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Skyworks Solutions, Inc. (NASDAQ:SWKS)

F3Q08 Earnings Call

July 17, 2008 5:00 pm ET

Executives

David J. Aldrich - President and Chief Executive Officer

Donald W. Palette - Vice President and Chief Financial Officer

Liam K. Griffin – Senior Vice President Sales and Marketing

Thomas Schiller – Investor Relations

Analysts

Stephen Ferranti - Stephens Inc.

Ittai Kidron - Oppenheimer

Cody Acree - Stifel Nicolaus

Suji De Silva - Kaufman Brothers

Edward Snyder - Charter Equity Research

Jeff Kvaal - Lehman Brothers

Aalok Shah - D.A. Davidson

Todd Koffman - Raymond James

Sanjay Devgan - Morgan Stanley

Craig Ellis - Citi

Brian Modoff - Deutsche Bank

Mike Burton – ThinkPanmure

Operator

Welcome to the Skyworks Solution third quarter 2008 conference call. (Operator Instructions) At this time it’s my pleasure to turn the call over to Tom Schiller, Investor Relations for Skyworks.

Tom Schiller

Joining me today are Dave Aldrich, our President and Chief Executive Officer, Don Palette, our

Chief Financial Officer and Liam Griffin, our Senior Vice President of Sales and Marketing.

Dave will begin today’s call with a business overview followed by Don’s financial review and outlook. We will then open the lines for your questions.

Please note that our comments today will include statements relating to future results. They are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially and adversely from those projected as a result of certain risks and uncertainties including, but not limited, to those noted in our earnings release and those detailed from time to time in our SEC filings.

I would also like to remind everyone that the results and guidance we will discuss today are non-GAAP consistent with the format we have used in the past. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP.

I will now turn the call over to Dave for his comments on the quarter.

David Aldrich

For our third fiscal quarter I am pleased to report that Skyworks team again exceeded guidance with top line growth of 23% driving a 79% improvement in operating income. Our performance reflects our increasing diversification in wireless and adjacent analogue markets, share gains and strong operational execution.

Specifically during the quarter we delivered $215 million of revenue, that’s up 23% from $175 million last year. We expanded our gross margins to 40.6%, a 180 basis point year-over-year increase and our fifth consecutive quarter of gross margin improvement. We generated operating income of $30 million, now this is up 79% year-over-year; we increased our operating margin to 14.1% and this compares to 9.7% last year. I think most importantly, we posted record earnings per share of $0.18 versus $0.11 in Q3 of ’07 and we’ve generated $112 million of cash flow from operations on a fiscal year-to-date basis and we exited with $254 million of cash.

At a higher level our performance represents further progress towards realizing our stated vision of becoming the worldwide leader in mobile connectivity semiconductor solutions and to that end, and as we’ve outlined in past calls, we’re focused on four simple we think, yet very powerful business strategies. First we are continuing to diversify Skyworks; second we’re developing higher margin products; third, we’re capitalizing on content growth in wireless front-end solutions; and fourth we’re driving continuous operational improvements. I’ll spend a little time today providing an update on our progress along each of these four critically important initiatives.

First, with respect to diversifying Skyworks, we’re leveraging our catalogue business and our worldwide distribution network and expanding into a broader set of end markets including energy management, satellite radio, industrial, automotive, wireless networking and broadband communications. Now keep in mind, today’s Skyworks supports nearly 1000 global customers with over 2.500 standard products and with each new customer engagement we’re widening our product pipeline. In fact, during the quarter we ramped energy management solutions for ZigBee and remote meter reading applications, we’ve launched ultra compact satellite radio antennae modules including filter and low noise amplifiers, and we’ve introduced the industries first bulk acoustic wave filters enabling WiMax and wireless LAN co-existence.

In the automotive sector we now support Microsoft Sync initiatives with low power control IC’s enabling fully integrated voice-activated communications for our mobile phones and digital music players.

During the quarter we also increased shipments of femtoe cell [ph] building blocks at a top tier OEM with additional design wins slated to ramp later this year and we’ve commenced shipments of custom multi chip modules for fiber to the home applications.

