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Qorvo, Inc. (QRVO) Q2 2021 Earnings Call Transcript

QRVO Earnings Call - Final Transcript

Qorvo, Inc.  (NASDAQ: QRVO) Q2 2021 earnings call dated Nov. 04, 2020

Corporate Participants:

Douglas DeLieto — Vice President, Investor Relations

Robert Bruggeworth — Chief Executive Officer

Mark Murphy — Chief Financial Officer

James Klein — President of Infrastructure and Defense Products

Steven Creviston — President of Mobile Products

Analysts:

Karl Ackerman — Cowen & Company — Analyst

Toshiya Hari — Goldman Sachs — Analyst

Bill Peterson — J.P. Morgan — Analyst

Vivek Arya — Bank of America Securities — Analyst

Harsh Kumar — Piper Sandler — Analyst

Gary Mobley — Wells Fargo Securities — Analyst

Craig Hettenbach — Morgan Stanley — Analyst

Edward Snyder — Charter Equity Research — Analyst

Presentation:

Operator

Good day, and welcome to the Qorvo Incorporated Q2 2021 Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Douglas DeLieto, Vice President of Investor Relations. Please go ahead, sir.

Douglas DeLieto — Vice President, Investor Relations

Thanks very much. Hello, everybody, and welcome to Qorvo’s fiscal 2021 second quarter earnings conference call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management’s current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today as well as the risk factors associated with our business in our annual report on Form 10-K filed with the SEC, because these risk factors may affect our operations and financial results.

In today’s release and on today’s call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our website at qorvo.com under Investors.

Joining us today are Bob Bruggeworth, President and CEO; Mark Murphy, Chief Financial Officer; James Klein, President of Qorvo’s Infrastructure and Defense Products Group; and Eric Creviston, President of Qorvo’s Mobile Products Group as well as other members of Qorvo’s management team.

And with that, I’ll turn it over to Bob.

Robert Bruggeworth — Chief Executive Officer

Thank you, Doug and thanks to everyone for joining our call. In our second fiscal quarter, Qorvo outperformed our updated guidance on revenue, gross margin and EPS. Strength was broad-based across customers and supported by multi-year technology upgrade cycles. Both businesses had strong year-over-year growth, supported by new product launches, 5G and WiFi 6. In Mobile Products, the transition to 5G is fueling a shift from discrete products to higher value content including integrated modules in flagship and mass-market 5G smartphones. Driving growth, Qorvo is leveraging our deep technology portfolio and pursuing opportunities throughout the front end at the antenna, in the main path, in the diversity path and across the frequency spectrum.

At the antenna, the introduction of new bands and band combinations is creating significant design challenges for OEMs. Qorvo solves these challenges with a range of products, including an expanding portfolio of antennaplexers. In the September quarter, we increased volume shipments of our BAW-based antennaplexer solutions to multiple Tier 1 OEM smartphone manufacturers. In the main path, Qorvo’s highly integrated 5G solutions include low-band, mid-high band and ultra-high band modules. Customer design activity has been robust and we expect our main path solutions to grow across customers as demand for integrated solutions expands throughout the high volume mid-tier. In September, we expanded shipments of our complete main path solutions across multiple Tier 1 Android smartphone OEMs.

In the diversity path, the adoption of dual transmit architectures is creating new requirements for integrated transmit and receive filtering. This is especially meaningful for Qorvo because our dual connectivity modules leverage many of the technology advantages, we enjoy in the main path, including high performance BAW multiplexing. We’ve said previously we anticipate approximately 250 million 5G smartphones in calendar ’20, with that number approximately doubling in 2021 and that remains our view.

In ultrawide band, we see adoption in smartphones as the catalyst for a broad ecosystem of connected devices. Similar to Bluetooth, smartphones will be the hub connecting to multiple peripherals. The technology will enhance how we interact with our media, lighting, appliances, automobiles, digital wallets and a range of other applications in and out of the home. It will also transform how we locate equipment and production pieces on the factory floor, even how we interact with co-workers.

In the September quarter, we acquired 7Hugs Labs, a pioneer in ultra-wideband software and system solutions to enhance our capabilities in UWB solutions and accelerate adoption across mobile, IoT and automotive ecosystems. The combination of our hardware technology with their software expertise positions Qorvo to accelerate the development of broad ultra-wideband ecosystem, expected to reach billions of devices in the coming years. 7Hugs brings a highly skilled team with vast experience in UWB application and a portfolio of intellectual property. We’re excited to welcome them to Qorvo to build on their success and accelerate growth in ultra-wideband. We also signed a partnership with a leading design services company Sigma Connectivity to develop advanced UWB solutions and assist customers in the creation of breakthrough applications, leveraging the unique capabilities of UWB.

For a wide array of applications like asset tracking, Qorvo enables long range, low data rate connectivity via cellular IoT. We offer a broad portfolio of discrete solutions as well as highly integrated modules for CAT-M and narrowband IoT through our partnership with Nordic Semiconductor. In WiFi 6, we enjoyed broad-based content gains across both businesses in support of the leading suppliers of smartphones, tablets, mesh networks, gateways, smart speakers and virtual reality headsets. Before turning to IDP, Qorvo was recently granted a license to ship certain mobile products to Huawei. Our December guidance currently contemplates no Huawei revenue as we work with the customer to understand the impact on the license.

