TriQuint Semiconductor's CEO Discusses Q1 2014 Results - Earnings Call Transcript

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TriQuint Semiconductor, Inc. (TQNT) Q1 2014 Earnings Conference Call April 23, 2014 4:30 PM ET

Executives

Grant Brown - Director, Investor Relations

Ralph Quincy - President and CEO

Steve Buhaly - Chief Financial Officer

Analysts

Edward Snyder - Charter Equity

Steve Smigie - Raymond James

Quinn Bolton - Needham & Company

Cody Acree

JoAnne Feeney - ABR Investment Strategy

Mike Burton - Brean Capital

Tom Diffely - D.A. Davidson

David Duley - Steelhead Securities

Operator

Ladies and gentlemen, thank you for standing by and welcome to the TriQuint Semiconductor First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Grant Brown. You may begin.

Grant Brown

Thank you, Victoria. Good afternoon, everyone and welcome to our first quarter 2014 conference call. I'm Grant Brown, Director of Investor Relations. With me today are Ralph Quincy, our President and Chief Executive Officer and Steve Buhaly, our Chief Financial Officer.

During the call, we'll make forward-looking statements about TriQuint’s business, our projected financial results and our proposed merger with RFMD. Actual results could differ materially from our projections based on various risk factors including those described in the press release we issued earlier today and our reports on Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission.

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

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

Ralph Quincy

Thanks, Grant. Good afternoon everyone. I'm very encouraged with TriQuint’s overall Q1 results and our progress on key improvement initiatives. In the first quarter we delivered revenue of $177.6 million and a loss of $0.06 per share, both favorable for our guidance, and the later substantial improvement over Q1 of last year. Specifically, cost improvements and better product mix led to year-over-year gross margin increase of approximately 12 percentage points.

Our goals this year include transitioning our mix from legacy to premium level products, improvements in operation efficiency and continued growth in the output of new products with emphasis on infrastructure and defence markets. Looking forward, I expect gross margins to improve with healthy year-over-year comparisons, each quarter of 2014.

The combination of cost reduction initiatives and improved product mix is expected to drive gross margins above 40% on average over the next three quarters. Finally, we continue to execute on key development projects and have maintained a high level of new product output with 36 new product introductions in Q1.

Crowded spectrum, carrier aggregation and expand of value in both our infrastructure and mobile markets. At TriQuint, technology investment fuels our growth and keeps us at the forefront of a constantly changing RF industry. As an example, our Band 13 Duplexer developed on our next generation TC-SAW technology, demonstrates an 80% improvement in temperature compensation performance. Premium performance differentiates us, further takes the form of isolation in optical products, temperature compensation in passive products, lower current drain in mobile products, and more reliable high-power in radar products.

Our benchmark GaN technology delivers 4 to 5 times of power density of a typical gas process, and we have an industry-leading BAW technology, where few competitors are keeping up with the requirements for premium filters. Additionally small solution size is an important feature. Customers are asking for more functionality in the same or even smaller footprint.

As the RF industry evolves, we see an overriding trend for small solution size in many of our markets. In this environment TriQuint is creating a competitive advantage with advanced packaging expertise such as our space-saving Copper Flip interconnect, eliminating the need for wire bonds, in our small but robust wafer level packaging for filters. As dense RF integration becomes commonplace, premium performance combined with compact size will continue to displace to combine the RF to sleek components in use today.

On February 24, TriQuint and RFMD announced a transformational industry event. A merger creating a new industry leader with unmatched capabilities resolving next-generation product challenges. I believe high-speed broadband wireless connectivity will be the foundation for future economies and a combination of TriQuint and RFMD is well-positioned to become a new market leader. Our merger creates a sizable technology powerhouse and likely the largest RF player in the combined infrastructure and defence markets.

In the mobile space, TriQuint and RFMD complement each other incredibly well, with high-volume module manufacturing, technology leadership and a broad well matched product portfolio. Overall, we are bringing together two very complimentary companies with minimum market [indiscernible].