Now in parallel to our analogue market growth initiatives and diversification we are continuing to diversify our handset business. As many of you may recall, in 2006 our revenues were heavily concentrated with two handset OEFS, whereas to day we are uniquely supporting all five top tier OEMs as well as the two leading smart phone suppliers with new program ramps across the board.

A special note, during the quarter we partnered with Qualcomm for the first time in our history aligning our multi-mode front-end module portfolio with their CDMA 2000 edge and 3GHS DPA system road maps and reference designs. A given Qualcomm’s CDMA and YPA and CDMA leadership, this is a significant growth opportunity for Skyworks.

Second we’re developing higher margin products with the development and introduction of a host of new custom solutions, we have created a portfolio characterized in many cases not only by longer life cycles and in some cases annuity like revenue profiles, but also higher overall contribution margins. This transition is occurring on multiple levels including for example standard catalogue products, custom analogue solutions in multiple new markets, front end modules per system on a chip applications or SOC systems and multi mode front end modules.

Both our handset and our newer linear products customers place very high value on architectures that reduce size, reduce bomb complexity, improve system reliability and enhance performance while enabling the lowest system price points. This is precisely where Skyworks excels today.

The third initiative, we’re capitalizing on the increase in front-end content. The migration to multi-mode wireless platforms from 2G-voicentric phones is accelerating as consumers demand high sped data capability supported by 2 1/3 and 3G applications. With this strategic trend, the complexity in the front-end module significantly increases expanding our addressable market nearly three-fold, specifically driven by a few things: One is the need for backward computability to existing networks; another is the requirement to manage multiple standards and frequencies within the same phone or within the same device: in some cases up to a dozen frequencies in a single platform; the inclusion of broad band functionality enabling things like music data, video and the requirement to accomplish all of this in a compact size with minimal battery consumption.

The integration of these various bands for reliable high-speed access requires very complex modules which must, must remain physically small. They must remain extremely power efficient and cost effective. In fact the more modes of operation in any given platform the better it is for us, the better it is for Skyworks as we can push the performance envelope in terms of front-end integration and reduces current consumption obviously enabling longer talk times and thus improving the overall user experience.

Now at the same time the emerging market is moving aggressively to lower cost system on a chip solutions, SOC. Now these particular architectures place a higher burden on the front-end module given the RF functionality that is being merged into the base band device; but there are inherent performance challenges when integrating analogue functions in CMOSE [ph] technology and as such there is higher value assigned to the SOC front-end module.

This trend may in fact be the most misunderstood factor of our business today and is clearly a substantial revenue growth area for Skyworks and as we’ve previously discussed we’re aligned with each and every leading baseband supplier. So with ramps in various stages of projects across all Tier-1 OEMs Skyworks is positioned to gain further share in the FEM product segment.

The competitive landscape is clearly narrower with fewer suppliers able to support the demanding performance specifications, the stringent quality standards and the manufacturing scale requirements of leading handset OEFs. In fact our customers are very quickly consolidating down to a very short list of strategic front end module suppliers. Out of the dozen or so Pa companies that serve the pin for pin compatible space only a few short years ago.

In short the markets growth needs are intersecting with what Skyworks does well and therefore we are capturing points of market share in a growing market.

The fourth strategy, they are executing operationally. As some of you may know we are an extremely metrics driven culture with an intense focus on continuous improvement in yields and equipment utilization in our cycle times and in our return on invested capital. Meanwhile we have effectively implemented a hybrid manufacturing model, we’re now leveraging multiple external foundries and this model is providing us with a great deal of supply chain flexibility, it allows us to have a lower capital investment, along with the ability to meet upside demands.

At this focus on operation I’ll call blocking and tackling, is directly correlated to our results and is best evidenced by our five consecutive quarters of gross margin expansion and for the six and solid stripes towards reaching our long-term profitability targets.

To recap, our third quarter performance demonstrates continuous progress in our four initiatives. First we’re diversifying Skyworks; second we’re delivering higher margin products; third we’re capitalizing on the increase in front-end module contents; and fourth we’re executing operationally.

So in summary this is an exciting time for Skyworks. We believe we are well positioned to continue to outperform the broader semi-conductor market and to deliver superior returns to our shareholders.

