Earnings Call Transcript - QRVO Q4 2021

Douglas DeLieto, Vice President of Investor Relations

Thanks very much. Hello, everybody, and welcome to Qorvo's fiscal 2021 fourth quarter earnings conference 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 complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our website at qorvo.com under Investors. Joining us today are Bob Bruggeworth, President and CEO; Mark Murphy, Chief Financial Officer; James Klein, President of Qorvo's Infrastructure and Defense Products Group; and Eric Creviston, President of Qorvo's Mobile Products Group, as well as other members of Qorvo's management team. And with that, I'll turn it over to Bob.

Robert Bruggeworth, President and CEO

Thanks Doug, and welcome everyone. Qorvo concluded our fiscal 2021 with an exceptionally strong March quarter. Quarterly revenue, gross margin, and EPS exceeded our expectations. Our performance was largely driven by 5G smartphones and Wi-Fi 6 and 6E. Demand was widespread among customers, and design activity indicates continued strength in fiscal 2022, backed by long-term trends in wired and wireless connectivity markets. In smartphones, the shift to 5G is increasing the demand for higher value content. Device designs are becoming more complex, incorporating higher frequencies and wider bandwidths, with innovations like transmit in the diversity path, MIMO architectures, and new received paths featuring carrier aggregation. This trend is highlighting the value of Qorvo's unique semiconductor technologies and allowing us to offer an expanding range of products to industry leaders. For the calendar year 2021, we anticipate that 5G smartphones will double compared to last year. Within these devices, we expect the RF content to rise by $5 to $7 per phone when compared to 4G, including in the mid-tier. In March, Qorvo achieved record shipments of low, mid-high, and ultra-high band main path solutions and Wi-Fi 6E FEMs to leading Android OEMs. On the design front, we are continuing to grow our content opportunities with top Android OEMs by obtaining complete main path solutions and secondary transmit capabilities in the diversity path. In Ultra-Wideband, Qorvo was chosen by a leading consumer IoT products provider to integrate Ultra-Wideband into a wide range of connected home devices. More customers are seeking to integrate Ultra-Wideband into their products to capitalize on its superior location accuracy, security, and lower latency compared to other wireless technologies. Interest in Qorvo's Ultra-Wideband solutions remains strong, and we are seeing smartphones drive the expansion of an ecosystem of connected devices, which includes related peripherals, automobiles, and consumer and industrial IoT applications. Lastly, we are honored to have received the best quality award from Samsung, recognizing Qorvo's innovation and outstanding performance for their Galaxy product family. In IDP, Wi-Fi revenue, including Wi-Fi 6, reached record levels. The rate of Wi-Fi 6 adoption is outpacing that of Wi-Fi 5, and its rollout is expected to continue over multiple years across enterprise, retail, and service provider sectors. Qorvo is seeing strong attachment rates due to the performance advantages we offer in terms of range, efficiency, signal integrity, and form factor. Recently, we secured the entire bill of materials for a major U.S. MSO gateway. We also launched several 5 gigahertz iFEMs that provide improved band isolation and enhanced capacity and range in tri-band Wi-Fi 6 home mesh networks. In broadband, MSOs are enhancing downstream and upstream data capabilities by upgrading to DOCSIS 3.1 infrastructure. Throughout the quarter, we increased shipments of DOCSIS 3.1 GaN power amplifiers to major U.S. MSOs, delivering greater efficiency, longer range, and more bandwidth for maximizing data connectivity. In automotive, Qorvo has consistently supported the rising demand for in-vehicle infotainment. During this time, we have expanded our automotive portfolio and collaborated with customers to facilitate the shift to connected cars through cellular V2X technology. In the March quarter, these efforts led to our first