Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Steve Buhaly – CFO

Ralph Quinsey – President & CEO

Deborah Burke – VP, Human Resources

Analysts

Patrick Newton – Stifel Nicolaus

Quinn Bolton – Needham & Company

Tim Luke – Barclays Capital

Nathan Johnsen – Pacific Crest Securities

Michael Alexander [ph] - Charter Equity Research

David Duley – Steelhead Securities

Jason Schmidt - Craig-Hallum

Mike Burton – FBN Securities

Richard Shannon – Northland Securities

Bill Dezellem – Tieton Capital Management

Michael Martin – SmallCap Report

TriQuint Semiconductor, Inc. (TQNT) Q2 2010 Earnings Call July 28, 2010 5:00 PM ET

Operator

Good afternoon. My name is Phillip and I will be your conference operator today. At this time, I would like to welcome everyone to the TriQuint Semiconductor Second Quarter Earnings Call. (Operator Instructions). I will now turn the call over to Steve Buhaly. You may begin.

Steve Buhaly

Thank you Phillip. Good afternoon, everyone. And welcome to our Second Quarter 2010 Conference Call. This call will include forward-looking statements about TriQuint’s projected results. Results could differ materially based on various factors including those described in our reports on forms 10K, and 10Q, and other filings with the Securities and Exchange Commission.

This presentation also includes non-GAAP financial measures, which report tax on the cash basis, and exclude equity compensation charges, charges associated with acquisitions, and other specifically identified non-routine items.

These non-GAAP measures are provided to enhance understanding of our core operating performance. A full reconciliation of the non-GAAP measures is our press release and in the investor’s section of our website.

Ralph will now provide an overview of the quarter. Ralph.

Ralph Quinsey

Thank you, Steve. I am very pleased with TriQuint’s results this quarter. We delivered $207 million in revenue, non-GAAP gross margin of 42%, non-GAAP operating margin of 16%, and non-GAAP earnings of $0.20 per share, $0.05 above our previous guidance.

Our strong earnings results were due to a higher mix of networks, defense, and aerospace revenue, improved factory performance, and lower legal expenses than expected.

Steve will provide more details of our financial performance during his comments.

Within Mobile Devices, the largest of our three major markets, revenue is up 10% sequentially, and 31% year to date as compared to the first six months of 2009. Consumer demand for wireless broadband is fueling rapid Smartphone growth bringing four to six times the RF dollar content per Smartphone as compared to a voice only phone.

Additionally, we have wide customer penetration. In fact, we have content with all leading Smartphone providers. The RF section has become more complex within Smartphone with requirements for voice, multiple databands, Wi-Fi, and GPS. TriQuint is unique as a single supplier for this complete solution, regardless of standard, band, or technology.

For example, integrating duplexers with amplifiers for improved size and battery life is an area where TriQuint has a competitive advantage.

It is clear to me the market is moving from discreet components to integrated solutions for one simple reason. Integration drives improvement of performance, cost, and size. Our breadth of technology, including GaAs, filtering, and switching gives us a competitive advantage to optimize these solutions true integration.

I continue to expect solid revenue growth in mobile devices driven by new opportunities in growth of existing platforms and products.

Additionally, I want to say how proud I am of TriQuint recently winning a quality award in important design wins at Samsung. We greatly appreciate our customer’s recognition of our efforts.

Now, switching to our networks market where we saw recovery of demand, and stronger revenue than expected in the quarter. Networks revenue is up 53% year to date compared to the first six months of 2009. The networks market is composed of sub-markets where RF performance, such as high efficiency, high power, and superior linearity is critical for our customers. TriQuint is widely recognized as a performance leader in these markets.

Our networks products typically generate higher-than-company average gross margins. The higher mix of networks revenue contributed to our improved gross margins at the company level in Q2.

The three largest contributors to Q2 sequential growth in networks were filters for mobile Wi-Fi access points, driver amplifiers for 40-gigabyte optical networks, and amplifiers used in cable and fiber to the home networks.

For the first application, our customers now combine Wi-Fi and 4G technology into a single portable unit providing the ability to create a mobile Wi-Fi hotspot just about anywhere. Some examples include the Sprint overdrive and the Spring EBL4G.

The mobile hotspot had the capability to simultaneously create a wireless LAN and connect to the Internet through the 4G network.

The technology challenge is the adjacency of 4G and Wi-Fi spectrum. This can cause significant interference and poor performance for the user. TriQuint’s BAW filter products prevent this interference and are in high demand for this application.

A portable hotspot requires multiple filters, and we typically have several dollars of content in this type of application.

In the second growth area, 40-gigabyte optical drivers, TriQuint is now seeing the revenue growth anticipated last year when we announced that TriQuint was selected as Huawei’s key supplier for optical products.

