2011 to disengage from strategic foundry customers. Non-strategic foundry applies to a few direct competitors who had been designing in our factories under a simple supplier customer relationship. In these cases we felt a long term competitive conflict may rise, so we decided to disengage. We’ve been supporting those competitors with long term end of life purchase agreement allowing them to supply their customers when they develop new sources of technology. This effort is winding down and will create some revenue headwinds, but it was a small impact to the way we program that.

Turning to networks and defense revenue, we grew 12% to 13% in the first half of 2013 as compared to the prior year. More specifically revenue that supports base station transceiver cards has more than doubled year-to-date as a direct result of new products ramping at multiple customers. We are clearly seeing success with new products and I believe increasing data traffic will continue to drive infrastructure opportunity as carriers look to improve coverage and support the transition to LTE.

In mobile devices we’ve invested in premium filters, wafer level packaging and copper flip interconnect which I believe has uniquely positioned us ahead of competition. Although these investments created financial headwinds for TriQuint over the last 18 months they were important in securing significant and sustainable competitive position for our next phase of growth. The mobile RF industry has long been focused on amplifiers and high volume wire-bond factories for success, this is changing.

LTE expansion in Compaq smartphones is creating new challenges for our customers and TriQuint has been the leader in recognizing the need for next generation solutions. Looking forward the simple truth is, the RF problems our customers are working are crowded spectrum, crowded board space and longer battery life.

In the next generation phone, the critical components used to solve these problems will be high performance filters and high efficiency amplifiers both playing an important role in highly integrated modules. The significant challenge is operating these multi-branded multi-standard phones in an increasingly crowded spectrum to the interference issues associated with expanding LTE content, Wi-Fi co-existence and carrier aggregation. This is a challenge that TriQuint recognized early on as we executed a strategy to invest in BAW, advanced SAW and advanced packaging.

These investments now set us apart from our traditional competition. We have broad capability and premium filters and leadership efficiency in amplifiers. Given the challenges with LTE, Wi-Fi co-existence and carrier aggregation, playing field has changed. And due to broadband architectures amplifier expansion will slow, amplifier is becoming a smaller percent of the overall RF solutions and filters becoming a larger percent.

Regarding amplifier technology much speculation has transpired over the last ten years around GaAs HBT versus Silicon. The question being if and when Silicon would overcome GaAs or will Silicon’s relatively low cost per area outpace the superior performance of GaAs. The reality is the cost difference between Silicon and GaAs in an integrated solution has become inconsequential due to extremely small GaAs sizes. GaAs HBT continues to deliver longer battery life for years and will likely remain the technology of choice for all but the very low end entry level phones.

We are winning in the market today because our products have demonstrated performance leadership. We believe our manufacturing expertise coupled with incremental cost effective capacity places TriQuint in a unique position to support the new realities of the market. As we approach 2015, we believe fewer suppliers will be able to differentiate themselves in this market. Traditional module integrators will likely be held back to delaminate commercial filter availability and insufficient wire-bond interconnects.

TriQuint has dozens of high performance filters coming to market over the next several years. We have staffed up our capabilities in this area and I believe we’re well positioned to benefit both short and long term. In fact, the benefits are now upon us. In Q3 2013, I expect revenue to jump 30% sequentially bringing significantly improved margin performance and profitability. I believe Q3 is the beginning of TriQuint’s next chapter as we execute on performance leadership and proprietary technology to create sustainable success.

Steve will now provide a detailed financial of the quarter and guidance for third quarter.

Steven Buhaly

Thank you, Ralph. For the second quarter of 2013 revenue was $190.1 million up 7% from the second quarter of 2012 and up 3% sequentially. Mobile device has increased 12% sequentially, while networks declined to 11% and defense was down 3%. All three markets saw revenue growth compared to the second quarter of 2012.

For the second quarter our end market revenue split was 62%, 24% network infrastructure and 14% defense and aerospace. Please refer to the supplemental data posted on the investors section of our website for more detailed breakdown and trend of our revenue by market.

During the second quarter, Foxconn Technology Group accounted for 22% of our revenue. It was the only customer that exceeded 10% of revenue. Please note that Foxconn is a subcontract assembler and high volume electronics companies made as multiple subcontractors to build their products and that the mix of those firms may vary overtime.

Our book-to-bill ratio for the quarter was 1.17. Gross margin was 31.3% for the second quarter of 2013, up sequentially from 22.8%. Higher revenue and activity levels and better yields contributed to the improved margin. Also note that Q1 was impacted by $5 million of cost due to a now resolved quality issue.

Operating expenses were $69.6 million for the second quarter of 2013, a sequential increase of $1.6 million primarily related to additional engineering expense and our annual sales conference.

Tax expense for the second quarter was negligible. Net loss for the second quarter was $10.9 million or $0.07 per share. Total cash and investments decreased by $51.8 million to $89.3 million during the second quarter as we repurchased 7.7 million shares for $51.1 million and increased inventory by $34.5 million ahead of a strong second half ramp. These uses of cash were partially offset by $20 million hired for short term liquidity. Capital expenditures of $27.9 million were primarily related to capacity expansion for premium filters.

Moving to our outlook, we believe third quarter revenues will be between $245 million and $255 million. Gross margin is expected to be between 34% and 36%. Operating expenses are expected to be between $70 million and $71 million.