production orders for cellular V2X front-end modules and BAW coexistence filters for leading European automotive OEMs. Notably, Qorvo's high-frequency BAW coexistence filters also enable simultaneous operation of cellular V2X and Wi-Fi. In programmable power management, customer demand has been strong, influenced by two trends. First, the transition to solid-state drives is ongoing, primarily in laptops and gaming consoles. During the quarter, Qorvo's programmable PMICs supported this transition through expanded shipments to new engagements with several leading solid-state drive providers. Second, the adoption of brushless DC electric motors is accelerating, improving efficiency across a variety of consumer products, including power tools and appliances. Qorvo increased shipments of motor control solutions this quarter to support multiple major consumer brands. In defense applications, the shift to higher frequencies, the use of phased array radar, and the growth of GaN are driving demand for Qorvo's products. For radar applications, we introduced a reconfigurable dual-band GaN power amplifier MMIC for the S and X bands, facilitating more compact next-generation radar systems. Notably, the successful landing of NASA’s JPL Mars Perseverance rover, located over 30 million miles away, was made possible thanks to our components integrated into the rover's descent radar. In infrastructure, we increased shipments during the quarter to a base station OEM in support of U.S. C-band massive MIMO deployments and secured initial design wins for similar deployments in Canada, Japan, and Korea. Qorvo has decades of expertise in wireless infrastructure, and we are capitalizing on our full range of GaN power and small signal products to assist OEMs in upcoming 5G deployments. Our customer relationships are robust, we are investing in key enabling technologies, and design activity is strong. We see significant opportunities in global 5G infrastructure over the next four to five years as deployments grow. After the quarter ended, we received an emergency use authorization from the FDA for the Omnia COVID-19 rapid antigen test, which utilizes high-frequency BAW sensors for enhanced sensitivity and accuracy. Qorvo began working on BAW sensors for diagnostic test solutions in 2013, similar to how we harnessed our BAW filters for superior frequency selectivity in RF applications. With the FDA authorization now in hand, we are preparing to scale production to assist public health efforts. Additionally, Qorvo was awarded a contract with the National Institutes of Health through the Rapid Acceleration of Diagnostics initiative, which includes $24 million from the Biological Advanced Research and Development Authority to facilitate the production and market launch of our Omnia diagnostic test platform. After the quarter, Qorvo also acquired NextInput, a leader in the emerging force-sensing solutions market for future human-machine interfaces. NextInput will join our mobile products division, providing MEMS-based sensors and innovative products for customers in current and new markets. They have shipped tens of millions of MEMS-based sensor solutions to major manufacturers of smartphones, wearables, automobiles, and other applications. We see many opportunities for their solutions to enhance or replace capacitive touch and mechanical buttons with smaller, more reliable, and airtight solutions suitable for any surface, including glass, polycarbonate, aluminum, and carbon fiber. We welcome the NextInput team to Qorvo and are excited to broaden our technology portfolio and accelerate the rollout of this technology to our extensive customer base and new markets. Before turning the call over to Mark, I want to express my gratitude to the entire Qorvo team for their dedication to our customers and keeping the world connected. Qorvo is fostering multi-year upgrade cycles in existing markets and introducing transformative technologies like Ultra-Wideband, RF-based biotechnology testing, and MEMS-based solutions. We anticipate strong demand across end markets for our products and another year of solid financial performance. Now, I’ll hand the call over to Mark.

