Qorvo, Inc. (NASDAQ:QRVO) Goldman Sachs Communacopia + Technology Conference September 10, 2024 7:25 PM ET
Company Participants
Grant Brown – Senior Vice President and Chief Financial Officer
Philip Chesley – Senior Vice President and President of the high performance Analog business
Conference Call Participants
Toshiya Hari – Goldman Sachs
Toshiya Hari
All right, we’d like to get started. Good afternoon, everyone. Thank you so much for coming. My name is Toshiya Hari. I cover the semiconductor space at Goldman Sachs. We’re very excited to have the team from Qorvo with us this afternoon. We have Grant Brown in the center, Senior Vice President and CFO. We also have a special guest, Philip Chesley, Senior Vice President and President of the high performance Analog business. Thank you, gentlemen, for joining us.
Grant Brown
Thank you. Appreciate you being here.
Question-and-Answer Session
Q – Toshiya Hari
Really appreciate the time. I have a bunch of questions. I will open Q&A to the audience. So to the extent you do have questions, please be prepared. I wanted to kick off with a couple of near term questions. You reported June quarter results that were above consensus, very strong results. You guided September quarter revenue to grow 16% at the midpoint. Maybe take us back, talk through the key highlights in the June quarter. And what are some of the key drivers that went into your September quarter guide?
Grant Brown
Sure. Again, thanks again for having us this year. But before I start, I just wanted to remind the audience that the Safe Harbor language that applies to our earnings releases and press releases still applies to today’s discussion.
In looking at the June quarter, revenue came in above the midpoint of the guide. It was largely due to our ACG or our advanced cellular group, which is in the smartphone market. The strength there was across multiple customers, but the biggest impact attributable to our largest customer. In CSG, we saw a strong pull for our ultra wideband products and some of our Wi-Fi Solutions, including our first ultra wideband win and a mid-tier smartphone and HPA, which Philip can speak to as we get into it. We were down a bit on the timing of some large defense programs. We had a record Q4 last fiscal year, and we expect to do very well in the second half of this year as that grows. But due to that seasonality, we were down.
In the September quarter, we expect some broad based growth across key markets. In ACG, obviously the ramp at our largest customer is the single largest driver sequentially, and we do expect Android to be down sequentially. We’re coming off of some very large content gains on large customer programs in the flagship spaces and those ramp down as we see a ramp up in our largest customer, but we do maintain very good representation there, those customers
In CSG, we’re benefiting from the Wi-Fi rollouts in some developing countries like India, as well as the move from Wi-Fi 6 to 6 e and to 7. So there’s an underlying driver in that. And then in HPA, as I pointed out earlier, the sequential growth would be in the defense and aerospace area, where our GaN/GaAs and some of our advanced packaging capabilities are really critical, enabling technologies for those customers.
That said, there’s some headwinds that remain. The more interest rate sensitive areas of our businesses are still impacted for our customers. Those are the base station, broadband and solar markets. Again, as the interest rates have crept up, the capital intensity of those rollouts slows down. But generally speaking, our power management portfolio and our SATCOM and beamforming products are all doing very well, I’m sure. Sure Philip can comment on those.
Toshiya Hari
Great, thank you for that. A couple of mobile questions before we go to HPA. And Philip, hoping you could characterize the current inventory environment and your customers, you and the broader space. You’ve been going through an inventory correction for a year or year plus, depending on how you look at it, how would you characterize where your customers are at from an inventory standpoint? Compare where you are today versus three, six months ago. And if you can differentiate between iOS and Android, that would be great.
Philip Chesley
Sure.
Grant Brown
In terms of the comments for inventory, historically we’ve talked about channel inventory in the context of Android. From a iOS perspective, we sell direct to the contract manufacturers that are all working according to a master production schedule. So there’s very little inventory for Qorvo that would have any impact. On the Android side, last fall or thereabouts, we started to ship through a considerable amount of the excess inventory in the channel. We consider it normal today, and we’re back to shipping to end market demand, which is a positive. It’s at an absolute level, a lower level than what it had been in some of the trailing years. But generally speaking, it’s healthy to be back shipping to end market demand and having cleared that excess inventory.
