Good morning, everybody. Welcome to the Goldman Sachs Communications and Technology Conference. My name is Jim Schreier. I'm the Senior Director of Analysts here at Goldman Sachs. It's my pleasure to welcome Skyworks Solutions and CEO Phil Brace to the stage today. Welcome, Phil. Good morning. Thanks for having me. Thanks for being here. You know, I've known you for some time now, back to your days at LSI. You stepped in to be the CEO of Skyworks Solutions. It's not even been a year since you joined. Maybe just give me your first impressions of the business and what has surprised you positively. I think the thing that surprised me the most positively is the caliber of the engineering talent. I honestly get shivers up and down my spine while I still talk about it. The stuff we do, the complexity of what we do, the caliber of the engineers, it's really a stimulating environment to be in, and I'm just incredibly proud of it. I look to the future. I see 99.99999% of the devices connected to the internet are connected wirelessly. I think that'll be true for as far as the eye can see. I feel good about the spot we're in as well. On the flip side, maybe what are the kind of two or three biggest areas of focus you're looking to improve in terms of the company's execution? Yeah, I mean, obviously, we've got to do better at our largest customer. I mean, that's a very competitive environment. We have a great relationship with them. I don't think anyone's put in more RF components than we have to them, $25 billion or more since iPhone 1. Having said that, they didn't do us any favors, right? We got to deliver better parts. We live in a very competitive environment, and that's just what it is. We got to execute and deliver better. I think the other part for me is that, you know, on our Broad Markets business, we can do better there too. We can do better telling the story. We can do better executing. You know, that's a $1.5 billion business and growing. It got some really nice secular tailwinds and I just don't, I think it's underappreciated by the markets. I think we can do better there too. Fair enough. You know, when I speak with investors, the question they ask most frequently is whether the RF semiconductor space is ripe for consolidation and if that can actually physically happen from a regulatory or other perspective. Maybe give us your perspective on that question. Yeah, look, I think in general, when you just zoom back out, semiconductors is an industry that has been driven by consolidation over many, many years, right? I think that it is a business that requires a certain amount of scale in order to afford the R&D that's necessary to continue to push the boundaries of innovation and technology. I think to that extent, with that clear eye, you look and you go, okay, certainly there's some industrial logic to have some sort of consolidation across the board in the semis. I think right now, I mean, there's a question of, you know, can it be done, you know, creatively? Is there the right path to regulatory? Do you have willing parties on the other sides, depending on what's happening in their strategic ambitions and goals? I certainly think it's something I've certainly considered, certainly thinking about, but a lot of conditions have to be right to kind of make that happen. Maybe give us your perspective. I mean, are you kind of a willing party there? Maybe do you have any perspective on the regulatory question? Yeah, look, my number one goal, I view myself as a steward of shareholder capital. I'm looking to do things to grow the share price and grow the return for the shareholders. To the extent in that environment, I look at all elements on that. I'd be crazy not to. In terms of regulatory, I think the view is that the current situation tends to be, they tend to be more constructive to deals and work on things that can make things happen versus blocking things. I think we're probably in a slightly more favorable environment for that, but I'm not an antitrust regulator and I didn't sleep at a Holiday Express last night, so I'm not sure I would claim to be one either. There you go. Away from consolidation, how would you characterize your appetite for M&A? What characteristics might you look for in a potential target in terms of expanding your portfolio? Yeah, that's a really good question. I mean, look, we've got a very solid foundation for our business. If you look kind of where we are, we feel really good about our technology position, and you look at our ability to generate cash and return cash and return capital to shareholders, I think we've done an excellent job over the past few years. Having said that, I think there's a pretty clear argument that you might have used some more of that capital to invest in some other businesses to change the shape of the business, right? I think today our concentration in one particular customer in the handset market is resulting in suppressed PE compared to other players. What would I look for? Technology adjacent things. I like things that are hard to do. I like things that are complex. I'm going to look for things that give me some stickiness, long-term longevity versus the volatility that can come from having a handset market. I look for things that are greed and gross margin attractive. That lends itself to things like infrastructure, or lends itself to lots of the things like that. You probably won't see me focus on the consumer side just because that gets me more volatility, which I think is a bit of a problem. Having said that, my number one focus is can I do things that