Qorvo Q3 2025 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
January 28, 2025
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Operator

Good day, and welcome to the Qorvo Third Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than 1 on your touchtone phone. And to withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. And if you have further questions, you may re-enter the question queue. Please note this event is being recorded.

I would now like to turn the conference over to Mr Doug Delieto, Vice President and Investor Relations. Please go-ahead, sir.

Doug Delieto
Vice President, Investor Relations at Qorvo

Thanks very much. Hello, everyone, and welcome to Qorvo's fiscal 2025 3rd-quarter earnings call. 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 the risk factors associated with our business in our annual report on Form 10-K filed with the SEC because these risk factors may affect our operations and financial results.

In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this 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 or other 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 Investor Relations website at ir.Qorvo.com under Financial Releases.

Joining us today are Bob Bruggeworth, President and CEO; Grant Brown, CFO; Dave Fullwood, Senior Vice President of Sales and Marketing; and other members of Qorvo's management team.

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

Robert Bruggeworth
Chief Executive Officer at Qorvo

Thanks, Doug, and welcome everyone to our call. Qorvo serves six primary end-markets. They are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure and mobile, each is underpinned by global megatrends, including electrification, connectivity, mobility, sustainability, dataification and AI.

These trends are driving new functionality and new user experiences that are made possible by the customers we serve and the products our technologies enable. Looking at our business by operating segment, in HPA, we continue to grow our Defense and aerospace business while expanding our business and power management.

In CSG, we are building upon our strong position in solutions across markets while investing in diverse growth businesses, including an expanding portfolio of automotive solutions and SOCs for ultra, BLE, Thread and matter.

In ACG, we are focused primarily on delivering 5G advanced products for our largest customer and for the flagship and premium tiers of Android. Our largest growth opportunity in ACG is with our largest customer, and we are investing today to continue increasing our share with them in subsequent programs over multiple years.

As we said on last quarter's call, the opportunity in Android 5G declined at a faster rate than anticipated during our Investor Day. Android build plans changed to reflect higher consumer demand for entry-tier 5G devices. In response, during the December quarter, we implemented changes across the organization in how we support Android 5G. This included a reduction in-force in ACG and other company functions.

We narrowed our focus to the premium and flagship tiers to increase profitability and reduce variability. Our 5G product development spend is now focused solely on premium and flagship tiers. While we continue to serve mass tier programs previously awarded, we expect these lower-margin programs to go end-of-life in fiscal '26 and into fiscal '27.

To size the impact for fiscal '25, total Android 5G revenue in ACG is expected to be approximately $875 million. Of this, we expect Android 5G to decline gradually by approximately $150 million to $200 million annually in fiscal '26 and again in fiscal '27. The majority of the decline will be China-based with the balance being mid-tier at Samsung.

In fiscal '26, we expect a single-digit decline in ACG revenue and growth of approximately 10% to 12% in CSG and HPA ex the silicon carbide business. Beginning in FY '27, we expect ACG to return to growth where our updated long-term revenue target is for mid-single-digit growth. In HPA and CSG, our long-term revenue targets haven't changed and we expect double-digit growth in fiscal '25 and double-digit growth again next fiscal year in HPA and CSG.

We believe the actions we are taking will have a positive impact on our gross margin. For reference, gross margin in the December quarter included a headwind of approximately 300 basis-points attributed to the divested silicon carbide business and the MassTier Android 5G revenue we are in the process of exiting.

As we look into fiscal '26, we expect gross margin to expand by approximately 150 basis-points on roughly flat revenue. In a moment, Grant will expand on the actions we're taking to improve gross margin and reduce opex.

Now let's look at our performance and opportunities by market. We saw sequential strength during the quarter in defense and aerospace, industrial and enterprise and infrastructure. In D&A, revenue was up sequentially in the December quarter, driven by multi-year tailwinds. These include upgrades to non-terrestrial networks and the transition from mechanical radar systems to active electronic scanning radar systems.

Tailwinds also include onshoring, the trend of one-to-many and system-level functionality requiring advanced RF packaging. Design-wins in December were diversified across radar, comms, space and electronic warfare. In electronic warfare, Qorvo offers an industry-leading wideband solid-state PA technology. Qorvo is unique and that we can service the opportunity onshore in the US from amid up to a full system solution through our advanced manufacturing facility in Texas.

December was a record revenue quarter for our D&A business and we expect continued strength to support full-year year-over-year growth this fiscal year and next fiscal year. In Industrial and Enterprise, revenue was up sequentially. During the quarter, we achieved critical performance milestones related to Ultra and Wi-Fi enterprise access points.

We're engaged with two leading Tier-1 equipment manufacturers with ultra and WiFi 7 content at both, and we expect commercial production to begin this calendar year. We see this as a significant milestone and ultra-wideband adoption, creating the essential infrastructure for new ultra-wideband driven services enabled by indoor navigation, asset management and real-time location services.

In, we increased shipments of high-frequency BOS filters in support of enterprise WiFi deployments across geographies and we expanded power management engagements with new and existing customers and enterprise SSDs.

Turning to infrastructure, we believe we are past the bottom and are now seeing stabilization in our broadband and cellular base station businesses. December revenue increased significantly year-over-year in both markets. In the broadband market, we are supporting DOCSIS 4.0 deployments at multiple operators in North-America.

We are early in these deployments with significant share and we are positioned for growth in our broadband business this coming fiscal year. In our base station business, we have weathered an industry-wide inventory correction and see opportunities for our small signal portfolio in-markets like India.

