Good day and welcome to the Qorvo, Inc. Second Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Douglas DeLieto, Vice President of Investor Relations. Please go ahead, sir.

Thanks very much. Hello, everyone, and welcome to Qorvo's Fiscal 2025 Second 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 our 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 have obscured 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.

Thanks, Doug, and welcome, everyone, to our call. Similar to our first quarter earnings call, our prepared remarks tonight will focus on achievements and opportunities by end market. Qorvo's six end markets are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure, and mobile. Our markets are underpinned by global megatrends such as electrification, connectivity, mobility, sustainability, datafication, and AI. These trends make possible new functionality and new user experiences that are made available to end users by the customers we serve and the products we enable. Consistent with our comments at our Investor Day, in HPA, we continue to expand our defense and aerospace business during the quarter while building a broad-based business in power management. For the full fiscal year, we expect HPA will grow in the mid-teens. In the markets served by CSG, we maintained our Wi-Fi leadership during the quarter while investing in diverse growth businesses, including an expanding portfolio of automotive solutions and SoCs for ultra-wideband and Matter. We expect CSG will also grow in the mid-teens this fiscal year. In the mobile market, ACG supported a seasonal ramp during the quarter at our largest customer. As we said during our Investor Day, our largest opportunity in ACG is with this customer. They represent over half of the smartphone RF TAM and we are investing today to grow our share with them next year and in subsequent programs over multiple years. Within the Android ecosystem, Qorvo is a leading supplier to the flagship, premium, and mid-tier 5G smartphones. While the flagship and premium tiers are holding up well, the mix in the mid and entry tiers has shifted towards entry-tier 5G at the expense of mid-tier 5G. In our current view, we don't expect this mix shift in Android 5G from the mid-tier to the entry tier will reverse. While challenging in the near-term, this dynamic reinforces ACG's primary strategy of investing to grow our business at our largest customer. ACG's product roadmap is focused primarily on 5G advanced products for our largest customer and the flagship and premium tiers of our Android customers. Our growth opportunity and the flagship remain strong. By contrast, the mid-tier used to be approximately half of the total Android 5G volumes and has declined over the last few quarters to less than a third. In each of the markets we serve, our customers continue to require higher performance, greater efficiency, and smaller form factors to increase functional density, enhance the user experience, and extend their competitive position. Turning to quarterly highlights. In the automotive market, we secured a V2X design win with a US-based automotive Tier 1 in support of an automotive OEM based in Germany. Production volumes for this first win are expected to ship in the current quarter. We were also selected to supply a full suite of V2X and network access device RF products in support of an automotive OEM with production volumes also expected to ramp this quarter. In other automotive applications, Qorvo's force-sensing touch sensors are enabling digital cockpit, climate control, and the best-selling SUV of an additional automotive OEM based in Germany. For an EV OEM based in North America, Qorvo was selected to supply force-sensing touch sensors for our 2026 model launch. We have content in this customer's current generation model and the number of placements increased in this new award. Our technology's solid surface architecture demonstrates measurable advantages over traditional buttons, both inside and outside the cabin. In consumer markets, we increased shipments of force-sensing touch sensors in support of high-end audio headphones and expanded our touch sensor engagements in laptop track pads. We also continue to ramp our first-generation battery management system for outdoor power tools and other applications. We will sample our second-generation solution later this fiscal year and target applications, including power tools and e-mobility applications, including scooters and e-bikes. In Wi-Fi, we offer a full portfolio of FEMs, iFEMs, and filters. Our Wi-Fi 6 shipments to consumer markets continue to grow in applications, including sound bars. Shipments of Wi-Fi 7 also grew. The RF content opportunity is significantly higher in Wi-Fi 7 than in previous generations, and industry analysts expect Wi-Fi 7 volumes to overtake Wi-Fi 6 as soon as 2027. In Connectivity Systems, demand for ultra-wideband, BLE, and Matter over Thread was broad-based across consumer applications, including smart home, location tags, speakers, and other consumer electronics. We received our first production order for our newest BLE, Matter SoC from a large retailer of home furnishing products based in Europe, opening up a new addressable market for Qorvo. By leveraging Concurrent Connect technology, our SoC enables BLE, Matter, and Zigbee to operate simultaneously. This ensures backward and forward compatibility given Zigbee's