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Executives

Doug DeLieto – IR

Bob Bruggeworth – President and CEO

Dean Priddy – CFO, Corporate VP, Administration and Secretary

Eric Creviston – Corporate VP and President, Cellular Products Group

Bob Van Buskirk – Corporate VP and President, Multi-Market Products Group

Analysts

Ittai Kidron – Oppenheimer

Harsh Kumar – Morgan, Keegan

Anthony Stoss – Craig-Hallum

Todd Koffman – Raymond James

Scott Searle – Merriman

Steven Hentschel [ph] – Gleacher & Company

Mike Burton – FBN Securities

Aalok Shah – D.A. Davidson

Vijay Rakesh – Sterne, Agee

Parag Agarwal – UBS

Venk Nathamuni – JP Morgan

Eric [ph] – Stifel Nicolaus

Quinn Bolton – Needham & Company

Frank Keller – Barclays Capital

Nathan Johnson – Pacific Crest Capital

Denim Vinodal [ph] – ABN Securities

RF Micro Devices, Inc. (RFMD) F2Q2011 Earnings Call Transcript October 26, 2010 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the RF Micro Devices second quarter fiscal 2011 conference call. During today’s presentation, all participants will be a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Tuesday, October 26, 2010. And at this time, I’d like to turn the conference over to Doug DeLieto, Vice President, Investor Relations of RF Micro Devices. Please go ahead, sir.

Doug DeLieto

Hello, everyone, and welcome to our conference call. At 4:00 PM today, we issued a press release. If anyone listening did not receive a copy, please call Samantha Alfonso at the Financial Relations Board at 212-827-3746. Sam will fax a copy to you and verify that you are on our email list. In the meantime, the release is also available on our website, rfmd.com, under the heading, Investors.

At this time, I want to remind our audience that this call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release published today as well as our most recent SEC filings for a complete description.

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

During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our corporate website, rfmd.com, under Investors.

Similarly, for an explanation of how RFMD calculates return on invested capital, free cash flow, and positive net cash position, please refer to today’s earnings release. In fairness to all listeners, we ask that participants please limit themselves to one question and a follow-up.

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

And with that, I’ll turn the call over to Bob.

Bob Bruggeworth

Thanks, Doug. And welcome, everyone. As you will see from our announcement today, RFMD is delivering robust financial performance supported by product and technology leadership and a broadening diversified base of customer engagements. RFMD’s September quarterly revenue expanded by 12.2% on a year-over-year basis and 4.4% quarter-over-quarter.

On the strength of new product launches and diversification efforts, we continue to reduce our exposure at our largest customer while sales to all other customers grew year-over-year by approximately 53%. As a result, RFMD delivered our sixth consecutive quarter of expanding operating income with the September quarter representing another company record. RFMD’s financial performance is the direct result of prior structural changes in the strategy and the organization’s crisp executions on that strategy.

Additionally, the end market wins are at our best, enabling us to take advantage of robust long-term secular growth trends in our end markets. The accelerating demand always-on mobile broadband is benefiting RFMD as infrastructures deploy as mobile broadband devices proliferate and as these devices operate across more frequency bands and more modes of connectivity.

RFMD also benefits with the increasing focus on energy conservation measured both in power efficiency of mobile devices and in the power consumption of both fixed and mobile networks. RFMD is capturing this growth by providing customers RF components that are smaller, more cost effective, and more power efficient with each generation. We call this superior functional density, and it enables RFMD’s customers to reduce product size, reduce power consumption, increase data throughput, lower costs, and ultimately, provide an enhanced user experience.

RFMD’s PowerSmart power platform is a clear demonstration of technology leadership and superior functional density. PowerSmart provides the lowest current consumption in the industry. It is half the size of competing solutions, requires less design and calibration time for our customers, is scalable up to 9 frequency bands, and supports any mobile operator with the flexibility to cover the globe with one RF front end solution.

We continue to forecast PowerSmart will ramp in the March 2011 quarter, and we now expect our lead PowerSmart customer will broadly feature PowerSmart across their next generation smartphone portfolio. We expect additional deployments to follow in rapid succession. As we indicated last quarter, we are already supporting multiple phone bills at five major smartphone OEMs and a list of customers and applications for PowerSmart continues to grow.

Equally important to our strategy to own the entire cellular front end is our product and technology leadership and high linearity and multi-thread components for signal routing and antenna tuning. Taken together, our switch-based products coupled with our industry-leading discrete hybrid and converged power products enable RFMD to deliver a complete RF front end solution.

Before the end of the fiscal year, we expect quarterly revenue for our high performance switch-based products to more than double, fueled by our technology leadership in semiconductor process technologies and proprietary circuit design techniques.

In our Multi-Market Products Group, we expect a similar growth rate in smart energy while we are expanding our collaboration with channel partners and winning new programs in support of leading smart energy customers. On a year-over-year basis, we expect our smart energy revenue will nearly double in fiscal 2011. We are seeing similar growth in WiFi across both smartphones and mobile tablets.

RFMD’s broad portfolio of high performance components provides full coverage for this high growth market. In the December quarter, we are ramping with multiple smartphone OEMs. We are also forecasting robust growth in expanding market for tablets where dual-band WiFi is in the early stages of adoption.

In defense and power and in our CATV business, our gallium nitride or GaN technology continues to capture new opportunities. The GaN ramp has begun, and we expect to exit our fiscal 2011 at a double-digit $1 million per year run rate. The demand for this high bandwidth power technology is coming from multiple markets, with particular strength in cable infrastructure, military communications, private mobile radio, and military and civil radar applications.

Our growth in wireless infrastructure is also noteworthy. Revenue in point-to-point backhaul in cellular base stations has increased considerably over the last year. In the coming quarters we are forecasting strong growth across multiple equipment OEMs, highlighting RFMD’s 3G and 4G product leadership and our robust worldwide customer support capability.

