Qorvo, Inc. (NASDAQ:QRVO) Goldman Sachs 2022 Communacopia + Technology Conference September 13, 2022 2:30 PM ET
Company Participants
Douglas DeLieto – Vice President-Investor Relations
Grant Brown – Chief Financial Officer
Conference Call Participants
Toshiya Hari – Goldman Sachs
Toshiya Hari
Okay, great. I think we’re on. We’d like to get started. Thank you all for coming. My name is Toshiya Hari, I cover the semiconductor and semi cap equipment space at Goldman Sachs. Very pleased, very honored to have the team from Qorvo. With us this morning, we have Grant Brown, newly recently appointed CFO. Congratulations. And also Douglas DeLieto, VP of Investor Relations. I’ve got a bunch of questions, but I’ll hand it over to Doug for some opening comments.
Douglas DeLieto
Thanks Toshiya. And we appreciate the invite as always, and we’re happy to join everybody here. In person, I have two quick housekeeping items. And I’ll hand it off to Grant. Before that, I do want to acknowledge and congratulate Grant for his recent appointment. As to she has said he stepped up for us in April as Interim CFO and was recently named CFO, and we are excited and look forward to serving with Grant in the years to come.
So now for the housekeeping, I will remind our audience that the safe harbor language that applies to our press releases also applies to today’s presentation. Also, for those of you joining us online, we have a one page PDF about our new operating segment structure available on the IR website, right where you clicked on the link to access this presentation.
And with that, I’ll hand it off to Grant.
Grant Brown
Great. Thanks. I appreciate you having us here. Great looking conference so far from what we’ve seen. Just a few comments to open with and then we can move on to the Q&A. So I’ll try to be brief here at the opening. To pick up on what Doug had said, I just want to reiterate the availability of that graphic on our website that it really touches on the new segments that we’re really excited about. Bob touched on them in our last earnings call and you can see the further detail there on the web.
Going through each of those, in advanced cellular Qorvo’s broadly diversified across our highest growth product categories there with leading customers. The outlook in that cellular market continues to be supported by multiyear content and integration trends across customer base with outsized opportunities over time as the Android OEMs migrate their portfolios to 5G. We expect those markets served by advanced cellular to drive growth in the highest single digits.
Moving on to connectivity and sensing. The newest group or segment in the portfolio includes components and systems for a wide range of connectivity standards including BLE, Matter, Wi-Fi and ultra-wide band. CSG serves large growth markets spanning mobile as well as the enterprise smartphone and automotive connectivity markets.
It has forced sensing and BAW based biosensors included in that segment and we see an expanding set of opportunities for CSG and we’re addressing those looking for strong double-digit growth over time.
Our high performance analog segment, we enjoy a number of diverse long-term drivers, including upgrade cycles and 5G infrastructure, power management, power conversion, defense, and aerospace. And we’re increasing our exposure to that expanding list of drivers, including electronic vehicles — excuse me, electric vehicles, battery powered tools, infrastructure, and defense and radar communications. Similar to connectivity and sensing, we expect that to be a double-digit growth segment.
In the near-term, we’re navigating the macro economic challenges, like all the other companies here today. But while a macro is a headwind, the challenge is really a unit related issue not necessarily content, we’re seeing exciting content opportunities at all of our customers. That means from a design activity standpoint, position is unchanged, and we’re looking to unit volumes to improve and we’ll see that in our P&L going forward.
Continue to see that growth, we’re investing to generate an increasing percentage of revenue in those CSG and HPA areas. And as we do, we’ll mix into those higher growth and higher margin end markets and look forward to that.
But with that said, Toshiya, I’ll turn it back to you.
Question-and-Answer Session
Q – Toshiya Hari
Awesome. Thank you for that Grant. I guess as my first question you sort of alluded on the near-term, but wanted to start off with some short-term dynamics. It’s been a little over a month since you guys reported and gave guidance for September. You guided your fiscal second half revenue down 10% give or take, half over half. I think you also did comment that December should be the bottom for your Android business on a sequential basis. A lot has happened over the past month plus in terms of the macro, I was just hoping us — hoping you could give us an update in terms of what you’re seeing in the quarter to the extent you know, dynamics have changed into December, if you can highlight those as well?