Mark Murphy, CFO

Thanks, Bob and good afternoon, everyone. Qorvo's revenue for the fiscal 2021 fourth quarter was $1.073 billion, $33 million above the midpoint of our guidance and up 36% or $285 million versus last year. Mobile Products revenue of $808 million was up 45% year-over-year on the growth of higher content 5G smartphones. Infrastructure and Defense Products revenue of $265 million was up 14% versus last year, led principally by robust Wi-Fi demand. In the fourth quarter of fiscal 2021, we delivered our third consecutive quarter of gross margin over 50%. Non-GAAP gross margin was 52.6% and above our guidance as less favorable mix was more than offset by better-than-expected price, manufacturing costs, and inventory charges. Non-GAAP operating expenses in the fourth quarter were $207 million or 19.3% of sales and in line with expectations. Sequential and year-over-year increases in OpEx were driven by technology and product development expenses associated with recent acquisitions and other key growth programs. Non-GAAP net income in the fourth quarter was $315 million, and diluted earnings per share of $2.74 was $0.32 above the midpoint of our guidance. Cash flow from operations in the fourth quarter was $403 million and CapEx was $77 million, in line with our expectations. CapEx for the year was $187 million and below 5% of sales. During the quarter free cash flow was $325 million, and we repurchased $175 million of shares. On the balance sheet, cash increased to $1.4 billion and debt remained unchanged at approximately $1.7 billion. Our leverage remains low. Our revolver is untapped, and we have no material near-term maturities. In April, S&P upgraded our credit rating to investment grade, reflecting the steps we've taken to profitably grow the business and maintain a strong balance sheet. Before turning to the outlook, I will comment briefly on the past year. Qorvo's full year fiscal 2021 performance realized what was envisioned at the time of the merger, to create an enterprise that's able to serve customers' technology and product needs when connectivity trends accelerated and as product performance requirements increased. Qorvo's commitment to R&D, active portfolio management, sustained productivity, and capital discipline positioned us to serve our customers' needs, expand supply chain partner opportunities, and improve financial results. In fiscal 2021, Qorvo delivered revenue over $4 billion; non-GAAP gross margin over 52%; non-GAAP operating margin over 32%; and free cash flow over $1.1 billion. Qorvo's free cash flow has increased five-fold over the past four years. We are committed to build on this and are investing and executing to do so. Now, turning to our current quarter outlook. We expect revenue between $1.065 billion and $1.095 billion. Non-GAAP gross margin of approximately 50%. Non-GAAP diluted earnings per share of $2.45 in the midpoint of our guidance. Our June quarter revenue outlook reflects sustained and broad-based customer demand driven by multi-year technology upgrade cycles. In mobile, demand for 5G is adding RF complexity and driving higher content. We forecast mobile revenue in the current quarter to be approximately $810 million at the midpoint or up 73% year-over-year. In IDP, we project revenue of approximately $270 million in the current quarter, sustained by Wi-Fi 6 demand and other markets. Our June quarter gross margin guide is approximately 50%, reflecting seasonal patterns and less favorable mix. That is up 140 basis points versus last year on higher volumes, active portfolio management, and pricing, and continuous productivity efforts. We expect our June quarter gross margin to be the lowest gross margin quarter of the year. Non-GAAP operating expenses are projected to increase in the June quarter to around $214 million, on added labor and other development expenses associated with recent acquisitions and key growth programs. At the midpoint of our June quarter guidance, operating margin is forecast to be over 30% for the fourth consecutive quarter. We project our current quarter and full year non-GAAP tax rate to be between 9% and 10%. Capital expenditures will remain around $70 million in the June quarter, as we work to intersect projected demand and support long-term supply agreements with multiple customers. For our full year fiscal 2022, we forecast approximately 15% revenue growth on an increase in smartphone volumes in the range of 5% to 10%, a doubling of 5G handsets, sustained Wi-Fi demand, and growth in other markets, including power management and defense. We project the full year gross margin to be approximately 52%. We expect OpEx to increase sequentially through the year and remain below 20% of sales for the full year. This level of OpEx is in line with what we laid out years ago and supports Qorvo's ongoing product and technology leadership in existing markets, while funding investment in newer areas, such as UWB, biosensors, power management, and MEMS. We forecast other expenses to drop slightly on lower interest expense but remain above $60 million. We see CapEx around 5% of sales. So, up on an absolute basis, as we add capacity to intersect known and high-confidence opportunities. We expect free cash flow to grow year-over-year modestly due to slightly higher CapEx and working capital build. Based on our strong free cash flow performance in fiscal year 2021 and our fiscal year 2022 outlook, along with our substantial balance sheet capacity and other factors, the Board of Directors has authorized a $2 billion share repurchase program. Amidst the pandemic, the Qorvo team executed well in serving customers and advancing technologies critical to a more connected world. Entering fiscal 2022, we are well-positioned to continue delivering premium technology to an expanding set of customers in 5G, Wi-Fi, IoT, defense, power management, and other markets. In closing, I'd like to join Bob in thanking Qorvo employees again for their contributions over this past year. Now, I'll turn the call back over to the operator for questions.

Operator, Operator

Thank you. We'll take our first question from Blayne Curtis of Barclays.

Blayne Curtis, Analyst

My question is about IDP. You highlighted several positive drivers, but the business seems somewhat flat at this point. I'm curious if there are any areas that are trending negatively for you. Also, do you anticipate that this will change as you progress through fiscal 2022?

James Klein, President of Infrastructure and Defense Products Group

Yeah. Thanks, Blayne. I mean, we certainly have had a great positive year as we exited the year and grew 38%, mainly driven by really strong demand in wireless infrastructure. But also a great year in Wi-Fi with consecutive double-digit growth quarters, and both defense and power management also having really strong years. So, I'm really pleased with the results of our fiscal 2021. We've been pretty public about the slowdown in the wireless infrastructure business in the back half of last year. And we certainly see that continuing as we go through the first half of this year. We think it will start to pick up in the back half of next year, as deployments in China start. And then certainly we expect C-band to start to rollout in the United States, as we get into the back half of the year. So, overall, I would expect base station to start to pick up a bit, but I think if you look at full year for IDP base station will actually probably be down a bit and we'll see significant growth in some of the other markets.

Blayne Curtis, Analyst

Thanks. So maybe just a follow-up to that. In the market, the fiscal outlook to the top line, do you think IDP can grow this fiscal year?

Mark Murphy, CFO

Sure, Blayne, I'll address that. Based on the guidance I provided, we anticipate IDP to grow, though it will be at the lower end of the typical range that James experiences, which is between 10% and 15% annually. Given the factors James highlighted, we expect to see slower infrastructure development in the first half of the year. However, we believe it will improve in the second half. Additionally, in his business, there are excellent opportunities in Wi-Fi, and power management is showing strong growth. The defense sector remains robust and sustainable, so we have a promising year ahead for his business.

Blayne Curtis, Analyst

Thanks. Appreciate it.

