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TriQuint Semiconductor, Inc. (NASDAQ:TQNT)

Investor & Analyst Day Conference Call

October 31, 2013 8:00 AM ET

Executives

Grant Brown – Director-Investor Relations

Ralph Quinsey – President and Chief Executive Officer

Steve Buhaly – Chief Financial Officer

Tim Dunn – Vice President-Mobile Devices

James L. Klein – Vice President-Infrastructure & Defense Products

Grant Brown

All right. Like everyone’s attention, we’re going to go ahead and get started here. I am Grant Brown. I am the Director of Investor Relations. Thanks very much for coming. We appreciate your interest and look forward to meeting you if I haven’t already. I’m going to just quickly go through the agenda and then turn it over to Ralph after I read the Safe-Harbor statement and he’ll take it from there. We’ve got, Ralph will cover the business overview, Steve Buhaly will cover the financials, and then James Klein, who is the Head of our Infrastructure & Defense business, will go through that. We’ll have a small break and then Tim Dunn will cover Mobile Devices.

There is an allocation of time for Q&A, but feel free to ask questions as we go, we don’t have to do that all at the end. So if there is something that pops up. The only thing we’d ask is that the questions remain relevant to the speaker. So for James, that would be Infrastructure & Defense; and Tim that would be Mobile Devices; and then at the end, we’ll have a broader Q&A and probably informal Q&A after that.

So that’s the agenda. I’ll read the Safe Harbor and turn it over to Ralph. For the participants on the web, this presentation contains forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any comments, projections or information relating to future events, which include, but are not limited to the following: anticipated revenues, gross margin, diluted earnings or losses per share, bookings, and expectations regarding growth and improved financial performance.

These forward-looking statements represent management's opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied in the statements from historical results, due to changes in economic, business, competitive, technological and/or regulatory factors. More detailed information about the risk factors that may affect actual results are set forth in TriQuint’s reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. These reports can be accessed at the SEC web site, sec.gov. Except as required by law, TriQuint undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.

All right, with that out of the way, I like to introduce Ralph Quinsey, our CEO.

Ralph Quinsey

Thank you, Grant. I want to thank everyone for your participation today. It’s nice to see a good turnaround for our Analyst and Investor Day. If I could leave you with three messages today, three messages, these are the messages they would be. Return to growth. We grew this company nicely during the period of 2005 to 2010. We plateaued. We weren’t happy about that. We used that time to reposition the company for the next wave of growth and we think we are well positioned for that next wave to growth. Our strategic positioning now, I think, is better than it has been for a long time, built on strong technology strength. In all of our markets, we are in a position to build differentiated products that will attract customers. And as many of you know, we are a manufacturer and so we have good leverage on growth for profitability. So we think that our revenue growth will be very profitable revenue growth.

When you look at our major markets, we have three major markets that we will talk about today. Mobile devices, where we sell into smartphones, tablets, machine-to-machine applications; the networks infrastructure space, where primarily we sell at the base station, optical, point-to-point radio; and then defense and aerospace, primary applications on radar, communications, electronic warfare. About 65% of our revenue is mobile devices, about 22% is in that networks infrastructure space, and the rest, about 13% is in the defense and aerospace.

When you look at this graphic, this represents both the challenge and the opportunity for TriQuint. This is a graphic of spectrum allocation in United States. This is valuable real estate getting more crowded every day, and TriQuint is unique. We have products and technologies that cover the entire spectrum. A lot of activity down in the 1 and 2 and 3 gigahertz range, because that’s where most of the world like communication is, that’s where the most valuable real estate is and that’s where our premium products give us the best advantage through integration to be successful going forward.

When you look at our market, it’s about $8 billion market. We think it’s growing at about a 10% to 15% rate. We think that with differentiation, we can improve profitability of the company; with diversification, we can improve predictability; and with innovation, we can drive growth. This chart represents some of our focus markets. This doesn’t represent all of our opportunity, our total TAM, we’ve picked on a few areas that we’d like to talk about. If you look at it on the horizontal access, is what we think are the growth rates for the market in the bubble. The size of the bubble is the market opportunity in 2016, and then the vertical access, lower value, higher value, as far as the type of products that we sell into these markets.

And clearly, you can see where we are focused, the dark blue areas on the chart, and where we have chosen not to focus, which are the light green areas. We are not focused on 2G base station. We are not focused on GSM low end transmit modules and PAs in that market. We are not focused on commodity SAW filters. That’s not an area, where we bring value to the marketplace. We are focused in areas like optical, and in particular, driver amplifiers to the optical market, where we bring great value and get good return on our investments in the optical market.

We are also focused on airborne radar, broadly radar, because we are unique in providing the technologies that support that market and expand in other areas. Small cells represent an opportunity for us. Wireless connectivity both mobility, parts of mobility, we don’t focus on, and Tim will give you more information on that. We don’t focus on the commoditized low end of mobility WLAN. 5 gig high band, where we add value is where we’re focused, and then connectivity, which is more on the infrastructure side, again, we add more value. But the biggest bubbles on the chart are in the areas of MMPAs, broadband PAs and premium filters. Huge opportunities, we’ll talk more about those today; growing opportunities and where TriQuint is uniquely positioned to take advantage.

It’s interesting to note that we have broken this out into premium filters and MMPAs, but primarily, we will sell integrated solutions, which leverages the amount of dollars, revenues dollars we can get from that premium filter opportunity. TriQuint has a virtuous cycle. In our three major markets, each plays a role and we’re interdependent upon each other. In defense, we attract money from the government and from the industry to develop next generation RF technology. The roots of our HBT technology that we use in Mobile Devices today are originated out of the defense part of our business. Right now, we are working on gallium nitride. Gallium nitride first found penetration in radar applications and now we are moving it into networks and infrastructure through cable, and eventually, we like to move it into base stations.

So as technologies develop, it moves through the rest of the organization and having this type of investment from the government allows us to just have a bigger R&D footprint than a company our size might have, and then Mobile Devices drives volume. Mobile Devices is our high volume, high unit count business and that volume in [indiscernible] gives a better cost structure, better buying power for all of our businesses. And so the circle goes around a virtuous cycle of driving growth.

I want to just talk a minute about BAW and China. We think China represents a significant opportunity for TriQuint, largely due to the launch of TD-LTE, which is really yet to take root. We are seeing good investment now and good uptake for our base station infrastructure business in the build out of TD-LTE, but the amount of subscribers in China that will switch from 2G, 3G, to 4G over the next five years is a little bit staggering.

Currently, China, the three major providers; China Mobile, China Unicom and China Telecom; 750 million subscribers in China Mobile; 270 million in China Unicom; 180 million in China Telecom. These are huge opportunities for TriQuint and the way the spectrum is configured in China due to the low-band Wi-Fi devices, 2.4 gigahertz Wi-Fi, it’s adjacent to some very challenging [indiscernible] sockets, band 40, band 38, and band 41 and band 7. This creates the opportunity for premium filters, high performance filters and this is an area where we’ve invested in overtime and we have a lead on the market.

When you look at our investments in BAW, it has been some time, all right. We acquired largely for IP purposes in 2004, a small company in Bend, Oregon, called TFR. The company builds some of the best high performance BAW filters in the world targeting the defense industry. Different problem in targeting the mobile devices industry, we first produced our own BAW more targeting the mobile devices business in 2007 and we started to ship those in volume in 2009. We’ve doubled our capacity in 2011; we have now shipped a billion in 2012; again, continue to increase our capacity; and the real sweet spot of the strategy is when we transition to 4G.

As amplifiers become more broadband, filters have no like process to integrate them and so the continued expansion of filters will go on for sometime to come. We are now selling more discrete filters in these markets, because these are the building blocks that we will use to then integrate in the future. When you look at our history, as I said, we grew the revenue for this company about 24% compounding growth rate from 2005 to 2010. We were one of the first to take advantage of the 3G ramp, primarily with integrated devices that had both filters and active components in the same solution. The integrated devices provide better performance, smaller size and it’s a very attractive product for our customers.

We plateaued in the – in like I said, in the 2011, 2012, and now, based on smartphone penetration, 4G rolling out with more LTE band opportunities, specifically TD-LTE in China, carrier aggregation, which is a 2015, 2016 problem, which again is favorable towards premium filter suppliers, Wi-Fi coexistence that I explained on the previous chart, base station build out, and then just a backhaul in the infrastructure, we believe there is another wave coming and it is our intent and direction to return this company to a high growth, profitable growth company.

So when we look at the product line strategy, where products meet markets and try to summarize it on this chart for both our Mobile Devices products and our Infrastructure & Defense products. First and foremost, in multiple devices, it’s focused on LTE, we don’t target 2G. We are not targeting old 3G applications. We don’t sell a lot of discrete component amplifiers. We’re focused on premium filters and high efficiency broadband amplifiers. Those are the two characteristics that we’ll need to focus on.

We will sell some discrete filters now, but the real target is these integrated solutions overtime, because we can use our premium technologies to pull through more content through integration, customers come to us, because they are looking for small size and long battery life and we are unique. The uniqueness right now in the marketplace is we are the only supplier that selling in high volume all the active technologies required for these type of solutions and all the passive technologies.

We focus on premium passives BAW technology, but we also sell TC-SAW temperature competitive SAW, another premium technology for different parts of the application. We continue to build in small volumes the commodity filters and it is a component we can use in these integrated solutions, but we really don’t go to market with those from a – as a discrete product, but allows us to address more opportunities for integration, as like I said, 2015, 2016 with the inclusion of carrier aggregation in the mix, it’s continued to move towards our strategy.

In Infrastructure & Defense it’s a multi-market focus and we are focused on high value products, where we can add value to our customers, typically we have higher power density, better linearity, better bandwidth in our solutions, but it’s build on best-in-class gallium nitride, gallium arsenide and filter technology across the full spectrum; across the full spectrum from very low frequency to very high frequency. And really our uniqueness why customers come to us in these markets because we really have an unmatched set of technologies to take to the market and we have build very strong strategic relationships with many of these customers whether it’s the defense industry, customers or large infrastructure companies like Huawei in China, very strong customer relationship.

So I’d like to now turn it over to my staff just to highlight staff Steve Buhaly, Tim Dunn and James Klein are here with us today and will make presentation. Steve is our CFO; Tim runs our Mobile Devices Business and James runs our Infrastructure & Defense Product line. And Steve Grant, Todd DeBonis and Debbie Burke are not here. Steve Grant runs Worldwide Operations, Todd runs Global Sales and Strategic Development and Deb runs Human Resources.

So with that I’d like to turn it over Steve Buhaly, our CFO.

Steven J. Buhaly

Good morning, everyone and thanks for coming. I appreciate your interest in the company. I’ll keep my presentation fairly brief. I am excited about the growth prospects the company has, primarily because of the leverage that it brings to the financials. Through 2006 to 2010, we had roughly 22% revenue growth, largely driven by the ramp of 3G both on the network infrastructure side and on the automobile devices side and as you can see that growth in revenue produced disproportionate financial results.

