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RF Micro Devices (NASDAQ:RFMD)

Q4 2011 Earnings Call

April 26, 2011 5:00 pm ET

Executives

Robert Van Buskirk - Corporate Vice President, President of Multi Market Products Group and Head of New Multi Market Products Group

Robert Bruggeworth - Chief Executive Officer, President and Director

Eric Creviston - President of RFMD's Cellular Products Group

William Priddy - Chief Financial Officer, Corporate Vice President of Administration and Secretary

Doug DeLieto - Vice President of Investor Relations

Analysts

Nathan Johnsen - Pacific Crest Securities

Scott Searle - Merriman Curhan Ford & Co.

Vijay Rakesh - Sterne Agee & Leach Inc.

Jaeson Schmidt - Craig-Hallum

Parag Agarwal - UBS Investment Bank

Todd Koffman - Raymond James & Associates, Inc.

Edward Snyder - Charter Equity Research

Aalok Shah - D.A. Davidson & Co.

Jason Rechel

Michael Burton - Thinkequity Partners

Ittai Kidron - Oppenheimer & Co. Inc.

Harsh Kumar - Morgan Keegan & Company, Inc.

Venkatesh Nathamuni - JP Morgan Chase & Co

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the RF Micro Devices Fourth Quarter 2011 Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, April 26, 2011. I would now like to turn the conference over to Doug DeLieto, Vice President of Investor Relations for RF Micro Devices. Please go ahead, sir.

Doug DeLieto

Thanks a lot, Douglas. Hello, everybody, and welcome to our conference call. At 4:00 today, we issued a press release. If anyone listening did not receive a copy of the release, please call Samantha Alphonso at the Financial Relations Board at (212) 827-3746. Sam will fax a copy to you and verify that your name is on our distribution 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 in 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 net debt or positive net cash, please refer to today's earnings release. In fairness to all listeners, we ask our participants to please limit themselves to 1 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 hand the call over to Bob.

Robert Bruggeworth

Thanks, Doug, and welcome, everyone. RFMD's March quarter reflects the ongoing transformation of RFMD from a customer-concentrated supplier of wireless systems to a highly diversified growth-oriented supplier of RF components and compound semiconductors.

This transformation, which began with our strategic restructuring 3 years ago, is complete and is driving our market, product and revenue diversification. As we've discussed previously, legacy revenue in our largest customer is declining rapidly and transceiver revenue is expected to be immaterial to financial results in the June quarter and thereafter.

In its place, we are capturing new higher margin revenue that is growing across a broad set of customers and end markets. With the near-term ramp of new growth engines, including PowerSmart power platforms, ultra-high efficiency 3G/4G PAs, high performance WiFi components, switch-based cellular products and gallium nitride components for high-power applications.

RFMD's expectations for revenue growth, margin expansion and diversification are very much on track. Looking forward, fiscal 2012 will stand in stark contrast in several meaningful ways to previous years.

First and foremost, as we entered fiscal 2011, our largest customer was approximately half of RFMD's revenue. Entering fiscal 2012, we see that percentage approaching 15% as we grow our core business and as Transceivers become immaterial to financial results.

This will mark RFMD's most diverse customer mix in its history as a public company. While our current transition to a more diversified revenue base is muting top line growth today, it's not dampening our enthusiasm for our outlook in fiscal 2012 and beyond. We're achieving what we set out to do and the new RFMD is here beginning this quarter. We cannot overstate the significance of this.

The reduction in lower margin legacy product sales to our largest customer will help lift gross margin and support more consistent higher quality earnings beginning in the June quarter.

As transceiver revenue becomes immaterial in the June quarter, a cleaner, more pronounced growth profile will become clear with none of the revenue headwinds associated with declining transceiver sales.

With this transition, we expect RFMD will take full advantage of the global secular growth trends and grow faster than our core markets. We're also forecast a more diversified customer base and a product mix that's more robust, with a greater representation of new products in MPG and a higher percentage of 3G and 4G products in CPG.

This will enable broad improvement in our financials, supporting margin expansion, operating leverage, earnings growth, continued strong free cash flow and superior return on invested capital.

In the June quarter, revenue related to our core business is set to grow sequentially 8% to 12%, effectively backfilling the decline in legacy revenue. Of note, we expect more than 50% sequential growth in smartphones. We'll see a continued improvement in customer mix, resulting in a positive bias on gross margin.

More importantly, in the September quarter and thereafter, our results will reflect the true strength of our core business. To drive continued growth in our core business, RFMD has multiple growth engines in place.

First, PowerSmart power platforms, which feature a revolutionary new RF Configurable Power Core that delivers multiband, multi-mode coverage of all cellular modulation schemes including 4G. In the March quarter, we began our PowerSmart ramp with Samsung and that continues today. We're also ramping production at LG this quarter, and we plan to ramp RIM in the September quarter.

In addition to a broad customer acceptance, Compound Semiconductor magazine recognized PowerSmart as the Compound Semiconductor Industry's Most Innovative Device of 2011. In addition to PowerSmart, we're excited about our RF724x family of 3G power amplifiers, which deliver ultra-high peak efficiency. These PAs deliver best-in-class performance which translates directly into superior talk time for our customers.

Our first customer for these breakthrough products is RIM. We expect volume shipments to ramp in the current quarter with multiple smartphone customers ramping in the back half of the fiscal year.

