Good afternoon and welcome to Skyworks Solutions First Quarter Fiscal Year 2020 Earnings Call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, Investor Relations for Skyworks. Mr. Haws, please go ahead.

Thank you, Rob. Good afternoon everyone and welcome to Skyworks' first fiscal quarter 2020 conference call. With me on the call today are Liam Griffin, our President and Chief Executive Officer, and Kris Sennesael, our Chief Financial Officer. Before we begin, I would like to remind everyone that our discussion will include statements related to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our Annual Report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our Company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Liam.

Thanks, Mitch and welcome everyone. Skyworks exceeded December quarter expectations, driven by a global demand for high-performance connectivity solutions. As our results demonstrate, Skyworks is leveraging decades of experience, scale and vertical integration capabilities along with our highly advanced Sky5 platform, accelerating the adoption of 5G technology across a broadening set of end markets and customers. Now looking at the first quarter in more detail. We grew revenues by 8% sequentially to $896 million, produced a gross margin of 50.1% and an operating margin of 35.2%. We posted earnings per share of $1.68, $0.03 ahead of our guidance and up 11% sequentially. And we generated exceptional operating cash flow totaling $398 million in the quarter. At a higher level, Skyworks is ushering in an age of truly ubiquitous connectivity, enabling richer, smarter and more convenient ways to live, work, play and educate. Smartphones are leading this early transition with substantial volumes of 5G-enabled devices shipping this quarter. But more importantly, over time, we expect an incredible unit uptake outside of mobile where connected devices and things will be measured in tens of billions. And as we've noted in prior calls, 5G catalyzes new markets from IoT, autonomous transport, artificial intelligence, and high definition streaming media. Currently in the US, there are approximately eight networked devices per person, a number that is expected to climb to 14 devices by 2022. That represents a 50% increase. And as a recent example, a higher percentage of US households are now subscribed to a streaming media service rather than traditional pay TV. Clearly our world continues to rely upon seamless, high-speed connectivity and this trend will only accelerate as 5G adoption grows and novel usage cases emerge. Recall 5G is a technology, not a product, not a brand or a slogan. It offers gigabit speeds, ultra-low latency and greatly enhanced network capacity fueling a wide range of applications while becoming the universal connector. Skyworks is playing a pivotal role in the deployment of this standard with a rich 20-year heritage in designing and delivering highly integrated and customized system solutions. We have demonstrated technology leadership across a vast set of critical product categories, resolving increasingly complex architectures and preparing our customers for the performance gains demanded in 5G. As we look ahead, the expanding product pipeline at Skyworks is clearly generating strong design win momentum across both mobile and broad market segments. Specifically in our mobile business traction in 5G is gaining strength with our Sky5 platform powering launches at Oppo, Vivo, Xiaomi and Samsung. Our baseband agnostic solutions offer interoperability and are being deployed across leading chipset suppliers, including MediaTek, Samsung and Qualcomm. And with our expanding filter capabilities in TC SAW and bulk acoustic wave, we help our customers navigate complex challenges while extending our reach across a broader spectrum of 4 and 5G bands. Moving onto broad markets, at CES, Skyworks announced a unique set of 5G-enabled solutions, including Massive MIMO IoT, a suite of connected home devices and high fidelity smart audio products. Specifically we are powering rapidly emerging IoT applications with cellular-based platforms certified by KDDI, NTT DoCoMo, SoftBank and Verizon. We're driving growth with the launch of our Wi-Fi 6 platforms, expanding our customer reach with industry leaders including AT&T, Cisco, Netgear, ARRIS and Aruba. We're advancing automotive content with SkyOne in our emerging V2X portfolio and supplying low power, long range IoT products as Ring and many others. In the infrastructure space, Skyworks is leveraging its capabilities in silicon germanium SOI, gallium arsenide, bulk acoustic wave and ceramic filters while powering 5G MIMO and small cell base station design wins. In addition, we are gaining momentum in automotive, enabling new wins with leaders like Continental, Nissan and Renault along with industrial players including Honeywell, Bosch and GE. As these highlights suggest, we remain focused on driving diversification across high value segments and markets with more than 2,000 products supporting thousands of customers. So in summary, Skyworks has decades of connectivity experience across multiple technology transitions, uniquely positioning us to meet the performance demands of 5G. Our portfolio of highly integrated customized connectivity engines is bolstered by the early strategic investments we have made anticipating both the complexity and the immense opportunity across our end markets and finally, a highly profitable and predictable business model that allows us to invest aggressively while providing consistent returns to our shareholders. With that, I will turn the call over to Kris for a discussion of Q1 and our outlook for Q2.