We have significant operating leverage in the company. EBITDA was up 38%, earnings and cash flow more than that. I think similar opportunities exists today and to the extent we are able to leverage the growth opportunities in the market and I think our filtering position provides a fairly good opportunity to do just that. There is meaningful financial leverage in the model today.

There is also significant opportunity to improve our return on equity, return on investment. Not only do I believe that net income will rise faster than sales and as we experienced in the 2006 to 2010 period, but I think as the turnover improves meaningfully as well. And between the two of those I think we should see a significant growth in the return on equity results provided by the company.

We have meaningful under utilization today. I think that for this purpose will translate to less CapEx than depreciation, of course that depends on a book of business we acquired, but I think there is meaningful opportunities to see significant improvements in cash and return on equity as CapEx runs well below the rate of depreciation.

Grant? Can you help me here? I don’t know with our online correspondence coming through and Thomas sorry you are being projected.

We welcome all info but we run at the more early than that and our financial leverage is a part of the return on equity, sorry that’s not part of our current game plan, so I don’t expect much contribution there, but I do believe we’ll see substantial improvement on ROE in addition to these other important financial measures. Our operating model is improving. Grant, do you think there is anything we can do or should I just ignore that? Sorry for that disruption we got little technical cork here.

Okay. So thank you. First half 2013 is in a book, second half is a combination of Q3 results and Q4 projections. We are seeing a return to growth. Q3 results, revenue was up 25% over the same period in the prior year. The guided Q4 is up mid double digits over the same period in the prior year. So we do see growth returning to the story and I’m optimistic that that will continue in 2014, as the market itself is growing due to the rollout of 4G and we see good opportunities across the board associated with that.

So good growth in the second half on a year-on-year basis. It’s also a growth year or period seasonally, but I think the fair metric here is a year-on-year performance. Significant improvement in margins, higher revenue, really does drive that. We think there is a 50% or greater fall through to gross margin on incremental revenue, some of that is utilization and capacity, some of it is due to the accretive filter margins that we see and we expect the filter part of mobile will be one of the faster-growing parts of the business with those good margins.

Operating expenses are going to be tightly controlled. As many of you know and we’ve discussed, we did invest in engineering ahead of revenue to help drive the growth. We’ve made that investment and our intent is to keep a very tight ran OpEx. OpEx was roughly flat Q2 to Q3 and we expect to continue to maintain a fairly tight leash on it and thus almost all of this fall through should come down to operating income.

Operating income pretty closely translates to net income, as we have a very low tax rate, which I think will continue in 2014. I’m referring to a cash tax rate where we pay a largely foreign and state minimums and that we have both considerable intervals to help us on the federal side, as well as early tax efficient structure that will help us as we earn out of those NOLs.

And then finally, I think EPS will also be very responsive as we have engaged in meaningful share buybacks. We’ve repurchased just under 18 million shares over the last couple of years at an average price of $5.61. So I do believe revenue growth will drive significant benefits throughout the P&L and that we should be able to enjoy above average growth due to our strategic positioning.

Thus with strong growth and a creative mix of products, a significant operating leverage, I think we’ll have rapid financial improvement, as we’ve seen so far. Q3 this year, we earned $0.16 a share. Q3 in the prior year, we earned $0.02. Q4; we’re guiding $0.13; Q4 in the prior year, it was $0.04. We’re not where we’d like to be, but we are making significant progress on a year-over-year basis.

And with that, I think Ralph and I’ll take questions or we’ll be glad – or we’ll turn it over to James Klein.

Question-and-Answer Session

Steve Buhaly

Can we run two mics at once? So I do – I’d like to get the questions on mic.

Unidentified Analyst

[Question Inaudible]

Steve Buhaly

Okay. well, we can do that.

Ralph Quinsey

Yes.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yes. So two parts of the question, what is the – what do we think that the RF market growth rate is, we think it’s 10% to 15% growth rate and we do think we’re well positioned to enjoy growing faster than that, if we’re successful at our strategy of integrated solutions built on premium technologies.

The second part of the question was, do you have to have all the technologies in-house. And the short answer is no, but what’s important is to have the important technologies in-house. Customers will come to us, because we have the important premium technologies, having the other technologies in-house allows us to be more flexible. We already go outside for a big part of our content. We put a lot of SOI silicon into our solutions and again, we go outside for that. But having the important technologies in-house is really what comes. Otherwise, you’re just a module integrator.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Where?

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

We reduced capacity in our gallium arsenide process. and earlier this year, we added BAW filter capacity.

Steve Buhaly

To a fair degree, it depends on the book of business we win, but I would guess that the vast majority, if not all of any capacity adds would be in our premium filter areas.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Across all of our markets or in a specific market?

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

I don’t think, I guess the question was where are the prime areas for growth across all areas in the company, and I would say in mobile devices, this is all about LTE, right. It’s all about the rollout of 4G and a focus on leveraging our premium technologies, a high performance broadband amplifiers and a high performance premium filters into integrated solutions going forward and it’s a very simple approach to that market, but a huge opportunity for us and our Infrastructure & Defense, it’s optical base station and radar.

With optical, it is continuing to build on our successful leadership in driver amplifiers and radar. There is great opportunity, as we go through the new programs and retrofit programs in phased array radar and then in base station, we have done quite well. We’re growing somewhere in the range of 60% year-over-year in base station, built on our integration strategy of multi-chip modules, primarily into China, primarily tied to the TD-LTE.

We think that one of the bigger opportunities long-term in that market, slow development market is, as GaN penetrates into that market, as the base station infrastructure transition to multi-standard and also some broadband and very similar to the story you’ve seen in handsets phase with – as we went from narrowband amplifiers to MMPAs to broadband amplifiers. The very similar process is going to happen over the next several years in infrastructure, and it just creates great opportunity for a company like TriQuint, which is really designed to deal with those type of issues, but that’s a slow moving market.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

So the question was with our business, a big book of business is associated with our premium filter business and how much of our premium filter business would go away, if we didn’t have an integrated solution, whether it’s PA-Duplexer or some of the form of integration that combines actives and passives and that will be a significant amount of our business, right. We recently said that only about 20% of our revenue looking at the second half of this year is coming from discrete type of filters. The much larger part of our revenue comes from these integrated devices and it’s built on that premium technologies. So having the ability to service the entire solution is critical to us.

Unidentified Analyst

[Question Inaudible]

Steve Buhaly

Greater turn.

Ralph Quinsey

Greater turn.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So the question was for our two largest customers, Foxconn and Pegatron, what type of products are we selling, are they these integrated products or discrete products, and the answer is both, and heavy– more heavily weighted towards the integrated products, yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

And so the question is to try to quantify the relationship between TC-SAW capacity and BAW capacity and I don’t want to quantify specifically, but I can say that’s heavily weighted towards BAW capacity, probably in the range of 80-20 maybe 90-10, right, but heavily weighted towards BAW capacity. BAW is the larger part of the market. TC-SAW plays a critical and important role, but BAW has more opportunities.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So the question is what’s the overall capacity for the market in premium filters? So I would say, let me say this, where we think that the market size is in premium filters about 800 to 1 billion and we think right now, we’re in that 20% to 30% share space for that and we have built some capacity ahead of domain. Yes, sir.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So then?

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So, done?

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Okay. You want me to comment?

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So let me summarize this. The question – let me summarize it, great technology, but not enough profits, all right. Great technology, but just not enough profits and then a concern about the…

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So great technology, but not a great promise profitability for a long time, okay. And the concern is while you have multiple factories, wouldn’t it be more cost effective, if I got the question correctly, if you consolidated your factories and had a better asset structure to support your business, so [indiscernible] question.

Unidentified Analyst

Perfect.

Unidentified Company Representative

Perfectly, it’s good. So I think that is a reasonable request, I think that is something that we look at on a regular basis and I think that it’s good industrial logic, not a leap of faith, right, to say that if you had one factory that build all of your products, it will be more efficient than if you had multiple factories. So there’s no disagreement in the logic of getting to that type of situation. Of course, it’s a little bit of an academic exercise the way I just described it, in the reality of it, I’m trying to point from A to point B, I’m trying to some more adds in my asset base to where I should be or in this context, where you propose I should be.

And in that transition, what I try to weigh is the cost of transition and the risk of the transition. And until I figure out a way to make the benefits outweigh the cost and the risk, I think it is unwise to make that step, doesn’t mean that I am not trying, right. But that’s what you want me to do, because we have a large revenue stream that turns over very, very quickly and it’s built on generational improvements in technology. Some of the technologies we use, we still are struggling to find it outside, Copper Bump Interconnect, we’re having a hard time finding it outside, and so good input and we continue to look at exactly those type of issues haven’t solved the problem, the way you proposed here.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Do you want to take this one or you want me to?

Unidentified Company Representative

You’re on a roll.

Unidentified Company Representative

Okay.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So let me capture the question, because it’s a great question, all right, it’s a great question and a great input, and I want to capture it for the audiences not there, so they can benefit from it as well. So the question is, hey, you’re investing a lot of money in OpEx and in particularly in R&D, and yes, you do create some good technologies and some great opportunities, but you have to get into your business model, right. You’ve stated publicly, we have stated publicly, we’d like to get a low 25% OpEx and we’re not there yet. We do have a seasonal business, right. So we tend to look at year-over-year improvements, not sequential, but – and then the recommendation was we should just freeze OpEx for nine innings, nine innings growth series time. We have frozen it for one inning, Q3, right, and so the recommendation was we continue that process and we appreciate the inputs, right. We would like to get to the OpEx target that we’ve proposed as quickly as possible, but again, balancing that against walking away from great opportunities at the beginning of this year, right.

At the end of last year, I looked at our opportunities for investment versus cost containment and we made the strategic decision that we thought it was the right thing to do to invest in the first half of this year to build the opportunity for growth that we’re now seeing in the second half of the year and the platform we built for what I believe will be a strong growth year in 2014 and 2015. And so we consciously made that decision, we are living with the results of that decision. I do believe there is room for us to seriously curtail growth in OpEx, right, and allow revenue to catch up and the only that’s going to change my mind on that is if an opportunity comes up, that swings the balance, the other side as far as void, in the calculus of business. You sometimes have to make investments and take the heat, but emotionally and with your recommendation as far as do – the company is going to do our best to limit our increase in our OpEx for a long enough period of time to allow us to grow into our business model. So I appreciate the question. Yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes, so if I get the question wrong, correct me, but the question was, is it possible to disaggregate a part of the business, the power amplifier part of the business in mobile devices with the assumption that it’s the low performing part of the business, which would allow the rest of the business to shine through with more successful financial results. So I got the question. And the short answer is it’s not easy to disaggregate that part of the business and if I could characterize our business more specifically, we are seeing great opportunities in this marketplace, but they’re fairly narrow. It’s a narrow customer set and it’s a narrow concentration of revenue and we need to spread that out. With our larger customers, we have a fairly good position and it’s primarily based on integrated products.