Another growth drivers are expanding portfolio of switches and switch-based products. RFMD's silicon-on-insulator, or SOI switches, complement our FEM product offerings and deliver our customers additional advantages in integration and performance.

The customer list for these products include the world's premiere smartphone manufacturers, including Huawei, Samsung, LG, HTC, Motorola and RIM, and we're working with others in Europe, Asia and North America to secure future design wins.

In the market served by MPG, we're also seeing multiple opportunities for our DM process technology. RFMD's GaN is a revolutionary new green technology that delivers several performance benefits including very high-powered density and small sized coupled with low current consumption and greater thermal conductivity.

RFMD's GaN is seeing strong demand in cable TV line amplifiers with companies including Motorola, Eris and Aurora Networks and in defensive radar with companies including Elta, Raytheon and Rockwell, our GaN products are in volume production and are ramping now.

Also in MPG, our portfolio of high-performance WiFi front end is driving exceptional growth. The consumer enterprise markets for WiFi are exploding, driven by the ongoing convergence of wireless and networking devices.

RFMD is supporting multiple new smartphones and tablets with a broad range of new products, including dual-band WiFi, which is in the early stages of adoption. Our WiFi customer list encompasses many of the world's leading device manufacturers including Samsung, LG, Motorola, Nokia, RIM and others. We're also driving continued growth in smart energy, driven by expanded collaboration with channel partners and new program wins in support of leading smart energy customers.

RFMD is aligned with ZigBee reference designs from Ember, Freescale, Atmel and others. And our expanding customer base now includes Silver Spring Networks, Sensus and Itron.

As RFMD celebrates our 20th anniversary, we enjoy more opportunities for profitable growth than in any time in our company's history. In fiscal 2012, we'll draw on our competitive strengths to support major growth initiatives, leading to margin expansion, product and technology leadership and diversification across customers, markets and products.

And with that, I'll hand the call over to Dean.

William Priddy

Thanks, Bob. First, a quick reminder that income statement results and comparisons will be non-GAAP. Revenue for the March quarter was $213.3 million, consistent with comments earlier in the quarter regarding our expected revenue range.

As Bob pointed out, RFMD is executing on a proven growth strategy supported by multiple growth drivers. Some noteworthy revenue drivers in the March quarter includes sequential growth in our switch and signal conditioning product line, sequential growth in 3G PAs, 17% year-over-year growth in MPG and the addition of a new 10% customer.

Gross profit was $80 million and operating expenses were $56.3 million, with G&A of $9.2 million, sales and marketing of $13 million and research and development of $34 million. Gross margin was 37.5% compared to 38.7% last quarter.

Operating income was $23.7 million, representing 11.1% operating margin. Non-cash share-based compensation expense, which is excluded from the non-GAAP result, totaled approximately $5.3 million, of which approximately $800,000 was in cost of goods sold.

Other expense was $293,000 and non-GAAP taxes were $1.8 million. You may have noticed the tax benefit of $15 million on our GAAP P&L. This is due to our releasing evaluation allowance related to our wafer fab in the U.K. as a result of multiple years of profitability and forecasts for continued profitability.

Net income for the March quarter was $21.7 million, with earnings of $0.08 per diluted share based on 285.2 million shares.

Now going to the balance sheet. Free cash flow was $31.4 million, with approximately $188 million of free cash flow for the fiscal year compared to $177 million the previous fiscal year.

During the quarter, RFMD repurchased approximately 1.7 million shares of common stock and retired $35.5 million par value of convertible debt. Total cash and cash equivalents were $291.6 million, with net cash of approximately $95 million.

RFMD's inventory was $149.8 million with 3.7 turns. Net PP&E was $209.5 million compared to $220 million last quarter. CapEx during the quarter was $4.8 million, with depreciation of $15.2 million and intangible amortization of $4.6 million.

Capital expenditures for the year were 2.5% of sales. RFMD's return on invested capital was 21.4% for the March quarter.

Now some comments to assist you on modeling our financial performance. RFMD currently expects total revenue to be flat-to-down 5% in the June quarter, and we expect the June quarter to be the lowest revenue quarter for fiscal 2012. RFMD expects to further diversify our customer base in the June quarter with our largest customer approaching 15% of total revenue. Revenue on our core business, which excludes transceiver revenue, is expected to grow approximately 8% to 12% sequentially in the June quarter, driven by exciting new product cycles and technologies.

RFMD anticipates our transceiver products will be immaterial to financial results in the June 2011 quarter and thereafter. RFMD expects June quarterly gross margin will increase approximately 100 basis points, driven by customer diversification and improved product mix, and RFMD's non-GAAP tax rate for fiscal 2012 is currently projected to be approximately 15%.

So in closing, the transformation of RFMD has created a highly diversified company with multiple growth drivers. This sets the stage for accelerating top and bottom line growth driven by continued strength in core revenue and the elimination of the revenue headwinds caused by declining transceiver sales.

And with that, we'll open up the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Edward Snyder with Charter Equity Research.

Edward Snyder - Charter Equity Research

Dean, PowerSmart. You started shipping to Samsung in the March period. Would you call the revenue material in the guidance at all or what run rate we're dealing with here? And then also the ramp, I mean, you're doing LG and the full-on Samsung in the June period, and so I'm just trying to get an idea what the profile of that is. And can you remind us what margins are relative to corporate averages for that?

William Priddy

Yes. Ed, I'm going to turn over the details of that to Eric Creviston. But suffice to say, margins are accretive to corporate averages on PowerSmart. As far as the ramp and profile, Eric would be best suited to comment on that.