Now turning to IDP. Wireless connectivity revenue more than doubled year-over-year. WiFi revenue was broad-based across products and customers and supported by the rollout of WiFi 6. Customer demand for our front-end modules and BAW filters was especially strong in support of CPE and retail applications. Looking more closely at content opportunities, our shipments for the leading connected home platform provider included WiFi 6 bands, BAW filters and multi-protocol SoCs.

Also for next generation Wi-Fi gateway, we were awarded the entire RF BAW in support of the leading North American multiple system operator or MSO, included the 2.5 gigahertz and 5 gigahertz bands in a variety of filter products. The FCC recently approved new spectrum for WiFi 6E and Qorvo is actively supporting leading OEMs in the design of 6E platforms. WiFi 6E will continue to increase the capacity and lower the latency of next-generation platforms, creating a new class of products and applications.

In defense and aerospace, Qorvo was the exclusive RF recipient of the multi-year US government SHIP program recognizing our leadership in advanced semiconductor packaging. This program will continue to advance the state-of-the-art in packaging targeted towards a broad range of applications. Also of note, we advanced the performance of the defense phased radars with 150 watt 2.9 gigahertz to 3.5 gigahertz power amplifier using our industry-leading GaN process.

In power management, growth was driven by the transition of solid-state storage and client devices such as laptops and enterprise computing and data centers. Demand has also been strong for our motor control products, as brushless motor technology continues to gain share in a broad range of consumer products. Our programmable power management business is performing very well across diverse markets as we help customers enhance product performance, reduce weight, improve reliability and bring markets — bring products to market faster.

In automotive, we began sampling a second generation automotive cellular V2X FEM that integrates the PA, LNA, switch and BAW coexistence filter to solve critical system level challenges. In wireless infrastructure, we were awarded multiple design wins in support of 5G massive MIMO deployments, expanding our customer base for GaN amplifiers. Within that, we commenced shipments of GaN amplifiers supporting massive MIMO C-band base station deployments first in the US and then other regions globally. We also launched high performance BAW filters for band 41 5G small cells and repeaters to help enable 5G and WiFi coexistence.

Next calendar year, we see continued year-over-year growth on global 5G deployments. The deployment of 5G base stations and the upgrade to 5G smartphones are expected to span multiple years. In IDP, our 5G growth drivers include content gains in small signal devices and GaN PAs in massive MIMO, and the adoption of GaN PAs in macro base station deployments. Before handing the call over to Mark, I want to thank the Qorvo team for a standout performance in a tough environment. Our design teams are releasing best-in-class products. Our application engineering and sales teams are engaging closely with customers to solve their most complex RF challenges, and our global operations team continues to excel. I’m extremely proud of the team for their outstanding efforts and ongoing commitment to our customers’ success.

And with that, I’ll hand the call over to Mark.

Mark Murphy — Chief Financial Officer

Thanks, Bob and good afternoon, everyone. Qorvo’s revenue for the fiscal ’21 second quarter was $1.06 billion [Phonetic], $45 million above the midpoint of our updated guidance provided on September 8. Following our updated guidance, customer demand continued to strengthen and we were able to support some of that demand within the quarter. Mobile Products revenue of $754 million exceeded our expectations, driven by seasonal demand effects and the ramp of 5G smartphones.

Infrastructure and Defense Products revenue of $306 million was down sequentially as expected, but up strongly year-over-year in support of the ongoing buildout of 5G networks and the deployment of WiFi 6. As a reminder, our fiscal year 2021 is a 53-week fiscal year, and our September quarter was a 14-week quarter versus a typical 13-week quarter. Our last 14-week quarter occurred in the period ended October 3, 2015 during our fiscal ’16, which was the last 53-week fiscal year reported.

Non-GAAP gross margin in the second quarter was 51.7%, which was above our updated guidance due to better-than-expected mix and favorable manufacturing cost variances. Our efforts to improve the portfolio drive productivity and carefully managed inventories continue to yield favorable results. Non-GAAP operating expenses in the second quarter were $219 million, higher sequentially on the additional week, incentive compensation, and other labor costs. Non-GAAP net income in the second quarter was $282 million and diluted earnings per share of $2.43 was $0.29 above our updated September guidance.

Cash flow from operations in the September quarter was $281 million and capex was $44 million, yielding free cash flow of $237 million. We repurchased $105 million of shares during the quarter. During the quarter, we took steps to reduce our cost of debt and further improve our financial flexibility. We renewed our unsecured credit facility at more favorable terms and extended it to 2025. We also increased our term loan to $200 million and raised $700 million through a new issue of unsecured notes maturing in 2031. After the quarter closed, these proceeds and cash on hand were used to pay down our notes maturing in 2026. Today, our debt balance is under $1.8 billion and cash is approximately $1.1 billion.