The favorable business dynamic for RFMD is consistent across all of our markets. RFMD’s customers are increasingly relying on our technology and product leadership, our broad product portfolio, and our scale. We are leveraging these strengths to solve our customers’ RF challenges and capture incremental business. As a result, we are diversifying our customer base while generating excellent financial results.

As the ramp at Polaris accelerates, we are transitioning to a more diversified revenue mix and expect favorable market share dynamics, supported by product and technology leadership and robust new product cycles. In fiscal 2011, we continue to anticipate annual revenue growth supporting record operating income and double-digit growth in earnings per share. In fiscal 2012, which begins in April, we forecast sequential growth will accelerate, driving expanding margins and continued improvement in earnings and cash flow.

And with that, I’ll turn the call over to Dean.

Dean Priddy

Thanks, Bob. And good afternoon, everyone. First, a quick reminder of the income statement results and comparisons will be non-GAAP. Before I cover the details of our September quarter, I’d like to provide some high-level commentary on RFMD’s results and outlook.

RFMD demonstrated robust financial performance in the September quarter and generated several all-time financial records. The financial results we are achieving are the direct result of focusing on our areas of leadership and RF components and compound semiconductors. While we are pleased with the financial records we’ve set in the September quarter, we are even more excited about the future when we believe our industry changing technology and new product ramps will continue to support growth and revenue, earnings and free cash flow.

RFMD achieved a positive net cash position in the September quarter, raising approximately $400 million in net debt in roughly two years. This significant milestone is a direct validation of our growth strategy and our proven ability to generate cash while investing in future growth.

RFMD is fundamentally altering the capital intensity of our business through IP, intellectual property, and technology leadership. We can now drive significantly higher revenue with less capital investment. As a result, we continue to anticipate capital expenditures being 2% to 3% of sales this year and 2% to 4% of sales going forward, resulting in sustainable, strong free cash flow.

Now moving to the September financial results. Revenue for the September quarter was $285.8 million, up 12.2% year-over-year and 4.4% sequentially. As you may recall, we had 14 weeks in last year’s September quarter. Normalizing for that, revenue growth was 21% year-over-year. In terms of diversification, sales outside of our largest customer continued to be strong, growing approximately 53% year-over-year and 12% sequentially.

Gross profit was a record $113.7 million and operating expenses were $56.5 million, with G&A of $9.8 million, sales and marketing of $12.5 million, and research and development of $34.2 million. Gross margin expanded to 39.8%, up from 39.2% last quarter. The operating income was a record $57.1 million, representing 20% operating margin.

Non-cash share-based compensation expense, which is excluded from non-GAAP results, totaled approximately $9.1 million, of which approximately $1.2 million was in cost of goods sold. Other income was $91,000, and taxes were $4.9 million. Net income for the September quarter was a company record $52.3 million, with record earnings per share of $0.19 per diluted share based on $277.5 million diluted shares.

RFMD’s core business saw sequential expansion in both gross and operating margin to above 42% and 19% respectively. Our core business is growing profitably and continues to support our intermediate and longer term expectations for growth and earnings per share.

Now going to the balance sheet, free cash flow was also a record of $56.1 million with EBITDA of $62 million. Total cash and cash equivalents were $239.7 million, resulting in a $7.1 million net cash positive position. RFMD currently has approximately $98 million par value of 2012 converts and approximately $135 million par value of 2014 converts. The blended interest rate on these securities is less than 1%.

RFMD’s inventory was $130.9 million, with turns consistent with last quarter at 5.4. Net PP&E was $227 million compared to $237 million last quarter. Capital expenditures during the quarter was $5.2 million, with depreciation of $15.9 million and intangible amortization of $4.6 million. RFMD’s return on invested capital, or ROIC, has improved over the last six quarters and now stands at 48.9%, up sequentially from 41.2% and 30.3% a year ago.

Now some comments to assist your modeling our financial performance. RFMD currently expects December quarterly results will be approximately in line with September quarterly results. We expect to continue ramping new customer programs to offset declining end-of-life legacy products.

We expect the sequential growth in our core markets would be broad-based and supported by strength in smart energy, high-performance WiFi, wireless infrastructure, fixed and mobile broadband, smartphones, and 3G connected devices. And finally, we now expect to achieve record free cash flow in fiscal 2011 in the range of $180 million to $200 million.

And with that, I will open the call up for your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) Our first question comes from the line of Ittai Kidron with Oppenheimer. Please go ahead.

Ittai Kidron – Oppenheimer

Thank you and congratulation, gents, on a very good quarter. Dean, I wanted to dig a little bit the usual topic of Polaris and how much of revenue was it this quarter and how the ramp-down going towards your targets through the March quarter?

Dean Priddy

Ittai, I’d actually like to turn that over to Eric Creviston. He runs the Cellular Products Group and he is responsible for Polaris.

Eric Creviston

Sure. The outlook for Polaris is largely consistent with last quarter. The ramp-down has begun as we projected. In terms of actual revenues in September, they were basically in line with June, but we’ve significantly begun ramping down our production now. So we see the revenue contribution of Polaris compared to total revenues in December, heading down towards 10% and then towards 5% in margin and well under 5% in June, as we’ve been saying.

Ittai Kidron – Oppenheimer

Dean, can you give me what was Nokia a percent of revenue this quarter?

Dean Priddy

Yes. We indicated last quarter, Ittai, Nokia would come in under 40% and they indeed were around between 39% and 40% of revenue.

Ittai Kidron – Oppenheimer

Okay. And so this number should take another meaningful step-down next quarter?

Dean Priddy

We expect continued revenue diversification. That is correct.

Ittai Kidron – Oppenheimer

Very good. Good luck, guys.

Dean Priddy

Thank you.

Bob Bruggeworth

Thank you.

Operator

Thank you. Our next question comes from the line of Harsh Kumar with Morgan, Keegan. Please go ahead.