Toshiya Hari
Okay, great. On your recent earnings call, Bob mentioned that you’re not modeling a strong replacement cycle as it pertains to smartphones, but curious what your high level expectations are for smartphone unit growth over the next couple of years. Your largest customer had a couple of announcements. From an AI standpoint, what are the potential killer apps, in your view, that could drive some pent up demand?
Grant Brown
Sure. In terms of overall smartphone unit growth, we don’t have very high expectations of growth. It’s relatively benign in the call it a percentage or two. The more impactful growth rate for Qorvo is the growth rate in 5G units, which we expect in around the 10% range. And that’s been pretty consistent. The question about what would trigger a meaningful upgrade cycle AI has come up. As an example. We’re taking a bit of a wait and see approach. We haven’t taken too big of a position on which killer apps might drive it. It’s clear that having AI in the palm of your hand will be pretty exciting. But as it plays into consumer purchasing behavior and what’s actually available and when, we haven’t taken a big position.
So if it drives a supercycle or an upgrade cycle, then it would be upside to our house view. The ultra-wideband technology is maybe for Qorvo, an interesting area that we could play as we look out in time. Today we’re in certain areas like the digital keys and some building navigation. In the future, you could imagine other AI applications that are context aware where that technology could play in and be very helpful, not only in the handset, but also in the accessories and the environment that the user is in.
Beyond UWB, I’m sure AI will deliver or generate more RF requirements that require a more and better RF capabilities. Those AI opportunities are going to be if it’s on device, a power hungry application processor. And the RF can help enable, because of the power efficiency that we could help with on the RF side, those application processors and any AI.
So there’s opportunity for us a relatively conservative view on the uptake at this point until we see what types of applications will be there. And then I would also say as we get into the HPA business with Philip, there’s opportunities in AI for Qorvo beyond just the handset.
Toshiya Hari
Got it. Grant, you touched on this a little bit, but when we think sort of AI in the smartphone, we think powerful processors maybe a little bit more DRAM. What role does or will the RF industry play, and more specifically Qorvo play as we sort of transition into the ARF, if you will?
Grant Brown
Sure. I think we’re touching on it a little bit what we call more and better RF. So for Qorvo specifically, the AI enabled phones are more likely to be a flagship device or a high tier device, and those naturally have more RF content in them. It’s also the case that within those devices, from a power consumption perspective, you’re going to have higher end RF capabilities. RF will not only handle the communications piece of the puzzle if there’s computations happening in the cloud for AI, but it’ll also be the case that it could leverage UWB technologies. As I pointed out, the context awareness, there’s a lot of different ways in which I think the RF capability will enable AI.
Again, the unit story is something that we’re taking a wait and see approach. But beyond that, it’s probably upside to our view if we see any further growth in the unit volumes because of it, but largely unit volumes, flagship smartphones and then more and better RF content in those phones.
Toshiya Hari
Your largest customer, you gained significant content in the 15. You also seem very pleased with the continued progress in the 16. You’ve also been really vocal about sort of the outlook into next year. I guess what’s led to your success at your largest customer and what’s giving you the visibility and sort of the conviction to speak to the out year, because typically you’ve got limited visibility, but you’ve been pretty vocal, or Bob in particular has been pretty vocal. So what’s giving you the confidence there?
Grant Brown
Sure, we have a very strong relationship with our largest customer. We’ve had design win activity that spans multiple years with them, and then we have, on a forward looking basis, incremental design activity that looks beyond that. So you’re working on multiple generations at any given time. And we’ve enjoyed consistent success there. We’ve been growing our share in highly integrated modules. We’ve participated in the past and so we’ve proven ourselves there. I think we also have a very competitive leading position in certain areas, such as antenna tuning, our power management and other integrated products.
So we’ve proven ourselves in the past. We’ve made it a priority. We spent a lot of time with that customer, and I think we can have some discussion around that later this year and early next, of course. But again, feel very good about our position with the customer. That said, we’re underrepresented in terms of that particular customer as they relate to the overall RF TAM for smartphones. And being underrepresented gives us an opportunity for incremental growth and we’re looking to take advantage of it.
Toshiya Hari
Great. On the Android side of our portfolio, how should we think about similar questions? How should we think about potential content uplift? What’s unique about Android, visibly iOS, is that you still have the 4G to 5G transition that’s ongoing. Like where are we in that transition? And how should we think about the incremental content opportunity from here?
