Qorvo Stock

Good day, and welcome to the Qorvo, Inc. Third Quarter 2026 Earnings Conference Call.

[Operator Instructions]

Please note that this event is being recorded.

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

Thanks very much. Hello, everyone, and welcome to Qorvo's Fiscal 2026 Third Quarter Earnings 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 noncash 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 Investor Relations website at ir.qorvo.com under Financial Releases.

Lastly, for detailed information regarding the Skyworks and Qorvo combination announced on October 28, I encourage you to review the press release, investor presentation, Qorvo merger proxy and related materials available on our Investor Relations website at ir.qorvo.com under Events and Presentations.

Today's call will focus on our Fiscal Third Quarter Results as well as our outlook for the March quarter, and we will not be commenting on the proposed business combination.

Joining us today are Bob Bruggeworth, President and CEO; Grant Brown, CFO; Dave Fullwood, Senior Vice President of Sales and Marketing, and other members of Qorvo's management team.

And with that, I'll turn the call over to Bob.

Thanks, Doug, and welcome, everyone, to our call. In our Fiscal Third Quarter, Qorvo delivered solid financial performance with notable strategic achievements across each operating segment. We continue to pursue our long-term growth strategy, while executing on restructuring actions to optimize profitability and reduce capital intensity. In ACG, we are supporting the world's leading smartphone OEMs with best-in-class products for their highest-value flagship and premium tier devices. In CSG, we enjoy broad representation in WiFi applications and we are expanding our reach in automotive, enterprise, industrial and other customer segments, our ultra-wideband technology.

In HPA, we are growing across a range of customer applications, such as defense and aerospace, satellite communications, power and infrastructure. Within our factory network, we closed our Costa Rica facility in December, a few months ahead of schedule and have transitioned to external partners. The transfer of SAW filter production from Greensboro, North Carolina, to Richardson, Texas remains on track. With these actions, we will be able to operate more efficiently with reduced capital intensity and we will continue to differentiate our products with onshore manufacturing of GaAs, GaN, BAW, SAW and advanced multi-chip modules.

Turning to quarterly highlights. In ACG, December quarterly revenue declined sequentially, in line with the view we provided last quarter and consistent with typical seasonality. At our largest customer, content gains on their ramping platform helped to support double-digit revenue growth compared to last December. We supply a diverse portfolio of high-performance discretes, tuners, ETP mix and integrated modules to our largest customer, not all of which have been awarded on the upcoming platforms. However, this time for the upcoming fiscal year, we expect revenue at our largest customer to be approximately flat.

For our ETP mix, increasing internal modem adoption provides a multiyear structural tailwind as platforms transition away from third-party modems. With regard to integrated modules on the ultra-high band pad, we received lower share in the upcoming phone models than last year, and we expect our ultra-high-band pad revenue to decline year-over-year. This is a placement where we have demonstrated success across multiple generations. We remain confident in our highly differentiated technology and our ability to compete effectively over subsequent generations.

In our largest customer's cellular-enabled iPads, we were awarded the high-band pad representing a product and technology milestone and new content for Qorvo on that platform. We are extremely pleased to have secured this placement. The win gives us the opportunity to demonstrate capability and executed scale on that platform, consistent with our long-term investment strategy.

Turning to Android. We remain a leading supplier in premium and flagship smartphones, while we continue to reduce our exposure to low-margin mass tier smartphones. In the December quarter, total Android revenue declined sequentially in the low double digits. In the March quarter, we expect a greater than seasonal decline in Android revenue. For fiscal '27, we expect Android revenue to decline by approximately $300 million versus fiscal '26 driven primarily by our actions to reduce exposure to lower-margin segments and secondarily by the impact of memory pricing and availability on mass tier Android build plans.

Qorvo enjoys broad participation across smartphone OEMs, and we are not seeing signs of memory pricing or memory availability impacting the flagship and premium tiers. With our largest customer expected to be a flat ACG revenue is expected to decline in fiscal '27 by the reduction in Android revenue. This is an intentional resizing of our Android business. We are reducing exposure to lower-margin segments, while continuing to serve Android's high-value and premium and flagship tiers. We expect the improvement in product mix to support a higher gross margin in ACG.

Additionally, with ongoing OpEx reduction efforts, we expect to deliver expanding operating margins in ACG on the healthier revenue mix. In CSG, we are on track with an automotive ultra-wideband program with a leading automotive Tier 1. Regarding this platform, we are very pleased to announce we did receive our first production orders during the December quarter. This program will span multiple years and support multiple OEMs. We continue to see expansion of our engagements across customer base. Use cases for Qorvo's automotive ultra-wideband technology includes secure access, digital key, child presence detection and short-range radar sensing.

We are supplying both our ultra-wideband and WiFi 7 solutions in collaboration with multiple Tier 1 manufacturers of network access points. We're seeing strong customer demand and initial deployments include hospitals, factories and other enterprises requiring ultraprecision indoor navigation and location awareness. Our WiFi portfolio is probably represented in flagship smartphones, fiber gateways, mesh networks, client devices and Satcom ground terminals. And we continue to expand our WiFi, FEM and filter portfolio to enable higher bandwidth, lower latency interacted networks. We delivered first, WiFi 8 samples during the December quarter and customer engagement and WiFi 8 is increasing. Regarding the CSG restructuring discussed last quarter, these actions remain on track. During the quarter, we successfully divested our MEMS-based sensing solutions business, while this represents a headwind to year-over-year CSG growth next fiscal year, it is one of multiple initiatives we are undertaking to improve CSG's profitability.