large installed base and the growing adoption of Matter over Thread, including within smart home and smartphone ecosystems. Matter over Thread is a low latency, point-to-point, and mesh technology that significantly upgrades the user experience versus legacy systems. In defense and aerospace markets, multiyear tailwinds continue to drive our business. They include the upgrade cycle to non-terrestrial networks and from mechanical radar systems to active electronic scanning radar systems as well as continuous drivers like onshoring, the trend of one-to-many, and system-level functionality requiring advanced RF packaging. Design activity in D&A during the quarter was a quarterly record and diversified across markets, including terrestrial, airborne, and shipborne radars, communications, space, and electronic warfare. Design wins included new and existing product categories as well as new platforms and new customers. In SATCOM, we continue to see strength in commercial communications. Qorvo has content in both the LEO satellites and the customer ground terminals with the leading satellite broadband network providers. We also have content on commercial and private jets and are helping to bring improved connectivity to air travel. During the quarter, we were awarded a key development contract for an electronic warfare application, leveraging our Spatium solid-state PA products. Solid-state PAs have advantages in size, weight, and power compared to traveling wave tubes. They are also more reliable with a lower total cost of ownership. In industrial and enterprise, we continue to ramp power management solutions for enterprise SSDs to more broadly serve AI and data center applications and expand on our strong position and client SSDs for laptops. We also expanded our engagements to supply ultra-wideband solutions into Wi-Fi 7 enterprise access points. With the inclusion of Qorvo's ultra-wideband technology, enterprise access points serve as anchors and enable indoor navigation and other applications that leverage precision location awareness. For smart home metering, we are developing a proprietary sub-1 gigahertz spend to support a leading smart energy ecosystem provider. In other low power IoT applications, CAT-M and CAT-1 interest in design activity continues to build in consumer, industrial, and enterprise markets. For infrastructure markets, we introduced the industry's first 24-volt power doubler for DOCSIS 4.0 broadband and cable TV applications. This multichip module delivers more than 30% size reduction versus hybrid solutions and features adjustable DC current to optimize DC power consumption versus RF output. We recently showcased our broadband portfolio at the SCTE TechExpo in Atlanta, and we expect our newest solutions to build upon our leadership in DOCSIS 4.0. In the mobile market, we secured new wins at the leading Android smartphone OEM across this customer's smartphone portfolio. In our Spring 2025 flagship smartphone, we secured Wi-Fi content and multiple 5G front-end placements in the main and secondary transmit paths. At other Android customers, we secured additional design wins for our recently launched low, mid, and high-band pad. Each LMH pad delivers a 40% savings in surface area versus prior architectures. This enables customers to leverage the space savings for other functionality, such as processing or memory. Shipments of our LMH pads are expected to grow sequentially this quarter and again in March. Across Android OEMs, the adoption of ultra-wideband in smartphones represents a significant opportunity for Qorvo. During September, we built upon the design win mentioned last quarter in the Moto X50 Ultra by securing additional ultra-wideband design wins in upcoming smartphones and tags. These wins are an early indication of the trend we expect of ultra-wideband proliferating across high-volume smartphones and accessories. Furthermore, we expanded Wi-Fi 7 shipments across Android OEMs in support of MediaTek's Dimensity 9400 Chipset. Qorvo's Wi-Fi 7 FEMs are optimized with the Dimensity 9400 to deliver flagship Android smartphones superior performance. Looking further out, we are expanding our PMIC portfolio for the mobile market beyond RF to deliver new innovations that reduce current consumption and significantly extend battery life. We are a pioneer and leader in envelope tracking and average power tracking RF power management for smartphones, and we have been awarded a contract by a top-tier Android OEM to develop our first DC to DC PMIC for mobile phones. Our proprietary power management solutions deliver superior efficiency, and we are excited to bring our technology to flagship smartphones. At a high level, Qorvo is investing in core strengths to drive growth with differentiated products and technologies in diverse markets. We are also executing on cost and productivity initiatives to reduce capital intensity and structurally enhance gross margin. In ACG, we're investing to grow in our largest customer. In HPA, we're investing to grow in defense and aerospace and power management. In CSG, our growth investments are focused on automotive, next-gen Wi-Fi, and Matter and ultra-wideband SoCs. Qorvo solves our customers' most complex RF and power challenges related to efficiency, performance, and size, and we are confident in our ability to drive long-term growth and diversification. And with that, I'll turn the call over to Grant.