Grant Brown
Sure. First of all, I would say in our investor day I think Frank Stewart, who runs that group, did an excellent job of laying out the path forward for Android. It isn’t the case that there’s a discrete upgrade from 4G to 5G and from 5G to beyond. It’s the case that 5G will probably be a lot like 4G and that there’s incremental upgrades as we go. So 3GPP has defined different release standards. Those will lead to bigger amounts of content, and that’ll find its way into the different phones at a certain level of mix over time as they adopt those different technologies.
So we’re probably just past the halfway point in terms of Android adoption of 5G. As I mentioned earlier, we’re looking at around 10% growth, unit growth in the 5G category of Android. ACG doesn’t address 4G phones today, or at least discreetly 4G phones. We’re looking at those 4G phones migrating to 5G. Those are coming in at the entry tier. A lot of those phones that hold out customers there are more price conscious. And so we’re seeing that in terms of mixed in the Android ecosystem today, or we’re seeing some of that mid-tier migrate to the premium tier as they’re taking advantage of some of the AI components or just generally upgrading to a flagship device.
So we’re seeing that as a bit of a distinction, as the mid-tier separates into the premium and the entry tier. For us, the content opportunities, as Frank had pointed out, is really more and better RF. There’s receive MIMO, transmit MIMO, you’ve got some non-terrestrial network types of communications, and then the incremental demands of 5G will find their way into the filtering and all the other capabilities, as well as power management and the power consumption and efficiency of those parts. So integration plays a key role in achieving those RF goals.
Toshiya Hari
Great. Shifting gears a little bit, I want to bring Philip into the conversation, just for context. I think you joined Qorvo about two and a half years ago, and now you lead the HPA business. Obviously curious how you’re spending your time. And what would you say are your top priorities as the leader of HPA? And to the extent your priorities have shifted over the past two and a half years, how so?
Philip Chesley
That’s a great question. I think for me, priority one is how do we scaling our defense, aerospace and our SATCOM business? We have a goal to double the size of that business. There is a tremendous amount of opportunities in defense and aerospace. When you look at just our footprint that we have in the RF front end of radar platforms today, scaling that technology with additional products around our RF front end, we have some capability. The electronic warfare market space is really starting to gain a lot of momentum. So there’s a lot happening in that space. And really capturing those opportunities is really priority one for me.
I think the second priority for HPA and where I spend a lot of my time is building a power management franchise. We are, as we mentioned at Investor day, we are driving down a path of getting to where we’re 50% handset, 50% not handset. And to do that, power management is going to be key in building a new revenue vector for us. And so I spent a lot of time taking the products that we’ve either bought through our active semi acquisition, adding additional IP to that, and talent in that area.
I think in terms of how my priorities have shifted. I think for the first year or two, it was really, the first year, you’re just trying to get your hands around the business and the history and the customers. I think really, after that, it was really about two things. It was about if we’re going to scale these businesses, we have to speed up our development cycles, right. And so we spent a lot of time on how do we get faster and at developing products. I think in power management, a lot of my time was spent on bringing in talent through industry connections that I have and others to build a team that can develop really innovative power management products. I think we’ve done that. We have critical mass in both those areas. Really, most of my time now is more on the innovation side and market expansion side. How do we get those innovative products, what markets we’re going after specifically to really grow HPA?
Toshiya Hari
Great. Quick follow up on growth going forward. I think you presented a CAGR of 19% for your SAM through 2029. You spoke to opportunities across a range of applications. Maybe to level set, can you first give us a rough breakdown of your business by end market? I think the market’s still, still getting accustomed to the new segmentation of the business. What the key growth drivers are? You spoke to AMD and a couple of others, but yes, what are the key drivers and how should we think about those?
Philip Chesley
Yes, I won’t specifically talk, I’ll talk more about kind of the end market piece. But if you looked at defense and aerospace, 40%, 45% kind of range, right. You got SATCOM that adds to that. I think the other businesses that we have in markets are kind of evenly split between industrial. When I say industrial, I’m not just saying base station and broadband. We actually have power management in some industrial areas. And then we have small and growing businesses, both in data center as well as in automotive. I think for me though, when I look at where we, the markets that are really going to grow, I come back to what I talked about, really, defense, aerospace and SATCOM.