Our new company will bring impressive scale, technology and product innovation to our marketplace, better serving customers and setting the standard for our industry. Integration planning is well underway, and as we discussed in Barcelona, we see a clear path to creating significant value and strong financial performance. This transaction is expected to close in the second half of 2014 and I look forward to updating investors on progress.

Looking more specifically at TriQuint standalone, mobile devices saw a sequential drop in revenue of 45% coming off a very strong Q4 last year. First quarter seasonality plus a temporary inventory correction and a significant customer contributed to the larger than normal revenue decline. I'm happy to report we offset much of the gross margin headwinds that typically come with such a large seasonal decline with reduced costs and a better product mix.

Looking forward, we see a significant step up in Q2 demand for mobile and continued financial improvement. As a side note, to improve transparency, we have updated and reclassified our mobile revenue trend data to better reflect current categories of interest for investors. This data is available on our website.

In summary 2G and 3G revenues declined year-over-year as we transitioned away from the legacy products, with significant growth in 4G LTE revenue across a broad set of customers. We believe we are in the early stages of LTE adoption, with only about 20% to 25% of handsets cooperating LTE capability by the end of 2014. To be clear, LTE expansion represents our single largest growth driver over the next several years.

As carriers expand their LTE networks, our content is also expanded. A good example of this is the recent move by China Mobile to require five mode 10 band supports for all TD, LTE Smartphones sold directly under contract. It is important to note that LTE not only drives more purpose per phone, it's also an increased need for premium filters to address challenging band for frequency spectrum is crowded.

For instance Band 13 is currently serviced by a commodity SAW duplexer, a tougher performance requirement have driven needs for TC-SAW solution, where TriQuint is a leader. Additionally a number of these incremental bands not only require premium filters for LTE, but also coexist in filters to support low band WiFi and LTE in the same handset. Despite their very small size, these discrete filters are one of our fastest growing product lines and represent a decade long effort to bring BAW from initial investment to full scale of production.

Ultimately, we've discrete devices combined with wafer level packaging, will become the building blocks for future integrated modules. TriQuint is a master considerably amount of intellectual property, relates to both the design and manufacture of BAW filters and our pace of innovation is accelerating.

In summary, solid demand continues for MMPAs and is exploding for premium filters during these early stages of LTE growth. Over the next several years, we expect continued module integration, premium filters, playing increasingly important role in the mobile RF solution.

Turning to our infrastructure and defense end markets, excluding our discontinued non-strategic foundry sales, revenues were up 2% in Q1, as compared to Q1 last year, and down 4.5% sequentially.

In infrastructure, we continue to see healthy demand for base station products and support of the TD LTE build out in China. Revenue for this product line has more than doubled in the same period last year. Additionally in optical, last year’s Q3 inventory correction is behind us and demand for high performance optical drivers remain strong. Defense revenue was seasonally down in Q1 following a very strong 2013 and a cyclical nature of large defense program.

The outlook for our combined defense and infrastructure product lines remained very encouraging, with new product revenue expected to accelerate in Q2. Steve will now provide a detailed financial review of the quarter and outline our guidance for the second quarter.

Steve Buhaly

Thank you, Ralph. For the first quarter of 2014, revenue was $177.6 million, down 4% from the first quarter of 2013 and down 34% sequentially. The year-on-year decline was driven by program timing in the defense market, plus seasonality and channel inventory burn in the mobile devices market drove the sequential decline.

In the first quarter, our end market revenue split was 58% for mobile devices, 29% for network infrastructure and 13% for defense and aerospace. Please refer to the supplemental data posted on the investor section of our website for more detailed breakdown and trend of our revenue by market.

During the first quarter, Foxconn Technology Group accounted for 26% of our revenue. Please note that our end customers may use multiple sub contractors to build their products and that the mix of these firms may vary overtime. Our book-to-bill ratio for the quarter was 1.22, the highest in over two years.

