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RF Micro Devices, Inc. (NASDAQ:RFMD)

F2Q10 (Qtr End 10/03/09) Earnings Call Transcript

October 27, 2009 5:00 pm ET

Executives

Doug DeLieto – VP, IR

Bob Bruggeworth – President and CEO

Dean Priddy – CFO and VP, Administration

Eric Creviston – President, Cellular Products Group

Bob Van Buskirk – President, Multi-Market Products Group

Analysts

Ittai Kidron – Oppenheimer & Co.

Mark McKechnie – Broadpoint AmTech

Uche Orji – UBS

Harsh Kumar – Morgan Keegan

Stephen Ferranti – Stephens Inc

Venk Nathamuni – JP Morgan

Todd Koffman – Raymond James

Nathan Johnsen – Pacific Crest Securities

Suji De Silva – Kaufman Bros

Aalok Shah – D.A. Davidson

Edward Snyder – Charter Equity Research

Mike Frattin [ph] – FBN Securities

Tim Luke – Barclays Capital

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the RF Micro Devices second quarter 2010 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today Tuesday October 27, 2009.

I would now like to turn the conference over to our host Doug DeLieto, Vice President of Investor Relations. Please go ahead.

Doug DeLieto

Hi, everybody and welcome to our conference call. At 4:00 PM, we issued a press release. If any one listening has not received 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 Investors.

At this time, I want to remind our audience that this call includes forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to statements about our plans, objectives, representations and contentions and are not historical fact and typically are unified by use of terms of such as may, will, should, could, expect, plan, anticipate, believe, estimate, predict, potential, continue and similar words; although, some forward-looking statements are expressed differently.

You should be aware that the forward-looking statements included herein represents management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws. Our business is subject to numerous risks and uncertainties, including risks associated with the recent worldwide economic turmoil and it's affect on our business and the business of our suppliers and customers.

Variability in quarterly operating results, the impacts of global macroeconomic and credit conditions on our business, the rate of growth and development of the we serve markets, risks associated with the reduction or elimination of our investments in our wireless systems business our ability to execute on our plans to consolidate or relocate manufacturing operations. Risks associated with the operation of our wafer fabrication facilities, molecular beam epitaxy facility, assembly facility and test and tape and reel facilities.

Our reliance on inclusion in third party reference designs for a portion of our revenue, our ability to manage channel partners and customer relationships, our dependence on gallium arsenide or (GaAs) for the majority of our products, our ability to complete acquisitions and integrate acquired companies, including the risk that we may not realize expected synergies from our business combinations, our ability to attract and retain skilled personnel and develop leaders, variability in production yields, raw material costs and availability, our ability to reduce costs and improve margins in response to declining average selling prices, our ability to bring new products to market, our ability to adjust production capacity in a timely fashion in response to changes in demand for our products, dependence on a limited number of customers, and dependence on third parties.

These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10-K and other reports and statements filed with the Securities and Exchange Commission, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.

In today's press release and on today's call, we provide both GAAP and non-GAAP financial measures. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or unusual items that may obscure trends in our underlying performance.

During today's call, our comments and comparisons, to income statement items would 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 website Rfmd.com, under the heading Investors.

In fairness to all listeners, we ask the participants please limit themselves to one question and a follow-up. After each person in the queue has received a turn, we will give participants an opportunity to ask a second question.

With me today on the line are Bob Bruggeworth, President and CEO; Dean Priddy, Chief Financial Officer; Eric Creviston, President of our Cellular Products Group and Bob Van Buskirk, President of our Multi-Market Products Group, as well as other members of the RFMD management team.

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

Bob Bruggeworth

Good afternoon. Welcome and thank you for joining us. During the September quarter, worldwide RFMD workforce executed extremely well against sustainable long-term goals to enhance our profit while delighting our customers with innovative new product introductions and reliable production deliveries.

Quarterly revenue on our September quarter increased sequentially by approximately 20% to $254.8 million and gross margin was 38.1%, a sequential improvement of 110 basis points. Our operating margin was 16.4% and represented an increase of 510 basis points versus our prior quarter. Operating income totaled $41.7 million and EPS was $0.13. RFMD achieved both sequential and year-over-year growth in gross margin, operating margin and earnings per share.

Our non-GAAP operating income dollars were a record for RFMD. While we are pleased with the record setting performance we have announced today, we believe RFMD is just beginning to exploit our available opportunities and to demonstrate the earnings column in our new operating model.

On the balance sheet, free cash flow was $45.8 million growing approximately 33% sequentially. This is the second consecutive quarter of double-digit growth in both revenue and free cash flow. Our greatly improved financial performance (inaudible) ability to capitalize on global (inaudible) and new product cycles. To this point, the RFMD team executed on a record pace some new product introductions, expanding our dollar content opportunities across our primary markets and strengthening our efforts to diversify our markets and customer base.

In the Cellular market, our business and our largest customer grew sequentially in September driven by broad participation across new phone introductions. Our diversification efforts also continue to pay dividend as revenue outside our largest customer increased by approximately 50% sequentially.

CPG introduced new nine new products during the September quarter, and is on pace to introduce approximately 40 new products this fiscal year. Our new products are achieving broad market acceptance as we are (inaudible) world class product development capability with our industry leading portfolio of semiconductor and packaging technologies.

Our second generation WiFi technology is driving a new generation of 3G power amplifiers which will set the industry benchmark for low current consumption, a key differentiator for RFMD and also a key enabler for widespread adoption of 3G smartphones.

In GPRS and EDGE, we continue to push the functional density of our GaN [ph] processes to deliver more shippable products for wafer, while also solving our customers greatest RF challenging. As an example, the transmit modules in our recently introduced RF71xx product family all share the same footprint. This provides pin-to-pin compatibility across dual-band, triple-band and quad-band GPRS and EDGE handsets. This approach is an industry first and enables platform providers and handset manufacturers to implement true platform solutions.

In the coming months we will be releasing our first CMOS based switches which will provide performance benefits in certain applications, and will enable further improvement in RFMD’s return on investor capital.

In addition, our recently introduced RF2815 GPS LNA filter module is expected to quickly generate multiple millions of dollars per quarter highlighting the success of our diversification efforts and the increasing dollar content opportunities available to our Switch and Signal Conditioning product line.

In MPG, we qualified a released RFMD’s high powered Gallium Nitride technology with industry leading reliability performance. We expect the major North American cable TV customer will move to broadly adopt our GaN technology and we invite you to look for related press announcements of our GaN in the near future.

In the September quarter, cable TV revenue grew sequentially by approximately 70% and we expect cable TV revenue will grow significantly again in December. MPG added two new automatic meter reading or AMR customers in the September quarter, and three new electronic toll collections or ETC customers in China.

We now have seven ETC customers serving all major population centers throughout China. To date, our GaN Foundry Services business unit has engaged several leading customers and we are scheduling multi-project GaN wafer runs on a monthly basis to meet the increasing customer interest.

During the quarter we successfully completed the transition of our production and test of MPG’s integrated circuits and multi-chip modules from Shanghai to our primary assembly facility in Beijing.

Finally in terms of product introductions, MPG introduced a total of a 100 new and derivative products in the September quarter. This represents a record level of product releases for MPG, and MPG is on track to release more than a product a day this fiscal year.

