Skyworks Solutions Inc
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Skyworks Solutions Inc
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Good afternoon and welcome to Skyworks Solutions Second Quarter and Fiscal Year 2019 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, Carrie. Good afternoon everyone and welcome to Skyworks' second fiscal quarter 2019 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 relating to future results and expectations that are or may be considered forward-looking. Please refer to our earnings press release and recent SEC filings, including our Annual Reports 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 that we will discuss include non-GAAP financial measures consistent with our prior 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 delivered another quarter of solid financial performance leveraging the strength of our business model and momentum across our high growth broad markets and IoT portfolio. Specifically, in Q2, we generated a revenue of $810 million, drove gross margin of 50.7% and operating margin of 34.1% while posting an earnings per share of $1.47.
Our March quarter results were impacted by unit weakness in mobile, particularly across China. In contrast, our broad markets business continues to outperform and is on path for double-digit growth again in fiscal ’19.
During the quarter, our design win execution accelerated, building a growing pipeline of new opportunities while positioning us for continued traction across a diverse set of end markets, applications, and customers.
For example, in the quarter, we led the transition to the latest WiFi 6 standard with platform wins at Aruba, Asus, Cisco, and Netgear. We gained content with our SkyOne platform and DRx engines in Samsung's Galaxy S10 smartphones.
We leveraged our portfolio of audio SOCs supporting high fidelity stereo headsets, premium sound bars, and gaming applications. We enabled long range machine-to-machine communication in smart meters and street lighting. And we captured the first commercially available 5G indoor access point.
We also secured massive MIMO infrastructure wins with Ericsson and Nokia, as they roll out 5G. We expanded our automotive footprint with LTE devices supporting eCall, remote entry, in cabin entertainment, and additional features.
And we extended our reach across new categories in both aerospace and defense, leveraging our c-band filtering solutions. As these achievements demonstrate, Skyworks is capitalizing on powerful macro trends, diversifying across new customers, and segments while advancing our market leadership.
Our solutions empower everything from data center to cloud, media to entertainment, to e-commerce to ride hailing services.
Moving forward, the transformational technology of tomorrow is being built on a new generation of connectivity solutions enabled by the rollout of 5G.
The applications driving this revolutionary change require a step function leap in performance, supporting the continuous interaction between client and cloud, while delivering high speed data, near zero latency, and perfect reliability.
Skyworks’ unique systems expertise, strategic partnerships, and global scale are critical to the success of 5G deployments. Our strengths underpin a broad array of capabilities, including an expanding set of MIMO devices, SkyOne and Sky5 systems solutions, addressing low to ultra-high bands and a family of diversity receive modules as well as emerging technologies in millimeter wave.
Our portfolio is further bolstered by the strategic investments we've made in advanced filtering, spanning SAW, TCSAW, and BAW while addressing spectrum from 700 megahertz to six gigahertz.
And as 5G traction takes hold, we expect to benefit from new product categories targeting higher frequency spectrum in the future. As these technological demands intensify, Skyworks competitive position is strengthened with growing content reach across a wide array of customers and applications.
Strong momentum in broad markets, world class operational execution and scale, and decades of experience in developing breakthrough solutions over multiple technology generations, and importantly, superior cash flow allowing us to out-invest our competition while providing premium returns to shareholders.
With that, I will turn the call over to Kris for discussion of last quarter’s performance and our outlook for Q3.
Thanks, Liam. Revenue for the second fiscal quarter of 2019 was 810 million. As expected, continued strengthen in our high growth markets business allowed us to partially offset unit declines across mobile and overall weakness in the Chinese end markets.
Gross profit was 411 million, resulting in a gross margin of 50.7%, flat compared to the second quarter of fiscal 2018.
Operating expenses were 135 million, in line with our guidance and down 3% sequentially, as we continue to effectively manage our operating expenses. We generated 276 million of operating income, translating into an operating margin of 34.1%. Second quarter effective tax rate was 8.3%. This drove net income of 257 million or $1.47 of diluted earnings per share.
