Q3 2019 Earnings Call
Good morning, My name is Jamie I'll be your comments operator today.
At this time I would like to welcome everyone to Silicon Labs third quarter fiscal 2019 earnings conference call.
All your questions you May press star and too.
If you need assistance during today's conference you may see corporate specialists by pressing star key followed by zero.
Please also note today's event is being recorded.
At this time I'd like to turn the call whats called ever to Jalene Hoover Director Investor Relations and International Finance Jalene. Please go ahead.
Thank you Jamie and good morning, everyone Tyson Tuttle, Chief Executive Officer, and John Hollister, Chief Financial Officer on today's call.
We will discuss our financial performance some of your business activities for the third quarter.
After our prepared comments, we'll take questions.
Our earnings press release of the accompanying financial tables are available and the Investor Relations section of our website at Www Dot dot.
Dot com.
This call is also being webcast a replay will be available for four weeks.
Our comments today will include forward looking statements subject to risks and uncertainties.
We bases for lucky stainless and information available to us I loved the data This conference call and assumes no obligation to update these statements in the future.
We encourage you to review, our SEC filings, which identify important risk factors that could cause actual results could differ materially from those contained in any forward looking statement.
Additionally, during our call today, we will refer to certain non-GAAP financial information.
Reconciliation of our GAAP to non-GAAP results is included in the Companys earnings Press release, and also any Investor Relations section of Silicon Labs website.
I would now like to turn the call ever to Silicon Labs, Chief Financial Officer, John Hollister.
Thanks Julie.
Third quarter results ended stronger than we expected due to a combination of revenue upside inline gross margins and favorable operating expenses.
Revenue ended at $223 million.
8% sequentially and up the high end of our guidance range.
non-GAAP earnings exceeded the top end of our guidance range ending at 96, that's for sure.
Hi, Otcs delivered another strong growth quarter, ending up 58% of total revenue or $129 billion setting a new all time record.
Sales of wireless products, which now account for more than two thirds of royalty revenue led to growth with ramps in the home automation security and lighting markets.
Infrastructure revenue ended better than expected up slightly to $45 billion or 20% of our total revenue.
Primarily due to stronger results from isolation products.
Which benefited from ramps in the electric vehicle and solar energy markets.
To $34 million worth 15% to total revenue.
Due to seasonal strength in consumer on ramps in the sales of video tuner products.
Access was also up in the quarter to $15 million or southern percentage of revenue.
Looking at third quarter revenue by end market, we saw sequential growth in all markets with the most significant increases in industrial automotive and consumer.
By geography, we saw the strongest third quarter growth in the Americas, and Deepak with Europe about flat.
We continue to benefit from a broadly diversified business model.
Our distribution revenue mix ended at 73% for the third quarter, which was flat to Q2.
Distributor inventory days grew slightly on rising product sells ending at 41 days versus 39 days from the prior quarter.
No end customer was greater than 10% of our revenue in the third quarter.
non-GAAP gross margin was inline with expectations for the quarter just above 60%.
Which was down sequentially from Q2 as expected primarily due to seasonal upside.
non-GAAP operating expenses were favorable for the quarter at $87 million.
non-GAAP R&D expenses were $49 million for Q3, which was better than expected due to lower spending on new product introduction costs.
No I guess, that's your they ended up $38 million, which includes favorable spending on outside professional services.
non-GAAP operating margin for Q3 ended stronger than we expected a 21.1%.
Our non-GAAP effective tax rate for Q3 was slightly favorable at 11.1% and non-GAAP earnings ended up 96 cents per share, which was above the top end of our guidance range.
Looking at our got piano results gross margin ended the quarter at 60.1%.
R&D expenses were 63 million.
<unk> expenses were $48 million.
GAAP operating margin was 10.7% for the quarter.
Stock compensation expenses were 14 million had to amortization of intangible assets was 9 billion.
Both inline with expectations.
GAAP earnings per share ended at 45 cents.
Turning now to the balance sheet, we ended the quarter with total cash and investments of $701 million.
Accounts receivable increased to 76 days basis based on growth and the business with third quarter days outstanding holding at 31 days.
Our inventory balance decreased to $71 million in Q3 due to effective supply chain management with inventory turns improving to five times up from 4.3 times a Q2.