Turning to RFMD's business outlook, we believe our overall business environment is improving. We are experiencing continued strong demand from cellular customers and significantly improved order visibility into MPG's primary markets. Our expectations are for continued strong performance in both the December quarter and in calendar year 2010. In the foreseeable future, we expect secular growth trends and new product cycles will give us the opportunity to continue growing top and bottom-line results while continuing to generate superior free cash flow and return on invested capital.

With that, I'll turn the call over to Dean for a detail look at our financial results.

Dean Priddy

Thanks, Bob, and good afternoon everyone. RFMD's business model is delivering greatly improved operating results and capital efficiency metrics. Over the past few quarters, RFMD has committed publicly to achieving the following key financial metrics, convergence on our target operating model, achieved fiscal year '10 free cash flow of at least $130 million, and achieving return on invested capital or ROIC in excess of RFMD’s cost to capital.

Today RFMD has achieved or is on pace [ph] to achieve each of these important measures. With that as a back drop, let's cover the September financial results in business outlook. Revenue for the September quarter increased approximately 20% sequentially to $254.8 million. Our Cellular Products Group delivered a very strong quarter. Cellular front ends were up over 23% sequentially and also up year-over-year.

Our front end business is benefiting from three major drivers. First, data mobility is a secular growth trend that is driving a significant expansion in our total available market. This allowed RFMD to achieve double-digits sequential growth in approximately 50% year-over-year growth in 3G front end revenue.

Second, while it’s historically been common practice to use handset unit as a leading indicator for RF component revenue, handset units alone don't take into account the expanding RF content for RFMD. Data modems, netbooks, notebooks and machine-to-machine devices all increasing our RF cellular base total available market. And these are excluded from most major handset unit projections.

And third, RFMD is expanding our serviceable market as we enter new product spaces like LNAs, filters, switches and duplexes through our switch and signal conditioning product line.

CPG has been releasing new products at a record rate and we’re benefiting from these new product cycles across a wide array of customers and their standards. While growing revenue with our largest customer, CPG also made progress with our other customers. In fact, sales to customers outside our largest customer grew by approximately 50% sequentially. That is sales outside our largest customer grew by approximately 50% sequentially.

NPG as we have indicated has been slower to recover than CPG as a result of well known end market dynamics. In the September quarter, MPG was up slightly sequentially but down significantly from the same quarter a year ago. During this industry downturn we continue to invest in MPG’s new product releases actually accelerated. This is giving MPG growth opportunity to jump start as we’re seeing very solid order activity for the past several weeks. MPG’s primary markets are beginning to recover.

Looking forward, we believe the major markets served by MPG have bottomed and the recovery is a significant positive for the entire company.

Gross profit $97 million in September, representing a sequential improvement of 23.5%. Gross margin was 38.1% compared to 37% last quarter and 31.6% a year ago. Several factors support our outlook for a sustainable and substantial improvement in gross margin.

These include customer diversification, the release of reduced die size products, the return of MPG’s end markets, the transfer of MPG test and assembly towards Beijing declines and depreciation and increases in capacity utilization.

RFMD’s execution is bringing reduced – RFMD’s execution in bringing reduced die size products to market while in its early stages is an ongoing initiative with long range positive implications for gross margin and reduced capital equipment purchases.

Operating expenses were $55.3 million with G&A of $10.3 million, sales and marketing of $11.7 million and research and development of $33.3 million.

Operating income was $41.7 million or 16.4% of sales, reflecting a sequential improvement of $17.7 million or 74%. Compared to the same quarter last year, operating income was up $23.8 million or 132%.

RFMD exceeded its 15% operating margin target in the September quarter. More importantly, RFMD's core business, that is RFMD's total business plus the impact associated with cellular transceiver, was above our stated target model of 40% gross margin and also above our target of 15% operating margin. This is a very important point that speaks of our leverage opportunity and earnings power going forward.

Other expense during the quarter was $1.4 million consistent with last quarter. And non-GAAP net income for the September quarter was $36.9 million or $0.13 per diluted share based on 298.7 million shares using the if converted method.

Earnings per share improved $0.06 per share or 86%, both sequentially and year-over-year. GAAP net income was $14.6 million or $0.05 per diluted share based on 298.7 million diluted shares.

Now going to the balance sheet. Cash flow from operations was $47.2 million compared to $36.4 million last quarter. Total cash, cash equivalence, short-term investment and trading security investment increased $46 million to $357.8 million. RFMD currently has 540 million par value of convertible debt. September free cash flow was $45.8 million, representing sequential growth of approximately 33%. Through the first two quarters of fiscal year 10, we generated $80.3 million in free cash flow.

Net accounts receivable was $100.9 million with DSOs of 38.8 days, and RFMD’s inventory was $17.9 million with 5.1 turn consistent with last quarter. Net PP&E was $277.8 million compared to $296.4 million last quarter.

Capital expenditures during the quarter was 1.4 million with depreciation of $18.4 million and intangible amortization of $4.8 million. Some additional commentary on capital expenditures.

We signal CapEx would be $10 million to $20 million this fiscal year. We are tracking to the low-end of that range and likely we'll maintain that level for the foreseeable future. We are continuing to ramp our die size products resulting in meaningful and sustainable positive impact on manufacturing capacity. We are only in about the third innings for die size reductions, so you can imagine we are very optimistic that we can continue to grow revenues and improve the quality of profit without the need for significant Gallium Arsenide capital investments. Additionally, we will bring CMOS based switches to market giving us more manufacturing and product flexibility as we continue to grow our business.

Our income statement and balance sheet performance is manifesting sales and significantly improve capital efficiency. Return on invested capital was 30.6% in the September quarter, up from 17.5% in the June quarter and 11.9% in the September quarter one year ago. Now some comments to assist you in modeling the December quarter.

RFMD believes that its overall business environment is improving. We are experiencing continued strong demand from our cellular customers and significantly improved order visibility in MPG’s primary markets.

Our current expectations for sequential growth in both quarterly revenue and earnings per share, adjusting for 13 weeks in the September 2009 quarter. Quarterly gross margin in December is currently expected to be approximately consistent with September levels.

As a reminder, our September 2009 quarter was a 14-week quarter and our December 2009 quarter is a 13-week quarter. Cash taxes are projected to be approximately $3.5 to $4 million in the December quarter. And regarding the balance sheet, we expect strong cash flow and sequential growth in cash, cash equivalents and short-term investments.

Capital expenditures is targeted to be approximately $3 million and inventory returns should be flat-to-up sequentially.

And with that, we'll open the call up for your questions. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Ittai Kidron. Please state your company name followed by your question.

Ittai Kidron – Oppenheimer & Co.

Oppenheimer. Congratulation guys, great quarter and Dean, thanks for the pro forma information; it's very helpful. I only have around 15 questions for you Dean. Maybe, we can dig a little bit into the guidance you've been talking about, improving visibility or orders in CPG and in NPG, you’ve talked about your existing client with the exception of your large one growing very aggressively. If I just take your 14 week comment on your guidance, it implies, at a minimum of $237 million if I just kind of straight line it 7% down, correct me if I'm wrong. Is that the reference point I should think about or how good do you feel about your outside relative to your existing quarter adjusting to that extra week?

