Skyworks (SWKS) Q4 2026 Earnings Call Transcript

DATE

Tue, Nov 03, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations - Rajvindra Gill
• Chief Executive Officer and President - Philip Brace
• Chief Financial Officer and Senior Vice President - Philip Carter

TAKEAWAYS

• Standalone Revenue -- $1.05 billion, exceeding the midpoint of guidance driven by seasonal demand from the company's largest customer.
• Non-GAAP EPS -- $1.28, representing a $0.01 increase over the midpoint of management's guidance for the September quarter.
• Broad Markets Revenue -- $416 million, growing 9% year over year despite continued softness in the consumer IoT sector.
• Combined Q1 2027 Revenue Guidance -- $1.8 billion to $1.9 billion, including approximately $1.07 billion from legacy Skyworks and $780 million from legacy Qorvo.
• Cost Synergies -- $500 million or more, targeted as annual savings following the merger with Qorvo, with roughly two-thirds coming from operating expenses.
• Fiscal 2027 OpEx Synergies -- $150 million, expected to be realized during the fiscal year with an exit run rate of $250 million to $300 million.
• Pro Forma Smartphone Revenue -- $4.6 billion for fiscal 2026, reflecting an 11% decline year over year due to Android market weakness and content shifts.
• Diversified Growth Markets Revenue -- $2.9 billion for fiscal 2026, increasing 12% year over year with exposure to physical AI, defense, and automotive sectors.
• Physical AI and Connected Edge Revenue -- $1.6 billion, comprising connected devices, Wi-Fi access points, and industrial robotics.
• Defense and Aerospace Revenue -- $500 million, supported by modernization programs and expanding satellite constellations.
• Data Center Networking Revenue -- $400 million, representing the company's fastest-growing segment with timing products growing 90% year over year.
• Automotive Revenue -- $340 million, driven by content expansion in electric vehicle charging, battery management, and infotainment.
• Non-GAAP Gross Margin Guidance -- 46% to 48%, reflecting a favorable mix shift toward high-margin defense and infrastructure products.
• Cash and Marketable Securities -- $2.6 billion, including approximately $2 billion in acquisition financing completed prior to the merger close.
• Total Debt -- $2.5 billion, as the company maintains its investment-grade credit rating following the Qorvo transaction.
• Share Repurchases -- $107 million, executed at an average price of $66.27 per share during the September quarter.
• Largest Customer Concentration -- 62% of revenue, based on Skyworks' standalone September quarterly results.
• Android Revenue Outlook -- Under 10% of total smartphone revenue, as the company intentionally exits the lower-end Android tier to focus on premium devices.
• Long-Term Financial Targets -- 50% to 55% non-GAAP gross margin and 30% to 35% non-GAAP operating margin, targeted within 24 to 36 months of closing.
• Fiscal 2026 Total Revenue -- $3.96 billion, with GAAP diluted earnings per share of $1.14.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• CFO Carter stated, "Input costs continue to remain a headwind," and indicated that management expects these inflationary pressures to persist.
• CEO Brace noted well-known softness in the Android market, which partially offset healthy demand at the company's largest customer during the quarter.
• Brace indicated that most diversified growth markets, including data center and defense, are currently supply constrained as demand exceeds the company's ability to supply.

SUMMARY

Skyworks Solutions, Inc. (NASDAQ:SWKS) reported its first results as a combined entity following the completion of its merger with Qorvo on Oct. 5, 2026. Management reported that the company now operates through two primary reporting categories: smartphone and diversified growth markets. The combination expanded the company's technology portfolio to include gallium nitride, wired broadband, and power isolation solutions while targeting over $500 million in annual cost synergies. Management stated that the company is prioritizing the premium smartphone segment to mitigate volatility while targeting high-growth areas such as physical AI and data center networking, where timing and power products are seeing significant design engagement.

• CEO Brace noted that the smartphone is emerging as a primary AI device, which supports a continued market shift toward premium handsets requiring higher RF complexity.
• The company indicated that the data center infrastructure segment is its fastest-growing market, with 90% year-over-year growth in timing and power products used in AI hyperscaler systems.
• CFO Carter stated that the company expects the Android business to bottom in the coming fiscal year, eventually representing less than 10% of total smartphone revenue.
• Management reported that the initial consolidation of the management team and HR systems is complete, with full IT and ERP integration expected by the first half of calendar 2027.
• Brace indicated that 5G Advanced and 6G technologies will drive a new cycle of RF complexity, requiring more filtering, amplification, and sophisticated antenna solutions.
• The company reported that it has entered into long-term supply agreements and made prepayments to vendors to secure capacity and mitigate ongoing supply shortages.
• CEO Brace stated, "We now have a full stack RF front-end platform for next-generation smartphones," weighted heavily toward the premium segment where RF content is greatest.