are creative and are technology adjacent and have a strategic fit. The aperture for me is pretty wide in that area. You might imagine that I've got lots of people coming through my door and knocking on my door all the time. I don't feel like I'm in a rush. We're taking a deliberate focus view of that. It's certainly fair to say that M&A is probably higher on the priority list than perhaps it has been in the past. Okay. Maybe shifting to the current business, last quarter you reported a strong quarter and guided above the Street. Yep. You know, what drove the strong results? Can you unpack that for us in terms of was that the smartphone market getting better? Was your biggest customer doing better? How much was idiosyncratic for Skyworks Solutions specifically? Yeah, it's a good question. I mean, look, I think we saw strength across the board. You saw it was a very strong result in the quarter and a strong guide going forward. There are lots of questions around, you know, tariff impact and the like. I'd like to point out that I got that question the prior quarter as well. We ended up doing pretty well. Across the board, we saw a solid demand on the handset space. That's both at our largest customer as well as a ramp at a new customer, Google. I know some of us saw the Pixel 10 launch. We have a very good RF position there. Then our Broad Markets business, you know, it's multiple quarters of success, sequential growth, year-over-year growth, book to build better than one, and inventories at low positions. That guidance hasn't changed and those conditions continue to persist at this point. Broad-based strength. Great. I think on the call you talked about edge AI potentially having an impact on smartphone sales. What did you mean by that exactly? Do you expect AI to kind of catalyze a sort of a multi-year replacement cycle for smartphones? Maybe just talk a little bit about what you use. Yeah, it's a great question. It's something we get lots of times. If you look at that, there's a great gold rush going on to the AI data center, right? Billions and billions of dollars of capital going in there. My own view, going back to the statement I made at the beginning, is ultimately all that data needs to get out to the edge and to the consumers and to someone here. I bet you even everyone in the audience, where do they get it? They get it on this device. That's how that edge AI data, that's how that data in the data centers gets to the end consumer. Myself, when I look at, I mean, I have a 16, I love that, that intelligence that cleans up the phones and things like that. I think that is actually going to drive it. If you look at some of the replacement rates, right? Right now, the installed base, certainly the largest customers, over a billion units, the replacement rate is about four and a half years, as long as it's ever had been. All you need is a short compression of that and your result in hundreds of millions of units. Furthermore, what we're seeing out in time is the more RF complexity. You might ask yourself the question, okay, why is that? One, people are uploading more data. Therefore, that's, and then two, the upload is actually one of the things that drives battery life because the transmit power kind of defines the distance from the cell phone. The carriers don't want to deploy more CapEx. Having more complexity in the phone, and they don't want shorter battery life either. To some extent, what we've seen in some of the future generations, more RF complexity. I think that some of those things really result in a tailwind for us going forward. Maybe just kind of following on that, past wireless cycles, there's usually a time when RF content tends to re-inflect upward. Maybe talk about on-device AI and whether you think that's going to be a catalyst for this next wave. You talked about upward complexity, but maybe just talk about, you know, bill of materials and where you think it's going. Yeah, historically, if you look over the past, I think you're right, over the past several years, the actual bill of materials has actually come down on the RF space primarily due to integration, and there hasn't been a ton of innovation in that space. That's been a bit of a headwind. What we've seen going forward is an increase in RF complexity and some of the RFIs and RFQs that are coming from our customers, which tends to leave a little bit of tailwind on the RF content. When I look at the handset space in general, what do I see? I see there's some tailwinds that we have for any sort of potential unit increase, whether that's from a new form factor or from new features on the AI side. I see more RF complexity potentially driving an increase in total addressable market. I see socket availability coming back as people move to the internal modem. I see us being able to compete effectively with the sockets that we have. For me, I kind of think that we are at the, hopefully we're at the bottom of where we are, right, and still producing a lot of cash and where we're going, which is why I have the sense of optimism the way I do. Is it a done deal? No, absolutely not. We still got to compete and we got to earn it every single day, but the conditions are ripe in my mind. I know it was asked about on the call, and maybe you can't provide too much detail on this, but if your largest customer, Apple, were to use a larger share of internal versus external modems, how does that impact content for you on the margin? On balance, it's a tailwind for us as some of the sockets that were previously integrated with the external modem now become