Third quarter net income per diluted share is expected to be between $0.09 and $0.11. As of today we’re 90% booked to the midpoint of our Q3 revenue guidance. Solid results in the second quarter and our current expectation for the remainder of the year lead us to believe earnings of at least $0.05 per diluted share for 2013 is a reasonable expectation.

Moving now to investor relations, I would like to introduce and welcome Grant Brown who has joined us as our Director of Investor Relations. Going forward please use him as a resource and include him in your correspondence. In terms of Investor Relations activities I will be presenting the Canaccord Genuity’s 33rd Annual Growth Conference in Boston on August 15. Finally, our Q3 2013 conference is scheduled for October 23.

I will now turn the call over to Ralph for closing comments after which we will open the call to your questions.

Ralph Quinsey

TriQuint grew revenue year-over-year in Q2 after plough towing for seven quarters between Q3 of 2011 and Q1 of 2013. For the five years prior to Q3 of 2011 our company grew at comp annual growth rate of over 20%. Based on today’s guidance we expect year-over-year second half 2013 performance to those historic levels and I remain bullish of our 2014 prospects. As I highlighted earlier TriQuint has reinforced and reenergized our product development efforts across the company.

Additionally, we’ve retooled our volume factor and aligned our mobile product strategy around premium filters, high efficiency amplifiers and high performance WLAN solutions. We believe leveraging differentiated in-house capability into highly integrated RF solutions sets up apart from traditional suppliers in the market today. We’re for a compelling value proposition to our customers built on performance, integration and supply assurance that we expect much of our competition will struggle to match.

The increasing demand for mobile bandwidth remains in the early stages of opportunity. The Tsunami of data traffic continues and is creating new opportunities to build out and upgrade the worldwide networks. TriQuint creates one of world’s most advanced technology supporting mission critical applications and we expand that learning to a broad and growing commercial market. We are a leader in comprehensive RF solutions and I expect to leverage our leadership into revenue growth and improved financial performance.

Dustin, we’d like to take the questions now. Thank you.

Question-and-Answer session

Operator

(Operator Instructions) Our first question comes from the line of Edward Snyder with Charter Equity.

Edward Snyder – Charter Equity Research

Glad so were here, Steve inventories were about 25% sequentially, is that mostly raw material wafer finished goods and then gross margin seems to be rebounding this quarter and they’re projected for big steam up next period, is that primarily expectation of higher GaAs utilization or is it more mixed towards filters?

Steven Buhaly

First question, the transition from Q1 to Q2, inventory growth is pretty smoothly spread all the way across from raw material to finished goods, really you can think of it as a whole pipeline just got bigger during the quarter and we did built some finished goods along with that kind of growth in the production pipeline. And then with respect to gross margin, brief lock, I think from Q1 to Q2 you clearly saw three plus points of improvement due to the absence of quality issue we had in the first quarter. Beyond that there was a little bit everything mostly better activity in utilization levels across company, but we had some improvements in yield and scrap, little bit better revenue all contributing, but the major driver was better activity levels in the factories and that was again pretty well distributed across our organizational locations.

And then, Q2 to Q3 activity levels in terms of utilization are going to be, recently consistent with the second quarter, but we have higher revenue to work with and that dilutes the impact of unabsorbed costs on the P&L. So, I think that’s a basic answer for you.

Edward Snyder – Charter Equity Research

So, the utilizations about the same 3Q to 2Q or it mostly mix that’s driving, we’ve got like 300-400 bits increase in gross margin, is that, can we look at that mostly a mix issue?

Steven Buhaly

I think overall utilization will be roughly consistent, but if you can think of under utilization is creating a fixed dollar amount, a tax if you will that’s divided by revenue and if you have larger revenue there’s a lesser impact on gross margin.

Edward Snyder – Charter Equity Research

Okay. What is your utilization on GaAs?

Steven Buhaly

You know again, I’m not going to give it factory by factory, but overall it’s around 70%.

Edward Snyder – Charter Equity Research

Okay. And then Ralph, you said that your BAW products are really taking off is that and I know in the past you folks did may be one product are, are you expanding in the near term into discrete and some of the filter being priced or is that something we look forward to 2014 when you, when you’re adding more capacity?

Ralph Quinsey

No, we are currently actively developing and marketing highly integrated solutions, discrete solutions and filter band solution, so all of the above.

Edward Snyder – Charter Equity Research

So that we market it out, but in terms of production and revenue in the short term it’s still pretty much the traditional products?

Ralph Quinsey

So, we have some revenue in discrete products, we’ve probably doing on a couple of million dollars a quarter, I think that’s going ramp up significantly in the second half. I think, the ramp will be driven by multiple customers, we’re seeing really good demand for the Wi-Fi co-existence filter, we have that Band 25/26 Duplexer that we talked about. So, I think the real story is, as you said, historically we made most of our revenue around filters with integrated solution, will continue grow that business nicely, we’ve now created a enough infrastructure capacity, R&D design etcetera to allow us to expand and attack more of the market.

Edward Snyder – Charter Equity Research

And then, in the co-existence filters, does that expand your customer base, you’re selling to the same customers because, I mean, it’s my understanding that everybody in China is going to be needing one of those as soon as LTE comes on, so does this open up opportunity for different clients or is it very much the same customer suite.

Ralph Quinsey

We call virtually everybody in the mobile device especially customer now, so we’re clearly well diversifying the customers, but as you said anybody that uses 2.4 is going to lead a co-existence filter, so I suspect will pick up more customers.