Grant Brown
Sure it’s illustrative to look back, I think on what we had touched on during the earnings call. So you know, our comments, as of the last earnings call highlighted some of the near-term dynamics in the markets as you pointed out, primarily related to smartphones. We said global macroeconomic events like the COVID mitigation efforts, the war in Ukraine and other factors are negatively impacting demand, the — specifically within the Android ecosystem.
We said that the inventory levels at Qorvo and our customers as well as the channel were elevated, and we expected it to remain so as long as those macro economic factors are in play. We said the visibility into the channel, it led us to expect the December quarter would be the low point for our Android business and a number of other factors that we considered when providing the guidance on the call now.
Looking forward, the global macro economy is very difficult to predict. So, I think further defining our directional commentary might be a bit premature. So I’ll refrain from doing so now. But I would say that, while those challenges persist, they’re temporary in nature, there’s a finite amount of inventory there. We’re going to process through it. Right now as we’ve touched on, on the call, we’re actually under shipping to what we believe natural demand is at our customers. And we’re under producing to that under shipment level in our factories, which is the utilization impact that we had talked about.
So looking forward, our position with our customers, the design win activity actually is very encouraging, right? The units that we’re seeing today don’t impact the forward looking designs for tomorrow. So in terms of the activity we’re seeing with the customers, our position with the customers, we feel very encouraged on all those fronts.
Toshiya Hari
And I guess, sticking to the near-term, Grant. As you think about mobile and IDP, I do apologize, I realize there’s a organizational structure change. But as you think about your business in two buckets, mobile and IDP, any deviation and how you’re seeing the near-term is one over the other kind of standing out to the upside or the downside or how would you?
Grant Brown
Yeah, I would classify it maybe along the lines of the consumer, right, rather than say, trying to carve out what would be a backward looking view on our mobile versus IDP or a forward looking view based on our HPA versus CSG and our ACG businesses. It’s really a consumer-centric bifurcation, right? There is strength in automotive, industrial and I’m sure you have heard that from a number of other companies where we are seeing it across handsets and other areas of our business, including maybe WiFi and some power management that plays into SSDs or power tools and other areas. Again, very consumer facing areas and so our business would split along those lines as far as strength and weaknesses.
Toshiya Hari
That’s helpful. One of the common questions that we were getting immediately post the call was about the charge, the $110 million charge in the June quarter, which again confused quite a few folks. To level set the audience, can you walk us through what the key driver was behind the charge? Whether we need to be worried about this persisting or happening again in the out quarters? And I think Bob on the call talked about having negotiations with your foundry supplier, any update on that front as well.
Grant Brown
For all the detail, I’d point you to the K and the Q. There is a really good disclosure there and you can see the timeline for what had happened written down there. So I’d firstly direct you there. Most specifically to your question on the driver and the repeatability of it, both of those elements are intimately related to demand and demand is tethered to the macroeconomic and consumer related issues that I sort of touched on earlier. So I would say, though it could go either way, right? I mean as far as, as we think about that charge, what could happen in the future I won’t speculate here. But again, it could go either way.
But with that said, maybe I’ll touch a little bit on context of it to help to clarify any confusion. So the contract itself is a multi-year agreement. We are required to purchase silicon wafers from a supplier from 2022 through calendar 2025. The charge had three primary components. There was a $13 million impairment related to a prepaid deposit. That was an asset on our balance sheet that we impaired.
There was an $11 million charge related to some material that we had or that was on its way and an $86 million liability that we booked to our balance sheet, which was forward-looking in nature. So $8 million of that was the current charge, the rest of it was long-term and that really covered the length of the agreement. So the entire charge was booked in our fiscal Q1, but the length of that charge would span the entire agreement.
We’ve gotten the question, just sort of front run at here is that, why walk book that charge ratably over the life of the agreement as you move forward? And to be blunt, it’s just not the proper accounting for it. So you have to take the charge in the current quarter per GAAP. We did that, and we did actually cite the specific accounting standard for reference in the filing. So there is some additional information there I guess I’d point to.