INDUSTRY GLOSSARY

• 5G Advanced: The next evolution of 5G technology that enhances network performance and supports new applications like satellite connectivity and advanced AI.
• GaN (Gallium Nitride): A high-performance semiconductor material used in power electronics and RF applications for its ability to handle higher voltages and frequencies.
• Physical AI: Intelligence that moves out of the data center and into edge devices, such as industrial robots, vehicles, and connected machines.
• PMIC: Power Management Integrated Circuit, used to control the direction and flow of electrical power in electronic devices.
• RF Front-End: The functional area of a device responsible for processing signals between the antenna and the digital baseband.
• SAM: Serviceable Addressable Market, the specific portion of the total market that a company's products can reach.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Skyworks Q4 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Raji Gill, Vice President of Investor Relations. Please go ahead.

Rajvindra Gill: Thank you, operator. Good afternoon, everyone, and welcome to Skyworks' Fourth Fiscal Quarter 2026 Conference Call, our first as a combined company with Qorvo. With me today for our prepared remarks are Phil Brace, our Chief Executive Officer and President; and Philip Carter, Chief Financial Officer and Senior Vice President of Skyworks. This call is being broadcast over the web and can be accessed from the Investor Relations section of the company's website at skyworks.com. In addition, the company's prepared remarks will be made available on our website promptly after the conclusion during the call.

We have also posted a new corporate overview presentation to the Investor Relations section of our website which outlines the combined company strategy, markets, technology portfolio and investment highlights. Before we begin, I'd like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, today's discussion will 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. A note on presentation. Because the Qorvo transaction closed on October 5, after the end of our fiscal fourth quarter, our September quarter results are Skyworks standalone, and our December quarter outlook is on a combined basis. With that, I'll turn the call over to Phil Brace.

Philip Brace: Thanks, Raji, and good afternoon, everyone. This is an important moment for our company. On October 5, we completed the combination of Skyworks and Qorvo, uniting more than 6 decades of innovation. We now have greater scale, a broader technology portfolio and an expanded manufacturing footprint, enabling us to continue to push the boundaries of what's possible. I want to thank our employees on both sides. Bringing 2 companies together while continuing to deliver for customers takes enormous effort and our teams have stayed focused throughout. That focus on execution carried through our final quarter as a stand-alone company.

In the September quarter, Skyworks delivered revenue of $1.05 billion, above the midpoint of our guidance range, delivered non-GAAP diluted earnings per share of $1.28, $0.01 above the midpoint of our guidance, managed operating expenses to $237 million, near the low end of our guidance range and repurchased $107 million of stock at an average price of $66.27. In the quarter, demand was healthy across our end markets and book-to-bill was strong. Timing and power products continue to be a highlight with growing design engagement in AI data center. Automotive and industrial design activity was also robust.

In smartphone, we executed well in our seasonally strongest quarter, driven by healthy demand at our largest customer, partially offset by well-known softness in the Android market. Broad markets, which will form part of our diversified growth markets category going forward, delivered revenue of approximately $416 million, exceeding our expectations. Revenue grew 9% year-over-year in the quarter and approximately 10% for fiscal 2026, driven by strong growth in data center, Wi-Fi and automotive despite continued softness in consumer IoT. Consistent with prior quarters, strong demand came against a challenging cost backdrop. Input costs remain a headwind to margins, and we expect that to continue.

We are taking actions to mitigate these costs, including optimizing factory loading, securing long-term supply agreements and continuing to raise prices as appropriate. Looking ahead, we now have a full stack RF front-end platform for next-generation smartphones, weighted heavily toward premium devices, where RF content is greatest and where we will continue to focus. Expanded reach across 4 secular growth markets, physical AI, defense, infrastructure and automotive. A broader technology portfolio, adding RF GaN, higher frequency capabilities, low-voltage power and wired broadband. A path to a compelling target financial model, which Philip will walk through. Going forward, we will report our businesses in 2 categories: smartphone and diversified growth markets.

Smartphone includes our formal mobile business and Qorvo's Advanced Cellular Group. Diversified growth markets include our former broad markets business and Qorvo's high-performance analog and connectivity and sensor groups. It's a large and growing part of the company with above-average gross margins and exposure to secular growth markets. On a pro forma combined basis, smartphone revenue was approximately $4.6 billion in fiscal '26, down approximately 11% year-over-year, reflecting the anticipated decline in Android revenue and content dynamics at our largest customer. Broader content across each device should support steady results as our reliance on any single socket declines and our content opportunity expands.

Looking further out, the smartphone is emerging as a primary AI device, which we believe supports a continued shift towards premium phones. At the same time, RF complexity is rising again. 5G advanced and then 6G bring higher power, more transmit and receive paths, new spectrum and satellite connectivity, all of which require more filtering, more amplifications and more sophisticated antenna solutions. More bands, more paths, more performance and more opportunities for Skyworks. On a pro forma combined basis, diversified growth markets revenue was approximately $2.9 billion in fiscal 2026, up approximately 12% year-over-year at attractive gross margins. Let me give you a little more color on what's contained within our diversified growth markets.

