Skyworks Solutions (SWKS) Q1 2023 Earnings Call Transcript

Skyworks Solutions (SWKS -1.29%)
Q1 2023 Earnings Call
Feb 06, 2023, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Skyworks Solutions first quarter fiscal year 2023 earnings call. [Operator instructions] At this time, I will turn the call over to Mitch Haws, investor relations for Skyworks. Mr. Haws, please go ahead.

Mitch Haws -- Investor Relations

Thank you, JP. Good afternoon, everyone, and welcome to Skyworks' first fiscal quarter 2023 conference call. With me today are Liam Griffin, our chairman, CEO, and president; 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 complete reconciliation to GAAP. With that, I'll turn the call to Liam.

Liam Griffin -- President and Chief Executive Officer

Thanks, Mitch, and welcome, everyone. Skyworks delivered solid first fiscal quarter results, with revenue exceeding consensus estimates, strong profitability, and record cash flow performance. Looking at Q1 in more detail, we delivered revenue of 1.329 billion, drove gross margin of 51.5% and operating margin of 37%. We posted earnings per share of $2.59, and we generated $773 million of operating cash flow, a quarterly record for Skyworks.

In addition to the solid financial results, we expanded our design win pipeline in several emerging high growth segments. In IoT, we extended our broadening technology portfolio across a growing customer base. We partnered with AT&T to launch their first Wi-Fi 6 gateways, unveiled the industry's first Wi-Fi 7 networking system with TP-Link, and leveraged our advanced connectivity portfolio to support six gigahertz fixed wireless access points at Cambium Networks. Across infrastructure and industrial markets, we integrated Power-over-Ethernet functionality in Cisco's modular switches for enterprise networks.

We ramped timing platforms to meet high precision and speed requirements for the leading data centers. And we delivered frequency generation and clock distribution technology for 5G massive MIMO deployments. In automotive, we achieved our sixth consecutive quarter of record revenue, strengthening our EV design win pipeline with onboard charger content at a Japanese automotive supplier, and securing design wins for digital radio platforms with a top European OEM. Moving forward, the rapid expansion of mobile network traffic, advances in cloud and edge computing, IoT, and the electrification of vehicles are major trends that drive complexity and demand for our highly integrated and customized solutions.

A few highlights underscore these remarks. Wireless connections continue to proliferate, with mobile network traffic doubling over the past two years. Market estimates project over 25 billion IoT devices to be installed by 2027. The automotive industry is undergoing a revolutionary shift toward electrification of autonomous vehicles, with EVs projected to make up over 30% of the U.S.

market by 2030. Skyworks is well-positioned to capture growth upon these opportunities in transformative markets, leveraging key technologies, human capital, and significant scale. Collaborating with our partners and customers, we are leveraging key technologies, from TC-SAW to high-performance Bulk Acoustic Wave filtering, gallium arsenide, and state-of-the-art packaging. These skills and capabilities position Skyworks to play a leading role in this fast-evolving, rapidly growing landscape.

With that, I will now turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q2.

Kris Sennesael -- Chief Financial Officer

Thanks, Liam. Skyworks revenue for the first fiscal quarter of 2023 was 1.329 billion, exceeding consensus estimates. Mobile was approximately 65% of total revenue, with weakness in Android as customers work down their inventory levels. Broad markets was approximately 35% of revenue, with a strong contribution from automotive, infrastructure, industrial, and the global shift to Wi-Fi 6E and 7.

Gross profit was 684 million, resulting in a gross margin of 51.5%, up 30 basis points year over year and up 20 basis points sequentially. Operating expenses were 193 million or 14.5% of revenue. We generated 491 million of operating income, translating into an operating margin of 37%. We incurred 16 million of other expense, and our effective tax rate was 12.8%, driving net income of 415 million and diluted earnings per share of $2.59.

Turning to the cash flow, first fiscal quarter cash flow from operations was an all-time record of 773 million. Capital expenditures were 64 million, resulting in a record free cash flow of 709 million and a free cash flow margin of 53%. We paid 99 million in dividends and repurchased approximately 1.8 million shares of our common stock for a total of 166 million in the quarter. On a trailing 12-month basis, we have returned 1.2 billion to shareholders through dividends and buybacks.

Also, today, we announced that our board of directors has approved a new $2 billion stock repurchase program, highlighting their confidence in our business and its ability to continue generating strong free cash flows. Now, let's move on to our outlook for Q2 of fiscal 2023. We anticipate revenue of between 1.125 billion and 1.175 billion. Gross margin is projected to be in the range of 50% to 50.5%.

We expect operating expenses of approximately 189 million to 191 million. Below the line, we anticipate roughly 19 million in over-expense and an effective tax rate of 12.5% to 13%. We expect our diluted share count to be approximately 159.5 million shares. Accordingly, at the midpoint of the revenue range of 1.150 billion, we intend to deliver diluted earnings per share of $2.02.

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

Liam Griffin -- President and Chief Executive Officer

Thanks, Kris. Skyworks delivered solid first quarter results, demonstrating strong profitability and record free cash flow generation. Importantly, our technology-centric operational scale and expanding set of innovative solutions are fueling our robust design win pipeline, positioning Skyworks to continue to outperform. Despite a challenging macroenvironment, Skyworks remains well-positioned, with the most diverse customer and solution set in our history, a technically seasoned and talented workforce, a strong balance sheet, and predictable cash generation underpinning our ability to fund future opportunities while returning cash to our shareholders.

That concludes our prepared remarks.

Mitch Haws -- Investor Relations

Operator, we'll begin the question-and-answer session.