Turning to HPA. We continue to see multiyear tailwinds of D&A, data power and infrastructure markets. In E&A, the passage of the fiscal '26 NDAA includes top priorities such as Golden Dome, the F-47 fighter and the Navy's next-generation fighters, ore ships and drones. Qorvo is a beneficiary of new platforms, upgrade cycles, RF content growth and increases in defense spending. As an example, Golden Dome is a multilayer defense system that requires significant RF content. For the full fiscal year '27, sales in D&A markets are expected to total approximately $500 million.

In Power Management, our strategic emphasis on PMICs for enterprise-class SSDs has been met with continued data center growth where customer demand has been very strong. During the quarter, we taped out our first chip for our next-generation enterprise SSD platform. Other power opportunities for Qorvo includes AESA radars, drones, robotics, wearables and smartphones. There is strong interest global an Qorvo's AESA solutions combining our FEMS beam-forming ICs, power management and power control. In infrastructure markets, their increased content requirements and DOCSIS 4.0 systems that align well with our amplifier and control portfolios.

Qorvo is a leading supplier of broadband amplifiers for DOCSIS 4.0, and we are well positioned with all major suppliers. We're also a market leader in small signal receive and transmit components used across the RF chain of 5G radio access network. While these products have historically been deployed in terrestrial 5G infrastructure, we are increasingly seeing the same RF building blocks adopted in adjacent applications, such as drones and low earth orbit satellite communications, including direct to-sell satellite architectures.

We are sharply focused on growing our highest-performing businesses, and we are divesting or exiting businesses that underperform. In fiscal 2017, we forecast a mid-single-digit decline in full year revenue for the company, as ACG declines and becomes more profitable, CSG is approximately flat, and HPA continues its double-digit growth. As we move through fiscal '27, we expect our defense and aerospace business will be larger than our Android business. That's a meaningful shift in the portfolio that reflects, both the strategic resizing of our Android business and continued growth in HPA. This increasingly favorable mix positions us to deliver full-year FY '27 gross margins above 50% and EPS approaching $7 per share. These outcomes reflect continued operating expense discipline, a structurally improved portfolio mix and our sustained commitment to innovation and operations excellence.

And with that, I'll turn it over to Grant.

Thanks, Bob, and good afternoon, everyone. Qorvo's fiscal third quarter revenue of $993 million, non-GAAP gross margin of 49.1% and non-GAAP diluted earnings of $2.17 per share, all compared favorably to guidance. During the quarter, our largest customer represented approximately 53% of revenue. On the balance sheet, as of quarter end, we held approximately $1.3 billion of cash and equivalents and approximately $1.5 billion of long-term debt outstanding with no near-term maturities. We ended the quarter with a net inventory balance of $530 million. This represents a sequential reduction of $75 million and a decrease of $111 million compared to where we ended last fiscal year.

During the quarter, we generated operating cash flow of approximately $265 million and incurred $28 million of capital expenditures, which resulted in free cash flow of $237 million. Regarding our outlook for fiscal Q4. Our guidance reflects continued momentum in HPA, offset by our strategic pivot from lower-margin mass tier Android and the normal seasonal decline at our largest customer. Our expectations for the March quarter are as follows: revenue of $800 million, plus or minus $25 million; non-GAAP gross margin between 48% and 49%; and non-GAAP diluted EPS of $1.20 plus or minus $0.15.

Gross margin continues to improve on a year-over-year basis. In Q3, non-GAAP gross margin increased approximately 260 basis points versus last fiscal year and we expect a similar improvement year-over-year in Q4. This improvement is a direct result of multiple initiatives. We've actively managed our product portfolio and pricing strategies to reduce exposure to mass tier Android 5G. We've positioned the company to benefit from growth in D&A, which is margin accretive, we've divested or exited margin-dilutive businesses, and we continue to manage factory costs aggressively as we have consolidated our manufacturing footprint. We project non-GAAP operating expenses in the March quarter to be between $240 million and $250 million, below the operating income line, nonoperating expense is expected to be between $8 million to $10 million, reflecting interest paid on our fixed rate debt, offset by interest income earned on our cash balances, FX gains or losses, along with other items.

Our non-GAAP tax rate for fiscal '26 is expected to be approximately 15%. We continue to monitor the situation as changes the tax policy in the U.S. and internationally may evolve over time.

At this time, please open the line for questions.

[Operator Instructions]

The first question comes from Thomas O'Malley with Barclays.

So thanks for the color on the content. I think, Bob, you mentioned the ultra-highband potentially not having as much content there in this generation, but you have some of the ET coming back in. If you look at the next several generations of content, it looks like with this dual sourcing, you've seen a lot more swimming in other people's lanes is the way I think I've heard it talked about in the past where one guy would compete in a couple of sockets and now you've seen that proliferating to some other sockets, which is just kind of increased the competition and you guys have called out a couple of areas where you're seeing that.

Maybe talk about the content roadmap on a go-forward basis? Like do you think that there are other sockets, you obviously talked about the highband, the mid-highband on the iPad? Like do you see other sockets where you could have some more traction? Or do you feel like the win is behind you or in front of you in terms of content over the next several generations.

Yes. Thanks a lot. I appreciate the question, Tom. And as you know, we don't like to comment on future generations or even architectures. But I will say that there continues to be opportunity for us to continue to grow our footprint there, no doubt about it. It's been -- as you know, a lot of it was sole source. As you can see, it does appear they're multi-sourcing more or at least dual sourcing, I should say, more sockets in the future. And we're investing in R&D to continue to grow our largest customer.

Helpful. And then just a clarification on the second one. I think you mentioned into March, Android will be down more than seasonal. I'm sure there's a million different ways, 5, 10, 15 years, you can look at seasonal. But in terms of what I have here, Android is actually up in the March quarter? I know you've seen some different seasonality. What do you mean by down more than seasonal? What is normal seasonal for March in Android?