Physical AI and Connected Edge, more than $1.6 billion in fiscal '26, covers connected devices at the edge, Wi-Fi access points and gateways, IoT devices and industrial automation and robots. As AI inference moves from the cloud into these edge devices, factories and robots, our wireless connectivity, power management and power isolation technologies give us more content opportunity per device. Defense and aerospace, approximately $500 million is driven by modernization, space and electronic warfare and expanding satellite constellations. We bring more than 35 years of development in gallium arsenide, gallium nitride, filters, advanced packaging, along with Category 1A trusted foundry accreditation. Our products are fielded across air, land, sea and space, supporting all branches of the U.S.

Armed Forces and allied forces worldwide in radar, electronic warfare, sensors and secure communications. Defense customers are also increasingly engaging with us on power solutions to pair with our GaN amplifiers, further strengthening our position. Data center networking infrastructure, approximately $400 million, is our fastest-growing market, and we expect that to continue. In the AI data center, we provide high-precision timing, power isolation from the grid to the rack and power management for enterprise SSDs where AI inference is creating new tiers of storage. Automotive, approximately $340 million, continues to benefit as electrification, connectivity, autonomy and infotainment raise content per vehicle from telematics and secured access to EV charging and battery management. We expect these trends to continue.

Now an update on our integration. We are off to a fast start. The initial consolidation of our management team is complete. Our HR systems are integrated, and we expect the remaining IT integration to be done in the first half of calendar 2027. We remain fully committed to the $500 million or more of annual cost synergies with roughly 2/3 from operating expenses and 1/3 from cost of goods sold. Operating expense savings will come first with cost of goods savings building over time as we optimize our factory footprint, and we expect the earnings benefit to build through fiscal 2027 weighted to the second half. What excites me the most is our expanded engineering capability.

Our engineers are already working together, sharing ideas and combining technologies with the goal of creating products that neither company could build alone. With that, I'll turn the call over to Philip to take you through our fourth quarter results and first quarter outlook as a combined company.

Philip Carter: Thanks, Phil, and good afternoon. Because the transaction closed after our quarter end, our September quarter results are Skyworks stand-alone. Skyworks revenue for its fiscal quarter ended October 2 was $1.046 billion. Qorvo's revenue for its fiscal quarter ended October 3 was $937 million, which included an additional week, bringing combined September quarterly revenue to approximately $1.98 billion. Beginning with our February earnings call, we will only report on a fully combined basis with smartphone and diversified growth markets as our revenue categories and therefore, not providing legacy Skyworks or Qorvo details going forward. For the Skyworks stand-alone September quarterly results, revenue was $1.046 billion and above the midpoint of our guidance range of $1.035 billion.

Mobile represented approximately 60% of revenue, supported by healthy sell-through at our largest customer in our seasonally strongest quarter, partially offset by well-known softness in the Android market as we remain focused on the premium tier. Broad markets represented approximately 40% of revenue and grew 9% year-over-year in the quarter and approximately 10% for fiscal '26, led by strong growth in data center, Wi-Fi and automotive. Our largest customer accounted for approximately 62% of revenue, including non-smartphone products. Gross profit was $465 million or 44.4% of revenue, in line with our guidance. Input costs continue to remain a headwind.

We are working toward offsetting them through cost controls and price increases and over time, through manufacturing synergies as we consolidate our factory footprint. Operating expenses were $237 million, about $3 million below the midpoint of our guidance as we continue to fund key R&D programs while maintaining tight control over discretionary spending. Operating income was $227 million, translating to an operating margin of 21.7%. Other income and expense was roughly $12.5 million, and our effective tax rate was 10%, resulting in net income of $193 million and non-GAAP diluted earnings per share of $1.28, $0.01 above the midpoint of our guidance. Turning to the balance sheet.

We ended the quarter with approximately $2.6 billion in cash and investments and approximately $2.5 billion of debt, reflecting the roughly $2 billion of acquisition financing we completed ahead of the Qorvo closing. Turning to our outlook for the December quarter, our first as a combined company, we expect revenue of $1.8 billion to $1.9 billion. At the midpoint, this includes approximately $1.07 billion from legacy Skyworks and approximately $780 million from legacy Qorvo. This will be the last quarter in which we provide the split. As Qorvo did not provide guidance during the pendency of the transaction, we want to be clear on the starting point.

Combined September quarterly revenue was approximately $1.98 billion, including an extra week at Qorvo worth approximately $70 million. Our outlook at the midpoint is down approximately 7% sequentially or approximately 3%, excluding the extra week. We expect smartphone revenue to decline in the low teens percentage sequentially, reflecting seasonality, well-known softness in the Android market as we remain focused on the premium tier and the extra week in Qorvo's September quarter. We expect diversified growth markets revenue to grow in the low single digits sequentially despite the extra week in the prior quarter and in the high to low double digits year-over-year on a combined basis, representing more than 40% of sales led by data center and defense.