In automotive, revenue for the quarter declined sequentially as end-market softness continues. During the quarter, automotive OEMs and Tier-1s continue to Show strong interest in our growing portfolio of automotive grade ultra-wideband products. This includes a design-win for Asia-based EV OEM to supply our ultra wideband solutions in an upcoming vehicle launch. Our sales funnel of automotive ultra-wideband opportunities continues to grow as we bring a broad set of new content and capabilities. The ultra wide band opportunity in automotive includes multiple anchors and up to $20 per car addressing secure access, child presence detection, kick sensors and other precision short-range radar applications. This is new content, presenting the type of complex RF challenge Qorvo is uniquely positioned to solve. In consumer markets, December quarterly revenue declined sequentially, reflecting market headwinds. For Qorvo, customer demand continued to build across consumer applications for our Matter SOCs. We are ramping Matter SOCs alongside our WiFi 7 FEMS for a leading provider of WiFi ecosystems based in the US. This customer is an early adopter of matter technology in-home networking applications, enabling seamless connectivity across lighting, thermostats, window sensors and other consumer applications. We supported a US-based network operator in their migration to WiFi 7 with multiple Corvo WiFi 7 FEMs and we secured a design-win to support an upcoming WiFi 7 ramp with a network operator in Japan.Lastly, we expanded shipments of our high-frequency BOS filters for service providers in the US and in Europe. In the mobile market, revenue declined sequentially. During the quarter, we successfully supported the flagship launch at our largest customer. Shipments during the quarter included discrete placements such as tuners as well as integrated placements like ultra-high pads. This customer represented just over 50% of the total revenue in the December quarter. In the current quarter, we expect sales to this customer to decline sequentially, though less than the last couple of years. As we have said previously, we have secured sufficient wins to date to give us confidence in year-over-year content growth in this year's fall launch. Qorvo revenue is more heavily weighted towards the Pro and ProMax models versus lower content consumer models. Volumes and mix across models and model years can change our weighted-average content in any given year. Given these variables, for FY '26, we're currently forecasting revenue at our largest customer to be flat-to-up modestly. At our largest customer, we've been invited to compete and are engaged on more product programs than ever before. At our second-largest customer, design-wins this year with this Korea-based Android OEM span our product portfolio. We will -- we will be broadly represented this year in the flagship launch ramping now, as well as in their high-volume mid-tier, premium tier and flagship tier smartphone programs launching throughout the year. Qorvo content in 2025 will include low-band, mid-high band and ultra-high band pads as well as mid-high secondary transmit antenna tuning discrete filters and WiFi 7 FEMs. Qorvo is executing on a broad set of strategic initiatives to expand margin, generate strong free-cash flow and increase shareholder value. We remain very focused on driving growth and diversification while finding opportunities to improve operating efficiency and enhance our cost structure. The actions we are taking have already resulted in gross margin improvements and a meaningful reduction in our forward opex in the current quarter and for fiscal '26. And with that, I'll turn the call over to Grant.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Thanks, Bob, and good afternoon, everyone. Our December quarter results were favorable relative to our guidance with revenue of $916 million and non-GAAP diluted EPS of $1.61 per share. Our non-GAAP gross margin of 46.5% and non-GAAP operating expenses of $248 million were also favorable to our guidance, which reflects continued cost discipline across COGS and OpEx as well as recent restructuring actions.

On the balance sheet, as of quarter-end, we held approximately $770 million in cash and equivalents. Our cash balance at quarter-end reflects the retirement of $412 million of our 2024 notes. Following the repayment of these notes, we now have approximately $1.5 billion of long-term debt remaining and no near-term maturities.

We ended the quarter with a net inventory balance of $656 million. This represents a decrease of $38 million sequentially and a decrease of $70 million on a year-over-year basis.

Turning to the cash-flow statement. We generated operating cash-flow of $214 million and capital expenditures of $38 million, which resulted in free-cash flow of $176 million. As a reminder, our capex spend will vary quarter-to-quarter and reflect the timing of cash disbursements. Consequently, capex as a percentage of sales in any given quarter may be above or below our target of approximately 5% of sales.

We repurchased approximately $100 million of stock at an average price of $73 per share in the quarter. The rate and pace of our share repurchase considers several key factors, including our long-term financial outlook, free-cash flow, debt maturities, alternative uses of cash and other relevant strategic considerations. This approach is designed to ensure that our capital allocation strategy balances future growth with the return of capital and aligns with our underlying goal of delivering long-term shareholder value.

Turning to our current quarter outlook, we expect revenue of approximately $850 million, plus or minus $25 million. Non-GAAP gross margin between 43% and 44% and non-GAAP diluted EPS between $0.90 and $1.10.

The sale of our silicon carbide business earlier this month is reflected in our guidance. We will record a negligible amount of silicon carbide revenue in Q4 versus approximately $9 million in the December quarter and approximately $30 million in fiscal '25. We project non-GAAP operating expenses in the March quarter to be approximately $250 million. This includes other operating expense of $1 million to $2 million associated with the remaining portion of our digital transformation projects.

We expect other operating expense-related to this project to remain at this quarterly level throughout fiscal '26.

Below the operating income line, non-operating expense is expected to be between $13 million to $15 million, reflecting interest paid on our fixed-rate debt, offset by interest income earned on our cash balances, FX gains or losses, along with other items. This aligns with our prior comments that non-operating expense would increase following the retirement of our 1.75% 2024 notes.