available for us. It represents an opportunity of about $2 a phone. Got it. Just kind of wondering, you know, as the quarter has gone, any notable change in terms of the guidance you provided a month ago, or is things more or less tracking as expected? Yeah, things are tracking as expected. No changes. Okay. You know, about your largest customer for a moment, you ship a lot of parts to them, 9, 10 parts per phone, I think probably more than anybody else. From a competitive standpoint, what areas do you think you're most differentiated in when it comes to that customer? Where do you feel kind of the most secure in your market position? That's a good question. You know, me being paranoid, I'm never going to say I feel secure. I think we got to compete for it every single time. I think that's perhaps the lesson that was learned over the past couple of down selections, maybe. I don't like that. We need to own our own destiny. I don't feel secure in any one of them. We got to earn them every single time. You asked me an initial question about what inspired me the most. I've had the opportunity to go around and meet just a bunch of different engineers and a bunch of different stuff that we do. The thing that really is interesting to me is, I mean, we literally are doing innovation around elements that we put in the transistors. We're doing really core innovation all the way up to devices, resonators, filters, and then advanced RF packaging. We have a very, very broad way of innovation all the way to super, super complex in-house manufacturing down in Mexicali. When you look at our ability to innovate at every level, from device all the way up to package, it's pretty impressive. Our ability to deliver that in incredibly high volume and sell it very, very effectively, sometimes less than a chocolate bar, right? You kind of go, wow, we're in a pretty good spot. Our competitors, they are tough competitors, right? We're not, we're in the big leagues. Our competitors have some good strengths too, and we just need to continue to out-innovate them. Could you talk about how you characterize your relationship with your largest customer? I know you've worked closely with them since joining. Maybe talk about how that relationship has developed over your time here. Okay, I would say it's a super strong relationship. It's an incredibly tight relationship. We have people that go in and out of both of our facilities daily. You know, it's a very tight relationship. We've been working with them for many, many years. They don't do us any favors, right? I mean, it's not their job to do us any favors. They wear a certain color badge and we wear a certain color badge. Our job is to deliver the best part. I want to make it impossible for them to choose anybody else. That's my job to do that. Having said that, obviously there's a certain familiarity you get when you have worked with someone for so long. I think that, you know, at the end of the day, we got to deliver the right parts. Certainly up until that point, it's a very collaborative relationship. They have a lot of respect for us and we have a lot of respect for them. As a matter of fact, when I first went there, they wrote down some people's names on the board and on a whiteboard and said, these are the best people in the RF industry. They didn't have to do that. The fact that they did was like, okay, that gave me a lot of confidence of the technical capability I have at the company. That's great. You noted earlier this year you had lost content with your largest customer. That's well understood by the market at this point. Going forward, how do you think about mitigating further losses? More importantly, how would you gauge your prospects at this point of regaining content that you may have lost based on what you've seen? Yeah, it's a good question. I get that, I ask that question a lot. I mean, I use a couple of analogies along the way. This is a very competitive environment. You really don't know until the end. There's two ways to look at it. When you have a winning, you know, if you have a winning product, you win, you get it all. If you have a jump ball, you split. If you have a bad product, you lose. As you go along, it's almost like you're in a horse race. You're at the first furlong, you're up by the nose. You're at the second furlong, you're behind by the nose. One thing that people who aren't familiar with the business don't really understand, it's not sufficient to meet their specs, right? You actually have to beat their specs. You beat their specs by a bunch. You don't really know where your competitor is. You have some feeling of where you are, based on the limits of physics and where you are. I would say right now, I feel really confident. I think we've continued to execute well when we do that. If you look at, I think we've still got some, there's some areas where we haven't played historically that we're working to gain some ground on. That'll probably take a little more time. I feel good about it. Results will be, we got to work hard. Yeah, it's not done. Makes sense. We'll move to the Android market and talk a little bit about it, because I think it's a somewhat neglected market. Yeah. There seem to be a lot of good opportunities there. A lot of investors have mixed views on it. From what I understand, there's some opportunities in that market where you maybe have more content potential per phone than your largest customer. Maybe take us through how you view this market, what trends you're seeing, and maybe as a follow-on, talk about your customer relationships in China and