Skyworks Solutions Q4 2026 Earnings Call Transcript

Skyworks Solutions (NASDAQ:SWKS) reported fourth-quarter financial results on Tuesday. The transcript from the company’s fourth-quarter earnings call has been provided below.

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Summary

Skyworks Solutions completed its merger with Qorvo, creating a combined entity with greater scale and a broader technology portfolio.

In Q4 2026, Skyworks Solutions reported standalone revenue of $1.05 billion, exceeding guidance, and non-GAAP EPS of $1.28.

The combined company’s future focus will be on Smartphone and Diversified Growth Markets, with an anticipated decline in Android revenue but growth in premium smartphone content.

Financial outlook for the December quarter anticipates revenue of $1.8 to $1.9 billion, with a decline in smartphone revenue due to seasonality and Android market softness.

Significant cost synergies of $500 million annually are expected, with most savings from operating expenses, and full integration benefits anticipated by fiscal 2027.

Management expressed optimism about the expanded engineering capabilities and the potential for revenue synergies.

The company aims for long-term growth with targets of mid to high single-digit revenue growth and improvements in gross and operating margins.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the Skyworks Solutions Q4 2026 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. 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 Singh Gill (Vice President, Investor Relations and Corporate Strategy)

Thank you, operator. Good afternoon, everyone, and welcome to Skyworks Solutions’ fourth fiscal quarter 2026 conference call. Our first call 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 Solutions. 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 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 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 5th, after the end of our fiscal fourth quarter, our September quarter results are Skyworks Solutions standalone, and our December quarter outlook is on a combined basis. With that, I’ll turn the call over to Phil Brace.

Phil Brace (Chief Executive Officer)

Thanks, Raji, and good afternoon, everyone. This is an important moment for our company. On October 5, we completed the combination of Skyworks Solutions and Qorvo, uniting more than six 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 two 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 standalone company. In the September quarter, Skyworks Solutions 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 four 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; and a path to a compelling target financial model, which Philip will walk through.

Going forward, we will report our businesses in two categories: Smartphone and Diversified Growth Markets. Smartphone includes our former 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 growth, 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 steadier 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 amplification, and more sophisticated antenna solutions. More bands, more paths, more performance, and more opportunities for Skyworks Solutions. 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 of 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: 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 and 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 secure 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 two-thirds from operating expenses and one-third 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 (Chief Financial Officer)

Thanks, Phil, and good afternoon. Because the transaction closed after our quarter end, our September quarter results are Skyworks Solutions standalone. Skyworks Solutions revenue for its fiscal quarter ended October 2 was $1,046,000,000. Qorvo’s revenue for its fiscal quarter ended October 3 was $937,000,000, 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 Solutions or Qorvo details going forward.

For the Skyworks Solutions standalone September quarterly results, revenue was $1,046,000,000 and above the midpoint of our guidance range of $1,000,000,000 and $1,035,000,000. 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, one penny 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 to $1.9 billion. At the midpoint, this includes approximately $1.07 billion from legacy Skyworks Solutions and approximately $780 million from legacy Qorvo. This will be the last quarter in which we provide this 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 percent 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 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 roadmaps, 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 other expense at 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.

Phil Brace (Chief Executive Officer)

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 headed.

Operator, let’s open the line for questions.

OPERATOR

Certainly. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, please limit yourself to one question and a follow‑up. Please stand by while we compile our Q&A roster. Our first question will come from the line of Carl Akerman of BNP Paribas. Your line is open, Carl.

Carl Akerman (Analyst)

Yes, thank you. Your broad markets continue 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?

Phil Brace (Chief Executive Officer)

Yeah, Carl, 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 we 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, data center and infrastructure at $400, and then auto at $340. 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 don’t think we talked about that, but certainly in the other markets we are supply constrained at this point. So we’re going to look to try and get as much supply as we can.

Carl Akerman (Analyst)

Got it. Yeah, I think if I may just follow to that, you know, 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 just double‑click on that a bit, Phil, with respect to your ability to procure more wafers or substrates, test capacity, and what you can do to further attack the demand opportunity in front of you for broad markets. Thank you.