Thanks, Liam. Skyworks' revenue for the first fiscal quarter of 2020 was $896 million, up 8% sequentially and $16 million above the midpoint of the outlook we provided in November, driven by the successful launch of flagship phones and the early success of our Sky5 product portfolio as new 5G phones start ramping globally. Gross profit in the first quarter was $449 million resulting in a gross margin of 50.1% in line with expectations. Operating expenses were $134 million, down 4% year-over-year as we continued to prudently manage OpEx while making the necessary investments to accelerate future growth of the business. We generated $315 million of operating income, translating into an operating margin of 35.2%, up 120 basis points from fiscal Q4. Other income was $1 million and our effective tax rate was 8.9%, driving net income of $289 million or $1.68 of diluted earnings per share up 11% sequentially. Turning to the balance sheet and cash flow. First fiscal quarter cash flow from operations was $398 million, capital expenditures were $111 million, resulting in $287 million of free cash flow on $896 million of revenue translating into a strong free cash flow margin of 32%. We paid $75 million in dividends and repurchased 742,000 shares of our common stock for a total of $74 million. During the last 12 months, we have returned 87% of free cash flow back to the shareholders through a combination of our dividends and share buyback program. We ended the first fiscal quarter with cash and investments of $1.2 billion and we have no debt. Now let's move on to our outlook for Q2 of fiscal 2020. Early momentum from the initial launch of 5G as we ramp design wins in our mobile business matched with solid traction in broad markets are driving better than seasonal performance in the March quarter. For the second fiscal quarter of 2020, we anticipate revenue to be between $800 million and $820 million. At the midpoint of the range, our revenues would be flat to last year's Q2. However, including Huawei or excluding Huawei, in the second quarter of fiscal '19 and fiscal '20, revenue is expected to be up mid-teens year-over-year. We expect gross margin between 50% and 50.5% and operating expenses of approximately $135 million. Below the line, we anticipate roughly $2 million in other income and a tax rate of 9%. We expect our diluted share count to further reduce to approximately 171 million shares. Accordingly, at the midpoint of these ranges, we intend to deliver diluted earnings per share of $1.46. With that, I'll turn the call back over to Liam.

Thanks, Kris. Skyworks delivered strong results to start fiscal 2020. Looking ahead, we are in the early innings of a multi-year technology cycle with 5G gaining momentum and the growth of connected people and things continuing to expand. We have invested aggressively ahead of this transition and we are uniquely positioned with strategic technologies crafted in our own fabs providing sustainable competitive advantage. At the same time through crisp operational execution and a strong business model, we are translating these results into long-term shareholder value. That concludes our prepared remarks. Operator, let's open the lines for questions.

Certainly. And your first question comes from the line of Vivek Arya from Bank of America Merrill Lynch. Your line is open.

Thanks for taking my question and congratulations on the strong results and guidance. Good to see the recovery in the sector after a while. So Liam, I had two questions. First, just on the core business. I'm curious you mentioned the start of the 5G ramp. How much of that ramp are you seeing in the March quarter? And just roughly what is the direction of content that you are seeing in these 5G smartphones? And I think you mentioned integration. Is it kind of a winner-take-all in some of these initial wins or are you still kind of maintaining your share in the specific components that you have expertise in?

