Skyworks Solutions Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2024

There are 12 speakers on the call.

Operator

would like to introduce Roger Gill, Vice President of Investor Relations for Skyworks.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' 2nd fiscal quarter 2024 conference call. With me today is Liam Griffin, our Chairman, Chief Executive Officer and President and Chris Cenasol, Chief Financial Officer for Skyworks. This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at skyworksinc.com. In addition, the company's prepared remarks will be made available on our website promptly after their conclusion during the call.

Speaker 1

Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward looking statements. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10 ks for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward looking statements made today. Additionally, the results and guidance we will discuss include non GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Liam.

Speaker 2

Thanks, Rachie, and welcome, everyone. Skyworks posted solid results for the 2nd fiscal quarter of 2024. We delivered revenue of 1,046,000,000 dollars We posted earnings per share of $1.55 and generated $300,000,000 of operating cash flow, which reflects strong working capital management and operational excellence. During the March quarter in our mobile business, we saw below normal seasonal trends with lower than expected end market demand. In broad markets, the December quarter represented the bottom and we delivered modest sequential growth in March, reflecting a turning point.

Speaker 2

We expect the pace of the recovery will be measured throughout 2024 given ongoing weakness in certain end markets like infrastructure and automotive. In Edge IoT, we have a solid Wi Fi 6E and WiFi 7 design win pipeline. We are in the early innings of a multiyear upgrade cycle with high end access points now being offered. Over the coming quarters, we anticipate retailers to roll out mainstream models followed by carriers and MSOs for their gateways and router products. The wireless infrastructure and traditional data center markets remain soft.

Speaker 2

We continue to under shift natural demand as we allow the distribution channel and customers to consume excess inventory. Despite near term headwinds, we remain bullish on AI workloads, driving upgrades to Ethernet switches and optical modules, a positive long term driver for our advanced precision timing solutions. Lastly, automotive and industrial markets remain under pressure as they continue to undergo a steep inventory correction. However, we see opportunities for long term growth in our automotive business. Automotive OEMs are increasingly focused on software defined vehicles, the connected car and in cabin user experience, all of which are generating higher levels of radio complexity.

Speaker 2

Despite near term headwinds, we remain positive on growing EV penetration, creating demand for our power isolation products. Our strategy is to leverage connectivity technology across multiple growth segments, including edge connected IoT devices, automotive electrification and advanced safety systems and AI infrastructure. Connectivity is crucial in enabling AI on decentralized edge systems. Our RF technology powers applications like the connected home, building automation, smart cities, machine to machine and wearables. We are particularly excited about the industry mandates and regulatory tailwinds leading to higher levels of connectivity inside the car.

Speaker 2

For example, the number of radios and antennas are growing in vehicles to support various communication standards, including 5 gs cellular, Bluetooth, Wi Fi, ultra wideband, NFC and CD2X. The multitude of radios create challenges around coexistence, external interference and latency. Our advanced RF solutions can solve these complex problems for our OEMs. In data center, accelerated workloads supporting large language models are catalyzing networking and optical upgrades. We have a timing portfolio targeting next generation 800 gig and 1.6 terabit Ethernet switches and optical modules enabling AI infrastructure.

Speaker 2

During Mobile World Congress in Barcelona, we were excited to see several AI enabled phones being introduced to the marketplace. We believe AI could propel a meaningful replacement cycle in the smartphone market, fueled by applications like real time language translation, voice assistance, advanced camera and imaging and on device personalization. Over time, AI enabled phones could drive higher levels of RF complexity, including robust connectivity, higher throughput, further integration and lower power consumption. Turning to our quarterly business highlights, we delivered integrated platforms to the leading 5 gs smartphone OEMs, including flagship and mid tier models with Samsung, Google, Oppo and others. We expanded our design win pipeline and initiated new programs in automotive, including infotainment systems, traction inverters, cloud enhanced driver assist and CB2X.

Speaker 2

We secured several audio SoC designs with Sony and Samsung. In summary, Skyworks continues to execute well despite a challenging macro environment. While we are navigating near term headwinds, we remain bullish on our long term strategy. With that, I will turn the call over to Chris for a discussion of last quarter's performance and our outlook for Q3 of fiscal 2024.