Turning to the balance sheet and cash flow, second fiscal quarter cash flow from operations was 192 million and for the first six months of the fiscal year, operating cash flow was 741 million. Second fiscal quarter capital expenditures were 97 million and we distributed 66 million in dividends and repurchased 1.7 million shares of our common stock for a total of 142 million. We ended the quarter with a cash balance of just under 1 billion with no debt.
Now looking ahead to the June quarter, we expect sequential revenue and earnings growth driven by strategic wins and content gains in mobile as well as traction across our broad market portfolio. Specifically, we anticipate revenue in the range of 815 million to 835 million, gross margin between 50.5% and 51%, and operating expenses to be up slightly to approximately 137 million.
Below the line, we anticipate roughly 3.5 million in other income and an effective tax rate in the range of 9% to 9.5%. We expect our diluted share count to be approximately 173 million shares. Assuming a revenue midpoint of approximately 825 million, we plan to deliver diluted earnings per share of $1.50.
With that, let me turn the call back to Liam.
Thanks, Chris. As our results illustrate, we continue to deliver strong levels of profitability, allowing us to make the pivotal investments that drive market leadership. In parallel, we are advancing our technological reach, positioning us to win in the connected economy of tomorrow, an unprecedented opportunity for Skyworks.
In summary, we are firmly committed to increasing shareholder value while executing on our ambitious vision of connecting everyone and everything all the time.
Operator, that concludes our prepared remarks. Let's open the lines for questions.
[Operator Instructions] And our first question comes from Toshiya Hari from Goldman Sachs.
Thank you for taking the question. My first one is a housekeeping question. Can you provide the revenue split between mobile and broad markets for the March quarter and what your expectations into June? For both, please?
Sure. So, in the March quarter, our broad market business was approximately 33% of total revenue. So, we continue to run that business up more than $1 billion annualized revenue run rate. We continue to see as we said in the prepared remarks, continuous strength there with both sequential as well as year over year growth. And we are well on track to see double-digit year over year growth in that broad markets business. Of course, on the flip side, we have our mobile business, which was 67% of total revenue.
And my follow up is on inventory. And hopefully, Kris, you can provide some color here. It was up I think around 13% sequentially, close to 20% year over year. What drove the uptick? And yeah, what drove the uptick there and what are their expectations into June and do you expect inventory to be down or flat, any color there would be helpful. Thank you.
So, in the March quarter, which is our seasonally slowest quarter of the year, we did increase inventory levels both in absolute dollars as in days of inventory, fully in line with our expectation and driven by the fact that this year even more so than ever before, we took advantage of the softness in the business to level load our factories, mainly in support of new programs, known design wins with content gains with multiple large customers that are ramping in the second half of the calendar year.
And so we are doing that to minimize future capital expenditures and to drive efficient usage of our capital equipment. In addition to that, as you know, we continue to execute on our filter in-sourcing strategy that gives us a cost advantage, quality advantage, better performance of our filters, but as you know, when you produce your filters in house compared to buying them from third parties, you have to carry a little bit more inventory in terms of raw materials, work in process, and some buffer stocks.
Having said that, we expect inventory to be kind of flattish into the June quarter, but then, we expect improvement in terms of days of inventory in the second half of the year -- of the calendar year as we execute on those product ramps. I just want to point out that if you look at the first six months of the fiscal calendar, we have a free cash flow of 29% and so we are well on track to deliver a full-year free cash flow of 30%.
Yeah, let me add, Toshi, to that -- to Kris's comments is that the products that we're working on right now and the inventory that is being built now is targeted directly for known design wins that we have in the second half, very complex, compelling solutions that we’ll be delivering in the second half of the calendar year. So we know exactly where this material is going.
And now to the line of Ambrish Srivastava from BMO.
Liam, maybe a question on medium to longer term implications for your business with Qualcomm and Apple settling and Intel exiting the business. So, one assumption and I'm not saying it's the right assumption would be that you would lose the Intel business and then also Qualcomm would be able to bundle more and hence really have a negative impact on your business. So just kind of help us understand how we should be thinking about it, at least, I get this question, number one from investors and then I had a follow up as well please.