Eric Creviston

Sure. Hi, Ed, this is Eric. The PowerSmart ramp, as you noted has begun with Samsung. We shipped -- just over 1 million chipsets in the March quarter, so we're well on our way in terms of production. The ramp-up has moved around a bit. We did announce in Barcelona, of course, some of the flagship products that we are shipping into both with Samsung and LG. I think since then, the results have been pressed about the ramp dates for those products moving around a bit and that has impacted us for sure, but we're still going to see nice growth to PowerSmart this quarter and overall for the year. In it's entirety, we're still very much on track with what we said earlier, which is we'll do at least $75 million in PowerSmart revenues this fiscal year, we'll exit the year at $25 million a quarter, at least, so everything is very much on track. And I think you were asking about LG as well specifically the ramp profile there? I think you can see them as basically being a quarter behind. So during this June quarter, we'll ramp something on the order of 1 million and then get into the single-digit millions after that per quarter.

Edward Snyder - Charter Equity Research

Okay. And then in terms of your largest customer, it's tracking pretty much as we expected it given what's going on with them. How certain are you that June will be the bottom for them? I know you've talked about in previous quarters many new design wins there that you are hoping to ramp midyear, so do you still feel that's possible? And any feeling at all, I know it's really hazy, given their plans are hazy, what the profile of your rebound will be, say, over the next year?

Robert Bruggeworth

Ed, I think as you pointed out, our largest customer is dealing with some, obviously, some issues within the marketplace and it is kind of playing out. Transceivers, at least, we can finally say to you, Ed, that they have ramped down. I know we kept moving that around. As far as the design wins that we have, we have -- those are still intact and we still expect to continue to ramp in the second half of the fiscal year. Now what the slope of that ramp is going to be is much to do with how well their new phones are received in the marketplace. So as far as the profile goes, I think that's a little bit early for us to call, but we do expect June to be the bottom as we had discussed on the last call with our Nokia front-end revenues.

Edward Snyder - Charter Equity Research

Great. Thanks, guys.

Robert Bruggeworth

Thank you.

William Priddy

Thanks, Ed.

Operator

Our next question comes from the line of Harsh Kumar of Morgan Keegan.

Harsh Kumar - Morgan Keegan & Company, Inc.

A couple of questions. Coming back to your largest customer, we were under the impression that the bottom was going to be about low 30s. What is making them go past that number to the 15% level, and also if you could tell me how much your largest customer was at the end of March? And then we can therefore compute how much it's going down in June?

Robert Bruggeworth

Now Harsh, I think the percentage drop has as much to do with not being any transceiver revenue, number 1, and then their own market share. And also, if you go back to the last couple of quarterly calls, we did talk about our market share at Nokia in the front-end business coming down. We were much greater than their percent of the market and we're coming back in line with, if you will, their percentage. So the biggest drop, as you know, they guided down. And you couple that with the high-end phones, where we have higher dollar content than the lower end phones, that's how you get to about 15%. Like we said, that's offset by the other parts of our business that are growing.

Harsh Kumar - Morgan Keegan & Company, Inc.

Got it. Got it. Very helpful. And then, if I can ask you one more question, I think coming back to the earlier caller's question, any kind of color you can help us get on either September growth, you said June will be the bottom which of the Nokia behind. What are you thinking in terms of growth for the back half of this calendar year?

Robert Bruggeworth

Yes. I think it's safe to say that we're fairly comfortable. We can grow a little bit faster than what we think our end markets are going to grow for this equally adjustments that we typically see in growth in September and December. So we're comfortable we can grow.

Harsh Kumar - Morgan Keegan & Company, Inc.

Got it. Fair enough. And then last, can we get the MPG versus CPG's spread, and I'll get back in line?

William Priddy

Yes, CPG was roughly 75% and MPG was roughly 20%. That's bit of a change over the past few quarters where it was previously about 80%, 20%.

Harsh Kumar - Morgan Keegan & Company, Inc.

Fair enough, guys.

William Priddy

25%, MPG was roughly 25%. Sorry.

Harsh Kumar - Morgan Keegan & Company, Inc.

Got it. Thank you. Thanks.

Robert Bruggeworth

Thanks, Harsh.

Operator

Our next question comes from the line of Vijay Rakesh with Sterne Agee and Leach.

Vijay Rakesh - Sterne Agee & Leach Inc.

Yes, I'm just looking at the gross margins. It looks like it's picking up 100% -- 100 bps into June quarter. Where do you see that as you go into September, December as PowerSmart continues to ramp?

William Priddy

Yes. We see no reason why we can't reach the 40% type gross margin. The business model is pretty much set up. You run revenue through it and with the new product mix and customer mix that we're seeing at end market mix, you're likely to see a natural improvement in the gross margin as the revenue or top line increases. So we definitely have our eyes set on 40%, and with a little help from the markets on the revenue line, we may be able to go past that.

Vijay Rakesh - Sterne Agee & Leach Inc.

Good. And you've mentioned HTC, RIM and Huawei, are all those three ramping more in the third quarter -- in the September quarter kind of or?