When I look at the upgrade cycle that’s happening in these active electronically scanned arrays, or AES’s, we’re still in the early to mid-innings of that transition. And then on top of that, you have these upgrade cycles within AES’s to get capabilities that the warfighter needs urgently. So we’re seeing, in my 20 years of developing products for DNA, I’m seeing the fastest cycle of trying to get new technologies and upgrades that I’ve seen in my career. You add to that the Ukraine war has shown drones are now a key part of the battlefield. And how you deal with that from an electronic warfare perspective, using high power RF energy is really becoming front and center, and we have really great technology to scale that up. So I see that as a growth engine.
And then I think the other one, I would say is that in DNA is SATCOM. We bought a company called Anokiwave a little while ago, six months, a year. I forget. Time goes by fast. I can’t remember the exact time. And what that really brought us was that brought us beamforming capability that really works well with our RF front end. And, today when you look at SATCOM, we’re well positioned in the satellite side, but we want to expand in the terminal side. Whether that’s a consumer terminal, whether that is, the upgrade cycle that’s happening in aircraft to bring, to be able to watch Netflix on a plane, real time, that’s happening. And now we have kind of the technology and the products and in some cases pole position in some of those markets.
So I still think we’re at the beginning of this whole LEO satellite, communication, bring Internet through satellite, transition. And I think Qorvo’s in a good place there. So I’m excited about that. I think in power management, power management, when I look at AI, when I look at all the trends that are driving electrification in the industry, power management is front and center in every one of those. You were talking about handsets and AI. The same challenges are the defense industry is facing. They’re looking at AI. How do you put that into a drone? Now all of a sudden you got to have the memory, but you also got to have power management to be able to run those things efficiently.
We are picking our markets of where we apply our power management technology carefully. We’re looking at handsets. We’re looking at defense. We’re looking at some portions of automotive. But I think that that market in general has a lot of tailwinds over the next, 10 years, 15 years. And we want Qorvo to be a big part of that transition.
Toshiya Hari
That’s great. Thank you. The base station business, which you obviously manage, has gone through a cyclical correction post the fairly significant build out of 5G. Curious what your forward expectations are in that business. And can you remind us what drove the decision to exit from the GaN PA and PAM businesses?
Philip Chesley
So I think my take on base station is that I think it’s hit bottom. It probably has more, tailwinds and headwinds at this point. You look at the market, you still have 70% to 75% depending on the research report you read of base stations that have not been upgraded to 5G. So I think, we’re starting to see that business, have some forward momentum. I think the rate and pace of that rollout will really depend on interest rates, CapEx, considerations from the, the different base station guys. But I think the worst is behind us.
I think in our broadband business, it really, I think the same thing. I think we’ve kind of hit rock bottom. I think things are improving. DOCSIS 4.0 is starting to roll out. A lot of that certification testing is ongoing. Some of it’s passed. We’re starting to see that. So my expectation is those businesses will be not headwinds for us, they’ll be tailwinds for us.
In terms of the decision around to exit the PAM business and the PA business, it really came down to two things. The first is once Huawei got banned, you took a big player out of the market. And then for all intents and purposes, ZTE became not really a customer you could sell to. So all of a sudden your two biggest users are out of your SAM. So that’s one.
I think the second thing that really drove the decision was people think GAN, well, GAN for defense and GAN for base station. They’re both GAN. They’re the same. They’re not. What you need for GAN for base station is linear power. What you need for GAN for defense is kind of pulse power. And so you don’t. They’re two very different developments. I’m a big believer in focus. I thought the opportunity in defense was bigger. And so we decided to take, to stop that investment and move those R&Ds and double our focus in the defense and aerospace market.
Toshiya Hari
That makes sense. Thank you. The question on China, and this could be for Philip, it could be for Grant or both of you guys. The overall, business grew 6% sequentially in the June quarter. It was up a nice 30% year-over-year. But when you kind of go back in time, it’s still less than half of where you were at the peak. Is the peak to trough decline? Is that a function of end demand weakness in China? Is it inventory? Is it competition? Is it all the above? Maybe. Grant, if you can speak to overall Qorvo and Philip, to the extent you’ve got comments on HPA that would be great.