Questions & Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator instructions] Your first question comes from the line of Ambrish Srivastava from BMO Capital Markets. Your line is now open.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Thank you very much. Thanks, excuse me, for taking the question. That was a pretty short prepared remarks, Liam and Kris. Always appreciate it.

But I just wanted to get a little bit of your thoughts on excess inventory. Qorvo has talked about maybe a whole year before component inventory comes back in check. MediaTek has talked about finished goods inventory in overall three and a half months, if I remember correctly, winding down to two months. What's your take on the inventory -- excuse me, your inventory, as well as on the channel? And then a quick follow-up on your own balance sheet inventory, it was up quite a bit.

How should we think about it going forward, Kris? Thank you.

Liam Griffin -- President and Chief Executive Officer

Sure. Yeah. This is Liam. You know, of course, at Skyworks, we're a very operational-centric and technology company together.

And a lot of our products, the lion's share of our products are done in-house, in our own fabs, in our own assembly and test locations. So, we have really good eyes and ears on the balance this year, whether it be inventory on our sites or even with our partners. So, we are very, very careful to ensure that we are aligning our revenue with natural demand. We always want to be, you know, right on step with our customers.

I think our teams have done an incredible job. There are markets today right now that, you know, there has been some excess inventory, and we're just -- we're letting that bleed down. And our exposure there is extremely small. You know, some of the markets in China are a little bit more volatile.

But in those cases, we have very little exposure. So, I think it's important to note that, you know, we can control our ship and our products, working with the best customers out there. Lots of great communication with our customers as well. So, everybody is on the same page, and we feel really good about that.

And I think it's something we'll continue to work through and be well-positioned for the back half of the year.

Kris Sennesael -- Chief Financial Officer

Yeah. And, Ambrish, as it relates to the inventory on our balance sheet, it's definitely somewhat at an elevated level, but I'm very comfortable with the level of inventory that we have right now. You have to take into account that we came out of a period where supply chains were challenged. We definitely wanted to make sure we support all the customer demand.

We've been increasing some of the buffer stocks. And now, more recently, of course, we have seen some softness due to some macroeconomic challenges, and we have been adjusting our wafer starts and factory loadings accordingly. We've been doing that for a couple of quarters now proactively. Having said that, again, it's a little bit elevated.

So -- but you have to keep in mind that we are level-loading our factories, and we do expect, based on known design wins, the business to bounce back, especially in the second half of calendar year 2023. And so, we will continue to level-load to support those big ramps based on known design wins with many of our customers. We also do expect some of the Android-based business in Korea and China to bounce back in the second half of the year. And so, we will continue to make adjustments.

I do expect that the days of inventory will come down back to a more normalized level in the second half of the calendar year.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Blayne Curtis from Barclays. Your line is now open.

Blayne Curtis -- Barclays -- Analyst

Hey, good afternoon. Thanks for taking my question. I had two. And obviously, you know, with the tough mobile backdrop, I think these are pretty good results.

I'm just curious if you can level-set us through December. I don't know if you're willing to give how much your largest customer was. But then -- what -- in the March guidance, if you could just talk through how you're thinking about the iOS versus Android there? I mean, does Android bottom in December or March? And, you know, any thoughts on the recovery for Android?

Kris Sennesael -- Chief Financial Officer

Yeah. So, as it relates to the large customer, revenue of that large customer was approximately 68% of total revenue. That clearly demonstrates great execution by the team supporting that large customer in the ramp of their new phone lineup. We have some great content in that phone.

Some really high-performance, complex devices. Many of those devices leveraging our Bulk Acoustic Wave filtering. And so, I think we did really well in the December quarter despite the fact that, as you know, the large customer talked about that, they were somewhat supply constrained due to some COVID-related issues in China. But the team here executed really well in December with that customer.

Liam Griffin -- President and Chief Executive Officer

Yeah. And, Blayne, just to follow up, we are, you know, starting to get back on the saddle here with the Android portfolio. And as you know, we've actually been holding back because there was some inventory in that channel. I think there still is, but it's been bleeding, and the opportunity for us to have incremental gains there is very high given the fact that we kind of stayed on the sidelines until these inventory levels got to a more normalized position.

It's not about the products. The products are ready to roll. We've got everything we need to drive that business, but we just want to be careful as the markets move forward. So -- but we have the design win momentum, for sure.

Blayne Curtis -- Barclays -- Analyst

And then I wanted to ask you on broad markets, you know, whether you think that business would be up in March as part of the guidance. And then I know you had a record I&A quarter in September. Just kind of curious how that business is doing trajectory-wise.

Kris Sennesael -- Chief Financial Officer

Yeah. So, in the broad markets, as we said, was in December, roughly 35% of our overall revenue. It was slightly down on a year-over-year basis as we see similar things that some of our peers and competitors are seeing in that market due to some macroeconomic headwinds. There's a little bit of a softer demand.

But on the flip side, we definitely saw strength for Skyworks Solutions in the automotive segment, some parts of the infrastructure and industrial segments. And as we said as well, we see some really good traction in the upgrade to Wi-Fi 6E, which is a big step-up in content, as well as some early design wins that are being turned into revenue for Wi-Fi 7. As it relates to the March quarter, we do expect broad markets to be slightly down sequentially, somewhat in line with normal seasonality.

Blayne Curtis -- Barclays -- Analyst

Thanks, Kris.

Operator

Your next question comes from the line of Gary Mobley from Wells Fargo. Your line is now open.