Sure, Ambrish. No problem. Well, let me kind of go back in time a little bit and take a long view at this thought. First of all, Skyworks as you know is baseband agnostic. Our products are interoperable with Qualcomm, with Intel, with MediaTeK, Samsung LSI, Huawei, et cetera. So, we've been able to navigate the baseband ecosystem and operate very effectively with all of those players. I would also say with the largest customers, we've had tremendous amount of volatility in baseband, but we've always grown our share.
So if you look back in the early days of the largest customer and where their baseband position was, and there was a transition at one point, and then there was at times where we had two players going at once, all of that had no impact on our business. We continue to grow share, work with our customers, engineer to engineer, shoulder to shoulder design in work to grow our content in our position. And if we look out, one of the things that allows us to do that, Ambrish, is that we have made the investments in the technologies. We have in-house custom gallium arsenide technology, we have an array of filtering technology now that goes from SATA, TC SATA, bulk acoustic wave.
We've made the investments to bring the scale to a market, which is also important. And one of the things that makes us really comfortable right now and really excited is this move to 5G. The 2G and 3G world, there was a lot of opportunity for players to expand from baseband and try to integrate RF, maybe use CMOS, maybe use another technology, but it never really happened. When you go to 5G, the complexity curve goes way up. It is daunting, it is challenging. We're thrilled by the opportunity. But it is by no stretch easy. So the leap from baseband to RF is challenging enough. But when you start moving into 4G and now 5G, it's really in the sweet spot of Skyworks. And we've invested a lot of time and energy and we have the people in our company ready to execute on that agenda.
Okay, that's helpful prospectively. And for my follow-up, Kris, maybe back to you on the inventory days, 123. I run back and I can’t see a day closer to that, I think in 2016. So just please help us understand and there is no such thing as normal seasonality, but how should we be thinking taking inventory comments you made earlier to an earlier question with kind of how should we be thinking about normal seasonality? And also, is there a higher level of inventory days that we should be thinking as a normalized level, given that the broadband, the broad based business is much bigger business, and that naturally carries more inventory?
Yeah, I mean, I've listed the reasons why inventory is at least temporarily somewhat higher, right? We took advantage of the capacity we have in our factories, due to the softness in the business. And so we did more than ever before level loading. And so over time, as the businesses start ramping in the second half, we will see a decline in inventory days. There's a couple of other elements, one I mentioned as well is the filtering sourcing, that will be on a permanent basis result in some higher levels of inventory. And then as you pointed out as well, I didn't put it out. But you're absolutely right about that. The broad market business by its nature being a lot more diversified, multiple skews for multiple customers in multiple end markets, resulting in some higher level of inventory as well. Having said that, I think for the June quarter, we expect inventory to be on or about the same level. And then in the second half of the calendar year, we will see inventory levels coming down, but they will more than likely stay higher than where they were historically.
Thank you. And now to the line of Bill Peterson from JP Morgan.
Yeah, I first had a question actually on your broad markets in the CV, design wins with Wi-Fi 6 and massive MIMOs and so forth. I guess I was wondering, I guess first on massive MIMO, do we expect this to ramp this year, are these in field trials or would these be more in mass production next year. And same for Wi-Fi 6, it's kind of had a slow start. But when do you see this really starting to move the needle, and if you can quantify the growth for these, I guess, bigger segments within broad markets for us, as far as the growth rates this year and into next?
Sure, Bill. Sure. So I would say on the infrastructure side, we noted in the prepared remarks that we are seeing build outs right now with Nokia, with Ericsson, also with Huawei. So we're delivering some of our MIMO solutions, or some of our really complex architectures that we have in switching and filtering and building out the 5G infrastructure. That's ongoing right now. It's still early innings, but that infrastructure is rapidly being deployed and we think there's a very long tail of opportunity here with 5G just starting to roll, so that's on the infrastructure side.
