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Skyworks Solutions (NASDAQ:SWKS)
Q3 2018 Earnings Conference Call
Jul. 19, 2018 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Skyworks Solutions third quarter fiscal-year 2018 earnings call. This call is being recorded. At this time, I will turn the call over to Mitch Haws, vice president of Investor Relations for Skyworks. Mr. Haws, please go ahead.

Mitch Haws -- Vice President of Investor Relations

Thank you, Carey. Good afternoon, everyone, and welcome to Skyworks' third fiscal-quarter 2018 conference call. With me on the call today are Liam Griffin, our president and chief executive officer; and Kris Sennesael, our chief financial officer. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements.

Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Liam.

Liam Griffin -- President and Chief Executive Officer

Thanks, Mitch, and welcome, everyone. The Skyworks team produced solid results once again in Q3. We generated revenue of $894 million, above consensus estimates. We expanded gross margin to 50.9%, up 20 basis points both sequentially and year over year.

We delivered record Q3 earnings per share of $1.64, $0.05 better than our guidance. And finally, we continued to deploy our cash to create shareholder value, returning nearly $300 million during the quarter through share repurchases and dividends. From a market perspective, we are entering the seasonally strong second half, while on track for another year of record financial performance. Based on our Q4 outlook, we will end the fiscal year with mid-single-digit revenue growth, greater than a 10% EPS increase and record cash returns, this despite a choppy market backdrop and a government-imposed trade ban on a sizable Chinese customer.

Our confidence is underpinned by our product expansion and reach, spanning premier mobile and broad market accounts. For example, during the quarter, we commenced production of access solutions for Cisco; captured content in Linksys new dual-band mesh networks; ramped connectivity engines for Amazon's 4K Fire TV, a leading voice-enabled streaming media platform; partnered with Sierra Wireless on LTE Cat-12 data cards for M2M applications; deployed networking solutions supporting AT&T/DIRECTV gateways; extended our footprint across Nest home automation platforms; enabled LTE telematics at GM and BMW; and we introduced high-precision GPS functionality, improving ridesharing, mobile payment, and fleet-management services. We also secured strategic flagship wins at Huawei, Samsung, Oppo, Vivo, LG, and Nokia. And in our infrastructure markets, we powered massive MIMO solutions for a leading European base station supplier.

In summary, we continue to expand the aperture of our design win pipeline, spanning mobile, IoT and a broadening set of diverse end markets. With IoT, the rapid proliferation of volumes represents a significant growth opportunity for Skyworks. Ericsson, for example, estimates that there will be 29 billion connected IoT devices by 2022. And at the same time, 5G is upon us.

The dramatically higher speeds and lower latency enabled by 5G will catalyze a wide range of usage cases, from the connected factory to the autonomous car to artificial intelligence. In order to make the leap to 5G, system architectures require significantly more powerful connectivity engines to ensure performance hurdles are overcome. Skyworks is leveraging our deep systems knowledge, strategic partnerships and formidable investments to accelerate the deployment of 5G, with our Sky5 platform providing end-to-end performance across this critically important new spectrum. To that end, we reached key milestones this past quarter, including the launch of our Sky5 antenna tuning portfolio.

Our newest 5G solutions deliver enhanced bandwidth coverage from 60 megahertz to 6 gigahertz. This is an enormous and incremental source of content growth for Skyworks as the number of antennas increased substantially across 5G engines. In addition, last quarter, we successfully demonstrated our proprietary fully integrated Sky5 sub-6 gigahertz engines, supporting new 5G NR radios across frequency bands n77, 78 and 79. Quite simply, Sky5 is enabling new 5G networks and facilitating ubiquitous wireless connectivity for both people and things.

I will now turn the call over to Kris for a discussion of last quarter's performance and our financial outlook.

Kris Sennesael -- Chief Financial Officer

Thanks, Liam. Revenue for the third fiscal quarter of 2018 was $894 million, exceeding consensus estimates. Gross profit was $455 million, with gross margin at 50.9%, up 20 basis points sequentially as well as year over year. Third-quarter operating expenses were down sequentially to $130 million.