Sure. Well, the way we're seeing it right now we believe we're absolutely gaining share in 5G and the rollout of these new highly complex phones are exactly what we want to see. We're continuing to gain share with our Sky5 platform. We're doing the very difficult things that we've been talking about in prior calls, really crafting and creating these wonderful devices that are going into 5G-enabled phones. We're seeing that across a number of customers, great position in China with a number of leading players, position at Samsung and then also with some of the larger players in the US that haven't even launched their 5G phone yet. So there's a lot of positive momentum there and we feel very upbeat about where we're going in the second half.

Got it. And my follow-up is kind of a strategic question. So you have been developing your internal ball capability for some time, but one of your competitors put up their RF assets for sale. I'm curious if those assets get sold to a potential competitor or a customer, what's the impact or are those assets something that you might be interested in taking a look at? Just how should we think about kind of the impact of this potential consolidation on Skyworks?

Sure, sure. Appreciate the question. Well, we really can't get into any specifics around M&A. We're well aware of the opportunity that you just suggested, but at the same time we are really happy with what we're doing in our organic business and we see a tremendous opportunity there with 5G now just starting and the momentum in our demand really accelerating. So we feel good about it, but at the same time we have to look at M&A opportunities and I'm pleased to say that we have the capacity and the cash flow to do deals when necessary. But at this point, we really just can't comment on anything specifically.

And your next question comes from the line of Timothy Arcuri from UBS. Your line is open.

Thanks so much. Kris, can you give us the splits for both businesses for December and how you think about it for the guidance for March?

Yes. So our broad markets business in the December quarter was approximately 27% of total revenue. That is in line with what we saw last year. Keep in mind that the December quarter is typically a very strong mobile quarter with obviously a lot of business with our large customer and then the ramp of 5G phones. So mobile was 73% of total revenue. Looking forward into the March quarter, that is where we see a little bit of a flip, right. This is typically a stronger broad markets quarter. We do expect some mid-single digit sequential growth in our broad markets business and we will see some mid-single to yes, mid-single year-over-year growth in broad markets in the March quarter and then of course even further stronger growth in the second half of 2020.

Thank you for that. Could you discuss Huawei and how that situation unfolded? I believe you anticipated around $10 million, and it seems it may have exceeded that. What was the actual outcome, and how do you view not only Huawei as a customer but also the potential changes in export restrictions? How is this affecting Huawei and your other Chinese customers? Are they perhaps ordering more than they need? Thank you.

Sure. Well, obviously it's an evolving situation and we have a really dynamic business today in China with Oppo, Vivo, Xiaomi and even some of the MediaTek ecosystem supported. Huawei, of course, there have been some limitations on what we can do. As we've said in the past, we can't provide quarter-by-quarter guidance by customer, but I will say that in the Q1 timeframe, Huawei came in a little bit better than we expected. But I will tell you that we are derisking exposure to Huawei in the business. We're still going after the design wins. We're going to do everything we can to gain share when it's available. But we are derisking that in our financial outlook, as we go forward. So we want to make sure that that's clear to the investors.

And your next question comes from the line of Toshiya Hari from Goldman Sachs. Your line is open.

Hi guys, thanks for taking the question and congrats on the strong results. Liam, I was hoping you could talk a little bit about the infrastructure business within broad markets. A couple of your peers have talked to a pause in activity on the part of your customers. Is that sort of the case with Skyworks? And if so, how much of a drag was it in the quarter? And more importantly, I guess what's the outlook into fiscal Q2 and the back half of the year? Then I have a follow-up. Thank you.

Sure. Yes, I mean the infrastructure business has been a little bit slow and I don't think it's changed in terms of its pace, but it's a very necessary element in 5G. And I know some of the players like Ericsson and Nokia are really stepping up right now. Obviously, there are Huawei opportunities in there as well. They have some limitations, but it's obviously an opportunity. So I see the infrastructure space still very vital for us. We do some incredible work there with our MIMO solutions, antenna arrays, some of the filtering that we mentioned, including ceramic filters. So we have a role and we have a necessary role in that area. But I would expect infrastructure to pick up in the second half of the year. It's also a positive margin driver for us across broad markets. We know how to operate in those industries. We have very good relationships with the customers. So we should expect a better climate there in the second half.