Edward Snyder – Charter Equity Research

Great, thanks a lot guys.

Operator

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

Anthony Sotss – Craig-Hallum Capital Group

Hi guys, nice job. Ralph if you won’t mind talking about your design activity in the BAW sign and also what you’re seeing from a trend perspective in terms of number of BAW filters per phone, and then if you wouldn’t mind helping us understand your capacity plans on the BAW side, I know, you still got double capacity this year. But any view you can share kind of heading into 2014 would be helpful, thanks.

Ralph Quinsey

Sure. Second part of the question first, I think we’re well positioned to stay ahead at demand on BAW, we doubled our capacity, we think, we have enough capacity now to work us through of the current ramp with some headroom allows us to expand on the discrete products and it’s relatively short cycle now to add incremental capacity going forward.

As far as BAW content in various phones, not a lot BAW content in the traditional voice phone. And as you transition to 3G, maybe you pick up one BAW for a band, tour band 25, but the real driver is as you expand into LTE multiple opportunities for BAW filters and Wi-Fi co-exist, it compiles that opportunity.

And then when you move to carrier aggregation again, accretes it more. So, I would say, right now, filters in total BAW and SAW filters are probably 30% of the solution value in a typical 3G phone as we move to LTE it’s going to go to 50%, 60%, 70% of the content of RF solution.

Anthony Sotss – Craig-Hallum Capital Group

Okay. And if I could ask follow up for Steve in terms of gross margins heading into the December quarter since you shared with us kind of a total profitability for the year. Any sense on or any direction on what you expect for gross margin in December would be helpful?

Steven Buhaly

I think all, stick with the guidance we have given before which is we expect gross margins of 35% are better on average for the second half. And so, clearly by derivation, Q4 will be at the Q3 guided level or better and will give better guidance for Q4 as we get closer to it.

Anthony Sotss – Craig-Hallum Capital Group

Okay, nice job guys.

Ralph Quinsey

Thank you.

Operator

Our next question comes from the line of Michael Walkley with Canaccord Genuity

Matt Ramsay – Canaccord Genuity

Yes, thank you. This is Matt Ramsay. Just wanted to say, first half congratulations and looks like the beginnings of an exciting turnaround for you guys on from the P&L perspective. I guess my first question or group of questions Ralph is really around the overall smartphone market as there has obviously been a lot of concern given perceived weakness at the higher end of the smartphone market and you have guys have been doing a great job in diversifying your revenue. But, I notice in the quarter that revenues to your highest, your number customer was essentially flat year-over-year despite some challenge trends within so therefore you would have expected some really strong trends with others OEMs, so you could talk about your breath of OEM coverage and what you expect into the back half of the year at the high end of the smartphone market, maybe outside of your top customer?

Ralph Quinsey

Revenue to our largest customer, Foxconn was in there with 22%, 23% range, reminds still on the call that manufacturers often use multiple subcontractor. As far as the overall smartphone market I still think it’s quite strong, I think it’s a growing market, different customers are having varying degrees of success and I clearly believe that the top two suppliers in the world of smartphones have continued to strengthen their position.

Matt Ramsay – Canaccord Genuity

Okay, thanks. I guess, keeping around a little bit, I wanted to dive in a bit on the wireless LAN revenue, it’s been quite choppy over the last few quarters sort of up or down by $10 million in magnitude on a quarterly basis, maybe even more the last quarter, maybe you could remind us what the dynamics are there on either a customer or product transition that’s driving that big difference on a quarterly basis?

Ralph Quinsey

Yeah, we discussed that in the last call, I think, will remain choppy going forward. Long term trend looks promising, we’re focused on the high performance, high frequency gigabit, I think we got a great product there. But, we have a fairly narrow customer base right now and so we will bounce around with any downstream activity.

Matt Ramsay – Canaccord Genuity

All right, thanks and I guess one for Steve. Maybe OpEx was slightly a bit higher this quarter then we expect to kind of offer the Q1 rate going maybe a million a quarter non-GAAP gross margin, is that still from this new baseline, is that still the expectation sort of through the end of this year and maybe into the next year?

Steven Buhaly

Yeah, it certainly the expectation for the remainder of this year, I won’t speculate on next year I think, that’s reasonable for next year, I know you have to speculate, but lots over window. But yes, I think a million in a quarter and we were half million higher than that on a base 70 million that’s probably within the normal NOEs factor. So, a million in a quarter is a fair increase rate for our OpEx.

Matt Ramsay – Canaccord Genuity

All right, thank you very much.

Steven Buhaly

You bet.

Operator

Our next question comes from the line Steven Smigie with Raymond James

Steven Smigie – Raymond James

Great, thanks a lot and I would like to add my congratulations on the great guidance here. So, if you could help us think a little bit about how we should look at the December revenue again, I know what the gross margin you are already going to see the one, looking Q4, but is this 30% jump just to start of a ramp or is just the amount of seasonality or specific customer product there that’s made for such a big sequential jump, just trying to get understand from thinking about that in terms of what’s driving that and how we can think of that going forward? Thanks.

Ralph Quinsey

Yeah, we don’t want to guide for Q4 at this time, we have guided forward lead is a production ramp, we talked about the opportunity to second half we think that those are starting to come in play, a lot of the demand is coming from our largest customer, but it is fairly broad based beyond that.