Harsh Kumar – Morgan, Keegan

Yes. Let me also add my congratulations on some fantastic execution. Just want to dig into the December quarter guidance. Should we attribute the flattish guidance in revenues to Polaris mostly and the ramp that’s going on there, or is there some other things that are going on that we need to know about?

Bob Bruggeworth

Harsh, this is Bob Bruggeworth. I think you’ve got the story correct.

Harsh Kumar – Morgan, Keegan

Okay. Fair enough. And then I want to kind of look out a little bit. Can you help me understand the share of new design wins in 3G, including PowerSmart, versus where your current 3G market share is as a company? In other words, where are you going in 3G market share versus where you have you been or where you are today?

Eric Creviston

This is Eric. I’ll take that. There is no question about the trend. It’s up significantly for 3G. As you know, we’ve been gaining share in 2G quite consistently over the past several quarters, as we’ve been diversifying our customer base away from our largest customer for the most part. And now I think that’s really turning to 3G. I think that our share is essentially going to be going up throughout FY ’12 significantly. PowerSmart is one piece of that, but our discrete PAs as well that we’ve been releasing for 3G and then hybrid PAs that are also coming next year in exchange of the share gains. It’s also not just across the smartphones, but also in connected devices where we’ve been having a good – we've had some good share gains last year, but that’s going to continue as well, and across different product types as well. Not just product – not just power suppliers but also in a high performance switch product group as well. We see a lot of growth coming in in that SSC field.

Operator

Thank you. Our next question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead.

Anthony Stoss – Craig-Hallum

My congrats. Couple things if you won’t mind. Can you talk a little bit about capacity utilization within your facility, design activity going forward and your view on kind of linearity of the quarter?

Bob Bruggeworth

Dean, why don’t you go ahead and take the capacity and linearity, and Eric and Bob will add some design wins.

Dean Priddy

As we said last quarter, our capacity utilization is roughly 75%. It ticked up a few points in the September quarter. But clearly, we have a capacity on hand to take on additional business, and we are aggressively going after that business, as Eric and Bob are pointing out. In terms of linearity in the September quarter, it was an extremely linear quarter. So that is pretty much what we had expected as well going into the quarter, even though I will say that the order book did strengthen somewhat as the quarter progressed.

Anthony Stoss – Craig-Hallum

Okay. And then design activity?

Eric Creviston

I’ll go first. I didn’t hear that question. Was it specific to any given area or just broad-based design activity?

Anthony Stoss – Craig-Hallum

Well, broad-based. I think you guys commented a little bit about 3G. So let me hear your thoughts, kind of what you expect with others struggling on the capacity side.

Eric Creviston

Yes. I think I’ll talk about where our strength was in September and then where it’s going to come from in December and forward because I’m not really sure what the design wins are. We had really a pretty broad-based growth in September in the Cellular Group, but the areas where I think we grew conservatively faster than market where with Samsung. That’s definitely in 3G as we were going to regain share back there with some of our new discrete PAs. And then also with Sony Ericsson, we had actually pretty good growth for Sony Ericsson considerably faster than the market, as we are ramping into some of their 3G products as well.

And then overall, in China, we are continuing to capture design wins there. We gained about another 5 points a share last quarter. That’s across media tech spectrum and Morningstar. And as that transition goes to 3G entry, we definitely continue to see that our design traction there is quite strong. So those are kind of the top drivers right now for us in the next couple quarters. And then as we said going into next year, we’re already beginning getting very significant design wins for PowerSmart at this time and then the high performance switches and so forth that go along with that. It’s really in all of these systems. I think those are the big design wins that we are excited about today. We think our switch and signal conditioning product line could grow very significantly in December versus September. It’s kind of a breakout quarter for those guys.

Anthony Stoss – Craig-Hallum

Great. Good job, guys. Thank you.

Bob Bruggeworth

Thanks. Bob, you want to talk a little bit about MP?

Bob Van Buskirk

Yes, if I could get in there. We actually have some pretty high profile end markets and applications for the design activity. It’s actually very hard. We mentioned in the prepared remarks about accelerating design activity in gallium nitride, amplifiers for hybrid fiber coaxial-type networks, military, civilian radars, base stations, PMR radio applications, and some emerging broadcast and other industrial applications. So the gain activity is high. Also in the area we call wireless connectivity, we have both smart grids, smart energy, as well as our WiFi handset business. The WiFi handset business, we’ve captured some very, very high volume, high profile, major OEM handset players.

What we are ramping today are WiFi, what we call a front end module for either low band or high band, eventually dual-band WiFi. We’re at the run rate of about 0.5 million units a week now. And we’re heading it to as high as 1 million a week in the future. Those are all the design wins that we captured very early in the beginning of this past September quarter, in part needed by some struggles with some of our competitors where we are able to pick up that incremental business. But we’ve expanded some other customers now. Smart energy, we’ve taken it beyond the few of the key system providers and are going directly to a wide range of leader suppliers and we’ll be talking about some key wins there. And the design activity in wireless infrastructure is very high. A lot of activity in TD, LTE, and LTE itself. We’ve seen some of the synergies that we have with the scale technology and CPG we’ve deployed in wireless infrastructure, and we’re ramping some high volume multi-chip modules there. So, across the board design activity is high, as the good news we are capturing, I’d say, more than our fair share.

Operator

Thank you. Our next question is from the line of Todd Koffman with Raymond James. Please go ahead.

Todd Koffman – Raymond James

Yes. Just a clarification, Eric, on the Polaris revenue. You said it was – I think you said flat sequentially, which is about $40 million. And then based on the December guidance in your comment, it goes down to about $30 million and the real fall-off you expect is going to be March where it would fall off to about $15 million or $10 million in the ballpark on those numbers?