Gary Mobley -- Wells Fargo Securities -- Analyst

Hey, guys. Thanks for taking my question. There have been some tear-down reports out there that have highlighted your content associated with, you know, the satellite link, I guess, in particular, with your largest customer. Somewhere in the order, you know, four or five specific sockets for you guys.

Can you speak to, you know, the content opportunity for you not only in the iOS world but as well the Android world?

Liam Griffin -- President and Chief Executive Officer

Yeah. I think, you know, we are engaged with all of the relative and meaningful applications. And I think if you're referring to Satcom, is that right?

Gary Mobley -- Wells Fargo Securities -- Analyst

That's right.

Liam Griffin -- President and Chief Executive Officer

Yeah. Sure. Absolutely. So, you know, we have the technology, the IP, and kind of the building blocks to make that work.

It's an early -- it's still early in the global market, but it's definitely an opportunity to bring more scale to units. And so, we definitely are -- you know, we're engaged, we're involved, we have the technologies to make some of these work. We also have the partnerships with the companies that can do some of the, you know, kind of the groundwork to have that network evolve. And it would be a great opportunity for a company like Skyworks.

We have many of the building blocks. We understand in the radio frequency space deeply and in the Satcom world as well. So, it's an evolving opportunity, and we will definitely be at the table. We are today.

But, you know, more upside to come as the markets evolve.

Gary Mobley -- Wells Fargo Securities -- Analyst

OK. As my follow-up, I wanted to ask about the utilization of your supply. Sounds like you won't have any underutilization charges associated with internal supply, at least not for the intermediate term. But maybe you can speak to, you know, external supply, purchase commitments there, and your ability to fully utilize those without, you know, taking any sort of reserve.

Kris Sennesael -- Chief Financial Officer

Yeah, Gary, as I indicated before, we have been managing this proactively for many quarters right now. And we are adjusting our factory loadings all the time, depending on the demand that we see. And of course, the earlier you do that, the more proactive you are, the more you can take the time to, of course, accordingly adjust your cost structure, taking out cost where needed, while at the same time, of course, continue to work on operational efficiencies, yield improvements, and so on. We've done that with our internal factories.

We have done that with our third-party purchasers and vendors as well, having an open dialogue, making sure we have, on one hand, enough capacity in place, but at the same time not overcommitting as well. And I think the team has executed pretty well on that.

Gary Mobley -- Wells Fargo Securities -- Analyst

Thanks, Kris and Liam. Appreciate it.

Liam Griffin -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Toshiya Hari from Goldman Sachs. Your line is now open.

Toshi Hari -- Goldman Sachs -- Analyst

Hey, thanks so much for taking the question. Liam, I was hoping you could provide a little bit more context, a little bit more color around your broad markets business. I think you talked about record revenue in your automotive business and strength across comms and the industrial end market as well. But you know, specifically, I was hoping you could size those individual buckets within broad markets in calendar '22, you know, where you landed from a revenue standpoint across those key end markets and how you're thinking about the forward.

And on the forward, I guess, you know, the commentary on automotive from most of your peers continues to be pretty bullish and pretty positive, but there are signs of moderation in comms and industrial, so I was hoping to hear what you're seeing in those markets as well.

Liam Griffin -- President and Chief Executive Officer

Sure. Well, you know, we put a lot of energy into those markets, and we're getting, you know, great returns. And, you know, the size of the opportunity there is substantial. And some of those products and markets at work were not really the purview of Skyworks two, three, or four years ago, but they are now.

So, the automotive opportunity for Skyworks has been incredible, leveraging some of the IP that we brought in with the SLAB I&A deal, coupled with our own internal developments and design wins and technology partners. We've got a business now that is in the hundreds of millions of dollars a year, really at a time where, you know, the EV and electrification of vehicles is really just starting. So, I think this is going to be an incredible piece for us. One of the markets that will drive our broad markets portfolio.

The other thing is the IoT space generally is really clicking now for us. And you've heard for years that if we think about, you know, our solutions, they're not just handsets. We leverage the handset because it's a great opportunity to demonstrate, you know, what benefits we could have as a user. But we're starting to drive the same type of technologies in IoT, things like Wi-Fi, for example, GPS, many, many other sensor technologies that we can populate with our solution.

So, some of that core wireless engines don't have to be specific to smartphones, but that technology, that know-how, that scale, and the ability for Skyworks to uniquely develop and market solutions, I think, is quite a differentiator. And we're really, you know, just getting the wheels turned around those opportunities. But there's definitely quite, quite a large opportunity set for us over the next four or five years.

Toshi Hari -- Goldman Sachs -- Analyst

Got it. Thank you. And then as a quick follow-up, one for Kris on gross margin. You know, in the December quarter, you know, your margins came in in line.

They were up a little bit both sequentially and year over year despite revenue declining both sequentially and year over year. So, curious what were some of the positive offsets in December? And then more importantly, for the March quarter, you're guiding gross margins down, I guess, roughly 100 basis points, give or take. Is that primarily revenue or something else going on? Thank you.

Kris Sennesael -- Chief Financial Officer

Yeah. First of all, I'm pleased with the fact that in December, we did 51.5% gross margins, up 30 basis points year over year, up 20 basis points sequentially despite the challenging macroeconomic environment. And I think, again, kudos to the team who continue to drive operational efficiencies into our factories with great execution there. And that's really, I think, the main driver there how we are able to keep up the margins where they are, again, despite some of the adjustments that we make in terms of factory loadings.

As it relates to March, you have a little bit of a mix that comes into play and some of those headwinds, right, the revenue, as you indicated, that translate into the adjustments we make on the factory loadings. But when you put it all together, I'm guiding margins in the low 50s. I -- on one hand, I'm not happy with it. I wish it was 53, and we're going to continue to work hard to get it to 53.