In addition to Huawei, we are now winning designs with other customers for our 40 gigabyte products. These products are used in metro area upgrades to support the increasing data traffic driven by social networking, rich multimedia services, and increased Internet usage.

Lastly, as cable and fiber to the home networks evolve to support video-on-demand, data and voice, new technologies are needed, such as Edge QAM. Edge QAM enables cable operators to increase and optimize the bandwidth of their networks by dynamically switching the flow of video data and voice to only those hubs and customers who need the service. TriQuint supplies some of the world’s best linear amplifiers optimized for this application.

Lastly, our defense and aerospace revenues were up 29% year to date compared to the first six months of 2009. TriQuint has focused on successfully partnering with industry leaders creating mission-critical next-generation solutions. We have strategically positioned ourselves in surveillance and communications, which we believe are growing portions of this market.

Key revenue programs in 2010 include advanced radar systems for the Joint Strike Fighter, unmanned aerial vehicles, and the radar retrofits for the F15, F16, and F18.

A strong first half will flatten some in Q3 and Q4 as we transition between major programs. But I expect 2010 to finish 12% to 15% above our 2009 defense based revenue.

The long-term outlook remains robust as new programs, such as the Joint Strike Fighter moved from development to production.

Now, Steve will provide results for the second quarter of 2010 and our guidance for Q3. Steve.

Steve Buhaly

Thank you, Ralph. For the second quarter of 2010, we generated revenue of $207.5 million. Revenue increased 14.7% sequentially and 22.7% over the second quarter of 2009.

Networks continue to enjoy a strong rebound from the lows of 2009 growing 19% sequentially and 64% year-over year.

For the quarter, our revenue split-to-end markets was mobile devices, 61%; networks, 27%; and defense and aerospace, 12%.

Please refer to the supplemental data posted on the investor’s section of our website for a detailed breakdown of our revenue by market.

During the second quarter, Foxconn was our only customer comprising 10% or more of our revenue.

Our book-to-bill ratio for the quarter was 1.29 to 1 led by strong performance in the mobile devices market. Our gross margin for the second quarter of 2010 was 41.2%. Second quarter non-GAAP gross margin was 42.3%, up from 39% in the first quarter of 2010, and 33.2% in the second quarter of 2009.

Gross margin improved sequentially due to strong factory utilization, a higher mix of networks and military revenue, and favorable product mix.

In addition, our employees continue to aggressively seek and implement measures to reduce costs and increase efficiencies.

Second quarter results are the fifth straight quarter of improving gross margins on both a GAAP and non-GAAP basis.

Operating expenses were $58.8 million for the second quarter of 2010. Operating expenses were $54.7 million, or 26.4% percent of revenue on a non-GAAP basis, up from $52.4 million in the prior quarter. Increased research and development expense accounted for most of the growth.

The sequential growth in operating expense of 4.4% was substantially below the sequential revenue growth of over 14%.

Avago Litigation Expense increased from $900,000 in the first quarter of 2010 to $1.3 million in the second quarter of 2010, less than expected due primarily to timing.

Net income was $22.5 million or $0.14 per diluted share for the second quarter.

Non-GAAP net income grew by $21.5 million over the second quarter of 2009 to $33.1 million, or $0.20 per diluted share.

Cash flow from operations was $27.9 million in the second quarter of 2010.

Total cash investments increased about $17 million to just over $175 million.

Capital spending was $18.4 million compared with depreciation of $12.0 million.

During the quarter, accounts receivable increased sequentially to $120.8 million with VSO at 53 days.

Inventory turns were 4.9 for the second quarter of 2010.

Non-GAAP financial measures report tax on a cash basis and exclude stock-based compensation charges, certain charges associated with acquisitions, and other specifically identified non-routine items.

Effective this quarter, two new adjustments to non-GAAP measures were added, the charge for restructuring related to the closure of our Colorado office and non-cash tax expense. Non- cash tax expense includes certain deferred tax charges and benefits that do not result in a tax payment or tax refund. For comparative purposes, our first quarter non-GAAP numbers have been revised to show the effects of the non-cash tax expense.

Complete reconciliations of GAAP to non-GAAP results are available in our press release and in the investors section of our website.

Moving to our outlook, we believe third quarter revenue will be between $215 million and $225 million, about 6% sequential growth at the midpoint of guidance. We expect continued solid growth in our mobile devices market. And strong factory utilization will lead to a non-GAAP gross margin of between and 40% and 41%.

Non-GAAP operating expenses are expected to grow to about $57 million. Within this, we expect about $2.5 million of legal expense from our litigation with Avago up from $1.3 million in the second quarter.

Third quarter net income is expected to be about $0.20 on a non-GAAP basis.

Cash is expected to grow modestly due to increased capital expenditures and working capital. As of today, we are 96% booked to the midpoint of our revenue guidance.