Thanks, Bob, and good afternoon, everyone. Revenue for the quarter was $1,047 million, representing an increase of 18% sequentially. Revenue exceeded the midpoint of our guidance range, driven by double-digit sequential growth in all three operating segments. Non-GAAP gross margin of 47% matched the high-end of our guidance range. Non-GAAP operating expenses in the quarter were $280 million, which included approximately $7 million of spend associated with our digital transformation. Non-GAAP diluted EPS of $1.88 came in above the midpoint of our guidance range. On the balance sheet, as of quarter end, we had over $1 billion of cash and equivalents and approximately $1.5 billion of long-term debt. There is approximately $412 million of our 2024 notes that remain outstanding, which we currently expect to retire this December. We ended the quarter with a net inventory balance of $694 million, the lowest balance in three years, reflecting our ongoing inventory reduction efforts. This represents a decrease of $32 million sequentially and over $145 million on a year-over-year basis. Turning to the cash flow statement, we generated operating cash flow of $128 million and capital expenditures of $33 million, resulting in free cash flow of $95 million. As a reminder, our CapEx spend will vary quarter-to-quarter and reflects 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 $81 million of stock at an average price of $110 per share in the quarter. The rate and pace of our share repurchases 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 ensures 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 $900 million, plus or minus $25 million. Non-GAAP gross margin of approximately 45% and non-GAAP diluted EPS between $1.10 and $1.30. In our updated outlook, we anticipate fiscal 2025 revenue to be slightly down compared to fiscal 2024, primarily due to two factors affecting our smartphone business. In the near-term, while the flagship and premium tier are holding up well, content and ramp profiles vary by model, and we are experiencing an unfavorable mix. Additionally, in the mass market segment of Android smartphones, the mix has shifted to entry-tier 5G devices at the expense of mid-tier 5G. These factors are expected to impact our revenue and margins in the second half of fiscal 2025 and into early fiscal 2026. In our current view, we do not expect the shift in Android mass market from mid-tier 5G to entry-tier 5G smartphones to reverse. As a result, we are taking appropriate actions, including reductions in manufacturing and operating expenses as we focus on opportunities that align with our long-term profitability objectives. We project non-GAAP operating expenses in the December quarter will be approximately $265 million, with variability related to the timing of program development spend, operating expense reductions, and other factors. According to our current schedule, spend associated with our digital transformation is expected to be approximately $15 million this quarter. We continue to expect approximately $40 million of related expense in fiscal '25 with quarterly variability related to the achievement of progress-based milestones and variability in the rate, pace, and scope of the project. Below the operating income line, non-operating expense is expected to be between $8 million and $10 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. We currently earn a higher rate of interest on our cash deposits than we pay on our 1.75% 2024 notes. Should we retire our 2024 notes in mid-December as expected, non-operating expense will increase in the March quarter by $3 million to $4 million over the current run rate due to this interest rate differential. Our non-GAAP tax rate for fiscal year 2025 is expected to be within a range of 10% to 12%. We project this will increase over time, primarily due to changes in tax legislation. With regards to operations, the Qorvo team continues to execute extremely well. On previous calls, we have highlighted multiple initiatives to drive continuous improvement in product development, semiconductor device design, process engineering, factory planning, and manufacturing efficiency. The transition to 8-inch BAW is a noteworthy example that unlocked effective capacity within the same factory footprint. Furthermore, we have reduced capital intensity through the divestment or consolidation of multiple production facilities, including our Beijing and Dezhou test and assembly locations and our fabs in Farmers Branch, Texas, and Apopka, Florida. To further optimize our internal factory footprint, we are transferring all gallium arsenide or gas production from our North Carolina fab to our Oregon fab. Currently, our North Carolina fab is a dual-use facility that manufactures wafers for both gas amplifiers and SAW filters. As we transfer gas production to Oregon, we are working closely with customers to manage end-of-life gas products built in North Carolina. Our North Carolina fab will continue to manufacture SAW filter wafers, including our latest LRT SAW technology. The transfer of our gas production to Oregon will make room for anticipated SAW filter growth in North Carolina. This is a further example of the proactive steps we are taking and continue to evaluate in order to streamline operations and improve gross margin. During the quarter, we made the decision to evaluate strategic alternatives for our silicon carbide business. Our highly experienced team has made considerable strides in advancing the JFET silicon carbide technology. We believe an owner who is strategically focused on this business and can leverage pre-existing sales and support overhead will be able to create more value with the asset. For Qorvo, exiting the silicon carbide market will allow us to reduce operating expenses and avoid the capital expenditures necessary to remain engaged. The business remains and will continue to remain included in our financial non-GAAP guidance until a definitive course of action has been determined. As we communicated at our Investor Day in June, Qorvo has multiple drivers of growth diversification and profitability. In terms of growth, we expect HPA and CSG to grow in the mid-teens this fiscal year. Beyond this fiscal year, we expect HPA and CSG will continue to benefit from the intersection of multiyear secular growth opportunities with our technology capabilities and product portfolios. By segment, our growth targets are strong double-digit growth for CSG, double-digit growth for HPA, and mid to high single-digit growth for ACG. In terms of diversification, our long-term objective is to generate 50% or more of total revenue from HPA plus CSG. In the September quarter, HPA plus CSG represented approximately 28% of total revenue. This was up sequentially and up from 23% in the same quarter last year. In terms of profitability, we continue to execute on the structural actions referenced earlier to improve gross margin in fiscal '26 and beyond. In the near-term, quarterly variability in gross margin reflects headwinds in the Android ecosystem as mix has shifted from the mid-tier to the entry tier. We remain actively engaged with our Android customers for highly integrated modules where they deliver the most value and differentiation. However, the shift from the mid-tier to the entry tier models where price sensitivity is higher, given competition from discrete solutions, is reducing the total addressable market and our revenue opportunity as we maintain price discipline in that subsegment. Although the underlying market for mass market 5G and Android is trending towards the more competitive entry tier, it is worth noting that flagship and premium tier smartphones represent the largest portion of our sand. For Qorvo, we expect this will pressure revenue, factory volumes, and utilization into next fiscal year. Partially offsetting this, we expect to see margin-accretive drivers such as strength in highly customized placements for flagship smartphones as well as D&A and other highly differentiated product areas that enhance our business mix. Lastly, we are executing well on structural adjustments to our manufacturing operations and taking actions to reduce operating expenses. In summary, we serve an expanding set of customers and in markets with highly differentiated solutions. We're actively deploying capital to drive growth, diversification, and increasing profitability as we are confident in our ability to deliver on the goals we laid out during our Investor Day. At this time, please open the line for questions. Thank you.