Our leverage remains low, our revolver is untapped, the weighted average maturity of our debt is 2029 and we have no material near-term maturities. With our financial flexibility, we can focus on advancing technology, supporting customers and making prudent organic and inorganic investments that support long-term earnings and free cash flow growth.

To that end, we acquired 7Hugs Labs in the second quarter to support the ongoing development and adoption of our ultra-wideband products and solutions. This acquisition enhances Qorvo’s software capabilities and is an important step in realizing the potential of UWB. We see a wide array of applications emerging with ultra-wideband technology and have significant customer engagement on the design of new products and solutions. We expect UWB to contribute meaningfully to Qorvo over time.

Turning to our current quarter outlook, we expect revenue of approximately $1.06 billion [Phonetic], plus or minus $15 million. Non-GAAP gross margin of approximately 52.5% and non-GAAP diluted earnings per share of $2.65 at the midpoint of guidance. Our December quarter revenue outlook reflects seasonal demand effects and demand for multi-year technology upgrade cycles.

In mobile, demand for 5G is adding RF complexity and driving higher content, and we forecast mobile revenue in the current quarter to be approximately $790 million. We suspended shipments to Huawei in mid-September in accordance with Department of Commerce regulations. And although, we’ve since received a license for certain mobile products, we’ve assumed no sales to Huawei in our current outlook.

In IDP, we project revenue of approximately $270 million in the current quarter, reflecting the timing of base station deployments. We forecast IDP to sustain strong double-digit year-over-year growth through the balance of the fiscal year with the infrastructure demand picking up in the March quarter. We expect continued strength in defense, WiFi and power management due to durable underlying trends. While considerable economic uncertainty remains with the ongoing effects of the pandemic, currently, we expect end market demand to support full fiscal year double-digit revenue growth for Qorvo.

Our December quarter gross margin guide of approximately 52.5% reflects volume growth and ongoing efforts to improve the quality and efficiency of our business. Specifically, we’ve invested early and adequately in the technologies that markets need focused our product portfolio on where we can best serve customers, gained productivity across our operations, and reduced our capital intensity. We believe our work to keep our inventories and cost structure low will help us sustain over 50% gross margin through the balance of the year — fiscal year.

Non-GAAP operating expenses are projected to decrease in the December quarter to around $205 million, as we return to a normal fiscal quarter length and other personnel cost decrease. We expect other expense to decrease to under $20 million on lower net interest costs. We project our current quarter and full year non-GAAP tax rate to be at or below 8%. We still project capital expenditures to remain below $200 million in fiscal ’21 and focus on areas that advance a differentiated position for Qorvo to best serve customer needs, such as BAW and GaN. Currently, we expect free cash flow to be approximately $900 million this fiscal year.

As the September quarter results and our December quarter outlooks show, Qorvo continues to operate well through a challenging period, while serving customers in 5G infrastructure and smartphones, WiFi, IoT, defense and other growth markets. In closing, I’d like to join Bob in thanking Qorvo employees for their continued efforts during this time.

Now, I’ll turn the call back over to the operator for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We’ll take our first question from Karl Ackerman with Cowen & Company.

Karl Ackerman — Cowen & Company — Analyst

Good afternoon, gentlemen. Very solid results. I guess for my first question, I know you are having a record year for IDP and it’s great to see the sustained margin improvement. I know you don’t provide a quantitative outlook beyond one quarter, but I was hoping you could talk about the opportunities you have in IDP next year and perhaps whether you think that segment can grow year-over-year.

James Klein — President of Infrastructure and Defense Products

Yeah, Karl. This is James. Thanks for the question. I think the underlying trends for the business are where we said they’ve been for the last several quarters. We’ve got a great position in 5G with the rollout of massive MIMO, with the adoption of GaN and the adoption of higher frequencies. I think those are all very good trends for us and we’ve got a great momentum coming out of this first year of deployments predominantly in China. WiFi 6 continues to roll out. We’ve had a string of record quarters for that part of the business. And again, I expect that to continue. And as Bob mentioned, we see 6E coming right at the end of that string of results and really allows for another opportunity to update hardware. And then our defense business just continues to provide a very solid base to the business with really some of the same underlying trends that we’ve seen before with the adoption of GaN and phased array antennas coming to play in that market. So overall, I think we’re positioned very well for the business to continue on this 10% to 15% trend that we’ve been on for several years.

Karl Ackerman — Cowen & Company — Analyst

Very helpful. And if I may for my follow-up, you have a record amount of cash on the balance sheet and you’re going to generate record free cash flow this year. Your recent capital allocation priorities have centered on IP focused M&A. What are your thoughts on buybacks and/or perhaps a dividend given your robust multi-year outlook? Thank you.

Mark Murphy — Chief Financial Officer

Karl, this is Mark. No change in our capital allocation message. We have our primary source of capital return has been share repurchase, which as you can see we did about 44% of our free cash flow this quarter. If you remember, we were at — since we’re doing an updated guide and we are also on the capital markets, we had periods in the quarter we were unable to repurchase outside of the 10b5-1. So, but we still view share repurchases as our capital return source.