As a result, we generated $325 million of operating income, translating into an operating margin of 36.3%. Our tax rate was 8.9% in the quarter. Net income was $300 million, translating into $1.64 of diluted earnings per share, exceeding our guidance by $0.05. Turning to the balance sheet and cash flow.

Third-quarter cash flow from operations was $258 million, and capital expenditures were $191 million, supporting further revenue growth in the second half of the calendar year, as well as the necessary technology investments for emerging 5G opportunities and IoT markets. Dividends paid were $58 million. And we repurchased 2.5 million shares of our common stock for a total of $240 million, bringing our total share repurchases this fiscal year to over five million shares. In fact, in fiscal '18, we have returned essentially all of our free cash flow back to the shareholders through our share repurchase program and dividend payments.

And we entered the quarter with a cash and investment balance of over $1.6 billion and no debt. Now moving on to our outlook. For the third fiscal quarter -- or sorry, for the fourth fiscal quarter, we expect revenue to be up 11% to 13% sequentially or $1 billion at the midpoint. We anticipate further gross margin expansion, with fourth-quarter gross margin between 51% and 51.5%.

We expect operating expenses in the fourth quarter of $135 million. Below the line, we expect roughly $4 million in other income, a tax rate of 9% and a diluted share count of 182 million shares. Accordingly, at the midpoint of these ranges, we plan to deliver diluted earnings per share of $1.91, up 16% sequentially. Finally, today, we also announced a 19% increase in our quarterly dividend to $0.38 per share, reflecting our confidence in Skyworks' business model and sustainable cash-generation capabilities.

With that, let me turn the call back to Liam.

Liam Griffin -- President and Chief Executive Officer

Thanks, Kris. As our results and outlook demonstrate, Skyworks continues to financially outperform, driven by content-rich design wins covering a number of strategic customers and applications; increasingly strong momentum in broad markets; world-class operational execution and scale; our Sky5 platform enabling the 5G applications of tomorrow; decades of experience in developing innovative solutions over successive technology generations; and finally, superior cash flow performance allowing us to out-invest our competition while providing premium returns to our shareholders. That concludes our prepared remarks. Operator, let's open the line for questions. 

Questions and Answers:

Operator

All right. Thank you. [Operator instructions] And our first question comes from Craig Ellis from B. Riley FBR.

Please go ahead.

Craig Ellis -- B Riley FBR -- Analyst

Yes. Thanks for taking my question. I'll just start with a clarification for you, Kris. Kris, could you help us with the segment breakouts in the fiscal third quarter? And then as we look at the guidance for the 11% sequential growth in the fourth quarter, can you provide some color on how the segments can perform within that?

Kris Sennesael -- Chief Financial Officer

Yes, Craig. So broad market in Q3 was approximately 30% of total revenue, it was actually slightly above 30%, and so mobile was approximately 70% of total revenue. Speaking about the broad market, we continue to see really nice growth there. We are growing in the low to mid-teens year over year.

And so we are now at a $1.1 billion annualized revenue run rate. So we see really good strength there across the board, especially the IoT segment that's including the connected home, the connected car, machine-to-machine industrial applications, some consumable applications. And in addition to that, we also see some really good traction there on the infrastructure segment. So broad market is doing really, really well.

Craig Ellis -- B Riley FBR -- Analyst

And the second part of that clarification question was the fourth quarter, would you expect broad markets to continue to grow in the fourth quarter? Historically, it's been up in some quarters, down in others

Kris Sennesael -- Chief Financial Officer

No. We definitely expect a strong sequential growth in broad market into the fourth quarter and so continue on that low to mid-teens year-over-year growth.

Operator

Thank you. And now to the line of Mike Burton from Benchmark. Please go ahead.

Mike Burton -- The Benchmark Company -- Analyst

Great. Thanks for taking my questions and congrats on the results. First, on the China business, can you talk about how your Chinese OEMs fared in the June quarter? And then update us on the size of that group relative to revenues and talk about how we should be thinking about the momentum of that business in the second half of calendar '18.