Phil Brace (Chief Executive Officer)

Yeah, I think you’re right to call that out. And certainly in the September quarter we did a good job. 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. You know, that continues to be an area we continue to work towards. Right. And I kind of mentioned it’s a tight market out there and we’re working hard to do it.

It’s something 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, your line is open.

Craig Ellis (Analyst)

Yeah, thanks for taking the question, 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?

Phil Brace (Chief Executive Officer)

Yeah, thanks for asking the question. If you look at the company as we break it out, we kind of tried to be clear about that. We’ve got the smartphone space which is, you know, continuing 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 those investments towards the premium segment where RF 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, really kind of around stability. We see content opportunities as we head into the 5G Advanced and the 6G marketplace as more bands, more filters, more capabilities come in place. But, you know, 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, you know, premium growth, RF content opportunities offset by, you know, normal integration, price compression, right, things you get normally. So that’s kind of how we see that. The diversified growth markets really have got four 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 automation. Defense is a new part for us. That’s really supply constrained there from that side, and I think that in the state of the world 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 of 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 (Analyst)

That’s great. And then the follow‑up is either for you or Paul 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? Thank you.

Phil Brace (Chief Executive Officer)

Yeah, I’ll start and then, you know, 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 would 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, you know, 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 our 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 how we see it. I don’t know, Carter.

Philip Carter (Chief Financial Officer)

Yeah, 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, you know, our intentional exit of the lower-end Android space. So yeah, that captures it.

OPERATOR

And our next question will be coming from the line of Krish Sankar of TD Cowen. Your line is open. Krish.

Krish Sankar (Analyst)

Thanks for taking my question. With that, I have two questions, short term and a long term. My first question, which is more short term, is congrats on closing the deal. It looks like your largest customer, they decide they’re out of 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?

Then I had a longer-term question.

Phil Brace (Chief Executive Officer)

Yeah, 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. 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 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… So we’ll try and do a better job of kind of talking about seasonality patterns going forward because I think there’s 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 more stability going forward and less single-socket volatility which is really what we’re trying to drive towards.

Krish Sankar (Analyst)

Got it. Super helpful. And then a longer-term question. I think you spoke about the 150 million in synergies in fiscal ’27, $253 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 factor for that?

Philip Carter (Chief Financial Officer)

Yeah, I think we mentioned about two-thirds of the total 150 will be OPEX-related, about one third will be COGS-related too. And when you think about the OPEX side, we commented in prepared remarks the IT integration system, the HR system’s 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 on the OPEX side, I would expect things like SG&A to come first, R&D to come later, and then COGS we’ll start working 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. Your line is open.

Ella (Analyst)

This is Ella on the line for Joe. Thank you so much for taking my question. 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 (Chief Financial Officer)

Yeah, I would say, you know, we’re definitely maintaining our flexibility. We have a bias towards share buybacks, but, you know, with the acquisition financing, you know, we also want to build up a cash balance as we look forward and, you know, we’re going to be disciplined around accretive M&A that does grow gross margins and diversifies the base. But yeah, we are maintaining some level of flexibility. We were glad to see that, you know, we got an investment grade upgrade from Moody’s to BA3 and Fitch moved us to stable.

So good to see that. But yeah, maintaining some level of flexibility as we move forward.

Ella (Analyst)

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

Phil Brace (Chief Executive Officer)

Yeah, thanks. I think as we look at two to three 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 phone or faster in our smartphone business, resulting in better, you know, diversification of our businesses from that side. And I think we should be, you know, on track towards hitting our business models — 50 to 55% gross margin, 30 to 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

Our next question will come from the line of Jim Schneider of Goldman Sachs. Jim, your line is open.

Jim Schneider (Analyst)

Good afternoon. Thanks for taking my question. I was wondering if you 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 smartphone revenue in the March quarter might trend.

Philip Carter (Chief Financial Officer)

Yeah. Hey Jim, this is Phil Carter. 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 standalone. 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 for that one.

Jim Schneider (Analyst)

Great, thank you. Maybe just a little bit of color. 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?