We expect non-GAAP gross margin of 46% to 48%, reflecting a favorable mix shift towards diversified growth markets, including higher-margin defense and infrastructure. This is partially offset by continued input cost increases, which we expect to persist. Over time, an increasing mix of diversified growth markets, manufacturing synergies, improved factory loading and pricing actions support our path towards our gross margin targets. We expect non-GAAP operating expenses of $465 million to $505 million, reflecting the combined company as we continue to invest in our key technology road maps. Including our planned merit increases, we expect operating expenses to decline sequentially from December quarter levels throughout fiscal 2027 as synergies are realized.

We expect the majority of the earnings benefit in the second half of fiscal '27. We expect to realize approximately $150 million of synergies in operating expenses within fiscal 2027 and to exit the year at an annualized run rate of approximately $250 million to $300 million. Below the line, we anticipate approximately $50 million of other expense at the midpoint, primarily reflecting a full quarter of interest expense on the acquisition financing. We expect an effective tax rate of approximately 10% and a diluted share count of approximately 241 million shares. At the midpoint of our revenue outlook of $1.85 billion, this equates to expected non-GAAP diluted earnings per share of $1.25.

As synergies are realized, we remain confident in the earnings power of the combined company. Over the long-term, we target mid- to high single-digit revenue growth and once fully integrated within 24 to 36 months of close, non-GAAP gross margin of 50% to 55%, non-GAAP operating margin of 30% to 35% and adjusted EBITDA margin of 35% to 40%. With that, I'll turn it back to Phil for closing remarks.

Philip Brace: Thank you, Philip. Before we open the line, I want to thank our employees, customers and partners. This is our first quarter as one company and the energy across our teams is outstanding. Engineers from both sides are already working together, and I'm excited about what lies ahead. Together, we are stronger than either company on its own, broader technology, greater scale and a much larger opportunity ahead. I've never been more excited about where we're heading. Operator, let's open the line for questions.

Operator: [Operator Instructions] Our first question will come from the line of Karl Ackerman of BNP Paribas.

Karl Ackerman: Your broad markets continues to progress well. How are you thinking about the longer-term growth rate for broad markets as a combined entity now that you've closed Qorvo? And I guess the question is, can you sustain a similar rate or higher from the high single to low double-digit growth outlook that you laid out for December?

Philip Brace: Yes, Karl, thanks for the question. This is Phil. I'm glad you asked it. It's an important part of the portfolio. I'm glad you called it out. I mean if you look at the combined number back in fiscal '26, we talked about $2.9 billion. We talked about physical AI really at the $1.6 billion level. We've got defense and aerospace at $500 million, data center and infrastructure at $400 million and then auto at $340 million. For me, those are exciting growth areas, new technology. And right now, frankly, all of those businesses are supply constrained and the demand far exceeds our ability to supply them. So we're working hand over fist in most cases.

We are seeing a little bit of softness in the consumer IoT space. I think we talked about that. But certainly, in the other markets, we are supply constrained at this point. And so we're going to look to try and get as much supply as we can.

Karl Ackerman: Got it. Yes. If I may just follow up to that. I understand that broad market supply shortfall was part of a challenge in the past. It sounds like that narrowed a little bit in September. If you could just double-click on that a bit, Phil, with respect to your ability to procure more wafers or substrates or test capacity and what you can do to further attack the demand opportunity for you for broad markets.

Philip Brace: Yes. I think you're right to call it out. And certainly, in the September quarter, we did a good job on the -- we picked up -- we were able to secure some additional supply to our customers. And certainly, our data center business grew, I think, 90% year-over-year from that perspective. So that continues to grow really well, both the timing and the power products. That continues to be an area we continue to work towards, right? And I kind of mentioned we've -- it's a tight market out there, and we're working hard to do it. It's something we're spending -- our operations team are spending a lot of time focused on for obvious reasons.

Operator: And our next question will be coming from the line of Craig Ellis of B. Riley Securities.

Craig Ellis: Phil, I'll start with you, and it's a longer-term question. Can you just frame up how you look at the longer-term growth model for mid- to high single-digit revenue growth? And just talk about what you would expect the contribution to be from smartphone and then with diversified growth, are we sustaining these attractive double-digit growth rates? Or could you even see them accelerate?

Philip Brace: Yes. Thanks for asking the question. If you look at that the company as we break it out, and we've kind of tried to be clear about that. We've got the smartphone space, which has continued to be a major part of the business. We feel good about our expanded content position there. We've got full access to the RF front-end stack now, and we really should be driving more stability there. I think that's one of the things we're trying to really get there is less variability per device. We're going to weight that -- those investments towards the premium segment where our content matters the most. We have more content opportunities there.

We're trying to grab some stability there. So that's going to be -- the focus of that business is really kind of around stability. We see content opportunities as we head into the 5G advanced in the 6G marketplace as more bands, more filters, more capabilities come in place. But long-term, we see that as kind of a low single-digit grower just based on the size and the scope of that. That's kind of what we're planning. So that really represents premium growth RF content opportunities, offset by normal integration, price compression, right, things you get normal. So that's kind of how we see that. The diversified growth markets really have got 4 major pillars under there, right?