Liam Griffin -- President and Chief Executive Officer

Sure. Yes, so Q3, actually, China fared pretty well despite some of the choppiness in the market and the specter of trade dynamics, etc., we were able to put up some sequential growth into Q3. And if we look at China for Skyworks, it's about 25% to 30% of revenue. And of course, China for us is mobile, there's infrastructure, there's IoT, there's many parts.

It's been a great region for us to play emerging markets, right? A number of our players in China, Oppo, Vivo, Xiaomi, etc., they also deliver globally to some of the most emerging places. So while we're interested in that, we benefit from that, should also note that we have a very diverse set of baseband partners that help us deliver in China. So we've got -- within Huawei, we've got their HiSilicon product, we've got partnerships with MediaTek, we attach to Intel, we attach to Qualcomm. So we've got all the bases covered, and our position there is solid.

Mike Burton -- The Benchmark Company -- Analyst

Great. And then on margins, last quarter, you talked about progress toward the 53% target in the second half with some cost initiatives to kick in. It looks like based on the guidance, it's going to dropping down about 54%, 55% next quarter, so some progress there. But can you just update us on your -- the latest thoughts about some of those cost initiatives and maybe a timeline for when we could get closer to that target? Thanks.

Kris Sennesael -- Chief Financial Officer

Right. So from a gross margin point of view, I'm pleased with the progress that we continue to make. So in the June quarter, Q3, we were up 20 basis points sequentially as well as 20 basis points year over year. For Q4, we just guided 51% to 51.5%, which is up 10 to 60 basis points sequentially.

So at the midpoint, up 35 basis points. So we continue to make really good progress toward our target model of 53%.

Operator

Thank you. And now to the line of Ambrish Srivastava from BMO. Please go ahead.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Hi, thank you very much. Kris, maybe I'll start with you. Good progress, good follow-through on the capital allocation via the divi increase. But I was just a little puzzled, and I was hoping you could answer these questions.

As free cash flow came down a lot this quarter and thanks largely to AR being up a lot as well as inventory, could you just help us understand what are the dynamics there? And also kind of related to that is CAPEX was up a lot, and you mentioned capacity as well as new investments, so does that mean that CAPEX would be higher than what you had earlier guided to? And then I have a quick follow-up for Liam, please.

Kris Sennesael -- Chief Financial Officer

Yes. So first of all, we have a very strong cash generation business model, and that continues to be very strong. Obviously, there are going to be some seasonal fluctuations. And typically, Q3 is somewhat of the softest cash generation quarter in part because inventory is going up, both in dollars as well as days of inventory, as we are in anticipation of a strong ramp in the September and December quarter.

And also, from a receivables point of view, we saw an increase of the receivables, both in absolute dollars as well as DSOs because of the seasonality. Typically, in the April and May months, you still have a seasonal decline, and then it flips over. And starting in June, you see the start of the seasonal increases. As a result of that, Q3 was, from a billings point of view, somewhat back-end-loaded.

And as a result of that, you see slightly higher DSO, slightly higher AR and it has somewhat of a muted impact on the cash generation within the quarter. But if you look at it from an LTM point of view, we continue to generate very strong cash, cash from operations as well as free cash flow. Having said that, capex in the quarter, Q3, was $191 million. So it was definitely a heavy capex quarter, again, all or most of the capex there is related to capacity expansion in preparation of the steep ramp that we have in front of us here in the September and December quarter as well as some technology-related investment as we continue to be a technology leader and expand our capabilities there as well.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

OK. And clearly, no lack of confidence because you are raising your divi up a lot. I just wanted to make sure I understood the dynamics. So Liam, just on the third calendar quarter, when you look at the mobile and the trends that you're seeing there, and I don't even know if there's anything -- such a thing as seasonal anymore, but how would you characterize the environment? Is it somewhat seasonal more or less, worse than that or better than that? Thank you.