how you're managing those, given the current geopolitical environment. Yeah, that's a good question. Android business for us now is about $100 million. That's about what it is. About half of that is, you know, Google. Some of you may have seen the Pixel launch. I think some of those features there were pretty darn compelling, right? Real-time voice translation, stuff like that. I think they're doing a really good job. Google is an interesting story because they really, I think their phone and what they try and do is kind of keep the halo around Android so it's not relegated to the ultra-low-end stuff, right? They're very technology-oriented. Obviously, I wish they shipped more phones, but they are very technology-oriented and they're smart in the way that they engage with some of their partners, including us, where they have kind of more than one generation of phone, right? They know that there's simply, there's an opportunity cost for the engineers there. I would say it's a very tight, very collaborative relationship from that side. We're optimistic and bullish about that. On the other side, obviously, Samsung and the China players, we're going to be a lot more optimistic there. Those businesses tend to be a lot more margin challenged from that, just based on what they do. You may ask, why is that? One of the reasons is what we have is very high performance, very tightly integrated products. Customers that value that are willing to pay for that. Great. If you're not, you just want a phone. You have thousands and thousands of SKUs and you do it per country and you don't care about battery life and stuff like that. There are cheaper alternatives for that. We're just not going to go compete at that level. We'll be opportunistic about those spots. On the China piece, or is it just kind of like you? We have more limited, it's limited. That's opportunistic. It's down to minus now. I'm not ruling it out, but it's not an area of focus for us. It's going to be very opportunistic. Inherently or philosophically, maybe, do you think the Android market is more competitive than the iPhone market or not? What are the key differentiators in terms of competition at different customers? Is it kind of a customer-by-customer battle and a focus on commodity versus high-end features? How do you see it? Yeah, it's a great question. I mean, if you look at what we do, we deliver incredibly complex RF components at a very high level of integration that are optimized for performance and power to enable long battery life. Those customers that are willing to pay for that level of technology, we're a great fit for that. You know, there's a vast number of phones that don't care about that kind of stuff, and we're not going to go down and compete at that level. The level of competition is, I would say, it's different in that at the high end, the premium space where we play, it's a technology-oriented game, and you need to deliver the best parts. In the other segments, it's also hyper-competitive, but you need to deliver the lowest cost solution. That's not an area where we necessarily want to focus. I would say it's hard for me to judge the other space because we don't compete there too much, but that's probably why we haven't, just because that's not a game we want to play. Yeah. You cited the $100 million figure in terms of your exposure now. Would you say you want to kind of trend that up, down, or sideways if it's up to you? I want to grow all my businesses. I think that to the extent that we've got some customers there, like Google, that, you know, we hope they continue to do well and push it really well. I hope that grows, but you know, it's still an area of demand for us. If you think about the sort of flagship or premium Android smartphones and the kind of feature differentiation or technology you're providing into those versus the one that your largest customer, maybe talk about the things that might be different in the Android space. Yeah, one of the things that's different, if you look at that particular one we were talking about, we actually have 100% of the RF content in that particular model. Having the entire signal chain there allows us to do different things than we might otherwise do. We actually find that one customer to be particularly innovative in that spot. They're actually not, they're pretty smart guys up there, and they do some interesting things. You might imagine that having all of the chips allows you to do different things. There's back to how you partition the devices, how you modulate the power, how you do some other things. I would say there's some innovative things when you're not constrained by having individual pieces. There are some things you can do in the system level that are interesting and valued by the customer in that space. Maybe shifting to the Broad Markets business, which I think is a favorite topic of yours. We'd love to sort of get your view. I mean, it's been a big outperformer both sequentially and year over year. Maybe level set, just how would you unpack that business in terms of the large buckets of revenue within it and the% they contribute? Yeah, I mean, at a high level, the thing why I get passionate about that, that's a $1.5 billion business growing nicely, a creative gross margin of the company. If that business alone is an attractive, nice business that's there. The three major components of that, there's the edge IoT stuff, which is really Wi-Fi. When you think about that, the biggest part of that is Wi-Fi. You think about Wi-Fi 7 just starting at the really forefront of the Wi-Fi