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Executives

Steve Buhaly - CFO

Ralph Quinsey - President & CEO

Analysts

Todd Koffman - Raymond James

Quinn Bolton - Needham & Company

Edward Snyder - Charter Equity

Aalok Shah - D.A. Davidson

Nathan Johnson - Specific Crest Security

Jason Smith - Craig Hallum

Patrick Newton - Stifel Nicolaus

David Duley - Steelhead

Bill Dezellem - Tieton Capital Management

Tony Rao - East Shore Partners

Michael Martin - The Small Cap Report

Tim Luke - Barclays Capital

Richard Shannon - Northland Capital

TriQuint Semiconductor, Inc. (TQNT) Q3 2010 Earnings Call October 27, 2010 5:00 PM ET

Operator

My name is [Joyce]. I will be conference operator today. At this time, I would like to welcome everyone for the TriQuint Semicondutor Third Quarter Earnings Conference Call. (Operator Instructions). Mr. Buhaly, you may begin your conference.

Steve Buhaly

Good afternoon and welcome to our third quarter 2010 conference call. This call will include forward looking statements about TriQuint’s projected results. Results could differ materially based on guidance factors including those described in our reports on Forms 10-k and 10-Q and other filings with the Securities and Exchange Commission.

This presentation also includes Non-GAAP financial measures which report tax on a cash basis and exclude acquire compensation charges, charges associated with acquisitions in other specifically identified non routine items. These non-GAAP measures are provided to enhance understanding of our core operating performance. A small reconciliation of these non-GAAP measures within our press and in the investor section of our website.

Ralph will now provide an overview of the quarter.

Ralph Quinsey

Thank you, Steve. I am delighted to report TriQuint’s results for well above our regional expectations with revenue at $237 million, GAAP earnings per share at $0.68 and non-GAAP EPS at $0.27. Our significant GAAP earnings were the result of the reversal of a tax related valuation allowance that had no material cash impact on the company. Our revenue in non-GAAP earnings upside was the result of strong demand for our products and increased factory output. Compared to the same quarter last year, our Networks revenue grew 61%, Mobile Devices revenue was up approximately 37%, and Defense revenue increased 3%.

Referring to non-GAAP measure, the company generated 42.2% gross margin and it spent 22.6% of revenue on operating expenses resulting in $44.3 million of operating income or 18.7% of revenue. Operating profit was up 34% sequentially and up almost 3 times as compared to the year ago quarter. In fact, we made more net incoming Q3 than given the full year or either 2008 or 2009.

Margin improvement and better than expected profits were primarily resulted increased revenue, improved mix and better efficiencies associated with increased volume. TriQuint’s recent results highlight the leveraged impact topline growth we’re having on financial performance.

Turning to our major markets, we saw growth in Mobile Devices with revenue up 28% sequentially and 32% year-to-date over the equivalent period in 2009. This follows strong 38% growth in 2009. I believe this is a clear indication of our market share gains. Consumer appetite for wireless broadband has not debated and demand remains very healthy with independent airways projecting smartphone growth this year of approximately 55%. We are winning in market share helped by our penetration of leading smartphone providers. The increased RF complexity of smart phone requires solutions for voice, multiple data band, WiFi and GPS, all are driving increased download content to handset of 4 to 6 times the content of traditional cell phones.

TriQuint has successful combined feature and active technologies to create differentiated and compelling products in the form of highly integrated high performance RF solutions to provide our customers in maximum design flexibility and minimum design time to operate. These solutions are complex and multi chip modules that integrate various components and technology displacing the need for discrete [poly SSI modules] and filters of our margin they built this.

Traditionally, the leaders in mobile RF market have been gallium arsenide power amplified suppliers and the future is a small and discrete component market. As the industry transitions to 3G and 4G standards for frequency domain dupexing, FDD, which has become a significant portion of the market? This has made high performance filtering a critical and fast growing portion of the (inaudible). Integrating duplexes with amplifiers for improved size and battery life is an area where TriQuint is a pioneer.

Our breadth of technology include gas power amplifiers, switching and (inaudible) bass filtering gives us a competitive advantage in both design and many cashing as we believe a innovative solutions for size, performance, and design flexibility.

Now, switching to your network market, revenue was flat sequentially and up 56% year-to-date compared to the first nine months of 2009 with two larger contributors to Q3 revenue growth in networks were optimal driver amplifiers and amplifiers used in FTTH or Fiber-to-the-Home. This was offset by short-term softness in base stations largely due to the timing of demand in India and a less foundry business serving the networks market.

40-gigabit optical drivers are used in metro area upgrades to support the increasing data traffic of streaming video, social networking, and increased internet usage. TriQuint is a performance and share leader in this market which flagship products such as the TGA 4843-SL modulator driver. It is the first surface mount driver for 40 gig and 100 gig optical systems and is a green technology using half the power of other industry devises.

Additionally, TriQuint supplies some of the world’s best linear amplifiers optimized for cable TV and Fiber-to-the-Home application such as the TAT7467H which offers high efficiency in the TGA2007 for high output power all moving all meeting stringent Edge QAM DOCSIS 3 requirements. TriQuint’s TRIAXIS line of products with low power consumption and on chip linearized circuits support the triple play initiative for high speed broadband connectivity.