If you look at the position in Wi-Fi, we've had a really strong position within broad markets, leveraging Wi-Fi from 11N to AX to now the newest standard in Wi-Fi 6. There's again, tremendous opportunity that we named just a few design wins in today's call, but a number of our customers that are upgrading from 11AX to Wi-Fi 6 are coming to us. There's a lot of opportunity there and the product reach that we have and the customer reach that we have continues to expand its home security, its access points and routers, ring doorbell type application, just a myriad of really slick applications that are empowered by our connectivity solution. So it's early innings for Wi-Fi 6, but we're a proven player there and we expect a gain.
I guess second, your guidance, obviously growth at the midpoint for the June quarter, I'm curious about China, specifically China smartphone. Sure, it's been weakened in the first quarter as the first calendar quarter you spoke to, do you see this directionally improving and I guess what's driving that, I mean, we've also seen some sort of share shift in China where Huawei appears to be doing very well and other ones not so well. How do you see your business in China?
Sure. Well, we were seeing quite a bit of softness in China in the March quarter and that I read through in the numbers here. And within that, there was also some dynamics of market share shifts with Huawei picking up a little bit more and the Oppo, Vivo, Xiaomi ecosystem being softer. So that's something that we did experience in the March quarter. As we start to look out, we continue to see Huawei being strong, not only in mobile, but also in the infrastructure side, and obviously a, much more significant player than some of the smaller smartphone folks. But we are starting to see some gradual pick up in the second tier players in China in mobile.
And if you actually think long, the opportunity with the smaller players is quite impressive because today the content in those accounts is pretty light. But when you move to 5G, there will be unique technologies that are necessary, that are absolute must in a mobile device to basically operate on a 5G network. Therefore, the content gains and the smaller accounts could actually be on a ratio basis, even more impactful than what we have in a customer like Huawei today. So, there's a lot to look forward to there, but certainly the March quarter, China was very tough, very challenging. I think it impacted some of the -- even the US customers that sold into China. But, we’re getting through that now and should start to see improving conditions in Q3 and also into the second half.
And now to the line of Edward Snyder from Charter Equity Research.
Liam, I hate to burn my first question on Qualcomm's RF, but a claims, but Cristiano on Qualcomm's call yesterday made a big deal of RF wins, he didn't mention what they were like the CMOS millimeter wave mimic that’s burning through phones. Just as a reality check, are you seeing Qualcomm, some of the Qualcomm’s toeholds that they got last year in RF being reversed on phones this year, like the pixel 4 and then I have a follow up.
Yeah, they have been working to expand their baseband position, and they have a great baseband. So no question about that, but trying to move forward in the RF section. There have been a couple of spots where they popped up, but they really haven't really impeded our opportunities. So, we continue to do very, very well in the mid to high end. As you know well, as a technologist, the complexity in 4G and into 5G now with some of the networks that we're seeing and some of the burdens that we see in the technology builds that we have, it's just very difficult unless this is your bread and butter and we've been working on this for years.
We have a great position, we can interoperate with Qualcomm all day long, but in terms of their own RF, and trying to move the needle here, I think it's going to be very difficult. We have years and years of experience here working with this. We have the in-house assets and technology, we're building out our arsenal in filtering and then our ability to integrate with SkyOne and SkyFive and create highly customized configurable offerings to each one of our customers. And the shoulder-to-shoulder engineering work that I mentioned as we go to market, I think is quite compelling and it's in some of the main reasons why we do win. So, we recognize Qualcomm has an ambition to compete in RF, we're comfortable with where we are, but we’ll continue to raise our game and raise our strength to ensure that we lead.
And then if I could, you mentioned in sourcing soft filters. I last checked was just some time ago now, I thought we were generally in source on all the soft, over 75% of your modules have been pulled in, I was a little surprised to see it was one of your quintessential drivers to inventory and while we're on soft, while we’re on filters, Liam, if I could, there's a lot of talk of BAW in the last couple of quarters. I know you guys have been diligently working on a part now. We've heard that you sampled it in RX device. Have you gotten to the point where you're sampling duplexes yet and die this play any role in your big module and with your largest customer, BAW at all in the fall of this year. Thanks.
Right. So I'll start first on the inventory. So maybe a year and a year and a half ago, roughly 50% of the filters were in house. We made a big move to the 75%, 80% in house in the last couple of quarters, and now as we ramp the new products, for the next cycle, we will get closer to 90%, 95%.