Dean Priddy

I think the bias would be up from what you just insinuated it to high. Very simplistically, the 14-week quarter you’d say you take 7% away on both revenue and EPS depending if there are 13-week comparison, but we said if you did that on earning per share, that would basically take you back to $0.12, but we said that we would grow earnings per share in the December quarter.

So, that insinuates, if you go through the math with flat growth – flattish gross margin that the December quarter would look a whole lot like the September quarter except we'll do in 13-weeks what it took us to do in 14-weeks in the September quarter.

Ittai Kidron – Oppenheimer & Co.

Okay. Good. Well, thanks for revising your guidance right here on the call. And now, one of your competitors have made what was interpreted to be a very concerning commentary about a large Korean supplier which I can assume that you know who, they’re talking about.

Can you give us any color on – it's clear that you are gaining share in most of your customers. So, it's very clear why you would continue to grow your revenue. With that said, are you seeing any of the big customers that you are supplying with having any inventory issues that you've seen impacting the overall demand?

Dean Priddy

Yes, I'll take the first stab at that Ittai then, maybe, Eric or Bob would like to chime in. I think the news that it's actually pretty old news of what you’re referring to. We are not going to name any customer. We understand that one of our competitors had an issue with one or more of their Korean customers.

And quite frankly, well over a month ago we did see some early signs that maybe there was a bit of inventory building with one of our customers in Korea, and we actually took action during the quarter to help remedy that situation.

In other words, we slowed down or reduced or actually even stopped our shipment at the last couple of weeks or so the quarter could say, hey, if the customer doesn't need the parts we’re not going to force them on the customer.

So for us going into the December quarter, we are still taking a cautious stand in our guidance taking a conservative stands for the Korean market. However, we are still seeing orders come in and shipments are still going out the door and beginning to increase. So, I think the steps that we took at the end of the September quarter is actually benefiting us going into the December, but again we are taking a very conservative stance with the Korean customer.

Ittai Kidron – Oppenheimer & Co.

Okay. So, is it fair to say that at this point you feel that whatever inventory problem existed in that customer has now to a large extent been addressed?

Dean Priddy

Like I said, the shipments have resumed and the order activity has resumed. So I would assume under that scenario, yes.

Ittai Kidron – Oppenheimer & Co.

Okay.

Bob Bruggeworth

Ittai, one thing I do want to clarify, this is Bob. We are talking about it has to do with our parts and I think it's fairly well known that our exposure in one of the segments that the Korean customers dominate, CDMA we have very little. So if there is inventory in those aero standards, that’s not something, we could comment on.

But again echoing Dean's comments, I think we managed the quarter wisely with what the situation at least to us was with our parts. We can't comment on their end parts and as far as things are going now, we are receiving orders, shipping orders and the Dean’s point momentum is increasing.

Ittai Kidron – Oppenheimer & Co.

Very good and one last question. A technical one on the convert, so there's a piece of $200 million and changed piece that you need to pay, correct me if I wrong is it in the July 10 timeframe?

Dean Priddy

On July 1st.

Ittai Kidron – Oppenheimer & Co.

Right. Can you give us just the mechanic [ph], with the assumption that you’ll need to pay that in cash and not converted into stock, what is the impact on the P&L, how much of interest expense goes off the P&L and how many shares of your share count gets lost as well?

Dean Priddy

The 2010 is 1.5% interest and there's $207 million par value remaining on the 2010. So, it works out to basically about $3 million a year in interest expense.

Ittai Kidron – Oppenheimer & Co.

And the impact on share count?

Dean Priddy

That 27 million shares remaining underlying in this particular bond. It started at 30 million but we did a repurchase of some of these bonds over the past six months.

Ittai Kidron – Oppenheimer & Co.

Got you. So you got quarter, your share count should drop by around 10%?

Dean Priddy

That is correct. The bonds do not convert, and if we simply pay the bonds off, then the share count will drop by 27 million shares.

Ittai Kidron – Oppenheimer & Co.

Very good. Good luck, guys. Congratulations.

Bob Bruggeworth

Thank you.

Dean Priddy

Thank you.

Operator

Thank you. Our next question comes from the line of Mark McKechnie. Please state your company followed by your question.

Mark McKechnie – Broadpoint AmTech

It's Broadpoint AmTech, and congrats on a good quarter. I just want to ask, can you break out any specific product mix this quarter? It sounds like all the technologies grew pretty quickly, but I am just trying to get a sense if quarter-on-quarter basis did add your CDMA or Wi-Band grow faster?

Eric Creviston

Hi, Mark. This is Eric Creviston. I'll take that. As you said, we had very broad base growth in the quarter. It was a really good quarter for CPG, I think, to realize a lot of the goals we set out 18 months ago for product leadership and customer diversification. We mentioned that Greater China sales grew more than 75% in the quarter, and you can imagine that some of that is into ZTE. For example, for GPRS and a lot of the media tech customers for GPRS, but actually the largest part of that was the 3G business, but (inaudible) way for the data card business, and that was a big growth driver for us in the quarter.

We did have also good gains in feature phones at Nokia and smartphones, also in Samsung and GPRS. I think those were kind of the key revenue drivers for the quarter.

Mark McKechnie – Broadpoint AmTech

Got you. Great. And Dean, do you break out your customers or your 10% customers? Obviously, Nokia, I don't know if you break out the size of them or the mix, but were there other 10% customers?

Dean Priddy

Yes. Within CPG, Nokia was clearly a 10% customer. Samsung was a 10% customer just like they were last quarter and greater China was a 10% customer, and actually Sony Ericsson grew pretty nicely during the quarter but didn't quite make the 10% list as did Huawei and ZTE. And MPG this (inaudible) we had no 10% customer. Our top ten customers accounted for about 39% of sales, which was roughly in line with last quarter too.

Mark McKechnie – Broadpoint AmTech

Great. Thanks. I guess that's my two questions. I'll re-log in. Thanks.

Dean Priddy

Thanks, Mark.

Bob Bruggeworth

Thanks, Mark.

Operator

Thank you. Our next question comes from the line of Uche Orji. Please state your company name followed by your question.

Uche Orji – UBS

It’s UBS. Thank you very much. So, can I just ask you about the other lines of the P&L for Q4. Since you have been (inaudible) what is essential, you are going to grow EPS, what is essentially a flat dollar revenue for both Q4, for both December and September quarter. So, any comments on how we should think about the rest of the P&L, for SG&A and R&D?

Dean Priddy

Within the operating expense, because I don't think we are going to get as granular as to give guidance from the individual line items, I don't see any major departures from the September results. Remember, we can go back two to three quarters and say that we were going to have expense run rate of roughly $55 million a quarter give or take a million dollars or so. So, I start thinking you can see expenses within that range of guidance that we set out six months ago.

Uche Orji – UBS

I see. So, revenue is sort of flattish in dollar terms, and with that kind of OpEx guidance and gross margin as well which are flattish as well. So, I am just trying to understand which of the share counts for the types of changes in terms of what drives EPS?

Dean Priddy

No. No major change in share count. No significant change in the tax rate.