We talked about the Physical AI and Connected Edge, right, which is kind of the biggest part of that business now, really exposed to things like Wi-Fi, which is a good growth segment for us. You're seeing expanded areas in industrial and automation. Defense is a new part for us. That's really a supply constrained area from that side. And I think that it's a state of the world where that type of technology will continue to be a major part there. Data center is our fastest-growing segment from that point, we don't see any slowdown in that segment. That's going to be supply constrained as well.

And we seem to be in the sweet spot in automotive with respect to connectivity, infotainment, electric vehicle charging and things like that. So we feel good about our portfolio of businesses, and we think that supports the growth outlook there. And frankly, we're going to be working hard to try and beat that. But I think I feel comfortable about that growth outlook now.

Craig Ellis: That's great. And then the follow-up is either for you or Phil Carter, help us understand how you see the path to the 50% to 55% gross margin level. How much is the contribution from volume, how much from mix, how much from some of the cost savings that come into the model in the latter part of the synergies capture period?

Philip Brace: Yes, I'll start and then Phil Carter can jump in here a little bit. I mean I think it's a combination of all those things. I think you're going to see us -- I think some of what you're going to see is as we continue to grow the diversified growth markets faster than the smartphone segment, you're going to see good mix, which should help lift that over time. You're also going to see some of the effects of the factory consolidations and some of the other things we're going to do over time. So I would say it's a mix of all those things.

We have some non -- some headcount-related actions we'll take in that space as well. I will say to point out, I mean, it is an inflationary environment, as I mentioned in the report. So we do have some headwinds we're fighting against there that we're going to continue to work to mitigate. But that's kind of we see it. I don't know, Carter, do you want to.

Philip Carter: Yes. No, that's exactly right. I think the last thing I would mention, just within the smartphone space, we are seeing a better mix shift towards the premium devices, right, as you kind of see a decline in the -- our intentional exit of the lower-end Android space. So yes, that captures it.

Operator: And our next question will be coming from the line of Krish Sankar of TD Cowen.

Sreekrishnan Sankarnarayanan: I have like 2 questions, short-term and long-term. My first question is more short-term is congrats on closing the deal. It looks like your largest customer, they decided to award RF content in calendar first quarter. And since the deal just closed a month ago, but they're probably aware of this deal, I'm just wondering, does it change their content award process this time given you are a bigger, much larger scale RF supplier? How to think about it going forward? And then I have a longer-term question.

Philip Brace: Yes, this is Phil. I'll take that. No, I don't expect their award process to change. I do think we're obviously a larger provider for them now, but I'm not expecting our largest customer to change anything with respect to what they do. For us, it remains to be a highly competitive market. I expect that to remain to be so, and we're just going to have to continue to execute and deliver.

I would -- I guess I would say one thing with respect to that just because of the different portfolio of products that we have, the seasonality may be a little different than what we've seen in the past just because of where some of those products are loaded. So I think that historically, we'll try and do a better job of kind of talking about seasonality patterns going forward because I think there's some -- a little bit of variability from what we've seen in the past just based on that.

And then I think just to reiterate, the fact we've got more content per device now really should lead to less volatility because we've got, right, more stability going forward and less single socket volatility, which is really what we're trying to drive towards.

Sreekrishnan Sankarnarayanan: Got it. Super helpful. And then a longer-term question. I think you spoke about the $150 million in synergies in fiscal '27, $250 million, $300 million exit run rate. I'm just kind of curious how to think about those synergies? How is it spread between COGS and OpEx? And how does the rationalization of the manufacturing footprint kind of come into a factor for that?

Philip Brace: Yes. I think we mentioned about 2/3 of the total $500 million will be OpEx related, about 1/3 will be COGS related. And when you think about the OpEx side, we commented in the prepared remarks, the IT integration system, the HR system is already done. A lot of that is timed to getting us IT milestones, which will happen in the first part of '27 as we combine and consolidate our ERP systems and things like that. So I would -- on the OpEx side, I expect things like SG&A to come first, R&D to come later and then COGS will start to work right away.

But most of the COGS benefit will come near the tail end of the period as we talk about factory consolidation and things like that.

Operator: And our next question will come from the line of Joe Moore of Morgan Stanley.

Gabriella Tulchinsky: This is Ella on the line for Joe. Now that you're one company and with the dividend eliminated last quarter -- how are you thinking about capital allocation between buybacks, deleveraging and strategic M&A?

Philip Carter: Yes. I would say we're definitely maintaining our flexibility. We have a bias towards share buybacks. But with the acquisition financing, we also want to build up a cash balance as we look forward. And we're going to be disciplined around accretive M&A that does grow gross margins and diversify the base. But yes, we are maintaining some level of flexibility. We are -- we were glad to see that we got an investment-grade upgrade from Moody's to Baa3 and Fitch moved us to a stable. So good to see that. But yes, maintain some level of flexibility as we move forward.