Steven Smigie – Raymond James

Okay. On your comments with regard to 50% to 70% content of the frontend being filters can you talk about how many filters that might typically be and you guys a slide valid from bands and issues that you have deal with on LTE phone how many thought there is, what’s the range normally filters might have to have to solve all the problems out there?

Ralph Quinsey

So, the basic bands for a 3G phone or 125 & 8 and those come in different flavors as the band definitions migrate i.e., band 2 going to band 25 in some cases. I know that just all up from there. If you look at North America right, band 4, band 17, band 26, band 41 are all opportunities for new set of phone. And band 41 would push up against the Wi-Fi and so with a Wi-Fi co-exist filter there as well. In China you’re going to see bands 38, 40, 41, in Europe band 8, 20, 42, 3, in Japan band 26 and band 8, I mean there is just a lot of bands out there. So, it depends on how architecture from, if you have a regional phone, you could easily have seven bands, eight bands in the phone, if you have a world phone you could have many, many more.

Steven Smigie – Raymond James

In terms of the 30% guide up, how much of that is say, a unit jump versus sort of ASP and above others significantly more than then what might had on a filter in the past?

Ralph Quinsey

I can tell you it’s both, I don’t want to breakdown the specifics.

Steven Smigie – Raymond James

Okay, great, congratulations again, thanks.

Ralph Quinsey

Yeah.

Operator

Our next question comes from the line of Michael Englund with D.A. Davidson.

Michael Englund - D.A. Davidson & Co.

Hi guys, thanks for taking my question. I guess, the first one I have is, related to filter market. Historically we’ve seen that’s you and Avago, have there been any suppliers that have high performance filter market?

Ralph Quinsey

Yeah, there is a handful suppliers out there, but the real premium suppliers, those suppliers that can address the most difficult opportunities are really us and Avago. Others are trying and have tried for some time, buy they struggle to create the same level of technology to service those opportunities.

Michael Englund - D.A. Davidson & Co.

And is there a specific geographical region that we should see deriving demand for BAW right now?

Ralph Quinsey

I think it would be fairly broad base, but I think, Asia is going to be a big driver in the relatively near future over the long haul it’s going to be worldwide.

Michael Englund - D.A. Davidson & Co.

Okay. And then, what level of sales can you support with your current capacity with BAW build out?

Ralph Quinsey

We have been telling people is before the BAW build out we thought we’re in the 300 to 325 range after the BAW build out, we believe we’re closer to the 400 million a quarter range.

Michael Englund - D.A. Davidson & Co.

Okay.

Operator

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

Quinn Bolton – Needham & Company LLC

Hi guys. While we had, my congratulations on the strong results and guidance, like you said, the first question Ralph just sort of looking at the TD-LTE and specifically bands 38, 40, 41 can you see a lot of activity for handsets this year for TD-LTE or is it more of 2014 opportunity because it certainly sounds like between those three bands plus co-existence filter, TriQuint could have significant content opportunity in TD-LTE.

Ralph Quinsey

Yeah, we have been and continuing to see designed activity across those bands with multiple customers.

Quinn Bolton – Needham & Company LLC

And sorry, just from a timing perspective is that the some of that hit this year or do we have to wait for commercial licenses to be granted in China and that’s more of a 2014 ramp?

Ralph Quinsey

I believe it’ll hit this year.

Quinn Bolton – Needham & Company LLC

Okay, thank you. And I just on the you customer diversification, it’s unlike the second half ramp a lot of that’s driven by your largest customer base, you said there are others behind it, any thoughts on perhaps a second 10% customer in the second half or is it still kind of too hard to tell at this point?

Ralph Quinsey

I think there’s always a chance, we’re not providing that detail of guidance, but there’s always a chance.

Quinn Bolton – Needham & Company LLC

Okay. And then, for Steve, you grew inventory I think by about 35 millions sequentially in Q2, do you plan to further build inventory in the third quarter or do you think that inventory will be more flattish in the third quarter?

Steve Buhaly

I think inventory will be flattish, but we will growth in accounts receivable.

Quinn Bolton – Needham & Company LLC

Okay, great. Thank you.

Operator

Our next question comes from the line of Ian Ing with Lazard Capital

Tyler Radke – Lazard Capital Markets

Yeah, thanks it’s actually Tyler Radke on behalf of Ian, just want to again echo my congratulations on strong results. I was wondering if you could just real quickly and I apologize if this has been already asked, I was having connectivity problems, can you tell us exactly what your mix is at this point of filter is in and power amplifiers within your business?

Ralph Quinsey

I apologize that’s a difficult number to quote, so we’re not really trying to communicate, the reason it is difficult, much of our revenue is generated from these highly integrated filters, they have switches and amplifiers and filters in them and we have to arbitrarily assign value to each of the component, so we just don’t try to do that.

Tyler Radke – Lazard Capital Markets

Understood. I mean is, I think you guys talked about having a higher mix of filters, so maybe could just give some, just a rough, some rough figures so we can try to understand how much of an opportunity it is?

Ralph Quinsey

Yeah, I think the right way to look at is as I said, in a content of a phone not on revenue, but in content of the phone filters are just increasingly becoming a higher percentage of the total content. If you look at a typical 3G phone and you assume that it’s relatively low-end phone, it’s got may be $3 to $4 of content, the filters are about the third, the amplifiers about third and then the switches and the Wi-Fi is about a third. When you go to these LTE phones and it is very high-end phones, switching goes up a little bit, Wi-Fi stays about the same, amplifier stays about the same, but all the growth is in, in filters and content can get up to the $10, $11 range.