market. Both on the retail side, the enterprise side, that one's going quite well. We see a long runway there with Wi-Fi 8 even under development now. That one's, we think we got some systemic kind of tailwinds behind us there on that. The other one is automotive, right? Automotive, $200 million a year kind of business. We see that growing. We see that growing regardless of the engine, whether it's a combustion engine or not. Why is that? Because you see all of those in-vehicle, whether it's ADAS, in-vehicle entertainment, what's happening there, online downloads, over-the-air downloads, whether it's 5G connectivity, Wi-Fi connectivity, all the ADAS stuff that's happening. We see that move. Frankly, we're starting to see that. We've got big wins at BYD and Nissan and others that really kind of support that. That's going quite well. The other side is the infrastructure side, which includes some timing products. That's an area where we've continued to have up until recently, still inventory overhang from COVID, if you can believe it or not, because some of those products are so inexpensive that it was easy for the customer to go buy five years of inventory. We've actually seen that kind of behind us now. The book to build is better than one. We've got some great design wins there. Think of like Cisco, Juniper, SpaceX, and the like that gives us some exposure into some of the data center market that for us is a, we have under exposure there. To have kind of a nice window there is also another green shoot for us. Edge IoT, automotive, and then infrastructure. Yeah, I guess, with which would you say in terms of the overall growth profile going forward, are you seeing the strongest kind of cyclical recovery of the type you mentioned versus which ones are more secularly driven, whether that's automotive, data center, or otherwise? Yeah, I think that's a good question. In terms of cyclical recovery, it's probably on the infrastructure side just because we've had so much inventory that we've burned through there now. We're starting to see that come back. Secular tailwinds, actually, I think all three of them have secular tailwinds for that, right? I mean, obviously on the Wi-Fi 7, you just see that continue to go. You could argue there's some cyclicality there too as you go from 6 to 7. When you go through a transition like that, there's more RF content initially. There's some good tailwinds there. I mentioned the secular stuff on the autos, which, you know, we're probably more secular on the autos than we are cyclical simply because we're such a small portion of it. When you look at the secular trends of ADAS and vehicle entertainment and all the things I talked about, that's probably just a, you know, if you ask yourself the question five years from now, are more or less cars going to look like that, you probably go more. Therefore, that's the way I feel about that one. Yeah. You touched on Wi-Fi a minute ago. Where are we in the Wi-Fi 7 upgrade cycle? Talk about the kind of content uplift you see from 6 to 7, and then sort of talk about the competitive environment in the space too. Yeah, it's a material upgrade. I mean, it's, you know, it's a nice content uplift for us. We are early innings. I think it's probably $100 million or something like that. That's where we've got. We've got a good tailwind on that. It's barely started really from that. We think we've got hundreds of millions more dollars to get that we should see over time, you know, get that going forward year over year. We see that with more antennas, more mesh capability, more power, more performance. I think that that's, you know, that's a tailwind for us, a secular tailwind that should be a tailwind for us going forward multiple years out. As we think about Broad Markets broadly, bad choice of words, maybe should we think about or how are you thinking about the growth that we're expecting in that market? Are we going to get back to more typical seasonality over the next few quarters? Do you think we can still see sort of accelerating year-over-year growth in the out quarters? Yeah, it's good. I mean, typically there is some seasonality with that business just based on the ebbs and flows of the purchasing cycle and what's happened. I think that seasonality has been muted by inventory corrections and some of the other things we've been having. We continue to expect to see sequential and year-over-year growth. I mean, we likely will see some sequential effects probably in the next quarter or two. It just depends on purchasing cycles and things, right? Yeah. Okay, maybe kind of rounding out on some operational and financial questions if we could. You know, you talked about optimizing your manufacturing footprint, consolidating operations in Woburn to Newbury Park. Yep. That should help drive improved utilization. Obviously, it lowers your fixed cost. Give us any hint you can in terms of what the cost savings might be eventually. Yeah, you know, we kind of avoided talking about that. One, it's going to take a little while to get that done. Second off, the ultimate costs are going to be driven by the ultimate utilization, which will depend on content, right? It's going to be difficult to actually parse that out when it's done, but it should be tens of millions of dollars a year minimum. It'll be a tailwind to both gross margin, CapEx, OpEx, and our utilization should get better. There are metrics that should get better for that. I'm very confident we have sufficient capacity to meet whatever content needs we have there. Frankly, it's probably a decision that should