I mentioned the short-term softness in the base station market, but the long-term outlook is robust due to constant expansion at our [color] for new LTE networks incorporating MIMO technology.

MIMO or multiple input, multiple output requires two antennas for more reliable multi-path communications. This technique is commonly used today on received channels and I expected to be incorporated into the transmit path for future systems. This will doubled the RF power content for base stations similar to the content expansion we see in mobile devices today.

Additionally, we’ve announced our integration strategy for the base station market health, our customers reduced board space, lower bill of materials costs and improved system efficiencies. Key to the strategy are four levels of integration. One, higher gain devices to eliminate components in amplifier line ups such as the TQP3 and 9008. Two, integration of multiple functions within a single package to save board space. Good examples of this are the ML43 and 45. Number three, inclusion of interstage matching as found in the AH212 and 323 and lastly with the highest levels of integration are needed a fully integrated 50 ohm input/output impedance solution such as the [TQM 87 9006].

I see a solid growth sector for base station revenues over the next several years to the roll out of MIMO and LTE and the rich product roadmap TriQuint has developed. The combined demand for base station, optical, point to point, and cable products supporting the future communications infrastructure is an exciting opportunity to TriQuint and one we are well positioned to address.

Lastly, our defense and aerospace revenues were down slightly sequentially as expected but were 20% year-to-date as compared first nine months of 2009. I’m pleased to announce a new [Tidal3] contract award $17.5 million over a three year period to expand production revenues of game technology. This award supports equipment and process development to enable high volume production of band products that representing strong order conference from both our band technology in the future to begin our market.

High performance requirements we’ll take in a significant portion of our G&A revenues come from (inaudible) sales to help simplify system design, we now offer these high power grid on a thermal heat spreading platform we call DOT or dot on time. This is another example where TriQuint is investing in capacity to helps our customers build better products.

Looking forward, defense revenue will be flat as we transition between major programs with the sequential growth beginning again mid 2011. The significant programs are winding down at the F-20 fighter and B2 bomber. Excluding these programs the underlying demand for RF products is growing as expected. Key revenue programs in 2011 include Advanced Radar Systems, the Joint Strike Fighter, Unmanned Aerial Vehicles and radar retrofits for F15, F16, and F18 fighter jets.

TriQuint is strategically positioned to provide critical RF solutions for surveillance and communications applications, a growing portion of the defense aerospace market.

Now, Steve will provide our results for the third quarter of 2010 and our guidance for Q4. Steve?

Steve Buhaly

Thank you, Ralph. For the third quarter of 2010, we generated revenue of $237.0 million. Revenue increased 14% sequentially and 37% over the third quarter of 2009. Networks revenue continued to enjoy a strong rebound from the lows of 2009 growing 61% from the third quarter of 2009. Mobile devices revenues showed a robust growth increasing 28% sequentially and 37% from the third quarter of 2009.

For the quarter, our revenue split to end markets was mobile devices 68%; networks 23%; and defense and aerospace 9%. 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 third quarter, revenue from Foxconn and Samsung each comprised 10% or more of our total revenue. Our book-to-bill ratio for the quarter was 1.06 with good performance in the mobile devices market and relatively poor performance in the fluctuating defense and aerospace market.

Our gross margin for the third quarter of 2010 was 41.3%. Third quarter non-GAAP gross margin was 42.3%, consistent with the second quarter of 2010, and up from 35.0% in the third quarter of 2009.

Strong factory utilization offset the higher mix of mobile device revenue in the quarter. We enjoyed a benefit of about $2.5 million due to quarter specific guidance not expected to repeat in the fourth quarter.

Operating expenses were $59.1 million for the third quarter of 2010. Non-GAAP operating expenses were $56.0 million or 23.6% of revenue up from $54.7 million in the prior quarter. Within this, litigation expense increased from $1.3 million in the second quarter of 2010 to $2.8 million in the third quarter of 2010.

Tax expense included a benefit of $72.1 million during the third quarter primarily due to the reversal of a valuation allowance previously placed under deferred tax assets which are mostly net operating loss carry forwards or NOLs. This reversal is a non-cash event that indicates strengthened conviction in our ability to generate sufficient future profits to fully utilize these NOLs.

Net income was $110.9 million or $0.68 per diluted share for the third quarter. Non-GAAP net income grew by $11.1 million over the prior quarter to $44.2 million or $0.27 per diluted share. Cash flow from operations was $39.1 million in the third quarter of 2010. Total cash and investments increased about $12.1 million to $187.2 million. Capital spending was $31.7 million compared with depreciation of $12.3 million.

During the quarter, accounts receivable increased sequentially to $141.8 million with DSO at 54 days. Inventory turns were 5.4 for the third quarter of 2010.

Return on equity increased sharply over the prior year demonstrating the leverage revenue growth brings to our results. On a non-GAAP basis, return on equity is 19.1% year-to-date more than double the prior year. Improved performance in both profitability and asset turns drove the gain.

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.