Got it. That's great. And then as a follow-up, this one is for Kris. On your last call you guys talked about gross margins potentially hitting your 53% target in the back half of the fiscal year. I just wanted to confirm is it still the case and if so, what were some of the key drivers on a half-over-half basis? Thank you.

Yes. First of all, I'm pleased with our gross margin execution. So in the December quarter we came in at 50.1%, slightly above what we guided. And so, we are guiding slightly up in the March quarter at 50% to 50.5% despite our normal seasonal decline in revenue going into the March quarter. And then in the back half of 2020, I do expect further gross margin improvements towards our longer-term goal of 53%. And I didn't say last time that we were going to hit 53% at the end of 2020, but continue to make very good progress towards that target, longer-term target of 53%.

And your next question comes from the line of Blayne Curtis from Barclays. Your line is open.

Hey guys, this is Tom on for Blayne Curtis. I just want to clarify, real quick. Kris, you made a comment about broad markets into March. You originally said that it was going to be up mid-single digits and then you said mid-single digit growth year-over-year. Could you just clarify is it sequential or year-over-year?

So it's both, so sequentially it's mid-single digits as well as year-over-year it's mid-single digits excluding Huawei, right, because we have some Huawei infrastructure business that was part of that broad markets. Obviously, due to the ban we lost most or almost all of that. And so, if I exclude Huawei, we will be back to mid-single digit year-over-year growth in March and then a potentially even stronger year-over-year growth, excluding Huawei, in the second half of 2020.

Great, that's helpful. And then just a broader question. When you guys are looking at design wins, particularly in 5G, do you guys have a competitor that also does the modems? Clearly, the competition is pretty fierce there and there's a lot of talk about them being attached with the RF on many early solutions. Just how do you compete there and how do you break down kind of the bundling aspect?

Sure. Well, our customers drive that and our customers want solutions from Skyworks, the integration capabilities that we bring, specifically in 5G where the architectures are substantially more complex than they were in 4G. Integration around solutions such as our Sky5 platform are ideal for customers moving into 5G. And I mean the proof is in the pudding. If you look at the devices today, the 5G devices that are going to market right now, you're going to see that kind of integration from Skyworks. It's not being driven by the chipset provider. That may work in small markets where the customer doesn't have a level of sophistication and they want a turnkey solution all in. But that's not what we're seeing right now. We're seeing best-in-class solutions, leveraging integration, looking for companies that have their own facilities like us from filter to gallium arsenide to assembly and test, customizing and crafting a solution, that's how we win. And by the way, we work with every baseband supplier, whether they're a friend or a foe, and we take our lead from the customer and that has always worked for us.

Great, thanks guys.

And your next question comes from the line of Ambrish from BMO. Your line is open.

Hi, thank you. Liam, you may not have to worry about that whether you have to buy that business or not. Looks like a PR hit the tape as soon as your call started that...

Oh, we couldn't hear that.

Yes, they have signed a multi-year deal with Apple. Let me sort of just focus on you guys. What does your portfolio looks like for 5G for BAW? And then within your portfolio, where do you think you have the most opportunity to gain content in 5G?

Sure. Well, I mean just to take a long look, just a little bit of a backdrop here. Understand right now 4G phones are basically driving spectrum from 700 megahertz to about 2.5 to 3 gig, right. So all that action continues in a mobile phone today. And then you add to that with 5G solutions, unique solutions that's drawn that 5G spectrum, let's say, 3 to 6 gig or 6 gig and higher. That's an incredible opportunity. It's all incremental physical content. And each one of the players in our space looks at it differently. What we want to do is capture the maximum opportunity, work with our customers, give them absolute choice on the kind of componentry they want, the markets that they're going to roam in, their current budget, all of these things and then craft an integrated solution for them. So when we say, Sky5, that's a platform, it's a platform. It could be very different from the largest customer to a customer in Korea to customers in China. And that is the unique Skyworks differentiator and we have the tool sets to do that now. We've added bulk acoustic wave. We have high capacity in TC SAW. We have standard SAW. We have crafted assembly and test with facilities under our watch. Really unique stuff and that makes a big difference for us and it broadens the opportunity reach that we have in any given 5G device.