What we’re trying to do is invest in the broader market, primarily premium filters, high performance, MMPAs, because we believe the rest of the market will transition to an integrated strategy in 2015, 2016, it’s starting already. It’s primarily a discrete amplifier, discrete filter business now. We don’t sell a lot of discrete amplifiers. We have a tail of some old business that we ramped down orderly to support our customers, but sometime ago, we have moved away from 3x3 amplifiers and like and we’re primarily focused now on high performance, high efficiency, good value-add, broadband MMPAs and high performance, high value-add premium filters. We do sell those both as product units, but strategic destination is this integration. So it’s difficult to disaggregate that now and execute our strategy.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So the question was a follow-up that we believe that having the amplifier capacity is core to our success, and the answer is yes. And not only is it core to our success, we do it slightly different than the rest of market. Most of the world is selling these integrated modules, right, and a module integrator will wire-bond all these things together and sell a module. We believe the things that are driving the mobile market are battery life and sockets. So battery life is all about high efficiency amplifiers, broadbanding is a headwind to that, we add switches into the solution as a headwind.

And so if high efficiency becomes even more important and we do and then size, we do a copper stud interconnect. We’re unique in the industry and the copper stud eliminates the whole wire-bond and what that does is it significantly reduces the floor space required in the module for that part of the solution. Now, this is an investment for where we think the market is going forward in the future and it is in parallel with our investment in wafer level packaging. We are now selling our TC-SAW products in high volume, what we call, wafer level packaging, is very similar to what I talked about wire-bond, where we used to put these filters into rather large – it’s still very small, but rather large, somewhat expensive ceramic filters.

We now do that wafer level packaging in our fabs and it’s a very small, and again, our uniqueness is going to be size and performance. In 2014, we will have our BAW available in wafer level packaging and we’re trying to get prepared for, like I said, carrier aggregation in 2015, particularly in China, where we think that the integration of amplifiers and some of the duplexers’ co-existence filters in that region are going to be absolutely critical.

And for the first time, in a long time, our customers’ customers are coming to us, specifically in TriQuint, giving us direction about this type of integration. There are technologies in China Mobile, they’re saying, listen, we’re going to need these type of solutions or our suppliers are going to need it. We want you to start working on this type of integration amplifiers and filters.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes. We’ve got a chance to talk a lot more about this after Tim and James are done, but let’s get back to the presentations and we’ll turn the questions. Thanks, great questions. We really appreciate.

James L. Klein

Okay. I am on?

Unidentified Company Representative

You are on.

James L. Klein

Good morning. So for those of you, who don’t know me, I’m James Klein and I run Infrastructure & Defense product line for the company. So let me just go through some long way, so just a little bit of an overview of the business. We address about $3 billion SAM. We do that in three top markets. You can see that pictorially on the bottom or in the words. Into the defense radar business, predominantly airborne, also into the base station, we have a broad variety of products that support the base station marketplace and then our optical drivers. We do that with really the top performers in all of those markets. So you can see them listed there. We have very favorable relationships with those companies and again, partnering in on technology and partnering on next generation of solutions.

Let me talk about the strategy organization, you saw, what I call the circle chart that Ralph showed earlier on how the organization exists and how synergistic we are. We really start that in this business unit. So we have great relationships with DoD. We get about $15 million a year of funding out of the Department of Defense on core technology. Now, this is technology that is maybe five to 10-year out before it’s productized, so very, very early on technology.

We leverage to put some of our own money on top of that and leverage that technology to that next generation of solutions. What you’ve seen come out of that is things like GaN and BAW out of that kind of process. So we always want to make sure we maintain that leadership in the organization and then we support the commercial marketplace with those technologies. So again, you see that in GaN and BAW and I’ll talk a lot more about products coming out.

So first point is technology, the second point is that partnership in those three areas, I already talked about that, and then a shift for us is a business over the last couple of years is really to move away from being just a pure foundry business and to become much more of a product organization. You can see that graphically on the right. We’ve increased our product output very substantially in the last couple of years and released 80 products in 2011. We predict to do 140 in 2013. We’ve released about 100 so far the year. So we’re right on path to get there.

Those products are – not just release of products, but also market shaping highly differentiated products and I’m going to go through in the presentation, products in all three of our submarket areas to kind of show you where we think we’re leading in those product areas. And then we’re also doing some acquisition to supplement growth and I’ll show you one of those acquisitions, a company that we bought a few months ago called CAP Wireless and how we think, again, that’s going to use this technology or development and leverage some growth in the marketplace.

Okay. So let me first go into the defense market and talk a bit about it. If you look at what this market needs, first of all, we call it a market, but it’s really a broad set of applications and technologies. So not just airborne radar, but ship-based radar, comps, all those sort of things, this market needs very high performance products and semiconductor technologies, because a good part of what we do for defense is foundry. So those customers expect us to have a broad set of semiconductor technologies.

We’re trying to address many different challenges; ISR, intelligence, surveillance and reconnaissance is always growing. The need for that in DoD is growing. There is a significant market for radar retrofits, mainly in airborne, F-18, F-16, F-15. Again, we’re supporting those markets heavily. coordinated communications, this is, you can think of a software defined radios, but this is really integrating the battle space, so technologies, again, for that and products for that. Next gen electronic warfare has been a focus for the DoD over the last several years. So those are new big programs and activities in EW. And then we actually do fairly significant space based activity. So this means we need very high reliable products to support the space industry.

So that’s what the market needs. I’m going to talk a little bit about GaN, because we see this is a big leverage point for the company and a big growth opportunity and we’ve seen our GaN business about double this year, we expect that to kind of continue with that rate for a few years, now it’s starting at a small number. But we see that’s starting to really come up. What’s been important for me is getting that technology around that circle, not just a technology, but how do we get that as a manufacturable product that we can grow with. And so you see some notes down here on the bottom, we’ve been able to increase our yields and the liability of the product where it’s pretty much on par with conventional technologies that we produced in the past.

GaN, although the GaN chip sometimes typically are a little bit more expense than GaAs what you find is that it’s the overall best value for the customer, because you get much better performance at a system level, a lot of times you can have a much smaller chip. so we get overall. We released a tremendous amount of products in this area, both commercial and defense, we were only doing in defense about a year ago and now we’re into several commercial marketplaces. And then we focused here, Ralph talked about earlier about the broad range of frequencies, here we’re focused all the way, I say zero, pretty much down to DC, all the way up to 94 gigahertz with a broad set of the processes.

If you look at what GaN brings you on the top graphic there, it helps us with bandwidth and we see both in the defense and the commercial marketplaces. We see a need for broader bandwidth. It certainly has more power capability, that’s important in things like base station, power and radar and probably, its biggest pickup is efficiency. We see about a 20 percentage points pickup in efficiency in most applications, somewhere between 10% and 20%.

Okay. We’ll talk a little more about GaN. This again, shows you one of the greatest benefits up in the graph in the upper right. This is a GaAs part that you can see puts about 6.5 watts at Ku-Band. so this is somewhere in the range of about 15 or 16 gigahertz. 6.5 watts, we have an equivalent part in GaN and you see those are relative sizes that puts out the equivalent power of those four parts combined and it’s about 20% of the equivalent size. It also is in that range of 10 to 20 percentage points higher in efficiency than what you would have seen with the GaAs. So again, we think that’s a significant advantage in the markets we play.

Numerous examples of products, and I’ll show you more and more as we go through, but here’s a kind of the first set of products that we released over the last year, so switches, transistors, power amplifiers and these are servicing both domestic and international markets for radars.

And then I want to talk about one area as well, we purchased a company called CAP Wireless again, earlier in the year and this is a new big growth market for us in the company. What CAP did prior and what we now call high power RF products is basically build solid state amplifiers for tubes. I think we’re all fused the example of your old television had tubes in it. obviously, you understand what happened when it went to solid state. There’s also tubes in many, many RF systems whether that be in an EW system on a aircraft or defense or whether that be in particularly maybe in the airplane you flew here on your connectivity for Internet on the plane, but numerous different applications for TWTs. We believe this solid state technology that we call Spatium offers significant advantages in reliability and in performance and it really leverages our GaN take the capability.

So what you see here in this – in the picture is, this is a package GaN part. This is a spatial combiner that means it’s basically combined in air. We’re able to stack these little edges in a circle, you get about 16 power amplifiers, typically in a circle and this is pretty much form fit to replace the TWT-2. So small acquisition, but again, we believe a great capability for growth.

I talked earlier about defense, we called it one market, but it’s really, really many different applications. The biggest market for us is radar driven today by airborne radar. And I’ll show you more of that radar market coming up on the next chart. But we also do things in NAV.

We’ve launched several million parts into space over the history of the company. EW is an ever growing market and in the Comgear. And we also see all other frequencies here, traditionally the radar is the broad range, we do work from L-band all the way up to W-band, which is 94 gigahertz.

Commercial satellite again, Ka-band down to lower frequencies, electronic warfare is typically very broadband type applications. Comgear same thing even from lower frequency up into the 30 gigahertz range, so a tremendous amount of space here to cover for the business unit.

I talked about those products, this is – I really want to make sure and if you walk away and with anything for me today is that we’re doing a lot more work on products. This is a grouping of products that support the defense market. We believe we have industry leading gain and efficiency for our GaN Discrete. We’re winning competitions, both domestically and internationally with these products and if you remember, we announced about a year ago where we signed a $20 order. And so we are doing very, very in this market, we’ve released the industries first 0.15 micron GaN, what that means is, it’s gallium nitride for higher frequency.

So that’s the first one released – we also released products at the same time. We have some high power at GaN Pas, they’re released and we’re also filling out the line card of the portfolio with many different products to support a global radar initiative. So GaN drivers, GaN LNAs and switches, but also GaAs phase shifters, LNAs and all that. In this product area, Ralph said on the recent call, we’ve experienced very significant growth in this product area market. So this is probably for me, been one of the largest growth areas as the release of products into the bench market.

I want to talk about the radar business just a bit. You see there on the fourth, the top big phased array radar programs that we support retrofits on F-18 and F-16. The F-22 which is predominantly build out and we’re doing spares at this point in time and then F-35.

We believe in these top airborne aircraft there are somewhere between 2,000 and 4,000 radars that will be retrofitted over the next 20 years. A lot of that in the near-term in the 10 years, we’re already heavily participating on these programs, we believe we’ll service a good majority of this market with our product, so nice opportunity for us moving forward. And then we think if you aggregate the rest of the radar market ground based, ship based and space based radars, we think that opportunity is about the same size for us.

There’s not 4,000 ship based radars, but those radars typically be or much, much larger. So if you look at the content for us, we think it’s about the same size. And you can see a couple of programs that we participate in today TPQ-53 and Wideband Global SATCOM activity, so nice base for the business with all the radar programs.