Speaker 3

Thanks, Liam. Skyworks revenue for the 2nd fiscal quarter of 2024 was 1,046,000,000 dollars slightly above the midpoint of our outlook. Mobile was approximately 66% of total revenue, down 19% sequentially. Broad markets were approximately 34% of total revenue, up 1% sequentially. Gross profit was $471,000,000 with gross margin at 45%, in line with expectations.

Speaker 3

Gross margin was down 140 basis points sequentially, reflecting our seasonally weakest period. Also during Q2, we further reduced our internal inventory by 91,000,000 dollars to $836,000,000 which reflects 5 consecutive quarters of reductions. Operating expenses were $192,000,000 below the low end of the guidance range, reflecting our disciplined focus on managing discretionary expenses while continuing to invest in our technology and product road maps. We generated $279,000,000 of operating income, translating into an operating margin of 26.7 percent. We generated $4,000,000 of other income, and our effective tax rate was 11.3 percent, driving net income of $251,000,000 and diluted earnings per share of $1.55 which is $0.03 above the guidance that we provided during the last earnings call.

Speaker 3

Despite the quarterly volatility, Skyworks' business model generates strong cash flow. 2nd fiscal quarter cash flow from operations was $300,000,000 Capital expenditures were $28,000,000 or less than 3 percent of revenue, resulting in a free cash flow of 2 73,000,000 dollars We continue to drive robust cash flow through high levels of profitability, prudent working capital management and moderating CapEx. Also, during fiscal Q2, we paid $109,000,000 in dividends. Our cash balances grew to over $1,200,000,000 and we have $1,000,000,000 in debt. Our solid capital structure provides us with excellent flexibility and optionality.

Speaker 3

Now let's move on to our outlook for Q3 of fiscal 2024. We anticipate revenue of $900,000,000 plus or minus 2%. We expect our mobile business to be down sequentially below normal seasonal patterns as excess inventory clears. In broad markets, we anticipate further modest sequential growth as inventory levels appear to be normalizing in certain end markets. Gross margin is projected to be in the range of 45% to 47%, improving 100 basis points sequentially at the midpoint.

Speaker 3

We anticipate gross margin expansion during the remainder of 2024, driven by our cost reduction actions, favorable mix shift and higher utilization rates. We expect operating expenses in the range of $192,000,000 to $198,000,000 as we continue to make strategic investments in mobile and broad markets to drive share gains and increase diversification. Below the line, we anticipate roughly $2,000,000 in other income, an effective tax rate of 11.5 percent and a diluted share count of approximately 161,500,000 shares. Accordingly, at the midpoint of the revenue range of $900,000,000 we intend to deliver diluted earnings per share of $1.21 Operator, let's open the line for questions.

Operator

Thank you. Our first question comes from Chris Caso with Wolfe Research. Your line is open.

Speaker 4

Yes. Thank you. Good afternoon. I guess the first question with regard to the worse than seasonal mobile business. You speak about excess inventory.

Speaker 4

We've unfortunately been hearing about excess inventory in mobile for some time. Could you give a few more details on that? And specifically, was this from the Android space or was it beyond the Android space?

Speaker 3

Yes, Chris. This is Chris here. Happy to provide some more color as it relates to our guidance for the June quarter. So specifically in our mobile business, towards the end of the March quarter, especially in the month of March, we saw some below normal seasonal trends with lower than expected end market demand. And unfortunately, that resulted in some buildup of inventory in the channel, right?

Speaker 3

And that was somewhat across our mobile business. Unfortunately, those trends also continued during the 4 weeks of April. And so we took that all into account as we set our guidance for the June quarter. And we do expect our mobile business to be down sequentially 20% to 25%, which is well below normal seasonal patterns. And it's mostly due to the fact that we have to clear out the excess inventory in the channel.

Speaker 3

On the flip side, in our Growth Markets business, we do expect to see some modest sequential growth in addition to the modest sequential growth that we saw in the March quarter as well.

Speaker 4

Thank you for the clarification. I guess as a follow-up, what does this mean for the second half of the year? And typically, you don't guide for the second half on this call, but do you expect those inventory headwinds to persist? Obviously, you have new product launches as you go to the second half. What does that mean for normal seasonality as you go through second half of the year from these levels?