To your broader question on our capital returns overall, I want to point out that we reached a milestone this quarter and that the last 12 months free cash flow margin of the business reached about 25%, which is noteworthy in our view. And we’ve generated about $860 million of free cash over the last 12 months. We’ve deployed about $700 million of that to acquisitions, and we’ve repurchased over $400 million worth of stock. So we’ve deployed $1.1 billion on $860 million of free cash.

And in the last six quarters, we’ve deployed even more. We’ve generated $1.2 billion of cash. We bought about $1 billion worth of companies and we’ve repurchased about $700 million worth of stock. And since inception, we’ve returned to shareholders 113% of our free cash flow or $3.1 billion at an average price of $63. So we’ve had a successful capital return plan and we continue to look at acquisitions. We’ve done five now in the past six quarters. We continue to look at where it makes sense, in markets, customers, technology. As you’ve mentioned, we’ve been focused on bolt-ons, which we’ve done two bolt-ons for James’ business and technology additions, which we’ve done three of those.

And we’re feeling very good about what we’ve done, the capital we’ve deployed and have a lot of confidence going forward. Of the five that we’ve done over the past year and a half, we feel very strongly they serve important and growing markets. We’ve been able to integrate them very quickly and the teams are driving within Qorvo. They’re performing as or better than expected. And then finally, as you can see from the 7Hugs, we’re investing in the assets we’ve acquired. So feeling good about both deploying capital inorganically and then feel our capital return has been strong to shareholders.

Operator

Thank you. We’ll take our next question from Toshiya Hari with Goldman Sachs.

Toshiya Hari — Goldman Sachs — Analyst

Hi, guys. Thanks for taking my question and congratulations on the very strong results. I had two as well. For my first question, I wanted to ask on the ultra-wideband opportunity long term. Mark, I think it was you, you talked about contribution from this business potentially being meaningful over the long run. Just for context, how big could this business be over the next, call it, two to three years as a percentage of Qorvo’s revenue? And how are you thinking about the relative size of revenue contribution between mobile IoT and automotive? And then I’ve got a quick follow-up. Thanks.

Steven Creviston — President of Mobile Products

Yeah. Thanks, Toshiya. This is Eric. Just to talk about ultra-wideband how big it could be, we haven’t really said public numbers what the internal revenue for ultra-wideband might be, but as you know, there is very few players in the area. And the Decawave team we’ve acquired really pioneered the latest version of ultra-wideband, the impulse radio type, which is what gives it the capability of proximity awareness and internal navigation and so forth. So we see those as being the key real opportunities for ultra-wideband going forward.

And as Mark said, we think that proliferation in the mobile phone will become sort of the infrastructure of the hub for many, many applications, consumer IoT, smart home, of course, automotive, you will access your car from your phone. And even in industrial IoT applications as well, there will be opportunities there. So it’s just a very target-rich environment. And we have said that we expect within four years kind of in calendar ’24, it’s somewhere between 2 billion and 4 billion units, again very limited number of people supplying that market. We think we have the broadest approach to the solution. We have the ability to not only serve the mobile phone, but all the accessories that talk to the mobile phone as well as automotive and all the industrial IoT verticals. So we’re really excited about the capability and the growth prospects for the business for sure.

Robert Bruggeworth — Chief Executive Officer

Toshiya, as far as IoT revenues, they’re very meaningful, but we have not broken those out. But it is sizable and growing very nicely. We’re very pleased with that. And our automotive business today is reasonable size, but also growing very nicely and should grow substantially over the next few years.

Toshiya Hari — Goldman Sachs — Analyst

Got it. Thanks for that. And then, Mark, as my follow-up on gross margins, great job here. And then, I guess into the December quarter, you’re guiding margins I think up 80 basis points sequentially, despite IDP revenue being down, which should be a headwind for mix. And what are some of the puts and takes in terms of gross margins in the quarter. And I guess more importantly going forward, I think you talked about sustaining 50% or higher in the back half. But when you think about gross margins on a multi-year basis, where is the ceiling or where is the potential for Qorvo, given some of the initiatives in place? Thank you.

Mark Murphy — Chief Financial Officer

So Toshiya, as it relates to the December quarter gross margin as you mentioned, we’re forecasting 52.5%, so 80 basis points up. You’re correct in that we’ve got an increase mobile mix, but there are many forms of mix, one of which is product mix. So we’ve got some favorability there. About half of that 80 basis points is actually mix effects. The other half is manufacturing costs continue to be a tailwind for us and just outstanding performance by the ops team. We’ve got higher volumes, of course, which is helping us on absorption. But we’ve also had very good test yield, which we forecast to improve. And then we’ve had excellent spend control. And all these things have been contributing. We expect that to continue to help us in the December quarter.

Since I’m talking before I talk to a longer-term margin trend, Toshiya, I’ll mention that we do expect — as you see in our business sometimes, we do expect gross margins to decline actually in the March quarter. Some of that will be mix effects. We expect lower volumes in the March quarter, so we’ll have some absorption effects, and some other factors. And we expect gross margins to go down about 150 basis points or so from the third quarter to the fourth quarter.