Phil Brace (Chief Executive Officer)

I don’t think we’re going down to that level of detail. I think, Jim, you kind of, if we look at that physical AI 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 sorts of consumer devices, consumer-focused Wi-Fi access points, things like. 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 Singh Gill (Vice President, Investor Relations and Corporate Strategy)

Yeah, this is Raji, just to add to that. So just on a standalone basis for Skyworks, 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, your line is open. Edward,

Edward Snyder (Analyst)

Thanks a lot. Based on your report, it looks like for standalone 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 are 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 Carter (Chief Financial Officer)

Yeah, Ed, I think appreciate the question. I’m sure you’ll 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. And in terms of content and content mix, the guide reflects what we think about 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 does. We just can’t comment on that.

Edward Snyder (Analyst)

Okay, okay. But in the last couple quarters, you said that you expected to be relatively flat on the fiscal year, correct? Do I have that correct? Okay. And so given all that’s going on in this 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?

Philip Carter (Chief Financial Officer)

Yeah, and I think that’s fair. Look, there’s a lot of turbulence. I mean, 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 and guide one quarter at a time.

OPERATOR

And our next question will be coming from the line of Srini Pajjuri of RBC Capital Markets. Your line is open.

Srini Pajjuri (Analyst at RBC Capital Markets)

Thank you. And let me echo my congrats on closing the deal. Phil, 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 (Chief Financial Officer)

Yeah. So as you can imagine as two 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 in 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 two-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 yeah, 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. Thank you. Yeah, yeah, that’s a great question. Yeah. 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 this coming fiscal year. And that’s, you know, 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. Your line is open.

Kyle Blustein (Analyst at Barclays)

Hey guys, this is Kyle Blustein on for Tom O’Malley. Thank you for taking our question. 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 (Chief Financial Officer)

Yeah, 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 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 Blustein (Analyst at Barclays)

Thank you. And then for my follow-up, I think you guys made a comment earlier in the call that content per device is going up. I just wanted to check is that pro forma for the consolidated entity. So when you add Skyworks Solutions 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, when does that kind of layer in, what could the size of that content increase be?

Phil Brace (Chief Executive Officer)

Well, I think our overall SAM kind of increases because we’ve added new capabilities, right, antenna 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, 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. 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. Your line is open.

Liam Montrovec (Analyst)

Hi, yes, this is Liam Montrovec. Thank you for taking my question. 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. Thank you.

Phil Brace (Chief Executive Officer)

Well, one of the things — I guess we just a couple weeks ago we had the opportunity to bring some of our 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 gotta 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, you know, 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 — you know, that’s something that we haven’t really talked about in terms of, we’ll call it product synergy, upside synergy, revenue synergies, right. 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 diversified growth market side. Imagine there’s some other products we can expand into 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 Montrovec (Analyst)

Awesome. Thank you. 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 all our front-end stack? And are there any sockets that the combined company can compete for that Skyworks Solutions couldn’t separately or Qorvo couldn’t separately now that you guys are combined?

Phil Brace (Chief Executive Officer)

You know, I think we view that as sort of a little bit related to the kind of the dynamic that came before. I mean that business is always going to be a hyper-competitive business. There continues to be a competitive environment there. Obviously the competitive environment has changed a little bit with 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 us 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 Rowland of Susquehanna. Your line is open.

Christopher Rowland (Analyst at Susquehanna)

Thank you for the question, guys, and congrats on closing this. I guess my first question is, you know, it’s been a while since Qorvo’s 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.

Phil Brace (Chief Executive Officer)

Yeah, 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, we have more of the RF signal chain. So we know there’s some proof stuff thing we can do, so I’m excited about that. I think one of the other areas, if you look, one of the other things that’s happened is that since, I guess, we announced the deal a little over a year ago now, the Android market’s changed pretty substantially. 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, 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 Rowland (Analyst at Susquehanna)

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 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 one-third that’s in COGS, should we just put that all in fiscal 28 or how should we handle that as well?

Philip Carter (Chief Financial Officer)

Yeah, this is Carter. So starting with the OPEX synergies, to your point, yeah, 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, yeah, 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 yeah, I think what you said was accurate.

OPERATOR

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

Phil Brace (Chief Executive Officer)

Great. I’d like to thank everybody for joining on the call today. And we’ll 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.

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