Our non-GAAP tax-rate for fiscal '25 is expected to be approximately 11%. We expect our non-GAAP tax-rate could increase to between 18% and 19% in fiscal '26 as new regulations take effect. However, the impact of global minimum tax legislation for US-based companies under the new administration as well as changes to international tax policy remain highly uncertain.

For modeling purposes, in fiscal '26, we expect gross margin to expand by approximately 150 basis-points on roughly flat revenue. This reflects a single-digit decline in ACG revenue and growth of approximately 10% to 12% in CSG and HPA, excluding silicon carbide.In ACG, we expect Android 5G to decline by $150 million to $200 million from approximately $875 million in fiscal '25.

At our largest customer, for fiscal '26, we expect revenue to be flat-to-up modestly. Beginning the fiscal year, our June quarter has multiple seasonal items to consider. June is the lowest seasonal quarter for our largest customer. We are on the other side of the Galaxy ramp at Samsung.

And like prior years, our D&A business will be down meaningfully in June on a sequential basis due to program timing, while expected to grow double-digits for the full-year. Regarding our actions to improve gross margin, each business segment brings distinct drivers.

Beginning with ACG, we expect to enhance margins and reduce variability as our portfolio management efforts and pricing strategies reduce our exposure to legacy mass tier Android 5G. In HPA, the divestiture of our silicon carbide business is margin-accretive. In addition, our strategic investments supporting continued growth in D&A will also be accretive.

In CSG, gross margin will increase with the relocation of gas production from our underutilized North Carolina facility to our high-volume Oregon site. We continuously Evaluate further opportunities to reduce our capital intensity and product costs, including process technology advancements and dye size reductions. The complexity of our solutions coupled with the global RF compliance requirements faced by our customers results in multi-year design cycles. We're working closely with our customers as we align our factory footprint to address only the most differentiated elements of our products and increasingly leverage the scale, capabilities and cost-effectiveness of our outsourced partners.All of these factors in aggregate are expected to support high 40% gross margin in seasonally strong quarters during fiscal '26 and up to 50% gross margin in a seasonally strong quarter during fiscal '27. On operating expenses, we implemented a significant workforce reduction, primarily targeting our mass-market Android business as well as supporting areas to enhance our cost structure. In parallel, we streamlined our digital transformation efforts, canceling numerous elements of the project to ensure the scope aligns with the anticipated economic benefits. And finally, the sale of our silicon carbide business is accretive to both gross and operating margins. These actions are reflected in our Q4 guidance and will extend into fiscal 2026. Overall, we anticipate achieving over $100 million in gross annualized savings across COGS and OpEx. A portion of these savings will be reinvested in the key growth areas such as DNA, power management, and programs for our largest customer as well as to offset inflationary pressures. On a net basis, we expect non-GAAP operating expenses to average approximately $250 million per quarter in fiscal '26, subject to typical quarterly variability. First, we are confident that the steps we're taking today across our product portfolio and manufacturing footprint are positioning us for success. We're reducing capital intensity and focusing our internal production only where it differentiates our products. The benefits of these strategic initiatives will become increasingly evident as we advance through fiscal '26 and into fiscal '27. Before we open up the call for questions, we want to briefly address the filing that was recently made by Starboard Value. We welcome engagement with all our shareholders and value their input on ways to create shareholder value. With that said, the purpose of today's call is to discuss our 3rd-quarter results and outlook. We appreciate you keeping your questions focused on those topics. At this time, please open the line for questions. Thank you.

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Operator

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star than one on your touchtone phone. If you're using a speaker phone, please pick-up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. And if you have further questions, you may re-enter the question queue. And at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Gary Mobley with Loop. Please go-ahead.

Gary Mobley
Analyst at Loop Capital

Hi guys. Thanks for taking my question. I wanted to verify some of the numbers that you guys had in your prepared remarks. If I heard correctly, you will have in fiscal year '25 about $875 million of revenue from Android customers and that -- that might whittle down to something less than $500 million over the next five years. I presume the remainder will be primarily Samsung and maybe some high-end customers over in China. Am I running through all that math correctly?

Robert Bruggeworth
Chief Executive Officer at Qorvo

Yeah. Yeah, hi, Gary, this is Bob. Thanks. You're correct on the $875 million and you're correct on it's going to be going down about $150 million to $200 million this year, probably the same. Most of that will be in China, to your point, but it does include some of the Samsung business and includes more than HBOX because we do have other customers in China, some that sell-in the US.

Gary Mobley
Analyst at Loop Capital

Okay.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Yeah the remainder will be -- the remainder of that that's still remaining will be in that premium and flagship tier.

Gary Mobley
Analyst at Loop Capital

Okay. Got it. Okay. Thank you. So Bob, I know you were clear on the assumption that HPA would grow double-digit percent in fiscal year '26. But I wanted to ask a question about the repeatability of the HPA strength that you just showed in the 3rd-quarter, if I'm not mistaken, there might have been maybe a Department of Defense contract, maybe something a little bit atypical in the quarter. Maybe you can just give us a sense of the details of that to the extent you can and the repeatability of it?

Robert Bruggeworth
Chief Executive Officer at Qorvo

Sure. Thanks, Gary. We did see nice growth in December. We're also going to see even better growth in March. And it really gets to the timing of the defense contractors and when they flow their money to us. Some are tied a little bit more. They give us orders right before the end-of-the government's fiscal year, which as you know, is at the end of roughly our 3rd-quarter and then obviously the end of their own calendar year.

So we actually see a back-half typically much stronger than the first-half in our defense business. So yes, we saw good growth in December quarter. We're also going to see even better growth in the March quarter. And then as Grant mentioned, it's going to drop-off in the June quarter. But for the year, we expect defense business to grow actually faster than all of HPA.