Sure. And following up on the BAW opportunity and now that we've kind of communicated that more broadly, we are in production right now, supporting our BAW capabilities. And we have known design wins that will be similar to -- think of it as a SkyFive like module with BAW technologies. It's not going to be, it's a discrete filter, it’s going to be a solution. We continue to expand the opportunity set, we're sampling a number of customers across the board, we’re continuing to try to expand the reach of our BAW filtering capability. We've made quite a few investments and spent quite a bit of money investing not only in capacity, but also the technology that we need. And we're ready, we're ready. And, we're really excited about delivering product in the second half. And we have some really slick opportunities that we're looking at in 2020. So we will be well positioned and there should be some evidence of our success here coming soon.
And now to the line of Blayne Curtis from Barclays.
This is [indiscernible]. In the prepared remarks, you guys highlighted some massive MIMO wins with Nokia and Ericsson. Can you talk about where you're winning there? And as a percentage basis, how much can that contribute to your business over the next couple years?
Yeah, it's a meaningful part of our business in broad market. We've always been a pretty strong infrastructure player, but that market had been slow in the last few years as 4G kind of just lulled along and there wasn't an inflection point. So what we can do, there's a lot of things that we can do, we do high power amplifiers, we have some antenna arrays and switch arrays that go into the infrastructure space, there's even going to be some opportunity down the road here for millimeter wave technology, which is new, very complex. And we'll participate across the board, we've been a supplier to all the tier 1s, the Nokia, and even Samsung and Huawei, there. So, there's a large set of players that we have relationships with, and 5G is going to stimulate absolutely stimulate some new revenue opportunities.
And then my second one is just on the moving pieces in March here, you guys highlighted some weakness across China, and normally that business is up double digits in March, when you guys are talking about weakness, do you still -- did you still see growth in that business in March or is the entire Android down in March? I just want to get a little more color on the vector of that weakness.
Yeah, sure. Well, I will tell you in Q2, you're right, oftentimes, you have a holiday season, a holiday effect in December, a lot of growth. And then, some of the US names come down a bit in March. In China, typically China can go sideways, maybe even up in the March quarter, that's kind of a historical signature. This year, we had a different, we had a different experience. We had some pretty marked weakness in China broadly. It hit all of the tier 1s there, and also the smaller players. And it also, I think the China economy’s weakness also impacted some of the larger US companies. So it was an unusual period where there was weakness across the board in that market. We are seeing the business improve in China as we look out into Q3. And we're hopeful we get back to a normal cycle in the second half. And again, the 5G opportunities and some of the things we talked about already on the call should really stimulate some new demand for us.
And now to the line of Craig Ellis from B. Riley.
Guys, I wanted to follow up on some of the inventory comments, but moved to a different line. So if we bounce up to the income statement with inventory, where it is after the level loading and what are the implications Kris for gross margin expansion in the back half of the year, can we still expect to see typical incremental gross margins or would they be reduced, given higher inventory?
Oh, no, not at all. I mean, we continue to execute very well on our operational efficiency improvements. We will be bringing new, more complex products to the market in the second half. And so combination of those two, we will see further gross margin improvements in the second half. And we will continue to work towards our target model of 53% gross margin.
Yeah, and Craig, let me just also add that if you go a little bit deeper here and look at some of the challenges that we mentioned with inventory, we're still committed to delivering and we're right on, a free cash flow margin of 29% to 30%. So even with some of the bumpiness here that we endured in Q2, we’ll still be able to deliver, we have expectation to deliver a 30% free cash flow margin for the full year.
Thanks for that, Liam. And then I'll just follow up on a comment that you just made in response to the last question, I think you were speaking about a hope to return to normal seasonality in the back half of the year. At times, you give us a glimpse of what you think the business can do, not guidance, but give us a sense for what's possible in the business in the back half, any sense for that at this time?