Longer term, we continue to — it’s taken us a number of years to sort of get things aligned in the company. And I would go back to the merger, where there was a recognition that we needed to get the best-in-class technologies and the ability to scale them to serve what was going to be a multi-year technology trend and we’re here. So it started from efforts to invest in the right technologies. We had several years of working on the right portfolio of products.

And then we also had several years of getting the operations in order and driving productivity, right sizing the footprint and then being very diligent or more circumspect about capital spend, which continues to trend down as a percent of sales, we’ve been able to reduce our capital intensity. So a multi-disciplined effort within the company and we’re going to continue to do those things. We still have room in the fab network, factory network to expand volumes so we could still get better absorption.

Paul and his team are doing a remarkable job on productivity, driving — still doing 6 to 8 inch conversions in BAW, 4 to 6 inch in GaN. Micro-BAW has been introduced and it is growing as a share of our products. And again excellent job on cycle times, spend control and a raft of other productivity projects. And then finally, we’re leveraging our supply chain partners better. So, when you add all those things, premium technology portfolio, active product portfolio management, driving productivity throughout the org, and then reducing the capital intensity of the business, we think we’re going to be able to sustain or expand gross margins as we go forward beyond fiscal ’21.

Toshiya Hari — Goldman Sachs — Analyst

Thank you for the details, Mark.

Operator

Thank you. We will take our next question from Bill Peterson with J.P. Morgan.

Bill Peterson — J.P. Morgan — Analyst

Yeah. Hi. Thanks for taking the question, and nice job on the quarterly execution and guide. I’d like to try to understand where you saw upside in September. At the time you pre-announced, you cited better smartphone demand, you call it pretty broad-based. But that even appears to have come in better than expectations. I guess how broad across this — the six major smartphone customers you have, including Huawei, where did you see the upside there? I think you also saw a little bit of upside in IDP relative to your expectations.

And I guess, looking at December compared to your prior view of sort somewhat flattish and now you’re calling for some nice mobile growth, what’s driving that upside relative to your prior view? Is that coming from — I guess, is Android still sequentially increasing like it did in September, if you can help us understand the upside, that would be great?

Robert Bruggeworth — Chief Executive Officer

Thanks, Bill. It’s Bob and appreciate the questions. As far as the upside after we gave the guidance in early September, it was broad-based, but it was not Huawei. And I’ve said that I think in a couple of other public forums. And it was broad-based across our other five customers that you said the big six, well, Huawei was not one of them during that period. We saw a little bit of upside in IDP.

And as James pointed out, our WiFi business is doing extremely well and that was a little bit of that and a little bit of defense, a little bit here and there. But overall business is running extremely well and our operations team did a good job of keeping up with some of that demand. So we’re pleased with that. Eric, do you want to take the second part of Bill’s question there?

Steven Creviston — President of Mobile Products

Yeah. Looking into December and that strength, it’s again not Huawei, as we’ve said. But other than that, it’s really pretty broad-based across Android as well as iOS, but also within Android, China is still continuing to look very strong. We’re still in the very early innings of the 5G rollout and there’s a lot of subs there. So it’s really fairly, fairly broad-based in the current view.

Bill Peterson — J.P. Morgan — Analyst

Yeah. Thanks for that. And I guess, maybe a second question for James. And I think earlier you said that the 5G infrastructure should start to improve after December. But I guess for the composite of the business, I’m assuming you have better visibility across areas like defense and longer-term opportunities, how should we think about the seasonality of that business? Should we assume WiFi still sustains into the first half of next year based on work-from-home trends and other factors? Just trying to get a feel for how you see that business trending here in the next couple of quarters.

James Klein — President of Infrastructure and Defense Products

Yeah. Thanks for the question, Bill. As Mark said last quarter and I think we’re tracking pretty close to that, you will see us — Q3, we’ve already said $270 million. I think Q4 will be very similar to the range that Mark talked about last quarter. And then, we’ll see that growth start back in Q1 of next fiscal year. And as I said before, I think the underlying markets really support our ability to grow at 10% to 15%, perhaps somewhere in the high range of that we’ll see. We had an absolutely great first half.

If you look at our first half of this year compared to the same period last year, we grew 55%. And the year-over-year growth rate for the quarter we are guiding now is about 30%. So we’ve got some very, very nice trends going on the business. We’ve got great technology, really, really strong partnerships with our customers. So, I think we’re going to go through some lumpiness with the deployment of 5G and then, it’s going to pick right back up as we go into our fourth quarter and into the first part of our FY ’22.

Bill Peterson — J.P. Morgan — Analyst

Thanks.

Operator

Thank you. We’ll take our next question from Vivek Arya with Bank of America Securities.

Vivek Arya — Bank of America Securities — Analyst

Thanks for taking my questions and congratulations on the strong results. First question, I’m curious what your sense is of the sell-through of 5G smartphones across your customer base and what that says about seasonality for the March quarter? A part of me says that, look, we are in the early stages of 5G that and March, the 5G strength and content gains can continue. So that would argue for perhaps a more measured seasonality going into March, down 8%, 9%. But then you had such a strong second half that maybe it could be more traditional seasonality down something in the mid-teens. I’m just curious what side are you leaning towards and just conceptually, what is your sense of sell-through in 5G smartphones?