During the quarter, we plan to participate in a number of investor relations events. On Tuesday, August 10th, Ralph will be in Vail, Colorado to present at Pacific Crest’s Annual Technology Leadership Forum. Later that month, Ralph will be in Chicago marketing with Charter Equity on Thursday, August 26th.

In addition to these events, we will also continue our bi-monthly update webinars for investors that are new to TriQuint, or those investors who have not had contact with us in the recent past, and would like a quick update with our management team. Please contact Heidi Flannery, Investor Relations, if you are interested in participating in any of these events.

Our Q3, 2010 conference call is scheduled for October 27th, 2010.

I will now turn to Ralph for closing comments prior to welcoming your questions.

Ralph Quinsey

TriQuint achieved important milestones this quarter. We broke through $200 million in revenue and exceeded our target non-GAAP operating income goal of 15%.

Early in 2010, I took an aggressive stance and guided for 20% year-over-year growth on the strength of Smartphone demand and a recovering economy. I am aware of economic head wind, but I now believe I was not aggressive enough.

I expect our revenue will grow 25 to 30% in 2010. I also expect increased capital expenditures in the second half to support our long-term growth. Our strategy over the last several years has successfully lifted us from the industry shadows to the upper tier of the RF market.

Looking forward, our new goal is simple, a sustainable 20% compound annual growth rate, which we will exceed this year, and greater than 20% operating profit. This is not a time to find goal, and we are not immune to the economic slowdowns and seasonal buying patterns. But it reflects our conviction that the RF market will be strong for years to come. And we have margin opportunity that comes with growth.

Our goal is to leverage this opportunity by continuously improving our financial performance and bottom line.

Every generation of technology improvement brings increased bandwidth. And in spite of the bandwidth improvements, consumers prove they still want more.

Much attention has rightly been placed on high-end Smartphones with their incredible functionality and expanded RF content. This in conjunction with an application software explosion as apps development expands from companies to communities is a rising tide for our industry. This is new paradigm built on the Internet and mobile apps for everything.

TriQuint has a competitive advantage as the integration leader giving our customers the best size, cost, and performance for complete RF solutions.

Following high-end Smartphones, the next wave of growth will come from low-end Smartphones. Many in developing countries have not yet experienced the Internet. Their first Internet experience will likely come through a Smartphone, not a computer.

This is a fundamental shift in how we used to think about getting to the Internet. This is a compelling opportunity because Smartphones significantly lower the cost and difficulty of Internet access as compared to a computer. Universal Internet access is the killer application; 500 to 600 million low-end voice-only phones will likely be sold this year. In the coming years, these will transition to low-end Smartphones with added RF content.

Additionally, there is growing demand for machine-to-machine wireless connectivity for applications such as remote health sensors, eReaders, USB dongles, power grid control, security surveillance, and other applications that will require billions of wireless nodes in the future.

I continue to believe wireless connectivity is in an early stage opportunity for the RF industry. Solid long-term growth of mobile devices and continued spending for infrastructure to support the massive amounts of data being loaded into the network are fundamental and favorable trends for TriQuint. I believe we are well positioned to benefit from these trends because of our unique position as an integrator of both active and passive components for mobile devices and our industry-recognized technology leadership for high performance infrastructure in defense markets.

Phil, we’d like to open it up for questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Patrick Newton with Stifel Nicolaus.

Patrick Newton – Stifel Nicolaus

Great. Thank you for taking my question. Nice job in the quarter, gentleman. A couple of questions. I guess one for you, Steve, can you give us an update on utilization at your fabs, how the capacity expansion is going at the Hillsboro Fab. And if you guys have made a decision on adding a six-inch [inaudible] at Richardson?

And then perhaps putting all these puts and takes together, how you view the impact of these capacity expansions on your contribution margin on a go-forward basis. And then I have a follow up.

Steven Buhaly

I’m not sure if I can remember all the sub parts to that question, Patrick. So I will answer all the ones I remember, and you can ask the ones I might forget again.

Capacity utilization was relatively high in our GaAs lines, average of Texas and Oregon was in the low 80% range.

We had some disruptions in our Oregon line in the second quarter as we rearranged equipment to increase capacity. We are mostly behind that. We are probably in the final stages of adding capacity in that site.

So net-net, we expect a reasonable increase in capacity Q2 to Q3 as we wrap up the effort we’ve been engaged in for a while.

We are beginning to invest in long-lead time equipment for our Texas Six-Inch facility. As you might remember, we have vacant clean room space in Texas that we’ve had for a long time that makes it very cost effective to add capacity there. And indeed, we are in the early stages of investing. And that investment will be responsible for a somewhat elevated level of capital expenditures through the back half of this year.

Patrick Newton – Stifel Nicolaus

Okay. And then any impact on the additional capacity on your contribution margin on a go-forward basis?