Robert Bruggeworth, President and CEO

Thanks, Blayne.

Operator, Operator

Thank you. And we will take our next question from Bill Peterson of JPMorgan.

Bill Peterson, Analyst

Nice job in that quarterly execution and guide and thanks for giving the color on the full year. I just wanted to come back to infrastructure. It sounds like most of this may be more related to the market delay, timing, maybe perhaps of China build outs. But I guess, just try to understand, the competitors of your business, just really bad. It's just a delay in the market, or is it mixed as it relates to more macro versus massive MIMO, any color you can give on why we're sort of slow to start at the gate in infrastructure?

James Klein, President of Infrastructure and Defense Products Group

Yeah. Thanks, Bill. I mean, definitely, the market has slowed down. I think it's been pretty public across many of our customers and our competitors, as we've seen these deployments and tenders delay in China. The other thing that's happened a bit is mix. And again, we've talked about that over the last couple of quarters as the mix has shifted a little bit from 64 element array to more macro-based stations and more 32 element array. Now that said, I am very happy with the portfolio that we have. We continue to invest in the technology, in both in the GaN side for power and in the small signal side. So, I'm happy where we are and I think we continue to make progress there. And we're in the very early stages. So, this is just beginning. We've had one year in China. We're just starting really in the U.S. and the rest of the world. So, this is going to be a multi-year trend. I think we're positioned very, very well with the portfolio we have. And, of course, we're obviously not going to sit still, we're going to continue to drive that business forward and invest in technology and make sure that we're able to do what we did last year with the early rollouts in China.

Bill Peterson, Analyst

Thanks for that. Eric, it seems that the mobile growth is expected to exceed 50%, although James came in a bit lower. Within that growth outlook, where do you anticipate the most growth will come from? Is it from the recent main path wins in the Android market? Or will it be due to increased adoption of dual transmit and UWB technology? What do you see as the primary drivers of growth for your business this fiscal year, at a high level?

Eric Creviston, President of Mobile Products Group

Certainly, in the near term, our full main path solutions are gaining substantial traction, which brings significant dollar content. As we look to the future with new bands emerging, the complexity around antennas is also increasing, requiring more tuning and multiplexing. This remains a robust market for us, along with Wi-Fi. The rollout of Wi-Fi 6E has been successful, contributing to one of the fastest growth rates among all our product groups. There is considerable excitement around UWB, with lots of design activities happening across various sectors. We recently announced a significant design in the consumer IoT space, which is expected to drive growth in the second half of the year. While it may not be a major contributor now due to its scale, it will play a larger role as we move towards the end of the year.

Bill Peterson, Analyst

Thanks for that.

Operator, Operator

Thank you. And we'll take our next question from Karl Ackerman of Cowen.

Karl Ackerman, Analyst

Yes. Thank you, gentlemen. Mark, if I could start with you first. I think your prior directional outlook for June contemplated supply constraints, and it would seem that supply constraints were lower than you anticipated between you and China handset OEMs. Is there a way to quantify the amount of revenue that may be pushed into the second half of this calendar year, given the supply constraints you've seen so far today?

Mark Murphy, CFO

I'm not going to provide any further updates to the current guidance. This represents our best assessment, taking into account the limitations we have and what we believe we can achieve while collaborating with customers. In the fourth quarter, we benefited from the exceptional efforts of our operations team and our collaboration with customers to accelerate product delivery. We successfully increased both production and delivery of products. This was reflected in various ways, including improved absorption rates, better pricing, and lower-than-expected inventory charges. There were several positives in the fourth quarter that demonstrated our effectiveness in serving the market and working closely with our customers. This gives us great confidence for the upcoming quarters, as demand remains strong, which is why I felt secure in providing a preliminary full-year outlook. We will continue with our current approach, closely managing our inventories and monitoring the market. Both of these aspects are healthy, and customer behavior indicates strong long-term demand, with a desire for closer partnerships with us.

Karl Ackerman, Analyst

I appreciate that. As a follow-up, you mentioned the full year outlook for fiscal 2022 and I value that insight. You also highlighted the expanding opportunity in mobile for fiscal 2022 regarding main path solutions. In this context, during the last call, you mentioned that your cost basis on integrated modules isn't where you want it to be currently. I was hoping you could share any progress made on enhancing factory efficiencies or outsourcing initiatives that might lead to improved yields as we anticipate moving towards sustaining mid to low to mid-50s gross margins. Thank you.