Okay. Now I’m going to move into network infrastructure and I’m going to do this into two parts. I’m going to talk a little bit about our optical part, what we call transport. and then I’ll go into the base station activities. So before I start one of the major things that’s driving this and Ralph talked about earlier is, the build-out in China with LTE. So obviously, everyone here knows there’s an order out there for about 200,000 base stations. We again, are partnered with the companies that are the majority shareholders for that build out, so that offers a nice growth activity for us in the third and fourth quarter and we think that will continue on through next year.

You can see on this chart what we – the opportunities by content for all the different activities that we do, whether it be base station components, also our optical transceivers, but a significant amount of content in each one of the these – as this build out goes forward. What’s driving the market is obvious, it’s data, video is growing substantially at about a 50% rate, the mobile connections now exceed the population of the earth and you can see this expansion CISCO data here about a 66% expansion in data.

So that’s really driving, that’s what this part of the business does is to provide the infrastructure for all of that data to move around the world. Transport, this is the optical part I talked about again, this is where the direction of the markets going, same thing here really data capacity and we’re starting to see a switch over from 40G to 100G. We are very early on in this area. We think – we’re supplying 40G, we’re in the 100G part of it. We’re going to see that switch over next year where 100G will actually be higher than 40G market. And we’re very poised and this is really great integration story for us. This is where we take multiple different parts, put them together into a surface-mount package and really sell the smallest footprint part in the industry and again, done very, very well here. And then next is 200G and 400G and we continue to develop products for that next generation as well. This really talks about those products.

Down here is picture, it’s hard to see what this looks like. but this is basically a surface-mount package similar what you see here that sorted on to a board. The reason we win in this market is, we have a smallest footprint in the industry. We the lowest power dissipation in the industry and we’re continuing to drive that lower for next generation.

We’ve been able to solve the channel isolation issue and what you see here, these are all amplifiers in here and you see in this particular part, four channels, crosstalk between those channels is, very important for system integrity and we’ve been able to resolve that and have high channel isolation.

And on top of that, we’ve been able to demonstrate environmental robustness. So we can survive the environment and we can do that in a very low cost packaging solution. so this is again, a nice attribute for us. The capabilities we have inside the company that allow us to have these winning attributes are really world-class semiconductor products, and this again is where we believe, we have a gas process that is the best in the world and it allows us to compete in this market. I’ve talked about low cost packaging already and partnered with the tops in the industry.

Optical, again, a product focus here. I’ve talked about a 100 gig systems. These are those surface-mount parts. We traditionally have only been in the transmit side. We’ve moved to the receive side in the last year with transimpedance amplifier. So we’re now on the receive side.

On point-to-point radio, traditionally, we’re just power amplifiers. We’ve moved into frequency converters and oscillators in the radio band. We continue to do our PA work to 18 and 23 gigahertz. and then we’re moving gallium nitride into our cable TV business. So we’re also starting to develop a next set of hybrids and MIMICs for cable TV. Okay, again, all in 2013 activities.

Now let me move into base station. Again, what’s driving this market is the LTE rollout. It’s also a shift to small cell and that fits very well with the product set we have and then commercial access points. We’re seeing a shift to multi-standard and we’re seeing a shift to multi-band and I’m going to talk more about broadband coming up, because we believe again, that helps us very much be competitive.

We talked a lot about integration. This is a place where we’re winning very nicely with integration. This is a place where we’re taking, what we would traditional sell is amplifiers and filters and switches and we’re starting to integrate those into very low cost high performance modules, really helping drive the footprint down for the customers.

And then we were right on the edge of the base station market starting to adopt GaN and I’m going to talk more about that GaN adoption coming up, because we’re positioned very well to be ready for that move heavily into GaN. Okay, so we have broad portfolio here with both components and multi-chip modules and we believe we’re positioned very, very well to capture the growth that’s going to come in base station market as well.

Now I want to talk about base station really in different forms. Traditionally, when we think of base station, we think of the very maybe, high power base station, but we see actually a multi-different markets here and we’re actually addressing all of them. so the traditional macro market, what we see driving in the macro market is again, going to higher frequency and higher bandwidth. I’m going to talk more about that coming up, because it’s very important part of our strategy.

Moving up in frequency and moving to broader bands and we see a lot of the lower power type base stations, small cell for indoor and outdoor and carrier grade Wi-Fi coming on board as well and you can see what we think drives that is traditionally size and capacity and again, what we are doing as a company to try to address that is same story, technology leadership, a broad variety of parts, we can go into this customer base and offer them the broad variety of products. Integration capability, so we can offer the smallest size and a focus on the lightest weight, lowest cost packaging solutions.

Now this is in the macro area what I talked about earlier and Ralph alluded to earlier about the shift that we’re seeing. So two shifts coming up in base station power, one is the entrance of femtocells, picocells, small cells in general.

So that’s a shift and we’re positioned to deal with that with integrated modules. We’re doing that very aggressively. We see another shift in the macro side, which is a move above the traditional 2 gigahertz and below up into the 2.7 gigahertz and eventually the 3 gigahertz ramp and we see a simultaneous shift to multi-band. A multi-band maybe a little bit later, but we certainly see the shift in frequency; both of those are very, very well suited for GaN. So as we get up in those higher frequencies, LTE mass performance starts to drop off. GaN is very well suited there. So we see that as the inflection point where GaN is going to start to more heavily penetrate this marketplace.

And again, we’ve got a set of products out there that are being sampled, working with customers, getting ready for that adoption as they go to higher frequencies and multi-band, okay. And same thing here, a broad set of products, base station LNAs, lowest noise figure in the industry and we’re integrating those into modules, small cell PAs, traditionally focused on a couple of watts and below and again, we’ve got a broad set of parts in development there and released base station GaN, I talked about that. and then one thing I really haven’t talked very much is about the integrated filter modules. So we’re doing more and more integration with our filter modules.

Okay. so summary of the business, great technology partnered with the leaders, focus on a broad portfolio of products, positioned for strong growth and to generate a highest share in the marketplace. Okay, so kind of quick summary. It’s a very broad business, but go ahead.

Question-and-Answer Session

Ralph Quinsey

Yeah, I’ll repeat it.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

So the question was GaN. How big is the market? what’s the growth rate and who are our primary competitors? So many markets to support, right, so I got a – if I combined all the markets, I don’t know that I’ve ever done that exercise, but you’ve got a radar market out there with several $100 million that parts of it are applicable to GaN, got a cable TV market, you got a base station market to several $100 million.

So it’s hard for me to put it into one GaN marketplace, because I really look at it as multiple different marketplaces. Similar story on the growth rate, they’re growing differently. What I can tell you is, we’re about doubling our revenue in GaN in year-over-year. So to me, it’s really about what we’re doing is, hard for me to again, look at individual markets.

Our competitors in the GaN space and again, it depends on the market; in the defense side, we compete both with companies like Cree and some of the internal fabs of the defense contractors. In some of the base station power markets, there are several entrants into the market and then Sumitomo is in there. So again, we see various competitors depending on where we are and what marketplace we’re in.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

RFMD, Cree, are probably the two and Sumitomo, I would think would be the predominant ones that you would traditionally, but if you look at my co-defense market, I’m probably more competitive with the – some of the internal fabs.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Define large revenue?

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

I don’t know, hard to say. It’s – that reported it separately. So I don’t – I really don’t, it’s hard to say who I think the largest is.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

It’s always in GaN based products, all of the GaN work. it’s probably between 10% and 20% of my business today, okay. Yeah, go ahead.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yes.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

So the question was, how do we think about profitability of the business and how much of it is government funding and I am going to ask you a follow-up question on government funding.

The profitability is the GMs in this business are north of 50%, separately, but it’s also north of 50%. The question you had on, help me.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Just that, what we call CRAD. As I said earlier, it’s about $15 million of revenue.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes, yes, pretty stable. Actually, yes, it’s pretty stable. It’s grown a little bit in the last couple of years, but it’s pretty stable. And I mean, those – you asked a question about profit, what those dollars really do for me is help me on long-term focus on technology. Things like we’re doing work GaN-on-diamond, we are doing work on advanced envelope tracking capabilities or high speed switches. We’ve used those government dollars to drive our yields because we’ve actually had a program for the last couple of years that’s been focused on manufacturing capability. So those dollars really, to me, are not about necessarily near term profitability, but they really help offset our investments in technology development.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Of those programs?

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

No, not. The question is, is there a way to sense operating [indiscernible] level of my business and we don’t report them separately so.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

No, I am not going to go there. Yeah, go ahead.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Okay, so broad question about the optical business, you said drivers and modulators shift from 10 to 40 to 100 and growth rates of that business, did I get all that right?

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Okay. So we do drivers, not modulators, first of all, to clarify. The switch over is, for us is largely 40G and we are delivering 100G products. The overall markets will switch to more 100G than 40G coming up next year. So there are right now, 100G is a little bit lower in 2013 and it will take over 40G in 2014 and our deliveries are going to follow that marketplace, because we are with most of the dominant suppliers in the market. Growth rate, so that business for us, as we talked about in the past, we’ve had sort of a flat year there really based on what the market has done versus us. And I expect we’ll get back into a growth pattern as the market gets back into a growth pattern in optical, yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Well, but remember we are heavy in the 40G market as well right. So we are – one is going down and one is going up. Our products kind of support both. And then we’ve also, so many ways, when I say flat, it’s just been about flat, it’s not been a big growth year. Yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Well, I don’t want to ever think of myself as an afterthought, but again, I think that’s why – so the question was what’s the growth plans for the business and if we don’t grow at the same rate as mobile, are we going to become insignificant. I don’t know what words he used, but – and just to help things out what I said is that this market is growing at a mid single digit rate and we’d like to grow faster than the market. The market doesn’t really support the explosive growth, as you might see in the mobile market, and so we are actively engaged in M&A activities similar to the recent CAP Wireless acquisition, where we can find ways to leverage our technology into higher revenue streams with really crazy great products.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yeah.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yes.

Unidentified Analyst

Read the question.

Ralph Quinsey

We started to see orders for China Mobile rollout. Now it’s hard for me to say exactly where our products go into what systems and where they go, because most of our customers are obviously, in the international scene. but my assumption is based on some of the last couple of quarters, so my assumption is yes.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Not sampling.

Steve Buhaly

So we’ll probably take one more question, if there is one more question, then we have to move on, if not, we will – what’s next, a break?

Unidentified Analyst

Yes, break [Question Inaudible].

Steve Buhaly

So let me give you the microphone, so people will know what’s going on.

Ralph Quinsey

Yes. So we have time for about 15, 20-minute break and then we’ll come back [indiscernible]

Steve Buhaly

Thank you.

[Break-out Session]

Tim Dunn

Okay. Well, I’m Tim Dunn and I’m the General Manager for the mobile devices business. And I’m going to break the presentation down into three sections, mainly we are going to talk about the key trends, talk about what's happening in technology and products, and then talk a bit about our strategy and give you an example, and we actually put some shown and tell out in the hall ways, so if you guys want to take a look, it gives you a sense of what's really happening for example, we talk about integrated modules because that’s really what we’re seeing as sort the hard part of market going forward. So we kind of key three messages that I want to touch on today. First of all, the content RF content is expanding rapidly especially in certain areas. And we are seeing very rapid growth in the number of bands, we’re seeing growth in overall content. And I think, we’re in a great position to take advantage of that. And filters, which actually used to be, kind of all news have become much more important.