But on the other hand, I'm happy with where we are from a margin point of view right now.

Toshi Hari -- Goldman Sachs -- Analyst

Thank you.

Operator

Your next question comes from the line of Matt Ramsay from Cowen. Your line is now open.

Matt Ramsay -- Cowen and Company -- Analyst

Yes. Thank you very much. Good afternoon, guys. I wanted to ask you about sort of inventory levels.

I mean, there's been tons of conversation through this earnings cycle around inventory levels in the smartphone space. But I'm maybe more curious about the broad markets business. You guys mentioned a couple of times the obvious macroeconomic things that are going on that may be affecting that business, having to be down a little bit. How diverse is the inventory situation in the broad markets business? And if you can just kind of walk through what business goes direct, what business goes through the channel, and how you're seeing inventory levels just for broad markets in the near term.

Thanks.

Liam Griffin -- President and Chief Executive Officer

Sure, sure. This is Liam. The good news here is the broad market portfolio is very diverse, extremely diverse. And it's leading toward a lot of great opportunity in many different end markets.

So, we have a pretty decent play there. And our teams on the operational side are highly sophisticated. We have our own supply chains. We do most of our stuff in-house, so we have a really good read on inventories are and where they should be.

And I think we're managing it quite well. There's certainly some pockets of inventory out there, but really, you know, nothing that's going to impede the progress of the business. I think the really cool thing is the number of new customers that we're bringing in. And, you know, there's a mix issue when you -- when you're doing kind of the $10,000 and $20,000 accounts versus that million-dollar accounts that you may have in some of the smartphone space.

So, a little bit of a different play. But the diversification, the margin profiles are outstanding. And like, you know, Skyworks is an operator. We do just about everything in-house.

And the ability to do that also includes great supply chain management. You know, our sales teams being online, understanding where distribution plays versus direct. There's a lot of angles there that we can control. It's not easy, but it's the way we work this business.

And I think, you know, we're starting to really see the benefits there in broad market and the diversification. You know, we've talked about a few major new segments like automotive. Automotive is really tough. You've got to get certification.

You've got to prove your ability to execute in challenging environments. There's a lot there. We've done all that work. And, you know, we've really kind of flexed our muscles in some of the tough cases in mobile over the years.

But those -- the efforts there and the knowledge that we've built is applicable for so many other markets. So, we look forward to it. You know, there's always going to be a couple of bumps and a few wrinkles, but the diversification is playing well. The customer set is growing.

And, you know, the lion's share of our top-tier customers are really accounts and companies that matter. So, we're looking forward to more as we go forward.

Matt Ramsay -- Cowen and Company -- Analyst

Thanks for the color there, Liam. Really appreciate it. Kris, just to follow up on that topic, you had said in your script about the season -- the business snapping back in the mobile business in the back half of the calendar year. And I think we're all kind of modeling that as we work our way through the inventory correction in smartphone.

But just seasonally or based on the inventory comments that Liam just made, how do you think about the shape of the year potentially in broad markets? Is that a business that can still grow again for the fiscal year? And just how do we -- how should we think about the shape of that as it comes back? Thanks.

Kris Sennesael -- Chief Financial Officer

Yeah. No, we -- our broad market business, as you know, it's a 2 billion -- on or about $2 billion business on an annual basis. And despite some of those macroeconomic headwinds and challenges and somewhat softer demand and maybe a little bit of inventory correction that is going on, we do believe that we can grow our broad markets business this year. And I'm not going to repeat what Liam just said, but we have strong design win momentum.

We play in some high-growth markets with some really key technologies. And based on all of that, we do believe we can grow our board markets business.

Operator

Your next question comes from the line of Edward Snyder from Charter Equity Research. Your line is now open.

Edward Snyder -- Charter Equity -- Analyst

Thank you. Sounds like you're doing very well with your largest customers and you plan to do well again this year. But a real quick question about Samsung. First of all, do they broach 10% this quarter? More importantly, both in Samsung and in China, you've kind of missed a falling knife there because you don't participate very much at all.

I know that, you know, Samsung is converting over to modules in the mass tiers, etc. What are your prospects for, let's say, revenue growth because everything is going to be content growth, specifically at Samsung this year because, you know, phone demand is slowing for them, the ASPs in their flagship are way below where they were when they were doing a custom design? I know that the flip side is true for the mass tier, but you don't play big in the mass tier. So, I'm trying to get a better profile of what you think seriously could occur this year, calendar year '22 at Samsung given all the different moving parts and the fact that, luckily, you weren't playing much there at all in the last year or two. And then if you maybe you could break that down between flagship and mass tier, what you think about each of those prospects, it would be helpful.

And then I had a follow-up, please.

Kris Sennesael -- Chief Financial Officer

Yeah. Just, Ed, Samsung was less than a 10% customer, and I think it's very well documented. They are going through an inventory burn-off period right now. And again, proactively, we have reduced our shipments to that customer, especially in the December quarter.

And I'll hand it over to Liam to provide some more color on Samsung.

Liam Griffin -- President and Chief Executive Officer

Yeah. I mean, it's -- look, Samsung is a major player in the industry, and I think they got banged up a bit here in the cycle as did some other Android players. So, you know, we've been working through that, Ed. And the irony is that we've actually got some pretty good content in those phones.

And so, we look forward for, you know, the inventory to get cleared, and we'll be up and to the right in terms of our business there. But, you know, I think some of that is just the volatility that, you know, the semiconductor industry and even beyond. I mean, tech -- the technology industry is going through and trying to sort through ways to get back on their feet, so to speak. And, you know, we're very focused on our own inventory and our own supply chain.