Steven Buhaly

I think, you know, the only impact in the near term will be in Oregon, and I think that’s going to be a positive impact, as really, with a fairly mature site like this, the last wafer you can produce is the cheapest one you’ll ever make.

Said differently, the marginal cost is below the average costs. And I think it will be beneficial to us.

Patrick Newton – Stifel Nicolaus

Okay. And then sticking on the margin theme, I understand, you know, make-shift – from networks to wireless in 3Q can have a drag on gross margin and on your outlook. But can you walk us through some of the puts and takes leading to this sequential decline?

And would it be fair that networks could be flat to even possibly down sequentially in the September quarter?

Steven Buhaly

Yeah, so I think the margin guidance is predicated, first primarily on the fact that the large element of growth, Q2 to Q3, will be in mobile devices. And that does carry margins that are lower, relative to our other segments.

Additionally, we just had a really good mix of products in the second quarter. And we’re not forecasting it to be quite as marvelous as it was in the second quarter.

I think those are probably the primary things. With respect to networks, we continue to believe that there will be some modest sequential growth. Although the pace we experience Q1 to Q2 is probably not going to continue. That was more of a rebound effect, I think.

Patrick Newton – Stifel Nicolaus

Okay. And then one just last product question if I may for Ralph. With wireless LAN, it’s now 10% of total revenue, and it looks like about 16% of wireless. How should we think about this product line’s growth on a go-forward basis, it’s sustainability. And perhaps you can discuss if there’s been any change to your expectation for attach rates of power amplifiers to wireless LAN?

Ralph Quinsey

Thanks, Patrick. The Smartphones are a large part of our revenue right now. I would guess in the 70% to 80% range. And wireless LAN is certainly a part of that.

We are pleasantly surprised by the great demand we’re seeing for our products right now, including our Wi-Fi products for Smartphone. I have to admit though, when did our long-term planning mid last year, we had expected more competitive response. And we ended up with much more business than we had anticipated at that time. So I would say that that business is quite strong from a demand perspective right now.

Going forward, I think the attach rate will remain high, and as I’m sure you’re aware, there are multiple solutions from a technology perspective in the marketplace right now. And primarily, CMOS versus GaAs.

Based on just overall cost of solution, as you migrate the whole solution down the manufacturing nodes, I really see GaAs as a solution for Wi-Fi, maintaining fairly strong stickiness going forward. It’s hard to integrate the RF portion, particular a power amplifier and maintain progress down a streak node.

And that’s creating extra demand right now for us as a GaAs supplier into that market.

Patrick Newton – Stifel Nicolaus

Thank you.

Operator

And our next question or comment comes from the line of Quinn Bolton with Needham & Company.

Quinn Bolton – Needham & Company

Hi, guys. Great job on the revenue growth, and the margins. I just wanted to ask you a question about the networks business. It looks like the emerging in other category jumped up pretty nicely quarter on quarter. And I was just wondering if you could provide some detail there. And then I’ve got a couple of followups.

Ralph Quinsey

Yeah, the material there was the filter products we talked about for the mobile hotspots.

Quinn Bolton – Needham & Company

Okay. So that certainly sounds like that could be a sustainable new run rate for that business?

Ralph Quinsey

Yeah. I think the – it’s great business. There’s multiple filers per mobile hotspot, and so we have multiple dollars of content in those solutions.

New programs are launching right now. And so we see some filling-the-shelf-space characteristics, but we also have new design wins on that technology.

Quinn Bolton – Needham & Company

Great. The second question, just to follow up on the capacity in Oregon, you’re sort of completing another capacity addition in the Oregon facility that you’re wrapping up this quarter.

Is that really kind of getting you to max capacity, or do you think that if demand remains strong, there’s still additional investments you can make in Oregon to further expand capacity?

Ralph Quinsey

Well, we started making investments to expand capacity in Oregon some time ago, earlier in the year, late last year, early this year. And we’re not beginning to see the benefits of that. You know, we are working through the changes in the factory in Q2 and starting to see the benefits in Q3. And certainly we’ll see them stronger in Q4.

After that, it’s going to be difficult to add a lot more capacity to Oregon. I think we could still squeak out some efficiencies.

But as Steve mentioned, we have begun the investment in Texas. As you know, we have a very large, already-constructed open clean room. And we can easily add significant capacity by installing equipment and transferring processes. And we are executing that plan as we speak.

Quinn Bolton – Needham & Company

Great. And just a last question. Ralph, in your closing remarks, you talked about the low-end Smartphone opportunity, or the entry-level Smartphone opportunity. I’m just wondering how important relationships with folks like MediaTek, which has been one of the dominant providers of low-cost basebands for the 2G market, is in terms of penetrating that potentially $500 million unit opportunity over the next few years?