Speaker 3

Yes, Chris, we only guide 1 quarter at a time. It's somewhat unpredictable what's going to happen 3, 4 quarters down the road. But we do expect that most of the inventory clearance will be done during the June quarter.

Speaker 4

So is that is it does that suggest kind of a back to a normal revenue levels? Or like I guess what you're saying is this is

Speaker 2

a very short term issue in the June quarter?

Speaker 3

Yes. From a demand point of view, that is correct.

Speaker 4

Okay. Thank you.

Operator

Thank you. Our next question comes from Matt Ramsay with TD Cowen. Your line is open.

Speaker 5

Thank you very much. Good afternoon, everybody. Guys, I wanted to follow on to Chris' questions there on the mobile segment. And is there any correlation at all that we should draw between is this just a unit and inventory thing or is there any correlation we should draw to potentially expected content in programs that would launch later in the year? Is there a further drawdown in inventory because maybe content has changed one way or the other?

Speaker 5

Or should we just not try to make that conclusion? Thanks.

Speaker 2

Yes, this is Liam. So there's interesting dynamics here and I really can't comment on specifics related to our largest customer. However, we will provide as much directional color as possible here. So we were placed in a unique situation with our largest customer, where we were unable to consummate an award that we expected and frankly thought we had earned. As a result, we expect content headwinds from the upcoming cycle.

Speaker 2

At the same time, we are strategically aligned with our largest customer and we're ready to engage in all of their strategic initiatives going forward.

Speaker 3

Yes. And Matt, just to add a little bit more color there. And again, we as you know, we can't really go into the specifics as it relates to the large customer, but we were able to partially offset the socket loss that Liam just talked about it with some additional content gains, including some new sockets that we don't have in the current version of the phone. And so as a result, on a net net, we expect the content to be down a little more than 10% compared to the current phone model. And that will start having an impact in the September quarter.

Speaker 5

Got it. No, guys, I appreciate that very much and I know it's 2% sensitive. I kind of need to ask a follow-up here, which is, Liam, if you could try to characterize maybe the chain of events that happened to the extent that you're able to with this any kind of a performance or quality or product issue with Skyworks programs specifically? Was this a program change that they made? Any context as to when you guys sort of learned about this and how the whole thing came to pass?

Speaker 5

Again, appreciate it. It's super sensitive if you're on a public call.

Speaker 2

Yes. I mean, this is not performance related. It's not technology related. In fact, the product has been a stalwart in the portfolio. So nothing like that.

Speaker 2

Just a unique situation, can't get into all the details. We're looking forward. We are partners with our largest customer. We expect to do more work in the future and looking forward to that.

Speaker 5

All right. Fair enough. I appreciate the candor. I'll jump back in the queue. Thanks guys.

Speaker 3

Sure.

Operator

Thank you. Our next question comes from Edward Snyder with Charter Equity Research. Your line is open.

Speaker 6

Great. Thanks a lot guys. Couple of questions if I could. So Liam or Chris, doesn't matter, you've got incremental gains in sockets you didn't have last year. I think the general idea here is you want some Wi Fi.

Speaker 6

That is obviously coming out of mobile, not broad markets, first of all. And secondly, would you characterize any content loss in the second half of the year to be in a, what I would say, a primary product that tends to be very performance driven? Or is it kind of a marginal product with a number of different people compete and you could qualify for 2 or 3 different vendors? And I had a follow-up, please.

Speaker 2

Yes. Unfortunately, I can't give you too much detail here. But as you know, I mean, we're striving to gain share in every earth sockets that we're addressing today, whether the largest customer or some of the other players. The technology is there. I mean, this is not a technology gap.

Speaker 2

This is really some commercial issues that were unique and we're getting through it and we expect to be able to turn up the revenue here as we go forward.