So, we have eyes and ears. We never want it too hot or too cold. We want to be able to deliver what the customers want. We stepped back a bit on Android as the inventory levels were building in the channel.

We didn't want any part of that. Samsung is a great, great customer. You know, just having some bumps. We're going to work with them and ensure that we can do everything we can to help not only in the technology side but even on the fulfillment side.

So, I think that's a temporary blip. Honestly, I think Samsung is going to continue to do very well. They're a significant company with a lot of technology, and the markets in Korea are very dynamic, and cellphones and technologies that we make are vital and viewed as a really, you know, critical asset for a person there. So, we think that's going to blow over.

And, you know, we'll start to see more creative revenue in the second half.

Edward Snyder -- Charter Equity -- Analyst

And then if I could, you're doing particularly well in your BAW. It was rather surprising to see you go head-to-head with some of the leading BAW guys and actually win in that. So, I'm trying to get my arms around the second half of the year, say content growth. We saw you took the satellite of your own tear down.

We got your satellite part. We -- I think we illustrated that you got about twice as many BAW filters in your Tx. You transmit DRx module as last year. And I know it sounds from this call and from what we've picked up that you're pretty optimistic about second half content.

Is it going to be a new quiet -- should we be looking for new classes of parts like you did with satellite, or is it going to be more content, especially in the BAW side of the business with some of the existing as capabilities spread? Because we're also obviously hearing -- you know, Qorvo didn't made no secret the fact that they're going to gain some in areas they hadn't before like antennaplexers. So, I'm just trying to get out my arms around how competitive the market is going to be in BAW and where you guys think you'll fit in with that given all that you've done the last couple of years. Thanks.

Liam Griffin -- President and Chief Executive Officer

Yeah. No, that's great. That's great. I mean, you know the business and you know the technology.

So, the nice thing here is -- you know, I thought like, you know, some of the technologies were ready to go, but the market wasn't there, right? The appetite -- the consumer appetite or the customer appetite wasn't really, you know, jumping all over this technology. But now you're starting to see, you know, as we get more and more nodes and we're starting to get more efficient in delivering, you know, high-speed data. And it's just becoming, you know, an opportunity for us now for -- at a more broad level. And I think you're going to see, you know, a small set of players, of which we're kind of one, of course, that can do what needs to be done with these incredible customers.

I mean, the customers today, you know, it's changed so much from a standard cellphone that needs the requirements, the current consumption, the ability to run globally. It's becoming more and more complex. And we love that. We -- that's exactly what we want to see.

We want to solve the tough problems. You know, from the technology side, Ed, this stuff is not easy, right? When you're bringing in all these disparate technologies into one simple module, apparently simple, right, it's really hard to do. And it's one of the things that, you know, our teams here at Skyworks love to do, our technologists, our operational team, all the way to sales. And so, we love that opportunity, we love that complexity.

And the more use cases that emerge are great for us.

Kris Sennesael -- Chief Financial Officer

And, Ed, just to illustrate that point, our revenue from devices that has BAW filters inside is getting really close to $2 billion annualized run rate. And so, it's definitely a major success story, and we believe that number will continue to go up to the right.

Edward Snyder -- Charter Equity -- Analyst

Great. Thanks.

Operator

Your next question comes from the line of Chris Caso from Credit Suisse. Your line is now open.

Chris Caso -- Credit Suisse -- Analyst

Yes. Thank you. Good afternoon. A question about the Android business in general and how that translates to linearity through the year.

And you said last quarter that you thought that the China business would be the low point in December. What -- did that turn out to be true? Is that true in general for Android, either in December or March? And if that business is sort of bottoming out, does that have any implications for June? Do you think that March quarter would be the low point in the year for revenue?

Kris Sennesael -- Chief Financial Officer

Yeah. I think that's fair. December was low. March will continue to remain low, especially China, with Vivo and Xiaomi, and to a certain extent, Samsung as well are still going through this inventory burn-off process.

But then I think we will start seeing some improvements in the June quarter and then, for sure, in the back half of calendar year 2023.

Chris Caso -- Credit Suisse -- Analyst

Got it. That's helpful. Thank you. And maybe a little longer term, you know, as we look at the revenue prospects, you know, over the next two years or so after we get through this inventory correction that's going on right now, what do you expect to be the relative growth rates between the mobile business and broad markets? You know, I know you've spoken a lot about the content that you expect to get in the mobile business.

But do you expect that you can grow the mobile -- I'm sorry, the broad markets business at a faster rate? And, you know, maybe two years out, what do you expect broad markets to be as a percentage of revenue?

Liam Griffin -- President and Chief Executive Officer

Yeah, I would -- definitely, Chris, we're expecting double-digit top line in the broad markets, for sure. You know midlevel top line. And we should be in the teens, I believe, given what we can do, what our products look like. And, you know, obviously, when the air gets clean, the market could be stronger.

I think we're going to be in great shape. And then even on the mobile side, you know, there's a lot of invention and unique technologies that are being brought up in mobile that people haven't really seen yet. But the best customers in the world know what they're doing. And there's a lot of incredible opportunity for the right types of technologies.

And the technologies that we make are those technologies. So, I think we're going to have, you know, a nice combination with, you know, again, our strength in mobile, which is a disciplined approach. We know what we're doing. We're working with the right people.

It's not easy. We've made great steps in capital. A lot of our capex is behind us right now. It's another key point.

We talked about the free cash flow in the call already. And then the diversification theme, Chris, is really playing nicely. You heard questions about satellite, for example. You look at the broad markets.