Mark Murphy, CFO

I understand that the question is about how we plan to maintain our margins. First, it's important to recognize that this is a complex issue involving many factors that influence gross margin. To start, our guidance for fiscal 2022 suggests that we can maintain our margins. In fiscal year 2021, we increased our gross margin by over 400 basis points compared to fiscal year 2020, which is a positive sign. However, some challenges will arise in 2022 that we didn't face in 2021. For instance, the current pricing environment is quite strong, but we expect it to ease slightly while remaining healthy. We also anticipate that our inventory charges will return to normal levels. It's essential to acknowledge how challenging our work is. There are still many positive factors that can help us counterbalance any negatives in fiscal 2022. We are focused on enhancing productivity and managing our portfolio effectively. We have room for investment, and we will keep our utilization rates high. We believe we can sustain our margins at these levels, and over time, we aim to expand them further. Our commitment to technology positions us to handle the most challenging aspects of our work, where our value is recognized. We are achieving record productivity levels and will remain cautious about capital expenditures. We are optimistic about future opportunities.

Operator, Operator

Thank you. And we'll take our next question from Craig Hettenbach of Morgan Stanley.

Craig Hettenbach, Analyst

Yes, thank you. I would like to follow up on Ultra-Wideband. Can you discuss the extent of design activity? Additionally, is there a way to estimate a reasonable revenue target for that technology over the next year or two?

Eric Creviston, President of Mobile Products Group

Sure, Craig. This is Eric. The design activity is extensive. We're pleased to have completed the 7Hugs acquisition, which has allowed us to utilize a comprehensive software stack across a wide range of applications. We're collaborating with several mobile handset providers to take advantage of that channel. Additionally, we’re engaging with consumer IoT devices and automotive applications, as well as various industrial IoT applications related to robotics, augmented reality, virtual reality, and indoor navigation. The scope of our work is quite broad. The team has done an excellent job focusing on a unified hardware and software stack with minimal variations, resulting in impressive productivity across numerous verticals. As for the outlook, we previously mentioned that we believe this could grow into a couple hundred million dollar revenue business within a few years, and that perspective remains unchanged. We're very enthusiastic about the opportunities this presents.

Craig Hettenbach, Analyst

Great. As a follow-up for James, how can we achieve growth in IDP at the lower end of the 10% to 15% range, especially with approximately a quarter of the business impacted? You've mentioned aspects like Wi-Fi strength and programmable power, but are there any other factors contributing to this growth to meet the 10% target, despite the challenges from infrastructure?

James Klein, President of Infrastructure and Defense Products Group

Yeah. And I'll lead off with those ones that we spoke about. I mean, we're seeing very strong demand in Wi-Fi 6. And Mark and Bob both had hit that in their prepared remarks. And so, we've got a performance advantage there. And I think customers are seeing that and we've been able to scale that business very significantly. On top of that, we've got 6E just coming right on the heels of Wi-Fi 6. And so, we're releasing products into 6E, and we also have our first production orders in 6E. So that'll contain the sort of layer on growth there. Power management, great trends there. It continues to grow and well up into the double digits. And that has done that quarter after quarter. So, it’d been a very nice acquisition for us as a company. And defense as well, we've got, again, nice trends inside the defense business. Now, on top of that, the automotive business is really starting to kick in, as we go into this year. And cable TV has also started to grow broadband business, because of deployment of DOCSIS 3.1. So, a lot of growth drivers that we have inside the business. As you said, diversification is working for us. It's helping us offset some of the market challenges that we're seeing with the rollout of infrastructure in China.

Operator, Operator

Thank you. And we'll move to our next question from Vivek Arya of Bank of America.

Vivek Arya, Analyst

Thanks for taking my question. For my first question, very impressive performance on the gross margin side for the last two quarters. Almost, right, you beat expectations by almost 200 basis points. But now when I look at your June guide, you're essentially guiding the flattish mobile and IDP sales. So, Mark, I'm curious, what specifically about mix will drive gross margins down by 250 basis points? Then, what I would really like to understand is why is there so much variability between your initial outlook versus, right, what you have reported? Then, should we assume your gross margin outlook this time is also conservative like it has been in the last two quarters?

Mark Murphy, CFO

I believe we do our best to predict a very complex business. Our track record in meeting commitments over the past 17 quarters, although subject to interpretation due to an incident with the hurricane in Florida, demonstrates our capability. Our focus is on providing accurate forecasts and fulfilling our commitments. While there may be arguments that we are slightly overestimating, I’m confident that we have control over the situation and can continue to enhance the business as we understand current conditions. It’s clear that our efforts have resulted in improved performance, particularly over the past year, with stable gross margins before that. Our investments in research and development, effective portfolio management, and reduced capital intensity are yielding positive results. We are committed to growing the business in the right areas, managing costs, and strategically choosing where to compete to deliver the best value to our customers. We anticipate that our variability will decrease over time. Regarding the June quarter, we are expecting a decline, and I had mentioned that we would be down in the 49s, with consistent drivers. We expect prices to ease somewhat in the upcoming quarter, we’ll face some impacts from product mix, and we shouldn’t anticipate repeating the favorable conditions from the March quarter—like optimal factory absorption and certain inventory effects—that may not occur again. This accounts for the sequential decrease. To conclude, this is still an improvement compared to the softer guidance I provided previously. Our perspective for the quarter has actually improved; we’re achieving higher productivity and slightly better pricing than anticipated due to a firm market. Therefore, we’re pleased to provide guidance at the 50% level and are confident in this outcome.