As far as context around that agreement, we entered into it during 2021 when there was industry-wide silicon supply constraints, and since that time we have experienced a meaningfully weaker demand for 5G handsets, especially in China and in the Android ecosystem as we commented on earlier. But also throughout Europe, due to these unprecedented disruptions there with the Ukraine war.
If you look at the timeline of the charge itself, you can see in the K, there was $1.4 billion associated with our commitment there to purchase. In our latest Q, it was $1.2 billion left. And then as I mentioned or as you mentioned that, we are working with that supplier continuing to discuss that agreement with them and have a very good working relationship and replacing POs, or the demand that we do see for that silicon —
Toshiya Hari
As you have those negotiations with your key supplier. Could there be offsets positive offsets in the quarters? Or how should we think about the potential outcome of those negotiations, if you will?
Grant Brown
Yes. As I pointed out, I think it can go either way, right? We’re — just as much as we’re working with our customers, they’re working with us and trying to respond to what are really extraordinary circumstances in the market, given all the disruptions that we’ve seen. So we’re working closely with them. And just as we work with them, when supply is short, and you have to react in a similar fashion but for a completely different problem. So we continue to see constructive conversations.
Toshiya Hari
And then you talked about, sell-in currently being below sell-through, that’s pretty apparent from your results and market data. Based on your customer conversations and market intel, how significant is that gap between selling and sell-through? And at what point do you expect your cell to converge or meet sell-through, if you will, and the implications for inventory, both of the channel as well as on your balance sheet?
Grant Brown
It’s a great question. It’s difficult to answer. I mean, thinking about all of our customers in aggregate, nothing lies like the average, each one of them has a separate or a somewhat distinct set of circumstances associated with them, whether it’s geographic reach or the customer exposure they have, the ramp profiles, as you think about maybe an honor versus a Xiaomi selling into Europe on that — on a export basis. So, they’re all very different. They’re all subject to the same macro related demand issues, if that’s a similarity.
So, you know, we haven’t tried to put a specific timeframe on it, other than to say, we are under shipping to what we believe natural demand is for those customers, and I believe they’re under ordering in order to correct their own inventory situation. So there’s that compound effect there that we’re seeing in our factories. As we discussed on our call, there’s a utilization impact as we have unabsorbed costs coming from the factory utilization.
But in — all said, there’s really a fixed amount of inventory there to process through. And so the duration of how long it takes to process through that is a tough call. It’s related to macroeconomic issues, pulling demand out and then related to our customer behavior as far as order patterning, pulling new material in for future build activity. So it’s really difficult to put a number on it.
Toshiya Hari
I guess, a related question to that you just talked about managing your production and cutting utilization rates on the earnings call. I was hoping you could expand on that point, and maybe quantify how big the cut to utilization rates are? And again, similar to my prior question, at what point should we expect your utilization rates to revert to “normal steady state levels?”
Grant Brown
This quarter keep in mind, we’re we are launching and ramping for some seasonal activity at our largest customers. So, as you commented, on the September quarter, we’ll see a little bit of that utilization in the current quarter, but it’s principally a second half issue for us. Quantifying it, I would say, if you look at our guide, in May, where we were talking about roughly 50% gross margins across the Europe versus what we’re guiding to today, that delta or that difference is really related to utilization. It’s almost solely a volume related issue. And again, that volume is really tied to those macroeconomic demand drivers.
Toshiya Hari
And then again, it’s difficult to predict when utilization rates revert higher to normal levels or —
Grant Brown
It is. And it gets to — when the orders begin tracing back to what would be a typical order level as we begin shipping to normalize demand and as demand itself normalizes, we’re going to have to begin shipping to that. And actually their factories will see it sooner, we’re going to have to begin building to that ahead of actually the revenue in order to be prepared for it. So we will see it a little earlier and utilization, and then obviously in the sale, because we begin addressing that more normalized demand level.