Yeah, I mean, well, we're really not positioned to guide the Q4 and Q1 second half, but we do expect to see the market improve for us. We do know that we have a very strong pipeline of design wins that support some incredible product for our customers. We're very comfortable with that. We see that it's coming. It's one of the reasons why the inventory position is where it is. And so we certainly expect the second half to be better than the first half here.
And now to the line of it Srini Pajjuri from Macquarie.
Liam, just a couple of questions on 5G, given your enthusiasm, I'm just curious how your design win pipeline is looking? And then, and also, if you could give us some color as to where -- what kind of products historically you have down there to low band pad and the DRX modules, et cetera. So just wondering if you could provide us some color as to where you're winning these designs?
Sure. Yeah. We think of 5G as a technology and then that technology is ported into different applications. So obviously, the smartphone is going to be one of the most compelling 5G delivering that speed, that data rate, that performance in a smartphone. And there, it's very clear for us to see the incremental content, the necessary building blocks that are required to make that 5G phone work. And then you have the new markets that are being enabled by 5G, things like AR and VI, AI and VR, machine to machine applications where you're using a 5G signal to operate factories and robots, really cool stuff that hasn't happened yet.
So we're starting to see that occur first in the smartphone. We do believe that this is a little bit more of a 2020 to 2021 dynamic. I don't expect the market to see any significant 5G smartphone growth in 2019. But we're really excited about the design wins that we're working on and working with the right customers and seeing their product roadmaps and how we fit in. So there will be a lot of content, a lot of complexity. It's important to have the building blocks. I will say that, the fact that we have the technology and filtering from 700 mg to 6 gig and even now into the millimeter wave spectrum will be well positioned.
That decades of experience that we talked about is going to be necessary, this is hard stuff. And then having the scale, having the factory assets, the scale and the technology in house is going to be a differentiator for us. So we look forward to all of that. And I think it's going to be incredible to see the number of applications that are really going to be propelled and powered by 5G technology.
Got it? And then more of a strategic question. Liam, so obviously, you made an acquisition that seems to be working out well, but you still have plenty of cash and generating a lot of free cash flow. Just wondering how you're thinking about M&A going forward. I mean, obviously, the smartphone market is longer, even with 5G, you have a big customer concentration. I'm just curious, what your thoughts, latest thoughts on M&A are?
Sure. Yeah, we're still very excited about the opportunity that we have organically and we're heading down that path. But at the same time, you're right. I mean, I'm really pleased with the cash flow generation that we're putting forth as a company, the power that we have available. But so we're going to be very discerning when it comes to M&A. I mean, that's been a signature of Skyworks for years and it will continue to be, both the right opportunity comes along, we’ll be ready to take advantage.
And now to the line of Chris Caso from Raymond James.
Just a question on inventory levels. And last quarter, you talked about some caution on the part of customers with inventory amid the weakness. What do you feel is the situation right now with customer inventory? And perhaps you could address Huawei more directly? I guess there's, some fears about some Huawei potentially building some inventory. So if you could address that as well, please.
Yeah. So in general, when we talk about inventory levels in the channel, we made some remarks last earnings call where we saw some cautious behavior by our distributors. And as I told you last quarter, we are not fighting that tape. It's okay for now to have some lower levels of inventory or healthy levels of inventory in the channel that sets us up for strong and stronger sequential growth in the second half. As it relates to Huawei, I know there is a lot of speculation about their inventory levels. We don't have great visibility because we are in a hub arrangement.
And so once they -- so we don't keep inventory in the channel for them. And we only recognize revenue once they pulled their product out of their hub. And then, we don't have any visibility. As Liam said before, our business with Huawei is relatively strong, given some of the overall weakness in the China market. But we believe that Huawei themselves are gaining share in the Chinese market as well in mobile. They have strong infrastructure business and we are very well positioned with them, both in mobile and infrastructure.
Right and Chris, that's the key point. If you really look at the Q2 numbers for us, we saw the Huawei numbers do okay, but the other smaller players in China really come down. So some of that was share shift. We do know that Huawei is the most capable from a technology perspective, if you look at Oppo, Vivo, Xiaomi and the others. So they're starting -- as the market starts to move towards complexity, they're likely going to outperform their peer group. So that that was part of the read through in Q2.