Vivek Arya, Analyst

Thanks a lot. Very helpful. And my follow-up for Bob or Eric, is when I look at the implied guidance on the mobile side for the next fiscal year, right, like 17%, 18% or so year-on-year, given you want to grow double-digit in IDP. That suggests about the same growth or somewhat of a deceleration from last year. And given the doubling of 5G smartphones, I'm curious, why can't you grow faster in mobile? And the real underlying question, and that is, what are your views about the competitive landscape because of the industry so supply constraint? I'm surprised to hear you talk about loosening of price, unless you think something about the competitive landscape could change. So, just give us some more color about the competitive landscape? And why you think pricing would start to loosen up if the industry is so supply constrained right now? Thank you.

Eric Creviston, President of Mobile Products Group

Vivek, this is Eric. I'll address that. First, regarding growth, we're seeing 5G double year-over-year, with an additional 250 million phones added this year on top of the 250 from last year. Therefore, the growth rate remains about the same. We're confident in sustaining this level of growth, which is a positive sign. We also have additional growth drivers coming in. As we start the year, we are adopting a cautious outlook, but it still serves as a solid guide for the year. As for pricing, Mark mentioned that we have maintained very strong pricing in the March quarter, with the market remaining extremely tight. We will continue to push pricing while preserving our relationships and the strength of our designs. Mark noted that long-term agreements with customers are starting to materialize, which benefits both us and them. Overall, we are in a very favorable environment for building a profitable long-term business that also aids our customers in making considerable profits through advanced technologies. Thus, we're optimistic about the current situation and are not suggesting any immediate weakening in pricing.

Robert Bruggeworth, President and CEO

The only thing I'd add, Vivek, is if you look at some of the other companies that do play in our space and see what they've guided quarter-over-quarter. I think we're starting out on a much stronger foot than they are. And we'll see how well we deal with the constraints that both Mark and Eric have talked about, and we'll see how much of that we can capture. I also think one of the few they're gaining some year outlook as well. I'll leave it at that. Thank you.

Operator, Operator

Thank you. And we'll take our next question from Gary Mobley of Wells Fargo.

Gary Mobley, Analyst

Hey, everyone. Thanks for taking my question. I wanted to ask about the Wi-Fi 6 and Wi-Fi 6E product cycles. You mentioned, I believe a minute ago, double-digit percent sequential increases as you finished up the second half of the fiscal year. And you mentioned as well Wi-Fi 6E just really starting to ramp up now. So, my question to you, James, is, how material now is this Wi-Fi 6 and Wi-Fi 6E product cycle maybe measured in absolute dollar terms, percentage of IDP revenue, or how it ranks relative to prior Wi-Fi cycles?

James Klein, President of Infrastructure and Defense Products Group

I'm not going to reduce the revenue expectations for individual areas. However, I want to emphasize that we are still in the early stages. Mark mentioned this as well. We've observed around 15% adoption in Wi-Fi 6 and are just beginning with 6E. I believe the growth rates we are discussing will continue to accelerate as we progress through the adoption phase. It will likely take another three or four years for Wi-Fi 6 to fully develop, and we are already making strides with Wi-Fi 7. This business has strong potential for ongoing growth. Regarding the overall size of IDP, I have expressed before how much I value the diversification of the business. There will be some fluctuations, but the guidance I provide suggests that each part of the business is about a quarter of the overall size. Over a long period, it tends to remain within that range.

Gary Mobley, Analyst

Okay. Appreciate that, James. My follow-up for Mark. I appreciate the fact you haven't filed your 10-K yet. But can you share with us the specifics on any greater than 10% customers for the year?

Mark Murphy, CFO

Yeah. Gary, I would just say that we normally don't give much detail on that. And you'll see the full year numbers in the K. We had one full year, as we look at it now. We had a number of 10% customers in the fourth quarter. And another one that was actually very close and approaching 10%. So, very good diversified revenue in the quarter.

Operator, Operator

Thank you. And we will take our next question from Edward Snyder of Charter Equity Research.