Gross margin was 35.3% for the first quarter of 2014, down sequentially from 37.2% but up sharply from 22.8% in the first quarter of 2013. Better product mix, efficient factory management and cost reduction efforts contributed to the improvement in margins.

Operating expenses were $70.9 million for the first quarter of 2014, down slightly from the prior quarter as we continue to manage expenses closely. A surge in employee stock option exercises cost payroll taxes jumped by about $2 million in the quarter. Much of this is a pro forward as the annual FICA contribution per employee is capped. Tax expense for the first quarter was negligible. Net loss for the first quarter was $9.4 million or $0.06 per share.

Total cash and investment increased by $84.5 million to $163.5 million during the first quarter. The increase was due to a lower accounts receivable balance and significant cash proceeds from employee stock option exercises. Capital expenditure of $21.7 million, primarily for premium filter capacity was slightly below quarterly deprecation. Regarding our proposed merger with RFMD, we’ve submitted our HSR application to the FGC and have filed our S-4 with the SEC and anticipate filing with MOFCOM very soon.

Moving to our financial outlook, we believe second quarter revenue will be between $215 million and $225 million led by a strong recovery in our mobile market. Gross margin is expected to be between 37% and 38%. Operating expenses are expected to decline to between $68 million and $70 million. Second quarter net income per diluted share is expected to be between $0.06 and $0.08 on about 180 million diluted shares. As of today, we are fully booked to the midpoint of our Q2 revenue guidance.

On the Investor Relations front, we’re looking forward to seeing many of you during our upcoming investor related trips. We will be attending three conferences during the second quarter. The 6th Annual Technology Forum hosted by D. A. Davidson New York on May 28. The 11th Annual Craig Hallum Institutional Investor Conference in Minneapolis on the same day. And the 2014 Global Technology Conference hosted by Bank of America Merrill Lynch in San Francisco on Wednesday, June 4, which will be webcast. Our Q2 2014 conference call is currently scheduled for July 23rd.

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

Ralph Quincy

These are exciting times for TriQuint and our industry. We’re seeing increased demand for LTE infrastructure around the world and expanding RF content in smartphones. The proposed merger between TriQuint and RFMD will create a capability rich new company, with growth opportunities across mobile, infrastructure and defense applications. The combination creates a compelling line of product to serve the growing demand for dense RF integration.

Finally, the combined manufacturing scale of new co will lead to improved levels of financial performance, not achievable by either company on a standalone basis. Ultimately, this transaction will benefit customers, employees and investors. Customers will benefit from high value cost effective products, and employees will be part of a larger and stronger company. Lastly, we expect this merger to unlock significant value for shareholders.

I continue to receive positive feedback on all fronts and integration planning is well underway. We are on track for a successful closing later this year with TriQuint bringing solid momentum with combination.

Victoria, we’d now like to open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Edward Snyder.

Edward Snyder - Charter Equity

Thanks a lot. Steve, on the last quarter call you guided to I think it was 40% gross margin in the last three quarters of the calendar year. Looks like we’re looking at about 37.5 for 2Q. What change -- is it mix, is it volume, is it pricing? And then on the infrastructure and defense, Ralph you mentioned that there is going to be a more up strong in the second half. Sounds like more than seasonal, but you guys also mentioned strong recovery in mobile market in 2Q. Do you expect them to track each other in general or are we going to see one stronger than the other?

Steve Buhaly

Hi, Ed. I’ll take the first question first. Nothing has changed with respect to our expectations for the period of Q2 through Q4, where we expect the average gross margin to meet or beat 40%.

Ralph Quincy

Then on the second part of your question, we think mobile percentage wise will grow faster in Q2 and just in total value for the full year. But infrastructure and defense, we’ll see pretty good growth I think in Q2 and then the comparisons get easier in the second half. Q2 was the quarter where we have the legacy nonstrategic foundry revenue in the past core compare.

Edward Snyder - Charter Equity

Okay, let me back up. Your outlook on the press release or maybe I’m reading this wrong just 37% to 38% gross margin.

Steve Buhaly

Or in the second quarter.