We will now begin the question-and-answer session. And the first question will come from Tom O'Malley with Barclays. Please go ahead.

Hey, guys. Good afternoon. Thanks, Bob and Grant for getting me on the call here. So I just wanted to dig into the commentary in the press release on the content and ramp profiles varying by model. You had some comments on Android later. So obviously maybe more associated with the large North American customer. Can you just kind of parse that out? Obviously, headed into the year, you had talked about a good content outlook. But does mix mean a shift in units more towards the low end? Does that mean RFFE that's lower? When I look at like the first three quarters of your fiscal year, it seems like you're trending down year-over-year pretty substantially. So just maybe help me walk through what's actually going on there?

Sure. Thanks, Tom. This is Grant. I'll address that. Looking at the entire year, as I mentioned in our formal comments, we anticipate fiscal '25 to experience a slight decline compared to fiscal '24, likely a few percentage points, very low single digits. This is due to the transition in Android 5G within the mass market and a shift towards entry-level products. Excluding the mass market, both the flagship and premium tiers are performing well, although we are seeing some negative trends in certain factors such as unit volumes, content per model, ramp profiles, and others. This situation is consistent across all of our customers in that segment. For our largest Android customer, revenue from their highest volume fall models has decreased compared to last year and is below the design wins we were anticipating in the spring launch. I feel confident regarding that particular handset. While there's not much detail we can share about our largest customer, we do expect a low single-digit revenue decline for the reasons I previously mentioned. However, looking ahead to next year, we remain optimistic about the range of opportunities available with our largest customer and are currently engaged in more programs than ever, investing to increase our content. We are competing for both established products and new placements.