Speaker 6

Okay. Maybe we can go out a little bit further. I know you don't like to give, we're not looking for guidance, but just generally characterize the content picture saying 25, I don't know if you want to go about 26 or so, but it's clear that from our research, the AI showing up in phones, in any of the phones, especially the flagship models is impacting the RF section in kind of an unforeseen way in that, and and to squeeze the battery consumption in the footprint, it sounds like especially your flagship customers are starting to turn the screws to the RF guys to get smaller packaging. So even if the performance doesn't change, it sounds like the packaging is which is already quite difficult is going to get substantially more so. What impact do you expect this to have generally speaking on revenue in flagship phones?

Speaker 6

And will it occur in 2025? Or we have to wait to 26 to start seeing these results? Thanks.

Speaker 2

Yes. Ed, great question. I'm glad you asked. So as you know, if we think about the mobile phone today, which we can't live without, right? Everybody needs There's so much activity on that device and it's an incredible, incredible product.

Speaker 2

But when you start to go into generative AI, as you know, the compute power, Ed, is going to be so, so high, the current consumption, all of that action is going to burn up your battery. So you've got to step up into a new set of solutions that we're working on right now that will be more power efficient, that will be mark to market around mobility, but with Geni right in this right zone. So we're really excited with that and we've been talking to the larger customers and players with that as well. We have the toolbox to create unique solutions across multiple customer sets. But if you think about it, the technology burden there is going to be so high.

Speaker 2

The amount of data back and forth from the handheld to the server is going to be immense. And it's going to be very, very difficult. So I think it's going to narrow down the playing field in mobile for customers that you see and then opportunities at Skyworks to really work with the best and brightest in our space to create elegant new solutions. So we're really looking forward to that and more to come.

Operator

Thank you. Our next question comes from Karl Ackerman with BNP Paribas. Your line is open.

Speaker 7

Yes, thank you. I realize you've been moderating CapEx following a significant investment year in 2022, but CapEx is also down over 50% in the first half of twenty twenty four relative to last year. And so I was curious, Chris, if you could give an updated view on your CapEx this year? And how do we reconcile that outlook with your longer term opportunities that you discussed in broad markets as well as 5 gs handsets?

Speaker 3

Yes, Karl, we've talked about that before. We had multiple years where CapEx was running in the 10%, 11%, 12% to revenue where we build out our manufacturing assets, especially our filter operation, adding substantial amount of capacity, but also in our back end operation where we do very complex integration, assembly and test. So those CapEx heavy CapEx years are behind us. We are now focusing more on driving efficiency, yield improvements, test time reductions, die shrinks. And we are creating additional capacity in doing so and focusing on those operational improvements.

Speaker 3

In addition to that, as you know, revenue has been down year over year. So we do have underutilized factories right now. We can substantially grow the revenue without having to add a lot more CapEx. There will always be some CapEx because we need to continue to advance our technology, advance our product roadmaps, and that will require some level of technology driven CapEx. But it's going to remain for many, many years here in the low single digits as a percent to revenue.

Speaker 3

And that will continue to fuel a very strong free cash flow.

Speaker 7

Yes. I appreciate that. If I may sneak in another one. Chris, you also mentioned about an expansion in gross margins in the second half. It sounds like broad markets is improving throughout the second half.

Speaker 7

It also sounds like gross margins have troughed in the March quarter, but perhaps could you just discuss some ways to which you can improve margins in the mobile business as volumes come back and perhaps could we also see 50% margins over the next couple of quarters? Any thoughts on timing of that? Thank you.

Speaker 3

Yes, Carlos. So we did 45 in March. We guided up 100 basis points to the at the midpoint of the guidance range for June. We also said in the prepared remarks that we continue to see further gross margins improvements in the remainder of 2024 and beyond. And the 3 key drivers, which is applicable to our broad markets as well as to our mobile business, right, is driving cost reductions internally as well as externally with all the suppliers that we have.

Speaker 3

Already indicated that in my previous answer, yield improvements, test time reductions, overall cost reductions. And we are making good progress, and we actually can do a lot more, and the teams are working really hard on that. The second element, as you indicated, yes, broad markets has above average gross margin compared to mobile. And so we have a little bit of a mixed tailwind there as well. And then thirdly, it's factory utilization.

Speaker 3

Keep in mind that we have been drastically reducing our internal inventory for 5 quarters in a row by now. And so we are I'm comfortable with where inventory levels are right now. So that is no longer going to be a headwind as well. And so as revenue will start growing here and no longer inventory reductions, we will start seeing improvements in factory utilization. And a combination of all of that gives me confidence that gross margins will continue to improve from here.