Grant Brown
Yes, sure. I’ll cover the handset part, and then if you want to talk about the infrastructure piece. Philip. So on handsets, there continue to be some macroeconomic headwinds. I’m sure everyone’s read some of those in the news that are impacting both demand and mix. I pointed out the skew shift to some of the entry tier devices in Android specifically, and that’s definitely a piece of the puzzle. Sell in is at an absolute level, lower than we had seen in some of the prior years, and that would impact the overall number of units sold and the RF content available for us now it’s stabilized. And at this point, and we’ve cleared the channel inventory, it’s not in a bad spot, but at an absolute level, it’s lower. There are some export markets for our China based handset customers into Eastern Europe that have some geopolitical uncertainty and unfortunate events unfolding there that are impacting demand. So we’re seeing some constraints there.
And then I go back to the 5G units that are new to 5G are likely 4G units coming into our SAM, and those are going to be at the lower end of RF content in terms of total dollars. And we’re seeing a skew shift there as those incremental buyers are more price conscious. So we’re seeing all of those impacts, on the, on the handset side. We managed through the inventory correction, and we’re in a better spot today, but at an absolute lower, lower level. And I think you have to put the overall demand on the handset side in perspective of the peaks of what consumers were purchasing, coming out of COVID and upgrading all of their home equipment and devices, and then the troughs we saw in the inventory correction. And you normalize that. I think the peaks were somewhat of a distraction or a bit misleading. I don’t expect that us will regain those, those levels on the handset side. I don’t know. Philip, if you want to talk to the infrastructure.
Philip Chesley
Yes, I think on the infrastructure side, I mean, the biggest headwind HPA’s have was the Huawei ban. And if you normalize for that, you would see HPA’s growth story look very, very different. Right. And I think, and I had said that at analyst day, I think that when you look at for, at least for HPA, for China today, we have, we don’t have a ton of exposure there. Where we are, where we do have exposure is mostly in our motor control, power management products, for segments like garden tool. And what we see there, it’s still soft, I think, of areas that I still have some inventory and some things that work through. I think that’s the one end market that’s still kind of recovering a little bit. But all in all, HPA doesn’t have a significant exposure anymore in China.
Toshiya Hari
Great. Going back to Mobile RF for a second, curious what you’re seeing from a competitive landscape kind of perspective relative to a year ago or maybe two years ago. How would you sort of describe the current setup relative to the traditional players, the Broadcom’s, the Skyworks, the Qualcomms of the world, and also relative to some of the emerging Chinese players like Maxon and Venture, are you seeing more of them, less of them, any changes?
Grant Brown
I guess I’d begin by saying we’re a strategic supplier to all the leading manufacturers in the Android ecosystem, nearly across the board. So in terms of us having good visibility and a good presence in the Android space, there’s no change there. There’s always been and likely always will be local Chinese competitors that we’ll see. One of the more important things that we look at is the gap between the performance in our products and their products. They’re getting more capable, but of course, so are we. And we’re maintaining a gap there that provides some differentiation for our products.
We see the differentiation mostly in the highly integrated areas where we’re able to take our entire portfolio of technologies, BAW filters, SAW filters, especially those things that aren’t in a foundry network and available elsewhere, and couple those with other high performance gallium arsenide products for the PA’s and switching technologies, put it all together into an integrated package. And we’ve commented in the past on our LMH, or low, mid high product being as a good tool to address some of those mid-tier areas in the Android ecosystem. And so those are the areas where we can maintain that competitive lead, that gap in technology where customers value it on the Android side. And so not a substantive change there.
The areas where it is more competitive is in those very entry tier 5G spaces where those 4G units are migrating in and we are seeing a bit more of that these days. So the mix shift is probably a bigger determinant rather than our technology competitiveness if you will. But our customers still rely on us to deliver the highest levels of integration across the mid, high and low bands as well as other areas in the phone and I don’t see that changing. We have great relationships with our Android customers and are well positioned there from a technology and capacity stand standpoint.
Toshiya Hari
Great. Maybe a question on gross margin. You’re guiding September quarter gross margins to improve I think 560 basis points, 46.5% of the midpoint which is really good sequential improvement. But you are still roughly 350 basis points away from your long-term target of 50%. What are some of the near term puts and takes and what gets you sort of back to that 50ish percent level over time?