Appreciate the color there. And then the second is just on the gross margin profile. So if you look at your December guidance, you just gave some OpEx in the commentary, so it implies kind of 44% and change on the gross margin side. You're talking about some manufacturing changes as well to help optimize the business given the lower volumes that you're seeing in the mix shift of Android. But could you maybe talk about the structural long-term path to kind of get back to the mid-40s or to the high 40s? How long is that going to take or do you think that structurally kind of for the foreseeable future, the 44% gross margin level is the right way to think about things or does it get worse given their manufacturing decisions?

In terms of our long-term view, no change to our guidance at the Investor Day around 50% plus long-term gross margins. So no change there. On gross margin in the December and March quarters and into early '26, fiscal '26, we do expect to see the headwind associated with that mix shift and the entry tier for those Android devices. It will cause the utilization and gross margin to come down a bit versus our prior comments. But we still expect fiscal Q1 to mark the low point in fiscal '25, and we will report a full year for fiscal '25 with margins in the mid-40s as you pointed out, somewhat comparable to last fiscal year, plus or minus. But I do maybe just quickly note that in the December quarter, year-over-year, our gross margin will be up on lower revenue. So it really substantiates the hard work we're doing to pull costs out.

The next question will come from Tim Arcuri with UBS. Please go ahead.

Hi. This is Aman jumping in for Tim. I just wanted to double-click on the December guide and your comments for revenue being down year-over-year. I mean is that always like the mix shift inside of Android or is something happening at your largest customer in the last couple of weeks or potentially to cut units?

Sure. No comments on customer specifics. But generally speaking, as we said, we expected the premium flagship tiers to be holding up well. The Android dynamic is having an impact on us as we intentionally pivot away from the entry tier areas that are more margin-compressed and focus ourselves on the higher tiers and the areas of the mid-tiers where we see the most value for us and our customers. So at least in terms of overall volumes, I wouldn't read it directional to any one particular customer.

This is Bob. I'll add to that. The CSG is also going to be down quarter-over-quarter. There are a few reasons for that. We can go into that later. I think that's also important to keep in mind. And historically, if you look at the last three years, we have been down in December just because of the profile of our largest customer.

Got it. And then in terms of the mix inside of Android, I mean does that change your longer-term growth targets for mobile moving forward like relative to what you provided at your Analyst Day?

As far as ACG goes, we're still sticking with our strong single-digit growth rate there. Grant had in his prepared remarks. So we don't see that affecting us long-term by any means. In fact, we gained confidence every day, it seems, that we're going to be able to grow that business while Android's declining, just to be clear.

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

Hi, sorry about that. So I know it might be a bit early to talk about March, but seasonality, you guys have traditionally been down, I think, 10% or 11%, something like that. And I'm a little conflicted here how to think about this. It seems like in one way, you're more reliant on your primary customer. So as we look out, how might this outlook compare to traditional seasonality as you view it today?

Sure. Thanks for the question, Chris. The big seasonal drivers, as you point out, are pretty well known. But usually, the impact of the seasonality can vary year-to-year. So we don't provide formal guidance out that far in advance. But for modeling purposes, you could assume that we'd be down in the, let's call it, 5% to 10% range sequentially, which would fit in with our total company commentary about being down very modestly for the full fiscal year. Directionally, we would expect ACG to be down more than that just given the seasonal dynamics there. But we should expect both HPA and CSG to be growing in the March quarter. In fact, HPA substantially. So we have, as Bob pointed out, some record design activity there. And in fact, we actually had record billings activity as well. So feeling comfortable about our HPA business heading into the end of the fiscal year.

Thank you for squaring that circle for me. And then if I heard it correctly with your footprint change, I believe, I heard that you were anticipating growth in SAW. I was wondering if you could flesh that out a little bit? And then how do we think about the dynamics for you guys SAW versus BAW opportunities moving forward?