Operating cash flow was strong in the quarter, bringing the Q3 year to date total to $135 million.
During Q3, we amended our bank credit facility to increase the overall amount of our borrowing capacity to an aggregate $650 million, including 400 million at based borrowing at the 250 million dollar extension.
As part of the credit Amendment, we also extended the maturity date of the facility to 2024, along with other improvements and the terms.
This updated credit facility, along with our strong organic cash balance provides us with a robust level of liquidity to execute our capital deployment strategies.
Last week, our board of directors extended the term of our remaining 134 million dollar buyback authorization to the end of fiscal 2020.
In summary, our balance sheet continues to be very healthy.
I will now cover guidance for the fourth quarter.
We expect Q4 revenue to be in the range of $217 million to $227 million with infrastructure up.
Oh, Gee flat and broadcast that access down.
We expect non-GAAP gross margin to be approximately 60.5%.
We expect non-GAAP operating expenses to be around $90 million.
We expect our non-GAAP effective tax rate to be 11.5%.
And our non-GAAP earnings per share to be in the range of 84 to 94 cents.
On a GAAP basis, we expect gross margins to be 60.3%.
Expect GAAP operating expenses to be $113 million, and we expect GAAP earnings per share to be in the range of 33 to 43 cents.
As you are updating or financial models I'd like to call out that our fiscal year 2020 will have 53 weeks with 14 weeks in Q1, rather than the typical 13.
I will now I'll turn the call over to Tyson.
Thank you John .
Third quarter revenue was up 8% sequentially with growth across all major product categories and following a 10% sequential increase we realized in the second quarter.
Despite macro headwinds ongoing trade policy, uncertainties and current semiconductor industry market condition, we're pleased to deliver two consecutive quarters of strong revenue growth and a return to target.
Operating model profitability.
Q3 year to date design win lifetime revenue was up more than 25% year on year, indicating a strong tailwind for future growth and a validation of our strategy.
Third quarter royalty revenue reached an all time high of $129 million wireless products established record revenue in Q3, with 15 dot for including Zigbee and thread proprietary Z wave leading growth.
We continue to strengthen our wireless portfolio, adding new capabilities and driving differentiation, while advancing security and growing Arca system partnerships.
Our connectivity portfolio is gaining significant traction as we target low power wireless endos with a broad range of protocols and optimal combination for home automation security lighting metering industrial and commercial applications.
We believe having multiple connectivity standards under one roof strengthens our influence on the evolution and adoption of wireless standards in targeted aiotv market segments.
Combining multiple capabilities in the same platform developing our own standards based wireless protocols, rather than licensing stacks from third parties and optimizing our hardware and software to work seamlessly together are all examples of how we differentiate ourselves from the competition.
Silicon labs unique platform approach to supporting thousands of IR T. applications is resonating with our customer base.
Selling them to reuse more hardware and software and ways not possible with single point solutions.
We see the proliferation of innovative platform based customer designs across the aiotv many customers leveraging.
There are investments through efficient reuse of tools and stacks amplifying the stickiness of the software element of our platform solution and contributing to R&D efficiency.
We continue to expand our next generation series to wireless gecko platform offering best in class integration wireless performance security in cost.
During the quarter, we launched a new portfolio of wireless models based on on the series to platform and supporting Zigbee thread and Bluetooth match as well as Bluetooth low energy and multi protocol connectivity.
They do modules feature a powerful arm cortex every 33 processor and integrated RF power amplifier for a long range connectivity, a dedicated security core and extended temperature operation for a wide range of applications, including Smart led lightbulbs.
During the quarter, we announced our collaboration with Allegion, a pioneer and security products to expand biotech capabilities into smart homes and commercial building.
Religion is transforming the industry with the addition of wireless connectivity to its lock for another security devices, making them simpler stronger and more secure while meeting complex compliance certification and market demands.
A growing number of lesions security solutions now you Silicon labs wireless gecko Aiotv platform supporting Zigbee, Bluetooth and Z wave connectivity.
Does it get certified slate connect Smartblock as an example of a recent collaboration when paired with an Amazon key and cloud Cam homeowners can grant remotely grant access to visitors.
And enable in home delivery.
Yeah.
Silicon Labs also enjoys a strong partnership with Chamberlain, a leading provider of access control solutions, including garage door openers and one of our top biotech customers for several years.