Donald Palette

Revenue for the third fiscal quarter was $215.2 million up 23% year-over-year, up 7% sequentially and ahead of our guidance for $210 million for the period. Gross profit for the quarter was $87.4 million or 40.6% of revenue, a 180 basis point year-over-year expansion and fifth consecutive quarter improvement. This performance reflects our focus on margin improvement and was driven by the following: higher equipment efficiency’s at all of our factories, progress on yield improvement initiatives and double-digit year-over-year material cost reductions.

Operating expenses were $57.1 million of which R&D expenses totaled $34.1 million and SG&A costs were $22.9 million. As a result our operating income for the quarter was $30.3 million, up 79% year-over-year and representing a 14.1% operating margin. Our net interest expense in other income for the quarter was $600,000.00, while taxes were $800,000.00 which is approximately at our 3% cash tax rate. Net income was $28.9 million yielding $0.18 of earnings per share, $0.01 ahead of consensus estimates.

Now turning to the balance sheet:

We exited the quarter with cash and cash equivalents of $254 million. During the quarter we reported $11.4 million of depreciation, generated $26.2 million in cash flow from operations as we continue to deliver working capital improvements through our collection performance and accelerating our inventory terms and we invested $14.4 million in demand driven capital expenditures primarily for fab and assembly and test capacity.

Now to our business outlook for the fourth fiscal quarter:

As Dave has outlined, new program launches, targeted design win ramps and market share gains are translating into improving order visibility and as a result we continue to outpace market growth and to show further operating leverage. Specifically, assuming revenue of $225 million in the September quarter, we suggest modeling a sequential gross margin expansion of 10 to 30 basis points and operating expenses of approximately $58 million yielding an operating margin of roughly 15%.

Below the line we suggest modeling interest expense of $300,000.00 and $900,000.00 for taxes. In turn we intend to deliver $0.20 of diluted earnings per share off a base of 166.5 million shares. To put our performance in better context, it’s worth noting the trajectory of our improvement. In fiscal 2006 we recorded $0.21 of diluted earnings per share. In fiscal 2007 we posted $0.48 for the entire year and by virtue of our guidance we are at an $0.80 annualized EPS run rate and that, with us heading into a seasonally strong back half of the year with the opportunity for further improvements going forward.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Stephen Ferranti - Stephens Inc.

Stephen Ferranti - Stephens Inc.

I felt the quarter was particularly noteworthy given that two of your biggest customers continued to seek challenges last quarter. How do you factor that into your guidance as you look ahead into the fourth quarter?

David Aldrich

I believe that given the diversification we have among our customer set we are starting to see increasingly over time when we see shifts among the OEMs it doesn’t impact the way it once did. It doesn’t impact us the way it once did and so that stability has been entered into our business and so we’re a little bit less impacted by share shifts. Having said that, we’ve used a similar approach as we have for the last several quarters in creating our guidance in a prudent way, Don?

Donald Palette

Yes, that’s correct, that’s the approach.

Stephen Ferranti - Stephens Inc.

Are you seeing any signs of up tick at those particular customers? I guess I’m most interested in what you’re seeing at Sony Ericsson these days.

Liam Griffin

Yes, actually what we’re seeing is a pretty balanced attack right now. We are gaining share primarily in new multi mode designs and our position there is expanding there quite well. I wouldn’t put it on one specific account. I think our attack is quite balanced now among each of the top five and we’re growing in every one of those.

Operator

Your next question comes from Ittai Kidron - Oppenheimer.

Ittai Kidron – Oppenheimer

Don with regards to the interest income this quarter, it is the third quarter in a row where it is declining while your cash balance is growing quite nicely, so it is counter intuitive to me. Could you explain that and also your interest expense guidance of $300, is that net on a net basis interest income minus expenses?

David Aldrich

Yes well onto the second one first, that’s net; when I gave that guidance, that’s interest income minus interest expense, so the guidance is an expense for Q4. The question on our overall return, what you’re seeing is that with what’s going on in the financial markets, the instruments that we have our cash in, the returns on that interest has been dropping over the past several quarters and that’s exactly what you’re seeing with the interest dropping.

Ittai Kidron – Oppenheimer

It’s good to know, you should be thinking about a buy back at this point.