Edward Snyder - Charter Equity

Right, so you’re talking third and fourth quarter then.

Steve Buhaly

Yes, what we’ve said last quarter, while we still believe is that over the period Q2 through Q4 of this year the average gross margin will be 40% or better. And we did indicated last quarter on the call that it might be a little bit below 40% in Q2 and above 40% in Q3, but the average will be 40%. If you look at the typical year, last year, we intended to have better margins on the second half of the year associated with better volumes.

Edward Snyder - Charter Equity

And Ralph, you mention the big improvement in TC-SAW performance. What does that do for you in 2014? Do you think it will put TriQuint far in a way as a leader in TC-SAW on volume this year? Or will it be a more competitive market between you, and say Panasonic more rather?

Ralph Quincy

Right now we are sampling our next generation TC-SAW, fairly widely sampled and giving quite a bit of positive feedback. I would expect material revenue with next-generation TC-SAW to probably start hitting later in the year Q4. The specifications specifically around Band 13 are giving more challenging and this technology looks like it’s a perfect match for the requirement. So right now I think we are very competitive in the current generation of TC-SAW with all competitors, I think that we will step ahead later this year with material revenue associated with it.

Edward Snyder - Charter Equity

The Band 13 change occurred, I think it was, the products being released this year. Last year they got by using SAW, but if I am correct, it didn’t change likely last year, beginning of this year, further now associated with Verizon, and it’s a much tighter spec. So can we expect that 13 will be required TC-SAW this year in products?

Ralph Quincy

So if I understand your question and it’s a little bit technical -- the special occasions are gaining tighter for the requirements around Band 13, because the industry is trying to use the full amount of spectrum, those relaxations associated in allowing prior generations. So that will roll-out as carriers require suppliers to think of price and likely leading to full available spectrum.

Edward Snyder - Charter Equity

Okay, final question. You also said you offset some of the decline as your large customer, a bit of product mix. Does that just apply to the margin profile of the mix? Or do you think you also pick up some revenue and where would that be? And secondly, how do you think you are doing with Samsung on the new flagship models? Would you be there in Amps or just more concentrated in filters. Thanks.

Ralph Quincy

Yes. I’ll answer the second question. I think we’re going to be fine with graphic customers including Samsung. I think that where we are playing now is on the premium side of products MMPAs and premium filters. We are seeing good design winds where we plan MMPAs in both Korea and in China, and of course discrete filters across the board.

Steve Buhaly

The first question, I think the question really was typically we see a much more significant falloff in gross margin percent from Q4 to Q1 due to the drop in revenue. We really didn’t seen anything of that magnitude this time, and driver of that was better yield performance, a better level loaded with our fabs and cost reduction actions that we've taken.

Operator

Your next question comes from the line of Steve Smigie.

Steve Smigie - Raymond James

Thanks a lot guys. My congratulations here on some really nice performance and guidance. Just following up on your pretty large June revenue guide here. How can we think about September, should we assumed that you’re going to have a similar sort of strong season of September, like we saw in the last year or is this there sort of pull forward revenue here a little bit?

Ralph Quincy

I think we should still expect some good uptick in September and no change in what we would expect seasonally in September, as we've said we are about 40-60 split. And I think that will carry through.

Steve Smigie - Raymond James

Okay, and along those lines -- what kind of color can you give on your feeling about your positioning for major platform launches through the end of the year?

Ralph Quincy

I think, we will positioned for a very strong year in mobile. I feel very comfortable with where we are at in programs. The only headwinds we have right now in mobile are the legacy products, that we have been very public about exiting. These are products where there is relatively low margins, we offer a very little premium advantage and so that’s about $100 million headwind to our revenue this year. And if you add that $100 million back in and look at the guidance that we gave for the company, I think you’ll find that we’re growing faster in the market and comparatively speaking.