Okay. And my follow-up for Kris is on the operating model as you try to avail the opportunities, what does it do to OpEx and also CapEx as we think through? If you could just remind us what capex was and guidance for this year, so if that changes or not.

Yes, in terms of our operating model, we are successfully driving the business and increasing our top line growth above market levels. We're focused on improving operational efficiencies and introducing high-value products that will help us achieve our long-term gross margin target of 53% and operating margins approaching 40%. Currently, our operating expenses are around 15%, and I believe there is potential for improvement to reach an operating margin near 40%. Additionally, we are dedicated to driving free cash flow at 30% or slightly above, and last quarter we achieved a 32% free cash flow margin. We will continue investing in the business without question. As Liam mentioned, one of our strengths lies in our operational capabilities, including our gallium arsenide facilities, filter operations, and back-end operations. We are expanding the capacity in these facilities and developing new packaging and filter technologies, which requires adequate capital expenditure support. Our capital expenditures are currently around 10% of revenue, and I anticipate that this will remain consistent in the foreseeable future.

And your next question comes from the line of Bill Peterson from J.P. Morgan. Your line is open.

Thank you for taking my question. Regarding the broad markets, you mentioned the infrastructure opportunities, particularly in Wi-Fi and IoT. You indicated that the infrastructure growth is expected to be more significant in the latter half of the year, and I'm interested in understanding how you foresee the ramp-up of world Wi-Fi and how that will influence your overall market growth for the entire fiscal year, especially in the second half.

Yes, it makes sense, Bill. If we take a step back to look at the broader markets, we have a wide array of protocols available. 5G, Wi-Fi 6, Bluetooth, GPS, ZigBee, and LoRa represent opportunities for us to connect with our customers. Wi-Fi 6 is gaining significant traction, and we've secured some new strategic design wins in the last quarter, with expectations for further growth in the second half of the year with companies like AT&T, Cisco, and Netgear. We have also made great strides in the industrial and automotive sectors, winning partnerships with Bosch, Honeywell, Siemens, and GE. These companies weren't even part of our customer base two or three years ago. In the automotive space, we've secured wins with Continental, BMW, Renault, Nissan, and others. Additionally, we've launched impressive consumer products, including an infant monitoring device in collaboration with Procter & Gamble, and we’re partnered with Ring and Amazon. Our portfolio is diverse, spanning from high-end to mid-tier products. The key for us is leveraging technology and connectivity. With our extensive range of protocols, we can work with our customers to determine the most suitable connectivity option for their solutions. We feel very optimistic about this momentum continuing for many years to come.

Thanks. With the 5G phones set to launch in the first half of this year, and considering that Samsung already released 5G phones last year, can you discuss the specific 5G successes you have achieved? This seems very advanced, and while the 4G bands, including LTE-Advanced Pro, are undoubtedly significant, could you elaborate on the design wins you have with Samsung's 5G phones?

Yes, absolutely. So the 5G momentum, the early momentum in 5G, a lot of that is actually led by the China names. So, we have great position in 5G solution. So this is again 5G, so we still have great 4G position with these accounts. But we're overlaying incremental content in 5G with names like Oppo, Vivo, and Xiaomi. So those players were very strong. We're doing some good work partnering with chipset providers. MediaTek is one that's an example in their phase seven designs. We've got great position, design reference position. These are all 5G solutions. And again early moves with China with those players that I named, but also some really significant moves that we expect later in the year with some of the larger customers as well where we will see substantial content gains as well.

And your next question comes from the line of Edward Snyder from Charter Equity Research. Your line is open.