Gary Mobley
Analyst at Loop Capital

Great. Thank you, guys.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

It's a good point. Maybe, Gary, I'll just expand on that just for a minute. To put it into perspective, our DNA business is now approximately a $400 million business. And again, as Bob mentioned, rather seasonal. The orders there in customer orders and then the program timing, as you mentioned, will be up significantly in March. And then again, it will fall-back down in June as it could be as much as $75 million coming down in June before growing for the entire year largely faster than our HPA business in the 10 to 12% range.

Gary Mobley
Analyst at Loop Capital

Thanks, Grant.

Operator

The next question will come from Harsh Kumar with Piper Sandler. Please go-ahead.

Harsh Kumar
Analyst at Piper Sandler Companies

Yeah. Hey guys, congratulations on solidly beating the earnings estimate. I guess my first question, Bob, there was a lot in the comments section, but if I heard it correctly, I think you're saying that you're expecting better than normal seasonality for your cellular business. And I'm assuming that's with your largest customer. Could you maybe talk about what that means? What we should be thinking and expecting? And if you can just paint a picture for us, that would be helpful. Then I do have a follow-up.

Robert Bruggeworth
Chief Executive Officer at Qorvo

Yeah, thanks,. On the last quarter's call, we mentioned that we'd probably be down 5% to 10%. You can see our guidance is roughly within that range. And what I said in my prepared remarks is, we'll be down at our largest customer, but not as much as we've been in prior years. And that's all the color that I'm able to add at this time,.

Harsh Kumar
Analyst at Piper Sandler Companies

Okay, that's fair. And then, Grant, maybe you talked about a lot of things on the gross margin side. If I had to say what would be the one or two biggest things that you think Bob or Grant that are needle movers for the gross margin. You talked about high 40s and then ultimately even potentially hitting 50s. What would be two of the biggest things that will be happening to make the margin go up in your opinion?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Yeah. Thanks, Harsh. Appreciate the question. We're working on a lot of fronts as it relates to gross margin. Probably two of the larger ones would be, as we exit some of the Android business that Bob mentioned, it will have a accretive impact on our gross margin just as it relates to revenue mix.

Beyond exiting some of that Android business, we're also looking at factory costs and factory footprint and ways we can leverage our outsourced suppliers. We had a sizable workforce reduction and cost-reduction that we handled in the December quarter and that's going to help us as we look-forward.

And then of course, there's also the process improvement, reductions and other sort of blocking and tackling types of things that we're doing in our factories and product design that help drive our costs lower.

Harsh Kumar
Analyst at Piper Sandler Companies

Thank you, sir. Thanks.

Operator

Your next question will come from Tom O'Malley with Barclays. Please go-ahead.

Thomas O'Malley
Analyst at Barclays Capital

Hey guys, thanks for taking my question. My first one was just in relation to March guidance. So you gave us $8.75 for the year in Android, you could set that pretty easily. And then you talked about less than seasonal declines in your largest customer. So you have a decent proxy from where ACG is, the other two businesses to kind of get to your guidance. You talked about mid-teens growth on the full-year.

Both of those look to be tracking a little bit ahead just given where guidance is. So is there any weakness that you would call-out amongst those two businesses in any pockets other than the silicon carbide stuff? Or just trying to square away the math here. If I set Apple down a little better than seasonal and Android to your number, you're getting a little bit above guidance. Any help with March to start?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Yeah. Sure. Let me take the question. So you're right, the silicon carbide revenue is an important factor. As we look into the March quarter, there'll be a negligible amount of revenue in March versus the December quarter of approximately $9 million. So that's one of the changes. It was -- for modeling purposes, approximately $30 million for the entire fiscal '25. Outside of that, as you mentioned, there's typical seasonal dynamics with the ramp-down our largest customer. Android is expected to be up sequentially given flagship platform launches. And then there's a material increase in our DNA business as we've commented on in both December and then again in March. And so we're -- in terms of the CSG business on the other side of some large WiFi ramps that we benefited from in Q2. And overall, year-over-year, both those businesses will be up double-digits. And then as we look-forward, we'll continue the momentum into fiscal '26.

Thomas O'Malley
Analyst at Barclays Capital

Got you. And then you gave a decent amount of color in the prepared remarks. On June, you highlighted that that's normally bottom seasonal for the largest customer. And then you talked about defense being down as well. Just given that you went out of your way to highlight that in the prepared remarks, could you give us any color from a total company perspective, what you're expecting there?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

We didn't provide any guidance necessarily at a total company-level. But if you're modeling it roughly, you're in that down 10% to 15% range for the full-company heading into the June quarter. Again, the seasonal dynamics there are a very strong defense business, which has grown in terms of percent of our total top-line.

So we've benefited from the growth, but the seasonality and order patterns at our customers create a dynamic heading into June that's larger than typical and then the Android ramp at a large customer for their flagship will also be ramping down in the same-period that our largest customer ramps down.

So quite a number of seasonal factors. Although for the year, as Bob pointed out, we do expect to be approximately flat in revenue. So there will be growth in the outside quarters.

Operator

The next question will come from Karl Ackerman with BNP Paribas. Please go-ahead.

Karl Ackerman
Analyst at BNP Paribas Securities Corp. North America

Yes, thank you, gentlemen. Given your comments on the Android ecosystem, I was hoping you could address the outlook for RF content for the industry over the next couple of years. If the baseband modem of your largest customer remains at your largest -- remains at your competitor.