Uche Orji – UBS

Okay. All right. Let me just ask you a different question. If I look at the some of the comments you've made, is there any implication as to visibility beyond the December quarter, so into the March quarter. Will you consider that, will you – how will you rate the visibility because so far in the earnings calls most companies don't seem to want to get into giving any comments into the earlier part of 2010. Are you able to make any comments just for us to kind of judge the order momentum beyond the other December quarter?

Bob Bruggeworth

Yes I think what – this is Bob Bruggeworth. What we've been talking about is that, it feels like our end markets are beginning to recover a little stronger in MPG. We clearly are signaling we like our opportunities for growth this quarter there, and as that continues into 2010, coupled with my earlier comments that quite honestly guys, we think the handset market is going to grow in calendar year 2010.

I think we are starting to see little more positive momentum in the business. I don't think anybody doubted it isn’t going to grow in the December quarter, and I think as far as our business goes, Dean listed many drivers for opportunities for us to grow next year. That being just the growth in the market, the continued growth of the three to five times the dollar content of Wide-Band CDMA phones, the growth in the data card market, netbook, notebooks, and M2M, we put all that together. We are feeling pretty good about our position and our opportunities for growth continuing but beyond the December quarter.

Uche Orji – UBS

All right. That's great. But just one last question, can you just talk about the remote meter markets, the whole, not just you but couple of your competitors like (inaudible) making comments about your presence in this market. How do you see the remote meter market shaping up through 2010? And how do you see your competitive positioning in the smart meter?

Bob Van Buskirk

Hi, this is Bob Van Buskirk. Well, undoubtedly many of you saw today that President Obama was in Florida touting government stimulus for smart grid, specifically talking about hundreds of millions of dollars to enable upgrading more than 18 or 20 million meters to smart status, actually in the very near future. So, we are pretty excited about this market. We said publicly that we did about $5 million in what we call smart grid/(AMR) in our last fiscal year and that we were anticipating that doubling this year.

We feel pretty good about that frankly. In a rapidly growing new market you always have a kind of a digestion period after a initial rapid deployment and I would characterize our September quarter as a bit of a digestion from pretty steep ramp that happened in the June quarter, but the order patterns as we head into the December quarter, have accelerated and strengthened very much so. So, I anticipate that our revenue in the December quarter will be above that spike that we had in the June quarter. We have something on the order of ten new front end module products that have either been released or are already in production, and some of those are ramping in mass production.

As I've said before on calls, we sell to electric and to gas and to water meter providers, and those that enable those to be considered smart in tie [ph] and various mesh networks. So we feel pretty good about our penetration of key customers across all of the standards, if you will and see that growing for us in MPG. The other thing I would note is as we get smarter in this market there's actually a pretty large opportunity in the cellular side of smart meters also, in particular Europe appears to be moving a little bit more in the direction of non-proprietary mesh networks, which North America has done. So in Eric's business with very deep expertise in smart meters, we do have some what we call machine-to-machine or cellular radio applications for this space too. So we are pretty enthused about it.

Uche Orji – UBS

Okay, thank you very much. Just one last question. What is the dollar content per unit for the smart meters, for you guys?

Bob Van Buskirk

It kind of varies. I would say it started out last year in the $3 to $5. I would say, today it’s probably $2 to $4.

Uche Orji – UBS

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Harsh Kumar. Please state your company name followed by your question.

Harsh Kumar – Morgan Keegan

Hi, Morgan Keegan. Hi, guys, congratulations. Great quarter. Good guidance. Let me start off by asking you if we think of revenue is being flattish in absolute dollars, first of all, if that’s correct, then how booked are you at this point in time?

Dean Priddy

First of all Harsh, both MPG and CPG had book-to-bill of a greater than one for the quarter. So going into the December quarter, we’re already booked for our revenue growth we normalized on a 13-week basis. So, we feel pretty good about the position going into the quarter.

Harsh Kumar – Morgan Keegan

Okay. And then Dean, as I think about MPG and CPG gross margins, with MPG sort of coming back around for you guys and it seems that growing quarter spike in September, possibly resurgence in December with margins and the margins a lot higher for MPG, so you should not see a gross margin benefit in December from MPG coming back?

Dean Priddy

No, margins are definitely higher in MPG than in CPG, although I will say that CPG has made tremendous progress and that's our comments about the margins in our core business being above 40%. I think there’re two – more than one element, the financial model is multi-dimensional. There’s a growth element and also an element of financial performance, and yes we’ve got things that are helping margins.

In fact, I can't think of anything that’s headwind to margins except the normal typical ASP erosion that you would typically see, which is about the same as we've seen year in and year out. When I look at the tailwinds, it’s a new product cycles both in MPG and CPG to reduce die size products and CPG I think we can make a real improvement in utilization rates and MPG's business is definitely reaching an inflexion point in terms of growth and we are also completing our actions in the supply chain this quarter. That is the transition from Shanghai manufacturing into Beijing. So, when I look out over the next 12 to 18 months, I see incremental margin improvement possibility. So, yes, there is always some room for upside, but also getting back to the growth element, we are going to be going after also growing our business.

So, what you may see is target type gross margin at some point and target type growth rate, which we would like to see at 20% year end and year out in terms of our revenue. So, a little bit of trade-off there. But I think we've demonstrated that we can achieve target operating model in any given quarter. Now, what we would like to commit to do to the investment community is demonstrate that we can achieve target type model performance for an entire fiscal year, and that's what we are going to work on.

Harsh Kumar – Morgan Keegan

One clarification to that, Dean. Could you remind me what your long-term gross margin goals are and when do you think you might get there? Is it 40% or 42%, I forgot?

Dean Priddy

It's 40% on gross margin, 15% operating margin. And, I guess to finish the, gives us a sense on any type of a headwinds, remember the transceiver business that we have is still mid-teens gross margin. So, that and the typical ASP erosion are really the only two things that I can think of that are headwinds. All the other products that we are introducing in both CPG and MPG are actually accretive to corporate gross margin.

Harsh Kumar – Morgan Keegan

Very helpful, guys. Thank you, and congratulations again.

Dean Priddy

Thanks.

Operator

Thank you. Our next question comes from the line of Steve Ferranti. Please state your company name followed by your question.

Stephen Ferranti – Stephens Inc

Thanks. It’s Steve Ferranti with Stephens Inc. Nice job guys on the quarter. I wanted to just follow up on the last line of questioning, Dean, in terms of Polaris, how long the tail do you think that product line has here as we roll forward? And then, I guess as a follow on to that, how did some of these new market opportunities like the GPS, LNA design wins that you had helped to offset that revenue decline as that product line ramps down?

Dean Priddy

I think that’s actually a better question for Eric Creviston in CPG.

Eric Creviston

Sure. Thanks, Dean. So, Steve, going to the first question on the Polaris business, we continue to see the transceiver business continue at its current rate for roughly another three quarters, and then ramp down over four to six quarters, which is by the way, what we said last quarter as well. So, we continue to see the production line push out quarter-to-quarter. We did ramp a new handset last quarter, in fact we are aware of a new handset that we’ll be ramping in the March quarter. There might be more coming. So, the platform is just a fantastic EDGE platform. It’s going to continue to run a while, and we expect when it does roll off, it will roll off fairly smoothly.