Mark Murphy — Chief Financial Officer

Yeah, Vivek. It’s Mark. We’re not going to give detailed guidance on March, but maybe make a couple of comments here. I think the most important thing is that we believe the technology upgrade cycle for 5G is multi-year in both handsets and infrastructure. And that applies to broader connectivity trends as well, which we think are durable. But there is a lot of uncertainty still on the broader market, on the rate and pace of the rollout and maybe in the immediate term, and then, of course, we’ve got the associated effects of the pandemic, the global economic recovery, and other factors.

I would add that the pickup in 5G and work from home and other demand factors are actually straining parts of the supply chain. And as you said, we do need to — we need to watch sell-through. I mean, fortunately for us, our inventories are good, and we’ve also got the supply chain inventories are lean. And we’re focused on doing everything we can to meet customer needs.

But to your — directly to your question for March, we think it’s reasonable to assume some sort of decline over what’s a very, very strong December. We would say 10% or more sequential decline would — is a view we have currently for our guide. And then we would expect, as I mentioned, the gross margin to decline sequentially 150 basis points or more on lower volumes, some mix effects and other factors. We would still be up on gross margin year-over-year 100 basis points or more. And that we would expect opex to be flat to up as we continue to invest for long-term. But I would leave it with, again, we view this is a multi-year secular trend and are investing appropriately.

Vivek Arya — Bank of America Securities — Analyst

Got it. Very helpful, Mark. And then for my follow-up, what do you think about the competition from Qualcomm? They spoke about a 50%, 60% plus kind of growth rate in their RF front end business? Is that apples-to-apples to what you sell? Are you starting to see them in more places? Do they have some kind of advantage because they are able to bundle some of their RF components with the 5G modem and the strong position they have on the 5G modem? I’m just curious, has the competitive landscape changed for you — from a Qualcomm perspective from what you’re seeing right now?

Steven Creviston — President of Mobile Products

Yeah. Thanks for the question, Vivek. I don’t think there’s really been any change. We’ve talked a bit about this before. I think different companies view the RF TAM differently or what they choose to put into their RF business. And in the case of Qualcomm, they get a lot of other features and functionalities that they include that are addressed by the RF community, generally. So power management pieces, I think they’re probably benefiting quite well from the initial rollout of millimeter wave. In that, they’re, we believe, at least including great deal of functionality and content that is not RF at all by nature.

So it’s just a question of what they put into, what they call RF I think more than anything else. In terms of their attach rate and true RF components under their baseband, we haven’t seen any real change in that dynamic there. Our customers are looking for best-in-class RF components and the vast majority of the actual RF content is not generally addressable by them competitively at least in the mass market. So there is a lot of opportunity and we haven’t really seen the dynamic change.

Vivek Arya — Bank of America Securities — Analyst

Great. Thanks very much.

Operator

Thank you. We’ll take our next question from Harsh Kumar with Piper Sandler.

Harsh Kumar — Piper Sandler — Analyst

Yeah. Hey, guys. First of all, solid congratulations on tremendous performance. So I’ll pick it up right where the previous question was. So with respect to millimeter wave, my understanding is the traditional sub-6 players in the RF are not there yet including yourself, so that remains an opportunity. Do you think it’s a matter of coverage, it’s a matter of time before you’re able to play in there or there is just not a use for your technology over there? Or is it some other industry dislocation type, saying, where the baseband change happen, then you have a shot to get in? And just some color would be appreciated.

Steven Creviston — President of Mobile Products

Yeah. Thanks, Harsh. This is Eric again. When we look at millimeter wave, I think it’s important to realize, I mean, Qorvo is certainly a technology leader in millimeter wave. The work that James and his group have been doing for decades to provide millimeter wave in incredibly high performance situations is second to none and our customers have validated that. If we go up and do component level evaluations of various functions in the millimeter wave front end, there is no question there would be a huge advantage to the system that go in with our technology.

So the question is really the rate and pace of the rollout and then seeing how the economics play out. I think as of now, we’re sort of testing the waters in millimeter wave, so customers are employing sort of easy-to-use integrated solutions. Been out of the best performance, but for now, the real question is whether there is any infrastructure to talk to. There is rollouts, of course, across dozens of cities, but they’re are incredibly limited in terms of coverage area. And in real-world dynamics of getting the signal in and out in a reasonable way, and the cost of employing the infrastructure and being able to be in mobile, but any device on a millimeter wave network, there is just a lot of questions that haven’t been sorted out. So, I think it’s great that it’s being tested. As an RF company, we would be thrilled if it becomes mainstream. And we’d love to participate in. And I think customers have all evaluated our technology. It’s really a matter of waiting to see if the need really survives the first one or two generations.

Harsh Kumar — Piper Sandler — Analyst

Understood. Thanks, Eric. And then for my follow-up, do you see RF content increasing again next year associated with 5G after this initial wave of 5G content uptick? And if so, like, what would be some of the big broad drivers? Is it just the same as expanded bands, expanded channels and things of that nature or you see something else happening?