I ask because some investors have been concerned that reuse could remain if the baseband share remains status quo. But I was hoping to get your clarification on that. Thank you.

Robert Bruggeworth
Chief Executive Officer at Qorvo

Sorry, Karl, could you clarify, did you say our largest customer or the industry? I wasn't sure what you were talking about with the base band.

Karl Ackerman
Analyst at BNP Paribas Securities Corp. North America

I'm referring to your -- within the iOS ecosystem, whether if there is a change or no change in the baseband modem, whether you think there is a growing risk of reuse or if you do think there is innovation and continued content gains in that area of the market.

Robert Bruggeworth
Chief Executive Officer at Qorvo

But I want to make sure I understand the question. You're asking if they stay with the Qualcomm baseband and there's been a lot of discussion about them coming out with their own baseband. If they stay with the Qualcomm baseband, what happens to the RF sections? I just want to make sure I understand.

Karl Ackerman
Analyst at BNP Paribas Securities Corp. North America

That is correct. That is correct. Yes, how do we think about the content opportunity for that? That is correct.

Robert Bruggeworth
Chief Executive Officer at Qorvo

It all depends on their future architectures, which I know we don't comment on, but history has been every successive model, there's more and better RF required. So you know, and that includes our tuners to all the other parts that we make for them, better filters to better integrated modules, etc. So we don't see a change.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

The only thing that we said and we continue to reiterate is that the ETIC that we would be able to provide to the internal platform we wouldn't provide on the Qualcomm platform. So that would be the major difference that you would see for us.

Karl Ackerman
Analyst at BNP Paribas Securities Corp. North America

Got it. Very helpful. Thank you.

Operator

The next question will come from Vivek Arya with Bank of America Securities. Please go-ahead.

Vivek Arya
Analyst at Bank of America Merrill Lynch

Thanks for taking my question. Bob, I wanted to kind of come back to this long-term growth opportunity for your ACG or mobile business. You mentioned that it could be flattish, I think you said for fiscal '26, if I got it right, but then starts to regrow. And my question is, what helps to regrow if it is flattish in a year when you are gaining content, right, among some of the high-end SKUs and when cellular units are expected to grow, then how does it start to regrow until, I don't know, 60 takes off?

I guess my real question is, how much are you baking in for the continued headwinds from all the China in-sourcing and Qualcomm competition. Is it possible ACG business sort of stays flattish for the next several years?

Robert Bruggeworth
Chief Executive Officer at Qorvo

Yeah. Thanks for the question, Vivek. In my prepared remarks, we did talk about us actually being down in ACG for FY '26 to be clear. So we said that and we said that HPA and CSG would grow double-digits. So that gets you to the company flat. And we said that we're expecting in our Android business, the category that we talked about last quarter that we'll be exiting, be down $150 million to $200 million.

So you're right, it's going to be a challenge. Therefore, we've got to continue to grow at our largest customer that we've talked about as well as maintain our share in the flagship and high-tier phones in the Android ecosystem. So that's our current plan. But in '26, we were pretty clear it's going to be down.

Vivek Arya
Analyst at Bank of America Merrill Lynch

Okay. And then maybe a follow-up for Grant on gross margins and OpEx. I think you gave us the gross margin sense for the seasonal quarters and any sense of how the gross margin progresses prior to that? And then I think OpEx you mentioned $250 million, how does that kind of progress through the year? Thank you.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Sure. Thanks, Vivek. For modeling purposes, you could assume that gross margin will follow the same or roughly approximately the same seasonal pattern that we've seen in the past with June below September and December. And I would expect that to continue into fiscal '26. We're continuing to support the existing commitments that we've made to our Android customers on running platforms.

And to a degree in periods where we have higher Android as a percentage of sales, it has a seasonal impact on the gross margin. So as we work our way through fiscal '26 and that $150 million to $200 million of revenue-related to Android comes out will become less seasonal and expect to be less volatile on our gross margin in addition to increasing as we look into fiscal '26 into fiscal '27.

In terms of opex, there are some normal seasonal patterns in terms of payroll-related items that we'll see in March. Typically, June could be in that same neighborhood based on program development spend. And I would expect to model approximately that level throughout the year, plus or minus probably approximately $5 million per quarter depending on any of those seasonal impacts.

Vivek Arya
Analyst at Bank of America Merrill Lynch

Thank you.

Operator

The next question will come from Toshiya Hari with Goldman Sachs. Please go-ahead.

Toshiya Hari
Analyst at Goldman Sachs & Co.

Hi, thank you so much for taking the question. You guys talked quite a bit about some of the restructuring initiatives in motion today or things that you've executed on. You talked about headcount reduction. Obviously, you sold your SIC business and the gas business shifting some production from North Carolina to Oregon.

Looking ahead, I don't expect you to share anything that you haven't made public, but you know, would you say you're kind of in the early innings of this journey and sort of rightsizing your company or optimizing your company or are you in the middle innings, late innings? Any commentary on how to think about restructuring over the medium-term that would be helpful.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Thanks, Toshiya. This is Grant. Let me start with the question and then we can get to your follow-up if one. We're constantly considering ways to optimize our factory footprint. In fact, it's a topic that we regularly consider. And it shifts with revenue mix and the demand that we're accusing to support over-time. The best way to think about it is as we described it at our Investor Day, we'll manufacture internally where it differentiates our product or where our foundry market doesn't exist.

And today filters is a great example where we make those in Richardson and there's not a commercial or merchant market available for those. And then we will outsource to some of our trusted partners where we can mutually benefit from their scale and their technology development.