And what's happening is it – that there is a lot of activity going on to reallocate spectrum and bands that used to be easier to produce are now much tougher. I’ll talk a little bit about that, and as the market is evolving and you pack more and more content into the phones, there is a greater need for integration. And actually, this used to be kind of a head wind we used to run into, because TriQuint has been pushing integration for a while.

And we have some customers that has embraced it and you see it use broadly, in fact they adopt the entire architecture. But a lot of the customers for a long time really focused on to commoditization. They wanted a lot of discrete parts, they wanted to mix and match. As we moved the things like [indiscernible] and more band count that has changed. Right?

So let’s look at you know what's happening in the market. Couple of key trends, first of all the move to smart phones is continuing, not a big surprise, but when you get outside in the other regions, one of the big things you see is there is a move from regional based phones to phones with more bands.

And as you role out things like LTE and so forth, you end up with these issues of bands overlapping. And for example, 2.4 gigahertz wireless lines its right on top of some other band. And it’s so close now that it creates a new opportunity for a specialty filter, right that is now going into all next generation phones and that filter happens to be a BAW device. Right?

And so having that combination is important and again, phones that are feature phones today 2G, 3G, feature phones are converting over to smart phones. But in the same time, they are getting this increase filter content.

The other big transition that’s driving this is the move to LTE and you see the adoption rates the unit volume going up rapidly and from what we are seeing the move to LTE is much faster than the move towards the 3G. In 3G there was a lot of talk for a long time, but we shift our time of 2G devices. Right, we actually still shift 2G devices. Those phones are all being converted over into 3G and then 4G, but the adoption rate is much faster and the technology the interest in the technology is increasing rapidly too.

Ralph commented that the carriers are now coming to us, saying we need this capability to be able to actually get phones out into the market. And there are a couple of players who have the ability to produce these high performance filters and TriQuint’s in the special place being able to do that. So that’s a second big factor, we got more bands, we got the move to LTE, right.

And what's happening is this that you see this need for huge range of filters, now TriQuint produces both soft filters which are the older filters that where very common and in all the deployment. We also have TC-SAW, which is the ability to handle a temperature variation. So what happens, just to understand why that is important is as you pack the channels closer and closer together, when a filter heats up, it tends to shift slightly. And to the past it didn’t matter because there was nothing next to it. But as you try and grab these little slivers of spectrum, you can’t handle this, the temperature variation anymore. And it happens even more so up in the BAW range, right. And the nice thing about this technology TriQuint has is that it doesn't move very much. The BAW technology is very stable.

And one of the questions we ask is ‘we are going to ask why don’t you just build everything at BAW, right, why do you even deal with SAW? Well, the way this works is as you go up in frequency, die size goes down and feature size goes down and the SAW devices which were very cheap to make right become difficult to produce right, but if you go the other way and try and push your BAW filters down on here, the die size is so big, it’s not economically feasible to do it, so you can leave that combination of BAW and SAW to be able to produce these complex modules.

So let’s look at one particular issue right, with the deployment now of these TDD bans in Asia you have a new problem the 2.4 gigahertz spectrum sits right on top of it. And especially as they put more and more radios in what we are seeing is that in addition to selling of a 2.4 gigahertz power amplifier you gets to start selling them now these co-existence filters and in fact the co-existence market is becoming much more interesting to us than power amplifier because there is six players who can build the power amplifiers right, but there are only a couple of players who can do the co-existence filters.

This is another a graphic of it, it gives you just to look at how compressed things are and what’s happening is that these new bands that are coming along like Band 20, Band 26 they sit on top of existing frequencies.

Now what Band 26 is here is Band 5 very popular band around for a long time and you can see the separation between that the other channels, there is lots of room, you could use a commodity filter for that. Band 26 tries to broaden that and take advantage of more of the bandwidth, but you get it in narrower channel; that requires a tougher filter and so old spectrum that used to use these commodity SAW now requires higher performance filters and you can see over here right Band 2 that’s a very popular band in the U.S. is moving to Band 25 and that’s pacing is very tight and then you put 39 on top of it globally and all of a sudden you need all the new solid filters right.

So this change is happening very rapidly, you also see Band 7 how tight it is and it is compressed in between Band 38, that’s a Wi-Fi stuff so that’s really what we are seeing is that these bands that used to be easy to produce using SAW filters right are much tougher now and that’s why it was driving the market towards temperature condensation because you can’t move the frequency over and just a need for the higher bandwidth.

The other big trend that we are seeing is this concept of carrier aggregation and just at a high level there is a lot of different nuances this to this, but basically what you are doing is you are taking in the past you have one band right your are trying to take advantage of the much bandwidth within that band as you can. Now what you are able to is grab two different channels. They could be completely different in terms of spectrum right, Band 2 and Band 4 and you aggregate them together to a build a bigger pipe and this is where things are going out and it’s going to start with received base carrier aggregation and the next thing will be transmitter base carrier aggregation and when you are doing transmitter base you’ve also have the complication of you are transmitting two signals out of two power amplifiers through two different filter chains. And so that’s going to drive the need for even more content and so for the foreseeable future, this offers just tremendous opportunity.

Beyond that there is work now with 3.5 gigahertz and even beyond at 5 gigahertz and so again ideally suited to the power technology that TriQuint has produced, okay. And so if you look at all of this together, you say okay we have got this precious spectrum that’s out there, they are cramming more and more slices into it, it’s been deployed very rapidly around the world and there is a couple of key technologies that will enable this transition, right one of them being BAW.

The other piece of it is it with all these bands expanding right, it’s becoming tougher and tougher to fit the content into a single phone board and if you are using discrete unique power amplifiers, it becomes impossible and so you have to aggregate power amplifiers together into what are called broadband devices and I will give you a look at what some of what it’s coming along there.

But let’s just take a look at what’s happening in terms of RF content in a phone right it used to be that a typical 3G phone right few SAW filters a lot of cases you could do like a Band 2 in-SAW because you didn’t have the problem of the adjacent channels except the only area where you absolutely had to have BAW for Band 2 was with Verizon, because their performance requirements were tougher, but even Verizon moved to this 3G standard. Power amplifiers you have the 2G and the 3G section, some switches and so forth, WiFi 2.4 gigahertz, WiFi no issues with coexistence right. BAW cost of just under $4, that’s in a 3G phone multi-band 3G phone, but as you go up to regional phones and globally roaming phones, and you move to things like TV right over in Asia or Band 7 right, you end up with this huge increase in BAW content. And then the other piece that happens is the WiFi. You go from 2.4 gigahertz, you’re adding 5 gigahertz and also you need the co-existence.

So the opportunity, and some of the new phones were actually getting Dual Channel MIMO and they will mean two sets of these co-existence phones. Some of the new phones that are coming out now may have 11 bands right, in them. And we don’t see that going backwards right.

So let’s talk a little bit about the SIM technologies right, TriQuint has both SAW and BAW, right we talk a lot about BAW. The nice thing about the technology, we use is it’s called a solidly mounted resonator technology, basically it’s a bulk piece of silicon. We create these special metal layers. We have a thin piezo layer there that we tune and all of the filtering happens in the bulk of the substrate up and down, okay.

The nice thing again about our technology is very scalable. SAW on the other hand, you put this patterned metal across the surface and the way it travels up and down this way and in the process separates out the signals that you want from the ones you know and again what happens is, as you drive up in frequency trying to move SAW up into the bar region, these are the metal layer, these metal stripes get so close together they become impossible to produce. And you have to jump over to the bar to get the higher frequencies. And a lot of our traditional filter competitors lack the bar capability right, that you need four these new bands, okay.

Another, like I said, important thing about this technology and in particular BAW technology is, you are tying to pick out, the signal is coming in, when – the airwaves that completely follow other signals right, and you need to make sure you can get that narrow signal and that you can handle temperature variation.

That wasn’t a problem in the past pass because the channels were so far apart. That’s not the way it will be going forward and as you begin to grab multiple channels and hold them together with carrier aggregation, you have to have very precise filter, right. So we see just a tremendous amount of interest right now and up tick, right, okay. So let’s talk a little bit about integration right. Okay

This is just sort of a look at what’s happened over time with the number of bands that we produced right, okay. Originally, we had a 5x5 module that had just GSM engine, that’s all we can produce three big dot, right. Over time what’s happened is we’ve gone to more bands. We had to grow the package. We added bands and in this step we went to a broadband, single broadband amplifier. So you reduced the PA content where you continue to expand the filter content, right.

And then the new ones here right. So the new MMPAs support a tremendous amount of bands with a relatively small amount of content, its actually a blow-up of that at this generation device out in the hallway. And this thing has 11 bands a 3G, 4G plus the cloud band in almost the same space as we were doing, right, just the edge section. And what’s important about this is it becomes a key building block when you start integrating all the features, right.

The other thing is we can take slices of this product, these various bands create additional configurations there, right. Okay.

So TriQuint produces a whole a family of MMPAs now that are just rolling out and one other things that is really important is the efficiency battery life. There is a lot of talk about CMOS PAs and CMOS PA is taking over the world. The reality is, if you try and save say $0.50 on a PA or a $0.25on a PA and you have to spend two extra dollars on a larger battery that may not even fit in making the phone. It’s not a good tradeoff. And so as you get into these multiband configurations we just don’t see CMOS PA as being successful today. Not that there isn’t a place for CMOS because again the big surprise that I think you guys would see is that a lot of the content is in fact silicon based. Switches now are all SOI. We get them from an external foundry, right. We also get all of our CMOS externally. One of the unique things that TriQuint has ability to do is take those wafers and bring them in-house, bump them so we can flip them into these dense modules. Okay.

So that’s the evolution of the MMPAs. Another technology or a product space that TriQuint has been particularly successful in is the integration of the filters with the power amplifier, something we call the PA duplexer. And what you see is you see the evolution of this technology, right. We introduce this back the end of 2006 in this form factor. We were able to reduce the size in about three generations down to a fraction of what it was as a single band.

Then we went to dual band and now we do quad band, right, with one broadband power amplifier and it can support any number of bands, right, and that’s the generation of technology that you are seeing in the latest phones is this broadband capability, multiple power amplifiers all integrated into a single device. And there is a question about, well, can you just use an off-the-shelf PA and do that. You really can’t. The performance required to win those sockets, right, and do that level of integration for the product that may last nine months to 12 months in terms of the life span and then it’s evolving to get the next generation technology. You have to have the ability to do that integration simultaneously, right. And deliver high enough performance to overcome the fact that those power amplifiers are now broadband, right. Okay.