Speaker 4

Thank you.

Operator

Thank you. Our next question comes from Thomas O'Malley with Barclays. Your line is open.

Speaker 8

Hey, thanks for taking the question. Two parter here for Chris. In the March quarter, could you give the percentage of revenue for your largest customer? And then just kind of following up on your comments related to March, you talked about some inventory work done at the customer. Could you, to your best of your knowledge, try to describe whether that's existing inventory that's related to the current phone?

Speaker 8

Or do you think that is early stages of potentially working down the socket that may be associated with the next phone as well? Are they separate issues? Or could they potentially be related?

Speaker 3

No. It's all related to the current phone. We are not shipping for the next launch yet. So this is all related to the current phone. The large customer was approximately 68% of total revenue in the March quarter.

Speaker 3

That was down 19% sequentially, which is somewhat in line with normal seasonality. It was down 3% year over year. But as I indicated, we probably build up a little bit of inventory in the channel.

Speaker 8

Helpful. And then just trying to parse out the pieces for June, you're kind of saying that mobile is down 20% to 25%. Even if you set kind of your largest customer in that range, you still need to see double digit declines on the Android side. So could you maybe describe what's happening in the Android business? I think some of your peers had talked about maybe a weaker Q2, but what are you seeing with those customers there?

Speaker 8

Thank you.

Speaker 3

Yes. Our Android business has been stabilizing. So it's approaching $100,000,000 a quarter. All our Android, which is Google, Samsung and the China players. It has been stabilizing.

Speaker 3

Obviously, there is some seasonality into that business. And yes, June is a little bit of a weaker seasonality in that business. But overall, it has been stabilizing. The inventory correction is over. We are making some good traction with design wins that as end customer demand will continue to improve over time, new design wins roll in.

Speaker 3

We do expect that business to contribute to some nice year over year growth in the next 4, 8 quarters here.

Operator

Thank you. Our next question comes from Reuben Roy with Stifel. Your line is open.

Speaker 9

Yes, thank you. Liam, I want to switch over to broad markets and just talk about sort of how you're seeing things. Great to see the bottom in December and the modest growth in March and the outlook for June. But relative to 90 days ago, how would you kind of characterize the recovery? Are you still sort of thinking incremental growth quarterly or has anything changed with inventory levels in some of the markets?

Speaker 9

The data points around auto industrial have been mixed. So maybe just if you could talk us through the big buckets IoT, auto industrial and common infrastructure that'd be helpful.

Speaker 4

Yes, absolutely. So there's a

Speaker 2

lot of opportunity and growth that we're seeing in the broad markets. We've been doing a great job with the automotive segments, a lot of technology there, a lot of opportunity. We're growing that business. We continue to look at other players in the space doing quite well. Industrial markets are coming up for us right now.

Speaker 2

Solar markets are coming up. We're seeing some good action in PlayStation as well. So we've got kind of a consumer play there, but a lot of volume and a lot of content. So the portfolio is growing, it's diversifying and there's a lot more opportunity out there. We've been kind of focused more

Speaker 3

on some

Speaker 2

of the bigger names, but now we start to see a longer roster of opportunities that we can capture. And also just some of the technologies that we brought in from our MSS ex slab deal is giving us more green shoots and opportunities as we look long.

Speaker 9

Thanks for that, Liam. I guess just a quick follow-up, just on the inventory levels around those buckets. Have they improved to kind of where you thought they would or has any of the big buckets been a little bit slower or not?

Speaker 3

Yes. It depends on which part of the broad markets you are looking at. If you look more at the consumer IoT, the edge IoT connectivity products, that has been improving for many quarters now. I think that market is getting stronger. We obviously have some strong technology transfer that is going on as we upgrade to WiFi 6e and 7.

Speaker 3

And bookings has been improving with a book to bill above 1 in that part of the market. When you look at infrastructure, networking, data center, that market has been, as you probably have heard from peers and competitors, a little bit soft. There is some inventory that needs to be cleared out. So we are under shipping natural demand right now. It's going to take a couple of quarters for that business to really bounce back.