This is Bob. Grant, I'll go ahead and take that. From a SAW perspective, as we talked about a couple of quarters ago that we released our next-generation SAW. And there are certain bands that are in the mid-band spectrum, if you will, where SAW performs quite well. That's our LRT SAW that is not a standard SAW or temp-comp SAW. So we see plenty of opportunities in that, whether it's in the transmit path or the dual on the TX DSM as an example on the secondary transmit. And for some opportunities, as we're seeing more and more people want Power Class 2 in some of the lower frequencies, it's another good technology there. So we just see many different sockets. Traditionally, when people think SAW, they think just the low band, we're seeing it now in the mid-band, high-band opportunities. Again, as you mix some of that mid frequency band, we see a couple of bands where it's absolutely the right technology.

Okay. So this sounds like it's SAW primarily for Android. Is that right, Bob?

It's available to any of our customers. Like I said, it's frequency dependent.

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

Thank you very much. You mentioned that we shouldn't read too much into the unit volume guidance for December, specifically regarding phones. This seems to suggest there may be an unexpected shift in content. Can you provide more details on that? Is that an accurate interpretation, or is the content as strong as you initially expected at the start of the year? You anticipated growth year-over-year in content, so is there something else affecting this? It would be helpful to get your insights on this.

Thanks for the question, Ed. I think the comment was a couple of quarters ago when we said we expected to grow slightly for the year. What's actually happened is primarily the Android is what's off from our expectations. That's what's off. Grant commented already a little bit about our largest Android customer for their spring launch. We did not do as well as what we had expected as in prior years, but we already know we're going to regain that back next year. So I feel good about that, but that definitely was a share loss that we weren't planning on. But also that whole dynamic that we've talked about, the mid-tier moving down and the pricing discipline that we're putting in intensely saying we're not going to chase this bad business. So that's been the shift over the last six months or so and it's really been accelerated over the last probably four months.

Just to clarify, Bob, in our largest Android customers, the second half models, where our content is lower. We expect to gain that back in the first half of next year.

Correct. Thank you. Right.

Right. Okay. So if we sit back, Bob, I'm trying to see strategically, I mean, when you were there during the GSM Day at GSM, the Wideband CDMA days in the early 2000s where it was kind of a zero-sum game because there just wasn't much content being added to phones. That all changed with 4G. And as we kind of expected when you first look at 5G, we're kind of turning to that model here where it's mostly a share shift. You're already seeing it just as you guys announced the day and we've seen it for some time that the Chinese are moving in that direction where they're taking value out of a lot of the phones. Samsung is clearly cut content in their flagships versus what they used to do two or three years ago. And now it sounds like competition in your largest customer has heated up significantly over the last couple of years. So, Bob, strategically, I mean, there's only so much you can do with the market that's kind of flattening out and modest growth here and there. What do you think you've got some great assets, especially in the defense side of the business? Is another area you can start engaging in or maybe pour more OpEx and R&D to try to make up for kind of just, I would say, a flagging handset business, which looks like it's going to continue for some time? Or I'm sorry to make this a paragraph-long question, but are we looking at, well, I mean it's clear from talking to the handset OEMs that in the next couple of years, once your largest customer gets their own modem involved that we're going to start moving into AI-enabled phones, which doesn't directly affect you, but it does kind of ancillary effect you in terms of the content is going to go up and the size is going to go down. Is that something that we can look forward to in driving more of your phone business?