Think about our hundreds of millions of dollars of automotive revenue that we didn't have three or four years ago. So, we are -- we have really core technologies that we can take across a broad set of mobile and connected devices. But this is an extrapolation now of new applications that is really driving the business. And you're going to see more and more of that as we go through it.

It's unfortunate right now that the market is just, you know, we're all in kind of a bit of a slowdown here as we're emerging, but we've got great stock that's ready to go and design wins that have been cemented, and those will roll out in the second half of the year, for sure.

Chris Caso -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Karl Ackerman from BNP Paribas. Your line is now open.

Karl Ackerman -- Exane BNP Paribas -- Analyst

Yes. Hey, thanks, gentlemen. Two questions, if I may. First, I know you have little exposure to China Android right now, but one of the investor concerns is that you may have lost content, and so perhaps you won't receive as much of a snapback as some of your peers when China demand eventually recovers.

I was hoping you could address why those concerns might not be warranted, and I have a follow-up.

Liam Griffin -- President and Chief Executive Officer

Yeah. I mean, I'm glad you asked the question. We're ready to roll with Android. We have the technologies, we have the products, but we're not going to fill the channels, right? I mean, there is a bit of an overhang there.

We want to run discipline, you know, in our business. But I will say, you know, that inventory overhang is going to -- is starting to abate already. We see it. We have product ready to go.

High-quality, you know, top-of-line technology that we can move in. And, you know, that's just -- I can't tell you exactly when is that, but it's definitely happening, and we're ready. So, it's a -- it's an upside in our pocket that we haven't really, you know, rolled out. But, you know, we've had years and years of great position in China, OpX specifically, you know, Oppo, Vivo, Xiaomi, and then, you know, Samsung on its own vector, which is a huge company.

And it's just unfortunate that those markets got banged up. Good they're going through, you know, an inventory cycle now. But on our end, you know, we never built the inventory up. We were trying -- we try to meet the demand as it is.

We don't want to get ahead of it. And our teams were very disciplined. And you could see even in the last quarter, we talked about, you know, China revenues below 5%. That's because the market didn't need more than that, and we didn't want to sell more than that.

So, I do think as we get through this quarter and starting to see toward the second half of the year a more improving macroenvironment, we will be very well-positioned to execute. And if things change, we can move faster if we need to. But it's not a technology issue. It's not an execution issue.

It's really just trying to manage the business in the appropriate way for our shareholders.

Karl Ackerman -- Exane BNP Paribas -- Analyst

Very clear, Liam. Kris, if I may, a question for you, more of a simple one, I suppose, but what's driving the big step down in capex in December? And I'm curious if this implies anything for content as we think about calendar '23. Thank you.

Kris Sennesael -- Chief Financial Officer

Yeah. No, as it relates to capex, we definitely expect our capex trend to moderate compared to what we have been doing over the last five years. Just as a reminder, in the last five years, we were in the 10% to 12% of revenue. We've put a lot of capacity in place.

We put a lot of technology-related investments in place, especially as it relates to Bulk Acoustic Wave. And now, we have to leverage that capacity. We are focusing on yield improvements. We are focusing on die shrinks.

We can create more capacity without putting more equipment in place. And as a result of that, you will see a little bit of a more moderate, less capital-intense capex in the next couple of years here. But again, we feel good about the investments that we made, and it really will help to further improve our strong cash flow that we have already. We started the year very strong.

We expect further strong cash flow for the remainder of the year, again, based on some moderate capex. But we could drive our free cash flow over 30% in this fiscal year.

Liam Griffin -- President and Chief Executive Officer

Yeah. And just to reiterate that the capital base that we have, OK, is -- it took a long time to get to this scale. We did a tremendous amount of work, brick-and-mortar site level in our own facilities, and it positions us now for kind of a downhill run from capex. We still have great technology, great equipment, but it's brand new, right? So, we spent that money over the last four or five years strategically to build up a competency in Bulk Acoustic Wave and other filter activity -- filter technology.

It's very, very difficult stuff. It's not available in the merchant market. So, it was a make versus buy approach. We did the make.

And so, we developed solutions that are purpose-built for Skyworks and purpose-built for our customers. The great news is the capital is up and running. It's humming along. And sure, there'll be incremental capex spend over the next several years, but it won't be at the level that you look back in the last three or four, because now those investments are in-house, at scale, and running.

Karl Ackerman -- Exane BNP Paribas -- Analyst

Very clear. Thank you.

Liam Griffin -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Brett Simpson from Arete Research. Your line is now open.

Brett Simpson -- Arete Research -- Analyst

Yeah. Thanks very much. Liam, I wanted to get your perspective on 3GPP Release 17 and also Wi-Fi 7 using six gigahertz. And when it comes to these upgrades, you know, when do you think they're going to ramp more broadly, particularly in smartphones and consumer devices? And then just maybe from a business perspective, how should we think about the overall RF content when you start to scale up Wi-Fi 7 and Release 17 5G versus today's devices? Seems to be quite big architectural changes, so I was just curious how you think about this and the extent to which Skyworks could benefit.

Thank you.

Liam Griffin -- President and Chief Executive Officer

Yeah. No, that's a great question. Those technologies are just starting to emerge now, and they do add a great deal of complexity. And you mentioned that in your words.

The good news here for us is that we've been making, you know, in tandem, investments in technology. So, we've got, of course, the Wi-Fi cycle that's going from 6 to 6E and Wi-Fi 7. And that has its own set of incredible opportunities and, you know, kind of on the launch pad there. And the complexity and the newest cycles and the new devices has been incredible for us.