Eric Creviston

This is Eric. In the Cellular business, at least, and Bob can talk about the MPG business as well because those are our customers for both. Huawei is a certainly a large customer of ours now today. In fact, we grew with them in March and we'll be growing with them, again, very well in June. So it is an area of strength already per CPG that's going to just continue as we continue to gain share and ride along with them. RIM is just beginning as well. We're ramping in this quarter with them and they'll be growing very nicely sequentially throughout FY '12 to be one of our largest customers by the end of the year probably. And then HTC, as well, we've actually -- we're doing a fair amount of business with them already. But our share, they will be picking up significantly throughout the year. We have a lot of GPS business, as well as Switch business there today and we're competing for a lot of PA slots. It could go into production by the end of this year.

Vijay Rakesh - Sterne Agee & Leach Inc.

And then last question here on the inventories, is that -- the pickup, is that mostly PowerSmart? Is that the new products there?

Robert Bruggeworth

Yes, the tick-up in inventory is basically a couple of things. Our business with our largest customer wasn't quite as good as we expected for the quarter so a little bit of inventory there that we will work through going into the June quarter. And then it was primarily based on expected ramp of new products, in particular PowerSmart.

Vijay Rakesh - Sterne Agee & Leach Inc.

All right. Thanks a lot, guys.

William Priddy

Thank you.

Robert Bruggeworth

Thank you.

Operator

Our next question comes from the line of Ittai Kidron with Oppenheimer & Co. Inc.

Ittai Kidron - Oppenheimer & Co. Inc.

Thanks. A couple of questions. Dean, when do you -- what revenue run rate do you think you need given the new mix in your business and the ramp of higher margin products in order to get, again, to 20% operating income margin?

William Priddy

Yes. I think it's somewhere between the $250 million to $260 million to $270 million type of run rate.

Ittai Kidron - Oppenheimer & Co. Inc.

Okay. So it's down about $20 million versus where you had to be there before you get to that level.

William Priddy

Yes, and those are rough estimates. I mean, if we did 19%, don't hold it against us.

Ittai Kidron - Oppenheimer & Co. Inc.

Very good. And second, with regards to your operating expenses, any color -- I mean, they've kind of -- two quarters in a row now, they've been rising and I know that certain things kick in kind of in March related to taxes and things like that. But the question is, from this point going forward, is flat the way to think about it or how do we think about OpEx growth from this point for the next few quarters?

William Priddy

I think you can -- number 1, think of it in a fiscal year '12 or fiscal year '11 growth scenario of somewhere in the mid-to-upper single-digit range. We are absolutely swamped now with customer activity. I mean, the rate and pace, the design wins and actually, the customer facing exercises from applications, engineers and sales engagements and so forth is really at some of the all-time high with all the new customers that we're dealing with, new product ramps and so forth. So the last thing we want to do is starve off those design win activities. So I did think you're going to see some increase in operating expenses on a sequential basis. Nothing though that gets ahead of where we think our business is going with the design wins and customer account activity that we're picking up.

Ittai Kidron - Oppenheimer & Co. Inc.

And lastly, early last year, you felt comfortable guiding for an annual free cash flow target. Any chance I can get you to do the same right now for '12?

William Priddy

Well, I mean, you never make assumptions but we've got a couple of years here under our belt of $177 million and $188 million, and we see another very, very strong year coming for our free cash flow in 2012. We might start the year off just a bit lighter than the March quarter on a quarterly basis, but no reasons suggest that we're going to see anything very much out of family with previous years, except to say that this year, CapEx was 2.5% of sales and going into fiscal year '12, we'll probably bump that up to maybe 3% to 4% of sales.

Ittai Kidron - Oppenheimer & Co. Inc.

Very good. Good luck, guys.

Operator

And our next question comes from the line of Todd Koffman with Raymond James. Please go ahead.

Todd Koffman - Raymond James & Associates, Inc.

Yes. Can I just get a clarification in the March quarter how much business did you do with your top customer and how much of that was POLARIS? And I have a quick follow-on.

William Priddy

The business with our largest quarter is in the low 30% range of total revenue. And POLARIS, it came down substantially in the March quarter, and really, I think the news and the headline is by the end of the June quarter or by the June quarter, it's basically gone. So the end is here of the revenue headwind.

Todd Koffman - Raymond James & Associates, Inc.

Okay, very good. One quick follow-up. Last summer, you had indicated that you thought fiscal 2012 would be a accelerated revenue year, you called that out and given the design wins, but given where business has developed, what's your latest thinking regarding the full year fiscal 2012? Could it be an up year in revenue or that's a stretch nowadays?

Robert Bruggeworth

Todd, you broke up. I'm going to do the best I can to answer your question. There is no doubt in our mind that our core business is going to grow year-over-year. Clearly, our largest customer's experiencing some challenges. So what impact that's going to have on us and our ability to offset their struggles, that's yet to be determined. I also think, as the industry goes, understanding the impact of what's happening and happened in Japan, I think it's a little bit unrealistic for us to lean that far forward year-over-year, but we are absolutely confident in our core business being able to grow significantly as just outlining what we believe our core business can grow this quarter of 8% to 12%. So when we look at the total fiscal year and our core business, there's no doubt we believe we can grow year-over-year.

Todd Koffman - Raymond James & Associates, Inc.

Thank you very much. Good luck.

Robert Bruggeworth

All right. Thank you.

William Priddy

Thanks, Todd.

Operator

The next question comes from the line of Scott Searle with Merriman Capital.

Scott Searle - Merriman Curhan Ford & Co.