Edward Snyder, Analyst

James, China is transitioning from MIMO, which was developed for urban areas, to focusing on suburban, rural, and macro environments. Given this shift, why should we expect a rebound in demand for GaN that resembles the original levels, considering you are moving from 64 to much smaller macro cells? Additionally, the Chinese development is driven by industrial policy supported by the government, whereas the U.S. lacks a similar approach. U.S. carriers have demonstrated return on investment for their buildouts, raising questions about how many MIMO stations will actually be deployed, especially when the performance gains are modest compared to the significantly higher costs involved. I understand that growth is slowing, as you've indicated and it's currently happening. However, as we look toward the end of this year, what gives you confidence that we will see a substantial rebound in demand, whether in China or with C-band in the United States? Is the focus mainly on MIMO, or is it inclusive of broader build-out efforts? Thanks, and I have a follow-up.

James Klein, President of Infrastructure and Defense Products Group

Thank you, Ed. We did not mention a significant rebound; instead, we indicated that acceleration would begin in the latter half of the year as U.S. deployments increase. Overall, I believe the market will decline slightly this year, factoring in U.S. deployments, customer configurations, and deployments in China and globally. However, there remains a substantial number of base stations yet to be deployed, and China's deployments in the initial year were relatively low. As we progress through this five-year deployment, I anticipate considerable content increases for us. It's important to remember that during the 4G era, a 64-element array represented about a tenfold content increase for us, while a 32-element array was slightly more than half of that. These are significant content opportunities for our business, making this primarily a content-driven narrative. As global deployments unfold, our growth business will continue, particularly with GaN as a new technology. Unlike during the 4G phase, where we couldn't access power amplifiers, we now have excellent products and technology to engage this entire segment.

Edward Snyder, Analyst

Great. Eric, you have previously indicated that you would enter the transmit diversity market when it made sense for your filter business, especially concerning BAW, and it seems you have done that, congratulations. But does this restrict your options? For instance, is this akin to the n77 Wi-Fi combination for coexistence, or are all the additional bands available for your solutions? Are you selective in your approach? Additionally, regarding Ultra-Wideband, it increasingly appears that Apple has developed its own solution for its phones while NXP is capturing much of the handset market in the Android sector. Is it reasonable to conclude that Decawave will primarily concentrate on the IoT side of things, dealing with devices that connect to handsets? Aside from Google, should we anticipate your involvement in the Android handset market with UWB? Thank you.

Eric Creviston, President of Mobile Products Group

Sure. I'll address those points one by one. Starting with the transmit diversity path, this area is growing rapidly for us, as we predicted. Currently, our offerings are somewhat limited to the content available today, which consists of relatively specific placements. Moving forward, we anticipate seeing more complete dual connect modules transitioning from the upper tier downwards. These modules will provide both the transmission and reception paths for the frequencies they operate on, which span the mid and high band ranges. This presents a significant opportunity for growth. We plan to enhance this category with more filters and integration, utilizing our best GaA PAs along with everything available in the main path. This is an exciting new segment for us, supported by increased bandwidth in uplink connections and the drive to enhance video transmission and data rates, which we have been discussing for years. Regarding Ultra-Wideband, I acknowledge that the association with NXP is primarily a legacy perspective. Decawave was not in a position to effectively target the mobile market, thus leading to their decisions under Qorvo. We are directly aiming at the mobile market, especially within Android. While Apple is pursuing its own solution, we expect to play a significant role in production within the Android ecosystem, covering everything from accessories to the mobile devices themselves. We believe there is no aspect of the UWB ecosystem that we cannot and are not addressing.

Operator, Operator

Thank you. And we will take our next question from Toshiya Hari of Goldman Sachs.

Toshiya Hari, Analyst

Hi, guys. Thanks so much for taking the question and congrats on the strong results. Mark or maybe Eric, I had a multi-part question on long-term supply agreements. You both spoke to this in your prepared remarks. But curious, are you signing long-term agreements, both in mobile and IDP, or is it primarily IDP? I guess that's part one. Then part two, just for context, roughly what percentage of your future revenue will be tied to long-term supply agreements? Are we talking 5%, 10%? Is it 25%? Just a rough a ballpark number would be helpful. And then I guess most importantly, how should we think about the level of commitment on the part of your customers in terms of both volume and pricing? And I asked the question because historically, maybe not specific to Qorvo, but in the industry broadly, the suppliers would have to be committed to a long-term agreement, but the customer always has the flexibility to push or cancel purchases. So, just curious how the contracts are constructed. Thank you.