In Q3, we were honored to receive the Chamberlain groups innovation and technology solutions supplier Award based on our excellent technical support and collaboration.
We continue to aggressively promote the Z wave alliance to drive increased adoption across multiple ACA systems market expansion into new device types and the convergence of standards and end nodes and gateways to simplify the end user experience.
Earlier this month the Z wave alliance hosted a false summit in Austin convening members partners and thought leaders for a series of discussions panels and workshops around the future of Z wave in the smart home market.
As he with ACA system comprises more than 3000 certified devices in a member roster of more than 700 companies, including 80 alarm dotcom, probably just jusco products leaders said LG, you plus nortech, Amazon rain and Samsung Smart things.
[noise], turning now to infrastructure third quarter revenue exceeded expectations, increasing 3% sequentially due to strength in isolation products.
We continue to expand our timing in isolation portfolios to address new markets an application.
For example, during the quarter, we announced the expansion of our isolation portfolio, what's like family of compact robust isolated smart switches.
Our variable logic controllers are plc.
Smart switches to control the automated factory through digital outputs. Each output is isolated for safety using silicon labs groundbreaking Cmos based isolation technology offering better reliability and performance than legacy Optocoupler based solutions.
The new smart switches are ideal for driving resistive in inductive loads, such as Solenoids relays and lay ups used in industrial control systems.
Moving on the timing automotive developers is traditionally used sports crystal and oscillator timing solutions, which are prone to shock and vibration failure degrading reliability.
As vehicle automation systems at new features they grow more complex and drive higher data rates.
As a result blocking requirements have become more demanding requiring a more diverse mix of frequencies and lower jet a reference clock.
To meet these clocking needs during the quarter Silicon labs announced the industry. The broadest portfolio of automotive grade timing solutions, including AC Q1 hundred qualified clock generators buffers and Pciethree devices.
The new portfolio targets, a wide range of automotive applications, including advanced driver assistance systems, or a death camera subsystems radar and light our sensors autonomous driving control units infotainment systems and GPS in Fiveg connectivity.
We are excited to enter this growing market with our first automotive timing portfolio, which further expands our sales.
Our newest timing devices help automotive developers simplify clock to redesign reduce points. It failure increase system reliability and optimize the performance of high speed serial data transfer these benefits enable automotive Oems and tier one suppliers to deliver innovations.
A chart redefining, how we drive navigate and experience our cars.
Earlier this week, we announced our acquisition of coal Sars I Tripoli 15, 88 precision time protocol or PTP software in module assets, enabling silicon labs to simplify the development and adoption of I Tripoli 15, 88 synchronization in wireless transport and access networks.
I Triple S. 15, 88 distributes time of day across packet based networks to provide precise network synchronization.
For a wide range of fast growing application spanning small cells optical transport smart grid automotive and Fiveg wireless infrastructure.
The financial impact for this transaction or not material.
[noise] moving out to broadcast seasonal strength and third quarter TV tuner sales drove sequential growth in broadcast consumer with broadcast automotive up slightly.
Total Q3 broadcast revenue increased 30% sequentially.
There's a growing need for.
Automotive radio manufacturers to support all global digital radio standards with a common platform to address this need during the quarter. We introduced Silicon labs first automotive radio tuners, supporting with digital radio Monday out or digital DRM standard.
Which is prevalent in India.
With trials underway in Russia, and South Africa.
Our new tuners include hybrid software defined radio capabilities to deliver the highest integration in recession performance and the lowest bom cost of any automotive STR tuners and mass production today.
Advanced digital radio features enable radio manufacturers to develop a single platform to the modulating decode worldwide digital radio standards.
Greatly simplifying car radio designs in reducing system cost.
I'm thrilled to welcome our new Chief Marketing Officer, Megan leaders to our leadership team begun joined Silicon labs with more than 20 years of high Tech executive experience in a variety of marketing disciplines, including brand awareness corporate communications channel and strategic partnerships and global demand generation.
Megan has the strong leadership skills and business activity, we need to clearly communicate our vision engineering excellence and culture of innovation to our customers partners and the industry as we scale our revenue to the next level.
Yes.
Silicon labs strong track record of driving revenue growth starts with an innovative passionate and collaborative team I'm proud to report that for the third year in a row, we had been awarded the great place to work certification.