Thanks a lot. Liam, we talked a lot about 5G. I'd like to clarify if we could, especially regarding your comments about share gains with some of the new products coming out, the smartphone products coming out here. If we divide the world into 4G, 4G Advanced, 4G Pro and the pure 5G content which is mostly ultra-wideband, are you referring to both, are you referring to one? I know you guys were strong in some of the initial ultra-high band last year, and I know they're wrapping not only that, but also the band, n77 bands into the Chinese phone. Is that where you're seeing most of your share gains?

Yes, exactly. So we're continuing to have the 4G placement, which is basically kind of backward compatibility. And then UHP bands, n77, n79, unique products there that are incremental that you wouldn't see in a 4G phone but there would be incremental dollars that would lay into a 5G phone. And the other point that we've been making here is and as you know, the more complexity that you have, the more devices that we have physically we've got to deal with size, we've got to deal with competition for current consumption, coexistence and all the challenges that you get when you put more and more semiconductors together. So our approach with that is to offer that customer the Sky5 platform and configured in such a way that some of those challenges that one would have in putting together a complex device can be resolved with Skyworks overlaying that into a platform solution. But the incremental content is in it's UHP, it's n77, n79, there's more bands coming out over time, but we're in really good position to capitalize as 5G continues to roll out.

Yes, you've performed exceptionally well in that area. Now, let’s shift our focus to 4G for a moment. Last year, China moved to phase six. It's well-known that Qorvo captured a significant share due to the OEM's hesitance about transitioning to a fully integrated front-end, leading them to prefer a single supplier. We've received indications that this situation is changing, and Skyworks is beginning to secure the traditional low band segment of that platform. Are you observing this trend to a significant degree? Additionally, regarding your BAW filter program, it appears to be progressing well. Some devices have already been received, and they will include duplexers; however, it seems there's still a long way to go before you can deliver the performance necessary to penetrate the mid and high bands as well. Is there a potential pathway for the mid and high band aspects of the 4G segment in these phones over the next year, or is this something that will take longer to achieve?

Yes, let me address both points. On the MediaTek side, there are significant opportunities for Skyworks in the lower band with low band pad and DSM, particularly in the 4G space. Transitioning to ultra-high band or mid and high band solutions presents challenges, but we're making progress and actively working on some UHP opportunities. We recognize the performance advantages offered by leading players in mid and high band, and we aim to reach that level. We're putting in the necessary work internally and understand that it will be challenging, but we have the growing expertise and customer engagement to support our efforts. Our facilities and fab positioning will also be beneficial. While we're on the path to achieving high standards, there is still considerable work ahead.

And your next question comes from the line of Craig Ellis from B. Riley FBR. Your line is open.

Yes, thanks for taking the question. Congratulations on the good execution, guys. Liam, I wanted to follow up on that last question and maybe tied into one that Vivek answered, really focused on longer-term dynamic. So Skyworks is historically working with customers 18 months out of the handset launch on new products. So from the vantage point that you have now what does content gain look like in the funnel for things that we'll be launching in calendar 21 versus the early content gain that you're getting in your one of 5Gs. Is it flat? Is it up? If it's up, to what extent would it be up next year as you continue to try to flex into things like mid-band or high-band pads with your BAW capability?

Let me be clear about one point. The technologies we currently possess in 4G and the new advancements in 5G are set to significantly enhance our opportunities. We're exploring what more we can achieve with BAW and we aim to expand our efforts. The initiatives we are currently implementing, such as utilizing BAW, leveraging Sky5 as a platform, and capitalizing on the added content that 5G bands provide, present an excellent opportunity for us to advance. One factor aiding us is the complexity involved. It's important to note that the technological demands of a 5G device are considerably more challenging to implement and market quickly. We have the expertise to manage these challenges, leveraging our decades of experience through various transitions. This current transition is particularly difficult, but it benefits us and top players in the market as we are positioned to solve customer issues effectively. We are enthusiastic about utilizing our technologies, including TC SAW, packaging technology, and bulk acoustic wave ceramics, which will all contribute to our efforts. The potential for content is definitely significant, and we anticipate meaningful financial opportunities, some of which will begin in the latter half of this year.