Yes. I appreciate the question, Tom. And you're exactly right. Typically, Android has been up in the March quarter. And as we've been strategically exiting a lot of that lower-margin business and we talked last quarter about even some of the Android ramps and other phones that we're not participating as much. Again, due to our strategic emphasis on making sure we're getting paid for the value we bring. And this year, it's going to be down quarter-over-quarter. So that's the big swing. You're correct.

The next question comes from Peter Pang with JPMorgan.

Just for the Android business, I think the prior expectation was you're going to exit about $200 million and now you guys are saying $300 million. So maybe just talk about whether that is just expedite exit? Is it the memory impact, what drove the accelerated pace? And then as we think about longer term, what is the business revenue run rate after your finishing exiting.

Peter, this is Grant. Let me take that one and then Dave can fill in some more detail. So we had said that it will be a multiyear event as we exit the lower margin or lower tier Android businesses. It could run approximately $150 million to $200 million in our fiscal '26 and then again in our fiscal '27. Last quarter, we had mentioned that we expected the larger portion of that in our fiscal '26 to hit in the second half and especially impacting the March quarter, and that's exactly what we're seeing in results.

And then in fiscal '27 instead of the $150 million to $200 million, we're taking that estimate up to $300 million that we could exit in fiscal '27. And that's both due to our strategic exit from the business as well as some of the memory pricing and availability constraints that are impacting customers build plans.

Perfect. And then just on the gross margin, you talked about potentially getting to the 50%. Maybe you can kind of lay out on how we should think about that margin profile over the course of the 2027.

Peter, we're getting a lot of background noise when we're talking. I don't know if it's on your end or not.

Sure. So I think your question was around margin profile. So as we look out in fiscal '27?

That is right. That is right. Okay.

Yes. So the biggest driver for margin as we look out in fiscal '27 is mix. It's both business mix as HPA becomes a larger percentage of the total, which is margin accretive as well as product mix inside of the segments, especially within ACG, we've talked at length about the exit from the lower tier Android business, which is having a sizable effect.

Obviously, our utilizations aren't where we'd like them to be, the biggest gains in gross margin for the moment are coming from that business mix I talked about. So there's still further headroom as we add additional volumes over time. I would complement the operations team. They've had done a considerable job of pulling costs out, while maintaining the capacity that we need to strategically target very important pieces of business, all while transferring multiple lines of production, which is not a small feat as Bob commented earlier, both on Costa Rica as well as the North Carolina transition to Texas.

The next question comes from Gary Mobley with Loop Capital.

Thanks for the explicit guidance, Bob, for fiscal year '27 and specifically on Apple, you're calling for revenue to be flat in fiscal year '27 with perhaps some content loss in the upcoming iPhone 18 in aggregate. So is that more or less one part volume growth offset equally by some content decline. Maybe you can just help us out there in terms of like your volume assumption for iPhone units, I guess, that assumption.

Yes. Thanks, Gary, and we're not going to comment on our largest customers' volumes or expectations we're just giving you an indication of what we think our revenue is going to be given everything we know at this time.

Okay. And then looking at your fourth quarter revenue guide, it's down about $70 million roughly on a year-over-year basis. How much of that decrease is a function of business divestments. I believe there might be 2 significant business divestments within that year-over-year comparison. And I would assume the rest is mostly Android related?

That's correct. The vast majority of it is Android related. It's relatively small from the divestitures that we've made and the Android component of that, obviously, we'll see how that exactly plays out. We're seeing both our strategic exit as well as some of the customer forecast driven by some memory pricing concerns, which is just starting to find its way into the customer dialogue.

The next question comes from Christopher Rolland with Susquehanna.

So I think previously, you guys were quite optimistic around integrated modules and ramping integrated modules. Obviously, this dual sourcing is a setback, but perhaps if you can talk about your products here, how you feel about them and how you feel about your prospects moving forward, particularly for integrated modules.

Gary, just to be clear, the ultra-highband has been a dual sourced part for many, many years, probably 5 or 6 years. We've always had content in it. We just have less this year than prior years. And I talked about the highband pad, and that's an area we hadn't been. So the dual sourcing is actually helping us in that case. So that's how I'd actually answer your question.

Okay. Gary, in terms of revenue, maybe there's always a considerable number of variables to consider in addition to content gains and losses, including the timing of certain different awards as well as the volume of specific SKUs, the mix, launch cadence across those models. But at least from a modeling perspective, in terms of our assumptions, I think the key point is that all of our underlying assumptions are fully reflected in the fiscal 2017 outlook that Bob provided earlier.

Yes. And just maybe just following up there. You did have some comments about not being, I think, totally decided for the year, but it sounds like you guys have pretty good visibility here, and we probably shouldn't be expecting any more surprises either positive or negative versus your flat guide year-over-year. Is that fair?

Yes, that's fair. There's always certain components, particularly around tutors that are awarded later in the cycle. But yes, everything is kind of reflected in the guide that Bob gave.

The next question comes from Krish Sankar with TD Cowen.

This is Robert Mertens online for Krish Sankar. You mentioned that the Android sales are expected to decline roughly $300 million next year, and walk us through how the exiting of the low-end space will impact the business. But could you just walk us through a little bit more about how the current higher memory prices and costs are affecting your mobile business and how you think that might play out next year.

This is Dave. Yes. So that decline we're talking about is primarily as a result of the ongoing intentional resizing of the Android business that we've been talking about for almost a year now. Secondarily, what we're seeing related to the memory pricing and availability as OEMs adjust their build plans to react to that, it definitely pressures the mass tier as customers prioritize the supply that they get towards the higher-end devices. So this has an acceleration effect on our strategy, but it really doesn't change the end result. But that's why you're seeing, this is the higher $300 million decline that we called out for FY '27 versus what we had called out earlier. .