Dave, can you comment about, through the quarter there has been a significant concern about slow down enhanced market and macro. I know that your guidance is an agglomeration of your forecast and I’m hoping to assume some hair cuts to some estimates, but can you give us a little bit more color as to every quarter you have an OEM that beats an OEM that misses, that’s part of the mix, but can you tell us how that mix in general ended up in the quarter. Was there one OEM more than others responsible for the upside in our numbers and how do you expect that to differ in the September quarter?

David Aldrich

Clearly we’re seeing some choppiness to the environment. We’re seeing some strength in smart phones; we’re seeing strength in our multi-mode phones and our multi-mode phone customers. We’re seeing somewhat slower growth in some of the more mature markets, North America for example, Western Europe. Having said that, the important issue for us is that we are gaining share, we are gaining higher dollar contents and growth in fact across all top five accounts, so that’s allowing us to outpace the market growth and we’ve taken those program ramps, I think an appropriate view of the overall market into consideration as we’ve created our guidance, but it has been choppy.

Operator

Your next question comes from Cody Acree - Stifel Nicolaus.

Cody Acree - Stifel Nicolaus

With regard to that overall market, given the movement to higher dollar content to 3G to smart phones, if you had to look at say Nokia as 10ish % unit growth forecast for the total market, how does that compare to what you would expect your total available market to be growing, X of course the analogue business?

Liam Griffin

Yes, we’re encouraged with Nokia’s numbers; they’re about in line with what we were seeing per overall handset units. But I think one of the issues that you may be getting to with it is if you look at the actual handset counts, the power amplifier cam goes up quite a bit more; so if you look at wedge devices, for example, you have maybe two or three bands of WCDMA anchored with an edge FEM. We’re seeing much more of that content, so the actual power amplifier cam is growing much faster than let’s say a high single-digit or 10% handset unit cam.

Cody Acree - Stifel Nicolaus

So can you give any variance to that? I mean to you think, is there a percentage? If it’s a 10% do you add 2% or 3% or is it more?

Liam Griffin

It’s much more than that. It’s in order of; you’ve got almost a PA count now. Certainly in the 3G models you’re looking at two or three devices, as many as four and then you take that and extrapolate your own estimates for 3G on top of what you see in GSM&A, so it’s a pretty powerful multiplier.

Cody Acree - Stifel Nicolaus

If the units of handsets are growing 10%, does the PA market grow 15%?

Liam Griffin

At least.

Cody Acree - Stifel Nicolaus

Okay and then lastly you have been getting great gross margin leverage from lots of different areas. If you could give us a little bit of an update on your 4” to 6” wafer transition and your PA fab, what’s going on with the switch fab and then how do all of those things along with the growth of these higher dollar content Pas come in to give you a structural base? I know you’ve given us a target before, but what becomes your new longer-term structural gross margin?

David Aldrich

There’s a lot in that question, so let me comment a bit on your specific questions with respect to the foundry and perhaps Don can talk about the model. We are in the process and have facilitated much of the conversion to 6” in our Newberry Park HBT Gallium Arsenide Factory. We’re on target to cut that higher capacity over some time in the second half of 2009. We are on track to do that. When we do that we will get an overall reduction in wafer cost or square millimeter of dye cost that is rather significant; we will also get a lot more capacity. We’ve been partnering with Foundry’s to facilitate our capability to do that, so we’re well on the way to cutting that over.

With respect to PF we still have capacity, so we expanded capacity, we paid for that mostly in 2007 and we’re growing into that capacity utilization as we speak now in 2008 and 2009. We’re in good shape n PF and will be in excellent shape as well in HPT as we move to 2009.

Suji De Silva - Kaufman Brothers

As far as our targeted business model is at $250 million we’re targeting 42% margin and certainly a component of that is the benefit we’re going to get from the 6” conversion that Dave’s talking about, but we feel really positive about the focus Dave mentioned early in the call, that we’re a metrics driven company and there’s an extreme amount of focus on margin improvement. The bulk of the improvement you’ve seen in the last five consecutive quarters improvement, if you add in our guidance and if we deliver it, that’s six quarters is really focused around improving our product yields, our factory efficiency’s and delivering double-digit year-over-year cost reductions. That, coupled with the volume benefit that we would receive as well as then layering in the wafer cost reductions from the 6” puts us in a position to deliver that 42%.