Toshiya Hari
And I guess, given the seasonality, your largest customer that you just spoke to September, I’m guessing should be the need for near-term peak from a production or start wait for start perspective in December and March, just seasonality wise is down sequentially. Is that a fair assumption, or —
Grant Brown
We’ll see a little bit of an impact in September quarter. We’re already addressing inventory and utilization for the Android ecosystem within the quarter. So you’ll see a small amount there offset largely by the large seasonal ramp, it’s primarily a second half activity for us in terms of utilization driving that down, removing the variable costs in order to respond to the demand profile in the near-term. And so, it’s principally that that second half.
Toshiya Hari
And then in terms of your outlook for the smartphone market, and perhaps 5G a little bit more specifically, I think it’s fair to say that TAM estimates have been coming down the past couple of quarters primarily on the Android side. You guys talked about your 5G forecasts now being around 625 a million down from 650 to 675 prior. Based on again your own market Intel customer conversations, how are you thinking about the long-term trajectory of the smartphone market as you plan your business as you plan capacity. And could there be any catalyst that kind of spurs a replacement cycle in smartphones in general and 5G more specifically?
Grant Brown
Yeah, I definitely think there’s going to be continued innovation, no question about it. I mean, what we’re seeing in design activity at our customers is very encouraging, despite the unit’s today being relatively under pressure. And those two things don’t influence each other. The units today aren’t necessarily influencing designs for tomorrow, or what we anticipate will be more normalized level of demand. When you think about it from Qorvo’s perspective, it’s really a transition to 5G that’s going to drive the vast majority of the content opportunity for us. So as we look forward, there’s maybe three different people at the table. When you think about the drive to 5G that are important. There’s the consumer themselves using the device, there’s the device OEM, and then there’s the carrier that operates the network.
From a consumer standpoint, the actual device user is going to see an improved throughput in terms of data rates, lower latency, a better overall experience. And so they’re going to see that in 5G and want to participate in that. Or maybe more interestingly from a network operator standpoint, the carriers are going to want to have continue to push for a 5G world and that their cost per bid goes down. And so that’s an important consideration on the cost side of their equation on the perceived coverage from a customer standpoint is going to improve so their competitiveness amongst each other as a carrier is going to improve. So from both of those perspectives, you can see the carriers having a vested interest in 5G penetration.
And then lastly from the handset OEMs themselves, right? They’re going to want to produce a compelling device for their consumers. And they’re going to want to make it future proof. So as it migrates to 5G, they’re going to want to have that in their phones. Maybe an important distinction that I would call out is, you know when you think about the Android ecosystem versus the iOS ecosystem.
The iOS ecosystem has been primarily 5G, in fact 100% versus the Android ecosystem, which is only around 40% penetrated to 5G today. So that migration is going to happen in Android, and Qorvo is very well represented there at those Android customers to participate in the content. So even though the near-term demand has come down in terms of our 5G units, as you mentioned, looking forward we’re really encouraged by the new design activities and the return to more normalized volume.
Toshiya Hari
And I guess in terms of the competitive landscape, you just talked about your confidence in design activity and the comfort you find there. I think we are getting a bunch of questions on what Qualcomm is saying and what some of the smaller Chinese players are saying in terms of your Chinese customers potentially localizing RF content over the next three, five years. How would you describe the competitive landscape as you see it today versus a couple of years ago? And in terms of opportunity for you guys, in terms of content growth, you have talked about Samsung, you’ve talked about Honor in the past, where do you see the most opportunity going forward?
Douglas DeLieto
Yes, I’ll hop on that. Yes, it’s competitive, but it’s really always been competitive. And yes, there are some smaller players in China. Qualcomm has really been a player in RF for decades. So they are not really new to the scene. They are larger obviously with power management and millimeter wave where you can — you see digital in those placements.
But if you look at the opportunity for Qorvo, big picture, you have to kind of view it through the lens of 5G architectures and content and integration trends. 5G phones are going to require these broader portfolios and advanced technologies and advanced packaging capabilities, systems level expertise, manufacturing scale. These are the things that Qorvo brings, right? We’ve got the people and the products, the R&D pipeline, the scale and the technologies to win.