And maybe I'll just add to that a little bit, Dave. As far as the profile of our revenue throughout the year. As you start to think past margin into June, the dynamic that Dave was describing will play out. It's a little too early to put too fine a point on it since we only guide in any detailed way for the next quarter. But it's worth pointing out that historical seasonality even in June, say, down 5% to 10% sequentially no longer applies for the reasons were mentioned and the strategic actions around Android are strategically managing down our Android exposure in the mass tier as well as a seasonal downtick in our revenues from our largest customer.

Normally, those would offset, and we're not going to see that. We haven't seen it in March, we won't see it in June. And then secondarily, as we talked about our D&A business, on a year-over-year basis, we continue to see considerable strength there, but it will be down as we look into June, which is pretty typical coming off of a very strong March. So as D&A has grown to be a larger contributor to our top line, the impact on June seasonality has also grown. So the profile of our business will change because of, to a large degree, the Android exit as we were communicating earlier.

Got it. That's helpful and makes sense for customers to prioritize the higher end. Just real quick in line with that, are you seeing any sort of changes in terms of inventory level at customers? Or is this in line or higher or lower than what you would typically expect at this time of year.

Yes, I wouldn't say we've seen anything abnormal as it relates to inventory. It's just more of a reaction to how they're adjusting their build plans, given the situation that's going on with the memory.

The next question comes from Edward Snyder with Charter Equity Research.

Bob, you said you'd have a lower share in the highband. Obviously, the iPad isn't going to be a big driver for unit volume. But the mix should favor your ET, and that's like $1.80 extra content, and apparently, that's going to be a significant shift given what we saw last year versus what we saw this year. So doesn't this imply that you're seeing significant share loss on ultra-highband or are there other parts that we don't know that you have mentioned that you're not going to be on in the new phone.

I know Dave talked about [ tumors ] that always get added towards the end of it, but plus or minus on that isn't going to be I wouldn't think -- correct me if I'm wrong, I wouldn't think you're in the dollar range of content. So I'm just trying to get my arms around this shift because wind should be at your back in the fall just for ET itself, and it doesn't sound like that's the case at all.

Yes, this is Frank Stewart. Maybe just to reiterate the things that we're excited about is the highband pad win that we got. The headwind that we have is the loss of share in UHB, working very hard to get that back in the following generation. We agree that as the internal modem is used on more SKUs. That is a tailwind for us. When you put it all together, together with all of our estimates of how all that plays out, again, we can only talk to our expectations for revenue when you play that out over our fiscal year, it comes together with about flat year-over-year.

Okay. I just want to be sure we have all the moving parts together. But you're still going to be in the ultra-highband. You guys can see...

That's right. That's right.

And then Grant, underutilization charges, it sounds like, especially be going to be flat, et cetera. Did you incur any this quarter? Do you expect any coming up? Is that mostly GaAs of this stage because I know you're going to be shipping more BAW because I know you guys called the highband historically it's been called the mid-highband uses a lot of BAW. Does it use a lot of BAW? I mean you're going into a different product here, so maybe it doesn't actually, maybe you don't have nearly the number of bands you have to do it before. So one, underutilization charges? And two, have things improved utilization-wise in BAW? Or do you anticipate they'll improve this year?

Thanks, Ed. It's -- utilization is obviously not where we'd like it to be. So we still have ample headroom to support some of these strategic areas that we're going after, our largest customer and elsewhere. But there are no specific underutilization charges or period charges in the quarter. And the ops team on our side has done a terrific job of managing costs as we've been shutting down factories or where we've been moving them from North Carolina to Texas and all of the other activities they have going on that we've discussed it's a considerable effort and at the same time, pulling out enough costs in order to support the gross margin improvements that we've been showing is a significant effort.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

I want to thank everyone for joining us today and hope everyone has a great evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Qorvo, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I would now like to turn the conference over to Doug DeLieto, Vice President, Investor Relations. Thank you, and over to you

Thanks very much. Hello, everyone, and welcome to Qorvo's Fiscal 2026 Second Quarter Earnings 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 noncash 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 Investor Relations website at ir.qorvo.com under Financial Releases.

Lastly, for detailed information regarding the Skyworks and Qorvo combination announced on October 28, I encourage you to review the press release, investor presentation and related materials available on our Investor Relations website at ir.qorvo.com under Events and Presentations. Today's call, however, will focus on our fiscal second quarter results as well as our outlook for the December quarter.

Joining us today are Bob Bruggeworth, President and CEO; Grant Brown, CFO; Dave Fullwood, Senior Vice President of Sales and Marketing; and other members of Qorvo's management team. And with that, I'll turn the call over to Bob.

Thanks, Doug, and welcome, everyone, to our call. Qorvo delivered solid operating performance during our fiscal second quarter. I will cover the business strategy driving these results as well as restructuring actions we are taking to enhance profitability and quarterly strategic achievements. After that, Grant will discuss the financials.

Qorvo is sharply focused on our highest performing businesses, and we regularly evaluate each of our investment areas. We have divested or exited businesses that do not meet our financial or strategic objectives, and we continue to do so. We are restructuring CSG to increase our focus on our top opportunities and improve profitability. We are narrowing our focus in ultra opportunities to automotive, industrial and enterprise markets where customer pull for our technologies is increasing and we are reducing our spend related to mobile and consumer applications, which are more fragmented today.

We have consolidated our CSG organizational structure to reflect this increased focus. These actions coupled with associated cuts and corporate support functions are expected to reduce operating expenses by approximately $70 million per year in fiscal 2027.