Gabriella Tulchinsky: Great. And then for my second question, just at a high level, if we look out 2 or 3 years, what does success look like for the combined company? And what milestones should we be watching along the way?

Philip Brace: Yes. Thanks. I think as we look at 2 to 3 years, I'd expect investors to say we've achieved delivering on those synergies at that run rate. I think I would expect to see our diversified growth markets continue to grow faster than cell -- faster in our smartphone business, resulting in better diversification of our businesses from that side. And I think we should be on track towards hitting our business model target, 50%, 55% gross margin, 30%, 35% operating margin and 35% to 40% adjusted EBITDA margin. So a more diversified company, attractive growth segments, great financial profile, synergies realized off to the races.

Operator: And our next question will come from the line of Jim Schneider of Goldman Sachs.

James Schneider: I was wondering if you could maybe sort of speak to your customers' inventory levels, both your largest customer and then the broader Android market. And maybe kind of give us a sense about what your expectation is preliminarily around how the smartphone revenue in the March quarter might trend?

Philip Carter: Yes. Jim, this is Phil Carter. Yes, we generally only guide one quarter at a time. But as we look at the current quarter, we're kind of tracking to what we were expecting even at the end of last quarter in terms of our Apple revenue. We're seeing sequential growth with our largest customer at Skyworks stand-alone. So really no change in terms of what we're seeing in the marketplace for our largest customer in terms of units and volume. But yes, that's what I would say with that one.

James Schneider: Great. And then maybe just a little bit of color. I mean, clearly, the consumer electronics end market is softer for all the reasons I think we know. Can you maybe talk about the consumer IoT part of the broader diversified business? And maybe how much of a headwind that represented in the quarter or in the guidance?

Philip Brace: I don't think we're going down to that level of detail. I think, Jim, you've kind of -- if we look at that physical AI and Connected Edge kind of segment, and we looked at that there. I mean the Wi-Fi part continues to grow really well from that side. That continues to grow well. That's offset by other sorts of stuff you've got in there. Pads and just other sort of consumer devices, consumer-focused Wi-Fi access points, things like that. So it's a lot of various stuff in there that I think goes on. But I think our Wi-Fi continues to grow well, and that's other softness stuff.

Rajvindra Gill: Yes. This is Raji. Just to add to that. So just on a stand-alone basis for Skyworks. So we ended the year in our broad markets business growing 10% year-over-year despite the softness in the consumer IoT. Our growth engines, whether it's Wi-Fi, data center, automotive are growing north of 25% year-over-year. So we're seeing a lot of growth in those markets. And as we look together as a combined entity, we're confident in the long-term growth rate in diversified growth markets driven by defense, data center and automotive. So we're excited about the growth trajectory in that business.

Operator: Our next question will be coming from the line of Edward Snyder of Charter Equity Research.

Edward Snyder: Based on your report, it looks like for [ Sentinel ] and Skyworks, your largest customer is down about 12% per year. If we subtract broad markets, it could be a little bit better than that, like 10% or so, which is interesting because units year-over-year because of the staggered release is down substantially more than that. So it seems to suggest that maybe your content is a little bit better this year on the models that were released last year. I'm just trying to get clarity on that.

And given the fact that you are seeing kind of a different release schedule, this would suggest -- I know you don't guide to March, but why shouldn't I expect that you should do better than seasonal for the March period, at least in your largest customer?

Philip Brace: Yes, Ed, I think -- I appreciate the question, and I'm sure you appreciate the subtlety of my answer, right? It's difficult -- we can't really comment on individual SKUs. I think we stand by what we said before in terms of content and content mix. The guide reflects what we think about in the current quarter. As you know, depending on how particular models ship and sell and when that things go, then that's how that's going to work. Our guide reflects what we believe for the quarter, and we'll continue to kind of do that going forward. We just can't really comment on how models are particularly going to go or individual SKUs and how that is.

We just can't comment on that.

Edward Snyder: Okay. Okay. But in the last couple of quarters, you said that you expect it to be relatively flat on the fiscal year, correct? Do I have that correct?

Philip Brace: Yes.

Edward Snyder: Okay. And so given all that's going on in the space, you seem to be doing better than that at this stage. So I'm just saying you're not varying your guidance for the fiscal year yet. We're just going to have to see how results play out. Is that kind of what we should see?

Philip Brace: Yes. And I think that's fair. Look, there's a lot of turbulence. You know there's just a lot of turbulence in the market on this topic. And I think we're just trying to guide one quarter at a time. We feel good about our position. We feel confident about our technology base. We've got great feedback, and we'll just continue to put one foot in front of the other, guide one quarter at a time.

Operator: Our next question will be coming from the line of Srini Pajjuri of RBC Capital Markets.