Non-cash tax expense includes certain deferred tax charges and benefits that do not result in a tax payment or tax refund. Complete reconciliations of GAAP to non-GAAP results are available in our press release and in the investor sector of our website.

Now, moving to our outlook. We believe four quarter revenue will be between $245 million and $255 million. We expect continued solid growth in our mobile devices market lead to a non-GAAP gross margin of between and 41% and 42%.

Non-GAAP operating expenses are expected to grow to about $59million. Within this, we expect about $4 million of litigation expense up from about $2.8 million in the third quarter.

Fourth quarter net income per share is expected to be between $0.26 and $0.28 on a non-GAAP basis. Cash is expected to grow modestly with strong earnings partially offset by increased capital expenditures and working capital. As of today, we are 91% 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 16th, I’ll be in New York to present at Merriman’s Investor summer and following this marketing with Raymond James in Boston in the Mid-Atlantic. On Thursday, December 9th, we will present at the Barclays Technology Conference in San Francisco and the following day we’ll be in Southern California for their marketing with Stifel Nicolaus.

Finally, we will kick up 2011 by presenting the Needham Growth Stock Conference on Tuesday, January 11 in New York. Please contact Heidi Flannery, Investor Relations, if you are interested in participating in any of these events.

Our Q4, 2010 conference call is scheduled for February 9, 2011.

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

Ralph Quinsey

Thanks, Steve. I am very pleased with our results this quarter and I’m excited about our long-term opportunity. We turned in a record third quarter revenue and generated more net income in Q3 then we did in either of the previous two years. Our outlook for 2011 remains exciting and I continue to believe that we can grow the top line 20% next year. This follows a terrific 2010 while we expect to grow revenue by about 33%.

Wireless connectivity remains an early stage opportunity for our industry and we are benefiting from the new communications paradigm being built around the internet and mobility. This should increase long-term mobile or (inaudible) spending is consumer demand better experiences an improved network reliability. TriQuint, with our technology stream and the integrated spirit, has differentiated sales by giving our customers to best size, cost, and performance with interested solutions while many of your competitors continue to pursue discrete architectures.

As an RF integrator, we address all parts of the communication ecosystem and are well positioned to benefit favorable market trends. Our strategy of RF integration, multi-market innovation and growth per scale has successfully lifted us to tier 1 status in the RF industry.

Looking forward, I believe the RF market will be healthy for many years to come and with our strong product lineup both industry leading technology platforms I expect strong financial performance.

Joyce, we’d like to take questions at this time.

Question-and-Answer Session

Operator

(Operator instructions). We do have a first question from the line of Tim Luke with Barclays Capital. Please state your question, Mr. Luke.

Your next question comes from the line of Todd Koffman with Raymond James. You may ask your question.

Todd Koffman - Raymond James

Can we get an update on your current capacity utilization and then just an update on your capital spending plan as you go forward?

Ralph Quinsey

Sure, I’ll talk about capacity utilization and Steve will talk a little bit about on the capital. Specifically, I’ll give you the numbers, but I want to remind you that we are adding to the denominator as well as moving the numerator and so the percentages really don’t reflect trends. Our utilization in Oregon is in the mid-90s in our overall weighted average for GaAs utilization was about 90% with taxes still be about 30% we engage new lines.

I’ll add to that by saying that we were successful in output in more products than we had originally expected in the recent completed quarter and it has bolstered our ability so, I think address the demand in fourth quarter. In addition, we have allocated more capital we have found more ways if you will to get more capacity out of Oregon. We see good growth and capacity out of Oregon in Q4 and the first half of next year and as we’ve mentioned before, we have kicked off and expect our Texas facility will be available to us in the second half of next year.

Steve Buhaly

I’ll talk a little bit about capital, but before do I’ll mention again I love to get an extra way for that Oregon. The next way for we get out of Oregon is the cheap and strong ever made and so, it’ fabulous, but our teams finding the ways to squeeze a bit more capacity out of the building that is getting very full.

Turning to CapEx, we’ll spend in the $40 million to $50 million range in the fourth quarter. A good chunk of that is for Texas six inch line, where we have to order long lead time equipment, but probably we’ll not be operational on the P&L until the third quarter 2011.

Beyond that, we are pretty much investing all around the [horn] in terms of BAW Filter, SAW Filters and GaAs capacity.

Operator

Your next question comes from the line of Quinn Bolton with Needham & Company.

Quinn Bolton - Needham & Company

Hi guys, congratulations on the strong results. Quick two questions just first Steve, you had the reversal of the evaluation allowance against deferred taxes. Do you have any updated thoughts on tax expense will come into 2011?

Steve Buhaly

I doubt. The reversal of the evaluation allowance is primarily it’s a non-cash item. Primarily pertains to GAAP return, where my guidance is always been on the non-GAAP of cash side and I continue to expect 15% to 20% rate next year depending on all variables from legislation to income and leveling off around the mid-20s in 2012.

Quinn Bolton - Needham & Company

The 15 to 20% would be a tax expense that then goes and to get so reduce the in deferred tax assets on the balance sheet that is not necessary GaAs taxes, is about the right accounting.