Operator

Your next question comes from Suji De Silva - Kaufman Brothers.

Suji De Silva - Kaufman Brothers

Can you tell us what the mix of handset versus linear was in the quarter?

Donald Palette

Both our handset and linear products businesses were up sequentially in year-over-year and our linear products was just under 25% for the third quarter.

Suji De Silva - Kaufman Brothers

$215 million run rate 42% and 18% is our model, what mix do you expect linear to be at that point? Do you expect it to outgrow hand set to get to that point?

David Aldrich

I think you should consider it to be roughly the same mix. Now we are going to grow our linear products business. Don mentioned we’re up in the quarter, we’re up year-over-year, but we also intend to grow our handset business for the reasons we described. I think it’ difficult whether or not there will be an actual shift. I think the safest thing is to keep it distant.

Suji De Silva - Kaufman Brothers

Does mix shift help you get to your gross margin targets? It sounds like that’s not one of the key factors.

David Aldrich

No it isn’t. The higher overall dollar contribution dollars from the product families that we described in the prepared comments, including multi-mode run-in modules, including SOC fems [ph] and including LT, that ‘s really what drives it more than any dramatic shift between handsets and linear products.

Suji De Silva - Kaufman Brothers

Who are the 10% customers in the quarter?

Donald Palette

That was Sony Ericsson and Samsung and the other market leaders the other three top OEMs were in the high single-digits for the quarter.

Operator

Your next question comes from Edward Snyder - Charter Equity Research.

Edward Snyder - Charter Equity Research

I know you’re guiding for $42 at $250, in the near term though you have some really good margin gains here, it would seem that your PA business is becoming a lot more profitable given your mix of linear is lower than I would have expected and yet your margins continue to move up. Can we expect it to continue or do we wait until we get a step function when you get the 6” up and running.

Also I would like to touch on some of your customer blends here. What was Free Scales PA business or the business you acquired from Free Scale in terms of contribution on the quarter itself and finally Nokia, you are gaining some share there. What’s the opportunity going to look like for ’09 do you think?

David Aldrich

I think your first question was are we improving our margins, or we are improving our margins in PA as well as we increase our revenue in linear products and that’s actually true, although it’s not as interesting a story perhaps as you may think. It is, in fact, the blocking and tackling that Don described. We are getting better yields. We’re driving our equipment efficiencies. We’re driving our average dollar unit per unit out the door and we have dash boards that we look at ad nausem every day, every week, every month and that’s what drives a cost reduction per part, per SKU that if it beats our targets, we’re able to stay in good shape as improving our gross margins as these products ramp and as new products ramp into production. It is also a function of higher dollar content that much is true on the multi-mode.

I think your intuition is correct. We are getting good, solid gross margins with these higher value added solutions and we’re just continuing to try to drive every aspect of our supply chain to lower cost.

The second part of your question was with respect to free scale. For those of you who don’t remember, we acquired the free scale business. We did not acquire revenue stream per se. We acquired patents. We acquired some very valuable intellectual property and some exclusive design rights, primarily into systems going into REM and Motorola. With the combination of the small share that we had at REM prior to that acquisition back in September and the transition of those designs from free scale designs to ours and the improving yields on those new designs as we transition them into our process, we are now, I am happy to say, the majority PA supplier at REM.

Edward Snyder - Charter Equity Research

In terms of Nokia, you’ve obviously got a slot there in your ramping. What opportunity do you think that holds for ’09 and do you think the share gain is going to continue at Nokia and how about the Koreans’ are you gaining share with the Koreans?

Liam Griffin

Yes certainly we can’t get into all the details with Nokia, but there is a pretty important growth opportunity within that account, as there is with the other four leading OEMs and the upside as we move into ’09 could be quiet substantial. We do believe that we still have, we talked about it before, we feel like we are in position by the December quarter to put the top five up as 10% customers, so that should give you a bit of a hint directionally what we see in Nokia.