Ralph Quinsey

No, I think that MediaTek will certainly be an important player going forward, as our other partners will be. The opportunity there is significant. As you know, when we started this journey back in the 80s, a transmit lineup for a Motorola brick phone at the time was in the range of $50 to $75. And we have walked down the learning curve to about $1.00 as we came into the late 1990s, early 2000s.

With the success of Smartphones with 3G and wireless broadband, the curve is bent back up now and content is going up. I see that content continuing to expand for many years. And part of that expansion is not just the high-end content, but it is the conversion of low-end phones to Smartphones. So maybe people with first Internet experience will be through a Smartphone.

Quinn Bolton – Needham & Company

Great. Congratulations again.

Ralph Quinsey

Thanks.

Operator

Your next question is from the line of Tim Luke with Barclays Capital.

Tim Luke – Barclays Capital

Thanks so much, guys. Well done on your results. Ralph, it would appear that from your full-year revenue guidance, as that moves up that you’re inferring that you would expect a fairly normal seasonal trend as you go into the calendar fourth quarter. Is that right? Do you expect the market to remain pretty solid?

And maybe you can just talk about how you perceive the industry demand level and the industry inventory level. Thanks.

Ralph Quinsey

Yes. We respect as we’ve got an up quarter in Q3, and implied in the guidance as sequential, and I expect to see sequential up quarter in Q4. I think the market demand is very strong right now. And I think that all of the inventory channels that those who watch this market are typically concerned about is also healthy.

Tim Luke – Barclays Capital

Ralph, thank you. Also, just a view, you guided OpEx to be higher with the Avago Litigation. Could you give us some sense about how we should think about that as we move forward, maybe into December, and how you’re thinking about the OpEx’s for the following year? That would be the question. Thanks.

Ralph Quinsey

Yeah. I think, well first, the litigation expense, we think it will be about $2.5 million per quarter in Q3 and Q4 and the roll back to a lower level, probably $1 million, maybe a little bit more of basic legal cost. And so the overall amount of expense we expected this year has dropped by about $800,000. And the timing has shifted out a little bit for, you know, all the reasons associated with slow progress in the judicial system.

Looking into next year, you know our intent right now is probably to grow operating expense at roughly 50% of the revenue growth rate. And so we expect to get leverage as we continue to grow the top line, get operating income leverage.

Tim Luke – Barclays Capital

Lastly, finally, just on the tablet opportunity, could you talk about how you perceive that? How you think that the momentum is for you to be leveraged to that growth? Thanks.

Steve Buhaly

Yeah. So for all of the machine-to-machine type of connections, and I really lump the eReaders into that, if I understand your question correctly, I think that’s just a growing opportunity in the future, whether it is a USB dongle, an eReader, a security surveillance, there’s a lot of nodes that will be required for wireless connectivity and connection of things to the Internet as opposed to people to the Internet.

Tim Luke – Barclays Capital

Thanks so much. Good lucky.

Steve Buhaly

Thanks.

Operator

Our next question or comment comes from the line of Nathan Johnsen with Pacific Crest Securities.

Nathan Johnsen – Pacific Crest Securities

Thanks for taking my question. I wanted to ask a longer-term question. You’d talked about potential growth of 20% year over year through the, I guess the foreseeable future. I was wondering as you guys look at that vision, whether you anticipate or expecting your handset business, and networks, and military to remain at relatively – well, I guess, near current levels in terms of revenue split? Or do you anticipate one of the other outgrowing over that timeframe?

Ralph Quinsey

Yeah. Over the long term, our goal is to keep it fairly balanced in the 60/40, or less than 60 for mobile devices and more than 40 for networks.

Our largest market is mobile devices and it tends to be the fastest growing due to the nature of the products in that market. But we have spent a lot of time and energy strategically focusing on expanding our network’s defense and aerospace business as well.

So we’d like to keep that in the 60/40 balance. As you know, they thoroughly enjoyed the most diversity of markets compared to most of our competitors.

Nathan Johnsen – Pacific Crest Securities

Good. That’s very helpful to me. And looking at the emerging markets category, I mean, you talked about the reasons behind the meaningful sequential growth in Q2. Do you anticipate that segment to maintain at current levels in the next quarter, or in the September quarter, or is that going to step down a bit and be offset by growth in other categories?

Ralph Quinsey

As I said, the beginning of the year would be a horse race with networks and mobile devices. Networks got off to a quick start, right. We saw the recovery. Underneath that, where we’re still seeing strong demand is optical and cable. We’ve got some great linear amplifiers for Edge QMA and those networks that are included in cable and fiber.

And actually, or design win of momentum, that’s an early indicator Q1 to Q2 was about 3X up for our cable products. And so we’re fairly excited about that market.