Steve Smigie - Raymond James

Last question, I just -- I'd say congratulations on the pretty massive performance improvement there on your TC-SAW product. Just it brings one thought to mind, if your competitors are able to see sort of similar performance in TC-SAW products, where would that put them relative to see your BAW products? I mean, does that put them in a position where they could potentially use different process and technology to try that to delay you guys in taking pretty serious share that with BAW or is it not like that?

Steve Buhaly

Yeah, I think the short answer is no, and the general question is when this TC-SAW encroach upon BAW, I understood your question. I think the short answer is, there will be a mix of technologies addressing the market whether it's commodity SAW, TC-SAW or BAW, the general trend is a movement away from commodity SAW to either TC-SAW or BAW for a variety of reasons.

In TC-SAW what we’re really trying to do is use more of the spectrum and particularly in low frequency. BAW is targeted to high frequency and it has a more attractive insertion loss characteristic than any of the TC-SAW technologies, trying to be using those frequencies. And so I guess there will be market for BAW and TC-SAW, TriQuint will be active participant, the larger part of the opportunity is BAW and that opportunity continues to grow and in fact the demand is exploding right now.

Operator

Your next question comes from Quinn Bolton.

Quinn Bolton – Needham & Company

Hey, guys. Let me add my congratulation to the nice margin results in Q1 and the strong guidance in Q2. Ralph, on the mobile device business which seems to be driving most of the sequential increase here in the second quarter -- can you give us a sense, has this really been driven by your strong book-to-bill on a premium filters? Or is it more broad based across filters and PAs and also any comments about customers, is it fairly broad based across the customer base or is it sort of dependent on any particular programs?

Ralph Quincy

I would say that highly integrated devices and discrete filters are driving most of the improvement, fairly well balanced there between the two -- from Q1 to Q2, and then MMPAs comes in third. And it’s fairly broad customer base and with the discrete filters, the premium filters have a fairly broad customer base.

Quinn Bolton – Needham & Company

Okay. But some of it is the patch or other integrated modules that does contribute to the second quarter growth?

Ralph Quincy

Yeah. And just remember, we had an inventory correction in Q1. So, we were pretty much spring loaded for a bounce back in Q2.

Quinn Bolton – Needham & Company

Got it, okay. Great, thank you.

Operator

Your next question comes from the line of Cody Acree.

Cody Acree

Thanks guys and let me add my congrats. Going back to that question and prior question, so when you're looking at your level of visibility in your high book-to-bill, we had very strong numbers out of Sky Works and there's was a lot of talk or at least questioning on how much possible pull there is from that second half? It sounds like you’ve got some decent visibility, I just -- could you characterized that level of visibility of what is sitting in channel was for pre-production orders and what kind of visibility do you have in the Q3 right now?

Ralph Quincy

We have what we have, I mean the market is fairly dynamic. Most of design win activity is pretty solid for that time period, it's just end user demand and timing, until we get clear visibility of what expectations are from our customers but that visibility can change, right, change right now. I think that we have a fairly conservative view on the market. Q2 is a big step up for two reasons, a little bit of the bounce back from the inventory correction Q1 and then just exploring demand for discrete filters. I would say there that is no pull forward from the second half into Q2 in our current numbers.

Steve Buhaly

Only the second half, no pull forward…

Ralph Quincy

From the second half into the second quarter in our numbers, so we still expect to see a nice increase, a typical increase as we’ve been saying a 40% - 60% split first half, second half, as we’ve seen in the last couple of years.

Cody Acree

And on the gross margin side, with the improvements that you're seeing -- how much can you characterize that being product mix versus high utilization rates. And where are you seeing utilization rates hitting today?

Steve Buhaly

You know, I think the big factor driving our margin has been more around much better product mix, more discreet filters, less legacy amplifier products in mobile, cost reduction efforts and improved yields. Utilization, certainly in Q1 is relatively weak period for utilization as we go through the year, it tends to get better picking in Q3, but underneath the seasonality of utilization if you will are really significant improvements in the underlying model.

Ralph Quincy

And just to add to that, if you look at revenue Q1 last year, revenue this year and then compare margins it’s a point exactly what Steve said it’s got a product mix, cost reductions. More than just overall utilization.