Steve Buhaly

No, those are GaAs taxes and I’ll report on the non-GAAP statement. On the GAAP statement, you will see a higher provision rate offset by these evaluation by the NOLs resulting in lower cash tax obligation.

Quinn Bolton - Needham & Company

A couple for Ralph, perhaps number of your competitors are making an increased noise about either converged [PAs] or multi-band, multi-mode PAs just wondering what’s your thoughts are on that market coming in 2011 and looking forward to 2012.

Ralph Quinsey

Consistent with my previous comments that 2011 will be a multi-mode year, where we you start to see some revenue from all of us I believe. 2012 possibly converged keep in mind my definition of conversion versus multi-mode maybe more precise then it’s sometimes we put through the market. To be clear converged all of the mode that if you will go through the same line up, the same GaAs amplifiers is opposed to multi-mode, which has quite a few switches in it had insertion loss etcetera. I believe all of the solutions I’m aware of really multi-mode solutions in the marketplace for that.

Quinn Bolton - Needham & Company

Last one on the Networks business, it looks like you saw some pause in server and construction gate in India. You talked about strong mobile device [scope] in the fourth quarter. Can you give any thoughts on sequential growth in the networks business?

Ralph Quinsey

Yes, for the network business, as I said I think in system software and base station, optical continues to look strong. Cable should have some strength. If you look year-over-year again 2011 certainly that networks is part of our growth story. Right now we’re seeing the (inaudible) of just a huge uptick following a very slow last year and then some build add-in in India that will normalize out fairly quickly.

Operator

Your next question comes from the line of Edward Snyder with Charter Equity.

Edward Snyder - Charter Equity

Several here, actually on the capacity utilization I have seen running very high we just hoping out on the margins side of the business. How do you see a transition Steve, as you add more capacity those pretty for the next year? Are you looking for networking to pickup as you add more capacity in the server side, how you are going to balance to the margins and take a hit, when you get additional capacity in the cellular side you are not running and clearly high running and clearly high utilization.

Steve Buhaly

We will probably run in a fairly high utilization rate certainly through Q2. In Q1, if we see a little bit of rollback in demand we will fill that with a little bit of safety stock, which we could use. Utilization will be pretty robust through that point. Q3 will bring on essential line in Texas. We’ll see, still far out at that point for me to judge as a level of demand will be experiencing, but yes the third quarter is typically pretty healthy quarter. We’ll see continued solid utilization and helping us is that other than the six inch a lot of our addition to bits and pieces and we can marginally that according to excepted revenue.

Edward Snyder - Charter Equity

Ralph maybe you can handle this. This brought a (inaudible) last weeks Samsung with decline, orders are dropping of big customer of yours, anything unusual there and lasted this time date, they adjusted their forecast a bit, but we’re talking about something similar what we saw last year, we’re talking or addressing to the new, can you characterize a little.

Ralph Quinsey

I would say that I see no material difference than in Q4 part dictation and of course it’s all ups and downs. No material difference for large expectation coming into the last time we got.

Edward Snyder - Charter Equity

How is that did last year to watch, it pretty enough downsize the Samsung?

Ralph Quinsey

Last year there was a lot of talk about Samsung in the market place, it really beaten to pan out, whether it concern about inventory adjustments we are going to pan out there like I said this year I just don’t see any material change. As we have guided see it fairly healthy Q4.

Edward Snyder - Charter Equity

RF Micro reported yesterday they obviously got a lot about (inaudible) what you get contraction in Samsung and few other folks?

In that discussion, they have see the world in the smartphones is seem to spotted up in the third and not to different future, maybe next year or so we have a third converged third, hybrid third, would be discrete.

Do you have a similar can’t put that away over the market and how do you see that happen and you guys have big components with pad design, which have the performance advantage I would guess you wanted ban smartphones area?

Ralph Quinsey

I certainly believe that we probably have the best exposure to volumes smartphones out of our peer growth and have been pioneered in architectural improvement to focus on size reduction, performance improvement and overall effectively institution timed to market. Architecturally the light way to do that is through the integration of filters and amplifiers, that not only you will get the performance improvements associated with taking advantage the (inaudible) physics.

You also, when the have matching components. The architecture we talk about in the industry really don’t focus on one piece of the solution, our GaAs piece, but even in a multimode solution, if you not incorporating duplexes as we were 5 brands of duplexing you got 5 duplexes out there, that need routing, need matching and I just talked about, because it’s a piece of solutions, not total solution.

Edward Snyder - Charter Equity

You are looking at an additional in (inaudible) switch, which on the converged devices just to get the duplexes that include in the pad design?

Ralph Quinsey

Exactly in a multimode solution, I have not aware of any converged solutions in the market. We have (inaudible) based on the definition idea that I gave you earlier. On the multimode solutions if they are switching (inaudible) it creates in total loss. The total loss creates averaging, again we focus the right light approach, architectural approach it certainly multimode play a role and we will also have a multimode device, but if you step back and look at the whole solution, it more important topic is the integration of filters and how you can optimize the current physics, eliminate the matching and improve the overall portfolio of the solution instead of just one part of solution.