Optical, our success in [inaudible]. We’ve communicated, but we’re seeing now demand from other customers. So it’s two strong submarkets there for us for the rest of the year and into next year.

Nathan Johnsen – Pacific Crest Securities

But as far as the emerging markets subcategory goes, how should we look at that for Q3?

Ralph Quinsey

So the big players in emerging markets are that BAW filter, or the family of BAW filters that go into the mobile hotspot. I see that as continuing to be a strong business in the second half. And then auto radar, which ramped up to a healthy business, $1 ½ million a quarter, pushing $2 million a quarter. So that business, again, will stay healthy through the rest of the year.

Nathan Johnsen – Pacific Crest Securities

Great. And one last clarifying question. You mentioned in your prepared comments that you had content with all leading Smartphone providers. I was wondering if you were including Nokia in that comment?

Steve Buhaly

Yeah. As it turns out now, we are supplying content to all suppliers, including Nokia. We’ve had success there on the Wi-Fi area.

Nathan Johnsen – Pacific Crest Securities

Great. Thanks so much.

Operator

Your next question or comment come from Michael Alexander [ph] with Charter Equity Research.

Michael Alexander – Charter Equity Research

Hi. Thanks for taking my call. I wondered first of all, Steve, if you could talk about the tax rate going forward now that you’re on cash taxes and how that relates to next quarter’s guidance.

And then I had another question about when you talk about the filters for a WiMAX product, would those also be applicable to LTE products when those are rolled out?

Ralph Quinsey

Let me answer the second question first because it’s short and then I’ll turn it over to Steve. Absolutely. It’s really a 4G Wi-Fi intersection whether it’s WiMAX or LTE. So I see that as a growing opportunity in the future.

Steve Buhaly

And with respect to the tax question, I expect cash tax expense to be under $0.5 million a quarter for the next couple of quarters. It will be in the $200,000 or $300,000 per quarter range for the rest of this year.

Michael Alexander – Charter Equity Research

And then finally, I wondered, in PC Wi-Fi, that used to be a big driver, obviously it’s not as important any more. But is that just a commoditized market now that handset embedded is so much more important, or can we expect to see a growth in the PC Wi-Fi as well?

Steve Buhaly

I would say our focus is on the mobile Wi-Fi market. What drives advantages for our solutions is the requirement for very small size, and good performance in current trade because of smaller batteries. When you move into a PC, you know, you’ve got to have a larger battery available, plenty of board space. As you suggested, it’s more of a commoditized market.

Michael Alexander – Charter Equity Research

Great. Thank you very much.

Operator

Your next question or comment comes from the line of David Duley with Steelhead Securities.

David Duley – Steelhead Securities

Congratulations on a nice quarter.

Steve Buhaly

Thank you.

David Duley – Steelhead Securities

Hey, just one quick clarification. I think you mentioned that Foxconn was a greater-than-10% customer. Was it similar to the last quarter and last year where it was around 20%, or is there a range that you can help us with there?

Steve Buhaly

Yeah. You’re in the ballpark. There was no substantial difference this quarter than in recent history.

David Duley – Steelhead Securities

Okay. Ralph, this one’s for you. What do you think your share of the Smartphone market is now? And can you hold onto that market share as we have these lower-end Smartphones roll into the addressable markets?

Ralph Quinsey

Yeah, I appreciate the question. I really don’t want to talk about share of Smartphone market. What I track and talk about is share of total mobile devices market. And we talk about it in dollar share and not unit share, just to clarify.

And right now, we think we’re about a 12%, maybe 12 1/2% share player of the total dollar availability in our market. So we think we’ve got tons of headroom.

David Duley – Steelhead Securities

Okay. And perhaps you could talk a little bit about the incoming order rate. It seems like it’s a pretty large number at a book-to-bill of 1.29, I think 268 million in orders. So why was the order number so strong?

Steve Buhaly

Demand is strong. We are seeing great success with our BAW products. We are seeing great demand on our Oregon GaAs factory. We are currently pushing up against the limits of the factory as far as outputs. So some orders are being scheduled outside of the quarter.

David Duley – Steelhead Securities

Okay. What are you lead times then?

Steve Buhaly

Well, some of the orders are being scheduled outside of the quarter, that’s pushing – and it varies. With some customers, we have contractual relationships. Some customers are hub customers. But in general, our lead times have stretched out probably to the 10 to 13 week timeframe on average.

David Duley – Steelhead Securities

Okay, and final one from me is, I noticed your CDMA revenue was down pretty nicely sequentially. And your WCDMA was up pretty nicely. Maybe you could just talk a little bit about the trends that are going on inside the wireless handset business.

Steve Buhaly

Certainly, and like last year, CDMA revenue looks to be lumpy. As you recall, we had some cycles down and back up. And we expected to be lumpy this year. In fact, I would expect it to be up nicely sequentially in the current quarter.