Eric Creviston

Well, yes, these are all forecasts that correspond. So, to the best of our understanding right now, it’s going to ramp down something like that. Maybe not quite as steep in the December, but definitely accelerating in the March quarter.

Todd Koffman – Raymond James

And then can you expect that the margin profile of the overall business, the lift pretty noticeably as we move into PowerSmart with the transceiver business falling off or that’s too many moving parts looking forward?

Dean Priddy

Todd, there is several things I think that are going to affect the margin profile of the business. Number one, we said that our core margin, which is everything ex transceivers, is now above 42%. So that long transceivers begin to ramp down. You will see a natural lift in the gross margin structure. Going into the December quarter and we could perhaps see a little faster growth rate of our MPG organization, which has a higher gross margin structure. And then finally, as you mentioned, the PowerSmart ramp, that definitely has a higher margin structure on average than CPG. So we’ve got a lot of wins in our sales in terms of margin expansion as we exit this fiscal year and enter fiscal year ’12.

Operator

Thank you. Our next question is from the line of Scott Searle with Merriman. Please go ahead.

Scott Searle – Merriman

First, just a clarification to Bob. You made some reference to fiscal 2012 and growth. Could you just reiterate that? Were you talking about accelerating growth overall in fiscal 2012 or were you talking about a particular segment of the business? And did you mention any other 10% customers besides Nokia?

Bob Bruggeworth

As far as 10% customers, there were no other ones besides Nokia. And my comments were geared towards as we begin fiscal 2012 and we’ve seen Polaris roll off, as Eric has already commented on. I think you are going to see the growth rate that’s kind of a mask as Polaris has roughly stayed steady and started its decline. And that’s why we’ve talked so much about the growth outside of our largest customer. And we are expecting our quarterly growth rates to pick up considerably in FY ’12.

Scott Searle – Merriman

Got you. And if I could just on the PowerSmart front, it sounds like you certainly get some better visibility to when some of the initial models are going to go into production. Could you provide a little bit more color in terms of March? What do you think those numbers could look like? Maybe could you give us some idea about how big you can tell us what might be in the calendar 2012 timeframe? And also, again, perhaps a little bit early, but if you could comment on seasonality as we go from December into March, there are a lot of moving parts with Polaris falling off, but then PowerSmart ramping up. How are you seeing things cheap up for March at this point in time? Thanks.

Eric Creviston

This is Eric. I’ll take the question on PowerSmart and then we’ll discuss the seasonality next. But the – in terms of PowerSmart, you’re exactly right. We clearly have more visibility. There is a tremendous amount of effort going on around PowerSmart integration, not just at RFMD, but at our customers and channel partners around the world. We do get more visibility every single day on the platforms and products that we’ll be ramping off of those platforms across the various OEMs.

We are confident at this time at least in our product readiness and we believe our customers are going to be ready to begin the ramp in the March quarter. Just to give you an idea, I guess, over the maturity, we’ve actually shipped over 20,000 pieces already. And by the end of this quarter, we will have shipped 50,000 pieces to multiple OEMs around the world. So – the product is quite mature actually. We’ve locked the supply chain. We’ve essentially begun production now. So we’ll be – we will definitely be in the millions of dollars of revenue in the March quarter. And as we enter FY ’12, we believe our first quarter FY ’12, we’ll be looking in that $10 million a quarter kind of scale. And we believe we could exit FY ’12 easily in the $25 million a quarter.

Bob Bruggeworth

All of the seasonality?

Eric Creviston

Yes. So I could talk about the seasonality of the Cellular business. The December quarter versus September quarter, we believe that we are looking at something like a normal seasonality, probably up single-digit percentage over September quarter. And then as we go into March, as far as we know, at this time as well, I think sort of historical seasonality of down 8% to 9% seems reasonable to us right now.

Bob Van Buskirk

On the MPG side, typically the March quarter, I guess, the lowest quarter of the year. Of course, 18 months before this wasn’t very typical. But it looks like this year is. But they’re rather flattish to down maybe 5 points or so for us. I will say that it does appear from where we can see in the today that while it should be our lowest quarter next year, it looks like it’s going to be substantially up from the March quarter in calendar ’10.

Operator

Thank you. Our next question comes from the line of Mark Mckechnie with Gleacher & Company. Please go ahead.

Steven Hentschel – Gleacher & Company

Hi, this is Steven Hentschel [ph] for Mark. Thanks for taking the questions. I want to ask you about your mix of 2G versus 3G, how that’s progressed on sequentially and also your mix of CDMA business alongside Qualcomm platforms.

Eric Creviston

In the Cellular Product Group, the mix – I guess we’ll talk about our core business, ex transceivers here. The new product wins, in fact, we released 10 products last year, all 10 of those were 3G products. We’re definitely seeing a mix shift rapidly towards 3G. Today our actual revenues are stronger on 2G side, as we talked about earlier, that we’re seeing in the mix, also design activity and so forth is really a building on the 3G side. In terms of Qualcomm attach, as a matter of fact, eight of those were compatible with Qualcomm platform. So I think there as well – you're definitely seeing that we’ve got a lot of energy and R&D devoted to that and continue to see our attach grow.

Steven Hentschel – Gleacher & Company

Okay. And then I had a follow-up. If I’m doing my math right, I think you said that your revenue outside of your largest customer grew by about 12% sequential. Polaris was flat. It sounds like your Nokia business, excluding the transceivers, was down about 7% or 8% sequentially. Can you update us on your share position there? And longer term after Polaris has ramped down, what percent of revenue do you think Nokia might comprise with you?

Dean Priddy

Yes. I think your math is about right on that. We’ve been talking for sometime about how our customer diversification is really geared. Turning to make sure we’ve got a consistent share across all OEMs. And today our share at Nokia is still higher than our average shares. So we think it’s going to come down, but only for about two more quarters. I think we talked about this last time. Around the June quarter, where we start to see, we believe, a turnaround and then grows back in share there in the front end business, also with Nokia. We’ve had significant design wins there over the past couple quarters across the portfolio from 2G devices to 3G entry and all the way up into their higher fear, smartphone platforms as well. So we’re really looking forward to being back in a growth with Nokia as well in a couple of quarters.