Good afternoon. Just a quick clarification to follow up on the POLARIS business. Was it 10% of the mix? It sounds like you came down substantially, but was it still in that ballpark. And a follow-up to that, if I look at the 8% to 10% growth in the core business into June and backing out the POLARIS gross margins, it would seem that 100-basis point increase in gross margins is perhaps low. So particularly when I factor in PowerSmart being having accretive gross margins, et cetera, is there something I'm missing? Are you guys being conservative? Is there a mix issue? Is it utilization that's keeping gross margins from going up more in the June quarter? Thanks.

Robert Bruggeworth

Thanks, Scott. I think Dean's pretty much answered all. We're going to look back into December and March and all that about transceivers. We're here to declare them dead. This has been a day, I think, we've all been looking forward to, and honestly, we're not looking back. As far as gross margins go. Yes, I think when you talked about utilization, our utilization rates are going to be down a little bit. Dean talked about building up a little bit of inventory for some of these ramps. We're comfortable with the yields in our new products, and quite honestly, we're not going to run our factory as hard, and then the utilization rates will pick up in September and December.

Scott Searle - Merriman Curhan Ford & Co.

Great. Thank you.

Robert Bruggeworth

Thank you.

Operator

Thank you. Our next question comes from the line of Aalok Shah with D.A. Davidson.

Aalok Shah - D.A. Davidson & Co.

A couple of quick questions. Eric, if I could, start with you real quick. Just in terms of PowerSmart, I mean, are you winning the entire platforms? What are you thinking about that in terms of, for example, the Galaxy 2? I mean, is that the entire platform for both tablets and for handsets? And then maybe if you can talk a little bit about where you think PowerSmart can kind of go to especially with some of the new customers that you're expecting? Is it geography-based? Is it something else? Maybe, give us a sense of where you're seeing the strength right now for PowerSmart?

Eric Creviston

Sure. So yes, within Samsung Galaxy S2. That platform of which there are multiple handset course, we'll spin off that platform, as well as the Galaxy Tab 10.1. It's a specific tablet model that we are supporting. There are multiple handsets, I think, with LG, the Optimus, family Optimus 3D in particular is the flagship. Also between Samsung and LG as of today, it fits over 30 handsets between all those platforms, handsets or tablets that we're aligned on. We're ramping -- we fully expect to be ramping with RIM in September. That, as well, we expect to be across multiple SKUs within at least one platform. So we're really excited about the next couple of quarters. We're going to see this platform hold-up for, I think, once the rest of the world can truly see the size and performance benefits of this revolutionary new architecture the flywheel is really going to spin up. So we see that converged architectures today in this year and CY '11 will address about 10% to 15% of the market as the total available to us based on the handsets that are in that architecture. That could easily become 1/3 of the market next year and then 1/2 of the market the year after that in terms of the smartphone market. So we think converged architectures are going to have a big place to play. We're going to be the leader there, and PowerSmart, as well as derivatives of PowerSmart that will hook up with other base bands as well.

Aalok Shah - D.A. Davidson & Co.

Okay. And I'm assuming then you're also getting like the switch and maybe some filters as well within these platform wins?

Eric Creviston

Yes, exactly right. In fact, our Switch business is really on fire right now. We grew -- in the March quarter, we're going to grow very nicely in the June quarter without business. We get a lot of traction now, true product leadership in solving the industry's problems around distortion and linearity around these multi-mode handsets so on PowerSmart platforms but on a lot of other smartphone platforms in particular and connected devices applications. If you're shipping a lot of data and you need, of course, the best performance and lowest current consumption, our switches are really going to help the customer out. That's why we're being selected by QUALCOMM, of course, for multiple reference designs today with the switch technology. And it's just going to continue proliferate throughout the year.

Aalok Shah - D.A. Davidson & Co.

Okay. And then in terms of your largest customer, I don't want to keep harping back to it, but in terms of market share, do you think you're losing market share? What do you think your end of the year, maybe calendar year 2011, 2012 maybe even? What do you think your market share within that customer will be looking like?

Eric Creviston

Yes, I mean, we've been very clear about the fact that our front-end share with our largest customer had gotten non-sustainably high a year or so ago. And in fact, it's been coming down sequentially for 4 or 5 quarters now probably. We've gotten to the point now, as of this quarter, where we believe that'll sort of bottom, and it's bottoming in a very sustainable range. We'll definitely be well under a 1/3, I think, of their business right now. And so I think we've got room now to start building it back up again. And I think we'll be at this sort of level with them for this quarter and next quarter and then what we see is in the December quarter and then certainly in the March quarter and going into the next year, we've got the opportunities to grow that share again based on the platforms we've won.

Aalok Shah - D.A. Davidson & Co.

Okay. And then last question for me. In terms of Japan, I mean, any kind of repercussions to you guys positive or negative?

Robert Bruggeworth

As far as supply chain goes, our own internal supply chain, we believe we're in good shape. Our teams done a great job and we didn't anticipate -- or that didn't impact any of our revenue in the March quarter. We don't anticipate it impacting any in the June quarter as far as being able to pick up any significant business at this point in time, really haven't noticed any. I still think there's risk out there obviously in the supply chain of other components that could go into handsets that none of us are aware of. But for right now, we're not including any of that impact our guidance and comments.

Aalok Shah - D.A. Davidson & Co.

And then, Bob, just one more quick one if I could. In terms of the overall macro, do you think that there was maybe some over inventory or maybe there is an inventory correction taking place right now in the handset space?