Cody Acree

And is there any color you can provide for 40 plus percent gross margin on average -- what utilization that might indicate?

Steve Buhaly

No. And I don’t think that’s the biggest driver, I really think it’s the other things I talked about.

Cody Acree

Okay, great. And then lastly, you had a big guide for a non-cash tax hit for this last quarter that helps the upside. Can you give details on what the delta was there?

Steve Buhaly

Sorry, could you repeat the question.

Cody Acree

Last quarter you gave a non-cash tax guidance that ended up being much less of a drag on your non-GAAP EPS than actually happened, I'm just wondered what the delta was?

Ralph Quincy

Yes. So we typically only comment on cash tax, so I think you meant a non-GAAP tax.

Cody Acree

Yes, non-GAAP.

Ralph Quincy

Which is at cash basis. And our cash taxes have typically been around $1 million a quarter, maybe a little bit less, and represent payment of foreign and state minimum taxes. And so I don’t really see any change in that this year from the prior year.

Operator

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

Unidentified Analyst

Hi, this is Sid on for Mike. Thanks for taking my questions. Just a couple of them. Ralph, within the China market TD LTE Smartphone ramp in terms of design activity and shipments, how should we think about the cadence of the Smartphone ramp; is it gradually incrementally increasing through the quarters in 2014? And then within this ramp itself are you predominantly still selling discrete filters or, are you seeing more pull in for integrated solutions on MMPAs?

Ralph Quincy

Yes. The first part of the question, your thesis is accurate, we will see gradual increases throughout the year, quarter-to-quarter. Primarily driven by increased demand for discrete filters, also strength on integrated devices, but we believe that the market is still dominated by discrete filters opportunities across a broad set of customers, particularly in China. Over time those filters married up with wafer level packaging will be integrated into dense RF modules.

Unidentified Analyst

Thank you. And then given your strong share with Samsung, you talked about and some of the other leading OEMs, and then with strong China design activity -- in terms of the second half of this year should we see less call for customer concentration for you with respect to past years?

Ralph Quincy

I guess, the way to answer that is I think we will have more customers that are getting close to that 10% level. So, yes, you should see less customer concentration.

Unidentified Analyst

Okay and then just one last one if I can. You talked about Band 13 creating opportunities for TC-SAW; are there any other particular geographies or markets in the world where the Band or the spectrum orientation is such that it is favorable for you in terms of either your BAW filters or the TC-SAW filters?

Ralph Quincy

Yes, so TC-SAW and BAW -- for BAW we talked long about TD LTE in China and the Bands in Asia being very attractive Bands, 38, 40, 41, then Band 7. Those are all attractive Bands for our BAW technology. And then Band 13, Band 26 for TC-SAW.

Operator

Your next question comes from the line of JoAnne Feeney with ABR.

JoAnne Feeney - ABR Investment Strategy

Congrats on the nice gross margin last quarter and a strong guidance this quarter. I was hoping to get a little bit more clarity on the outlook for the quarter, in particular, how much of the upside beyond corrections on the inventory take down last quarter is coming from model ramp for its units versus greater RF content? And does that vary for your China experience versus some of your more international brands within your work?

Ralph Quincy

Yes, JoAnne, I think the way to think about it is that we are getting some bounce back in the inventory correction in the quarter, I'm not going to be specific on that, but it’s material. And over and above that in mobile it’s being driven primarily by a broad set of customers primarily in Korea and Asia adopting our premium filters.

JoAnne Feeney - ABR Investment Strategy

Okay, so that sounds like it’s content more than units. It’s a real change in opportunity for you guys.

Ralph Quincy

Correct

JoAnne Feeney - ABR Investment Strategy

Okay and then in last quarter, someone was asking about clarification on the gross margin outlook. You also said that, you'd expect it to meet or beat consensus expectations regarding earnings per share for the year of $0.49 at that time, and it seems like with this current quarter’s guidance you're on track to be there. Would you care to comment on the outlook for the full-year on that regard?