Thank you for the question, Ed. There's a lot to discuss, so let me start with the big picture. Regarding competitors, our largest customer is largely due to our efforts. As Grant mentioned earlier, we're now focusing on sockets that we hadn't previously explored but believe we can now win. We aren't encountering new competitors; it's primarily the same ones. As you pointed out, we've already shifted our R&D budget in anticipation of a faster decline in some areas of our Android business than we originally expected. We are confident about retaining our largest customer. Concerning flagship phones, we still think we can provide the necessary technology to maintain good margins, which is why we're concentrating on flagship and premium products. Although there may not be an increase in RF content in some areas, there are still other RF opportunities we are pursuing. We've discussed terrestrial applications, but it's important to remember that more and improved RF is still essential. My comments on Power Class 2 indicate that a traditional SAW filter won't suffice, and we're increasingly seeing demand for Power Class 2. We still believe our technology has a valuable role to play. Regarding investments in other areas, we have indeed reallocated funds, particularly into D&A and power management. We exited the infrastructure market focusing on GaN for PAs because the available customer base has reduced from about 4.5 to 2.5, primarily Ericsson, Nokia, and a bit of Samsung. We've already redirected those R&D resources, and I want to share that our D&A division has outgrown our China Android-based cellular business. We are implementing some of the strategies you've mentioned and aim for double-digit growth in CSG and HPA this year. In CSG, we've invested in ultra-wideband and automotive technologies while continuing to maintain our share in Wi-Fi. Overall, we're optimistic about how we're reallocating funds, with growth starting from our largest customer and then expanding into our D&A and Power business, followed lastly by our CSG business. Thank you for the question, Ed.

Thank you.

Next question will come from Nicolas Doyle with Needham. Please go ahead.

Hey, guys. Thanks for taking my question. Just I guess a clarification on the entry segment of Android. Are you guys walking away entirely? Or I mean I'm thinking if Android is mixing down, you guys have talked about the LMH pad gain. So just wondering when that can start to offset. And also how long will the mix shift to entry phones be an overhang? Does it go away, does the overhang go away entirely? Or do you expect some stabilization at some point in calendar '25?

Thanks, Nick. This is Grant. Let me take the second part of your question and then I'll pass it over to Dave. At least in terms of the TAM, which I think you are hinting at, I believe it will be more like a reset and then we will grow from there. And as we communicated at Investor Day in that single-digit range, but call it a reset of maybe $1 billion approximately in the TAM, and we're seeing that in our fiscal Q3, Q4 and probably into Q1 of fiscal '26. And then from there, I think, we'll have readjusted rather intentionally via our pricing discipline, our position in the markets in some of the mid-tier. And as you pointed out, the LMH, which I'm sure Dave can talk more about. But it's very much an intentional move in order to prioritize profitability and focus on the customers where we're adding value, and they recognize and are willing to pay for those integrated modules to differentiate their phones. Dave?

Yes. So as far as that shift, as Grant mentioned, it's largely driven by the macro weakness and especially in China, but other markets as well where the consumer behavior has shifted. And so we're responding to that. And as it relates to the low, mid, high, we mentioned last quarter that we're just starting to ramp that. We now have design wins and POs with the top four OEMs in China. But our expectations now for that product family is that we will not participate especially in that entry tier, as Grant mentioned, with our pricing discipline. It's not a market that we plan to participate in. So we're going through a bit of a pocket, that pocket may be a little bit bigger as we transition from the old architecture to the new low, mid, high architecture, but also as we come out of the other side of it, our expectations now for that family of products is certainly lower than what it was due to the TAM reduction that Grant mentioned.

Thanks. And then my second question is on the OpEx. Could you just expand a little bit on the reductions? I know you mentioned a couple of things in the prepared remarks. But I guess how does that impact the line item near-term, I guess, down $15 million or so next quarter? And does that continue trending lower? Thanks.

Sure. On OpEx, our guide incorporates the reductions that reflect that change in the Android business. Resource allocation, as Bob was pointing out earlier, is an ongoing process, right? It allows us to focus on and shift dollars to the best investment areas that we have. And I think that will continue as we look forward in time and continue to develop the plans and target areas for our OpEx dollars going forward. I won't guide OpEx any further than the current quarter, but it is definitely an area that we're going to use to realign ourselves with the highest and best use of our resources.

Thank you.

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

Hi. Thanks for taking my question. I actually had two short-term and a long-term question. First one, Bob, on the short-term, over the next two quarters, when I look at your guidance relative to the consensus, it's like about $300 million below. How to think about it in buckets? How much of it is kind of related to the unfavorable mix in the content versus how much of it is related to weak volume ramp from your largest customer?