So, we can definitely hit that. And then back on other connected -- connectivity nodes, adjacent connectivity nodes are going through a similar space, and that's more on the IoT line. So, those types of technologies, we can deliver to the end market solutions, and that would be a big part of our broad market portfolio. And, you know, some of the most relevant players in that space, we've already had design wins with them at earlier stages, and we have a good trusted partnership.

So, it's definitely, you know, further into the year, but definitely, an opportunity for us to get into '23, '24, '25 as we look out. But definitely, another cycle that we can leverage. And as you said earlier, you know, much more challenging from a technology perspective, but the consumers' benefit there would be amazing. So, I think those new technologies, they're hard to do.

We've got the IP, we've got the know-how, and they can create their own cycles within the next set of IoT devices. 

Brett Simpson -- Arete Research -- Analyst

And is there a meaningful step-up in content, Liam. Just -- I mean, Wi-Fi 7, for example, I think six gigs and, you know, quite a lot of changes on the modulation side and the MIMO side. So, I'm assuming this should be a fairly, fairly healthy step-up in RF content. But is there -- I don't know if there's any numbers you can sort of share with us on that -- on the upgrade to Wi-Fi 7.

Liam Griffin -- President and Chief Executive Officer

Yeah. No, you know, it's hard to handicap the numbers, but it's meaningful. It's meaningful. I think you're going through -- and, you know, it's kind of a pretty long step from Wi-Fi 6 to 7.

There's a lot of work being done there. And so, work also means a lot of technology being embedded. So, I think we could get, you know, a 10% or 15% CAGR on that segment. And then also kind of that's just on content.

But then if we get the user count up, you know, you've got a double whammy. So, that -- that's kind of what we're looking for. And, you know, anything along the way, there is going to be incremental.

Brett Simpson -- Arete Research -- Analyst

And maybe just a quick one for Kris, just on the BAW filter capex moderating. Can you talk a bit more about where the capacity for BAW looks today and how should we think about Skyworks addressing six gigahertz with your BAW technology? And are you able to address that going forward? Thank you.

Kris Sennesael -- Chief Financial Officer

Yeah. Again, if you look at the capex over the last couple of years in the $500 million, $600 million per year, the vast majority of that capex was going into expanding our Bulk Acoustic Wave filter operation where we have, of course, from a small base, doubled and doubled and doubled again the capacity there. Again, we're focusing really now on driving operational efficiencies, die shrinks, yield improvements, which gives us a lot more capacity leveraging the installed base of the equipment that we have. And we're not done.

I mean, we're going to keep expanding that as we see fit. And we do believe that our revenue from devices that has Bulk Acoustic Wave filters in will continue to grow very strongly. And we're ready for that, and we will not hesitate to put more capacity in place if and when needed.

Operator

Our next question comes from the line of Harsh Kumar from Piper Sandler. Your line is now open.

Harsh Kumar -- Piper Sandler -- Analyst

Yeah. Hey, guys. You know, very incredible results, to be honest with you, in this turbulent environment. Liam, let me ask you about China.

I'm sure you're tired of it, but I know that this is hopefully the last question on this topic. You de-risked China completely. Last quarter around, I think the message was that it was very close to zero. But what do you think the China opportunity is and do you even want this business given the volatility, the geopolitical nature of it? And if you can remind us at the peak, let's say, how much it got to, let's say, over the last five years, you know, maximum as a percentage of sales.

I just want to gauge where you're playing and what you're really going after.

Liam Griffin -- President and Chief Executive Officer

Yeah. Yeah, that's a great question. Well, you know, we've always been -- we'll work with anybody that, you know, that needs our technology. You know, we'll partner with anyone.

So, there really isn't any bias around where we're going to go in our markets. But, you know, China has been a challenge, I think, for ourselves and the peers in the U.S. here. And you think about even back to the Huawei situation, you know, with Huawei shutting down, that was a big business for a lot of companies in our space.

It's been a volatile market operationally, and some of that is COVID and all kinds of things going on. But, you know, the technologies and the work that we're doing is applicable for anybody, right? There's no reason why -- you know, I mean, the China opportunity is as good as any opportunity. But unfortunately, you know, there had been some inventory here that we've all talked about, not specific to Skyworks, but just in general where the market's kind of got out of sync and created, you know, a bit of an inventory overhang. And that kind of weighs on the sector, I would say.

But turning it back to Skyworks, you know, you've heard us talk about our operational efficiencies and our know-how and labs-to-fabs approach. It's not -- those aren't just words. That's how we run this business. So, we're very keen on what we're doing with our customers.

We want to be great partners, but we also want to stay in sync with the market, right? That's really important for us. And this is just a case like that. Now, I think, you know, we've got a situation in China where, you know, there was an inventory, there were some lockdowns, there were a lot of things that would impede the natural flow of revenue and engagement. And that's kind of where that market is.

So, we're standing ready to step back in. We have the -- it's not a technology issue. It's not even a gross margin issue, really. It's about managing inventory and making sure that, you know, we're delivering to the right cadence.

That's what we want to be able to do. So, having said that, you know, long, long dialogue, I would tell you that we think things will get better. Things will get better as the market start to really kind of recover. And the technologies that we have are really good, and we can populate just about anything out there with the solution suite that we have.

So, there's really -- at this point, the bad news is flushed out for us and the opportunity to grow into those markets and deliver incremental growth is right there. So, we're looking forward to making that happen. And I think things are starting to warm up a little bit already. So, we feel good about that as we exit.