In ACG, we're driving a richer mix toward premium and flagship smartphone tiers as we reduce exposure to lower-margin mass care Android. Our pricing and portfolio actions are ahead of expectations and now we anticipate lower margin Android revenue to decline by roughly $200 million this fiscal year and by more than $200 million next year. This disciplined approach is improving ACG's profitability as we concentrate on higher-value 5G RF content for premium and flagship smartphones that demand more advanced RF performance.

Within our factory network, we are also executing on cost and productivity initiatives to reduce capital intensity and structurally enhance gross margin. Our manufacturing strategy is to internally produce the most differentiated elements of our products, geographically aligned production with customers and suppliers and leverage the scale, capabilities and cost effectiveness of our outsourced partners.

Over 2/3 of Qorvo's production costs are external. This includes procured raw materials, wafers purchased from external foundries as well as packaging, assembly and test operations. Prior actions to optimize our global operations include the sale of our factories in Beijing and Dezhou, China. And the transition of our gas wafer production from North Carolina to Oregon.

We are on track to close our facility in Costa Rica and transition to external partners. We have begun the process of transferring SAW filter production to our Richardson, Texas, and we are on track to shut down the North Carolina facility once the transfer is complete. This positions our factory footprint strategically to manufacture gas, GaN, BAW, SAW and advanced multi-chip modules, all onshore in the United States. This is critical to DNA customers and increasingly a strategic differentiator to customers in other markets.

Turning to our quarterly highlights. In ACG, we supported a seasonal ramp during the quarter at our largest customer. We are benefiting from strong unit volumes across existing platforms and greater than 10% year-over-year content growth on the ramping platform. We grew across each of our four primary product categories we supply to our largest customer. They include antenna tuners, high-performance filters and switches, integrated modules and envelope tracking power management.

Within the Android ecosystem, revenue declined sequentially as expected. At our largest Android customer, we supported their second half flagship launch with a broad set of solutions. In China, ACG sales to China-based Android OEMs were approximately $65 million versus just under $100 million in the prior quarter.

In HPA, we supported a broad range of mission-critical DNA applications, including land, sea, air and space radar systems, phones, electronic warfare, missile defense and military and commercial satellite communications. Our leading-edge beam forming technology is helping to modernize defense platforms and satellite terminals, and we are leveraging our advanced capabilities and scale in filtering and RF power to counter evolving enemy jamming capabilities.

We expect double-digit year-over-year growth in defense and aerospace markets driven by new platforms, upgrade cycles, RF content and increases in U.S. and allied defense spending. Qorvo is a strategic supplier to the U.S. government and to U.S. primes, and we enjoy broad exposure to RF content growth opportunities and critical programs such as the proposed Golden Dome multilayer defense system. Outside the U.S., Qorvo is also a beneficiary of increased EU and online defense spending.

In power management, we supported the launch of a popular smartwatch that are immediate coverage for its broad set of features, including superior fast charging capabilities. We are also a market leader in PMIC for the solid-state drive market and see increasing tailwinds in the data spend portion of our business.

We are leveraging the performance advantages of our PMIC and motor control portfolio to expand content in AESA radars, drones, enterprise and AI data centers, smartphones and wearables. In infrastructure markets, Qorvo is benefiting with the industry's transition to DOCSIS 4.0 where Qorvo is a leading supplier of broadband amplifiers. There also continues to be solid demand for our base station small signal devices.

In CSG, we're collaborating with a large automotive Tier 1 to scale ultra-wideband use cases, and our lead program is on track to ramp early next year. We are also supplying ultra-wideband solutions to Tier 1 equipment manufacturers for WiFi 7 network access points with Ultra-Wideband integrated into network access points, high-density venues can achieve ultra-precision location awareness. Locations include factories, warehouses, corporate campuses, hospitals, stadiums and transportation centers.

Key applications include indoor navigation, occupancy sensing, asset tracking and touchless fair transactions. In addition to ultra-wideband, the content opportunity for Qorvo and these access points also includes WiFi front-end and filtering solutions. WiFi 7 is being adopted broadly given its performance advantages in throughput, latency, efficiency and network capacity and Qorvo is supporting broad adoption across routers, mesh networks and client devices. We are also collaborating with market-leading chipset providers to support the development of WiFi 8 and delivered first samples in the September quarter.

Looking across our operating segments. In ACG, we're investing to expand our content opportunity with our largest customer, while continuing to serve Android's premium and flagship tiers.

In HPA, we're investing to grow our satellite communications defense and aerospace and power management businesses and maintain leadership in infrastructure markets. In CSG, we are targeting growth in network access points and diversification in markets, including automotive, enterprise and industrial.

And with that, I'll turn it over to Grant.

Thank you, Bob, and good afternoon, everyone. Qorvo's fiscal second quarter revenue of $1.059 billion, non-GAAP gross margin of 49.7% and non-GAAP diluted earnings of $2.22 per share, all compared favorably to guidance.

During the quarter, our largest customer represented approximately 55% of revenue. On the balance sheet, as of quarter end, we held approximately $1.1 billion in cash and equivalents. We currently have approximately $1.5 billion of long-term debt outstanding and no near-term maturities. We ended the quarter with a net inventory balance of $605 million. This represents a sequential reduction of $33 million and a decrease of $89 million on a year-over-year basis.

During the quarter, we generated operating cash flow of approximately $84 million and incurred $42 million of capital expenditures, which resulted in free cash flow of $42 million. Regarding our outlook for fiscal Q3, our guidance reflects strong execution and demand across multiple end markets. We are seeing continued momentum in HPA, offset by our exit from lower-margin entry-tier Android and the normal seasonal decline at our largest customer heading into December.