And to your point, we are winning. We are taking share, gaining content at large customers, including the Samsung and Honor as you mentioned. And we have reason to believe that, those gains especially in Android will continue. These customers are adding the content to achieve the performance improvements that are embedded in 5G and other functionality. And we have been very encouraged by design activity in support of future architectures.
Toshiya Hari
Shifting gears a little bit on IDP and again, no longer IDP going forward. But when you think about the classic IDP business, it’s always been a little difficult for us to fully appreciate what’s doing what in terms of what’s growing and what’s potentially challenged. I think the business has grown double-digits year-over-year for two consecutive quarters. What are you seeing from a demand perspective? And to the extent, you’ve got supply side issues, if you can touch on those as well, that would be helpful.
Douglas DeLieto
Yes. I mean, kind of to jump on a little bit of what Grant already said, like the opportunity in both conductivity and sensors and HPA, right now, you’d have to distinguish between consumer facing and non-consumer facing. So we see those both as being overtime, our fastest growing segments.
Right now the consumer facing side of HPA is predominantly going to be in power management for SSDs and power tools like battery operated power tools or lawn mowers. Whereas, in connectivity and sensing you’ve got quite a bit that’s consumer facing. So that’s going to include smarthome and any kind of consumer electronics or Wi-Fi.
But that said, we are seeing nice tailwinds in HPA, right, obviously, as defense budgets kind of migrate toward more high performance electronics, and also as performance requirements increase for power semiconductors, silicon carbide, specifically in support of renewable energy and electrification trends.
Toshiya Hari
And I guess Doug on your last point about SiC, and I think you guys have talked about ultra-wide band in depth. As you think about some of the nontraditional growth drivers if you will, within Qorvo, how should we think about those and the contribution from those collectively?
Douglas DeLieto
We see — again, kind of given sensing should be our fastest growing segment. Right now that segment is largely dilutive. We see that contributing increasingly to profitability. As those investments in growth play out. Ultra-wide band, we’ve got broad participation right now across all Android OEMs engaged with all of them, as well as a growing list of customers in automotive, in wearables, in consumer electronics and other growth markets.
Toshiya Hari
And then just going back to the ORG change, just out of curiosity, why now, what were some of the catalysts that drove the change? Is it transparency or the operations within the company actually changing, how our P&L is managed? Any comments or change would be helpful.
Douglas DeLieto
I’ll start off there. So you may recall that in the November 21 call, we did kind of start breaking out our end market exposure in addition to our exposure or in addition to the breakout by mobile products and IDP. And the idea then was to kind of get a better sense for our market participation and our opportunities by end market, and in the portfolio that we bring in all these markets. And the feedback that we got from investors was favorable.
And the current view now by segment is consistent with those open — with those end market discussions. We started providing in the formal remarks back in November. The structure better aligns technologies and products with customers and applications and products. And the idea there is to shorten the cycle between customer engagement and customer sale to accelerate that, and you’ll see that most I think the most pronounced impact should be in connectivity and sensors, where we’re combining different technologies within one roof now under one roof, and notwithstanding the kind of demand environment we talked about quite a bit here, that should be our fastest growing segment. So again, you should see growth rate and margin mix up as that becomes a bigger percentage of the total revenue.
Grant Brown
Maybe I’ll just pick up there, Doug. I mean, one of the things that you were sort of alluding to but I think is really important is unified sales force. So we brought together a unified sales force across Qorvo, I mean, the rationale behind managing the business in terms of those three segments is really an issue of focus, right as we as we addressed those different markets. But having taken the Salesforce and layered it across the top, they can sell a product from all of those different areas.
And it’s becoming increasingly important that each of these customers now with especially some of the wearables and other connected devices that are associated with the same customers that are producing handsets that unified sales forces is really important from an operational standpoint. So we’re excited about that as well as the segments themselves providing the level of focus we need to execute.
Douglas DeLieto
We should add that to next Q, we’ll include the breakout by segment, quarter-over-quarter and year-over-year.
Toshiya Hari
Okay. I wanted to pause here and see if we had any questions from the audience. We have one, can we have mics please? The gentleman over there.
Unidentified Analyst
Can you hear me?
Grant Brown
Yes.