Speaker 3

And in the meantime, we have to clear out the inventory. And then automotive and industrial, there again, you've heard from peers and competitors, There is definitely in certain spots some excess inventory that needs to be flushed out. Again, for SCOW Works, we're doing reasonably well in that market given just the product cycle, the ramp of connectivity in the car, the ramp with our power isolation for EV, we're doing well with our radio processor in the car. And so we are bucking the trend there a little bit in a tough environment.

Speaker 9

Appreciate the detail, Chris.

Operator

Thank you. Our next question comes from Timothy Arcuri with UBS. Your line is open.

Speaker 4

Hi, this is Aman here jumping in for Tim. I just wanted to ask what was the China mobile revenue, China as a percentage of total mobile revenue? And what is your expectation for that business going forward as sell through at certain China OEMs appears to be bouncing back? So how should we think about the trajectory of that going forward? Thank you.

Speaker 3

Yes. Our China mobile revenue is still de minimis. It has been improving quarter after quarter, but still on a relatively low level. I mean, we have great relationship with Oppo, Vivo, Xiaomi, the 3 main players there. Design win momentum is picking up a little bit, but the overall end customer demand environment is still somewhat soft.

Speaker 3

I think that's the best way to characterize that. But again, I think over time, especially when I'm looking forward to fiscal 2025, we do expect to see some meaningful year over year growth in that business.

Operator

Thank you. Our next question comes from Peter Peng with JPMorgan. Your line is open.

Speaker 4

Hi, thanks for taking my question. On the Android point, you talked about it approaching $100,000,000 I believe your previous peak was kind of closer to $200,000,000 per quarter. As you kind of look out into 2025 and 2026, is there anything that precludes you to getting back to those kind of levels?

Speaker 3

I think we it's going to be difficult to get back to the highest peaks that we have seen in the past because that was overdrive. Remember, that was in the COVID years where all customers were screaming to get more parts and then they ended up with a lot of excess inventory that took more than a year to burn off. But directionally, yes, I mean, it's at $100,000,000 I mean, we want to get back to $125,000,000 $150,000,000 $200,000,000 dollars And we are focused on that. We do have the technology. We are adding more resources in terms of product development to go after those opportunities.

Speaker 3

And as end customer demand improves and the design wins roll in, we will see some really good revenue growth in those segments.

Speaker 2

And I'll just jump in on that. If you think about where we are with Android, we've got really strong engagement with Google and Samsung, high end players, a lot of volume. So it's not so much the Oppo Vivo Xiaomi for us, but it's more around the Samsung and Google players that right now are ramping very well.

Speaker 4

Got it. And I have a follow-up on the some of the broad markets. So you have one out of the 3 segments that's actually bottoming and recovering and you're still the implicit growth rate is 4%. So as we kind of look into the back half of the year as things kind of inventory adjustment abate in the other two segments, should we kind of be expecting more of an accelerating sequential growth as

Speaker 2

we move through the year?

Speaker 3

Absolutely, absolutely. So currently, it's only modest. Like in March, it was 1% sequentially. In June, we expect 2%, 3% sequentially. But then as we look out in the next couple of quarters, we do and expect an acceleration of that sequential growth getting back to initially modest year over year growth, but then translating into strong double digit year over year growth in our broad markets business.

Speaker 7

Thank you.

Operator

Thank you. Our next question comes from Cody Acree with The Benchmark Company. Your line is

Speaker 10

open. Yes. Thanks guys for taking my question. You did mention Huawei in your specific comments around China. I guess any comments on that OEM given their success in that market?

Speaker 2

Yes. We're still not engaged with Huawei. But again, we will work the Android markets with some of the other players that we talked about. So but Huawei for now I think has really been kind of on the bench.

Speaker 10

Is there any specific reason for that?

Speaker 2

Well, there's still just a couple of things. I mean, the product quality there that we look at is just not really up to snuff for us and still just very difficult environment in that marketplace.