As a follow up on the broad market business, the business has been decelerating for a couple of quarters now and I suppose that’s amid the market weakness as well. I guess I want to be clear what you guys are saying, are you still expecting double digit growth of the year on that and as we go into the second half of the year, are you expecting some reacceleration in the year-on-year growth from the broad markets business and perhaps give some reasons behind that.
Yeah, so if you look at the first half of the fiscal year, we rolled out about 10% year-over-year growth in broad markets. And so we expect, on a full year basis on or about 10, maybe slightly above 10% year-over-year growth. So, so as a result of that, of course, in the second half, we see some on or about 10% or continuous 10% year-over-year growth.
Thank you. And now to the line of Harsh Kumar from Piper Jaffray.
I was wondering, since you're somewhat new to the BAW technology, are there any gating factors that you can see that allow you to ramp in a very significant manner, particularly, let's say next year when your largest customer is now expected to come out with 5G phones?
So Harsh, the question is if there are any gating factor?
Yeah. Technologically, is there any technology you’re missing? Or is there a ramp factor that is unknown to you guys at this point?
Yeah. Harsh, this is Liam. Yeah, I feel very good about our position in 5G. And there are a lot of challenges. There are a lot of gating factors and gaps and opportunities. And that's what makes it great. It's going to be very, very complex. It's going to call for a set of technologies that's never been put together in the same device before. That's all new and all of the cross talk and noise and battle for current will occur in the device. So companies like Skyworks, we're in there now. We're under the hood working with the leaders in the industry to put all this technology together. And I think we've talked about this before, but remember, 5G is an incremental opportunity that overlays 4G, and even 3G in a smartphone device. So we've got to bring all of that technology into a single form factor and manage the interoperability of that. So there's a great, great deal of complexity.
What helps us is the in house technologies, we talked about it, we have our own gallium arsenide, our assembly and test in house in Mexicali and our ability to span filtering from low bands all the way up to ultra-high bands, and select what is needed customer by customer, depending on what band they're going to roam in, what carriers they want to support and what geographies they're going to live in. So a lot to that. And there'll be plenty of challenges, but that turns out -- that translates into opportunity for us.
And then as one follow-up, if I can ask you your thoughts on this year for 2019 content versus units. How do you guys see those things, those two factors playing out for your business in mobile?
Yeah, I would say, content is going to be a big driver. And that's something that we control. So, our focus is on executing on the controllables and that's bringing the content up and executing on these new technologies that we see in 5G and some other areas. But again, units also have the potential now to move. I don't know if we're going to see a big spike in the second half of this year in units. But I think when 5G starts to pick up, there's going to be a reacceleration and replacement rate. And then you have the double effect of a unit pop and then the unit pop that that's going to carry more and more value and content. So well, that'll eventually come together, may not happen in sync, but that'll eventually start to come together for us in the industry.
And now to the line of Vijay Rakesh from Mizuho.
Just wondering back on the competitive landscape on the handset side, especially, there has been some talk about Murata being, getting starting company from the low band side, just wondering what you guys are seeing, especially as you look at the back half.
Yeah, well, Murata has always been in the game. They focus more on mid to low end stuff in our space. We compete with them all the time, we like our playbook, we like our position. We have not seen them encroach on our low band pad and we're moving up now anyway, so our low band pad is solid, but we're also moving into new categories. Murata has always been around and they're a good competitor. But we feel very strongly about our position and our ability to defend and grow in the categories we’re existing in today.
And on the millimeter wave side, I know, on broad markets, it looks like you talked about some nice design wins there with some of the bigger carriers, but looks like initially, at least on the European carrier side, it has been a little bit slower, especially the ramp versus some of the Chinese carriers or some of the guys like Huawei, but -- so are you seeing any change in that ramp, especially in the European guys, it looks like some of the millimeter wave rollouts got delayed.