So one of the things that TriQuint is know for, right, and then we talked about here is that the fact we do have this portfolio of technologies that’s available for addressing these issues. And again looking backwards there was a headwind to try and get acceptance of this basically because of the need to commodities all these products. But what’s happening is that there is just a general acceptance of the factor that we’re going to have to integrate especially with a need for carry our litigation, especially with the need for all these bands into very small form factors, right. And so, again TriQuint, we think is uniquely positioned because all of these key technologies that we have put in place allow us to do this level of integration, right. And that you are now able take the filters, pair them up with high performance broadband amplifiers you can address this next wave of phones are coming out. Okay.

So let’s look at a couple of the technologies, right. So we talk about these things. One of them is VI-HAM, right. We used to develop our devices using HBT and PHEMT. We have since integrated those into a single package that allows you to get the size down considerably and improve the performance and at the same time we went from what were wire bonded parts to these flip-chip devices. All these wire bonds, they become RF elements in the circuit. They’re hard to reproduce, right, and there is extra an manufacturing step. We can take these die, flip them over, use it standard pick and place machine, wave order and we’re done, just like we do all the SMTs

The other thing that flip-chip gives us is when this, all that active area is spaced up you get a tremendous amount heat building upon the wafer. If you flip it over it actually becomes a great heat sink to send it straight down through the package and this is a thermal image of a competitive part. You can see that the output stages are very hot. Those are the output stages of the TriQuint part. You can barely see them, because you’re pulling all the heat right out of the device. And then the newest think that we just really ramped into a high volume this year is this wafer level filter technology.

Today we’re shipping it on SAW. We ship it on our standard SAW and TC SAW. There are some images of it out there. This allows you to do the same thing, flip the device over and get rid of an entire packing step. We used to have ceramic packages with an air cavity around them. They were big and expensive relatively speaking, right. Now you can get the footprint down considerably.

The BAW devices we had actually are still wire bonded, right. BAW has proven to be a little bit tougher to flip-chip because of thermal issues, but the new devices that come out at the beginning of next year will use flip chip for BAW as well and that gives you the ability to flip the devices over, pack them in a very small phone pack and do these broadband configurations, okay.

So kind of some summary points right; tremendous growth opportunities as LTE and WiFi proliferate. 2.4 gigahertz WiFi in terms of the actual devices themselves are sort of old news. I think all of us probably have tons of 2.4 gigahertz devices at home, right, all integrated into cell phones, the problem is that when you overlay these new bands that are coming, all of a sudden it creates an opportunity, because that 2.4 gigahertz can flex and in some cases you’ll see that they have two channels and so it doubles that content, all right.

LTE just all the bands coming, in fact that they are refactoring the existing bands squeezing more space out. They’re trying to get rid of use that, use to be the right space, take advantage of it and it causes, to give you an example right now, Band 8 commodity band available broadly in the world. The new Band 8s or all TC, because they refractor that band, squeezing another one up against, also created a new requirement for new filter technology and that technology is not broadly available, right, okay.

Our focus is, we made the decision a couple of years ago, when we saw this massive expansion in commodity products, right with many competitors that the best thing to do is to move to differentiated products, make the investments, right. Size in performance really driving what’s going on now, right, we have a great alignment with our chipset partners like we work with the leaders there and our focus is really on higher performance, okay.

So let me open it up to Q&A.

Question-and-Answer Session

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yes so you actually will get both.

Unidentified Company Representative

Repeat the question

Ralph Quinsey

Yes I’m sorry. Question is, as move to carrier aggregation, right and initially it will be received base so you’ll be receiving bandwidth from two different areas in the spectrum and then it moves to transmit base, where you actually can transmit into two different areas. You many in fact transmit to two different cell towers, which is kind of cool, but will that cause? It causes a couple of things, first of all, switching will go up and then it goes up partly because you’re going to broadband amplifiers, right.

When you have used to be, you had a single amplifier and it bolted up to a single diplexer. Now you have an amplifier that’s broadband, it goes into a switch that switch is out to array of filters, if you will.

What will happen, so that’s the first step and as you move to carrier aggregation, you are aggregating channels that are close to each other, creates a couple of opportunities initially. One, is a sum of the channels don’t work well together in a single module, too much noise in the appearance and so it’ll force kind of a – it is a set of an alignment around today where they integrate the PAs together, it will shift the alignment to integrating broadband PAs with the filters as a way of getting that integration right.

The other opportunity downstream when you get to transmit is that you begin to then, when you have transmit aggregation you actually you can do a power amplifiers going at the same time.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

So we’re seeing interest for 2015 in terms of chipset development and the architectures we’re working on today are looking out trying to comprehend that.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yes.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yes, so question is the lack of filters are hurdle not today? And I think that if you look backwards, there are a lot of sources for broad – for this commodity SAW devices and if you look at where some of the people who don’t have the technology have been successful, it has been in those segments, low band, right, high band, some of those products. If you look at what has required BAW the end grade of products largely come from two players, the two that have the scale in terms of manufacturing capacity as well as the technology. There are other people investing in the technology right, there is a competitor with us who does the SMR like we do there is an FBAR contingent, but in terms of actually having enough capacity to keep up and to have maturity in terms of the process. If you do a tear down today, I can tell you, you won’t find the majority of the phones integrated modules that include high bands from anybody but two players.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

I probably shouldn’t talk about a specific phone or not. I can tell you there are sensitive. Yeah the question is, does the competitors or they do have access to say TC-SAW, in fact they do, there is one supplier globally and I will turn the supplier that TriQuint for TC-SAW, that vendor though does not have the IP to do BAW and have limited amount of capacity which is in fact a bit of a challenge right now.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Pardon?

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yeah. You know more than I do have. Yeah.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Okay. So the question is, if you can get away from integrated modules, right, what does this BAW market look like for TriQuint outside kind of in more of broad based.

So you look at where we are today, we are seeing actually fairly rapid growth in terms of BAW, discreet BAW filter sales, now we think that this is a good opportunity in the near term Band 7 is one area the Wi-Fi codes resistance filters, did you tear down the new phones you will see a lot of Wi-Fi code existence filters like them. Those bolts are proving to be good opportunities right. 38, 40 discreet filters right for the TDLTE roll out big opportunities for us, right.

And next year, we think there will be a really good opportunity. In fact what we are able to do which is nice is take our assembly factory that we have for filters that was doing assembly for discreet SAW filters, we have converted it to do assembly for discrete BAW filters and so those were rolled out, beyond that many of the new products take those discrete filters, coupled them with a power amplifier, right and delivers a single channel Band 7 right or a broadband tower amplifier that does 738, 740 etcetera and allows you to add that global capability to an existing chip set.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yeah. So the question is how do you deal with the competitive, I think the competitive pressure on the PA side was the need to move towards higher integration module. I mean in fact it really wasn’t big issue, because TriQuint is known for high performance products, great technology, but if you look at say there is three by three Qualcomm opportunity for power amplifiers which is probably one of the largest opportunities in the last five years, a lot of competition, very aggressive pricing, right and there was a resistance integrating the filter codes, right because once we integrate the filters there, it was unique capability there.

That has changed, because the complexity has gone up by an order of magnitude and those power amplifiers are going from discrete to broadband and so you have two things going on and there is the integration of SLI switching in CMOS, so we are just seeing that there is much greater acceptance today in the market for these integrated devices.

In addition, there are these adjacent markets like WiFi by coexistence, which didn’t really exist a year ago. And now the demand is hundreds of millions of devices, right. In the next couple of years that opportunity there by itself for TriQuint will surpass the opportunity.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

We work with, the question is what’s the exposure in Media Tech, we work with them on reference designs, in fact we’re using both for passive devices and active devices. And again that market has been slower to evolve to 4G and to move beyond just regional base designs. That’s beginning to happen now as they, as you see higher end phones coming out with Media Tech chip sets. Okay, question.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Okay. The question is what’s the difference.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yeah so the question is what is the difference between the BAW technology and the TriQuint technology? We both kind of generally talk about the technology as BAW technology, ours’ is SMR, Solidly-Mounted Resonator. Basically what it is, is we use a standard silicon wafer right, and we patterned metal and do special treatment of that. But it’s a solid device, there is no air gap. We do need to put a package over the top of it, because you need an air space. But you don’t have anything floating, right. And the nice thing about that technology is that it’s very scalable, we’ve been able to come up with a recipe that is, we can add additional capacity and we don’t have to fight with getting yields up, all right. Our device is typically ramped very well that you will have a high volume and they are very reliable. It’s a very durable filter, right. It doesn’t have some of the problems that software traditionally have with moisture and what not. They are passivated devices.

And we think overtime, if you look at the economies, that there is an advantage to the technology. Now from a performance standpoint, there are two big factors to deal with it. First of all, insertion loss which is how much of the signal is actually absorbed by the filter itself. And then the other factor is, how much do they drift over temperature? Nice thing about SMR is, we’ve been able to increase or decrease the insertion loss, getting more of the signal through, but the wafer, the filters are rock solid, they don’t move. So we have better temperature performance and as we continue to improve the insertion loss is becoming a very competitive filter. First certain segments, we can’t tolerate moment, it’s absolutely the only one that’s used right band 38, 40 some of these new filters.

The FR technology uses an air cavity on both upper and lower. So you have a floating membrane or a resonator if you will, right. It’s been in production a long time and I think that where it suffers is because it doesn’t have – has air gap on both sides. And you do have problem with temperature drift, right. And so again when we’re being successful is when you can’t tolerate that. And I think our process scales very nicely, we use standard CMOS processing tools and we buy bulk CMOS wafers, which is really great, right, bulk silicon wafers. So it’s taken a lot to perfect the recipe, but I think we have some of the best innovators in the business and I think we’ve got a road ahead precise and performance.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yeah okay and so the question was the IP well protected and I just wanted to remind the Group that we went through a long legal battle some years ago with one of our competitors of Avago and had negotiated, I think, a very broad, long-lived, cross licensing agreements and I think we have a very, very strong position in IP and I think that Avago has a very rich strong position in IP, between the two of us much stronger than anybody on the planet.

Unidentified Analyst

The question is the third competitor going to use that FR or SMR?

Unidentified Company Representative

The question is on the other two competitors and what do they use SMR or FR? One of them uses SMR, one of them uses FR.

Unidentified Company Representative

Yes question.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

Yes, so that is not the – so question is just are we seeing competition for the high bands from our traditional PA competitors. It’s not that they’re not trying, right. And there will be some opportunity for them. The question is that do you have the scale and the performance to win these really important sockets and today we haven’t seen it.

Unidentified Analyst

[Question Inaudible]

Ralph Quinsey

It’s both. If you look at that where that – TriQuint acquired this IP a number of years ago, at the same time, we started working back than to try and get it into production in high volume for hindsight, it’s because the – sense was this is going to be critical as frequency scales up, right? And so to get this to be – while I say it’s a simple device to manufacture, I’m simple, that’s an overstatement.

It actually took a long time to get the recipe right and we do have a competitor that tried to do this, spent years on it somewhat badly and had huge yield problems. The secrete is in and you basically layer the medal, you put the passivation layer on top and then you have to uniquely trim each guy on the way for in a way to tune them.