On the second part of your question, in the GPS (inaudible) LNA, you are exactly right, the switch and signal conditioning portfolio that we put together, one of the chief reasons for that investment is to generate a product portfolio which will be able to replace those revenues going forward, and we are quite confident in that. We are looking at the 10% to 15% in corporate revenue. These are rates for the transceiver business today, and we are confident that within that six quarter timeframe, six-to-eight quarters we can replace that business with our switch and signal conditioning products.

Stephen Ferranti – Stephens Inc

Great, that's helpful. And then, any comments, it sounds like earlier we were talking a little bit about the inventory picture, it sounded somewhat specific to Korean customers, but more broadly, I guess, any insight you can give into what you are seeing in the channel in terms of inventory levels there, or any specific geographies looking problematic, any color you could give there would be helpful?

Bob Bruggeworth

Sure. I'll address the cellular market, and then hand it to Bob Van Buskirk for his markets. But I think Dean characterized the one situation we have with one customer very, very well. In terms of the broader market we don't see any particular issues with inventories. I think there was enough component constraints or tightness in the supply chain around the industry that there wasn't really much of an opportunity to create excess inventory in the channel during the last quarter. So, we still think the handset channel inventories are running below historical averages. And, at this point in time we believe we may get caught up in December. We'll see how it turns out.

Bob Van Buskirk

This is Bob Van Buskirk. In MPG, we have an inventory situation globally that’s good and getting better. I have said publicly that the only end market where we had any sort of backup and inventory was in North American CATV with one particular customer and they are now indicating to us that they'll be, they’ll have burn through all of that excess inventory here within the next 30 to 60 days. And all of our other end markets and all of our other OEMs have indicated to us that they are below historical norms for inventory levels.

Stephen Ferranti – Stephens Inc

Very good. One quick follow up, just housekeeping. Can you give us some sense of what the mix was between CPG and MPG in the quarter?

Bob Van Buskirk

Yes. CPG was a little better than 80% of revenue with MPG of just a little under 20%.

Stephen Ferranti – Stephens Inc

Great. That's it for me. Thanks guys.

Bob Van Buskirk

Thanks.

Operator

Thank you. Your next question comes from the line of Venk Nathamuni. Please state your company name followed by your question.

Venk Nathamuni – JP Morgan

Yes, It's JP Morgan. Thanks guys for taking my question. So, sorry to bring up the inventory issue so much, but in terms of your own inventory, it actually went up by I think about $8 million and inventory days went up by seven days quarter-on-quarter. Could you make some comments on that in terms of what reasoning it might be and what's your ideal level of inventory going forward?

Dean Priddy

Yes, given the last quarter and even the quarter before that and some of the constraints that we were seeing in the industry and the supply chain, going into the December quarter, which we expect to be another strong quarter for RFMD. We felt like we needed that inventory on the shelf in order to support the customer demand that we are seeing.

Bob Bruggeworth

This is Bob Bruggeworth. After that, our comments were that we expect our turns roughly be flat increasing and those either follow this industry know that typically we see a strong September, October, November, and kind of trails off in December. So, it's not unusual for us to increase slightly, but our turns were roughly flat. So, we don't view it as any type of inventory build up in our inventory.

Venk Nathamuni – JP Morgan

Okay. That's helpful. So, you do expect your inventory to be at the current levels, so is this kind of the ideal level for you going forward or…?

Dean Priddy

Yes, like I said, we expect turns could improve in the December quarter. So, we could see flat to maybe possibly even down in total inventory.

Venk Nathamuni – JP Morgan

Okay, great. That's helpful. And then another question I had was in terms of your market share gains and losses and it's very popular topic. Can you comment on how your market share was related to the previous quarter, especially in your CPG business?

Bob Bruggeworth

I think we'll let our results speak for themselves. We've kind of given you the percentage of the business at CPG. We gave you some areas we grew and quite honestly we’re not going to get into a lot of significance, but if you look at the growth rates we put up, that we talked about in Wi-Band CDMA and GPRS I think we've given you about everything you need.

Dean Priddy

And we are also getting out of the traditional PA TAM [ph] into other areas too where we are taking business. So, it becomes a little more complex. You’ve got phones with higher dollar content. You’ve got the netbooks and notebooks and so forth. So, yes, we'll wait until, I guess, everyone reports and then you can make your own judgment in terms of market share.

Venk Nathamuni – JP Morgan

Okay. That's helpful. And then, I know you don't want to talk about the March quarter in too much detail now, but what is the typical seasonality for you for the CPG and the MPG side of the business, in particular?

Eric Creviston

This is Eric. I'll discuss CPG first. One turn that I think it’s kind of important is to look in the handset industry, the way the seasonality is changing, not that this year by any means typical anyway I guess, even the way it started, but if you look over the past five to six years, certainly there's been a narrowing of the seasonality.

In other words it’s kind of flattened out a little more as you have seen APAC become a bigger part of the story. In fact, typically it has a stronger September quarter and a stronger March quarter. December quarter is typically stronger in Europe and North America. As you balance more towards APAC you do see a little bit of the flattening of the seasonality. It mainly applies to the September quarter and December quarter, where you don't see quite as much of the hump in December as you used to.

In the March quarter, it does depend a little bit upon when the Chinese New Year falls as well, of course, and this year being fairly early in particular. We would expect seasonality in the handset industry at least to be more in line with the historical normals [ph] of about 10% to 12% down in the January, in the March quarter.

Venk Nathamuni – JP Morgan

Okay, thanks, that’s helpful, and then Bob, on MPG if you could comment on?

Bob Van Buskirk

Historically growth, the March quarter has been a kind of a plateau [ph] in quarter after accelerating December quarter. But there are some dimensions or there are some trends right now that are kind of going against the gain from a seasonality standpoint.

One of them is I indicated, we’re seeing a return of some strength in the cable infrastructure market. Our customers are now indicating to us that, that's going to show some ramp in the December quarter and carry into the March quarter. (AMR)/smart grid that looks like it's going to accelerate in the December quarter.

That's such a new market, there's really no way to point any kind of historical seasonality that in fact could continue into March. And then, we have wireless infrastructure in China and possibly getting off the ground a little bit more in India that also could restart in some significance in the first half of next year which could come in the later part of the March quarter. So, in general I would say historically flattish but we have a few trends that are pushing us in the other direction as we sit here today.

Venk Nathamuni – JP Morgan

Okay, great, thanks. Very helpful. Thanks a lot, gentlemen.

Operator

Thank you. Our next question comes from the line of Todd Koffman. Please state your company name followed by your question.

Todd Koffman – Raymond James

Raymond James. Thank you. Congrats on the much improved performance. I just get a clarification on your Polaris transceiver revenue you called down a couple of questions ago. I think you’ve said that it was 10% to 15% of revenue. Is that 10% to 15% of your CPG or that’s the contribution of 10% to 15% of total revenue?

Dean Priddy

That’s 10% to 15% of total corporate revenue.

Todd Koffman – Raymond James

And you said that you think it will hold this relatively sizable low margin contribution for you said three more quarters?

Dean Priddy

Yes. That's what customer forecast would currently support.