Steven Creviston — President of Mobile Products

Yeah, so we — see, there is probably two ways to think about it. So we said the units for 5G we expect to roughly double again next year, so from 250 million to 500 million. But on that doubling, the content increase staying at roughly the same at $5 to $7 depending on the tier and the exact model, right. So in that sense, you are seeing the units same, but then longer term, I think you’re going to see the same dynamic that’s driven 4G. So we’re still very early in the 5G cycle. There are new bands still coming.

And within the bands, they’re trying to find ways to use more of the spectrum. And so there is going to be a priority on higher technology to monetize all that spectrum and get the data out of it that 5G promises. We’re also just beginning to see these dual connect modules, where we’ve got dual transmit antennas now for 5G. And some of these are really challenging frequency allocations and the bands that they want to transmit on simultaneously.

That’s going to add an awful lot of complexity and challenge for RF, which will drive even more value there I think. And so we’re investing in the areas that we think are going to be our customers’ toughest challenges. So as the RF gets harder and more complex and more valuable, we’re going to be positioned to provide the best technology to solve the problem.

Harsh Kumar — Piper Sandler — Analyst

Thanks, guys. Congratulations.

Robert Bruggeworth — Chief Executive Officer

Thanks, Harsh.

Operator

Thank you. We’ll take our next question from Gary Mobley with Wells Fargo Securities.

Gary Mobley — Wells Fargo Securities — Analyst

Hey, guys. Thanks for taking my question. I wanted to ask about the different moving pieces in the China smartphone market. You mentioned you have perhaps a limited license with Huawei tied specifically to their handset business, I think some others have come in out the day as well have received limited license from the US Commerce Department. And so I’m curious if they have their supply chain sort of shored up to feed into their mobile handset business? Or do you — I’d like to hear your opinion on whether or not they perhaps could lose share and how Qorvo could benefit as your market share alternative customers may be higher, any thoughts there?

Robert Bruggeworth — Chief Executive Officer

Yeah. Thanks, Gary. Number one, as you pointed out, our license is for certain mobile products, not IDP. So you’re correct, let’s get that clean. We’re working with the customer. But I think we pointed out on our last quarter call that we’re very fortunate that we have the same products that we sell to all these customers and they go with multiple basebands. So from a supply perspective, we’re very fortunate with our inventories that we sell the same components to all these guys. And the Mobile team has done a fantastic job of designing products that will work across customers and across basebands.

Gary Mobley — Wells Fargo Securities — Analyst

Okay. As my follow-up I wanted to ask about Huawei again, but on the GaN power amplifier side, I believe they’ve been pretty much the driving force of that portion of your business as a customer in China. But I’m curious to hear your thoughts on the adoption of some non-Huawei 5G RF players.

Robert Bruggeworth — Chief Executive Officer

We haven’t shipped GaN to Huawei for quite a long time, all over a year. So we’ve been seeing tremendous growth in our GaN businesses, as James loves to talk about, and I’ll let him go through that, to multiple customers as I said in my opening remarks. But I can tell James would love to answer this. So, James, go ahead. The show is yours.

James Klein — President of Infrastructure and Defense Products

Yeah. I mean, adoption has really been broad-based, Gary. So we see pretty much all of the OEMs, and I guess I can say all of the OEMs have programs related to GaN. Multiple of those OEMs have those products into production and typically in a massive MIMO construct, so relatively high content in all of those. We’ve got wins across again multiple of those OEMs that are supporting both deployments in China and in other parts of the world. So I think adoption is going very, very good. We had a great GaN quarter. We tied the record from the quarter before and we’ve almost quadrupled our GaN business from period — the same period last year.

So I think those trends are just like we have projected that 5G is really going to drive MIMO and higher frequencies and that’s going to drive the adoption of GaN. We’re very focused on scaling the technology and continuing to improve the performance and so that we can continue this ramp as we go, because we very much are in the early innings of 5G deployments around the world.

Gary Mobley — Wells Fargo Securities — Analyst

Appreciate it. Thanks, guys.

Operator

Thank you. We’ll take our next question from Craig Hettenbach with Morgan Stanley.

Craig Hettenbach — Morgan Stanley — Analyst

Yes. Thank you. I had a question on the gross margin. And really from a mix perspective within Mobile, any context you could share in terms of perhaps some of the tailwinds that integration is helping as well as maybe the BAW business increasing as a percent of total as you go out in time?

Mark Murphy — Chief Financial Officer

Yeah. Craig, we typically don’t break out our mix in detail, but you’re correct. I mean, what’s helping us is this ongoing trend of integration and particularly BAW-related modules. As you know our largest fab is Richardson, so largest cost structure. So volumes and continued growth in BAW is important and that’s helping. And there are other products, where we have highly specialized technology that is helpful in the mix as well. But certainly BAW and — both BAW and other integrated modules as the part of the favorable mix.