Liam Griffin -- President and Chief Executive Officer

Sure, yes. So you're saying the third calendar quarter. So the third calendar quarter, we start to see this time of year preparation for some pretty sizable ramps with premier customers. And that work is ongoing.

We are very comfortable in our ability to move content up and actually expand the reach of our content. That's even more important. We're bringing more technologies, higher-grade functionality that really lift connectivity, improve data rate, reduce latency, manage some of the more intricate designs on our DRx platforms, bringing in MIMO architecture, just really bringing those rich solutions to our customers. So we're in the very, very early innings of those ramps, again, calendar Q3 and then moving into the calendar Q4 where the numbers should come up again.

That's how it's playing out right now. We have very good visibility on this as well.

Operator

All right. Thank you. And now to the line of Craig Hettenbach of Morgan Stanley. Please go ahead.

Craig Hettenbach -- Morgan Stanley -- Analyst

Yes. Thank you. Can you discuss in terms of how you're thinking about guidance just with the ZTE ban recently lifted, how that's incorporated or not into the September quarter?

Kris Sennesael -- Chief Financial Officer

Yes. So our business with ZTE was approximately $25 million to $30 million per quarter. Obviously, that was not there in Q3, in the June quarter. In the meantime, the ban has been lifted, which is good news.

However, it will take time for ZTE to rebuild their supply chain. That could take multiple months, if not multiple quarters. So we do expect a little bit of revenue related to ZTE in Q4, but it's just a couple of million dollars.

Craig Hettenbach -- Morgan Stanley -- Analyst

OK. Thanks for that. And then, just as a follow-up on capital allocation, and just a step-up of -- a noticeable uptick in buyback, increasing the dividend. Liam, can you talk about that move in the context of how you're also viewing M&A opportunities?

Liam Griffin -- President and Chief Executive Officer

Sure, sure. Absolutely, Craig. Yes, I mean, fortunately, the cash machine and the Skyworks engine is continuing to do well. The market backdrop is, I believe, very favorable for us.

And we understand mobile, there's a lot of great stuff happening there. We're advancing the technology, expanding the reach, as I mentioned, and making some really strategic investments. We also have 5G upon us, which is going to be an incredible opportunity for Skyworks in our ability to do the complex things well. In parallel, we talked about broad markets in double-digits.

So there's a lot of really meaty opportunities on the table today with the card business. Having said all that, we're fortunate to have the cash generation, the balance sheet and the powder to do acquisitions when they make sense. So we'll continue to look at that. And we have been looking at it, but we will continue to have a very high bar and a great deal of vigilance on transactions if we go forward.

So that's the best way I can frame it for you today, Craig.

Operator

Thank you. And now to the line of Blayne Curtis from Barclays. Please go ahead.

Blayne Curtis -- Barclays -- Analyst

Yes. Thanks for my question. Liam, I wanted to ask you, there's, you mentioned wins at a number of OEMs in China. I was kind of curious, as you look at [Inaudible] and just the addition of carrier aggregation in China, your competitiveness [Inaudible] versus broad-based solutions as that becomes a bigger part of the mix in the next couple of years?

Liam Griffin -- President and Chief Executive Officer

Sure, Blayne. Yes, I think if you look at China, as I mentioned, we've been working that region for years and have great partnerships and relationships and some incredible success stories with some of the leading players. So as I mentioned earlier, again, baseband partnership's agnostic. We're able to play all the angles.

So as we start to move into extending into 5G where China's going to be a big, big player, there are going to be some new opportunities that are going to require unique filtering, expanding carrier aggregation, much greater focus on downlink data speed -- data rates and speed, which we do well with our DRx. And the other thing is that the ability to solve those problems can be different depending on the supplier, depending on the customers' needs. And what we bring to the table is really that high degree of configurability where we can go in and lever TC SAW, we can lever our DRx, we can lever our homegrown gallium arsenide in our packaging to create really unique solutions, so each customer gets exactly what they want and only what they want. As you know, in China, you have more kind of a proliferation of models rather than one or two flagships that serve global markets.