Ralph Quincy

We stand by our prior comments. We still think that comment is valid.

JoAnne Feeney - ABR Investment Strategy

Okay, then one last question. With the RF micro devices announced last quarter of their integrated solution and I'm wondering if you’re seeing any use of your BAW filters in that solution yet or if you would expect to see that in that second half of the year?

Ralph Quincy

You know, I'll let RFMD comment on their suppliers.

Operator

Your next question comes from Mike Burton with Brean Capital.

Mike Burton - Brean Capital

Hey guys, congratulations on the good quarter and guide. I was hoping, Ralph if you could give us a little more color on your expectations for networks in defense and within networks, what are you seeing for radio versus transport in Q2 and for the year?

Ralph Quincy

Sure. For the first half of the year as I said we compare from first half last year, are held back by our expert of the non-strategic foundry business, so after Q2 that compare goes away. We are basically staying above even and actually gaining some strong growth in our base station markets. I think that momentum will continue into the second half because second half compares are going to look fairly favorable. It’s driven by three things, base station, strength, that we have doubled in Q1 our revenue for a year ago and those products those are integrated MCM by enlarge, where we just lever a technology strength of TriQuint to pull through more revenue. With optical products, we saw a little bit of inventory correction in optical in Q3 last year, that’s behind us and optical looks strong again and then it’s new products and standard products in the defense market along with program timing, the major defense programs.

Mike Burton - Brean Capital

Great, thanks. It's helpful. And the Steve any guidance on how we should be modeling OpEx to trend this year? Any puts and takes relative to all the products you’ve mentioned that you only out or the merger?

Steve Buhaly

So, pre-merger, TriQuint standalone, I would say that the OpEx was artificially inflated by couple of million dollars in Q1 as we paid more FICA match on higher income due to option exercises. We’re guessing and it’s an educated guess, there will be another million of that with Q2 and then we’ll actually get some of that money back in the back as employees cap out. I think you’ll see OpEx decline sequentially, Q1 into Q2 and probably from Q2 to Q3 and from there we’ll see how things work out as we close our proposed merger with RFMD.

Mike Burton - Brean Capital

Great. And then last one for me. Ralph, what's your outlook for the Wi-LAN business, down pretty hard. How do see that business trending for you guys going forward?

Ralph Quincy

So, the Wi-LAN TA business as we’ve discussed -- as it commoditizes we’re going to back away from that. The Wi-LAN business associated with co-existence filters, that's our fastest growing product line right now. The way we classify the co-existence filters on our website is in the 4G LTE category. So, there is a little bit of visibility, but it is enabled by the co-existence of LTE, so that’s where we believe it should reside. Going forward, we’ll continue to participate in the active side of the Wi-LAN market whether it’d be LNA switch or premium amplifiers for mobile. We really think the opportunity in Wi-LAN is more in the connectivity side, more in the infrastructure side. We are investing there, where we see a great opportunity, once again for premium performance and high value active components.

Operator

Your next question comes from Tom Diffely from D.A. Davidson.

Tom Diffely - D.A. Davidson

Good afternoon. First, a clarification for you Steve. When you talk about being fully booked in the quarter, you’re not talking about being fully booked as a percentage of capacity. It’s just more orders in hand versus revenue outlook?

Steve Buhaly

Yes, sadly you’re right. I wish our factory was completely full. We would be rocking. We have received orders equivalent to the amount of revenue we’re guiding for the second quarter.

Tom Diffely - D.A. Davidson

Okay, great. And then Ralph, maybe a little more granularity on the relative size of the TC-SAW market versus the BAW filter market, and what type of relative pricing or profitability -- if you had industry data that’s fine too, if you don’t want to give you own data.

Ralph Quincy

Right now the premium filter market is in that range of $1 billion or just below, we think it’s growing quite rapidly. Maybe $2 billion in a couple of years. The majority of that is currently BAW. We think that down the road TC-SAW market will continue to expand with the conversion of requirements from what is satisfied by commodity SAW to what will be required by TC-SAW, so a smaller part of the overall premium market, but I do believe it will grow over the next several years.