Todd Koffman – Raymond James

Thank you very much. Good luck.

Dean Priddy

Thank you.

Bob Van Buskirk

Thanks, Todd.

Operator

Thank you. Our next question comes from the line of Nathan Johnsen. Please state your company name followed by your question.

Nathan Johnsen – Pacific Crest Securities

Yes. It's Pacific Crest. Thanks for taking my question. Just, I am wondering if you can just talk a little bit within CPG, what the order trends look like throughout the quarter, and whether there has been any change in that trajectory since the end of the quarter?

Dean Priddy

As in any given quarter, you break it down on a week-by-week basis. There are some weeks that are very solid and some weeks that are a little bit lighter, but all in all, there wasn't any really major trend established in the September quarter. Like I said, the book-to-bill in total was above one. I would say that order rates going into the December quarter and shipment rates have continued at a very healthy rate for the first part of the quarter.

Nathan Johnsen – Pacific Crest Securities

Great. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Suji De Silva. Please state your company name followed by your question.

Suji De Silva – Kaufman Bros

Hi, guys. It's Kaufman Bros. Nice job on the quarter. So, talking about your December guidance you did very well outside of your largest customer, 15% sequential this past quarter. I am assuming CPG and MPG are relatively similar growth, in that sense is growth happening outside your largest customer in CPG in December and offset by your largest customer declining or are they both roughly flattish? In another word is non-largest customer decline or are they both roughly flattish. In other words is non-largest customer decelerating 30% or flattish, is my question?

Bob Bruggeworth

I am not sure exactly what you are asking, but I think, I'll answer it this way. We are expecting both growth in CPG and MPG, and we expect to be able to grow at our largest customer as well.

Dean Priddy

And outside of our largest customer too, again it boils down to the new product cycles and the uptake of these products in the APAC region, which we don't really see any slowing down of the adoption rate. In fact, if anything, it's probably accelerating some in the China market. But again, we said that our guidance, and we are going to take a cautious stance on the Korean customers until we get more surety about what’s happening there. So, we are not counting on growth out of those customers to hit our guidance.

Suji De Silva – Kaufman Bros

Okay. But I was asking, I apologize, it was a wrong way of asking. With the share gains you are having, are you going to outgrow in the non-largest customer revenue versus the largest customer revenue next quarter as well?

Dean Priddy

I think we probably will grow in some segments faster, non-largest customer than largest customer, and definitely that would be a comment for MPG as well.

Suji De Silva – Kaufman Bros

Okay, great. One other question. What percentage of your shipments are now, maybe by units or revenues, the new small die products and is that going to continue to kind of ramp-up or is that just a fashion or is that plateauing, I guess, in terms of mix?

Eric Creviston

This is Eric. The reduced die size products continue to come out and move forward. We've got actually many different versions with different amounts of die size. So, I think the proper way to look at this going forward is what percentage of the portfolio we’re shipping on new products and in the September quarter that was just a little over 35% of our front-end components we are shipping in new products we are creating that revenue. So, it's about 35%.

Suji De Silva – Kaufman Bros

Okay, great. Thanks guys.

Eric Creviston

Thank you.

Operator

Thank you. Our next question comes from the line of Aalok Shah. Please state your company name followed by your question.

Aalok Shah – D.A. Davidson

Hi. D.A. Davidson. Just a couple of quick follow-ups. Dean, did you tell us the 10% customers? I am sorry. I missed that?

Dean Priddy

Within CPG, Nokia, Samsung in Greater China were 10% customers. And, there were no 10% customers in MPG.

Aalok Shah – D.A. Davidson

Okay. And then just following up on the China commentary, how much visibility do you guys typically get. Is it like a standard hub system that you have with other customers?

Dean Priddy

That’s a great question. You never realize how bad your visibility is, I guess, until you see it, what actually happens compared to forecast and so you don’t know real time may be, but we do have very good tracking systems with our distributors, with our distributors there. We have four distributors. We are able to track the inventory and daily pool rates. So, we see exactly what’s going in and going the distribution and then with our larger customers we do have a pretty good forecast system in place. So, I think I am sure we have as good a visibility (inaudible) our space in terms of what’s going on in China. Nonetheless, it’s China and that we've got hundreds of customers there literally. It's different than anywhere else in the world. So, there are a lot of moving pieces there for sure.

Aalok Shah – D.A. Davidson

Okay. And then, Dean, just not to beat a dead horse, but on the guidance following kind of which is questions on the P&L side, I mean given that it's a 13-week quarter should we – on the expense side shouldn't we see expenses come down, so therefore your EPS should be technically up if everything else is equal?

Dean Priddy

Like I said, the expenses are roughly in the $55 million range, plus some minus in million bucks. Our cash tax guidance was actually up a little bit over what cash tax is actually came in for the September quarter. So…

Aalok Shah – D.A. Davidson

I see what you are saying. So, it’s a net operating, I mean, on an operating income basis you should be up quarter-over-quarter?

Dean Priddy

You’re getting to the point where you are almost splitting hairs there.

Aalok Shah – D.A. Davidson

Okay. All right. Well, thank you very much. I appreciate it.

Dean Priddy

Thank you.

Operator

Thank you. Our next question comes from the line of Edward Snyder. Please state your company name followed by your question.

Edward Snyder – Charter Equity Research

Hey guys. Thanks. How much of your gross margin was due to excess obsolete in inventory contributing that you sold off this quarter. Can you give me any indication basis points like?

Eric Creviston

I would say it was zero.

Edward Snyder – Charter Equity Research

Zero, so you burned none of the obsolete (inaudible) good job. And then Nokia shares, it was running high in the June period given the six [ph] and all that and it sounds like you built on that and you’re going to build on it again.

At some point that's not going to – I mean we talked about it last quarter, you can't sustain this margin or this market share Nokia forever. Any idea, I know it's being driven by this new model with Polaris, et cetera, some of it is. Any idea when we can expect things to moderate there in Nokia?

Eric Creviston

I'll start this, Ed, by saying that Nokia is a percentage of revenue came down a few points at the company level during the quarter.

Edward Snyder – Charter Equity Research

Is it at micro level or Nokia level?

Eric Creviston

Well, I'm saying that Nokia as a percentage of RFMD's revenue came down a few percentage points. So, from the diversification standpoint, we made a significant progress, but to get to the details of Eric has a lot more color.

Edward Snyder – Charter Equity Research

Yes, that's why we think it's significant that the cellular growth outside of our largest customer was about 50% sequentially. It shows that we are able, I believe, it should be clear that we are able to replace revenues as necessary to make sure we continue to grow the cellular business. So, platforms at our largest customer are going to come and go in and out, and I'm sure we'll have quarters where the shares go down and other quarters where it goes up, even after it goes down. So, we are going to come in and out of all these platforms. There is no platform that we will not participate in and we fully intend to maintain the leadership position in terms of share with that customer, but we also have great firepower in our products now to go out and replace revenue, and continue growing outside of what happens there.

Bob Bruggeworth

Yeah, it's Bob Bruggeworth. I think everybody keeps waiting for us to all of a sudden magically lose all the shares. And I think what they are missing out is, we are doing a fine job earning their business. We'll continue to earn it as Eric said, and what people should be looking at is, not only are we keeping that and growing it, looking how fast we are growing outside of there.