Tyler Radke – Lazard Capital Markets

Okay, that’s helpful and then quickly shifting gears that you talked about I think with your foundry services kind of disengaging from nonstrategic customers, so we assume that, I mean, are these competitors on the mobile side or defense and you kind of help understand where they play with you guys?

Ralph Quinsey

Sure. We probably have the best high performance gas technology on the planet and over the past 10 years, a variety of our direct competitors have leveraged that technology into products, mostly on the infrastructure and defense side, I would say very little on the mobile devices side.

And in about 2011, we made the decision that we should disengage because most competitors in fact would be in conflict with our business going forward and so we had quite a restructured one like end of life purchase agreement, we work through that. I mention it now because it will present a little bit of a revenue headwind $2 million or $3 million a quarter type of headwind. And it will make comparison in various markets, difficult to describe. But, it was a relatively low amount of waters that ran in our factories.

Tyler Radke – Lazard Capital Markets

Okay. And then, in terms of inter-quarter we heard about the act of a shareholder, can you just kind of update where we’re with respect to that and then just kind of some of the ideas maybe, you guys have talked about in terms of fair request for improvement?

Ralph Quinsey

There we don’t typically share conversations we have with one investor with the broad investment community, but I would say, our experience to Starboard is a high quality value oriented investor, who is thoughtful and we’ve had some good conversations, but beyond as was we would with any investor, we keep those conversations between the two of us.

Tyler Radke – Lazard Capital Markets

Okay. And then, last question you guys talked about carrier aggregation can you just kind of help us understand the timing and just kind of magnitude of this opportunity, I mean, I think RFMD talked about carrier aggregation jumping to as much as 25% of their LTE opportunity in the next year. So, just trying to understand if that similar opportunities for you or for the function of geographies Asia, North America that kind of stuff?

Ralph Quinsey

So, carrier aggregation represents an opportunity for us that I believe is unique from our traditional competitors. Carrier aggregation requires multiple bands that are normally paired up to be active in a phone and the real issue is dealing with second and third order harmonics and that requires really good filtering. And so, it’s going to expand the number of quality filters, premium filters that are required in the handset. I don’t think it will be a material part of our revenue until probably starting sometime next year. And so, it’s really too early to guide how big and when it’s going hit etcetera. When we get within a couple of quarters of I’m going to say material revenue, I would be happy to update you.

Tyler Radke – Lazard Capital Markets

Okay, good luck guys.

Ralph Quinsey

Thanks.

Operator

Our next question comes from the line of Vivek Arya with Bank of America Merrill Lynch

Anne Augustine – Bank of America Merrill Lynch

Hi guys, this is Anne Augustine calling in for Vivek. First of all nice results and just a question about your BAW opportunity, it sounds like you and your competitor, post competitor are pretty bullish on back half BAW growth, so I was wondering is that market growing fast enough to support both of you and Avago? And then, second part of the question would be what sort of margins are you seeing on your BAW filters maybe versus corporate margins?

Ralph Quinsey

Sure Anne. So that part of the market, the premium filter market which we lump to get it both BAW and advanced SAW, BAW being the largest portion of it is probably the fastest growing portion of this smartphone market from an RF perspective right now. I think it’s probably growing compound growth rate of 20% to 25%. And so, I think there is plenty of opportunity for us to be very successful in that market.

And I think it takes multiple players in high volume market to allow customers to use new technology have the assurance to supply. As far as margins we haven’t been very specific on BAW margins, but they tend to look more like our defense and infrastructure margins than traditional mobile devices margin. And we have said that our defense and infrastructure margins are healthier than mobile devices.

Anne Augustine – Bank of America Merrill Lynch

Great, thanks. And then, just a second question, how should we be thinking about modeling CapEx may be further full year versus last and then just back half any color would be great?

Steve Buhaly

I think, the back half of this year CapEx would be in the $30 million to $35 million range which will result in a full year of $90 million plus or minus.

Operator

Our next question comes from the line of Bill Dezellem with Tieton Capital Management.

Bill Dezellem – Tieton Capital Management

Margin comment and your revenue growth comment relative to filters.

Ralph Quinsey

Hi, Bill we didn’t hear the beginning of your question.

Bill Dezellem – Tieton Capital Management

I’d like to just follow up relative to the whole filter versus the rest of the mobile market, so when you look at your mobile revenues, do you expect that there’ll be a point that filters will become more than 50% of your mobile revenues and if so, what would speculate a timeline to be for that to happen?

Ralph Quinsey

As I said Bill, we integrate all these into integrated model so it’s really hard to tell, I think directionally you’re correct and as far as thinking of time when that’ll happen, I just don’t want to time myself down at this point.

Bill Dezellem – Tieton Capital Management

And would it be fair to presume that your BAW part mix would be similar to that 30% number that you’d mentioned earlier on in the call that filters represent of smartphones.

Ralph Quinsey

Again we’d have to assign our arbitrary value, so I think that filters are substantial part of our revenue right now and filter related products is clearly a big part of our revenue.