Edward Snyder - Charter Equity

On the network side of business it seems you’re bouncing around your Ericsson on your calls looking forward in the next quarter and several quarters actually, but starting this quarter we will have a lot of 3G in India and they are driving for with better performance based on that.

What’s your visibility in the network side that you get really good see through what they are doing or because your guidance suggested a little bit slower here could just (inaudible) visibility that they do or why they are optimistic in a little more customer take care?

Ralph Quinsey

That it choose to where we are in supply chain. We saw some increased demand for products because people were getting waiting for India and wanted to be ready. Now we see that balance out as those solutions are deployed, alright and then we will see the trend line pickup again. It’s a more of function, where we are in the supply chain.

Edward Snyder - Charter Equity

One final question and we take picture given your capacity constraints in the whole lot of new capacity, Steve you laid it out here; we are pretty much looking in topping of where we are as well as going to be in revenue for some time. Is that a fair statement?

Ralph Quinsey

I don’t think so. We have demonstrated ourselves our ability to be creative and create more capacity than we probably could out of the order facility. I believe we are topped out with where we are at guidance for Q4, (inaudible) competitors.

Of course the carriers are as well mix that comes in etcetera. Right, but clearly when you get GaAs capacity we have some headroom again we can pay some good work that team has done both in the discontinued quarter and complete in this quarter. Now we are focused, now we have the whole picture (inaudible) solutions. We are also investing Bar capacity and some soft capacity.

Steve Buhaly

I’ll add to that if we see any rollback in demand that all in Q1, we will essentially bank that excess capacity and use it in Q2, by building ahead on solid reliable products.

Edward Snyder - Charter Equity

To that end I don’t need delay the (inaudible), its been pretty clear that there is some switch out in some of your customers, some of your competitors enjoyed you do a sky works part. WiFi stepping RF Micro Devices given the background and looking all this, this disturbed you or you happy about it, does it give you an enough capacity you can enjoy demands, if not showing some of your oriental characterize that performance if you could?

Ralph Quinsey

Certainly I don’t want to hiding the fact that we have a problem in success. We grew our mobile devices business approximately 40% last year and we grow at approximately 40% this year, much faster from the rest of market. We have put some of our customers in a position, where we had to ask them to look at options, we were very careful to deal with our customers. Early information about that and work with them. In some cases they reluctantly changed to products that could not perform as well and I believe that if we can continue to maintain our good relationship with our customers, we can make package pattern.

Operator

Your next question comes from Aalok Shah with D.A. Davidson.

Aalok Shah - D.A. Davidson

A couple of quick question. I know you talked about the capacity and everything else, but the 20% growth that you are projecting for 2011 is there room for additional or are you going to capacity constraint again throughout next year that is your assumption at this point?

Ralph Quinsey

I can just tell you that we’ve done a long range of planning in some detail and we certainly have we let replace what we think we need to generate that type of revenue growth in a practical and probable mix.

Aalok Shah - D.A. Davidson

There is more room potentially for further growth, its just going to more just at this point you feel comfortable with that number?

Ralph Quinsey

Yes. We have room for growth and yes, we feel comfortable with that number?

Aalok Shah - D.A. Davidson

I noticed that it is a CDMA and GSM business was down about 50% sequentially. Is that just you get treated off that business for higher margin 3G business or whether anything immaterial going on with those market?

Ralph Quinsey

Two things. First of all, GSM, yes we have strategically taken a short term step back from GSM to focus on more critical customer demand but we will return to that market and we think that we have some products on the horizon and take advantage of our ability to integrate in a [foot] chip, in a unique foot chip capability.

On CDMA that market for those different is the market, it kind of bounces up and down but over time and I’m sure aware of the standards of being converge and is getting harder and harder for us to distinguish if an amplifier is used of narrow band or wideband CDMA. So it is more likely looks stop at some point reporting more than to make the standards are convergent and from a previous supply (inaudible).

Aalok Shah - D.A. Davidson

In terms of customers with the shortage you had during the summer, was there anything that you can say about your relationships with your major customers at this point and how they are?

Ralph Quinsey

Like I said, by and large, although perhaps we were unique within the RF we’ve been enjoying this tremendous growth with smartphones. We did share the same problem with other suppliers into the smartphone phenomenon. By and large I would say our team did a pretty god job making sure that we were number two in line and not number one in line as far as customers and growth. As I am sure you were aware if, there are other issues in the market places around everything from cameras to screens to manage other parts of various times, but this is not tri-court issue; this is a industry issue and we were just you know, right place at the right time to enjoy a lot of upside and we were careful to try to stay in the number 2 position when it came to by and large to what our customers were asking for.

Steve Buhaly

A couple of comments, but we are constrained from giving a real customers specific information. You can read our body language if you will and look at the level of capital investment when putting in to increase the capacity and that is clearly an indicator that we think we are going to have growing demand. The reversal evaluation allowance requires greater confidence and earnings capability and our rough guidance and preliminary guidance, if you will, of 20% growth in top line next year. All support the fact that we think we have and will continue to enjoy healthy relations with our primary customers.

Aalok Shah - D.A. Davidson

One other quick question, do you have any issues around the third party semiconductor supplier, those issues that can be alleviated since network going with Q4?