So the ability to work with each customer and get it right based on their needs is really important. And that's what we intend to do, and I think it gives us a chance to really exceed our numbers here as we get into 2019 and beyond.

Blayne Curtis -- Barclays -- Analyst

Thanks. And then just maybe I'll ask a last one because I'm asking anyway. Just curious on the [Inaudible] ramp as we kind of compare this year, the timing of those ramps versus the last couple of years. Obviously, last year was a little bit different than you did in the prior years before that.

I'm just kind of curious, as you look at it in terms of the guide, how it kind of compares with the [Inaudible] ramp?

Liam Griffin -- President and Chief Executive Officer

Yes. So you're referring to the large customer ramp. Is that right, Blayne? Yes, I think I'll assume that's what it was. Yes, so what we're seeing right now for ramps going through the second half of the calendar year, following a predictable cycle, obviously, there'll be some production that we need to put forth now, which we are doing, to support our larger customers for those ramps.

And what we see today just on the outlook and the projections, things seem to be tracking the normal cycle, and we'll be prepared to deliver to that.

Operator

All right. Thank you. And now to the line of Harsh Kumar from Piper Jaffray. Please go ahead.

Harsh Kumar -- Piper Jaffray -- Analyst

Yes. Hey, guys. First of all, congratulations [Inaudible] market, solid results by you, guys. At your largest customer, Liam, I was curious if this new generation of phones has a content increase that's built in? And I'm curious if you could talk about, maybe generally speaking, if you saw a content increase.

And if you did, what kind of category would you put that, double digits, single digits, just broad color? And then I have a follow-up.

Liam Griffin -- President and Chief Executive Officer

Yes. I can't get into too much detail, Harsh. But obviously, it's our mission every cycle to bring a greater level of technology and performance and value to our customers. And I'm confident that, that's happening again here now.

With the burden on mobile technology and the requirements continuing to stretch and become more daunting, it's great for Skyworks. We talked about that. We have such a wide set of technologies from Bluetooth to WiFi to LTE, GPS, DRx. All throughout mobile, the ability to create diversification across platforms is a big reason why we're able to raise content every year.

And some of the new technology nodes that are upon us now, 5G, etc., they're not in the numbers today, but we're working on it now. We've got the blueprints and the prototypes in our labs to move forward there and be positioned for the '19, '20 and beyond ramps in 5G.

Harsh Kumar -- Piper Jaffray -- Analyst

Understood. And then for my follow-up, I think you said in the last call that you expected 3Q fiscal -- or sorry, 3Q calendar, which is the September quarter, to be up. And then you expect the 4Q calendar, which is the March -- I'm sorry, the December quarter, I apologize, to be up again. Is that still kind of accurate, Liam, in your opinion? Is that the way it shakes out this year?

Liam Griffin -- President and Chief Executive Officer

Yes, absolutely. That's right.

Harsh Kumar -- Piper Jaffray -- Analyst

Thank you.

Operator

Thank you. And now to line of Vivek Arya from Bank of America. Please go ahead.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question. Maybe first one for Kris on capex. I don't recall, Kris, whether you gave the number for Q4. And then as part of that, is 10% still a good assumption to use for capex over the next one or two years?

Kris Sennesael -- Chief Financial Officer

Yes, absolutely. So if you look even on an LTM basis, we are approximately 10% capex to revenue. There is some seasonality, right, some quarters are higher, others quarters are lower. But if we look at it on a full-year basis this year and even the next couple of years, on or about 10% capex to revenue is a good number.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Got it. And then, Liam, as we look at the back half, as I look at your September quarter outlook and maybe assuming December is kind of seasonal, do you expect mobile sales to be up year on year? Because if content is up, is it just that we are still working through some of the unit fluctuations? At what point should we start to see your mobile sales start to grow year on year?

Liam Griffin -- President and Chief Executive Officer

Yes. You're going -- that's definitely in the cards for us here. But we're not guiding December on this call, right? We're just not able to go out another quarter with you. But we are gaining content.