So we can pick and choose the technologies from our outsourced partners that are best-suited to our products, both from a performance and cost perspective without having to support each of those individual manufacturing technologies in-house.

Toshiya Hari
Analyst at Goldman Sachs & Co.

That's great. Thank you. And then as a quick follow-up, just on customer concentration, you know, with Apple, I guess, flat or growing nicely and your Android business coming down, revenue concentration is growing. All else equal, I think investors typically prefer that a diverse revenue stream.

I know you guys talked about HPA and CSG outgrowing ACG over the Medium-to-long run. And so organically, that concentration should come down over-time. But is there a willingness on your part to kind of lean-in on M&A to accelerate that diversification process or not so much, you prefer to go at it organically? Thanks.

Robert Bruggeworth
Chief Executive Officer at Qorvo

I'll take this on. In the past, as you know, a lot of our acquisitions have been more technology-based and complement product offerings that we already have. We would absolutely be open if we felt we were a better owner and we could significantly increase shareholder value by making a transaction like that?

I mean, obviously, we did a good job when we merged the two companies of RFMD and. And if we saw another opportunity to do that, we would certainly be active on that.

Toshiya Hari
Analyst at Goldman Sachs & Co.

Thank you.

Operator

The next question will come from Chris Caso with Wolfe Research. Please go-ahead.

Chris Caso
Analyst at Wolfe Research

Yes, thank you. Just a question with regard to some of your comments regarding your largest customer and on short-term and long-term. And I know typically, there's not much you could say, but you did indicate that you expected your content to grow this year, but then you talked about like a flat to modestly up increase.I guess I'd interpret that as probably a modest content increase this year. So if you could clarify that.

And then longer-term, you're going to need growth of that largest customer to grow the ACG business given what you're doing in Android. Maybe if you could give us a sense of where the opportunity is for you is that just additional content that fits into your traditional strong areas or is that going after some market-share from some others?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Thanks, Chris. This is Grant. Let me take the first part of your question and then maybe Dave or Bob could comment on the future opportunity set. But at our largest customer, there's no changes to the comments that Bob made and I made in December, we're confident in the awards that we have to date and the upcoming fall platform. And for the year, we expect it to be flat-to-up modestly there.

Volume and mix are always uncertain and if you want to split it into our fiscal year halves, the first-half of our fiscal year versus the second-half and our largest customer will likely to be down in the first-half of fiscal '26 relative to fiscal '25 and up in the second-half of fiscal '26 relative to the second-half of '25.

So our content is more weighted to the Pro models versus the consumer model. So as we pointed out last quarter, the model mix does have an impact on our revenue, but we'll continue to deliver on our strategy of gaining content. And as the volume pulls through revenue, I think we're well-positioned there.

Robert Bruggeworth
Chief Executive Officer at Qorvo

I'll take the second part on what we're working on to grow our share and share of wallet at our largest customer in the areas we currently support, there's opportunities to gain share. Obviously, we've talked pretty clearly with the group that if they come out with their own modem, their baseband, we believe we'll be able to pick-up the ETP mix. So that's actually gain and RF content for us that is taking share from an incumbent.

And then clearly, there's other highly integrated modules that we've been invited to participate in and work towards winning. So that's the playbook that we're laying out for our team.

Chris Caso
Analyst at Wolfe Research

Got it. Helpful. I guess the other question was on the tax-rate. And I think you said is it the tax-rate could go to an 18% to 19% and that's a pretty big jump. And if you could clarify that and if it could go that high, what are the dependencies and kind of what's the baseline expectation for the taxes in fiscal '26.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Sure. So right now, we are approximately 11% and it could go as high as 18% to 19% as we're modeling today. There's opportunities for us to improve and there's a lot of changes that could happen either internationally or here domestically. So it remains, again, highly uncertain. But to be conservative, right now we're expecting it to grow to approximately 18% to 19%.

Chris Caso
Analyst at Wolfe Research

Thanks.

Operator

The next question will come from Krish Sankar with TD Cowen. Please go-ahead.

Krish Sankar
Analyst at TD Cowen

So thanks for taking my question. I'm sorry to a lot of the color you gave both Bob and Grant. I'm just curious, when you look into the first-half, your largest customer is expected to release a low-end smartphone and is expected to come out-of-the Galaxy S25. Kind of curious how to think about your content opportunity in those? Is it increasing, decreasing anything you can quantify would be helpful? And then I had a follow-up.

Robert Bruggeworth
Chief Executive Officer at Qorvo

Sorry, we can talk about Galaxy 25 because that's been released. Anything to do with our largest customer that hasn't been released? We're not going to make any comments. But Dave, if you want to take that?

Dave Fullwood
Senior Vice President of Sales and Marketing at Qorvo

Yeah. And when you look at the Galaxy S25 compared to last year, it's very similar. A lot of the highly integrated modules, very similar content we had last year in terms of low-band, mid-high band and WiFi. I think we've talked about this before with their late change in the modem that did impact us just from a time and readiness standpoint on software that we were not able to keep the ultra wide band socket that we had there in some of the tuners.But in general, it's similar content, but slightly reduced year-over-year because of those factors.

Robert Bruggeworth
Chief Executive Officer at Qorvo

The only thing I can add, at least at our largest customer, we commented that in my opening comments that our content is skewed towards the Pro and Pro Max, not the standard phone that they offer. There's obviously more RF content in those phones, but we have a larger share there.

Krish Sankar
Analyst at TD Cowen

Got it. Very helpful. And then, Bob, just curious, I know you don't participate in the low-end, but when you look at China's smartphones, are your China OEM customers gravitating more towards the premium model now? And if so, how do you think about your opportunity in China with the premium tier Android?