Operator

Thank you. Our next question comes from the line of Mike Burton with FBN Securities. Please go ahead.

Mike Burton – FBN Securities

Hey, guys, thanks and congratulations on the results. On PowerSmart, can you give us an update on the number of OEMs and the SKUs with PowerSmart designed in? And also if you could on your baseband partnership or progress with some of the baseband platforms? And then lastly, the competitive landscape?

Eric Creviston

Lot to cover there. It’s a little sensitive when talking about the OEMs and in particular the baseband alignment, because in effect, we would be sharing some of the customers’ strategy in terms of their semiconductor alignment. So I have to be careful there, but the five leading smartphone manufacturers that we’ve been mentioning in terms of our engagements, all five of those are strong and moving forward. We had mentioned we are talking about Korea, North America and one in Europe as well. Those five engagements are all quite strong and moving forward. Again, everyone that dealt with the part essentially is trying to take it into production.

We’ve expanded now beyond that for sure and where a lot of energy these days in terms of new activity and new business development in Taiwan and China. So we’re moving into that tier now and engage strongly with many basebands and customers in that area. So I think there is really no question about the trend in the industry towards converge. It’s a question of when each customer will be ready and each baseband and transceiver will be aligned to be able to use the full converged solution. As I said in my comments about FY ’12, our funnel is quite full. We have a tremendous amount of opportunity just with the alignments we have today in FY ’12. We think FY ’13 to be just used.

So in terms of the competitive alignment, I guess, maybe one way to look at that is our view of how we converged the fully converged power amplifier market penetrates overall smartphone market. And the way we see it today, even in Calendar 2011, we think two-thirds of the smartphones will be produced with essentially a discrete PA sort of application. And of course, we have a full suite of power amplifiers. We are going to be participating broadly in all of that. Another third will be made up of hybrid or converge solutions. We think the lion’s share of that will be converged, actually. And then in FY ’12 though, you definitely start to see a majority being produced in either hybrid or converge. And our model says that it might be something like a third, a third, a third. So, a third of the converged solutions and a third in hybrid, and only one-third in discrete by the time you get to calendar 2012. We are going to be represented across all three of those, and I think several of our competitors will be in one or the other. But we are happy to take advantage of whichever train, whichever way it goes.

Mike Burton – FBN Securities

Okay. And then just a quick one is, what percentage now is China, Inc. for you guys?

Dean Priddy

Mike, I’ll get the actual number for you. You can go ahead to the next question while we look that one up.

Operator

Thank you. Our next question is from the line of Aalok Shah with D.A. Davidson. Please go ahead.

Aalok Shah – D.A. Davidson

Hi, guys, congrats. Just a follow-up, Eric. On PowerSmart, from a high level, for years you have seeing you guys are increasing our content within phones. The power amplifier industry has been increasing content. Is this – I mean, how are you guys start to think about this? I mean, is it the beginning of maybe maxing the potential power amplifier content within the phone and ASP content within the phone, because it reduced down as we go into 2012 and 2013?

Eric Creviston

Not at all. That’s not how we see it. We think it supports that trend. It enables our customers to build more featured phones, have to work across more geographies and sell to more of their customers. So it allows those phones to be more producible, which will increase the volume of that. And we think, as you build more and more phones, there are multi-mode and multi-band capable and the overall market continues to grow.

Aalok Shah – D.A. Davidson

Do you think that there will be with competition? I’m assuming you’re going to see competition for converged PAs. I mean, already we’re starting to hear one of your competitors talking about it. They are even trying to get it up before you guys do. How do that stand? And does that make any – have you seen them around? And then also, I mean, just in general, when do we see – you guys all get very competitive on the converged PA solution and maybe even drive pricing more.

Eric Creviston

I suppose if I see another competitive market, but right now at least our price is not the primary buying criteria by any means. And I think we’ve got several years here of growth in terms of what’s needed in performance in the front end. There is tremendous effort on driving the thermos performance of the phone down as well as obviously current consumption, which is tied to that, and to forwarding all of these different modes with LTE coming, for example. So between PowerSmart and then also our high performance switches in the front end, the activity right now and we think for the next several years is going to be about how can you get the best performing solution to the end users. It’s really not (inaudible) right now. And there is tremendous technical innovation going on to solve that here as well as our competitors, I’m sure.

Operator

Thank you. Our next question is from the line of Vijay Rakesh with Sterne, Agee. Please go ahead.

Vijay Rakesh – Sterne, Agee

Hi, guys. I’m just wondering – when you look at your backlog, what is the backlog converge you have now for the next quarter?

Bob Bruggeworth

The question was backlogs converge for the December quarter?

Vijay Rakesh – Sterne, Agee

Yes.

Dean Priddy

As far as the December quarter, where you have a backlog, first, forecast to support the guidance through the business outlook that we gave. And one of the things I do mention that going forward, it’s less than an issue this quarter, but as MPG becomes a greater percentage of our revenue and as Nokia becomes a less percent of CPG’s revenue, we would expect our business to become a little more turns driven that what it has historically. So keep that in mind, as we exit the December quarter and enter the March quarters and beyond.

Vijay Rakesh – Sterne, Agee

Got it. And lastly, I mean, just geographically, are you seeing just any handset weakness in any geographies? And how does the inventory of the channel [ph] look on the handset side?

Bob Bruggeworth

It looks just fine. We don’t see any issues with the inventory at this time. We’re not seeing any particular weakness in any area.

Operator

Thank you. Our next question is from the line of Parag Agarwal with UBS. Please go ahead.