Edward Snyder – Charter Equity Research

Yeah. Things are really coming together. I mean, you guys, you are tearing it up on Nokia. You have done very well outside of that. The change in the business model last year is throwing up lots of cash, I mean, it's showing up in the results. But, you are almost on historically great levels on the business model.

My biggest concern though, is given, that VN [ph] and all the things that are going on in Nokia, and I think you guys have seen this and talked about it. They are favoring your products, more than, I would say it normally is and I expect – and I'm not trying to get into the diversification question, because you are doing a very good job in that area too. But Nokia as a customer at some point is probably going to come down, unless you get perfect balance with the new product, taking over from Polaris and few other things. And it's clear it's not going to happen for sometime, I actually thought it was going to slow down the smoothness, but from your guidance and from what we are getting in the feedback in the space, you guys are going to be stronger for a while.

It's going to happen though, and the end can't stay low forever, and when it does, I guess what I'm trying to come to is, and too far to predict, but do you think your offset programs or the new products combined with, being on some of the newer platforms will be enough to make it a slow dip, or will we see something like we did way back in '07 where you had big swings in the market share because of changes with some of the other suppliers?

Eric Creviston

We do have a very long term view of our share and all the different platforms and so forth, and I could tell you that, as I said, there will be times potentially where it will go down, but then it will come back up. So, you shouldn't look at it as like a permanent dip that doesn't recover. There will be ebb and flow of different platforms in and out, I think, overall balancing. But, really what's most important, I think, is if you just look at the entire market and what we are able to capture, especially when you consider the total growth in the market, where you add in all the 3G and smartphone content growth, with all the non-handset sort of things that we are doing, connector devices and so forth, just that total opportunity I think kind of washes out what you are speaking to there. And I think it's real important that RFMD does stay very broad-based in our participation on these smartphone platforms, and to that end we are working very heavily so we have very high confidence that within 18 months, we will be shipping into all the major smartphone platforms and all the major handset platforms as well. So, I think overall, that's going to take care of that effect.

Edward Snyder – Charter Equity Research

Okay. And then Dean, just to come back. I know your visibility is relatively limited, maybe six to eight weeks, may be 10 is strong. When you are forecasting the quarter and you are giving guidance for the gross margins, do you understand how much obsolete product you may be selling in the quarter, or a guesstimate or does it change into quarter and get a little upside and a little downside on gross margin performance?

Dean Priddy

We are not counting on selling any obsolete product to hit our gross margin target for the December quarter.

Edward Snyder – Charter Equity Research

So it's all organic and basic then?

Dean Priddy

Absolutely. It's all organic.

Bob Bruggeworth

Has been and will continue to be.

Edward Snyder – Charter Equity Research

Okay. Good. Great job guys. Thanks.

Bob Bruggeworth

Thank you.

Operator

Thank you. Our next question comes from the line of Mike Frattin [ph]. Please state your company name followed by your question.

Mike Frattin – FBN Securities

Thanks. FBN Securities. Congratulations on a great quarter guys, and great job on the diversification efforts. Can you give us a sense of how much of that was actually share gains at some of the Tier-1 or new customers?

Eric Creviston

So I think I went over the major areas where we are winning and none of them were new customers, specifically, I guess other than throughout the greater China GPRS. As I said, there's an awful lot of new customers coming online, literally hundreds of customers makeup all of that. I mentioned the 3G data cards at Huawei, that's been an existing business for us, and it continues to be an area of strength. ZTE, we mentioned last quarter is getting that business and beginning to ramp and so I wouldn't consider that a new customer, but it is certainly going to be a growing part of our story as we move through next year as well. And then Sony Ericsson as well, I wouldn't call it a new customer necessarily, but those are new phones and our share there in their 3G products is continuing to grow quite a bit. So it's very broad based truly.

Mike Frattin – FBN Securities

Okay. And so there is a lot of talk about supply constraints or at least tightness across the supply chain. I wonder if you could talk about any effect that it may have had on you or that it may have actually helped you gain some share in the quarter, and is any of this tightness still lingering or has it pretty much been cleared up?

Eric Creviston

I think that in terms of the component tightness, it did help us a bit. I wouldn't say this is a major effect, but we do know of those competitors that had some trouble meeting demand and we were a benefactor of that, we were able to pick up a little bit there. But I don't think it was necessarily a major factor. I do think that we did an extremely good job of managing the supply chain through the tightness and dealing with any constraints that might have affected our own production and we are able to keep everything on track. And there's no question. I am sure some of those components came out of our competitors plans. So I think we might have been affected a little bit, but I don't think it was a major issue.

Dean Priddy

In fact, there's probably some revenue that we could have gotten if some of our customers had been able to source certain key components and bill more handsets during the September quarter. But at least what we are being told is that the demand is carrying over into the December quarter. So it could actually help balance things out in that regard.

Mike Frattin – FBN Securities

But do you still see some element of tightness affecting the December quarter, or (inaudible) a lot of that supply chain?

Dean Priddy

I don't want to speak for our customers in that regard – in terms of what they may be seeing. I think for our own supply chain, we are second to none in the industry, and people, customers know, when they order from RFMD, that we are going to be able to deliver.

Mike Frattin – FBN Securities

Fair enough. And last one. Can you just give us an outlook on – I guess for Eric, on converts, power AMPS, or multi-band or single PAs. I believe, your competitor mentioned that may be in the 2011 or 2012 time frame, what the competitive environment you think will actually look like, given each of the companies' product portfolios? Thanks.

Eric Creviston

That's a question that we can spend an awful lot of time on it, if we had the time. I think, the main thing to discuss there is the fact that the smartphone category is going to continue to grow pretty dramatically, in our view, from – around 170 million handsets this year to around 250 million handsets next year. And we do see a majority of those, if anything increasing, even from today in terms of band content and functionality. So, we think that RF content multiplier that we are seeing something in the four to five times the content for the RF front end versus kind of the standard GPRS handset. We think that continues to hold for some time in that category.

We do see in the kind of 2011 timeframe, more and more of the hybrid type power amplifier architectures. In fact, next year, you will begin to see more of those ramping up and in that case, that's kind of just repackaging the EDGE part and the wideband CDMA PA-to-1 package. So there is not a tremendous of value there necessarily, kind of saves a little bit of size, but doesn't really disrupt anything.

It does have the impact though of disrupting the PAT architecture, the PA plus duplex architecture. One of the problems that the customers have found is that you can't get to a very important tuning note in the phone with that type of architecture. So splitting the switch in the duplexer off into one product, and that's exactly the products we are developing in our conditioning line and then separately the hybrid type power amplifier that has EDGE and wideband CDMA PAs combined in one package. We think that would be a growing and dominant architecture for many-many years.

We do see truly converged power amplifiers beginning to emerge as well. Maybe sampling in 2011, beginning production in that timeframe. But we'll see how they ramp up. There will be tradeoffs in all these architectures. The converged PA will be very strong, I believe, in terms of size and flexibility for high band count applications, in the medium band count applications, the two to four, you are likely to see the hybrid architecture remain for some time.