With respect to the Korean accounts, they’ve actually been quite strong. LG and Samsung have been two the stronger players through the year. We see them in the second half also looking pretty good. We talked earlier, Dave and Don, about multi-mode and we’ve seen some benefits there. Both of those accounts also, we are beneficiaries of their relationship with Qualcom and our recent engagements with Qualcom. So we see continued momentum there and in some cases we’re at the early stages of growth as a result of that baseband partnership.

Operator

Your next question comes from Jeff Kvaal - Lehman Brothers.

Jeff Kvaal - Lehman Brothers

First could you talk a little bit about the 18% operating margin target? You have also, I know, talked about getting to 20% over time. How much of that is continued excellent execution from you on the yield side, how much of that requires you to get better margins on say system 1 chip PAs.

Donald Palette

When you’re looking at the model at 42%, it’s not going to be easy for me to actually segment the percentages of that, but clearly what we’ve demonstrated today and what we’ll continue to focus on is just grinding out the yield improvement, grinding out the material cost reduction year-over-year and also the equipment efficiencies in the factories, that’s a critical component as well as what you just described with the newer parts, the higher dollar content, that’s also going to contribute. Then you’ve got the 6” adding the capacity of 6”. All those things are contributing to that. It’s hard for me to break that down into percentages, but we’re very, very comfortable at 4% of $250 million.

The 18 is a function of op expenses being at 24 and we are very, in fact I would hope that that’s a number that we could slightly exceed at that level. Look at what we spend today in $250 I mean the math works pretty easily, so we’re very, very comfortable that 18 to 20 is something that is doable for the business.

Jeff Kvaal - Lehman Brothers

I guess that presupposes that you folks are able to hold onto a lot of the improvements that you’re making in yields, etc., which typically in the past one has passed through to the customer. Maybe it’s better for Dave or Liam, but could you help us understand a little bit about the pricing dynamics?

David Aldrich

I think first of all that we do believe that we can hold onto the yield improvements or that we can continue to perpetuate those yield improvements and this is a process that we’ve worked very hard to get better at; that is predicting how new programs and products will ramp through our factories. Getting them up to learning curve faster and faster and then driving overall utilization and so we are confident that you’ll continue to see improvements in the yield. We’ve got a lot of head room there. We’ve got a lot more to do and so we’re going to continue to drive it.

Our dye sizes are shrinking for function and we’re entering an era of new processes that actually drive the overall bill material cost down. So with respect to do we pass that along, well clearly we pass that along, we hope, in a way that we can add value to our customers. Our customers need these products to get smaller. They need these products to add functions. They need to add bands and they need to do it in a way that allows them to achieve their bond cost reductions and if we do our jobs really well; we’re able to add dollar content while at the same time our customers are delighted to have a product that lowers their overall bond costs.

It is less relevant what they pay us for a specific function. It is more relevant what we are able to do for their overall bill materials, so we’re sweeping in functions. We’re sweeping in bands; we’re sweeping in filters, more modes of switch. So that is how we’re able to, as you say, pass the benefit along to our customers without a detriment to our gross margin.

Operator

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

Aalok Shah - D.A. Davidson

I know we’ve talked about the front end module wins, but maybe Dave if you can go into a little bit more detail as to, when you spoke earlier about the front end module getting some traction with the single chip, were you referencing in particular the reference to Qualcom helping you there and in particular with the Koreans or was there a specific reason why you mentioned that at this point?

David Aldrich

I think we’ve mentioned it in the past, but there is a specific reason and it is the top tier baseband providers. For example, we enjoy an increasingly close relationship with Texas instruments, with Qualcom and others and that’s been a concerted effort on our part to get closer to them as we attempt together to provide our customers a system that works for them.

The reason we talk about it now is we think it may be a little counter intuitive, because in the last 6, 8 years, as there have been more and more phones produced, the view of the market has been, while those products must be commoditized. They were discreet designs, there was a lot of suppliers, many of those suppliers had excess capacity and it created a difficult pricing environment. You typically and oftentimes had to give up points of margin per points of share.

What’s happening today in the SOC world is that the weighted low of the overall cost of the bill of materials is to do more creative integration and SOC is a way to do that. Sweep the radio into the baseband, provide baseband horse power that works for the functions, but what that does is puts a lot of pressure on the front end module so that you can meet all the systems specifications, because something that is, it is inherently more difficult to pull analogue functions into the bulk seam loss, so we need to partner very closely so that together we can deliver a solution that adds value. That’s a higher value solution than it was when it was simply a discreet PA with a discreet switch, a discreet filter.