Parag Agarwal – UBS

Thanks for taking my question. Just wanted to build on your customer concentration. You are growing revenues that they had some rate despite Nokia decline. Just one thing, where the growth is coming from? And also, if you could provide some color on who your main customers are and if any of them are close to 10%.

Bob Bruggeworth

Okay. We’re going to right this into two parts, because as we commented, MPG is growing very nicely along with CPG outside of Nokia. So Bob, why don’t you give him a little color, where you’re going? And Eric, I think you’ve given a little color, but why don’t you go through that again if you would?

Bob Van Buskirk

Yes. I have four product business units and one, which is foundry services. And actually all four of my product business units grew sequentially. And essentially, all four are either flat or up rather dramatically year-over-year. And if you look at where the growth is coming from, we talked about Hybrid Fiber Coax or a cable business, the sets business is growing nicely. We’ve talked about smart energy and WiFi, and we’ve talked about wireless infrastructure. I would point one other area. Our catalog business is also growing quite nicely. That’s general purpose. It’s what we called a little too little throughout the world. Big customers as well as small customers get some new online selling tools that we are rolling out, which is helping that. It’s not only good business from a diversity standpoint, it’s also very high margin business. And that is also often looked at as kind of an indicator of the overall health, if you will, of the wide range of end markets for RF. And that’s growing substantially year-over-year and growing very nice sequentially.

Eric Creviston

And with Cellular, I think I’ll just reiterate what I mentioned earlier. I think we’ve been talking over the past several quarters about Samsung and China being real growth drivers for the cellular business. And then we talked about transitioning and adding to that really LG and Sony Ericsson, and that’s what happening as we speak now. We’re seeing the growth of our sharing those places. And then next year, we’ve been pointing towards more North American content, obviously RIM and Motorola and others are looking at in FY ’12 significantly.

Parag Agarwal – UBS

Okay. Thanks for that. As a follow-up, if I look at your gross margin and after transceiver business totally declined, you should be at 42%. And beyond that, are there any levers to have the gross margin higher like back in the mix of smaller dye based [ph] products?

Bob Bruggeworth

Yes. We covered some of the high level drivers such as an increased percentage of MPG business. The ramp of PowerSmart. And we also have additional dye shrinks that are currently in the works that were in about the six or seventh inning of the current dye shrink. And the technology platform organization has another couple of dye shrinks in the works that could continue to significantly reduce our dye size. And it’s also, again, one of the primary reasons why the capital intensity of our business is less than it has been historically. We get more throughput with the same kind of equipment.

Bob Van Buskirk

Parag, this is Bob Van Buskirk, speaking for both Eric and myself, if you look at the velocity and our R&D pipeline, it’s substantially increased. It has increased now steadily for the last couple of years. So new product introduction featuring product leadership is our key value proposition is a really important part of 42% coal margin today, and I think it’s going to be an important part as we continue to grow margin over time.

Operator

Thank you. Our next question is from the line of Venk Nathamuni with JP Morgan. Please go ahead.

Venk Nathamuni – JP Morgan

Hi, guys. Thanks for taking my questions. Dean, first one for you. You talked about the business strengthening into the quarter and as the quarter progressed, so as a result, are you seeing any shortages of components if you could specifically comment on lead-times, what (inaudible) with respect to normal lead times?

Dean Priddy

We’re not seeing shortages of components in our business or in our supply chain. We have served anecdotally the shortages within the industry and also shortages with some of our competitors.

Bob Bruggeworth

Where we’ve actually used our supply chain to pick up some business, and Dean pointed out we’re seeing some supply chain tightness in our customer supply chains. And we’ve seen them move around product mix to optimize their own product portfolios. But I wouldn’t say there is anything that’s limiting anybody’s revenue significantly for the industry. And my second point is, your comment on lead times, our lead times are the same as what they were last quarter, and that’s what we’ve seen. Our large suppliers in oil

Venk Nathamuni – JP Morgan

Okay, thanks. That’s helpful. And then as my follow-up, if you could specify what your revenue mix was from CPG versus MPG? Is it still at the 80/20 split? And then if you take away the transceiver portion of the business, what was the result for CPG versus MPG?

Dean Priddy

First, we don’t give book-to-bill ratios because it’s not a meaningful indicator given that a lot of our customers are on inventory hubs and so forth. In terms of the mix between CPG and MPG, we ticked up just a bit. We are still around 80/20. We might be a little bit over 20% MPG now because MPG grew just a bit more than CPG during the September quarter. That’s obviously one of the reasons the margins expanded as well.

Operator

Thank you. Our next question comes from the line of Tore Svanberg with Stifel Nicolaus. Please go ahead.

Eric – Stifel Nicolaus

Hi, thanks. This is Eric [ph] in for Tore. Just wanted to get back to some of the things you mentioned earlier. You’ve obviously seen Nokia ramping down, but then obviously the strategy is to maybe capture some of the front end. So net-net, where do you think in terms of percentage Nokia kind of lands in terms of percentage for the company?

Bob Bruggeworth

Go ahead and take, Eric, if you would. Nokia for CPG business and then we’ll blend it with MPG after that.

Eric Creviston

Yes. I think that – again, once the transceivers had ramped down, our strategy in where we are aligning our resources to have a consistent share across all of our customers, so then Nokia would fall a percentage of our sales exactly where their shares in the industry. So whatever you believe that is, that would be the share of the Cellular business here.

Bob Van Buskirk

On the MPG side of things, Nokia-Siemens Networks, obviously the joint venture with Siemens, is actually our second largest wireless infrastructure customer this last quarter. And the WiFi handset opportunity with Nokia is very significant. And so it wouldn’t surprise me if Nokia plus Nokia-Siemens for us is in a kind of 10% range for MPG as we go forward.

Eric – Stifel Nicolaus

Great. In terms of mixing the 80/20 or maybe it looks slightly ahead on MPG a little bit more than 20%, where does this business really start to accelerate when you see a more meaningful split between the two businesses?