Most notably employees regard Silicon labs is a respectful workplace offering a high trust culture, where they can bring their whole cells to work.
While macro headwinds continue and the level of policy uncertainty in market volatility remains high we believe silicon labs is strategically well positioned in long term secular growth trends and with key echo system players.
Our role in the large and growing smart home industrial Aiotv and infrastructure markets is increasingly important as we offer a combination of innovative products best in class software and scalable solutions.
Thank you for your time and attention before we take your questions I'd like to turn the call back to Chile, Chile. Thank you Jason.
Before we open the call for the question answer session I would like to announce our participation and Wells Fargo third annual technology media and Telecommunications summit in Las Vegas on December four.
Nasdaq's, 41st Investor Conference in London, Awesome on December 4th and Barclays Global Technology Media and Telecommunications conference in San Francisco on December 12.
Now I'd like to open the call it for your questions to accommodate as many people it's possible before the market open.
Assets you. Please limit your questions Q1, with my follow up Jamie.
Ladies and gentlemen to ask a question you May Press Star then one and you touched on phones.
If you are using a speaker phone with you asked you. Please pick up your handset before pressing the keys.
With all your questions you May press star and too.
Again that a star then one is to ask a question.
Our first question today comes from Cody Acree from Loop capital. Please go ahead with your question.
Yes, thanks for taking my questions.
Tyson John I guess, just looking at T.I.s comments from last evening.
They're talking about a further broad deceleration causes a macro headwinds are not just the last 90 days definitely you're a year, but even within the last 90 days I guess I'd like to get your take on the last 90 as far as order rates and linear D.
Yes, Cody this is John we've seen fairly steady behavior in our ordering rates and a.
Linear progression of our bookings through the course.
Of the quarter, we are entering the fourth quarter with a.
Decent level of bookings as we began the quarter.
All that said, we do have concerns around the overall policy environment and macro environment that we're remaining vigilance about but.
Clearly, we have some secular drivers in the business, including and some of our more broad based product lines, such as isolation better powering through that but it's something that we will continue to monitor carefully here at the company.
And if you could you maybe just give us any any visibility that you can no unexpected.
[noise] seasonality as we head into the beginning of next year in and just your thoughts on possibility of 2020 revenue growth.
Yeah.
So we do expect first quarter two how the seasonal downtick, that's very common in the industry and in our own experience on the 2020 business opportunity. We have a very strong opportunity pipeline and continue to work hard to convert those into new design wins.
Macro of course is a concern, but we feel good about where we are position of the business as we indicated in our prepared comments.
Alright, Thank you guys.
Our next question comes from Gary Mobley from Wells Fargo Securities. Please go ahead with your question.
Good morning, everybody. Thanks for taking my questions.
I want to ask about broadcasted access.
Realizing that these are not long term growth business is for silicon labs, but they certainly had.
Sequential comps in the third quarter. So I was wondering if you could [noise].
Indicate whether or not there were any.
Hi, hedge there are one time or lifetime buys.
Related to those specific products specifically in TV.
Yes. This is Tyson in terms of broadcast access now there were no last time buy activities actually we saw ROE relatively robust demand for Tvs, we believed that the TV market. This year will be about flat to last year and our market share continues to be above 75% in that for our tuners.
So we're holding our long term view there that that is.
Maybe a 10% year on year I think this last year. This last quarter was a little bit better than that but overall, we feel that that's a.
Stable.
Set of businesses and broadcast we have a growth path there on the automotive side with our automotive radio tuners, we saw little tick up although we do view the automotive market is being weak.
Right now so demand a little bit below where we would expect but on the consumer side. We saw strong uptick we will see as we go into Q4.
The broadcast revenue on a seasonal basis start to trend down it tends to be highest in Q3 and lowest in Q1.
On the access side, we have a stable business, we there was.
You know I had the modems or one part of that and that has continued to trend down we've actually done pretty well with our slick business and gaining some share there.
Had a little bit of upside in Q3 actually coming out of China, but.
You know holding holding our long term view of the access market as well.
With about 10%, both Enbrel broadcast and an access looking at a 10% model long term model decline year on year and so this year, we've actually I think Q O Q3 access was about 10% down year on year.