Robert Bruggeworth

Not that we're aware of. In talking to our customers, we have not seen that.

Aalok Shah - D.A. Davidson & Co.

Okay. Great. Thank you very much.

Robert Bruggeworth

Thank you.

William Priddy

Thanks, Aalok.

Operator

Our next question comes from the line of Mike Burton with Kaufman Brothers.

Michael Burton - Thinkequity Partners

First, Dean, if you could just clarify on your gross margins coming up to 40%. Is the gross margin profile for the core revenue still close or at 42%? And then secondly on PowerSmart, sorry if I missed it, but did you give an update on what you expect for the fiscal year for PowerSmart revenue?

William Priddy

Yes. Starting with the gross margin, 40% is definitely within our target in range over the next 2 to 3 quarters. And I'm sorry, what was the second part of the margin?

Michael Burton - Thinkequity Partners

It was just that you had talked before about your core revenues being at 42% gross margins.

William Priddy

Yes. Core revenue this quarter dropped just a tad below 40%. So I think it is a factor of a lot of things, product mix, some utilization and so forth. Again, I think it's more of a revenue-driven, volume-driven type phenomenon and you start adding revenue back with the mix that we expect to see, which has probably 55% to 60% contribution margin. You can see yourself very quickly getting to that 40% or above level. And let's face it, after the June quarter, our core business is really going to be our business. So you're not going to have any further overhang from the Transceiver business.

Michael Burton - Thinkequity Partners

Okay. Great. And then the other question was regarding PowerSmart. Was there an update on the forecast for the fiscal year in revenues?

Eric Creviston

This is Eric. I did reiterate that. The comments we've said earlier about doing at least $75 million in PowerSmart revenue is on track.

Michael Burton - Thinkequity Partners

Okay. And the ASP for that product, if you could ballpark that for us, and does that -- is that going to come down as this begins to ramp or how do you expect to trend?

Eric Creviston

We've said that we expect to capture roughly half of the smartphone RF content with PowerSmart since it has all the power amplifier and power management included in what we're shipping today. So that's on the order of 300 to 350, and we don't foresee that changing dramatically throughout the year.

Michael Burton - Thinkequity Partners

Okay, great. And then last one for me, the high performance PA that you talked about or RIM as your first customer, did you say that, that was going to ramp starting in the September quarter? And is there anything that you're willing to put out there as a benchmark or a number for this fiscal year for that product?

Eric Creviston

Yes, we had originally planned to ramp in September. That one, in fact, has actually pulled in. We're beginning production now, I'm happy to say. Now that's a family of products and there's one in particular, one band that which we're supporting this quarter, so we'll be ramping production although at a more modest level but it will material this quarter and then it will be growing throughout the year as well.

Michael Burton - Thinkequity Partners

Okay. And is that -- my understanding is that, that's mostly matched up with QUALCOMM, is that correct? And is there other platforms that, that product ships on? And again, is there any chance we can get a bogey that you're going to try to hit this year for that?

Eric Creviston

So I'm not going to speak specifically to RIM's supply chain, but I will tell you in general, this product family is designed to work with QUALCOMM and MediaTek and other base bands in terms of the GPIL and the way it's set up to operate, so that's correct. We certainly expect a very broad attachment to QUALCOMM with this product family. So I think I've said before, the sales funnel for this part is actually much bigger than PowerSmart. Again, PowerSmart addresses a certain percent of the market today but this single-mode, single-band peers like this, especially an ultrahigh performance version like this can actually address a very broad market today, today's architecture. So it is a couple of quarters behind PowerSmart in terms of its ramp profile but it's going to be every bit as big, of course, when it's in production.

Michael Burton - Thinkequity Partners

Okay. Great. Thanks.

Robert Bruggeworth

Thanks, Mike.

Operator

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

Jason Rechel

Guys, this is Jason in for Quinn. Just kind of circling back to Japan. Could you maybe discuss the linearity that you saw throughout the quarter? And as you went through March, did you see any particular spike in orders after the incident in Japan? Thanks.

Robert Bruggeworth

I'm going to take that, Dean. As far as linearity in the quarter, which is typical for us given the Chinese New Year and where it falls, things slow down about the middle of the quarter and then pick back up. As far as orders ago, they played out just like expected and we hadn't expected an event in Japan. So as far as thinking that any of the pickup in March that we saw was due to what happened in Japan or what we're seeing so far through the month of April, I'd say, we can't attribute anything to those events.

Jason Rechel

Okay. Great. Thank you. And then I guess just looking into the second half of the calendar year here, obviously, you don't want to guide out that far, but is there any reason to think that there won't be normal seasonality for the handset market going into the second half of the year, and then kind of expecting you guys to perhaps grow a bit faster than normal seasonality given the ramp of your certain products?

Robert Bruggeworth

I think for right now, our internal forecasts and what we're getting from customers and what we're looking at, we're expecting kind of normal seasonality from June to September and then September to December, and yes, we think we can gain a little bit of share and grow a little bit faster than that.

Jason Rechel

Perfect. Thanks, guys.

Operator

Our next question comes from the line of Venk Nathamuni with JPMorgan.

Venkatesh Nathamuni - JP Morgan Chase & Co

Yes, thanks for taking my questions. In talking about the 10% plus customers, you said there was another one, I imagine that Samsung, and if that's true, where do you expect your share at Samsung to be towards the end of this year?