We are seeing our reach of technology expand, as I mentioned. And we do expect a solid sequential into December. We haven't finalized exactly what that number is, but we absolutely expect that to be in place, and it will be up year over year as well if we follow through with the solid sequential. So that's the best we can do today, but we feel good about making that happen.

Operator

Thank you. And now to the line of Krysten Sciacca from Nomura Instinet. Please go ahead.

Krysten Sciacca -- Nomura Instinet -- Analyst

Good afternoon. Thank you for taking my question. First question I have is a little broader. We've seen your major North American customer starting to reevaluate their BOM and try and minimize it as much as possible.

And just given the history that we've seen with other Chinese OEMs almost kind of mimicking what the North -- what this North American customer does, do you expect to see this trend flow through at Chinese OEM's? Or do you think that content is still increasing there?

Liam Griffin -- President and Chief Executive Officer

Yes. So what we are seeing in the Chinese OEMs today at face value, the content, vis-à-vis some of the larger players, the larger global players, the China opportunities are just lower in dollar value, they've been increasing. But you may have an LTE product that has $4 to $5 of content that potentially can move to $6 to $7, and we pursue that. If you look at the more significant players that leave the market, the content opportunity is much higher.

So if anything, if we could get some of the mid-tier China brands to mimic more of the one and two players in the industry, that would be good for us. And so it's a little bit of a back-and-forth there. And again, in China, they don't often sell a fully global roaming product. So if it's roaming just on China Mobile, China Unicom, for example, it doesn't necessarily need the same frequency bands that a global model would need, so there's differences regionally.

But we honestly see the need in every case for performance, and products are selected and customers' decisions are really based on how well the product will perform in their application, not so much on how much does it cost.

Krysten Sciacca -- Nomura Instinet -- Analyst

That's great. Thank you. And then for my follow-up, sticking on the topic of China. I know the tariffs recently have kind of affected everyone a little bit differently.

How do you expect that to affect your business operations, if at all? Or do you fear any retaliation from China will affect your business outlook?

Kris Sennesael -- Chief Financial Officer

No. So we have seen very little impact or no impact from the trade war on our business with the exception, of course, of the export ban. We have ZTE where we lost revenue in Q3 and Q4. The ban has been lifted, but it will take some time to recuperate that revenue.

If you look at the trade war and the tariffs, we are an exporter of components from the U.S., from Singapore, from Mexico into China and many other countries. There are no new import duties or tariffs on those components, and so that doesn't impact us at all. It's definitely something that we will keep evaluating and see if there are any new developments, but for now we don't see any impact on our business.

Operator

Thank you. And now to the line of Timothy Arcuri from UBS.

Timothy Arcuri -- UBS -- Analyst

Thanks so much. Kris, it looks like -- in December, it looks like -- well, it looks like based upon your guidance, you're going to grow maybe $15 million sequentially in the third calendar quarter. And if that includes only a few million dollars of ZTE, if I put that back, then it would suggest that the broad markets business is growing in excess of 20% year over year. Are there some one-timers in September? Or is that really the right sort of year-over-year growth rate going forward? Thanks.

Kris Sennesael -- Chief Financial Officer

No. Again, we can probably take this offline on the math. What I see here is that broad markets in Q3 and in Q4, the fiscal calendars, is growing at low to mid-teens year over year.

Timothy Arcuri -- UBS -- Analyst

OK. And then can you talk a little bit about the competitive environment? Are you seeing Qualcomm be sort of any more of a player? They now seem to have all the pieces with TDK, JV and Winsemi and stuff. Do you see them at any of your major accounts? Thank you.

Liam Griffin -- President and Chief Executive Officer

Yes. The Qualcomm situation -- look, we respect Qualcomm, they're a great technology player and have been in mobile for a great deal of time. But if we look at the landscape today on programs that we've been pursuing and programs that we're already in, we haven't seen a significant effect. And let me also remind you that there's a number of platforms where our RFs and our other chipsets will line up right next to the Qualcomm baseband, so we do have an ability to be a part of their system with our product.