Grant Brown
Sure I can provide a recap. And then I’d also cite the investor day where I had a lot of material there and some slideware that you could refer to for a full discussion. In fiscal 2025 and early 2026 we’re impacted by improvements in utilization that’s helping to drive some of that. I commented that in the September quarter we’ll have sold through a lot of the high cost inventory that we were carrying in the past and we’ll have a much smaller headwind associated with the underutilization impact from that. And then as we look into that fiscal 2025 second half and into fiscal 2026 our utilization should still improve. So we won’t be having as big of a headwind but there’s still room to go. We’re still not at levels where I’d consider us fully utilized across our factory network and so we can improve on that front from an average utilization standpoint.
One of the comments that we also made in the last quarter that I would highlight is we’re now 100% eight inch bar in our Texas facility. So larger wafer diameters and we’re continuing to shrink the die size for our latest generation bar technology on those wafers. All of that leads to a more efficient production and manufacturing capability and will help our gross margin profile over time. It isn’t the case that it’s discreet all of a sudden all of our filters inside of any given module are 100% latest generation smallest die on the biggest wafers. It’s going to take some time for that to work its way in.
So I’d say that’s a tailwind as we look forward overtime. As we move maybe beyond fiscal 2026 and 2027, we start to see a business mix. So we’ll start to shift towards our 50:50 model of over half of our revenue coming from non mobile areas of our business, of which HPA is margin accretive, and we’ll see a benefit there. We would expect that those products and in our businesses that are higher mix and lower volume naturally have a larger gross margin and would be accretive. That applies to HPA and CSG, for that matter.
Toshiya Hari
Okay, great. I’m going to pause here and see if we have any questions from the audience. Okay, I’ll keep going. In terms of capital allocation, you guys have been fairly acquisitive over the past several years, mostly tuck-ins, to be fair. How would you characterize your appetite as it pertains to M&A today versus a couple of years ago? To the extent you are still considering M&A, what kind of financial or technological characteristics would you look for in a potential target?
Grant Brown
Very much active reviewing on a consistent basis and no change there. We have a strong balance sheet and ability to finance acquisitions that we think are attractive in the ACG business. The latest we had done there was a company called Cavendish for MEMS based technologies. You could see things there, but most likely the acquisition candidates we’re going to see that are attractive for us are going to be in Philips business. In the HPA space. We recently did Anokiwave, if you want to talk about that, Philip.
Philip Chesley
We did Anokiwave, right? That was more of a tuck in. That was more of a technology play for us to get beamforming technology, as I mentioned earlier, to help kind of round out our portfolio, to be able to go fill kind of the whole system. I think, though, we are constantly looking for areas in HPA for acquisitions that make sense, right? One, we got to be a better owner. Two, you have to be able to get a deal done that’s more complicated, I think, these days than it’s been in the past. But in particular, DNA is an area. If we see something there that makes a lot of sense, I think that’s an area that we’re super interested in.
Grant Brown
I guess as a follow up, Philip, you talked about power management being a big focal point for you all. Do you feel like as you sort of compete in that market, pursue that opportunity, you have the complete set of assets to do so, or do you still see holes that you need to fill?
Philip Chesley
We’re still probably early innings on this. I think we’ve built a strong development team. I think we are going to build out our field and sales capability as we get wins. You can’t just do it all from an office perspective overnight. You’ve got to kind of walk before you run. But I’d say we’ve made a significant stride in both those areas. And again, we’re not looking to necessarily go Greenfield on new customers. We’re looking just to apply some of the innovations that we have in power management in the markets that we’re in today before we kind of expand beyond that. That helps us at least kind of, in the near term, target, customer relationships and things like that that we already have, I guess is what I’m trying to say. So, yes, still some work to do, but we’ve made a lot of progress.
Toshiya Hari
Okay, awesome. Outside of M&A Grant, how should we think about your capital allocation priorities? I think you’ve for the most part, focused on opportunistic buybacks, but dividend, does that ever come up in internal debates or with investors for that matter?
Grant Brown
Sure. Just to start with the dividend, it has been discussed and we just recently did an investor survey and it hadn’t come up as something that investors were interested in. We have used the buyback over time to return value to shareholders and appreciate the flexibility it offers and opportunities as the, as the share price becomes dislocated from what we feel is fair.