Going forward, as I’m sure you’re aware, architectures are converging and merging. And the same RF hardware will be used for both CDMA and wideband CDMA. So it’s going to be difficult for us to really categorize markets. So starting in Q1 of 2011, we’re just going to stop reporting CDMA revenue.

As far as wideband CDMA growth, that will continue. That is the hot market.

David Duley – Steelhead Securities

Thank you.

Operator

And your next question comes from Jason Schmidt - Craig-Hallum.

Jason Schmidt - Craig-Hallum

Hey, guys. Thanks for taking my questions. Most have been asked already. Just wondering really quick if you could talk about the linearity in the June quarter, and kind of the expectations for the September quarter.

And then also if the pricing pressure, which has been well below historical trends, if that’s also the case with this quarter, and what you’re seeing currently?

Steve Buhaly

Sure, linearity was pretty typical in Q2. And I think in many ways your best external metric is to look at our DSO. And if we’re really back loaded, that’s going to be a higher number. Turns out DSO was pretty comparable with Q1. I would expect something similar in the third quarter.

We are easing growth in our capacity as we go through the second and at least the first half of the third quarter. So you’ll see a little bit more in the back end, but nothing extraordinary.

And please ask again the second part of your question.

Jason Schmidt - Craig-Hallum

Just wondering if pricing pressure has remained well below historical trends.

Steve Buhaly

Yes, this market has price reductions built into it for most of our major customers. We work on roadmaps. And we target, try to design costs out of the system. And we have programmed in cost reduction, so that’s really the dominant theme.

Over and above that in the general market, which is the smaller part of the business, certainly there is tightness in the market right now. And customers are very aware of assurance and supply and not as focused on ASP reductions.

Jason Schmidt - Craig-Hallum

All right, perfect, thanks guys.

Operator

Your next question comes from Mike Burton with FBN Securities.

Mike Burton – FBN Securities

Hey, guys, congratulations on the nice results. Sorry if I missed it, but did you talk about your CapEx forecast for Q3? And then going forward into next year, how we should try to model that?

Steve Buhaly

Not specifically, but I’ll be glad to take that. I think you should look at CapEx in Q3 and Q4 this year in the 30 to $35 million a quarter range. As we buy a lot of our equipment for the Texas extension line, I recognize that there’s some lead time between buying it and actually implementing it, getting production and depreciation expense from it. But I expect most of the CapEx expense for that, not all, but much of it, will be incurred in the back half of this year. I think next year, we will be at a lower level. If I had to guess, I’d say $60 million, but that’s a guess.

Mike Burton – FBN Securities

Okay, great. Thank you. And then, it sounds like lead time’s stretching out, you guys are bumping ahead a little bit. Can you talk a little bit about some of the tightness you’re having with maybe some of your sub-contractors? And are you working to alleviate that through some of this CapEx?

Steve Buhaly

Yeah, we’re seeing some tightness again. It’s great success in our BAW products. And we are raising our capability capacity for BAW in Texas, and then Oregon GaAs. On our supply line probably the only tightness we’re seeing is with one of our CMOS suppliers. And we’re working though those issues.

We’re not seeing much constraint around the assembly and task. Keep in mind, our business model is different than our competition. And that gives up a leg up with our partners. And we also are migrating to flip chip, which again strategically is a technology that eliminates big steps in assembly, like die attach and wire bond. So it’s a much more efficient and timely way to build the products. And to be honest with you, our partners, or sub-contractors, assembly partners really like that technology.

Mike Burton – FBN Securities

Great. Congrats again.

Steve Buhaly

Thanks.

Operator

And your next question or comment comes from Richard Shannon with Northland Securities.

Richard Shannon – Northland Securities

Hi, guys. A quick follow-up on the question about CapEx. I just want to make sure there isn’t any risk of a ceiling from your capacity here in the second half of the year before you get the capacity in place in Texas. I mean is there any risk of that ceiling from that be anywhere near that 30% growth number you were looking at for the year?

Steve Buhaly

No, I think the 30% growth number is very doable.

Richard Shannon – Northland Securities

Okay, but does this ceiling from a capacity is anywhere near that point, I guess was more my question.

Steve Buhaly

No, I don’t think that the capacity constraint will impact the 30% growth rate. Is that your question?

Richard Shannon – Northland Securities

Okay, great. And then my second question is in your TriPower product. You’ve kind of talked about that. I would like to get a more recent update on what you’re seeing there, and also relative to your customer’s viewpoint on GaAs or scan versus LDMOS. How is that progressing?

Steve Buhaly

Yes, the TriPower is a new technology. It’s innovative. It’s very helpful with OFDM modulation schemes where you typically find that in 3G/ 4G type of technologies, peak to average requirements. And new technologies take time to come out. We think that TriPower is the right solution for that space. The incumbent is LD Moss. And LD Moss will continue to – that technology will continue to find creative ways to maintain the socket.