Our expectations for the December quarter are as follows: revenue of $985 million, plus or minus $50 million, non-GAAP gross margin between 47% and 49% and non-GAAP diluted EPS of $1.85, plus or minus $0.20. Gross margin continues to improve on a year-over-year basis. Q2 non-GAAP gross margin increased approximately 270 basis points versus last fiscal year and Q3 non-GAAP gross margin is expected to increase 150 basis points versus last year at the midpoint.

This improvement is a direct result of multiple initiatives. We've actively managed our product portfolio and pricing strategies to reduce exposure to mass tier Android 5G. We have positioned the company to benefit from growth in D&A, which is margin accretive given the high mix, low-volume nature of the business. We have divested or exited margin-dilutive businesses. And we continue to manage factory costs aggressively while consolidating our manufacturing. We project non-GAAP operating expenses in the December quarter to be between $255 million and $260 million.

The sequential decrease in OpEx reflects lower incentive-based compensation, continued OpEx discipline and our restructuring efforts within CSG and associated corporate support functions. These actions are included in our December quarter OpEx guidance. Below the operating income line, nonoperating expense is expected to be approximately $10 million, reflecting interest paid on our fixed rate debt, offset by interest income earned on our cash balances FX gains or losses, along with other items.

Our non-GAAP tax rate for fiscal '26 is expected to be approximately 15%. We continue to monitor the situation as a specific implementation of the new tax bill in the U.S., as well as changes to international tax policy may evolve over time. We are confident the steps we are taking today across our product portfolio, business segments, manufacturing footprint positions the company to expand profitability. The benefits of these strategic initiatives will continue to become evident as we advance through fiscal '26 and into fiscal '27.

Before we open the call for questions, I'd like to reiterate that the purpose of today's call is to discuss our quarterly results and outlook and we appreciate you keeping your questions focused on these topics.

At this time, please open the line for questions. Thank you.

[Operator Instructions] We have the first question from the line of Karl Ackerman from BNB Paribas.

It seems like you're now assuming a $200 million headwind from exiting the low end of the China Android market. I think that's a bit more than you previously envisioned of $150 million to $200 million. Could you address why that is the case for this year and next year? And if there's anything else that's happening with respect to the mid-tier market or just something else?

Karl, this is Dave. I can answer that one. Yes. So the $200 million decline that Bob mentioned is going to be more weighted towards the back half of the year and even more so in March for a couple of reasons.

So if you recall, last time, we said we gained content in our largest Android customer in their second half flagship. So we'll be on the other side of that when we get into March. And we also mentioned that we would have lower content this year on their first half flasghip ramp next year. So those two are factors, but the bigger factor is really just the timing of those last year models that we continue to support as we made this pivot in our Android business. Those are now ramping down, and we're not obviously replacing them new designs heading into next year. So that's probably the bigger impact that you're seeing driving...

Got it. For my follow-up, how would you rank order the December quarter outlook across HPA, CSG and ACG? I appreciate some of the initial commentary you gave with respect to the decline of Android and seasonal decline of Apple. But I guess as we look out into HPA from December quarter and into next year, you just click on that and see if that, in fact, will be the best performing segment for December next year.

Sure, Karl. Let me take a stab at it and then Philip can jump in. Over the course of the year, we do expect our D&A business to continue to increase quarter-over-quarter just given the seasonal nature of customer order patterns there, and we're still expecting that to be the case. We had some very strong growth in that business. On a year-over-year basis, it was over 25%. HPA was up 25% on a year-over-year basis in the last quarter. And we feel very strongly that that's a very high-performing area from a growth perspective.

Yes. I would add. So outside of D&A, we're also seeing quite a bit of strength in our infrastructure business. In our broadband business, as we've talked about, DOCSIS 4.0 continues to roll out really, really strong ramp. We see continuing throughout this year and into next year as well.

And then on our base station business, kind of our core base station business that goes into kind of the radio stuff, that's doing well. But we're really seeing a proliferation of those products into some new markets that we're excited about. The first is drones, both QA and one-way drones are using both 4G and 5G products as one of their communication path. So we're seeing strength this year. This quarter, next quarter and into next year for that.

And then also, if you think about it, as you look at these direct to cell satellites, really, they're base stations in the sky. And so we're seeing the same products that we use going here, terrestrial going up into space into these applications. So we expect that to continue, and that's why we're pretty optimistic about double-digit growth going into next year as well.

We have the next question from the line of Chris Caso from Wolfe Research.

I guess the first question is in light of some of what you're saying about some of the Android decline weighted towards the March quarter. What should we think with regard to March quarter seasonality? What do you consider normal seasonality to be? And what are the factors that we should consider when comparing to normal seasonality this year?

Sure. Chris, this is Grant. Let me take that one. We're not guiding Q4 or the full year at this time. But we're encouraged by the strength that we saw in the first half, but we're mindful of the typical seasonality, as you mentioned, in the back half where we see our largest customer ramping down typically in the March and June periods, and then as we pivot away from some of the lower-margin Android business, as Dave pointed out earlier, to be especially impactful in fiscal Q4.

Now that said, we are executing on our strategy to focus on driving meaningful productivity improvements. And so from our standpoint, we're executing that strategy. We're focusing on a premium flagship tiers, and this is something you're starting to see in our gross margin profile. I mean, we committed to hitting high 40s, and we're doing just that, and we're getting very close to 50 points of gross margin in a seasonally strong quarter. So we are hard at work executing on profitability and executing to our strategy to pivot away from Android -- low-tier Android, excuse me.

Great. Well, you mentioned gross margins, and that was going to be my follow-up. And there's a lot of moving parts as we go into next year. There's still some things you're doing with the factories in order to drive efficiency, but you said that I imagine the mix gets better as you exit some of the low tier Android. So how does that result in gross margins? What are the puts and takes we should think about gross margins next year?