In terms of other capital allocation strategies, we look at it as a waterfall type approach. I mean, there’s of course, some amount of cash on hand, and you look at working capital and you kind of go down the list. There’s no shortage of internal investment opportunities right now. We have within our CSG business and HPA business. There’s plenty of opportunity there on what we choose to fund. Making those investments are critical for us to diversify the business. There’s also, even within our ACG business, we’ve talked about trying to grow even at our largest customer, which takes an upfront investment to get in sync with those product development roadmaps. And we’re making those investments, too. We see that in our OpEx today, and then we’re investing in ourselves. Our digital transformation is another opportunity for us to invest in ourselves and come up to speed on the systems that we use to run the business. There’s no shortage of investment opportunities, but we would still look to use the share buyback as the means to return value to shareholders.
The one thing I would point out beyond that would be our 2024 notes. They’re coming due in December, and we expect to retire those unless something dramatic changes with interest rates.
Toshiya Hari
Got it. Okay. AI, obviously is a huge topic these days. I’ve been asking most of my companies how you’re leveraging AI as you operate the business at Qorvo. Has anything changed on that front over the past year or two? To the extent you are leveraging AI internally, whether it be chip design or day to day operations, how are you leveraging AI and what kind of benefits or returns have you been able to identify?
Grant Brown
Sure, for Qorvo, we’ve been using AI for quite some time. It depends on how, maybe the nomenclature, if it’s machine learning or if you’ve got neural networks or large language models and some of the latest tools. But we’ve been using all of these things for quite some time. We’ll look to lead where it impacts our customers, our relationships, our product design and those types of areas. It’s highly specific to what we do, and so we’re going to have to invest more to make those tools because they’re not available in the open market. We’re more content to be a fast follower on the types of tools where they’re available commercially, either as a general use AI tool or as something that comes inside of one of the commercial software packages that we use today.
So we’ll leverage those tools going back to our digital transformation. That’s really one of the opportunities for us to recalibrate around systems that are more modern and able to leverage some of those AI and commercial off the shelf tools that we wouldn’t have had access to. And then we do use it in products, too.
Philip Chesley
So we do, we do. We, again, it’s more ML than maybe, large language models, but in particular in power management and in particular in battery management, where you’re, you’re looking at state of charge, you’re trying to, predict things. We’re finding that, using ML is, really an area where we think we can add value to our products and add value to our customer solutions. So there’s quite a bit of work happening both in power match and we’re starting to even look at delivering that in some of the RF products that we have as well.
Grant Brown
Yes, it’s pretty exciting. You can train in the cloud and then embed it in your product. It’s pretty exciting.
Toshiya Hari
That’s great. I guess in the last two minutes, really wanted to give you the opportunity to speak to anything that we may have missed. I know we’ve kept you busy with investor meetings all day, throughout your conversations, anything you feel like as a collective unit of we miss about maybe it’s the HPA business or overall Qorvo, anything that we underappreciate about the Qorvo story?
Grant Brown
Sure. I think you hit on it. I mean, we really trying to highlight the diversification aspect of our growth strategies. It isn’t to say that we don’t want to grow an ACG. We’ve targeted certain areas where we have a differentiated solution, and especially at our largest customer, we can take the profitability from that business and reinvest in areas like HPA and CSG. The defense area is a really interesting opportunity for us. We’ve commented on the second half looking even stronger after coming off last year’s Q4, which was a record. So, we’re very well positioned, and Phil talked about that.
And then the UWB market within CSG, another nascent market. We’re very early on the adoption curve there, but we’re well positioned with our portfolio products and had some sizable design wins that we’re waiting to come into the revenue line. But we’re supporting those customers and building those products today. So, I think the diversification strategy and the reuse of some of that capital as it’s deployed into our diversification oriented businesses within HPA and CSG is by far the biggest piece of our strategy. The end result, if we’re successful in the coming few years, would be to achieve our target operating model. That would put us at less than 50% of our total top line coming from the mobile side and a much more broadly diversified business.
Toshiya Hari
Philip, anything from your end?
Philip Chesley
Well said. I think the last piece on the DNA side, maybe just, we also have a capability, an onshore capability for advanced packaging. And I think, as the industry moves to where you’re having to fit this advanced capability into smaller, smaller spaces, I’m not sure that that’s completely, as visible maybe as it needs to be overtime because I think that’s going to be a real strong asset and a growth drive for Qorvo as well.
Toshiya Hari
Thank you so much. Really appreciate the time.
Grant Brown
Thank you.
Toshiya Hari
Thanks.
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