In broadcast was down about five but continue to hold that model going long term, but there was nothing unusual in the quarter to drive as a result.
Okay, I recall correctly your initial expectation as far as the impact from walk away. It was about $6 million quarter, but I understand that you have enough to resume shipments for the most part to walk away but.
Of course, there might be some supply chain bottlenecks, along the way. So I'm wondering if maybe you can quantify what the impact.
Has been from walk away as we progressed through the balance the second half for 2019.
Yes, Gary This is John that's this is an area that we continue to carefully evaluate of course were fully comply with both with law. We've looked at the export control around an arb rubber products and that we are able to ship most products.
As a consequence of that that said the the indirect impacts remains around that business opportunity related to complimentary products and component product availability. So.
Business, there is still down some but we have resumed shipments there.
All right. Thanks, everybody.
Our next question comes from Roger You go from Needham Company. Please go ahead with your question.
Yes, thanks, and congrats on good results in light of very volatile environment.
Question on the GE business, specifically around smart metering I know last year.
The pause.
District transition to dismiss to standard can you talk about you know the contribution of smart metering.
You know re accelerating this year.
Gross and along those lines.
Oh smart lighting, how does that.
How's that segment than been trending throughout this year.
Thank you Raj right for the.
Further question on the on the smart metering, we have resumed.
At a normal shipments into the smart metering market. There was a pause last year as we went from the Smets one to dismiss too and just as a reminder to everybody. This is a rollout in the UK. It's about a five year rollout there's about a 120 million units. We've got about about 85, 90% of those and that's okay.
For we're about halfway through that deployments. So it's a as multiple suppliers within that chain.
Tend to move share back and forth a little bit, but overall that is at a steady rate here.
Kind of going back to normal rates.
You know in 2019, so that's on the on a smart metering market in the UK. We also have have smart metering business. You know just in general that so that's a strong category for us they are adding connectivity both for in home monitoring and meter reading and with a variety of different technologies and so that is what we view as a very high quality long term strategic.
Growth market for us.
On the lighting side, you got really two segments on lighting, you've got the more you.
You know consumer retail type type of channel for smart lighting, and we introduced our newest gecko to gecko series to platform.
Both the chip last quarter and earlier this year now the modules and that is targeting high volume bulbs.
Zigbee, Bluetooth and 15 dot for capability and have a have a leadership position there in terms of our ability to to drive the solutions and we see strong adoption in.
You know volumes and ramps in the in the lighting market. So that's very good you also have a very pretty diverse I mean, you just look at the conversion of lighting.
From a from older technology to LCD and then from non connected to connected and this is across different types of fixtures. I mean, you look at commercial buildings and and.
Lots of different markets and so there's a there's a lot of them fairly broad range of deployments of lighting across a number of large lighting manufacturers that were engaged and then said that the penetration rate today of connectivity into lighting is actually quite small, but we see that has a long term growth driver for us as as lighting in the features in the valley.
You can add by adding connectivity directly into the fixtures involves makes sense. So that's a little bit of color for you on the on the lighting market.
Okay, Great you for my follow up.
Dr business I'm, particularly around the fight you rollout you had mentioned for several quarters now that you had when that's for the top five.
Based agent vendors I was wondering if you could describe what you're seeing.
In terms of the five you roll it as we go into next year does that continue to accelerate how is your position in terms with your timing products compared to your competitors.
Any kind of any color around the five you rollout.
Helpful. Thank you.
Yes, our view is that actually the fiveg rollout is.
That there has been some delay in in Fiveg in terms of just capital deployments.
Got the situation over in China.
And some of the export controls have had some impact there that being said our position actually in fiveg in in terms of our products and this is mostly on the on the timing side with our clocks and oscillators is actually.
This is a strategic market for us and we continue to have.
Strong roadmap and solid engagements and design wins in this area. So we think that as Fiveg continues to roll out. We will have you know a growing contribution in our timing business from the Fiveg in wireless markets. So we have not traditionally participated in that area. Most of our business has been.
On the on the core infrastructure optical networking.
Backhaul and now we're getting into the radio heads and into the base station units themselves with our timing products. So feel good about a roadmap map feel good about our competitive position, probably a little better on our competitive position than we were.
Six months or years ago, we've been driving some good wins and new products out into the the market.