Unidentified Analyst
Thank you for taking my question. And apologies for kind of endlessly litigating some of the — your inventory charge or the charges that you took in the last quarter. But just would like to get your perspective or maybe an explanation of, in the short-term expecting some kind of weakness, but longer term still being very bullish on the content story and on some of these markets rebounding with, I think, when you dig into some of the specifics of that $86 million charge that you took, over 90% of it was for a year or more out. So if this is a kind of near-term macro issue, why take charges for capacity that you’ve committed to in ’23 and beyond? Thank you.
Grant Brown
Sure. So as it relates to that particular capacity agreement, there’s multiple different process technologies associated with it. And there’s a mix of our own products that are attached to those specific process technologies. So as we’re seeing some of the demand weakness is associated with those different particular versions of wafers. And so that is — the maybe — I guess directly to your question, the rationale for it stretching over multiple years. If that answers, like — I guess maybe the next question is probably the most succinct way to put it.
You could have a process that’s connected to a specific generation of product and as that product was end of life. You don’t need that process. You need another process, a new one.
Toshiya Hari
Are there some other questions?
Unidentified Analyst
Could you briefly explain the bio diagnostic business what potential that has and is it applicable beyond COVID?
Grant Brown
Absolutely, the biotechnology business is a — if you think of it, it’s a boss sensor. The same type of technology that we use in our handsets as a filtering technology for RF, that can be used as a bio sensor. Right now one of the largest applications of it in our particular business unit is COVID. But beyond that, it can be used broadly. So you could simply change some of the chemistry but using same underlying technology, the same box that the cartridge is plug into, you could use in the exact same fashion for different uses, whether it’s a certain markers and in blood samples for heart attack, for instance, or other areas there are there multiple ways in which that technology could be used.
Toshiya Hari
I wanted to ask about gross margins. You guys guided to fiscal ’23 to 48%. I think that implies a 46% to 47% gross margin number for fiscal 2H. As you come out of this inventory correction and utilization rates and everything across your business normalizes, what’s a realistic target for gross margins say in calendar ’23? And I guess as a new CFO, I guess you’ve had a little bit of time to go through the operations and so on so forth, any levers that you can pull to expand gross margins above 50% longer-term?
Grant Brown
Yes, 50% is still I think the target, we’re not changing that. I think the levels of volume that we are seeing is entirely utilization related. So what we are seeing today and what we expect to see second half is really not indicative of what I think a more natural level for us would be. You can imagine a scenario beyond the 50% where we are continuing to see the same sorts of trends with customers from an integration standpoint where we are continuing to serve a 5G market of increasing complexity and customers that demand and need that incremental content from — and design expertise from Qorvo and their certainly willing to pay for it as it differentiates their device.
So I can see us or imagine us looking to expand from there, but no coming off of our long-term target. In fact it’s where we started the year, to be honest, talking about 50% gross margins until we saw the sort of incremental softness in the Android ecosystem. And I expect we will get back there when utilization returns.
Toshiya Hari
Got it. And even outside of gross margins, anything you look to change or improve upon as the new CFO? I realize you have been core to the finance team for a long time. It’s not like you’re suddenly the new CFO at Qorvo. But as you sort of review the business more broadly, more holistically, any changes that you look to introduce or —
Grant Brown
No. Mark and I side on a lot of things. Certainly, productivity leads to profitability and cash flow is a focus for our business, we make decisions based on that, on a return on invested capital. We have a conservative view of the balance sheet that we share, so no changes there. And then in terms of returning capital to shareholders, we view that in the same light.
Capital allocation, more broadly speaking, we look at it as a bit of a balancing act, right? We have this waterfall or cascade approach as you think of the business from initially looking at the working capital needs of the business and then the particular CapEx or other growth and R&D initiatives that fund organic growth all the way down through the inorganic growth and some acquisitions where we have been active, and then finally returning value to shareholders. So I think we saw an eye on all those fronts and I’d expect a lot of a lot of continuity in that regard.
Toshiya Hari
Okay, makes sense. And then the Chips Act is the topic that’s the top of mind for many investors. When the topic comes up, Qorvo is not the first company that typically comes up in conversations. But curious as a company that manages and operates fabs in the United States, and you have got your design team here as well. Any potential benefits that you can benefit from?