have been made a while ago in terms of that. I feel good about that. We started that process now. We're going to be deliberate and methodical how we do that just because we've got some parts. Most of our parts are dual sourced between the two facilities, but there are some parts, particularly in the Broad Markets space, that are not. We're going to need to go through kind of a PCI notification for that. That'll take some time. We just want to make sure we're doing the right thing for the customer. Give us any kind of commentary you can in terms of the timing of this. I don't think anybody's expecting to shorten the numbers in the next few quarters, but maybe talk about it as something you can see inside of two years. Yeah, I should start to see some of the benefit inside two years. Okay. You know, you've consistently generated pretty strong free cash flow. Looking ahead, any reason that doesn't continue? Maybe talk about, you know, do you have a long-term view on steady state and free cash flow margin for the business? Yeah, it's a good question. I mean, if you look over the past years, we've certainly done a really good job of turning earnings into cash. Some of that was driven by working capital utilization. We did a good job of driving our inventory down, which actually enabled us to go back and take advantage of some, you know, what we thought was a crazy time in the market. We've put some of that capital to use and bought some of the shares back. I think going forward, we're probably not going to see that same level of cash generation primarily because we've got our working capital down. Having said that, we continue to focus on the free cash, you know, cash flow, cash flow generation, and share returns to returns of capital to shareholders. Some means of focus of ours. I think we've done a good job of the company for that. We'll continue to focus on that going forward. You touched on capital allocation. How do you see the balance between dividend growth and buybacks going forward for the company? Yeah, I think, you know, we've taken advantage of, if you look over the past several years, we've probably returned over $5 billion of capital to shareholders in the combination of share repurchase and growth. It goes back to the discussion I had at M&A. You might argue that we should probably increase a little bit of that capital on M&A going forward. I'll probably look to that. Having said that, I think the company's always disciplined. I'm looking to make sure I view myself as a steward of shareholder capital. I'm going to be really focused on how to do that. You saw us take advantage of what we thought were some crazy dislocations earlier in the year and put some of our capital to work to take our share count down. I'm not opposed to doing that when the time's right. I'm also going to be looking to make sure I build the business long term and look for things that I can grow creatively and help provide me some diversification, which I think will benefit all shareholders. Yeah. Just to close out, I mean, you know, stepping back and you've been at the company for some time now and you've been in a lot of investor meetings, including ones later today. Yep. Talk about your view on investors' view of the company. What's the thing that you think is most understood by the investment community? If we sit down again in five years, what's the thing that people would be most surprised by looking back? Oh, that is a really good question. You know, what's most understood, obviously, like, you know, every single investor call I go to, they all ask about what's happening with content, right? That's the most, I think that one is probably one of the most tracked tech things on the planet. Sometimes it's hard to know whether people are asking about Skyworks Solutions or they're asking about some other read-through on Apple. Look, I think that's very understood. I think that one of the things that has been interesting, obviously we had a disappointing result, the last down cycle. Most of the investors, I mean, it's kind of the, it's one of the reasons why we trade a little bit of this kind of multiple. People get it. It's the game we're in. It's competitive. You have a choice as a leader. You have a fruit tree. I use a fruit tree analogy all the time. Okay, you got, you didn't get as much, I think it was a battle on a groan. I didn't get as many apples off the tree this year as I did last year. Choice A is I can cut down the water and fertilizer. That pretty much guarantees I won't get as many apples the next year. Or choice C, I can go, you know what, we're going to keep going because I believe in this. That's kind of what we're doing. I think a lot of investors understand that. I think what investors don't understand, we need to do a better job of it. Frankly, better execution is how to grow our non, you know, mobile handset business. I mentioned before, it's a, you know, $1.5 billion business growing in really attractive segments, right? Wi-Fi 7, automotive, infrastructure, timing, space, exuberance. No one even talks about that. We don't ask about that. I think that in five years from now, I think I'd like to see us have a much more balanced profile that, you know, is growing, returning, right? Returning and generating returns for shareholders that result in share upper performance. Right now, we're kind of in the do loop of, you know, what's happening in the next downfall, the down selection cycle. That's what I'd like to see. Very good. Thank you very much for being with us today. We appreciate it. Great. Thank you very much.