Dave Fullwood
Senior Vice President of Sales and Marketing at Qorvo

Yeah. Yeah, in China, I mean, all of our customers, they have global portfolios, they support domestic and overseas markets and they support from the low-end into the high-end. And they certainly all have targets to grow in the premium tier as much as they can. And we're supporting them there with our portfolio.

The challenge that we've had in that market that we've talked about and the reason we gave the guidance we did on the annual basis is really that mid-tier collapsing into the entry tier. And that's the part where we're no longer to participate in, but we'll continue supporting those customers in those premium and flagship tiers.

Krish Sankar
Analyst at TD Cowen

Thank you very much.

Operator

The next question will come from Christopher Rolland with Susquehanna. Please go-ahead.

Christopher Rolland
Analyst at Susquehanna Financial Group LLLP

Hey guys, thanks for the question. The revenue at your largest customer flat-to-up. If I understand that correctly, that assumption would include opportunities in the PMIC or envelope tracker, but does not include any integrated modules that sound like they have not been awarded yet. Is that how we should think about that?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Yeah. No, our -- you know our awards today give us confidence as we talked about in as a kind of apples-to-apples basis in the fall models, we feel very confident that we're delivering on our Investor Day promise of gaining content and share there in areas where not only we have strength in the past, but also in areas we've shared content before and have continued to gain share.

So our comments are primarily related to the entire portfolio of products we sell into that -- into that customer. I did give some color on the first-half versus the second-half and how fiscal '26 compares to fiscal '25, which should give you some indication of how -- or the timing-related to it. But other than that, we can't get into any of the details related to our largest customer and things that haven't yet been released.

Christopher Rolland
Analyst at Susquehanna Financial Group LLLP

Understood. Thank you for that. And in terms of capital, perhaps you can talk about your capital needs looking-forward just given you're consolidating some of this footprint. And then you know, in terms of uses of cash moving forward, what your priorities are overall? Thank you.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Sure. Thanks, Chris. So in terms of our uses of cash and the way we think about capital allocation, there's no change. We meet with our Board very regularly to review every quarter. We go through the different needs from working capital to capex to organic, inorganic opportunities to invest for growth and retiring debt was one of those that we had been discussing for quite some time.

And then, of course, we're committed to return value to shareholders in the form of our share repurchase. So the waterfall that we look at and review with the Board regularly, no change there. In terms of capital intensity over-time, one of the primary rationales for our strategy there is again to manufacturer in-house where it differentiates our products and we'll retain that.It's largely the capacity we need -- we have in-place.

And so we're looking at maintenance capex and/or any improvements to that process to maintain our differentiation . And then we will use outside partners in order to leverage their scale and prevent us from having to invest more in our factory network from a capex perspective.

Christopher Rolland
Analyst at Susquehanna Financial Group LLLP

Thanks so much, Grant.

Operator

The next question will come from Ruben Roy with Stifel. Please go-ahead.

Ruben Roy
Analyst at Susquehanna Financial Group LLLP

Yeah, thank you. I guess this question is for Dave. You guys talked a lot about the DNA momentum here. I was wondering if you could maybe spend a few minutes on some of the other segments, industrial, enterprise, infrastructure. It's nice to hear the stabilization in areas like broadband.

What's the visibility like that we've seen a lot and heard a lot of mixed data points for these end-markets. I'm just wondering if you talk about the design activity environment and your visibility. We appreciate the sort of longer-term guidance by segment, but would love to hear a little more about visibility into, I guess, sustainability and how you're thinking about growth trajectories as you flow-through fiscal '26 in those areas? Thank you.

Dave Fullwood
Senior Vice President of Sales and Marketing at Qorvo

Yeah, definitely in some of those markets near-term, we see the weakness in the demand of existing running programs like in automotive and industrial. And so -- but we're still growing from a relatively small base in a lot of the businesses that we're engaged there and it's a lot of new content that we're addressing.

So from a forward-looking standpoint, we're pretty excited about the opportunities that we have there, the growth in our funnel of opportunities and the engagements that we have in customers. So we've talked about in enterprise, the upgrade of WiFi to WiFi 7 and the opportunities that we have in adding ultra-wideband for indoor navigation and real-time location services. So that's all going well. Bob mentioned some of the ramps we have going on this year.

And then in power management, we've got some good engagements there as we move from our solid-state drive business more into the enterprise segment. We've got good content growth opportunities moving forward there. In automotive, we've definitely seen adoption really starting to take-off across all end-customers and all the Tier-1s. So the engagement there has been really strong and we expect to see adoption happening over the next three to five years and we expect to be one of the leaders in that market. So that's a great opportunity for us.

And one part we didn't talk about in defense is in the business that's been a bright spot as well. And so when you look at these satellites that are going up in a LEO satellite, we could have thousands of dollars of content every time one of those gets deployed in the space. And when you look at the direct-to-sell, that's more like a base station in space.

So we could have tens of thousands of dollars per content -- content per satellite. So those are great growth opportunities for us in our defense market even outside of the traditional defense business.

Ruben Roy
Analyst at Susquehanna Financial Group LLLP

Thanks, Dave. If I could ask hopefully a quick follow-up for Grant. Just thinking through maybe a little bit longer-term investment into OpEx and you talked about repurposing some of the savings into some areas like you just talked about. But I'm wondering as you think about sort of focusing on your large customer in ACG, should we expect any meaningful change of mix in opex ACG versus the other two segments or do you think it will be kind of longer-term?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

We're looking at opex improvement across the company, not necessarily within any given operating segment. There's a lot of shared resources across the company that are allocated on based on the size of the business and how much effort is put in by the sport functions.