And with regards to that last point with content kicking in in the second half of the year beyond what we're seeing with momentum in the business here in the quarter that you are just guiding to which is above seasonal. So is it fair to think that with the content that you've got, you've got a year where integrated mobile can drive consistently above seasonal performance in the business or is it just too early to be able to have that kind of visibility from where you are?

Yes, yes, I mean it's difficult to figure out what the natural seasonality is going to be. But we definitely see improving opportunities for us, design wins that have been consummated that haven't yet shipped. And let's also look at where the customers are. One of the largest customers, great customer, hasn't put a 5G phone out yet. So that's another thing to think through. So I think there is plenty on the horizon. We're really excited about it. We just delivered a beat and raise Q1 and Q2. I think the broad markets business is going to accelerate. We talked a little bit about that with Kris. The 5G opportunities are right there in front of us. We're executing fully. We're adding capital and we're really enthused about the opportunities that are in front of us.

Your next question comes from the line of Chris Caso from Raymond James. Your line is open.

Yes, thank you. I guess first question is if you could characterize the strength that you're seeing and kind of where the strength is coming from that's driving the better seasonal Q1. I guess, I'm assuming that the new Chinese 5G phones are a large part of that, if you can clarify that. And then as we go through the year, what is going to be the pace of new introductions in your content gains from the Chinese phones? Is that going to be something that steady through the year, is it more kind of front-end loaded, maybe get some clarification on that.

Sure. Sure, Chris. Well, a couple of things. This is the first period that we're actually talking about 5G in devices and bringing revenue to the table. So early, early innings and we're already seeing some improvements in our numbers for Q1 and Q2. And that's the early part of 5G. And if I were to look at that, a lot of that is China, it's the Oppo, Vivo, Xiaomi names like that. But we're also seeing ramps coming in with Samsung. I think there's going to be some really nice ramps with one of the larger customers, again hasn't put a 5G phone out. And the complexity that we see that I've talked about on this call is real and it's a great opportunity for Skyworks and we are the company that knows how to do the complex things very well. We know mobile, we've been doing this for 20 years. So the transition from 2G to 3G to 4G, talked about that. 5G is much harder. And it's calling upon the resources, our people, our know-how, the facilities, the ability to troubleshoot all that really good stuff is coming to bear right now and allowing us to win business and allowing our customers to be successful. So there is a lot going on that end. And then the broad market business, the numbers bounce around a little bit, but I can tell you that one of the metrics that we look at is customer acquisition. We want to add customers, we want to add high-class, high-end players, margin-rich customers and we're doing it. Some of the names that we talked about, Bosch, Raytheon, names like that getting into industrial and automotive, working with companies like BMW and Nissan. I mean that's really cool stuff and it still plays on the connectivity core and what's really important for Skyworks is connectivity. And we still can lever those technologies and those resources to port into other markets outside of the mobile phone.

That's helpful. Thank you. As a follow-up to really what you just said, how does that affect your capacity planning, as you go through the year? And your capex has been fairly steady. I guess maybe up a little bit, but as the 5G ramp proceeds, are there scenarios where you need to put in more substantial capex in order to meet that and at what point in time do you need to make some of those decisions?

No, we're making those decisions on a continuous basis. Just look at the December quarter; we invested an additional $100 million in capital expenditures, and we will continue to do so each quarter. It's a combination of factors. Some of that is directly related to capacity expansion to handle higher volumes. However, a significant portion is also technology-focused, involving different and more complex types of packaging and testing, as well as expanding our capabilities in filter technologies and gallium arsenide power amplifiers. So, expect around 10% of our capital expenditures to be allocated in this way, and despite that, we will maintain a free cash margin of over 30%.

And your next question comes from the line of Karl Ackerman from Cowen. Your line is open.