William Priddy

The second 10% customer was Samsung and we expect to be increasing share throughout the year with Samsung. I'm not going to throw a specific number out, but with all the models of PowerSmart and other design wins that we have there. Suffice it to say, they are expected to grow nicely.

Venkatesh Nathamuni - JP Morgan Chase & Co

Okay. Thanks, Dean. And then, Dean, another question for you, in terms of the inventory, I know you said it went up almost 12% Q-on-Q and days went up by 30 days. Where do you expect inventory days to trend over the next couple of quarters?

William Priddy

We expect the inventory turns to improve in the June quarter. As we've already mentioned, we're bringing our fab utilization rates down some in the first part of the June quarter. Forecasts come to fruition like we expect to going into the end of June, and then to September, we're going to be ramping them back up again fairly quickly, but we're going to take some steps to bring the inventory levels down a bit.

Venkatesh Nathamuni - JP Morgan Chase & Co

Okay. Great. Thank you. And then, if I may, just one last question for Eric. In the past quarter's call, you talked about your Switch Filter and Internal Switch Module business to be around $10 million a quarter exiting calendar '11. Is that still the right way to think about it?

Eric Creviston

No, I'm afraid it's actually accelerated. We're going to be running at that rate very, very soon and we could exit the fiscal year actually closer to well over $20 million a quarter in that business.

Venkatesh Nathamuni - JP Morgan Chase & Co

Great. That's helpful. Thank you.

Robert Bruggeworth

Thanks, Venk.

Operator

Our next question is from the line of Parag Agarwal with UBS Capital Markets.

Parag Agarwal - UBS Investment Bank

Hey, guys, thanks for taking my questions. Just wanted to drill down further on PowerSmart. You've got it to $75 million revenue. Just wondering if it is coming from the customers you have already declared like Samsung, LG and RIM or you're expecting some more customer wins for that $75 million.

Eric Creviston

Actually, we believe we can reach that $75 million bogey with those 3 customers. However, we have 7 other customers in deep engagements and in several design wins there as well that we do expect to ramp beginning in the December quarter, maybe even some in September, but there will be other revenue contributing in December and March quarters, but we're not relying on that to hit that bogey.

Parag Agarwal - UBS Investment Bank

Okay. Perfect. And can you also comment about what's happening in the China handset market? How is that revenue -- what are the expectations for that revenue growth?

Eric Creviston

So we're still doing very well there. We think the market itself is healthy. We've had so far, this quarter, at least, a good strong quarter as well. So we think our share there is strong and stable. We're the leader in that market. We continue to invest into the market as well and bring out a family of products that are incredibly competitive right now in terms of both current consumption and cost structure. So we can expect to absolutely continue to be the leader in that market. We're working well with all the reference design and channel partners in that space. So we're very, very excited about that business. It's a good strong foundation for us. The next chapter, of course, in China is going to be 3G. And as we see, the transition into the 3G category, we get even more excited because, of course, we have a lot of great products there as well and that's a higher dollar content opportunity for us. TD-SCDMA right now is growing very nicely. We think it could double year-over-year and become quite significant this calendar year and we're in virtually every reference design there for TD. So we have got very good representation there. Our 3G PAs of course, we expect to be stronger with our leadership with MediaTek and so forth in their reference designs. So overall, we're quite happy with where we are in China and expect it to be a nice -- good stable foundation for us this year for our growth.

Parag Agarwal - UBS Investment Bank

Perfect. My last question is on MPG. Any idea how big the GaN revenue is right now?

Robert Van Buskirk

We expect -- this is Bob Van Buskirk by the way. We expect GaN revenue in FY '12 to be in the $15 million to $20 million range, but we're expecting that to have a very good chance of doubling in FY '13, if not, more.

Parag Agarwal - UBS Investment Bank

Thank you very much.

Operator

Thank you. Our next question comes from the line of Nathan Johnsen with Pacific Crest.

Nathan Johnsen - Pacific Crest Securities

Hi. Thanks for taking my questions. Question for Eric on PowerSmart. My understanding is still the PowerSmart platform is still tied to Infineon Intel sign [ph] this year. Just wondering how your conversations have been and trying to expand support for that platform on other base bands and in particular QUALCOMM. Secondly, just on MPG, CPG and looking at the core business growth for the June quarter, are you expecting those two businesses to grow at about the same rate or is there some disparity there? And then just last question, just I wondering if we could get what China was just as a percentage of total revenue?

Eric Creviston

Nathan, this is Eric. First, regarding the base bands alignment for PowerSmart. You're right, we're very well and tightly aligned with Intel today on their platforms and continue to invest in making them more competitive going forward. We spoke last quarter about two additional base band suppliers. We added a third additional base band supplier. So in addition to Intel now, three other base band suppliers that were engaged in integration levels with PowerSmart and its derivatives, was converged -- power amplifier architectures. So the momentum is definitely picking up. There's nothing we can announce quite yet.

Robert Bruggeworth

Nathan, as far as our growth rate for MPG and CPG in the June quarter, they both fall within the 8% to 12% range. And Dean's calculating China for you to give you a range.

William Priddy

Yes, it was in the low 20% range.

Nathan Johnsen - Pacific Crest Securities

Great. Thanks so much.

Operator

Our next question comes from the line of Jaeson Schmidt with Craig-Hallum Capital Group. Please go ahead.

Jaeson Schmidt - Craig-Hallum

Thanks. Just a few quick questions. Dean, can you give us the backlog coverage of your guidance? And then secondly, Eric, could you talk about lead times in the CPG segment?