But still we see a little bit a slowdown in terms of the deployment of this technology you know given some of the trade War dynamics.
Thank you.
Our next question comes from Rubin walk from benchmark. Please go ahead with your question.
Thanks, Hi, guys Tyson I wanted to follow up on some of the Aiotv commentary.
With that with your guide for Q4, it looks like the Iraqi business is gonna be sort of in the mid single digit growth range, and obviously a lot of macro headwinds out there et cetera, but it seems like the wireless portion of the business, which you guys said is now around two thirds of the business.
It seems like that's continuing to do well just wondering if you could parse out.
Your thoughts on the wireless part of Aiotv versus Microcontrollers, and maybe maybe revisit longer term growth prospects for that for that segment that'd be great. Thank you.
If you look at the Io tea business, you've got about now about a third of the business in Microcontrollers and about two thirds in wireless.
On the microcontroller side, we are seeing similar trends to the other broad based suppliers in terms of.
Overall exposure to the macro and slow down and in.
A lot of industrial activity, both in Europe , and in China, So that that business on them on the microcontroller side.
As is down.
Call, it 15% or so year on year.
And this is this is on the backdrop of.
Go 32 bit in eight bed Microcontrollers, we're actually seeing a little bit more strength.
On the under 32 bit side, but the.
So microcontrollers are getting hit by the macro situation on the on the wireless side, we continue to see strong adoption on a lot of the I mean, you've got 15 dot for and Zigbee and thread you've got the addition of our Z wave products.
You've got.
Bluetooth and that the opportunities around Bluetooth mash and Bluetooth low energy and then a lot of the proprietary wireless stuff that we're doing that go into a lot of industrial networks and all of those businesses are in growth mode. This year I mean, we're seeing.
Strong adoption of Aiotv technologies out into the market you look at the smart home, we talked earlier about metering and lighting and so that is strong and really the wireless is kind of powering the strengths there.
It's a 15% to 20%.
Growth this year on wireless which is less than we thought.
It was going to be given the design win traction in the size of the markets and the growth, but I think that as you know it is impacted a bit by the macro but we continue to see a lot of a lot of growth. There. So we're really you know really pleased with the fact that we drove record right wireless revenue here and.
In Q in Q3 and continue to see wireless ramp as we move into 2020, so feel good about the long term health of that market in the deployment in our positions.
It's very helpful detail. Thanks, Tyson and then for a quick follow up the isolation strength is that a company or geography specific or a is that more broad based and is that what's driving the infrastructure up tick in Q4 again.
Yes, the isolation business is also one of our broadly exposed.
Businesses in terms of just a lot of different applications, it's quite industrial heavy we saw particular strength and electric vehicles and solar energy deployments.
Despite some weakness.
China on electric vehicles, we've had strong design win traction on electric vehicles in isolation and see that is as a as a really healthy long term trends for us and so as as companies move over to electric this our isolators go into things like onboard Chargers battery monitoring systems and motor control units and those are.
Healthy content of isolation.
In those applications and we've been winning more than our fair share of design Fair. You also there is actually the solar had a very good quarter, we've been doing well on design wins, although I would say that the deployments of solar have been a little bit.
Mix out in the market that is in the backdrop of a fairly broad industrial just weakness coming out of Europe and APAC.
And China, but that was more than offset by the by the ramp in the electric vehicle and solar energy markets.
Thank you guys.
Our next question comes from Matt Ramsey from Cowen. Please go ahead with your question.
Thank you very much good morning, everybody.
Hi, Jason I wanted to ask a couple of longer term questions around topics one.
The timing business Theres been a lot of focus on pushing from wireline into.
Fiveg and compute but I noticed there was some product.
Sort of Directionally.
Timing for automotive.
Maybe you could talk a little bit about that a little bit and the other topic I wanted to touch on on us.
Vein.
I thought that would come partnerships around.
So.
The particularly <unk> I got some new markets.
Interest if you have any comment thank you.
Let me take the first question on timing, we're we're pleased to see though.
To be able to enter into the automotive market with our products. This is really around getting the qualification and the AC Q1 hundred and all that have a lot of are the same products that were able to deploy into the.
Base stations and into into wireline, those same technologies or more and more applicable to the automotive market as you're driving to higher data rates and you're driving too.
Lower jitter and all the things that make our.