Steve Buhaly

As far as some of our CMOS supplier? Greatly relieved not eliminated.

Operator

Your next question comes from the line of Nathan Johnson with Specific Crest Security.

Nathan Johnson - Specific Crest Security

I was wondering if you can talk about the growth expectations for 2011, how you view the mixed progression of networks versus mobile devices(inaudible) times like these the mix of military is going to be down that but how should we expect networks versus mobile devices?

Ralph Quinsey

You again we will plan to keep them both try to growth at least 20% growth rate, DNA is going to be little softer in the front half. We will have a pretty strong second half. As you know, we’ve got really good visibility in DNA year over a year and be okay in the second half will be stronger part of the year.

Network has a great product pipeline particularly in optical and cable and so I see really good head down consistent growth with quarter-to-quarter for that business unit. Mobile devices it is to get more likely to some normal seasonality in the first half of the year but it also has the opportunity to the cellular market and the velocity of the market to out grow all of other businesses and turn over could be more upside in mobile devices than any other businesses again. Size of the market or share position and the velocity of the market. By and large I feel comfortable with the 20% target for the year, mobile devices and networks are finally out and we will see how it works.

Nathan Johnson - Specific Crest Security

Looking at the growth margin levels for Q4, where you guided sequentially down but it sounds like there are some one time items in Q3. Can you talk about may be what the puts and takes of Q4 are? What has to happen because sequentially be flat or up sequentially on gross margin and how should expect that the rest through 2011 as well?

Steve Buhaly

I will certainly take a shot at the first part of it, I think absent those one off factors in Q3 we’re guiding gross margin about flat Q3 to Q4. We expect a slightly higher content, higher mix of mobile device revenue in the fourth quarter due to the seasonal up tick in that business. That is a mildly diluted margins again higher revenues mildly accretive those roughly offset each other Q3 to Q4.

To beat the guided number probably that requires more revenue or a better mix either amongst our market segments or with specific products in those segments. So that is going to call with your expecting next year, I am going to wait until we get guidance in our Q4 conference call about 2011, but, will be on a general constructive path there.

Nathan Johnson - Specific Crest Security

On off backs, they are pretty a bit of a step up here in Q4 and looks like some of that is coming from litigation. Can you remind us how long litigation is going to be at that levels and whether we should expect our packs to stay at these levels or if it some one time item essential in Q4?

Steve Buhaly

Yes so in Q4 about half of the increase was from litigations so we were from 56 even to about 59 even roughly half of that’s litigation. If you work by the way year and year at OpEx growth versus review growth we are only growing OpEx about half the rate of the top line. So that is a segway second way to objective to going forward is absent unique item like litigations we expect to grow up roughly half the rate of our revenue growth and you do not leverage the bottom line.

With respect to litigation, I think Q4 will be a peak until and if we end up in a trial situation there are number of factors that are driving that in Q4 that we think will abate. If I had to guess today guess Q1 will be at the half the level.

Operator

Your next question comes from Jason Smith with Craig Hallum.

Jason Smith - Craig Hallum

Obviously with stepping back from some GSM business your 3G businesses increased this quarter. How do you see that trending trout when your 2011? How should we look at the mix between 3G and 2G in the mobile segment?

Ralph Quinsey

Certainly 3G smartphone is a dominant portion of our revenue now. CDMA I think you will see fold into that. It will be difficult for us to distinguish because the same hardware the same traffic light, if you will, both technology as we transition forward. Then some time in 2011, probably the latter half of 2011, we will readdress the GSM market and it is a very, it is flexible part of the market. So, if got a great product there’s some elasticity in the market.

Jason Smith - Craig Hallum

Lastly, what are your expectations to your tri power products in 2011?

Ralph Quinsey

Tri power is just reminded me in the call is an innovative technology for green base station if you will, all the current joining on the base station by improving the efficiency particularly applicable to the 3G, 4G technologies and beyond. We continue to see strong interest for customers and I continue to believe that would be a very successful technology for TriQuint. We are in the high power business, we are actively looking at customers, no design wins report to-date.

Operator

Your next question comes from the line of Patrick Newton with Stifel Nicolaus.

Patrick Newton - Stifel Nicolaus

To (inaudible) earlier question on the OpEx I realized you guys have done a great job curtailing the expense relative to your revenue, but now you are guiding to an absolute dollar amount that is higher than your two larger competitors. I was wondering if you can discuss your ability to drive off leveraging through the model and talk about how you see OpEx trends, maybe with a little bit more detail relative to your 20% revenue growth outlook in the coming year.

Ralph Quinsey

I’m going to separate the litigation expense. I have already made some comments there that’s pretty much all I know about it, but that is a unique expense. Otherwise I expect our operating expenses grow at about half the rate of revenue growth in 2011.

Patrick Newton - Stifel Nicolaus

There is no maybe absolute level where you reach that you are comfortable with and just slight line that is roughly 50% from all indicative?

Ralph Quinsey

Those are the budget assumptions we had in place for next year and as (inaudible) we will see if its appropriate, but that’s our current expectation.