So if you think about it right, you basically create filter, you push the frequency past the point at where it needs to be, right in terms of both processing steps and then you turn it backwards and right one is right where it supposed to be, it’s the option there, because it is trim too far you created a new filter that you can’t use, right. And that is really the magic of how do you do that with 95% yield and reliability so forth and TriQuint has perfected that process and now what we’re able to do is, take it and roll it out to the new bands. We did it on band two, expanded it to band 25, we’ve added 143, 38, 47. and so I think where – if you look at where the SMR technology is today, it’s performing about two generations behind.

F-bar we see about the same thing, because we’ve benchmarked the filters out there. And it’s two factor right, so it’s inserting a lost, right – such a series of resistants and then this temperature drift, because even if you have a phone, filter that you can sample at room temperature, if you put it into a temperature to chamber and nothing moves, you just interfered with the adjacent band and you disqualified the phone. Yes.

Unidentified Analyst

[Question Inaudible]

Steve Buhaly

Yes. So the question is – that has TDD rolls out in China, there are a lot of local suppliers, right. Most of those companies are there’s kind of two groups in what we see, there is a group that’s trying to do differentiated smartphones that are really tailored for that market. If you look at a phone like can Opo phone, Coolpad and whatnot, there is also a broad based that sells low cost phones kind of globally in the whole Asia – Asia market, right. Most every one of our customers who are using our transmit power modules in the past.

So we’re all trying to make that transition to adding value, because those phones – those 2G, 3G phones are so inexpensive that even the low gap, low cost cut can’t make any money, all of these people are looking at the TV filters, the Band 7 filters today, because once they start rolling that. My sense is that you’re going to have regional phones that are going to be tailored for that market. And what we understand is that the government is just getting ready to introduce to roll out the licenses, which will fuel there’s a whole backlog of equipment that’s teed up to be deployed and that will start pulling the phones through, right.

Unidentified Analyst

[Question Inaudible]

Steve Buhaly

No it is, it’s good question, right. again, for very critical bands and you can see that chart where they fact them in, there are new bands coming along and try to think, Band 30 I think is one, right? Where they are so close together that you’ve actually even standard to both bar as a slight amount of drift and you need it has to be firmly anchored, so yeah, there is opportunity for that. Yes, question.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Okay. So the question is, what are our thought on CMOS PAs and where do we think they fit in the market. And I’ll give you – this is my view, right. First of all, CMOS absolutely has a place. You’ll be surprised how much CMOS and SOI we use in our devices today. So we’re pretty agnostic about it. The problem is that every device we’ve built in CMOS, you are about two generations behind on efficiency and it’s okay if you’re trying to build low-end phone, right. You’re trying to do 2G, 3G, low-end regional phone and you need the cheapest thing possible and you are not that worried about that extra battery life. So while you think you can see it play as if you think about – we used to have these things called transmit, what we call the transmit module where you take the power amplifier and a 2G switch, integrate them together. It became a standard for all 2G phones. Everything went into an integrated module.

If you think about where CMOS could play and where this sort of all-in-one product could fit is I could see the device that is CMOS PA, commodity bands, SAW bands integrated into a regional phone with a switch like a quad-band, really trying to hit a price point and again battery life may not be critical. Where I have a problem with some of the newer devices, right, is that if you try and do an 11 band or 10 band module, right, you’re really targeting a world phone or at least one that’s going to roam somewhat globally. That’s not a cheap phone and that’s the one where battery life is going to be important, range is going to be important. So the other issue is that there is a reliability, we’ve learned a lot about how to integrate filters into modules. It’s not a simple thing, right.

If you look at these pictures and you see all those die. If each one of those die is yielding at 98%, individually that maybe great, but when you put it into a module and they’re yielding 98% you start picking multiply them together, proceeding at a module that yields 50%. That’s the real problem. You can’t handle the economics of that. So there is a limiter and I think that the feedback that I’ve gotten is there’s both a manufacturing issue, right, and a performance issue, but for the low-end of the market and that’s why I think that some of these products are actually misplaced.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes. The question is, could I envision CMOS PA with regional bands for TDD. Yes and no. The filters unlikely will be commodity filters, right, and but the power amplifier might be, right, and there will certainly be a bunch of CMOS in there because there is going to be a COMOS controller and there is going to be a CMOS switch. If you again look at the size, the die size, the gas die are getting very, very small because all of the logic circuits and everything have already been pulled out and put in CMOS. It’s part of the issue actually with that we’re seeing in terms of a transition that you don’t see if you are kind of looking at surfaces that we have outsourced a whole lot of that new technology, right. We buy the switches externally now. We buy to get the CMOS controllers. Now we design them ourselves with external foundries, but one of the unique things we can do is we bring those wafers back in and we can bump them and then integrate them into the modules. Yes questions.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So the question is what extent do we think TC-SAW will encroach on BAW. TC right now has really good application in a couple of areas, but BAW has great temperature performance capability and the ability to go higher in frequency. The other thing is that the nice thing about the BAW process that we do is it’s really very scalable. So we can actually push it down in frequency and tolerate the die size a bit. I think we’ll use TC where we have to and we’ll use BAW everywhere else. Again because it just is a – the process we developed scales nicely

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes the question is do we think that the SAW base technologies will involve and incur SAW and BAW base. To some degree sure that, that can happen you can produce a better and better SAW device TC SAW is an example right. it used to be that we had terrible temperature drift with standard SAW so we created TC SAW. The issue though that you did, that I think it’s changed and where the landscape is different is that it’s not the same spectrum anymore right. You just took and made everything, packed everything closer together and so that changed the landscape and it makes it even harder.

So even filters that we use to use commodity SAW for we actually have to now use TC SAW because by Band 8 you got remember the number right got re-factored in the Band 25. sorry one of them I’m sorry. 26, sorry 26 and so and in doing you all of a sudden just created what used to be an easy filter to produce is now difficult filter and you see a Band 8, the new Band 8 that are coming out are not the cheap Band 8 of the past.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes the question is what are the pricing trans and terms of premium filters and what does carrier aggregation. So clearly you know there is constant pressure, right. and as if your selling a filter that is only used and say 5% of the phones. You’re going to get a premium for that filter above what a bulk volume filter would be. As these filters move into very high volume certainly the prices will come down just because you get the economies a scale. The customers are expecting, they are deploying it in every phone, you open up some of the new phones and the amount of filter content exceeds the rest of the [indiscernible] right in terms of value and so there is that pressure again. Same time the number of Bands is expanding and the new thing about going to wafer level package we eliminate the whole packaging step. You can pack in more die into a single wafer right and so again as this pricing pressure comes to us which we know it will, we also have steps to mitigate improve the cost structure. And the cost of the BAW products and the yield both of them are in a great position right now.

Unidentified Company Representative

Tim I want to go back to the question about TC SAW migrating into traditional BAW and just point out what you said earlier is that as we move up in frequency the fine geometry is required to build a SAW product it is a physical wall, all right so for the high frequency Bands. It is very unlikely to see the technology migrate into a higher frequencies unless you can also measures things getting better would be a very expensive equipment set to get the fine geometry synergies in the bleeding edges of traditional CMOS so unlikely it will migrate into the higher Bands.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

I don’t see necessary the question is to we see a bump in pricing as carrier aggregation unfolds, what really happens is you get this huge increasing demand right. Again in the past you only had deploy this, you only put these specialty filters in if you had to, right, but what happen is that as you go to carrier aggregation all of a sudden you’re grabbing two Bands right, trying to run them at the same time and in the module or in the cell phone and you just need tighter filtering for it because at the same time they can’t over – because if one of them is shutdown and drifts over the top of the other one it doesn’t really matter but now they are both active.

Unidentified Company Representative

So just to add to that I think what investors should think about the transition to carrier aggregation, it’s moving some of the SAW base commodity capability in to the region of higher performance premium filters whether it is TC SAW or BAW that requirement. And so it has so much added filters for carrier aggregation there will be some because of coexistence issue, but its more of transition away from a commodity technology to more of a premium technology because of the high performance requirements and that of course there will be added switching legs in the receiving side, because its just more Bands to deal with simultaneously and eventually with transit side added amplifier stages. And so those are the three ways of transition with carrier aggregation over the next several years.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So the question was tablet Fab [ph] late model our using an outsourced supplier for some of our technologies what would it take to get there? What are some of the pitfalls to get there? And in fact as Tim has described, we are making that transition maybe not in a way that you’re highlighting, but as we transitioned using more SOI, more CMOS in our integrated solutions, it is shifting demand away from internal factories to external factories. And that obviously is putting pressure on unitization, the SOI transition clearly is loaded requirement for what we used to build a lot of PHEMT [ph] switches.

Now as we look forward, what are some of the pitfalls or headwinds for that kind of transition? As I mentioned earlier, the big issues are just looking at the cash cost of a transition like that and the overall risk of the transition, we have a very rapid product development cycle that is moving more and more to integration, is going to rely more and more on some of these technologies we’ve talked about it, that we’ve been developing over the years, wafer level packaging, copper pump interconnect, et cetera.

If we decide to look more like the competition, all right and use standard technologies and not offer the performance characteristics that we offer in the future, then I believe we’ll look less attractive it’s not our strategy, our strategy is to attract customers by providing them an advantage in performance size, primarily mobile device business that’s battery life. And clearly size is getting up to be a bigger and bigger issue. So I think they would add great risk to our ability to generate revenue. And from a cash perspective I think it’s pretty clear to understand that building one more wafer in our factories, is clearly less expensive from a cash perspective than going and buying a wafer externally.

Now that doesn’t mean that we don't acknowledge these seasonality in our business and an actually an increased demand of seasonality than we saw even three years ago, four years ago. As the market revenue gets more concentrated, to a few large successful players, and more concentrated around big product launches, it’s exaggerating the seasonality. And we need to address that we need to have a strategy to address that. Right now putting all of our eggs in one basket, one factory and outsourcing some portion of that to take the flex, when I make the trade off between the benefits of that and the cost, cash costs and risks it still doesn’t work for me. It doesn’t mean that I am going to keep looking at other opportunities, but it doesn’t work.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes the question was about whether we could have all those capabilities put into one of our internal factories. And then the follow-on that was, the question really was, is the issue that the train is moving so fast it’s hard to change, or the car is moving so fast it’s hard to change the tires, while you are driving that car, and that creates risk.

Yes that’s a big part of it. The cost associated with it is, it’s quite expensive to decommission the tool, all right. Move the tool, reinstall that tool in another location qualify that too, that’s not an insignificant part of the cost structure in semiconductor manufacturing. And then for a fab light strategy to work effectively, you need to have a very similar, if not duplicate strategy in your release valve, other fab, right and that takes time and cost and investment to develop that. And so again [indiscernible] and I look at the benefits of that type of strategy currently compared to the cost and the risks in the revenue stream it doesn’t pan out, yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes, it’s a very long question that basically asked, and tell me if I don’t get this right. If you are not going to do the strategy that some of our competition use that light strategy, where you continue to suffer from the ups and downs seasonality. And certainly in think seasonality and the ups and downs will affect our entire industry including our competition.