Timing products grade and so we've seen a fair amount of demand from automotive makers.
Tier one suppliers to get.
To to go after our timing products, so being able to get those you know formally released and qualified and it really targeting the automotive market, we think that expands our Sam.
For the for the timing market. So it's a similar type technology.
You know overtime, we will continue to introduce new products in this area, but being able to deliver you know the reliability and the performance levels and all of that.
Is there is a big advantage for a lot of the systems that we talked about in the call like a that drive driverless assistance stuff cameras light are a lot of stuff that's going into autonomous driving requires a higher performance timing I mean, both on the compute side as well as the sensors and the communication around the car. So that's that's an exciting opportunity.
In timing in a good application of our technology.
Fair enough.
In terms of the the LTE cat M and the wide area network stuff.
We have focused our efforts in wireless on the personal area networks, such as Bluetooth and then the local area networks, such as 15 dot for Zigbee thread.
And Z wave.
As well as a lot of their proprietary stuff. These are more where you've got to gateway in a base station in your connecting device, Eric I'm, sorry, a gateway, where you are connecting devices client devices to that gateway, it's not using a you know a.
A long distance base station like you would have an a cellular tech network.
And we view that as the highest volume most diverse part of the market I think that though the stuff that's going on around Laura and around Cat M.
It's still in early phases, we do see some some roll off it's a different set of applications a different set of customers. It's something that we're monitoring very very closely and has a very similar type technology to what we're offering today.
We we've got more opportunity than we know what's the two with me on the on the wireless side.
Just as you look at the size of our funnel, we've got about an $8 billion funnel around I O T. Right now and are busy with with that so if you look long term I think that the wide area network stuff is very interesting, it's going to be a huge market, it's going to be one of those technologies that takes decades to deploy.
You know out and in all of the different applications, but does this stuff that's going on right now and the local area in the personal area networks and driving the prioritization and the maturity of our platform and driving the road map. There is our main focus here over the mid.
Midterm I think that is sufficient size market to be able to.
To take the company to a much larger position in the market than we are today without having to expand too far so I think from a from a management standpoint, you've always got to balance. The you know the be expansion of what you're doing with with the focus and right now focusing on the opportunity right in front of us is.
It is what we're doing.
Okay. Thanks.
Really appreciate the color there.
Yes, it does it tell my follow up.
With all the opportunities out there John it looks like Opex is gonna be up 2%.
This year given the macro any thoughts about how you guys are planning for 2020 I'm on the cost side. Thanks.
Yeah, we're working through that now Matt we're having our Aoki meetings. This fall meeting with the management team and the board of directors, we should have some more.
Color to provide on the January call I will note that we have the extra week, so that needs to be comprehended in and the modeling but.
The balance is.
You know the goal of course would be to stay in the model range. The macro will have an influence on our ability to do that and we do need to continue to invest for the long term to.
To be successful in this business, but we will endeavor to provide more color in January .
Got it thanks guys.
Our next question comes from Blayne Curtis from Barclays. Please go ahead with your question.
Hi, guys. Thanks, taking my question types and maybe if you just go back on the infrastructure bucket as a whole it seems some nice strength recently still off if you look back to previous highs last year.
Maybe just walk through those pieces because I know some of these businesses are now starting to come back from just kind of looking that delta when that businesses over 50 million at quarter and opportunities to get back in surpassed that as the next year.
Yes, the infrastructure business last year had a really strong here we were up 30%.
Year on year and.
Saw strong ramps on on both the isolation and the timing side with particular strength in isolation as we entered into this year we saw.
Slow down in terms of and.
On the isolation side really kind of industrial demand.
You know for power supplies and motor controls and and a lot of industrial automation stuff.
Letters are used in so that one is down this year, we did talk about the growth vectors, we've got an odd in electric vehicles.
And solar and just overall penetration into the interview industrial markets. So that is one that will track the isolation will track the macro situation coming off a pretty strong year last year. So were.
In that kind of macro number of about 15% down year on year in this last quarter, we may be able to end in the year.
Little bit little bit better than that but.
The the isolation products, we're still quite bullish about those longer term given the design win traction and the new markets that we're we're taking on on the timing side kind of its.
There is.
I think another macro you've got some of the trade tension stuff because that's in there you've got a better slowdown on some of the capital deployments of new technology, So that one.