Patrick Newton - Stifel Nicolaus

Steve with the reversible tax allowance and previously you talked about some tax planning. Could you give us progress update on that and maybe help us understand how you expect the tax rate to play out in 2011?

Steve Buhaly

No, real update. I expect non-GAAP taxes to be 15% to 20% of op income in 2011 and probably leveling off in the mid-20s in 2012.

Patrick Newton - Stifel Nicolaus

Just one last housekeeping question and I’m sorry if I missed this, but could you give us the absolute percentage of revenue that Samsung and Foxconn represents in the quarter?

Steve Buhaly

No, that will be in the queue I always said here is there were both individually greater than 10%.

Operator

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

David Duley - Steelhead

I was wondering typically seasonality in Q1 is down in the 5% to 10% range, when you add all the pieces of the puzzle together that’s going to be historical experiences, is that accurate range to think about?

Ralph Quinsey

Yes.

David Duley - Steelhead

Typically Q2 jumps above back up to where Q4 levels were?

Ralph Quinsey

That’s a good assumption of the next.

David Duley - Steelhead

Steve mentioned in a couple of different times there is any slackening demand in Q1, you will use that to build safety stock, but that statements sounds like you don’t expect slackening of demand there, maybe give us a little color?

Ralph Quinsey

Yes, we haven’t guided for Q1 yet. I do expect normal seasonality at this point lacking any other data input to be honest with you. We will get that closer to one. If we do have some headroom we would largely plan a safety style.

David Duley - Steelhead

Keep to summarize what I heard inside your handset business, it sounds like you slopped out lower margin GSM business for higher margin 3G business and I’m assuming going to help your relationships with your two largest customers, the 10% customers you mentioned.

Ralph Quinsey

By and large strategically we are focused on the smartphone 3G business that’s our primary objective. We think that’s the bigger part of the market. All of our customers are interested in virtually all of our products.

We do have strong interest in the (inaudible) theory and we got some great products, but on a strategically we are focused on the 3G products first.

David Duley - Steelhead

Finally in order to hit the very upper end of your revenue range in this current quarter is that a demand thing or supply thing?

Steve Buhaly

It depends on a mix.

Ralph Quinsey

All the above and just to give you a little bit color on that. We have by and large clear the majority of our constraints as we move in to Q4 with the exception note against the mobile device (inaudible) market and just a few products one or two maybe three products within the mobile device space until as the mix of those products change, that’s going to move the needle a little bit. Does that help?

David Duley - Steelhead

Yes. Finally add on, you seem like you create a lot of capacity certainly using that capacity to service the 3G area and since your largest customers in that area, I’m just digging around because there has been a lot rumors that you have upset your largest customer could you didn’t have enough capacity in place. It doesn’t sound like that’s the case could you maybe give us a couple commentaries?

Ralph Quinsey

Yes, I appreciate the comments. It’s not our practice comment on the relationship with our customers and the request.

Operator

Your next question comes from the line of Bill Dezellem with Tieton Capital Management.

Bill Dezellem - Tieton Capital Management

We had a couple of questions here. First of all do you have any additional areas of your business besides (inaudible) your temporarily steeping away from to maximize your capacity?

Ralph Quinsey

Other than fact Bill we have more opportunity where we can address both strategically and practically on the (inaudible) practical issues. There is no major grouping in the market that we are setting that from.

Bill Dezellem - Tieton Capital Management

That’s helpful. The question is relative to your Oregon capacity, you had mentioned that you are going to increasing that capacity you found some additional headroom by spending some more money. That the question relative to your Q3 run rate what percentage increase in your capacity in that Oregon do you believe you can put in place with your spending once you are fully tooled up that’s part of A of the question and I’m assuming the same mix by the way.

Part B would be what would be the timing to get to that point?

Ralph Quinsey

If you look at our average run rate in Q3 in our average capacity capability the same mix. In Oregon in Q3 next year, it’s a relatively significant number. I would say up in the range of 20% to 30%.

Bill Dezellem - Tieton Capital Management

That is helpful and congratulations to you. Do you see opportunity beyond or at that point are you feeling at least for now as though you then bumping up against a ceiling?

Ralph Quinsey

That point our ability to build the same products in our Texas facility becomes the material event.

Bill Dezellem - Tieton Capital Management

Therefore your need to get additional capacity out of Oregon it a little less, slight less pressing?

Ralph Quinsey

Yes.

Bill Dezellem - Tieton Capital Management

The final question for now is, are you seeing additional technologies or capability that’s you would like to add to the TriQuint family. Most likely your acquisition that’s you reduce such a thing or are you feeling right now that you pretty well got which you want for your technological roadmap.

Ralph Quinsey

Well, first of all I would say I’m very comfortable and proud of the broad technology portfolio that we have, but we do have a active engagement with some other place looking for nice add-ins to our portfolio. There are some interesting targets out there. Nothing that I can talk about specifically, but we do have focus resources on that and we will see the continued profit, no change from where we have been, but we do actively look for those and our interesting target of the company.

Bill Dezellem - Tieton Capital Management

Thank you.

Steve Buhaly

I would add to that Bill by saying. Our M&A strategy is primarily focused on networks, defense and airspace and entirely using (inaudible) good technology fit.