Yeah, those are good questions. So kind of two parts to that. So, we are seeing, we are actually seeing some nice growth with the European carriers, we are, the European infrastructure players, the Ericsson, the Nokias, for example. And that's been incrementally positive. If we look at millimeter wave as a category, a great deal of complexity, it is new technology, it’s new spectrum that requires different types of devices to execute. And so that's a bit of a game changer where I think a number of players are working on it. But everybody comes to market with a different type of solution. It's not, I don't think, it's a case where the blueprint is the same for every carrier.
So I think there's still a lot of work being done competitively to see what's the right implementation of millimeter wave. There's an infrastructure piece. There is kind of almost a, what we would call, a wide area network type of deployment as well that could be, think of it as street lights in the neighborhood delivering millimeter wave technology. And that eventually, I think further along, there will be some implementations in the smartphone itself. So that's another opportunity for the space that we're in here to see some real TAM growth. The millimeter wave part I think is out a bit. But we are working on it. And it's an element of 5G and could be a pretty, pretty significant driver over the next three to five years.
And our final question today comes from Christopher Rolland from Susquehanna.
Perhaps tying into that that last response as we move into higher frequencies, I understand that new materials might be used here, more ceramics, for example, or lump element. Can you guys talk about your capabilities here and what you have, what you might be deficient in? And what you might be looking to perhaps acquire out there?
Sure, that's a great question. In fact, we do have lump element in ceramics by the way, we noted some of that technology in the aerospace and defense comments earlier. But you're right, I mean, so in order to deliver across the entire spectrum, we go from 700 megahertz. Today, our technology gets up to about 2.5, we can push it to 6-gig and then you start to deal with millimeter wave, which is new technology in development. We don't have that in production. We have it in development. So there's going to be quite a bit of research and development and execution to make that millimeter wave spectrum work. It's, again, there's a lot of great benefits to that technology, but it's new.
So each supplier is working on in a different way. We've been a leader in integration on the Skyworks side. So one of the things that's really important is the customers, they have a full solution, not just a piece of silicon. They want an integrated system solution that works for them in their infrastructure side, and also in the handheld side. Our ability to reach into our filter portfolio, again, all the way from low bands to ultra-high bands, leverage our gallium arsenide technology and then the in house packaging, there's a great deal of complexity in packaging as well in millimeter wave. We can put all of that together. But we're not going to do that in a mass market approach.
We're going to work with each customer and each carrier to make sure that we work in their fashion and hit their schedule, their timelines and their technology notes. Because they're very different across the space. So there's a lot to learn in millimeter wave in the industry right now. It's going to be a big opportunity for the space. We've been making investments. Over time, we're accelerating our work. We're sampling and we're continuing to get feedback from the customers that matter. And we look forward again, as I noted, as an opportunity for us over the next few years.
And then you guys talked about being baseband, I'm not agnostic on that. But totally makes sense, I guess that, but Qualcomm is out saying they plan on tuning their RF to work optimally with their modem – their baseband particularly when it comes to power, for example, as we move into some of these higher frequencies. So I guess, the story sounds really good. But in your opinion, why is there no competitive advantage that can be gained from designing both the modem and the RF in the same system?
Well, they're totally different devices, different technologies. It's completely different. The RF technologies that we have, the gallium arsenide technology that we have are very different than silicon and CMOS. When you look at the complexity today, and 4G moving to 5G, it is incredible. And companies that have done nothing but RF, okay, are having a hard, hard time executing in the 5G world. So I think it's going to be challenging for Qualcomm that comes out of a digital baseband side, great company, but for them to take that leap into 5G I think is really going to be a challenge. The market has been around for a long time. Qualcomm has been around for a long time, we've had 2G, we had 3G, we had 4G, and we really have not been threatened from them as we've moved along. There's a lot of competition in this space. But we haven't seen the Qualcomm RF threat be significant for us. We respect the company. They have great technology, we've lined up with them. And a number of handsets interoperated with their baseband, and delivered compelling end solutions for our customers. But on the RF side, given the complexity that we're seeing right now and the challenges in bringing all this stuff to market in a 5G world, very, very hard, very, very hard for companies that haven't spent time and energy and years working on that implementation.
Thank you. 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 comments.
Well, thank you all for participating on today's call. We look forward to seeing you at upcoming conferences. Thank you.
Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.