Aalok Shah - D.A. Davidson

Does that include the bomb [ph] filters at this point?

David Aldrich

It could, it doesn’t today in the earlier designs, but it absolutely could because it’s a filter as part of that function.

Aalok Shah - D.A. Davidson

On the tax rate going forward, I know you don’t want to give full year guidance, but should we just assume that the cash tax rate is going to be relatively the same level it has been for the last couple of quarters? For next quarter, but going into next year even.

Donald Palette

Absolutely, in fact we’ve talked about that in the past. Our NOLs protect about $160 million of future income so for 2009 absolutely the 3% to 4% cash tax rate is the way to go, that is absolutely where we’ll be.

Operator

Your next question comes from Todd Koffman - Raymond James.

Todd Koffman - Raymond James

You were within striking distance of our long-term model, your September quarter guidance, some of your remarks relating to maybe having two and maybe even three of the other top OEMs breaking into your 10% customer list, it sounds like the visibility of your business today is as good or better than it’s been in quite some time. Am I misreading that or is that reasonably accurate?

David Aldrich

The visibility is improving because we are so much more diversified among the customers today, so with the customers today in this space, including the leaders in second tiers and some of the newer smart phone entrants. So as a result, it’s a little bit easier for us to predict what our revenue is going to be based upon some overall market dynamics and the trend of higher dollar content on the higher end of the market, so that’s giving us more confidence in our forecast and it is giving us greater visibility; however we are obviously cognizant of the fact that there are shifting sands between OEMs. There are share shifts and we need to constantly be on the look out for that, but we are tending to not be impacted the way we once were when we had one or two OEMs with a very big share of our overall revenue.

Operator

Your next question comes from Sanjay Devgan - Morgan Stanley.

Sanjay Devgan - Morgan Stanley

Qualitatively I was wondering if you can run me through some of your opportunities in Asia, specifically our relationship with Mediatech and how you see those opportunities evolving.

David Aldrich

Well certainly the Asian market is really important to Skyworks, China specifically has been a big market, as has Taiwan and the ODM channels. Mediatech continues to be a very strategic baseband partner for us. We have an outstanding position with them on the GPRS side. We are building that relationship with them now to include Edge and we enjoy just a disproportionally high share right now with Mediatech, a very strong share in China by virtue of that partnership.

Now in addition to that, on the linear product side, let me shift gears with you a bit. Wellway and most recently DT have become very significant for Skyworks as we build up relationships into their infrastructure markets and their both very, very high growth players on infrastructure and APAC.

If we move into Korea as we have talked about, LG and Samsung continue to be strong. We think there is a great outlook for those customers and again, by virtue of the relationship with Qualcom there are platforms that we’re engaging in very early that look very strong for us in 2009 and beyond.

Sanjay Devgan - Morgan Stanley

Your channel inventories, specifically for your linear products, if you could just comment qualitatively on how the channel inventories are tracking, I’d love to get any color on that.

David Aldrich

That’s a difficult question. Right now it feels very balanced. The linear products distributor base that we have it’s quite diversified geographically. The product density and by that I mean a revenue per device is actually pretty diversified as well, so it seems quite normal for this time of year. We are seeing a lot of new interesting design wins in energy management. We’re seeing new design wins I satellite radio and a lot of vertical markets that look strong, automotive is another one. So I feel like the inventory is well positioned there.

Operator

Your next question comes from Craig Ellis - Citi.

Craig Ellis – Citi

Liam you were talking a little bit about the linear products business. Can you just provide some more color as to how we should think about the seasonality in that business as we look out on the third and then the fourth calendar quarter?

Liam Griffin

Seasonality in linear is not nearly the impact or an issue as it is in handset so we see steady growth. We’re going to grow this quarter, we should grow next quarter, there shouldn’t be anything that really impacts that so getting into the March quarter, again seasonality and linear is typically not a big issue. We are gaining share right now in a number of new vertical markets as I’ve indicated. Most of those are, quite frankly, immune to market seasonality. Some of them may have some consumer sentiment issues that could move the numbers around a bit, but we are expecting continued growth and as Don and Dave outlined the percentage of LPS should be right around the 25% level.