So when we think about opex, it's across the entire -- entire company. The most recent workforce reduction, that was in certain cases specific to Android as we think about our product roadmap and as we look-forward, which products we were going to develop and support and we took appropriate action to reflect the revenue change in fiscal '26 and '27 that we discussed today.

Ruben Roy
Analyst at Susquehanna Financial Group LLLP

Thank you.

Operator

Your next question will come from Edward Snyder with Charter Equity Research. Please go-ahead.

Edward Snyder
Analyst at Charter Equity Research

Thanks a lot. I just want to dig down a little bit more on your guidance for the fall of your largest customer and what your assumptions are there. Are you -- if we assume units are flat and the ProMax split is the same as it was last year. I just want to be clear that you're guiding for content gains.

And if those counts gains, how much does that include, let's say, releasing two different SKUs with two different modems because I know it seems based on your comments, Bob, that you're pretty confident your content is going to go up on an internally-developed modem just for the ETP mix alone. I just want to make sure those assumptions are correct to start-off with. Thanks.

Robert Bruggeworth
Chief Executive Officer at Qorvo

Thanks, Ed. As far as if there's an internal modem, yes, we're very confident our ETP mix will be in there. As far as the content we've already been awarded, I think we've pretty much said already we believe in that. We did not comment on how many modems they're going to use or anything for their year, but I'm very confident in our -- our belief that we're going to gain content this year based on what we've already been awarded.

Edward Snyder
Analyst at Charter Equity Research

Okay. So the awards, if everything else was held constant, you'll see a content increase just based on awards itself, right?

Robert Bruggeworth
Chief Executive Officer at Qorvo

Yes.

Edward Snyder
Analyst at Charter Equity Research

Okay, great. And then if I could, on the defense side of the business, it sounds like these are going very well and it's been your kind of kind of the -- probably the best business you've had consistently overall. Do you anticipate much change? I know you mentioned LEOs and that's through defense too, but do you anticipate much change coming up from some of the spending that we're talking about for all the fallout from the Ukraine war, they're talking about AE says, but more importantly, talking about a lot of the stuff that drones.

I'm not sure exactly how plays into that in terms of the radar systems for it. Maybe you can provide a little bit color subsequent idea because I know there are long-term plans, but I was just trying to get a feel for how that impacts you or if it does.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Yeah. And it's largely driven by the upgrade of those radar systems from mechanical to the ACE or radars like you mentioned. And so yeah, that's a fantastic content opportunity and we're closely engaged with all the primes and leaders in the market there. So yeah, we see for an airborne radar going on planes that we have hundreds of thousands of dollars of opportunities and for a ground-based system up to $1 million -- $1 million of content per system. So it's definitely a growth area for us and something we're very, very focused on.

Edward Snyder
Analyst at Charter Equity Research

It still has gain content, right?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Absolutely.

Robert Bruggeworth
Chief Executive Officer at Qorvo

Yes, it does. So we'd say if it's radar in the plane out in sea or in-land, we're already in it. And if it grows, we'll grow nicely.

Edward Snyder
Analyst at Charter Equity Research

Perfect. Thanks, guys.

Robert Bruggeworth
Chief Executive Officer at Qorvo

Thank you.

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Thanks, Ed.

Operator

The next question will come from Vijay Rakesh with Mizuho. Please go-ahead.

Vijay Rakesh
Analyst at Mizuho Securities USA

Hi, Bob and Grant. Just on the China side, I mean, there's a move looks like with the China handset OEMs to move to mid and low-end because of the subsidies that the China government are giving. Once you exit the low-end Android, how much exposure would you have to the China market?

Grant Brown
Senior Vice President and Chief Financial Officer at Qorvo

Yeah. Sure, Vijay. So we had said on a run-rate from a China Android perspective, we are right around that $100 million per quarter mark and we would expect to track down to the $50 million level on plus or minus?

Vijay Rakesh
Analyst at Mizuho Securities USA

Got it. And then as you move your mix more to just the top two customers, is that -- is that a risk given -- it's much more a sandbox and you start to compete. I'm sure that your peers have a kind of a pretty similar strategy. Does that make that sandbox fairly, you know, very competitive and constrictive again.

Robert Bruggeworth
Chief Executive Officer at Qorvo

I would say today, they're both very competitive. Nothing has really changed there at our largest customer as well as at our second-largest customer. I mean, that's what we've been dealing with for the last 10 years at Qorvo. So we're not seeing much change there in that sense.

The real change has been, as we've been talking about in China, that mid-tier, which was a great place where we made a lot of money over the years has really downshifted as consumers looking for more entry-level phones. That's been the big change.

Vijay Rakesh
Analyst at Mizuho Securities USA

Got it. Thank you.

Robert Bruggeworth
Chief Executive Officer at Qorvo

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go-ahead.

Robert Bruggeworth
Chief Executive Officer at Qorvo

We want to thank everyone for joining us on tonight's call. We appreciate your interest and we look-forward to speaking with many of you at upcoming investor events. Thanks again. Hope you have a great evening.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect

Corporate Executives
  • Doug Delieto
    Vice President, Investor Relations
  • Robert Bruggeworth
    Chief Executive Officer
  • Grant Brown
    Senior Vice President and Chief Financial Officer
  • Dave Fullwood
    Senior Vice President of Sales and Marketing
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