Bill Dezellem – Tieton Capital Management

All right. But, to take away I guess for us should be that because of your advanced filter presence, we should expect your revenues to grow faster than the Smartphone market number one and number two that because the margins on the advanced filters are higher than your overall mobile margins that we should anticipate the profitability of that segment to grow even faster than in the revenue growth?

Ralph Quinsey

I believe, there you’re directionally correct again, keep in mind that the component we didn’t talk about, when we sell BAW filters in a highly integrated modules it gives us an actually to put through more content whether it’ll be GaAs or SAW, CMOS or SOI etcetera, but we’re selling we’re using that proprietary technology to really leverage up more content in the phone in a high ray esteem. And our customers are delighted with that because it allows them to use a smaller higher performing solution.

Bill Dezellem – Tieton Capital Management

Thank you and then, finally for now, if you are guiding roughly nickel for a year that implies $0.19 approximate using the Q3 midpoint for the fourth quarter and I guess what we’re trying to get our arms around is the, how much of that is seasonality versus how much of that is a function of just your improved presence within the market.

Ralph Quinsey

Well, of course, you know it’s both, seasonality is clearly helpful but typically doesn’t drive because the sequential growth in revenue that were guiding to and I would say a very typical seasonal trend is, Q4 is 15% up may be 10% or 15% up from Q3 and Q3 is probably modestly up from Q2 and I see nothing different in typical seasonality. So, I will just kind of leave you with historical trends there.

Bill Dezellem – Tieton Capital Management

All right. Therefore, we can to some degree as we start doing some very simplistic and utilization of your numbers back off a little bit, the typical seasonality from the fourth quarter level, but recognized that in fact your growth is not just seasonal, it is designed when related also.

Steven Buhaly

Yeah, we are currently benefiting from the emergence of LTE as a more important part of the overall market opportunity, our strengths in premium filters are intersecting with that growth opportunity and as a result we are benefiting from additional content as well as more units to the seasonality.

Ralph Quinsey

And Bill, I would add, this is Ralph, I would add that I feel the company is executing much better than we were 18 months ago on new products and I feel much better positioned for 2014 then I was, how I felt about 2013 this time last year . So, the improvements that we’ve done internally combined with a fact that we are in a strong market and we have a differentiated approach to the market built on premium filters and high efficiency amplifiers I feel very, very bullish about 2014.

Bill Dezellem – Tieton Capital Management

I said, I’d make that my last question, but then given that comment would you think we were completely out of line to analyze the fourth quarter number as just a simple starting point for 2014?

Ralph Quinsey

I don’t want to tell you how to do your models, I would recommend you wait for Q4 and see what the number actually is and we have guided for at least a nickel further year, but let’s wait to what it turns out to be.

Bill Dezellem – Tieton Capital Management

Thank you both for the time.

Operator

Our next question comes from the line of David Duley with Steelhead

David Duley – Steelhead Securities

My question on next quarter, I just, you talked a lot about this, but may be you could get help us understand for TriQuint, what is the typical increase in content from a 3G phone to an LTE phone?

Ralph Quinsey

So, the total RF opportunity for typical 3G phone and again this is a relatively simple3G phone is between $3 and $4, regional LTE phone we’re going to pay $6 and $7 and then a global LTE phone we’re going to pay at between $10 and $11.

Steven Buhaly

And, a decent part of that the difference is in the premium filter area and we do have differential advantage there.

David Duley – Steelhead Securities

Okay, some of that grew in content, you’re addressing what the filter product is a kind of what your message is?

Ralph Quinsey

We were definitely have an advantage in some of the areas of growth there and probably a majority of it because if you win that filter you have an inside alleyway into weight in the amplifiers lot of many cases.

Steven Buhaly

And that’s because...

David Duley – Steelhead Securities

A strategic question around that is, it sounds like your BAW filters kind of leading the charge and is dragging your other component along for a ride is, is that the way you’re kind of to look at it?

Ralph Quinsey

I think, our BAW filters are very attractive technology built on proprietary TriQuint IT, we have great amplifiers as well, high efficiency amplifiers and put that amplifiers are up against anybody in the market so, I would say BAW.

David Duley – Steelhead Securities

Okay. And you had mentioned in your prepared comments some of the advantages that you have been focusing on for a last couple of years, one is moving to BAW, the other one is just talk about this advanced packaging it’s unlike you’re moving away from wire bonding to something else, could you just talk a little bit about that and help we understand what you’re referring to?

Ralph Quinsey

Yes, TriQuint get up high in the year in what we call copper flip, it’s a copper stud bump used in an RF application, it offers better performance, better stability and it’s valuable in the context of our prepared remarks, much smaller area used in the module and increasingly spaces becoming an issue and the combination of wafer level filters, wafer level package filters again very space efficient and copper bump interconnects very space efficient, I think it’s going to allow us to offer the market highly integrated very small high performance solutions.

David Duley – Steelhead Securities

Okay and final question from me, Steve did you mention what your CapEx number was going to be for next year and what is the depreciation expected to be in the second half by quarter?

Steve Buhaly

Yes, I’m guessing depreciation second half of this year will be about $27 million a quarter and it’s little bit on the timing of things but that’s, that’s my guess. For 2014 capital it’s really going to depend on the opportunities that we have. But clearly, we do have reservoir of existing capacity today that could absorb some additional business and so I would say probably looking at a sustaining capital rate of around $40 million a year and then on top of that would be anything we do need for either capacity or new capability.