But their fully integrated solutions, we haven't seen too much of that. And none of that really has impacted our revenue growth.

Operator

Thank you. And now to the line of Tristan Gerra from Baird. Please go ahead.

Tristan Gerra -- Robert W. Baird -- Analyst

Hi, good afternoon. I know you can only comment as much about ramping in North America for the second half. Are you seeing, in general, a departure of the typical band of frequency range that you've been previously or up to now in smartphones with the new design wins that you have for the second half? And also any commentary around a potential shift in market share that you see driving this guidance, which is the strongest sequential revenue growth for the past four years for the quarter?

Liam Griffin -- President and Chief Executive Officer

Sure, sure. Yes. Well, we continue to see very rich content opportunities put forth with the leading players in the industry. And that's a theme that's continued for successive generations.

And bands can be added as customers want to get more reach with their customer base, so that happens. But the important thing is the more dense you get with technology, the more bands that you bring into an application, bringing in downlink opportunities on DRx and uplink opportunities on SkyOne, now thinking about getting into 2019 and '20 where we have unique 5G opportunities that are not yet resolved, it's going to put a tremendous amount of pressure on systems performance and a great opportunity for those that can deliver. So that's what we're looking at. And with respect to this -- the last quarter here that we just spoke about, or the guidance to Q4, we're very well prepared for it.

We certainly had good visibility on the designs that were required to make these numbers happen. And it's about execution right now, and that's what we've been doing for years. So we're looking forward to executing to the ramp and also following up over the next several years as we bring 5G to the market.

Tristan Gerra -- Robert W. Baird -- Analyst

OK, great. And then as a quick follow-up, outside of North America, do you see any pocket of inventories in the smartphone supply chain? Or would you say that we're at a normal level relative to this time of the year?

Kris Sennesael -- Chief Financial Officer

Yes. We are absolutely at normal levels for this time of the year.

Tristan Gerra -- Robert W. Baird -- Analyst

Great. Thank you.

Operator

Thank you. And now to the line of Atif Malik from Citigroup. Please go ahead.

Atif Malik -- Citi -- Analyst

Thank you for taking my question, and congratulations on consistent execution on the dividend hike. First question for Liam on 5G. You guys have a very strong portfolio with Sky5. Can you just talk about when should we expect significant revenue ramp in your 5G products? I think in the past, you guys have talked about double-digit growth in fiscal second half '19.

So is there any update on when should we expect the significant ramp in 5G sales?

Liam Griffin -- President and Chief Executive Officer

Sure, sure. A great question. Well, I mean the work is underway right now. And I'm really proud of our team's ability to get in front of this and become one of the first movers in 5G, and we're thrilled to be in that position.

So what we're seeing today is a lot of design activity on both the infrastructure side and also on really kind of the heartbeat of the connectivity within smartphones. We think -- again, you can get different answers, but we see revenue really being posted, probably by 2020, maybe late, late '19. But 2020 is where I think kind of we triangulate around real revenue. Now of course, to get there, there's a lot of development work required.

And our teams are working with our customers and baseband providers and very close to the infrastructure side to make sure that all of this great technology comes together efficiently. I'll also note, as Kris mentioned, we're making strategic capital investments that are unique to executing in a 5G world, very complex, very, very complex products that we want to make ourselves. So that's what we're looking at. And again, we've had some trials and some testing with some of our 5G solutions already.

Things look good. We're going to continue to refine and, again, continue to be in position to deliver at scale when these products come to market.

Atif Malik -- Citi -- Analyst

Great. And then a follow-up, can you provide an update on your in-house BAW program and if you moved into some manufacturing?

Liam Griffin -- President and Chief Executive Officer

Sure, sure. Actually, I don't want to share the playbook on that technology right now. I think you know us pretty well. We have some very crafty designs that will allow us to address all of the necessary frequency bands in both LTE and 5G.

And the work right now is progressing very, very well. And we'll give you more on that soon.