Bob Bruggeworth

Let’s the rate begin, to be very honest with you, Eric. But as Bob pointed out, they both increased the velocity of new product development. And in any given quarter, one can grow faster than the other. But I think what we look at is the long-term model of both businesses can grow faster than their industries along with, as we’ve discussed before, the potential tuck-in acquisitions in MPG. So I think in given quarter, one can outgrow the other. But we have expectations for a significant growth out of both of them.

Bob Van Buskirk

Yes. I mean, we target 18% to 20% per year revenue growth for the next several years.

Operator

Thank you. Our next question is from the line of Quinn Bolton with Needham & Company. Please go ahead.

Quinn Bolton – Needham & Company

First question is for Eric. Eric, you mentioned the pretty broad adoption that you are a lead customer for power switches. Sort of looking further out, can you talk a little bit about the switch filter opportunity? It sounds like the powers won’t ramps first. But just kind of wondering, there is still pretty significant dollar content with switch filters that sounds like that might be more of a calendar ’12 opportunity, but could there be a second leg up and even if your lead customer would broad penetration did start to ship integrated switch filter modules?

Eric Creviston

Yes, absolutely. That’s a great question. And one of the earlier questions also asked about platforms versus individual products or SKUs. I think that’s another key point, is that while we’re getting a lot of traction there on platforms and the number of products, which will be delivered off of each of those could really grow dramatically as we go throughout the year and customers really see the benefit of the solution, which is in production. We’ve talked about how PowerSmart growth was roughly half of that $5 to $7 worth of RF content in the smartphones depending upon how many bands and so forth. So the PowerSmart contribution is pretty clear.

We have in addition to that, riding on the PowerSmart platform, of course, the opportunity to sell very high value, high performance switches for the antenna switch module and also other power management components that we have. Once you’re sort of inside the platform tent, if you will, we’re finding all other opportunities to add in other contents. So your point is very well taken. And of course, the high performance switch and switch filter module business, that’s independent of PowerSmart. We’re winning those design wins independently across many different platforms as well. And that’s obviously ramping even at PowerSmart. We said that can get to $10 million a quarter next quarter. So we’re very confident about opportunity. And you’re right, it can be quite significant.

Quinn Bolton – Needham & Company

Great. And then just a quick follow-up for Dean. Dean, the OpEx has been fairly flat over the last three, four quarters as we come into fiscal ’12 and given the increasing revenue projections. Any thoughts you have for us on how we should think about OpEx and does that grow half the rate of sales or perhaps stays flat?

Dean Priddy

We don’t see OpEx as quickly as sales. But then again, we probably will see some natural progression in operating expenses. And with all the opportunities that we are seeing, I mean, we are down hiring those especially for some of the more advanced engineering physicians. And it’s going to be a very measured rate in pace in terms of operating expenses increasing. We might see $1 million or so in the December quarter, up over the September quarter

Operator

Thank you. Our next question is from the line of Tim Luke with Barclays Capital. Please go ahead.

Frank Keller – Barclays Capital

Hey, guys. Frank Keller on line for Tim Luke. Thanks for taking the question. And congratulations on a great quarter and excellent guide. A quick one for Dean. Last quarter I think you guys had got to be cash tax for fiscal year ’11 in the $28 million range. Just wondered with what your tax this quarter, how that might look now?

Dean Priddy

I’m glad you asked the question because (inaudible). I’d like to give some kudos to our tax department for some very, very strategic tax planning, which we believe not only lowers taxes this quarter but will lower taxes for the rest of this fiscal year and into fiscal year ’12 as well. So we are about $12 million or so in cash taxes year-to-date. And so we can expect probably about that much for the remainder of the – you are talking $5 million to $6 million a quarter. And they go again to FY ’12. We’re probably in the 15-ish% type range for our non-GAAP tax.

Frank Keller – Barclays Capital

Okay, perfect. Thanks. And the next question, I guess another one for you, Dean. In the June quarter, you guys retired some debt. As you guys – it has become the more flush of cash, what might be some of the options for the cash, more retirement if that’s – dividend distribution, share repurchase, what things look interesting to you? Thanks a lot, guys.

Dean Priddy

Yes. All of our options are open. We could retire more debt. I don’t know that retiring a debt that has less than 1% interest rate would be the best use because it’s now trading above par. Share buybacks is something we look at every single quarter. And designing that’s the right use for cash proceeds. We mentioned tuck-in acquisitions, maybe particularly in the Multi-Market Products Group or we could simply make some cash for a while and build a very nice cash balance at the rate we are going. That’s going to happen very quickly.

Operator

Thank you. Our next question is from the line of Nathan Johnson with Pacific Crest Capital. Please go ahead.

Nathan Johnson – Pacific Crest Capital

Yes, hi. Thanks for taking my question. Just two pretty high level ones. Just – first, looking at the tear-downs [ph] some of the leading Android platforms, it seems like the southern bands for Android is an area where (inaudible) maybe a bit under-represented and therefore present a pretty good opportunity for you guys. Should we really be looking at PowerSmart as a potential catalyst for taking share on that platform? Or you got to have other strategies for dressing out market. And then secondly, just a high level question on MPG. I mean, clearly seeing good momentum, including – I was wondering how much of that is really associated with expanding market opportunities and how much of that is RF Micro displacing some of the income and technologies that maybe aren’t as efficient?

Eric Creviston

This is Eric. I’ll start with the Android platform question. If you look – you need to also be aware of the fact that we’ve got a broad portfolio that we offer the industry, and not just like the PAs of course. With PAs, our switch and signal condition products, but which include some power management pieces. Our GPS front end and so forth as well as WiFi (inaudible) as well here. We’ve actually covered on nearly every platform in Android dealers across all those product types. Samsung, LG, Motorola, HTC, Huawei, ZTE, the few Chinese that are building today. So we actually have a very broad representation.