Srinivas Pajjuri: And let me echo my congrats on closing the deal. So one question on the gross margin side. When it comes to your internal factories now that it's a combined entity, can you give us some idea what the utilization levels are and where you see that going? And along the same lines, you talked about supply tightness and cost inflation. Any thoughts on kind of passing through some of those cost increases, especially in your faster-growing markets?

Philip Carter: Yes. So as you can imagine, as 2 separate companies, you can only optimize your footprint so much. But as a single combined company, we can do much, much more in terms of looking at the technology, getting into a smaller footprint and increasing utilization. So we're going through that process now. As Phil mentioned on the remarks, it takes longer to consolidate factory footprints and look at the technology and merge those together. In terms of passing on costs, Phil talked about the cost headwinds. We're seeing that continue. In the diversified space, we're able to pass that on more quickly and over time.

In the kind of handset smartphone space, it's a little bit more challenging because those are kind of annual contracts and sometimes 2-year things. And so it's a little bit tougher in that market to pass on those costs. And we are continuing to see those kind of cost headwinds come quarter after quarter. But yes, we have, as Phil mentioned, kind of entered into some deposits and prepays to some of our vendors to lock in cost and secure capacity to reduce some of those shortages and headwinds there as well. So that's kind of the action we're taking today.

Srinivas Pajjuri: And then my follow-up on the Android. Obviously, it's weak. It's well known. Qorvo was exiting some of the lower-end Android. I'm just curious where in that process we are? And maybe if you could kind of qualitatively talk about what percent of your sales roughly is Android now in terms of mobile? And then where do you see the Android business bottoming if Qorvo is still in the process of exiting that business -- the low end of that business, sorry?

Philip Carter: Yes. Yes, that's a great question. Yes. So as we look at the Android business and specifically, when we look at the Qorvo business, we guided down Qorvo 17%. Without the extra week, it was down 10%. And within that, the Android business is down over 20% sequentially, right? So we are seeing a reduction in the Android business. As we look into '27, with what we can see today, it does seem like we could be getting to a bottom in the Android space. And looking forward, it should represent less than 10% of our overall kind of smartphone business.

So we do think that we have visibility in that kind of bottoming over the next -- this coming fiscal year, and that's -- it's going to become a smaller and smaller portion of our revenue. So...

Operator: Our next question will be coming from the line of Tom O'Malley of Barclays.

Kyle Bleustein: This is Kyle Bleustein on for Tom O'Malley. I just wanted to double click on some of the gross margin targets that were kind of laid out there. You guys are guiding for pretty significant expansion to that 50% to 55% range. And when I think about the overall market, there's a lot of cost increases and different pressure from memory. So I just wanted to see, in the short-term, can you maybe comment on how you see gross margin in fiscal year '27 with some of those pressures that are out there in the market?

Philip Carter: Yes. So I'd say, as Phil mentioned previously, the earlier part of fiscal '27, we give one quarter at a time, but high level, I would say the earlier part of '27, because the costs come in early and the price increases come in later in the fiscal year, the earlier part will have lower margins, but we'll start to see that expand as we move through fiscal '27. Separate from that, the mix shift between, as we just mentioned, the lower-end Android business and the rest of the smartphone business, that mix shift will continue throughout the year.

In addition, the diversified business, which is above corporate average in gross margin, will continue to expand at the kind of low double-digit kind of rate over time. And so that combination will increase our margins. And then the synergy realization as you kind of exit this year going into the 2028 and beyond, you'll start to see those actually improve our gross margin as well, and that's how we get to our kind of 50% to 55% gross margin targets.

Kyle Bleustein: And then for my follow-up, I think you guys made a comment earlier on the call that content per device is coming up. I just wanted to check -- is that pro forma for the consolidated entity? So when you add Skyworks and Qorvo together, is content going up outside of just the base combination of what you have today and just kind of layering on that when you think about some of the comments you made on 5G Advanced do you -- when does that kind of layer in what could the size of that content increase be?

Philip Brace: Well, I think our overall SAM kind of increases because we've added new capabilities, right, and tuners, PMIC products that we don't have today. So our SAM per device has gone up, and therefore, our content naturally has gone up as well. Going forward, I would say, for the first time in years or as we start to see, we've got a tailwind of content coming with more transmit bands, more receive bands, more satellite bands, more power devices. So we see a tailwind of content, more filters that we haven't seen in the past. Now that's offset by integration, competitive dynamics and things like that.

Like we need to execute to deliver that, but that's kind of how we see that going forward. And I think the other part is because we've got more sockets per device, the single socket variability should go down a lot, which should provide some more stability for that business, which I think is just really important.

Operator: And our next question will be coming from the line of Vivek Arya of Bank of America.

Liam Pharr: This is Liam on for Vivek. So you talked about opportunities with the combined company, but I was wondering if you could elaborate more on the specific opportunities that you're most excited about in both iOS and Android and where you see the most upside relative to each.