Each of us will choose a different way to mitigate that, I think the right way to think about how TriQuint will mitigate that. As we’ll continue to try to invest in technologies that create value and stickiness, long-term sustainability, and then work with our partners and our customers industries to find creative ways to mitigate the up and down of the cycle.

That type of work is hard work to do, right, there is heavy listing that, but I think that’s the better way to solve the problem because it lowers the cost at the entire supply chain, It is supposed to – I can say just adding cash cost to us through a lot – there’ve been a lot of risk to outsource a portion of our capacity. Because it seems to be working for somebody else in space, I mean it just not necessary the right answer. Robert?

Okay go ahead.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes, great question, a suggestion actually would it make a lot of sense to increase the business that is not seasonal in particular our defense and aerospace position. Yes, we absolutely would like to grow that business as fast as we can in many of those markets we have a much higher share position so to grow faster than the market is more difficult than where a low share position. I’m sorry.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So the question is what permitting the faster growth of the infrastructure business. The nature of the infrastructure business is relatively slow growth comparatively to mobile slow growth market. Just the inherent characteristics of business, base station we no longer see green fields of new infrastructure and so your base station being just dumped in more incrementally added, we’re seeing a nice surge now in China. But compared to the growth in the RF in mobile, it is to work some more. Robert.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes, so the question is if and when we grow into the capacity footprint we have what’s the strategy behind that. And like I said I think there are many ways to address and certainly feathering in a fab-lite capacity is not out of the question.

Right, not of the question but is, risk and the cost have associated is more with a rapid transition, rapid force transition will create a risk and the cost. But as we I have feathered in, other technologies that certainly is a possibility. I mean, there’s a general perception perhaps that we are focused on one particular strategy, because we like it from reason. We’re focused on the same thing that many of the people in this room are focused on. We’re trying to find creative ways to increase shareholder wealth and we’re open to all options, all options. But we can debate about the practicality and – what’s it applicable for. But we are open to all options it’s not that we’re – we think that one is better than the other, it’s just we’re trying to find the best way to create shareholder value.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes the question was, comparing us with some competitors and again different competitors have different strategies, different overall footprints on what they sell and how they sell it. And so we were to dig into the comparisons to do a fair comparison. Yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes so the question was, if they, why not, couple of suggestions of taking piece of the business whether it is the PA on the filter or what ever and selling it to the competitors and then buying it back. And then trying to integrate it and generate productive revenue that way. It sounds complicated I appreciate the suggestion, I will make sure what the ultimate advantage there is, may be there is. But I’m sure there is many different scenarios we can talk about at a very high level. It’s really digging into the detail to figure out the benefits, we are having the benefits of any changes we make in our business model or asset-based versus the risks and the cost. Yes is very good.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes the question is visibility into flagship models in the upcoming year 2014. What’s our visibility? And I would say it feels very immense like it did last year, all right. We start with a good participation with our customers, our major customers and the opportunities for the next cycle it’s a fairly wide pipe. And as we work through it we gain confidence of where we are at. And I try to give indication to the public markets of where we are at. And I feel very much where I felt we were last year. And we had a very good second half this year, compared to first half of this year we took our lots of $0.24 in the first half of the year we are trying to get a profit of 29% based on our guidance in the second half. So I think at least in that time period is very good performance. I’m not ready to guide about any specifics, I mean at that point on where 2014 is going to look like as far as content or that. But I feel good we’re in the mix, I feel very good about the opportunities far as 2014.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So in many cases the Q4 and Q1, time period, those design wins are by and large done. With the exception of these coexistence filters and some of the other discreet filters in the broad market, I think we’re up to north of 10 customers for these types of products now. And so that background continues to be a tail win. But the big wins and losses in the hard is designing work for Q4 and Q1 are pretty much in the back, all right. There are opportunities in again starting in the Q2, Q3, Q4 after [ph] this and we are in next for those.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Generally the best metric, question is how we do think about under utilization charges, how does those apply with the revenue of volume the best rule of thumb and it’s a rough rule of thumb, is its about a 50% fall through both ways, that swing is driven by utilization and the rule only works when there is real inventory build or burn. i.e. inventory factory activity is reflective of the top line.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes, so I want to stay away guiding Q1 at this point and so I’m not going to answer the question but often we’ve do see a modest build in inventory in Q1 as we prepare for a stronger Q2. So really it’s going depend on the book of revenue that we see in Q2 and we’ll certainly know more as we get culture. Yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes the question is, we see this move from dedicated PA to broadband PAs, does that mean you can have a compression of content if you will or probably directly more Wafer capacity. Reality is the transition happens gradually, right you are not going to get massive adaption right in the way, it’s not an overnight thing. We are all ready in that path right; we’ve shopped broadband Power Amplifiers now you know for the last two years. And it’s just becoming more and more acceptable as the efficiency of the amplifiers is better you can go capture more bands. Right the first step we actually made was we integrated two power amplifiers into single die and we stripped out that all of logic content to get the die as small as possible then that die become broadband.

There is actually a little bit of area that you have to add in, because you do have some localized switching on the die itself to fan it out. But you – really the big, addition is the switch is external, but internal you have an input switch that typically is integrated on the die. So, I think what you see is you see more the numbers of bands is really were the opportunity is and when you go to a configuration where before you sold to GS Power Amplifier right Now you can sell them that section which is a unique die, plus the broadband for high and mid low. And so, again its one of these things where probably you are seeing a leveling right big growth, coming from the attach rate of the filters.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yes the question is as you see this carrier is going out and grabbing spectrum from all over the place. do you have broadband amplifiers that cover those ranges? Today we typically have a high, medium and low set of ranges right, so the group of high bands sometime we call them Ultra High Bands group of mid bands group of low bands. We are not at the point now, where we can build a Power Amplifiers that covers everything because typically the way you build these things is it you pick the center point where the band it get the most use and you optimize that one and then you take a little bit of our performance penalty as you moving away from it on either side. As you get too far away, it becomes impractical the efficiency that you take on the adjacent bands gets to be excessive and it justifies in brining in another power.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

It will be a multiple PAs they maybe integrated on single die.

Unidentified Company Representative

I think the best way to look at as far as the transition stepping back is that if the band kind of goes from 4 to 10, 30 rights, you’re not going to have 30 amplifiers now you might have 30 filters but the amplifiers, will probably aggregate around this clumping and they will be a handful or less of broadband amplifiers in one of these complex solutions.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yeah the question was if I could clip a switch and create a configuration that was ideal for our company for manufacturing infrastructure and where would that drive gross margins? And that’s too hypothetical for me and my first inclination is that it would be a flip and answer, I don’t want to do that. Those margins are really very high, because I can think of a creative solution. But let us do hypothetical. I think that it’s good industrial logic to think that fewer factories have less overhead than more factories. No argument with that. I said not only buffet, it’s really about the transitions, because I don’t have a magic switch you just flip it all at once. I do believe that the business will support gross margins and we talked about this in the most recent earnings call that we will be pushing to those 40% level in some quarter next year. We think that that’s doable we think that growth is a big part of that for utilization.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Well, the question was you are comparing our manufacturing footprint or competitors in our margins to our competitors. Is there a scenario that you can – I can is your question I can answer as I get to your questions, quantifies the gross margin. And I guess let me answer this one. If our factories were full, right. If our factories were operating at very full, I think that we would have probably the best gross margins in our space. Right best gross margins in our space.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

I am sorry.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

One of the questions from your answer is five handle implying a 50% gross margin. And again it would be best in the space. I really don’t have that fine of accuracy, but it would be very good margins, if our factories were running at full capacity utilization now in their existing footprint. Yeah.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So the question is without a supply lights or fab light model we never run that harsh and behind the question, because of the seasonality in the market. And again that would just rely on what the market look like at that time and what other schemes we would have to mitigate that type of seasonality. So it was an ideal case.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

So I will just turn the question of ASC to [indiscernible] the law or fast single die. But are you seeing [indiscernible]

Unidentified Company Representative

So there are lot of – yeah the question is are we seeing more bands being pulled in a – we moved in NPA’s, it’s sort of offset not only the integration pressure but the price pressure right. And we’re seeing a couple of things, the discrete PA markets, it’s a tough market, very fair, so right, both for wireless LAN and for 3G, 4G. With the integration right, that integration step due to the opportunity to put more content in, right because before we sell in an HPA now we’re selling in the 3G section that goes with it. Really where the big transition happens is when you start falling the filters there. Because that’s where not only the small size, the incremental performance and so forth becomes really the decision factor. If you’re just building the same MMPA, that every body is building for reference design ultimately it’s a question of time to market and ability to generate the next one quickly. So again I think where it’s going is it we’re getting expansion content, right, which is growing the opportunity but then integration into broadband is shrinking it. And it’s about event, all right?

Unidentified Company Representative

So I’ll take…

Unidentified Company Representative

Take one more and then we’ll…

Unidentified Company Representative

Yes one more question and I’m going wrap up.

Unidentified Analyst

[Question Inaudible]

Unidentified Company Representative

Yeah, so the question was around our revenue capacity with our existing footprint and it’s very depended upon a lot of things, mix and et cetera. But the way we talk about is we think we have about $400 million a quarter, so you are very close to your calculation actually about $600 million more, about $400 million a quarter in capacity for our footprint.

So with that I do want to wrap up. I want to thank everyone for your participation. I want to wrap up with where I started, the three key messages to take away from our recession this morning, return to growth. We have a high-level confidence that we will return to growth. And when we talk about growth, we talk about growth in the bottom line. And I think we will see a substantial improvement in 2014, compared to 2013 in our bottom-line performance. And we appreciate the activity the engagement today, all the good questions and we clearly accept that the challenges in front of us to deliver that growth.

Also strategic positioning, I think that building a company takes time. And we have a lot of effort into what I think is a unique, sustainable, and profitable future. I think we are well positioned strategically. And we do deal with a market that has the seasonality, all right. And so when you look at our seasonality, first half is challenging, the second half is a pretty usually rewarding. And so we tend to look at our business with year-over-year same quarter compares to measure our success. And again we have demonstrated in Q3 very significant, substantial improvement in the year-over-year compare. And I think our guide Q4 reflects that. And I think you’ll see that in subsequent quarters.

And then lastly, leveraged profitability, we have built a business that is based on a great technology and great – crazy great products built in that technology. Just because our industry are out, and there is an interplay between a design and process, more so than other semiconductor businesses. In a digital world as you all know, the model is fundamentally transitioned to a fabulous model and we outsource all of that. When you get into the mix signal analogue world, you see more in source versus outsource and it’s a mix, all right. When you move to an RF, there is great opportunity to create value with the interplay between the process and the design. And TriQuint is our goal, our strategy is to take advantage of that and create better performance to attract more customers and generate better financial performance. That is our task yet to prove and we accept the challenge.

Thank you very much for your participation.

Operator

There will also be a Q&A we will be probably around so if you have questions [indiscernible].

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