Tom Diffely - D.A. Davidson

And do you see TC-SAW still being more competitive than BAW so the margin structure is not quite the same?

Ralph Quincy

No, I would say both TC-SAW and BAW will both have margin structures that will be favorable to the mobile industry in total, until there is no suppliers our there or there are other changes in market place. Right now, the technologies are very capable and they specifically address critical problems in the marketplace.

Tom Diffely - D.A. Davidson

Okay, that’s helpful. And finally, when you look at some other emerging 4G markets besides China, like India and Latin America. What do you see in there? Do you have much exposure to non-Chinese emerging markets?

Ralph Quincy

We’re a little bit removed from that because we sell largely into handset suppliers and then they sell into the end market. Most of our design activity right now in the mobile space is focused on North America, Korea and China, not a lot of design activity focused outside it. There is some in other parts of Asia, but the majority part of our focus is in those three regions.

Operator

Your next question comes from David Duley with Steelhead Securities.

David Duley - Steelhead Securities

Congratulations on a nice guidance. Thanks for taking my questions. I was just curious, I think in the past you’ve reminded us how big your filter business is, could you just give us an update on the total filter business and then the discrete side of it?

Ralph Quincy

That’s always been a hard number to be public about because it involves allocating some cost to the integrated part of our business. But we are transitioning our mobile business, being more filter-dependent and I would say we’re probably at least 50% filter now, maybe going to 60% and that’s only counting the percentage of the pads that are filter component of that. So, certainly the larger portion of our revenue right now in mobile.

David Duley - Steelhead Securities

I’m sorry, could you just clarify that both -- whatever revenue you have is what is discrete and what is integrated?

Ralph Quincy

I haven’t broken that down. I was trying to give you what is filter-dependent and what is non-filter-dependent.

David Duley - Steelhead Securities

Okay. I was just trying to clarify, you made the statement about your book-to-bill and premium filters being 1.74, so you obviously have a revenue number for it.

Ralph Quincy

Yes, so if I understand your question, what percentage of our business is just discrete filter, that’s probably closer to 30% of our business right now.

David Duley - Steelhead Securities

30% of the mobile business?

Ralph Quincy

Yes, so the mobile business.

David Duley - Steelhead Securities

Okay, thank you. And just another clarification, you talked about the legacy products and the impact on the revenue. Could you just remind us what the total impact of the legacy drag is and who long it’s going to last for?

Ralph Quincy

It’s about 100 million, 15 million in nonstrategic foundry compares and 85 million in legacy products, including commoditized Wi-Fi.

Steve Buhaly

That’s 13 going to 14. And then it’ll be a little less that we will work through in 15. We’re phasing the step out as customer products ramp up, so we’ll be through the heavy lifting this year.

David Duley - Steelhead Securities

And is it should we assume that’s a linear decline this year or how do you look at that?

Steve Buhaly

That’s a fair way to do it. The decline actually picks up speed in the second half as people bring up brand new products and we’re released from older platforms. But linear is a conservative way to model it.

David Duley - Steelhead Securities

Okay and then final question for me is, if you just look at this segment of your business, I guess its filter related the 50% to 60%, maybe you can help us understand what you think the growth rate of that segment is? And then what the offset is? What is the growth rate? I imagine it’s smaller of the standard PA business?

Ralph Quincy

Yes, I would say the fastest growth rate for 2014 is in the discrete filters, coming from a smaller base, broader customers demand, right. And then everything else is going behind that.

Steve Buhaly

It’s really very fair to say that discrete filters are outgrowing, they decline but not by much. It’s kind of a horserace. The good news is that decline has only got so much to run.

Operator

And there are currently no further phone questions at this time.

Ralph Quincy

Well, I want to thank all investors for their interest and I look forward to updating you on the next call.

Operator

Again, thank you for your participation. This concludes today’s call. You may now disconnect.

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