Speaker 10

Okay. And then I guess just lastly, any further comment on your AI comments in prepared remarks about content and dollar content opportunities in both in addition to just unit volume replacement cycles. Any framework of how you expect those dollar content increases to layer in as we're just now starting to get any kind of real gen AI unit volumes across the channel? Yes,

Speaker 2

yes, great question. So if we actually think about it right now, we've been really long in the tooth here with upgrades across the board in mobile, across the whole market. So without AI, the market is we believe is going to inflect with resurgence of growth in terms of units. That's one part. But when you get into the AI side, we talked about a little bit earlier, we're going to need to do some tremendous things in the smartphone world to actually catalyze what AI needs to do.

Speaker 2

There's going to be upgrades in servers. There's going to be upgrades on the device and it's going to drive tremendous power. And power is really, really important. When you think about data center, you hear all these things from NVIDIA. They're powered.

Speaker 2

They're powered to a server. Mobile is mobile. We're untethered. So the burden on technology in the smartphone world is really going to go up and it's going to narrow the playing field. And I love our chances.

Speaker 2

We've got a great business. We've got in house technologies, great engineering, a long, long live set of solutions and know how that we built over the years. So we're really looking forward to it. I think we talked about it already. The smartphone market today already is kind of slowed down.

Speaker 2

It's turned for an upgrade right now. So the intersection between AI and smartphone growth could be really special. So we're looking forward to it. We have a lot of the key building blocks and our engineering teams know exactly what to do to turn this on. So we're definitely anticipating some upside here.

Speaker 10

William, thanks for that. I guess just to further that though, are there specific areas of the front end module that you expect to benefit more in the short term as processing rates are going higher as connectivity demands are increased? Is it more a thermal issue? Is it more a transferability or switching or intended tuning for that matter?

Speaker 2

Yes. I mean there's more paths, uplink and downlink. We've got carrier aggregation here, better filters that we do in house, engaging in with Wi Fi as well. And there's also going to be a range of new frequency bands as you move forward into those devices. So there's a lot to do.

Speaker 2

And just that technology alone is going to be amazing, but also the smartphone opportunity today with all those legacy phones that want to turn over to a new upgrade, I think we're all going to come together. So we're looking forward to that. We're doing the technical work to make it happen, and we'll keep you posted.

Speaker 10

All right, great. Thank you, guys.

Speaker 2

Sure.

Operator

Thank you. Our next question comes from Quinn Bolton with Needham and Company. Your line is open.

Speaker 11

Hey, Lehman and Chris. Thanks for taking my question. I guess I wanted to start, you opened the call kind of talking about the slower demand environment in March April that's led to this inventory correction in the June quarter. But I guess, I haven't heard you guys say that you've necessarily seen the end of that demand softness. And so, what signals are you looking for, have you already seen that give you confidence that this inventory correction is going to be limited to only the June quarter?

Speaker 11

Are you starting to see demand signals strengthen as you look past the June quarter?

Speaker 3

And Quinn, so this is not a major, major correction, right? This is just some softer than expected demand that we see. We're not talking here about a huge major correction. And again, based on customer forecasts and our own intelligence about what's going on into the market, we think that will be mostly flushed out in the June quarter and in the guide that we provided for the June.

Speaker 11

Okay. So it sounds like it's demand the forecast from customers leads you to believe it's largely limited to the June quarter?

Speaker 3

That's correct, yes.

Speaker 11

Understood. And then I know it's sensitive, but just coming back to the socket loss of the large customer. It sounds like you thinking this may be sort of a near term commercial issue, but I guess I just you wanted to ask, do you think there's any read throughs from this that might signal a move to sort of a multi sourcing strategy at that customer where they're looking to bring in additional suppliers across all sockets, just for supplier diversity reasons? Or again, do you think it's kind of more limited to 1 year, one socket?

Speaker 2

Yes. It's 1 year, one socket for sure. And we have very, very good eyes on that. Like I said, we'll wrap it up. But the product in question, we know how to make.

Speaker 2

And we look forward to continuing to deliver that and others as we go forward. So we appreciate that.

Speaker 5

Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to turn the call back over to Liam for closing remarks.

Speaker 2

Thanks everyone for participating in today's call. Will look forward to talking to you at upcoming investor conferences during the quarter. Thanks.

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Earnings Conference Call
Skyworks Solutions Q2 2024
00:00 / 00:00
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