Operator

Your next question comes from the line of Tony Rao with East Shore Partners.

Tony Rao - East Shore Partners

I have been speaking a lot about your wireless land business for smartphones and it’s going to pretty strong growth trajectory. Can you speak a little bit about how that is checking up?

Ralph Quinsey

That listed in the connectivity and our published data in that group is 16% to 17% of the growing business. It grew a real numbers fairly well sequentially in Q3.

Tony Rao - East Shore Partners

Can you put into some sort of percentages what you think that the opportunity for growth is in 2011 versus 2010?

Ralph Quinsey

We’re kind of transitioning from a run rate over the last couple of years of couple of million to 10 million, 5 million to 10 million a quarter and we’re going to try to push that to 15 million a quarter.

Tony Rao - East Shore Partners

Is that all 40 gig or you also engaged with the customers on 100 gig?

Ralph Quinsey

That includes actually 4010 and 140 is the material part of it. Right now as far as opportunity 100 will be a mature opportunity but we have sold and we do have 100 gig customer application (inaudible).

Operator

(Operator Instructions). Your next question comes from the line of Michael Martin with the Small Cap Report.

Michael Martin - The Small Cap Report

I wonder if you could tell us, are there any major challenges in getting the additional personality needed to handle the growth out year?

Ralph Quinsey

We have been quite successful in recruiting, Michael, appreciate your question. It’s a good story and that’s been probably our biggest attribute for recruiting. That said, it’s a fairly small industry. We try to address that by spreading our design centers around the work as we only have design centers in the east coast and west coast throughout this country (inaudible). We’ve been fairly successful in attracting the talent we need.

Operator

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

Tim Luke - Barclays Capital

In your earlier remarks you suggested the base station was slightly slower than you might have anticipated. Do you feel now that as you go into the fourth quarter you will see some strengthening in that end market or how do you see that?

Then I just wanted to clarify that with respect to first quarter seasonality you were inferring that it would be usually 5 to 10%. Was that correct? That (inaudible) relatively mild or relative to history (inaudible)?

Ralph Quinsey

To keep on with base station and explain it for people, in our base station really excess market, we do them a range of 12 to 13, $14 million a quarter. Year-over-year I expect it to be up but it was up earlier in the year as people were rushing to address India now they’ve got the parts they need, they wanted to build a head to (inaudible) and the demand on us will soften a little bit in the second half. The (inaudible) trend line is going to remain encouraging and I try to point out that dug into the base station market we really understand the opportunities, I see a parallel to what we see. Its my focus content expansion for base station and you do the long (inaudible) trend with the addition of MIMO techniques to transmit site or a house. So, a lot of our opportunity itself.

My long term forecast for the base station market had typically been (inaudible) market can consolidate, I am renewed as far as that thing is growth market with new technologies.

Tim Luke - Barclays Capital

Seasonality?

Steve Buhaly

I will take that. The 5 to 10% is a company level number. Typical seasonality has been 10 to 15% historically in the mobile device business with very little seasonality in networks and defense and aerospace. So, if you kind of net all that stuff out you get in the 5 to 10% range of typical Q1 seasonality.

Operator

(Operator Instructions). Your next question comes from the line of Richard Shannon with Northland Capital.

Richard Shannon - Northland Capital

You talked about expectation or hope of 20% revenue growth in 2011 with mobile being a little bit higher than that. Does that expectation require any material addition of new customers or ramping up considerably from current base of these customers or is this coming from the current basis you have right now?

Ralph Quinsey

By definition, I have to say for mobile devices within the current base because we sell to everybody, virtually everybody that matters. So, we do plan continued penetration into the market but we do enjoy penetration now at least 7 or 8 players out there.

As far as the networks business that’s a much shallower broad pond, and we are always having customers and applications opportunities there. That’s just the nature of that business.

Richard Shannon - Northland Capital

You talked about your position in your handset relative to your expertise in filters. What kind of a percentage of your handset business right now is associated with filters going out the door and where could that go over the next one or two years?

Ralph Quinsey

Hard numbers that gives you factual account because we integrate all of this into overall solution. I would say that (inaudible) probably has 20 to 30% impact on our bill of materials. It depends upon the particular module that we are talking. Then when you look at the market going forward, as I tried to point out in the prepared comments, it is a key transition these investors should be aware of in this space, 3G is a fundamentally different duplexing technique than 2G. One uses a switch, another uses a filter.

The explosion from bands for 3G and then LPE 4G requires a lot of duplexers. To complete on a solution incorporates that into the architecture. I just have to underline how important that has been to our strategy and our success to enable a foot down in the marketplace. Tell us your problems, we’ve got all the pieces to play with to solve those problems because there’s problems that we don’t know unless you dabble in that area. It’s been a huge advantage for us architecturally.

Operator

There are no further questions at this time. I’d like to turn it back over to management for final statements.

Ralph Quinsey

Thank you, Doris. I want to thank all of the participants and listeners for their interest. We look forward to updating you in February. Talk to you then.

Operator

This does conclude today’s conference call. You may now disconnect.

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