Sure. This is Grant. Let me take that one. We haven't broken it down specifically, but a significant part is due to the underutilization charges, which were around 170 basis points in the quarter. We expect that to increase by roughly 100 basis points into Q3 and Q4. If we add that back, it brings us closer to our 50% target. Additionally, some other structural changes we're implementing will reflect in the cost of goods sold. We mentioned transitioning to 8-inch BAW and relocating our gas capacity to Oregon; these changes will also contribute positively. As our product portfolio shifts, we anticipate a larger share of revenue from HPA and CSG, which should enhance margins due to the business mix. Several factors are at play, and they should all support our long-term goal of achieving a 50% gross margin. For context, regarding our Android business, China-based Android revenue is currently under $100 million and is projected to decline further in fiscal '26. Our exposure to this area has decreased significantly, with China-based Android revenue down over 75% from its peak, and overall Android revenue down 50% from its high. So, we've already seen a substantial reduction in our exposure. Moving forward, we aim to introduce more margin-enhancing revenue.

Got it. Thanks for that Grant. I think you kind of answered my next question which is the long term, which is kind of like about the 50% gross margin because it looks like some of the headwinds you are facing it, there are some cyclical content-related stuff. There's also some structural changes. So with the TAM reduction, et cetera, is it fair to assume restructuring plus focus on profitable opportunities is kind of what gets you to 50% or do you think there are other levers that you could pull?

It's a fair mix of both. I'd say it's the business mix exposure to HPA and then improving profitability in CSG and as well as a focus on profitability within the Android ecosystem, especially as we target some of the premium flagship and the upper end of the mid-tier where highly integrated devices and our gross margin is better.

Your next question will come from Peter Peng with JPMorgan. Please go ahead.

Good afternoon and thanks for taking my question. If I look at where consensus expectations versus the guidance for the ACG segment. It seems like it's about $400 million for Shortfall. Maybe if you can just bucket into the bucket that you described. How much of that is just a shift to the lower tier? How much of that is just different content and rental?

Thanks for the question, Peter. It's hard for us to bucket anything against analyst consensus because we don't model analyst consensus. So I don't have a good baseline to compare it to. As we look at it, a healthy portion of it is simply related to the models, mixes and associated volumes there as they impact Qorvo specifically. A large portion of it is related to our pricing discipline. And as we look into the second half, the trend toward the entry tier Android 5G, which has a, as I mentioned, $1 billion impact on TAM, and we have a meaningful market share there, call it, in the 20% to 30% plus market share. So it has a very meaningful impact on Qorvo specifically.

Got it. Okay. And then a follow-up is on your largest customer, does your content vary across the different SKUs or do you have a certain index over index exposure to certain SKUs?

This is Bob. I'll go ahead and take that one. It's obviously public if you've done teardowns. We have various content depending on the models and the SKUs and where they go, and that's continued through the year. So mix and models within the current year, the prior year, the year before that, that all gets into the mix and models that Grant was talking about. So yes, our content varies. It's not the same in every phone they make.

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

Yes. Thank you, gentlemen. I have a clarification question and a follow-on. I'll just ask at the same time if I may. What is the right way to think about the mix you have of mid-tier Android of that $100 million per quarter you're running at today? And the reason why I ask is I guess how much of the change in your outlook on China Android is driven by competitive dynamics from Chinese RFP vendors versus market demand dynamics shifting to different smartphone OEMs that you may not have exposure with today? Thank you.

Yes. This is Dave. Historically, we've been more concentrated in the high tiers and down to the mid-tier. And with the shift into the entry tier, that's obviously a headwind for us. So what was the second part of your question?

One other questions I think he was asking is a competitor where we don't play, maybe he is hitting at Huawei, I mean that's playing out as we expected.

Yes. I mean, Huawei is definitely playing out as expected. I mean they're on track for what we had projected earlier in the year to do about 45 million units. So I don't think that's meaningfully different than what we thought. The big change is with this shift into the entry tier and the competitive dynamics there as you go down in the tier, the discrete solutions become more prevalent. And the pricing environment, as Grant mentioned, is tougher there. So we don't tend to compete there. The other dynamic is our customers tend to outsource the lower-end phones to the OEM channel, which we don't traditionally participate in. Historically, that's been mostly 4G. We're seeing more and more of that is 5G entry tier phones as well. And so as they outsource those phones, that directly comes out of our available market.

Got it. Thank you.

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.

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 and have a great evening.

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