William Priddy

I'm sorry, I missed the first part. I think you asked about the backlog?

Jaeson Schmidt - Craig-Hallum

Yes, your current backlog coverage.

William Priddy

Yes, as we mentioned earlier, a couple of quarters ago as our dependence on Nokia lessened, we probably would rely more on turns business going forward. Suffice it to say though, we've got a backlog plus a good solid customer forecast to support our range of revenue guidance. In some businesses we are -- let BVB speak for MPG and maybe Eric speak for the Cellular Products group.

Robert Van Buskirk

Yes, in terms of bookings, we had actually in the December quarter a pretty strong bookings quarter for us. We had a book-to-bill significantly above 1. And honestly, this quarter we're off to an even stronger start. We typically, at this point, because we have typically more turns or drop MPOs during a quarter, but for us to be north of 70%, at this point in time, is a strong quarter, and we're well above that as we sit here today.

Eric Creviston

And I think for CPG, your question was about lead times as well. Backlog and lead times and so forth aren't quite as applicable in the CPG business, because the majority of our business is on electronic helping with our large customers and then another large chunk of businesses is through distributors for a lot of our mainland China business. We do have a few large customers in China that go direct, and those do sometimes drop in short lead orders, of course, and that activity is no different than it normally is. We haven't seen more or less of those kinds of drop-ins. So for the most part, we've got good visibility through the electronic systems and no real changes in terms of lead times in CPG.

Jaeson Schmidt - Craig-Hallum

All right. Thanks, guys.

Operator

Ladies and gentlemen, [Operator Instructions]. Our next question comes from the line of Harsh -- is a follow-up from the line of Harsh Kumar with Morgan Keegan.

Harsh Kumar - Morgan Keegan & Company, Inc.

A couple of questions. Question for Bob Van Buskirk. I noticed that you mentioned multiple design wins in WiFi and handsets and tablets. Is this a new initiative for your division Bob or is this something that's been planned and just kind of taking off?

Robert Van Buskirk

Let's see. We were servicing directly Nokia for many years in the WiFi PA space. But in FY '11, we increased our investment in front ends for WiFi seeing what was coming in the margin in terms of higher power, higher data rates, extended range, dual band, high frequency. So all of those things are playing into the strength that we have in RFMD relative to scale and technology and integration and so forth. So we did increase our investment and we were fortunate enough to pick up. We ramp pretty strong in the December quarter. We had a bit of a plateauing in the March quarter, but we're now seeing that ramp again, and we have high hopes. I've said before publicly that we expect to ship more than 100 million front ends for WiFi in FY '12 and the majority of those, in fact, the vast majority, are going to handset applications, although, we do, do access point in CPE products too. But it is something that was restarted as an initiative for us in RFMD, in FY '11 and it's starting to not only get good traction in terms of design wins. We announced in the quarter, for example, meeting up with TI's WiLink 6.0 and 7.0 platforms and we're getting broad pull from that relationship in terms of a reference design. And we're pretty excited about our WiFi opportunity in FY '12.

Harsh Kumar - Morgan Keegan & Company, Inc.

That's great. Thanks for the clarity. And then your new chips, a question, I guess, for Eric. Your new Phenom chipset or chip that's getting traction at RIM, is the margin there better than your corporate margins, i.e., does this comply with the new standard of all new products being higher corporate margins or could you just give us some color on that, Eric?

Eric Creviston

Yes, thanks for the question, and you're right, Phenom is a family of products. There's a single-band, single-mode, ultra-high efficiency power amplifiers for both 3G and 4G. So they'll be a lot of part numbers in this family. ASPs and margins will vary, but certainly, by far, the majority in, and on average, for the family, they will be accretive to the corporate gross -- average gross margin.

Harsh Kumar - Morgan Keegan & Company, Inc.

Fair enough. And then last one for me and I'll leave the floor here. Buyback, in terms of -- even at sort of a low level of revenue you are generating a very healthy level of cash, is that still on the table in the near term to take down what I would say a significant amount of share of these prices?

William Priddy

Well, as you recall, the buyback was targeted more towards delusion control than anything else. But our options remain open in terms of our use of cash. We can continue to buy back shares or bonds as we have been, as we did in the March quarter. We leave ourselves open to doing a smaller tuck-in type of acquisition or we could continue to build a bit of a cash balance. So I feel very good that all of our options are now open.

Harsh Kumar - Morgan Keegan & Company, Inc.

Very well. Thanks, guys. Thank you very much.

William Priddy

Thanks, Harsh.

Operator

And ladies and gentlemen, at this time, there are no further question in queue. I'd like to turn the call back over to management for closing remarks.

Robert Bruggeworth

Thank you very much for joining us this evening. We're extremely pleased with what we've accomplished to date. And we look forward to demonstrating what RFMD operating model can achieve without the revenue headwinds caused by Transceiver business. We are creating a highly diversified growth-oriented industry leader with multiple growth engines. Accordingly, we expect continued strength in our core business and the elimination of the revenue headwinds caused by declining transceiver sales will enable RFMD to outpace our markets' growth rates and deliver superior returns to our shareholders. Thank you again and good night.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. If you'd like to listen to a replay of today's conference, please dial (303) 590-3030 or (800) 406-7325 and enter the access code 4432787. We'd like to thank you for your participation, and you may now disconnect.

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