Grant Brown
Yes. I think we’ve had a long history of working with the U.S. government, specifically the Department of Defense on a number of process technologies as well as programs such as STARRY NITEs and Chips with our advanced packaging technologies. So we have a long history there and I’d expect us to expand upon that. Chips specifically is relatively new. So it might be a bit premature to comment too directly on what opportunities we see there. But we are evaluating it and I expect that, there will be a chance for Qorvo to participate.
Toshiya Hari
And then you briefly talked about your capital allocation policy or strategy going forward. There are many moving parts, right? Like the macro is clearly challenging from a working capital standpoint, I would expect things to improve going forward. Hopefully with inventory coming down CapEx, it seems like you guys have been very disciplined. Your stock on free cash flow is trading at 10%, plus or minus? How should we think about the cadence of buybacks? Or should we expect you to be a little bit more conservative? Just given the macro overlay?
Grant Brown
I think it’d be, as I described, that sort of cascade approach, we review that every quarter and we make operational decisions based on where we need to use the cash and what opportunities are available as they show up both internally and externally. I don’t expect there to be a significant change on that front. We are focused on R&D and making sure that we’re delivering the best customer experience for the user, as well as the customers that incorporate our products into the handsets. So that’s obviously an important investment area for us.
As you pointed out, CapEx, I think is typically around 5% of sales. And our discipline there is to keep it there or lower. So I would expect that to continue going forward. And again, as I pointed out, free cash flow generation is really a primary focus for the way we look to manage the business. So that’ll remain a main a big area of focus for me.
Toshiya Hari
I guess in the last couple of minutes, I wanted to give you the opportunity to speak to anything that we may have missed or overlooked or, as a group you under appreciate. I realize you’re still relatively new to the role, and perhaps you haven’t had as much time as say, Doug, interacting with people like us. Good for you. But based on the conversations you have had so far. Anything that again, collectively as a group we under appreciate about the markets you play in or the technology you have, so on and so forth.
Grant Brown
Maybe I’ll start, Doug. And then if I miss anything you can fill. So I think one of the points I’d call out is something I touched on earlier, really, which is that the Android ecosystem is roughly 40% 5G today growing maybe to 60% or beyond in a couple of few years, its a huge opportunity for Qorvo. So I think our presence there are supportive of those customers, our opportunity to sell into that market is probably something that’s under appreciated.
I think, maybe beyond that, I’d say that the new segments we’re really excited about, I mean, internally we’re reorienting to those segments, we’ve got leaders there that are very experienced and driving their teams to execute. And we’re really moving down that path quickly and excited about what they’re looking to do on those businesses.
So I think, when the queue comes out, and we can start talking about those in a little bit more depth, that should be really exciting. Both for Qorvo, I think and investors to see them broken out that way. I think potentially the multitude of upgrade cycles is another thing. It’s not just 5G, on the handset side, where in the broadband business you see DOCSIS, you see upgrade cycles and United Silicon Carbide acquisition we made and the products they’re replacing some legacy technologies is a really exciting area for us. So, there’s a lot of different things going on in Qorvo and they’re really exciting.
We — I guess, maybe, Doug, I don’t know if anything —
Douglas DeLieto
No, I mean, nothing has changed structurally in our long-term view. We still — we’re encouraged by these multiyear technology upgrade cycles, each of them offer greater throughput of some sort, whether it’s talk time or driving range, or what have you, with less power in, right? Less energy consumed, usually in a smaller or lighter form factor. And that’s what we’re good at. So we don’t see a structural change in customer behavior related to content or integration trends or architectures.
We don’t see change structurally in the kind of financial model we can drive. Customers appreciate and value the investments we’re making in technology leadership. We’ve got a strong position in the markets we serve and we’re encouraged by design activity in support a future architectures.
Toshiya Hari
Awesome. On that note, let us close. Thank you so much for the insights and good luck. Thanks very much.
Douglas DeLieto
Thank you.
Grant Brown
Thank you. Appreciate it.
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