If you look across the whole portfolio, if you do want to focus fly on PAs and switches, for example, there is no question that today the focus is on actually our 3G discrete PAs that would then be attached to Qualcomm platform. And that’s kind of the biggest footprint today. Going forward, though, we definitely think the platforms they are going to be launching next year with our PowerSmart partners, we will absolutely be in the Android universe if you will. So that’s kind of the tough level picture of how we see it.

Dean Priddy

To your question as to GaN, I mean, GaN is, as we described it, a game-changing technology and a breakthrough technology. And all of us in this room have had some experience with that before at RFMD. And then what you typically see is new design, new opportunities,. In some cases, you actually enable applications and functions that can’t be reached with incumbent technologies. And we are seeing all of that. If you look at almost all of our applications, we’ve got second and third generation radar to both medical and civil where we’re able to compact the designs and provide opportunities for them to make these radars much more mobile than they were previously.

So it despite being incumbent in the sets of its prior generation, it’s really enabling a new product, a new application, a new configuring of that function. And that’s what you see a lot of the things breakthrough technology, where you basically have opportunities to go in and we kind of picked gallium nitride a switch technology, for example. You can build high power switches that cannot be built today. I generally refer to it as unobtainium. You can’t build it today with any technology on the phase of the Earth. To handle the kind of frequency and power that you can build it with GaN. So that is the truly and enabling technology. So with some cases, it’s new designs, new opportunities. With some cases, it’s replacing the new generations for incumbent technologies and following high.

Nathan Johnson – Pacific Crest Capital

That’s very helpful. Thanks, guys.

Operator

Thank you. Our next question is from the line of Denim Vinodal [ph] with ABN Securities. Please go ahead.

Denim Vinodal – ABN Securities

Hi. Thanks for taking my question. First question that I have is, as you know, tablets have been one of the brightest sport in electronic devices for this year, with iPad being the best example. But I was just curious as to talk to your customers, what kind of opportunity for a shipment standpoint going forward? One of the things that I’m curious about is some of the shipment data that have been coming in are showing that tablets are growing as fast, not faster than netbooks. But as you know, netbooks have kind of tapered off lately. Is that kind of the trend that we can expect here? If you can share some of that thoughts?

Bob Bruggeworth

I think we have to be careful about giving away any forecast information. But I think your question is from when we talked to our customers and those in the industry is the tablet market taking away part of the netbook, I think the answer is yes. But with that said, I also hear from our customers that the tablet is creating a new category. So when we look at what’s happened over the last few quarters in that growth, clearly some of that has come from netbook or notebook, and some of it is actually just adding to the, from our perspective, to the RF content that’s available to us. So we’re kind of seeing both.

Dean Priddy

I would also say – I'm sure some of you guys have seen these forecasts where Cisco has gone out and said the mobile data is going to double every year through 2014 and probably go beyond that. So new devices literally have to be developed to serve what the consumers are looking for. A lot of that initial tablet devices are WiFi length. The data rate and the power levels that they are looking for are perfect set for RFMD’s competency than our strength, because I think that’s why we are seeing a lot of early traction in some of our dual band potential for tablets as well as even low-band, high-band. So we’re pretty excited about WiFi opportunities in tablets, and it eventually obviously –- the market will figure out where the cellular intersection is also.

Denim Vinodal – ABN Securities

Can you give some idea – and you don’t have to give the dollar numbers, but in terms of your content within the tablet which is the handset?

Bob Bruggeworth

This is actually exactly the same. A tablet looks just like a high end smartphone as well as some of the high end connected devices these USB data cards for example. And they are across the board going to four-band to wideband CDMA minimum. Sometimes four-band to wideband CDMA plus an LTE (inaudible) in some cases. So it is at the highest end of the smartphone range of content actually.

Bob Van Buskirk

And we have customers that are talking to us about initial tablet deployment going into the smartphone rule. So it’s their activity pretty much in the same (inaudible) as high as well.

Operator

Thank you. Ladies and gentlemen, we have time for one final question. And that question comes from the line of Harsh Kumar with Morgan, Keegan. Please go ahead.

Harsh Kumar – Morgan, Keegan

You’re getting into a lot of kind of 3G opportunities with the Chinese handset makers. I’m curious if you could elaborate for us what your media tech 3G opportunity is, what kind of share you have in the low end platforms? Is it 100%? Is it 50%? Just any kind of percent you can give us with a color would be appreciated.

Eric Creviston

Yes. Thanks, Harsh. We are connected to all of the media tech platforms. We are on the reference designs. We are also design into the alpha phones that are ramping those new chipsets. It’s really pretty early day. So to speak of any kind of share would be premature, but I think our expectations is on the lines of 50% share should be quite achievable as those ramp. And it could be certainly higher. But we’re very enthusiastic about supporting that market. I think a year from now, there is going to be a lot of talk about how much 3G in China has really taken off that we’re going to be one of the biggest manufacturers of that.

Harsh Kumar – Morgan, Keegan

Got it. Thanks, fellas.

Bob Bruggeworth

Thank you, Harsh.

Dean Priddy

Thanks, Harsh.

Eric Creviston

Thank you.

Operator

Thank you. And gentlemen, please continue with any closing remarks.

Bob Bruggeworth

Thank you for joining us tonight with the transition to a more diversified revenue base. RFMD is delivering superior revenue, margin and EPS performance. These record results are the direct results of our prior structural changes in strategy and crisp execution by the entire RFMD team delivering on our stated goals. In the coming quarters, we expect to see continued improvement in our financial performance, fueled in large part by our industry-changing technologies and new product brands. We thank you for your participation today. And we look forward to meeting with many of you during our conference presentations later this quarter. Thank you, and good night.

Operator

Ladies and gentlemen, this does concludes the RF Micro Devices second quarter 2011 conference call. Thank you very much for your participation. You may now disconnect.

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