Craig Hettenbach — Morgan Stanley — Analyst

Got it. Thanks. And then just a follow-up to Eric. In terms of integration within mid-range phones or mass market, can you talk about perhaps kind of where we are in that cycle, if you will, in terms of that’s been an important growth driver? But just how much more do you see that in terms of the market moves towards integration and how much this 5G also play a role in terms of the need versus discrete parts?

Steven Creviston — President of Mobile Products

Yeah. It’s a good question. As you know, 4G sort of grew up discrete, then as it became more complicated and more bands, integration became required really to fit everything into this space. And 5G is essentially launched with fully integrated modules and to date, I don’t believe we’re aware of any design that’s going discrete. It’s just very, very, very complex and once we’re used to having a highly integrated fairly miniaturized compact RF solution, it’s really hard to undo that and go to discrete solutions, because you still have to do all of this operation and multiplexing and so forth. So it’s very hard for a phone customer to match these things on the phone board. So, if not 100%, the vast majority of 5G phones are continuing to use fully integrated solutions.

Operator

Thank you. We’ll take our next question from Edward Snyder with Charter Equity Research.

Edward Snyder — Charter Equity Research — Analyst

Thanks a lot. If I could, Eric, between Bob’s comments the details from our own teardowns, it seems as if most of the strength you’re seeing in your businesses are the main path modules and so probably tuners, which both have been very good. But Skyworks is doing very well in diversity even with new transmit versions and there has been a huge increase in antennaplexers at Apple, which seem to all have gone to Broadcom. I know you’ve got the technology to play in all these areas. But we really haven’t seen a lot of it just yet. Will we see more participation from Qorvo in these areas as these technologies move into the Chinese phones? Or do you think because you’ve only really shifted in the last year, so to focus more on all these other, I would say, lucrative but lower ASP stuff in the big mid-high band? Is it just a matter of time that you think you might make inroads into the non-Chinese OEMs. And then, Mark…

Steven Creviston — President of Mobile Products

Yeah.

Edward Snyder — Charter Equity Research — Analyst

Go ahead, please.

Steven Creviston — President of Mobile Products

Yeah. So I think that since we formed Qorvo, we’ve really had a focus on looking at the full architecture, because we’ve got visibility into it. And investing in the key technologies, you’re going to solve the customers’ toughest problems. And you’re right, we’ve got tremendous expertise around the antenna systems, not just tuning, but also multiplexing and antennaplexing, and switching and LNAs and all the things you need to make the antenna networks work, and you know that’s getting to be more and more and more important regardless of the tier or the customer base, right. But also the advanced power management that we have, which is really specialized power management to help in these high modulation standards, we’re going to continue to invest in that. We think there is new opportunities there.

Our BAW filtering, we believe we’re second to none now and we’re not slowing down. We’ve got many, many more improvements and steps up in performance and cost as well reduction for BAW. So that’s going to be the anchor of a whole suite of modules. As you’re indicating in even the received modules that have transmit capability in them and then all of the main path modules will continue to rely heavily on BAW. So I don’t think we’re limited at all where we play. It’s a target rich environment for us. We’re kind of prioritizing our investments to where we think we’d get the best ROI. I think it’s going to really well. And we’re going to continue to build out the portfolio and continue to play in more and more areas as we see them being attractive.

Edward Snyder — Charter Equity Research — Analyst

Great. Thank you. And then, Mark, if I could ask, and then had a short one James too, but Mark, last time Qorvo hit 51.5%-ish gross margin was June of ’15, revenue was about $670 million. It’s about 60% higher last quarter. And then unlike in ’15, you’re now shipping a lot more GaN, BAW and tuners, all of which carry very good gross margins. Is the difference in revenue to gross margin something structural in the fab or is it more of a reflection of Qorvo capturing all those filters and passive devices that used to be supplied by the discrete component vendors that are now being rolled into your big modules, because obviously you increased your ASP that maybe dilutes margin a bit more? I know that was the vision when Qorvo was formed that you guys started capturing a lot of this other discrete content.

Mark Murphy — Chief Financial Officer

Yeah. Ed, I’m not sure exactly what your question is, your figures are correct in the historical data, but we’ve invested a lot in the business since then. And as you know, there were efforts to rationalize the footprint, make it suited to how we want to take the business forward, and as Eric just said, a lot around active portfolio management. We’re at a point now when we’ve steadily increased gross margins from a low September ’16. And we feel good about — well, we feel great about the technology in the business, as Eric talked through. We’re making the right product decisions that are best for our customers and for us.

The operations team is performing very well and there is a lot of runway on productivity and we’ll continue to — that will continue to hopefully be tailwind on margins there should be. And then, we’ve got — we’re reducing our capital intensity. And all that points to — we should be able to sustain these levels and over time, don’t see why we shouldn’t be able to expand margins.

Operator

Thank you. This concludes today’s question-and-answer session. I’ll now turn it back to management for closing remarks.

Robert Bruggeworth — Chief Executive Officer

Thank you for joining us on our call tonight. We’ll be presenting via webcast at upcoming investor conferences and we invite everyone to listen in. Thanks again and have a great night.

Operator

[Operator Closing Remarks]

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