What we are also really excited about though, is beyond the smartphone category, we are seeing a lot of opportunity for what we are calling 3G entry, which is the opportunity for the 3G system to begin to really encroach and take a lot of the volumes out of the mid-tier and the feature segment. And so there again, you have a bit of a dollar multiplier, because today most of those phones are GPRS or EDGE, and you'll be adding at least one, and sometimes two bands of wideband CDMA there as well. So you'll have the smartphone kind of architecture we just talked about, but then you'll also have a mid tier, where you begin to see a dollar content multiplier of 2 to 3x throughout that mid tier as well. So, we think that's going to layer on to be one of the fastest growth categories over the next three to four years.

Mike Frattin – FBN Securities

Thanks a lot and congrats again guys.

Bob Bruggeworth

Thanks Mike.

Dean Priddy

Thanks Mike.

Operator

Thank you. (Operator instructions) Our next question comes from the line of Tim Luke. Please go ahead.

Tim Luke – Barclays Capital

Thank you so much. In a recent update, one of the players in this arena was talking about how the transport area might have been somewhat slower than some of the other areas for the networks business broadly. Could you just talk about what you've seen there and why maybe you might have been seeing a stronger trends than others perhaps, if that's the case in that area?

Eric Creviston

Your question can be looked at I guess from a wireless perspective as well as a wireline or cable perspective?

Tim Luke – Barclays Capital

I think all of the above really.

Eric Creviston

From RFMD's perspective, I don't think we were – we certainly haven't been immune in North America to the transport slowdown in hybrid fiber co-ax networks. We've been talking about that for a while. We have a very high market share here, with two of the leading customers where we have extremely high market share. So North America, we've been absorbing the same softness now. That is the end market that we said that we started to see some recovery and we are pretty enthused about early signals, as we head into December.

Now, outside of North America, in particular in Asia and in particular Korea, hybrid fiber co-ax business has been pretty strong. It's been even weaker, I think in Europe than North America, but again we are starting to see some early signs of recovery there.

In terms of wireless, I would say there is two things we are seeing. We did see kind of a pause in the 3G build out in between the – what they call phase 2 and phase 3, and we do expect to see that recover to some degree.

Tim Luke – Barclays Capital

When?

Eric Creviston

Well, it depends on who you want to believe. If you want to believe the industry pundits, it's already happening. Our customers are telling us they're probably not going to see some real traction until the beginning of next year. We also have the 3G licenses now in India that have been rescheduled again, but now they are targeted for January, including some WiMAX.

So I don't think we've been out of family with anyone else that's been a player in these markets. The one area – two other areas I would mention, our WiMAX business, especially on the CPE and access point side has been very strong. I know that at a recent 4G conference, a chipset supplier said they shipped 1 million chipsets for WiMAX CPE in just the third quarter, and we shipped over 1 million PA in the first half of this last fiscal year.

So WiMAX on the CPE side, and access point, not quite as much on the backbone of the infrastructure. But clearly we see some activity there, and a lot of design activity and a lot of folks are pointing at the increase in point-to-point backhaul applications that could start in earnest in 2010, as you get a lot more of this data roaming around wirelessly and you have new LTE architecture that people are pointing to. So I would say we've been in family with softness ,but we expect to be a little ahead of the game, as we come out of it.

Tim Luke – Barclays Capital

Maybe just to Dean as well. Just to clarify with respect for having seen the 20% sequential improvement in the recent quarter, and saying that on a week-for-week basis that you are going to see some growth. Your revenue guidance in both, overall, the revenue in absolute dollars is likely to be flattish. Is that what you are inferring?

Dean Priddy

You can construct that scenario flattish type revenue or a quarter that looks similar to the September quarter, except again we'll do it in 13 weeks, as opposed to 14 weeks in the September quarter.

Tim Luke – Barclays Capital

And in terms of framing, sort of seasonality in March, it feels like you can see [ph] broadly no more seasonality through down 10-12?

Dean Priddy

Well, I guess if you are constructing scenarios here, we've done $0.20 in EPS through the first two quarters of the fiscal year. And if the December quarter is roughly equivalent to the September quarter, you are up to $0.33, which is actually a little bit above the consensus EPS number for the entire fiscal year. So if we were to do a mirror image, that is our June and September results, if we were to repeat that in the December and March quarters, then we would be doing fiscal year '11 estimates in our fiscal year '10. So I guess what we are signaling is, we expect to see some seasonality in the March quarter, but remember in the June quarter, on 212 million in revenue, we did $0.07 in EPS. So, I think the bottom line the model now supports better earnings at reduced revenue levels.

So, I think it's an important point, because I don't want to get too hung up. The investors definitely determine the price of our stock, and all we can do is generate the earnings, but when I look at a PE of about 10 on FY'11 estimates and then construct scenarios where you may be able to do FY'11 numbers and FY'10, then you do kind of wonder if there is a bit of a disconnect there.

Tim Luke – Barclays Capital

Right. One last thing if I may. You gave a number for China being 10% of the business. Could you just give us some sense of how that's changed in the last several quarters or maybe on a year-over-year basis and just give any color on where you see your positioning versus the competitive environment? There seem to be a number of local players in that market who may be aggressive. But obviously, it sounds like it's a very big business for you. Thank you.

Eric Creviston

Yeah. This is Eric. I'll take that. There's no doubt that our traction in that market has increased significantly over the past few quarters and again mentioning that greater China was up 75% sequentially is clearly attesting to that. We mentioned last quarter, I think in the call, that our design activity had tripled quarter-over-quarter. This past quarter it didn't triple again but it did more than double from that. So we continue to see momentum building, and you are right, there are some very small competitors that can be quite aggressive, that's true. But we have such a rapid pace of new product developments. Our goal is to just outpace them.

We are taking the market from PAs to transmit modules very rapidly, which means we are including switches with our power amplifiers which raises the bar and makes it tougher for them to copy and move in. Over 80% of our GPRS pins [ph] that they are shipping with, with switches attached. So we'll continue to do that. And additionally, we are going to continue raising the integration level there, and just working closely with the main platform providers. We are ramping a lot of phones now and working very closely with both Media Tech and Infineon for the reference lines for those markets. So we expect the momentum to continue considerably.

Tim Luke – Barclays Capital

Thank you very much and well done on your execution. Thank you.

Eric Creviston

Thank you.

Dean Priddy

Thank you, Tim.

Operator

Thank you. Ladies and gentlemen, that does conclude our question-and-answer session for today. I would now like to turn it back over to management for any closing remarks. Please go ahead.

Bob Bruggeworth

Our quarterly results presented today clearly demonstrate the robust earnings power in our new operating model. Looking forward, we expect to deliver improved and sustainable financial results, and we anticipate generating an increasing percentage of our industry's profitability. We thank you for joining us today, and we look forward to updating you on our progress throughout the quarter.

Operator

Thank you. Ladies and gentlemen, this concludes the conference call for today. If you would like to listen to the replay of today's conference, please dial 303-590-3030 or 1800-406-7325 using the access code 4167493. ACT would like to thank you for your participation. You may now disconnect.

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Source: RF Micro Devices, Inc. F2Q10 (Qtr End 10/03/09) Earnings Call Transcript
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