Mark Murphy, CFO

Maybe I could start and then Eric or Bob can take over. First of all, I don't believe we want to provide a percentage number at this moment because there are many factors in progress, and a lot has been accomplished while much remains to be done. Therefore, any figure we provide would likely change and isn’t practical to give right now. The second thing I want to point out is that the specifics of the agreements we establish will influence the amount of investment we make and shape our capital expenditures decisions. This ties into Vivek's earlier question regarding gross margin and our plans moving forward. We are focusing on securing deals that benefit our customers while ensuring stability in our business, allowing us to make investments for them. I'll leave it at that for now. Eric or Bob…

Robert Bruggeworth, President and CEO

The only thing I would add, Toshiya, there for both business units and to Mark's point they're growing. And clearly, there are a lot more confidence in the outlook because of them than we had in any of the years before. We did have some smaller long-term agreements, but it is a growing part of our portfolio. And we think it's a very good thing and so too to our customers. I think that's the really important part as Mark pointed out.

Toshiya Hari, Analyst

That's great. And then a quick follow-up, a simple one on NextInput. You guys talked about the rationale in your prepared remarks. I think that was pretty clear. But can you speak to some of the financial implications, how much we're paying, the revenue accretion, the margin profile, vis-à-vis the corporate average. Thank you.

Mark Murphy, CFO

Yes, Toshiya, regarding the financial details, there will be a subsequent event note in the K, indicating an amount over $150 million, closer to $175 million. You'll find that information in the K as a subsequent event. The impact will be noticeable rather quickly, within the first few quarters of our ownership. The gross margin profile is favorable for the company, but the operating margins are weaker due to operating expenses. However, we are enthusiastic about this business and plan to invest heavily in it.

Operator, Operator

Thank you. And we will take our next question from Chris Caso of Raymond James.

Chris Caso, Analyst

Thank you. My question is regarding the seasonality in the mobile business based on your guidance. It seems that the seasonality is less pronounced than in previous years. Is my understanding correct? If so, what factors contribute to this? Could it be related to the nature of your business, or perhaps the geographic differences compared to the past? Was some business advanced into the first half of the year? Could you provide more details on this?

Eric Creviston, President of Mobile Products Group

Yeah. This is Eric. I'll be happy to talk to that. I mean, the fact is we are in a supply constrained environment. So, customers would be happy to get more potentially, but we're working through our supply chain and growing its capabilities throughout the year. And so, it's not a typical demand profile that you might see. This is really a function of how much we can get out right now.

Mark Murphy, CFO

I want to discuss the full year guidance I provided. This is an initial overview, and the first half is clearer than the latter part. There are many positive factors for the year—demand remains strong, and we are facing more supply constraints. Additionally, the growth drivers for the business are stable, although we have noted some near-term challenges with infrastructure. The economic recovery is in progress, though we are aware of how quickly situations can change. We also have some supply chain risks that we are managing effectively but must acknowledge. I want to emphasize this point in our initial assessment. Regarding the guidance, I want to provide some details. The September quarter looks solid, and we expect revenue to increase by around $50 million sequentially compared to our June projections. We anticipate gross margin to rise to between 51% and 52%, which is an increase of 100 to 150 basis points, likely closer to 150 basis points. Lastly, we expect operating expenses to increase by about $10 million sequentially, due to salary increases, the addition of NextInput, and heightened investments in our growth prospects and recent acquisitions. We will provide further updates during the quarter and at our next earnings call.

Chris Caso, Analyst

I'm glad we were able to get in before the call ended. As a follow-up, it seems that supply constraints may impact revenue as the year progresses. Could you provide some insight into the timing and extent of how we can increase supply? The challenge appears to be ensuring that supply aligns with your customers' launch schedules.

Robert Bruggeworth, President and CEO

Chris, this is Bob. It's certainly challenging to define that. We've provided a solid overview. As Mark has indicated regarding the year, it is dynamic. We spend considerable time with our customers to help them navigate their constraints to finalize their bill of materials. There is significant fluctuation in our business as they determine what they can source from different suppliers. We adapt, but our capabilities are influenced by various factors in the market. Providing a precise financial estimate wouldn’t be very useful, as increased production might not align with demand if customers can get supplies elsewhere. We've shared what we consider a constrained view of our potential capabilities and customer support. We maintain almost daily communication with them, which gives me confidence in the positive outlook that Mark has shared.

Mark Murphy, CFO

Just one correction, Chris. I made a mistake and want to clarify for the upcoming calls. Our actual sequential increase will be between 100 and 150, going from June to September, not 50 as I previously mentioned. I apologize for that and hope this clears things up.

Operator, Operator

Thank you. And this concludes today's question-and-answer session. I would now like to turn it over to management for any closing remarks.

Robert Bruggeworth, President and CEO

Thank you for joining us this evening. Qorvo will be presenting at multiple Investor Conferences in the coming weeks, and we invite you to listen in. Thanks again, and have a good night.

Operator, Operator

Thank you, ladies and gentlemen for your participation in today's teleconference. You may now disconnect.