Operator

Thank you. And now to the line of Bill Peterson from JPMorgan. Please go ahead.

Bill Peterson -- J.P. Morgan -- Analyst

Yes. Thanks for letting me ask a question. I wanted to ask a question on mobile a bit differently than others. So if you look at the mobile business in the September quarter, it looks like it's basically flat or slightly down from a year-on-year perspective.

If you can break out the content gains versus maybe unit demand weakness among the large North American, Korean players in China, where are you seeing, let's say, the content gains versus maybe the unit demand weakness and so forth that brings it to relatively flat or slightly down? Thank you.

Liam Griffin -- President and Chief Executive Officer

Yes. So we'll try to unravel that the best we can. I mean certainly, we're not seeing -- China is OK, but we're not seeing it as robust as we would have expected. OK, this is all in the $1 billion number here.

We thought that would be a little bit better. It isn't. Some of that is ZTE, which is real, right? We talked about that, $25 million to $30 million a quarter that's out. Samsung hasn't been as strong as other large accounts.

They're OK, but we haven't seen the uptick there that we thought we could enjoy. Some of that is really a choice that we've made, in certain cases, to not chase commodity business, and I think that serves us well. And the larger customers in mobile are continuing to advance the technology. And I think all that kind of plays together.

And there is a bit of a unit issue, too, that jumps around. And as you all know, that with any customer's product ramp, it doesn't move 100% to one device. There's a roll-in, phase in, phase out. So you always have a combination of new product, prior-year model, maybe a year back model.

So -- and that's the case with all of our customers. So things don't react in such a binary way. But the content acquisition is what we drive, and I'm pleased with the team's ability to make that happen.

Bill Peterson -- J.P.Morgan -- Analyst

OK. Thanks for that color. Switching over to broad markets. I think infrastructure has generally been kind of a weaker portion of your business, and a lot of other people in the market's business.

But now you're talking about these MIMO opportunities and you're speaking more about infrastructure being a growth opportunity. I'd like to understand in what regions you're seeing strength. And maybe if you could help us size these MIMO opportunities. I believe you've talked about a $65-plus content opportunity, if you could help size these opportunities in the infrastructure market.

Thank you.

Liam Griffin -- President and Chief Executive Officer

Yes. A lot of that is in these high-performance antenna arrays and base stations, so these are new functions that are required to make 5G work. So you do have kind of a slow roll on infrastructure now with this catalyst to move to 5G and upgrade cycles that will drive 5G. We're also seeing a pretty nice step-up in small cell.

Small cell infrastructure, small cell base stations, that can happen. And if you look really long into 5G, we could get into the millimeter wave technology, which we have in-house, and start to see kind of neighborhood-level deployments that will incorporate small cell-like functionality but using millimeter wave technology. That's out there a bit, but all of that is kind of in our strike zone.

Operator

Thank you. And ladies and gentlemen, that does conclude today's question-and-answer session. I'll now turn the call back over to Mr. Griffin for any closing comments.

Liam Griffin -- President and Chief Executive Officer

Thank you, all. I appreciate your time this afternoon. We look forward to seeing you at conferences going forward.

Operator

[Operator signoff]

Duration: 41 minutes

Call Participants:

Mitch Haws -- Vice President of Investor Relations

Liam Griffin -- President and Chief Executive Officer

Kris Sennesael -- Chief Financial Officer

Craig Ellis -- B. Riley FBR -- Analyst

Mike Burton -- The Benchmark Company -- Analyst

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Craig Hettenbach -- Morgan Stanley -- Analyst

Blayne Curtis -- Barclays -- Analyst

Harsh Kumar -- Piper Jaffray -- Analyst

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Krysten Sciacca -- Nomura Instinet -- Analyst

Timothy Arcuri -- UBS -- Analyst

Liam Griffin -- President and Chief Executive Officer

Tristan Gerra -- Robert W. Baird -- Analyst

Atif Malik -- Citi -- Analyst

Bill Peterson -- J.P.Morgan -- Analyst

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