We also supply GAN to that market, right. And we could supply GAN to that market, and where GAN could or would be a better solution, we would supply it. We have capability on both. So right now, it’s TriPower. And it’s just a slow developing type of technology change in a risk adverse market.

Richard Shannon – Northland Securities

Okay, great, that’s all for me. Thanks a lot guys.

Operator

And your next question comes for Bill Dezellem with Tieton Capital Management .

Bill Dezellem – Tieton Capital Management

Thank you. A couple questions. The networks growth was so strong this quarter that we’re trying to figure out, did mobile actually pause a little bit relative to its historic growth, or was just the network’s growth so strong that it essentially overshadowed the mobile growth this quarter?

Steve Buhaly

No, mobile devices was up 10% sequentially, and 31% year-to-date when you compare the first half with the first half, so mobile devices continue. Networks was just very strong, right, up 53% year-to-date for the first six months compared to the first six months.

And again, as you know Bill, we put that data out on our website. Feel free to pull that data, and you can see the details.

Bill Dezellem – Tieton Capital Management

So from your standpoint, there has not been any pause in mobile. That 10% sequential growth is something that you’re real comfortable with.

Steve Buhaly

Well, I think the demand for mobile devices remains quite strong.

Bill Dezellem – Tieton Capital Management

And then shifting to your comment that as of a year ago, you had anticipated more of a competitive response than you actually have received over the last year; does that imply that your position relative to the competitors out there is improving as a result of that?

Steve Buhaly

I certainly believe that last year we gained share, right? We grew our business 15% and our competitors were flat. We grew our mobile devices business about 38% year over year. So we are growing the business at a rapid rate. And our mobile devices business will continue to grow at a high rate.

When we did our capacity planning last year, we didn’t anticipate some of the success in particular in the Wi-Fi area and handset. We didn’t anticipate having as much success as we are now seeing. And that’s where my comments about the competitive response.

Also I think our customers are seeing the great value of integrated BAW and GaAs, particularly in PA duplexes of a strong component of integration as a fundamental trend in our industry. And I see that happening. Certainly, there are customers that are always going to want discreet for some applications. But long term, it benefits in cost, size, and performance. Integration is the best way to get there.

And we’re seeing our competitors now coming out with some good solutions in integrating in this fashion, but it’s a much narrower field. It is a consolidating field around the capability to get that complex small high performance module.

Bill Dezellem – Tieton Capital Management

Does that imply that your market share gains could be accelerating over the course of the next couple years simply because of that integration and a fewer number of competitors? And then maybe on top of that, you just have not seen the competitive response as you anticipated?

Steve Buhaly

Well, time will be the judge of that. It’s certainly our goal to gain share.

Bill Dezellem – Tieton Capital Management

Thank you.

Operator

(Operator Instructions) And your next question comes from Michael Martin with SmallCap Report.

Michael Martin – SmallCap Report

Congratulation and thanks for taking my question. On the Avago lawsuit, can you give us any sense of the potential liability there?

Steve Buhaly

No, we really can’t. I don’t think it would be significant. And it’s quite a ways out yet. So that’s what I could say about it at this point.

Michael Martin – SmallCap Report

Okay, and on the market share, year-to-date, do you believe that you gave market share in the Smartphone business?

Steve Buhaly

It’s difficult to measure market share quarter to quarter because there’s mix and there’s inventory, so very, very difficult to give you an honest well-thought out answer on market share.

I would just, stepping back looking year-to-year, we said clearly we gained share last year. And clearly we are growing. At 30% growth rate, we’re growing at a good clip this year. We’ll see how some of our competitors do. I’m sure we have at least one competitor that’s doing as well as that. We’ve got some competitors that aren’t, but they’re all strong competitors. We’ll see how the year turns out. It’s our goal to continue to grow shares.

Michael Martin – SmallCap Report

Thank you very much, and just finally to make sure I have it right. Your longer term goal of 20% growth, we’re talking about revenue growth?

Steve Buhaly

Yeah, that’s revenue growth, compared annual growth rate. And that has been our track record for the last several years. Certainly we’re doing a little bit better than that last year, or this year, a little bit below that last year. But that’s our goal as a compound annual growth rate of 20% revenue.

Steve Buhaly

Thank you very much.

Operator

And you have no further questions at this time.

Steve Buhaly

All right, Phil. Well thank you for your help and thank you to all the participants and listeners for your interest. I look forward to updating you in late October on our next earnings call.

Operator

And this concludes today’s teleconference. You may now disconnect.

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

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

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

Source: TriQuint Semiconductor, Inc. Q2 2010 Earnings Call Transcript
This Transcript
All Transcripts