Donald Palette

There is some seasonality, but it is different for each product, so when you aggregate them you just don’t see the overall seasonality. We don’t mean to imply that we’re immune market-by-market, because you’ll see seasonality in automotive for example and so on.

But when you aggregate all that, that’s the beauty of linear products, we have very little concentration at any one end market or with any one customer.

Operator

Your next question comes from Brian Modoff - Deutsche Bank.

Brian Modoff - Deutsche Bank

If you look at the Nokia guidance and given that units in Q1 were down 11% and then up only 3% in Q2 in order to do the 10% or better unit volumes Nokia was talking about this morning for the industry, you need to see quite a back half in recovery. I’m not sure that’s doable in this environment; so how good is your visibility and given what you would think would be normal seasonality, given what Nokia said, shouldn’t your guidance on the revenue side be higher sequentially?

David Aldrich

We’re modeling high single-digits, if you will, on overall unit volume. There is no magic to that. We’re aggregating inputs we’re getting from our customers and some of perhaps the same sources you’re looking at and so I think we’re no different in that regard.

It is so much more important to us in terms of one or two or three points of overall unit growth, how we’re able to execute on the share gains and multi-mode and some of these newer linear product ramps we’ve been talking about. So, our dynamic may be a little bit different, clearly we’re exposed to the overall unit volume and I think there will be a reasonably good second half of the year. But, for what it’s worth, high single-digits is where we are.

With respect to our guidance, I think Don talked about that earlier; we’re trying to factor in the market choppiness. We’re factoring our new program ramps and as a result of that we developed our guidance. Incidentally next quarter we’ll be nearly 20% year-over-year growth for our company. That is clearly higher than any market metric I’ve seen.

Brian Modoff - Deutsche Bank

So the difference is your revenues up say almost 5% and units are up high single-digits and the difference is pricing pressure or is it mix shift?

David Aldrich

I’m not sure, the high single-digits is to the year, so we’re thinking year-over-year be high single-digit growth.

Brian Modoff - Deutsche Bank

You’re not talking about units up sequentially I take it.

David Aldrich

No, I may have said that and if I did I apologize. I meant year-over-year growth in the high single digits. Nokia and others have had different numbers.

Operator

Your last question comes from Mike Burton - ThinkPanmure.

Mike Burton with ThinkPanmure

Can you just break out GSM, versus CDMA, versus WCDMA? Then also within the linear products, I know you have had some traction with Wellway on the infrastructure side. Is that still a significant portion 10% to 15% or just give us a range that’s going into wireless infrastructure?

Donald Palette

On the interface, we were as I said earlier 50% multi-mode and that was, we had strong growth Q2 to Q3 and that was the first time that we hit 50% with the balance being in 2G that’s where we ended up on the internet basis for the quarter.

David Aldrich

With respect to the Wellway question, they are certainly the fastest growing infrastructure player we have. You know they are not a 10% customer of Skyworks. Within the linear portfolio they are about 10% of revenue.

Mike Burton with ThinkPanmure

But infrastructure overall is north of 10, I could assume that rate? Then lastly I wanted to follow up just with a product question. There was some talk earlier about a development of a Mems PA coming out at the end of this year. Is there any progress on that or have you seen anything out of RMCOM deal [ph] related to that or how are your customers starting to talk about that?

David Aldrich

Not Mems PAs so I would have to say that’s not something our customers are asking for in any big way. Mems I’m not sure I know what that is, but I know what a Mems is. There clearly is a push towards higher switch count and more complicated switching and control functions in these multi-mode phones that would be feeing multiple air interface standards multiple frequencies, YB and CDM may be the obvious example with multiple bands.

If I understand your question right, yes our customers are asking for us to solve a pretty complicated problem, which is transmit and receive over multiple bands and multiple modes of operation. That they are all asking for.

Thank you very much, that concludes our conference call today and on behalf of the entire Skyworks team, thank you for participating.

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Source: Skyworks Solutions, Inc. F3Q08 (Qtr End 06/27/08) Earnings Call Transcript
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