David Duley – Steelhead Securities

Thanks again.

Steven Buhaly

You bet.

Operator

Our next question comes from line of JoAnne Feeney with ABR Investment.

JoAnne Feeney – ABR Investment Strategy

Yeah thanks guys. Question on the customer side I think we all like a little bit more understanding of how your customer base might be changing so if we leave out the top customer and think about the rest can you tell us whether your level of orders with your second largest customer has risen or whether it’s percentage of your revenue has changes or whether we’re seeing more of a groundswell of new customers that you’re bringing on board at this point, should we think about that group after the first guy as becoming a more horizontal spread or is it still pretty narrow?

Ralph Quinsey

I’d answer your first question with our second largest customer which was Samsung, we had a good growth quarter with Samsung and in general, I think the Smartphone market is growing, different customers have success or not based their product launch, it’s very hard to predict, very hard to guide for, sufficing to say that I think we’re going to do well with the quality of our products and the BAW, the high efficiency filters, the ability to integrate the small highly integrated solutions, I think we will do well in the market place today.

JoAnne Feeney – ABR Investment Strategy

Okay on the utilization front do you see your current product traction in terms of the composition of the products you’re supplying and your projection of returning to more traditional growth rate and so sufficient to drive utilization back up towards 90% or it’s the mix simply still not a good match and that that wouldn’t be a reasonable expectation say over the next a year or two years?

Ralph Quinsey

I think our capacity across technologies is fairly well balanced right now, it’s a function of Q2 design wins and the success of our customers.

JoAnne Feeney – ABR Investment Strategy

But, you say like the mix is pretty well matched to what to what you have in capacity now?

Ralph Quinsey

Yeah, fairly well the line.

JoAnne Feeney – ABR Investment Strategy

And the last question from me is on that defense side, it’s only 14% of revenues but there have been a lot of concerns about US defense spending BAW came in with the cost issue, do you have a perspective you can offer on where you see your defense opportunities or vulnerabilities given the current market environment?

Ralph Quinsey

Historically, we think there is long term growth in that market, we think that we’re in the right technologies and the right platforms, is our major platforms, major radar systems, we do see some short term concern and may be a little bit stagnation in the market place, tied to the sequester that also impacts some of our government funded R&D, but long term programs like the F-35 Lightning and the ground based radar systems, communications, I think we’re in the right places for the defense industry long term.

JoAnne Feeney – ABR Investment Strategy

Okay, thanks. One little housekeeping, what was the depreciation level last quarter?

Steve Buhaly

Q2 depreciation just under $25 million.

JoAnne Feeney – ABR Investment Strategy

Okay, thank you.

Operator

We have a follow up question from the line of Steven Smigie with Raymond James.

Steven Smigie – Raymond James

Great, thanks. I just had a couple of quick questions, so the first one is just, I apologize for going out to this issue again, but so I think Qualcomm is talking a little bit about their RF360 product on their call saying they’re storing the sample, but I know some of you guys just mentioned that you haven’t seen them out there, but just curious if you could comment on how you guys work relationship relative to that yourself to partner with and if you know this is the first instance you heard of them sampling?

Ralph Quinsey

Certainly, I appreciate the question Qualcomm is multi-competitor and a valued partner we work closely with them on many of our products and I think they value the technology, we bring to their. They also have designs for introducing a product of their own that will be competitive.

I can’t comment on the product at this time I only saw some of it when I was in Barcelona and that was February this year, I really haven’t seen much of it in the market. It does have some characteristics i.e. the CMOS based amplifier that I mentioned in the prepared comments and I do believe that that will be a headwind to Qualcomm for success because I believe that battery life is still a big driver, CMOS PAs have improved a lot over the last 10 years largely due to circuit techniques, circuit techniques by creative so designers applying the capability to RF space.

Turing down many of those circuit capabilities and techniques also work on (inaudible) so GaAs amplifiers have gotten better over the last 10 years as well. And the delta between the two remains GaAs HBT is the higher performing solution. And then, from a cost perspective as I mentioned in the prepared remarks volume is going up on GaAs, that’s bringing cost down CMOS PAs don’t benefit from the optical shrink path, the typical cost reduction path, the CMOS in fact, they typically because of high bolt and strings are required to stay on older technologies. So, I just don’t see them closing the cost either as a matter of fact they may be getting, we’re closing the gap on them.

So, when you integrate all this into a module the fact that the GaAs HBT is a very small dive in our case copper stud interconnect, the cost difference between CMOS PA and GaAs PA is just that consequential and the performance is measurable, HBT performance is measurably better.

Steven Smigie – Raymond James

Got it, I appreciate it, comprehensive answer. Just on the GaN electric and Diamond wafers I think that’s pretty much at the research level at this point and just was wondering if you could or development stage, if that is the case and as this rolls out, can you talk about the manufacturing of that, typically all these component semiconductors that were first developed are often very difficult to make and I was just curious is there anything special about the way this is designed to make it more of a high volume or addition to high volume, but more easily to manufacture type device versus say GaAs initially start out another materials?

Ralph Quinsey

I am sorry, was your Gallium Nitrate?

Steven Smigie – Raymond James

Gallium nitrate on the diamond wafer?