Sorry, you're breaking up. Can you repeat the end of your question?

Just what -- in terms of what we should expect, the puts and takes on gross margins for next year?

Sure. So the business mix is one of them. It will be meaningfully helpful for us as we see HPA and defense and aerospace and other areas grow as a percentage of our total top line. That's very impactful. And then product mix within the segments, especially ACG, where we have already communicated our exit from the low-tier Android area.

So the premium and flagship products there. In terms of that portfolio will be helping from a mix standpoint. And then the factory actions that we're executing on bringing more volume to our other locations also helps significantly. We've talked through Costa Rica and the closure there is on track. Transfer of our SAW capacity from Greensboro to Texas is also on track, and we'd expect that to be beyond fiscal and I think all the other cost reduction efforts that we're doing, the standard blocking and tackling, yield improvements, cost downs and all the other things are more standard activity are all on target.

We have the next question from the line of Harsh Kumar from Piper Sandler.

It's first of all, really good results. Maybe, Grant, one for you. In your guidance, I'm looking at your margins versus what you just delivered for the September quarter. And I would have thought that your margins wouldn't be down quite the way they're guiding to. So I guess I'm curious if it's just revenues that are driving this? Or is there other factors in play?

Because you've got a lot of positives going on in the margin structure as well that fundamentally that you're driving to. So I just want to understand the factors driving the margin for the December quarter guidance.

Sure. It's generally the case that as we're ramping down and as we start to see that happen in the December quarter as we head into March, it tends to -- the utilization tends to lead the revenue there. So we're seeing some of that. It's not until or atypical. I would say that the margin performance is still substantially improved on a year-over-year basis. And so even on the revenue bases that we've been guiding to, you can see that impact. So my view is it's strong improvement, and we'd expect that to continue as we move through fiscal '26 and into '27. I wouldn't read anything too meaningful into any of the subtle variations from a quarter-to-quarter basis other than generally the mix.

Okay. And then maybe one for Bob. Bob, on aerospace and defense, you've got some pretty good -- pretty large goals, but you're also doing really well. We know the market is healthy. So maybe help us understand two things. One, what is the scale right now? Like how big is this business right now? You mentioned it's up 25% year-on-year, but just in absolute dollars, if you can. And then specifically, right now, what kind of technologies or end applications are working for Qorvo to drive that revenue growth?

Thanks, Harsh. It's hard for me to contain Philip when it comes to this. So I'm just going to let him go into talking and a little color, but I appreciate the question on the defense business. As you said, it's doing fantastic, and producing great products and really doing an extremely good job. Phil?

Yes. So Harsh, I would say that we've sized it publicly before. So I would say kind of mid-400 and growing. I think we had commented in our last call that we have funnel, and it is continuing to grow. It actually grew another $2 billion in the funnel over this quarter alone.

Really, where we're seeing the applications, they're pretty broad-based. And so it's a long answer to your question, but I'll try to kind of hit some of the highlights. So one of the areas that we're really seeing it is the U.S. is looking at how do you build new cables, both in drones which require a lot of different kind of technologies, both radar and comms. So there's a whole lot of more and better RF that's needed to scale that up.

The other area is in electronic warfare, where we're looking to come up with new ways to drive spectrum dominance in that area. And in electronic warfare, one area that is really growing rapidly is the use of solid-state PAs to be able to do more direct energy type defensive and offensive applications. That is a sweet spot for our technology. And so just a tremendous amount of opportunity there.

But in addition to that, I would say in our core markets, whether -- and I would say, core markets in defense and aerospace is really the radar-based platform. Whether that's land, sea, air, we are seeing a whole new set of capability needs that are -- what the U.S. government calls an urgent need and it really fits into the sweet spot of what we do.

And then you layer on top of that, the -- if you look at Golden Dome and what they're trying to do in any kind of missile defense system, you're going to need land-based assets, you're going to need air-based assets, you're going to need space-based assets. All of those platforms that they're looking at, we are in those platforms. And so that will be a tailwind for us as well. So it's really broad-based. I can't just pick one that is driving it.

But we're seeing a lot of tailwinds and especially because I think I would add as the administration has really laying -- starting to become very clear on what their what their priorities are. And those priorities really do fit with what we're doing. And that doesn't even include what's happening on the NATO side in Europe as they increase their defense budgets up to 3.5% of GDP. So again, a lot of positive things that are happening.

We have the next question from the line of Christopher Rolland from Susquehanna.

I guess as we think about '27, are we still thinking about like mid-single digit? Are we thinking about growth overall for ACG. And then additionally, you have talked increasingly about integrated modules. Would love an update there. on your capabilities, your differentiation and the likelihood you think you get some new sockets here, that would be great.

Yes, sure, Chris. Let me take the first part, and then Frank can jump in. Obviously, really excited about our technology, but it's too early to comment on fiscal '27 at this point. So we won't be making any commentary there at this point in the game, but we'll have more to talk about probably as the year advances. Frank, comment on integrated modules.

Yes. Chris, similar feedback with respect to things at our largest customer. Too early to say at this time. We're working very hard on product development, not just for next year, but for the next 3 years. I do want to say I'm really proud of the ACG team and all the work they're doing.

Great. And then as we talk about the merger, are there still any opportunities would you consider any merger opportunities, even tuck-ins, any acquisition from that standpoint, any divestitures, any buybacks, any OpEx changes or any like footprint consolidation beyond what you've already announced? Or should we just kind of think steady state Qorvo until all the approvals and the merger is done.

I appreciate the question. And I think what's most important is we also have to keep in mind that we are going to be running separate and independent companies. So there is latitude in our agreements for us to make changes and do things that we want to be able to do, but you got to remember, we're running these as separate companies.