Harsh Kumar -- Piper Sandler -- Analyst

OK. Liam, can I just ask maybe a similar question in a different way? Is it fair to say that you mostly look to sell standard products in China so it doesn't -- it's not a lot of work for you outside of what you already do, and then you look to go to service those customers while leveraging your own facilities? Is that a fair way to think about it, without too much effort?

Liam Griffin -- President and Chief Executive Officer

Yeah. I mean, sure, we can take the business in the technologies. I mean, every market has its own flavor. And, you know, there's different technology nodes, higher to lower to more complex, and we're able to scale through all of it.

So, I would say that, you know, over time, the markets are going to get -- the markets are actually going to embrace higher levels of technology. I think a lot of the stuff that we're talking about right now, two or three years today is going to be much harder, much more difficult. And companies like Skyworks, I think, will have an incremental advantage. So, I think you got, you know, a China market that solved some macro things that weren't specific to mobile.

But as we wake up here and the market starts to recover, the technologies have not sat by on the sidelines. The technologies have gotten more complex and more challenging and more powerful for the user. So, the one thing I would say is in the China market, have they been able to catch up with that technology? I'm not quite sure it's there, but I know that we can do that with the partner. So, it's not a technology gap with us.

It's not a revenue issue. It's really getting the China market to get back on their feet and then be -- get that partnership where it should be, where it's in a natural supply and demand view. And I think we can do that, and we'll -- you know, we have no reason why we wouldn't want to do more business in China. But all those things that I mentioned need to kind of clear up a little bit before the markets and the opportunity for us is what we want to see.

Harsh Kumar -- Piper Sandler -- Analyst

Got it. And for my follow-up, you know, it's March. You probably know the content for the year because these wins happen about a year before. Units are going to be pretty depressed.

I was curious if you could give us a sense of what, to the extent that you can, you know, a sense of content this year and also maybe a sense of 5G units, whether you expect 5G units to be up this year. And then one for you, Kris, the 53% free cash flow number, that's a monster number, to put it bluntly. Is there something one-time out here or you talked about capex going down, or is this something sustainable for Skyworks?

Kris Sennesael -- Chief Financial Officer

So, Harsh, I'll take the cash flow question first, and then I'll turn it back to Liam. I'm very happy with the very strong cash flow and free cash flow, obviously, in December. I would say three elements, all right? Our world-class profitability level, 37% operating margin, not a lot of companies and taxpayers doing that. Secondly, yes, great working capital management, although a good guy and a bad guy, right? Inventory is still somewhat elevated.

We will work it down over time. But we definitely had strong collections in the December quarter, which is a little bit of a one-time item. And then thirdly, as we discussed earlier, some moderate capex in December and going forward. And the combination of those three delivers strong cash flow and will continue to deliver strong cash flow.

And then I'll turn it to Liam on the other question.

Liam Griffin -- President and Chief Executive Officer

Yeah. So, Harsh -- yeah, the content. Yes, exactly. So, yeah, when we think about content, it's -- the way we're seeing it now with the customers that we're working with now, especially at the high end, it's not more of the same thing.

It's not, hey, we had two devices, now there's three devices. It's really about what's going on inside. We're seeing a lot of innovation and performance and a new suite of technologies. Now, I'm not going to give you the timeline on this because this is kind of a, you know, a cycle -- a cycle of improvement.

So, stay with me on that. But there's no question that if you look at where a high-end smartphone is today and the content that is available versus what we see one, two, three, four, or five years out is going to be dramatically different. We really believe it. We have great engagement with customers.

And we -- they're all kind of in the same spot. Everyone has a different way to get there. So, the units, I think, are going to continue to be where they are. There'll be more growth.

But the content and the usage cases are going to expand. And I say usage cases because that doesn't mean just a mobile phone. If you think about technologies like 5G, they're technology vectors, they connect things wirelessly. It could be an automobile.

They'd be connected to a data center, a Hi-Fi, Wi-Fi solution. There are so many different applications with the right use cases. And I think if you think about Skyworks, it's not just about mobile. Mobile is an important vector.

But all the other technology vectors that we can work through IoT and other markets will continue to grow. And the other thing that's great about that is they're on their own cyclical path. It doesn't go through the same kind of annual cycle that we do see in mobile, which is fine. But the opportunity to have, you know, an uncorrelated path in technologies that are not in a mobile phone.

And I think we're going to see that more and more, things like automobiles and data centers and some of these other really interesting IoT devices. So, keep that in the back of your mind because that part of the business is really moving. Mobile is doing great. We have super technologies.

We're going to continue to do well. But the other side of the field is an incredible opportunity for our investors and the opportunity for Skyworks to deliver world-class solutions. So, I'll leave you with that. Thanks.

Harsh Kumar -- Piper Sandler -- Analyst

Appreciate it, guys. Thank you so much.

Operator

Ladies and gentlemen, that concludes 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

Great. Thank you all. I appreciate your participation in today's call. Look forward to seeing you in upcoming conferences.

Take care.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Mitch Haws -- Investor Relations

Liam Griffin -- President and Chief Executive Officer

Kris Sennesael -- Chief Financial Officer

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Blayne Curtis -- Barclays -- Analyst

Gary Mobley -- Wells Fargo Securities -- Analyst

Toshi Hari -- Goldman Sachs -- Analyst

Matt Ramsay -- Cowen and Company -- Analyst

Edward Snyder -- Charter Equity -- Analyst

Chris Caso -- Credit Suisse -- Analyst

Karl Ackerman -- Exane BNP Paribas -- Analyst

Brett Simpson -- Arete Research -- Analyst

Harsh Kumar -- Piper Sandler -- Analyst

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