Ralph Quinsey

So, gallium and diamond, the emphasis behind that is typical GaN is used high power applications, high power applications generate a lot of heat, giving heat out of the surface of the dye through the backside is difficult to do. For example, gallium, silicon insulator in that case, gallium silicon carbide is better thermal transfer, diamond is much better, right. It allows four times the performance of the GaN dye the combination of fitting and the diamond substrate. I would classify a work of gallium diamond right now in the demonstration phase, in the feasibility phase and I believe it will be some time before that moves into manufacturing.

Steven Smigie – Raymond James

Okay, right, thank you.

Operator

We have a follow up question from the line of Edward Snyder with Charter Equity.

Edward Snyder – Charter Equity Research

Ralph, so you double box for some period of time and I know you want to go to utilization, but given the ramp of your filter demand at this point and the forecast that you’re going to be having CapEx, so you’re going to have enough headroom to meet demand short term or are you kind scrambling the add more capacity, do you feel comfortable for the two quarters or how does it work?

Ralph Quinsey

I believe we will enough demand in short term and medium term capacity and I believe that we’re well positioned to be inside of our time frames if you need to add new capacity sometime next year. I don’t anticipate having to add much more capacity over the next few quarters.

Edward Snyder – Charter Equity Research

Few quarters you’re fine, you’re so depending on the curve, you’re going to have that’s more?

Ralph Quinsey

Yeah, our business is cyclical and typically the back half of the year is when we see the peak demand and we will make decisions about the back half of 2014 between and probably middle of next year depending upon the technologies.

Edward Snyder – Charter Equity Research

And then, two of there are 360 giving at the moment, you’re the only vendor out there in the world that does BAW that all three filters, BAW, temp comp SAW and standard SAW in piece or parts you’re doing yourself and given the architecture 360 which is basically one size fits all our complete, I think you would be in a better position to at least comment on the demand for an all in solution like that, isn’t it the case if you add all those bands in cocker set of 30 bands, there is no device or whatever 30 bands, but clearly they’re going to be offering all the bands you need for particular architecture solution and it’s able to you would suggest that would be able to lot of advance in there. The more bands you put into a solution do you increase or decrease the number of customers that will be willing by that part?

Ralph Quinsey

So, let me talk about all at one for a second, then perhaps you can ask me questions again if I have an answer to it. First of all, we need definition roll in one, putting amplifiers, filters and switches into the same module, I would argue that TriQuint been doing that for many years. I would also argue that we’ve been a leader in integrating filters and active components with PA duplexers and we know a lot about what that looks like. I do believe integration is the trend, I do believe space is a driver and integration help space carry life as a driver if done correctly integration helps current rate. As far as what I think your question will it be one skew for all regions, chipsets and customers being all in one solution for everybody. I think that’s highly unlikely and think there’ll be integrated solutions, but there’ll be multiple variants and they have to have a compelling value proposition around performance and size to be successful.

Edward Snyder – Charter Equity Research

And we spend some time in the past talking about the problems of filters that one making so difficult to specially BAW and SAW or TC SAW and one of those, I guess, key aspect of that is, the temperature sensitivity things have in terms of we’re doing a very difficult filter keeping spec over temperature, there are 360 stacking, the filters on top of the amplifier you look at that before how was that, do you do that at all and if not why?

Ralph Quinsey

Yeah, so you’re correct, we’ve extensive experience in integrating filters into these highly integrated modules and there are issues that are unique filters and take time to develop that at no harm, I don’t have a lot of specific knowledge about the RF 360, here it comes a great company and they’re welcome to come into this market and compete and highlight the areas where I think, they have concerns. I think that it’s going to be difficult for any module integrator purely on module integrator to be successful in this market because so much of the content by 2015 is going to be filters compared to the active devices and it’s going to be a difficult business model at best, if you don’t have some direct access to filter manufacturing.

Edward Snyder – Charter Equity Research

And last one then, so Steve as you mentioned this would, did you mention operating cash flow for the quarter?

Steve Buhaly

I did not, but I’d be happy to do that. Cash flow from operations was basically zero in the quarter as we built significant inventory.

Edward Snyder – Charter Equity Research

Great, thank you.

Steven Buhaly

You bet.

Operator

We have a follow up question from the line of Vivek Arya with Bank of America Merrill Lynch.

Anne Augustine – Bank of America Merrill Lynch

Hey guys, just one final question it sounds like you can get a lot more BAW exposure in the China market, you mentioned several bands -- adjustable bands there as well as the Wi-Fi and interference SAW. So, I was wondering is there any way that you could talk about how your BAW content may change from geography to geography?

Ralph Quinsey

That will be a function of time, right now Europe is slower to implement LTE, but I think there’s good opportunity and I think our dollar content can go up carrier aggregation in North America will drive significant opportunity and that’s a function of when that rolls out and TDL-TE in China, I believe is going to roll out the end of this year and we have multiple customers that are actively designing for that activity and so that’s probably be the near term opportunity.

Anne Augustine – Bank of America Merrill Lynch

Hey, thanks guys.

Operator

And we seem to have no further questions and I’ll hand the call back over to leadership for closing remarks.

Steve Buhaly

Thank you, Dustin and thanks to all the participants on the call today, I hope you have a great evening and I look forward to updating you on October 23rd.

Operator

Ladies and gentlemen, this concludes today’s conference call. We thank you for your participation you may all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

TriQuint Semiconductor (TQNT): Q2 EPS of -$0.07 beats by $0.04. Revenue of $190.1M beats by $2.13M. (PR)