We have the next question from the line of Krish Sankar from Cowen and Company.

I have 2 of them on mobile. First one, Bob, can you give an update on your progress with your biggest customer on the mid- to high band pad. It seems like that's a big opportunity. Is there any way to figure out how that's progressing and when we should start seeing some results or any time line for that? I have a follow-up.

I appreciate the question. And you can imagine that's a topic that we just can't cover and comment about where we're at. And I think Frank has already said, our probably is on the team and how well they're executing. But time will tell them, patients please.

Fair enough. Fair enough. All right. And then a follow-up, post exiting the lower tier Android, how should we think about your Android and China exposure? Are you still chasing 15% to 20% of the Android market today? How to think about how it's split between China and your big non-China Android customer. And I think you kind of commented a little bit on March quarter. I'm just wondering, besides the lower tier Android in March and seasonality. Are there any idiosyncratic things you had to worry about in March quarter?

We still feel very strongly about our strategy to pursue the premium and flagship tiers of Android, right? They're going to have a product portfolio, and they're going to compete against other devices in that segment, they're going to need to use premium performing parts, and that's where the majority of the TAM and SAM is for us in the ACG side.

We feel very well positioned. We're going to continue to support our Android customers. And we've been very successful at exiting some of the less attractive areas there, as Bob commented on in his prepared remarks. A little bit difficult to comment on share specific to one quarter given the ramp timing of all the different models in the Android ecosystem.

We have the next question from the line of Jim Schneider from Goldman Sachs.

On the HPA business, I'm wondering if you're seeing any kind of cyclical effects outside of the normal kind of secular growth you're in those product lines? And what are your customers telling you in terms of inventory levels, willingness to restock or anything else from a sort of a supply chain or cyclical point of view?

This is Philip. I would say channel inventory is healthy. We're not seeing any kind of unusual order patterns I would say it's more on the -- we're starting to get requests for hey, can we need delivery sooner rather than --

Ladies and gentlemen, there seems to be a challenge with the management line. Please stay connected as we reconnect the management.

So the question, I think, was around HPA and channel inventory. What I was saying was we don't see any kind of excess of channel inventory. In fact, we see more kind of expedite apps than we do channel or pushouts or anything like that. So I'd say the channel is healthy.

One area I would also maybe highlight is we are seeing really strong bookings and backlog in our power management business surrounded around the data center side for solid state drives. So that would be one area where also don't see any inventory challenges, but we're seeing expedite requests.

That's helpful. And maybe as a quick follow-up. As a housekeeping question, maybe color on your guidance by segment expectations heading into the December quarter?

Yes. Thanks for the question. We don't guide by segment.

We have the next question from the line of Edward Snyder from Charter Equity Research.

Just a couple of housekeeping questions. Was there any underutilization charges, especially in regard to Oregon and what's your feeling on those for -- obviously, you could be seasonally down in the next couple of quarters because your largest customers, you're probably going to be burdened more. So just as a starting point, can we get color on that?

Yes. Ed, this is Grant. So no period related charges associated with underutilization. It's just the normal loadings are generating factory variances within the normal bands and that applies to product costing, but nothing from a period charge perspective that would create an abnormal utilization charge.

Okay. And then I'm just try to feel for how much capacity you have, both in gas in Oregon and then BAW in Texas. I know you haven't been notified yet on anything that would occur next week, your largest next week. Next year, it's your largest customer. But -- and I know it depends on share if you do win, et cetera, but I'm just trying to get a feel for what kind of CapEx you might be facing if any, especially with regard to gas because both of your product wins aren't really gas intensive. You got a lot of tuners, you got less SOI, et cetera. So I'm just trying to get a feel for where you sit in capacity in gas and ball.

Yes. Thanks for the question, Ed. I think first, I want to say the team has done a fantastic job in both gas, as well as in the filters, BAW filters, in particular, in shrinking sizes. So as we ramp new technologies typically, we're reducing the size, so we don't have to add a lot of capacity to meet the same demand. So team's done a fantastic job there. And I think as we look at the outlook for next year, we do expect -- we'll spend money for expanding capacities and bringing in new technologies.

But I think it's going to be less than what we spent this year. But again, I think people underestimate the tremendous work the team has done in reducing die sizes as we release new process technologies. So I think we're in good shape to support a lot of business.

Maybe, Ed, I would just further to just further Bob's comments. Obviously, you know -- I mean, in order to compete for business, you have to have an ample amount of capacity in place in advance. So we wouldn't be targeting business, we don't think we could support with our existing capacity.

Then we also have the ramp down of the Android business as well, which frees up capacity. So we're in a pretty good place.

We have the next question from the line of [ Peter Pang ] from JPMorgan.

Just on the content growth of about 10% plus for the last for the most recent generation, you mentioned that all of your four major products grew on a content wise year-over-year. Maybe if you can just give us a sense of contribution from these product groups?

Peter, thanks for the question. We haven't actually commented -- I mean each of the four different categories of revenue at our largest customer and which was contributing to the growth other than to say that we're seeing growth in all categories.

Got it. Okay. And then for my follow-up, I think last quarter, you guys talked about the CSG being able to grow low single digits. Just give us some of the restructuring initiatives. What's the current expectation for this business group?

Sure. So CSG, as we commented last quarter, had experienced a pushout of a large award in our ultra wide band business and that is still the case. There's no change there. In terms of growth, there would be some impact, but relatively marginal due to the restructuring activities. So you could see a roughly flat, perhaps year for CSD plus or minus.

This concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing remarks.

I want to thank everyone for joining us today and hope everyone has a great evening. Thank you.

Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.