Thank you. I have two questions if I may. First, regarding the March quarter outlook, there is a question about inventory. How would you classify your inventory across the channel, considering that all six major smartphone suppliers are launching flagship models in March and April? It appears to be quite a tight window. I also have a follow-up.

The inventory in the channel appears to be quite healthy, at least based on our visibility at the component level. There is some buildup in anticipation of Chinese New Year. However, the supply chain is facing some challenges in keeping up with the launches of the new 5G phones, so the inventory in the channel remains in good shape.

Got it, that's helpful. As my follow-up there has been a lot of noise and I guess perhaps overly concerned on the FCC's decision to halt satellite operators from offering private auctions of the C-band for cellular 5G services here in the United States. Do you think that creates a delay in the implementation of 5G enabled phones here? Should we be worried about it at all? Any color there would be helpful. Thank you.

I don't believe it will impact us negatively. In fact, if they open it up to the public, it could present an opportunity for more spectrum and allow our devices to roam more effectively. Currently, we are not factoring in any potential benefits from the upcoming 3-5 auctions. It’s a valid concern, and we’ll gather more information as time goes on, but I don't see it posing any threats for us. We have positioned ourselves well in the 5G landscape and are aligned with the Standards Boards regarding the spectrum’s future. We are actively monitoring the situation, and if additional spectrum becomes available, we will certainly develop solutions to enhance transmission and communication capabilities.

And our last question comes from the line of Harsh Kumar from Piper Jaffray. Your line is open.

Thanks for squeezing me in. Two questions as well. Liam, one for you. There's a lot of debate on whether the first generation of 5G handsets in the US will be millimeter wave capable. Clearly they'll have some sub-6. I was curious where the Skyworks in and you guys stand on that thought process. And then also how is your preparedness for millimeter wave at this point. Then I had a follow-up.

Certainly, Harsh. Millimeter wave is a fascinating technology that offers some advantages. It theoretically provides exceptional speed and low latency, but it has its limitations as well. It is costly, consumes a significant amount of power, and requires a clear line of sight, which presents challenges. Currently, we are not seeing widespread adoption; however, we are engaged with customers exploring its potential as a standard offering. It could be beneficial in high-density areas, like college campuses or stadiums, where high-speed connections are needed over short distances unobstructed by obstacles. That said, there are hurdles to overcome. In the future, this technology could develop and become both cost-efficient and performance-oriented. At the moment, it is somewhat outside our current scope, and many customers are not focused on it, although some are. We do have minor initiatives involving millimeter wave technology. As we've mentioned, we operate our own fabrication facility, which allows us to explore necessary technologies should they become viable. We consult closely with our customers for insights and share technological information to support them. However, I do not anticipate it playing a significant role in 5G over the next year.

Understood, and very helpful. Thank you, Liam. And then I think at the beginning of the call I think Vivek had asked a question on content increases. And I believe you answered a lot of stuff, but I think you might have skipped that part. I was curious what ex Wi-Fi upgrades and other kind of things like Bluetooth upgrades that might be happening on the RF side, just pure cellular content increase in 5G over 4G? What are you guys seeing? Would you put that as in line with historical or greater than that or even if you want to give a number and be generous with us, we will take that.

It's going to be higher than the upgrade from 3G to 4G, and I definitely believe that. This is due to the physical content and specific devices needed to develop the 5G solution, which provide greater incremental value than what was experienced moving from 3G to 4G. The key question is who is best positioned to take advantage of this. We have an extensive reach, strong engagements with all our customers, and unique technologies that we've mentioned, not only in terms of capacity but also in technology. We are optimistic about a significant multi-dollar opportunity, which we estimated in our presentations to be around $5 to $7 or more additional value compared to 4G. The ability to capture this opportunity hinges on execution, delivering the best solutions to our customers, and timely market introduction. These are the factors we excel at, which represents our company's strength.

Ladies and gentlemen, that concludes today's question-and-answer session. I'll now turn the call back over to Mr. Griffin for any closing remarks.

Thank you all for participating on today's call. We look forward to seeing you at upcoming investor conferences during the quarter. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.