Philip Brace: Well, one of my -- one of the things I guess we -- just a couple of weeks ago, we had the opportunity to bring some of our -- the best and brightest engineers from both sides. These are areas that we weren't really able to talk about during the pendency period for obvious reasons, right? For the first time, we brought the best engineers together. And I got to tell you, I was just really excited about the energy in the room. I mean I think that -- we've got some of the broadest, if not the broadest RF talent in the industry, period. And we now have the ability to have the entire RF signal chain.

So I'm really looking forward to the opportunities that we could do to deliver more fulsome solutions to our customers. And I think it's early days. That's something that we haven't really talked about in terms of, let's call it, product synergy, upside synergy, revenue synergies, right? Those are -- we've really underwritten this deal on, frankly, cost synergies. And I'm really excited to see what the engineers are going to come up with from that side. And then we've got the same opportunity on the growth -- on the diversified growth market side. I imagine there's some other products we can expand in the defense and aerospace side, how can we expand that portfolio there.

So I think there's a number of opportunities. It's early days. And honestly, I don't want to get ahead of our skis in talking about that because I want to let the engineers go through a cycle of innovation and get some feedback from customers. But I would say, early days, I'm incredibly optimistic about what can come out of that.

Liam Pharr: Awesome. And then given your largest customer's recent long-term agreement with a competitor, is your addressable TAM there in the near to medium term, still the same now that -- RF front-end stack? And are there any sockets that combined company could compete for that Skyworks couldn't separately or Qorvo couldn't separately now you guys are combined?

Philip Brace: I think we view that this is a little bit related to the kind of the dynamic that came before. I mean that business is always going to be a hypercompetitive business. There continues to be a competitive environment there. Obviously, with the competitive environment has changed a little bit the number of suppliers in the space. However, it remains to be a competitive environment, and we still need to execute and deliver. And our customer -- that largest customer is not going to just hand this business because all of a sudden, we're combined, right?

We need to continue to earn it and earn it every single day, and we've got thousands of people that are working hard to do that.

Operator: And our next question will be coming from the line of Christopher Rolland of Susquehanna.

Christopher Rolland: Congrats on closing this. I guess my first question is, it's been a while since Qorvo has kind of been in limbo as you've been in regulatory. Just the asset that you thought you were buying and the puts and takes since it's actually sat in limbo, which parts of the business maybe have gotten a little better and which maybe have gotten a little worse during that time just since we haven't got any Qorvo updates over that time?

Philip Brace: Yes, I'll take a high-level view of that. And I'm not going to characterize necessarily as better or worse. I'll just say kind of what we see. I mean, obviously, there's been some things. I think in general, as we look, it's been a little bit more than -- a little less than a month now, I guess. Most excited about the defense and aerospace side. I think that's super exciting. Most excited about the combination on the RF side for smartphones in terms of what we can do together there. I think that's really good and a lot of interesting opportunities there.

And we know there's some things to do there because in another major customer, we have more of the RF signal chain. So we know there's system stuff of thing we can do. So I'm excited about that. I think one of the other areas, right, if you look, one of the other things that's happened is that since, I guess, we announced the deal, less -- a little over a year ago now, right, the Android market has changed pretty substantially, right? The memory shortages, the Android market. There's just been a lot of turbulence in that space. And that's been pretty well talked about for many years.

So I would say that we've seen an increased deceleration in that part of the business, which ultimately isn't bad. Actually, it's a richer mix of business. So I don't mind the switch. It's just -- as a matter of fact, I probably like it. It's just more about a change in dynamics, right? So that's what I would say.

Christopher Rolland: Excellent. And then just getting a little bit into the modeling nitty-gritty, just so that I understand it here. So if I understand it correctly, in the December quarter, there's little or no synergies. So that should be a clean base particularly for OpEx. And then I think you're saying exiting the year, we should be taking as an exit rate, $250 million to $300 million of synergies this year. So I think that leaves very little, maybe $50 million for OpEx beyond this fiscal year, if I have that correct. And then lastly, in terms of the 1/3 that's in COGS, should we just put that all in fiscal '28? Or how should we handle that as well?

Philip Carter: Yes. This is Carter. So starting with the OpEx synergies, to your point, yes, as you look at where we see that $150 million rolling through the year, it is definitely back-end loaded. And we do see a path where OpEx could decline sequentially throughout the year, inclusive of our merit increases during the year. So we are seeing that benefit improve as we go throughout the year. In terms of the COGS synergies, yes, I think putting them out beyond this year, there will be some COGS synergies this year. They might be masked by those cost increases, but we are taking action, being decisive and making sure we're closely monitoring all the costs within COGS as well.

It's just they get masked by the increases that Phil talked about. So -- but the OpEx ones, you will see those grow over time. And yes, I think what you said was accurate.

Operator: And I would now like to turn the conference back to Phil Brace for closing remarks.

Philip Brace: Great. I'd like to thank everybody for joining on the call today, and we look forward to seeing you at upcoming conferences throughout the quarter. Thank you.

Operator: And this concludes today's program. Thank you for participating. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool recommends Skyworks Solutions. The Motley Fool has a disclosure policy.