You know is.
Is in a isn't a reasonable shape, but is.
It is well positioned in terms of growth vectors in datacenter and in wireless and now in automotive.
Outside the core networking area, but again that one is.
In timing, we are again impacted by Capex and macro situation. So off of a strong year last year down a little bit this year in that 10% to 15% range.
And.
You know feel like feel like.
Both of those businesses are well positioned to grow in the future as as the economy and the at the macro situation would improve but they definitely have in it and have had an impact this year in terms of their performance.
Thanks, and then maybe just for John with the 14 week quarter, Obviously Opex you get mechanically an extra week then it goes back away on the revenue side I don't know if you ought to venture any thoughts on on margin General, but then.
Let's say it matters and then some people say with the seasonal transition you don't really getting credit for just kind of thoughts on the revenue side with extra week.
Yeah, I mean, I understand and.
Tend to agree around the ladder.
Comment that you made but will you know well of course will provide guidance in January for the for the first quarter suffice to say as we indicated.
In the earlier in the and the discussion that first quarter, we would expect it first quarter to come under pressure to be down from fourth quarter as a general trend.
Okay. Thanks.
Our next question comes from Tories spend Burke from Stifel. Please go ahead with your question.
Yes, Thank you and congratulations on the T. record revenue Hisun could you elaborate a little bit more on the GETCO series chewed modules.
Whether that's from a competitive positioning or dollar content.
Anything else that you can elaborate on on on how important that introduction this that'd be great.
So the the gecko series to platform as a whole series of both chips and software that's really it's a second generation.
T platforms, our first platform was a 90 nanometer.
Technology, and we rolled that out here over I guess from 2015 to about 2018, and then we've been introducing no additional products on the 40 nanometer platform, which is which is the series too and that the series to platform brings.
Power consumption down it adds features in terms of security it brings our cost.
Continues to drive cost and higher levels of integration. So this is the cycles of learning going from series one into series too.
We have done some optimization in terms of cost and functionality for for various high volume segments. The first version of the series to being targeted at the high volume lighting market and we've seen good success with that and the modules that we.
We introduced in the last quarter, we're really targeted at taking that product into the broader market and to be able to.
You know.
Whether it's a lighting.
Design or something outside the lighting design.
Market to be able to to get that into the broader markets are typically we've we can do a chip down on a high volume application where cost is really really important and then the modules we supply due the manufacturing and supply modules into the broader market as well so.
That that was part of the announcement this time, but we will continue to introduce new versions of the series to that or target different application areas and different points of optimization.
And then just on the software side, our software platform and our protocol stack run across all the series one in serious too so the simplicity studio software and all the protocol stacks to drive the wireless communication and the developer experience, we continue to enhance that as well so there's improvements on the software side.
As well as the hardware side as we get the learning and get.
You know engaged with customers and do optimization. So it's all part of our I O T.
You know strategy and this is the series two is quite exciting in terms of the improvements that it gets and the optimization that we're going to be able to achieve.
Yes. Thank you for that detail that's very helpful. As my follow up so the key businesses now basically.
On a run rate basis more than a half billion by business, it's been growing double digits, and that's kind of being your target all along.
But as we now sort of think about that sites right you know more than half a billion.
On anything anything that you can point to give us confidence they can it can sustain that double digit growth and I know your funnel is 8 billion but.
Anything else that you could elaborate on two too.
Make sure that we feel confident would that double digit growth going forward.
So we are at about a five year, you're right. We're a little over 500 million dollar run rate, we've got a strategic long term growth target of 20%.
And feel comfortable with that as a long term growth rate in this market. If you look at the these statistics the market statistics and served as you know the Sam around connected devices.
The Sam this year for our I O T products is over 5 billion units.
And that is growing probably about 2% to 2.5% or two to two and a half ex here over the next five to seven years. So you've got strong growth in the deployment of units and this is across industrial and consumer applications for the most part and I'm not including handsets are Pcs.
So you've got we're going to 10 billion units a year here within the foreseeable future on Aiotv and if you think about the increased functionality and.
You know.
Basically you're talking to a dollar to $2 per unit, so you're talking about as Sam over five the five year timeframe of you know 10 $15 billion to $20 billion, just for wireless and Aiotv and this is a cross just the AOCI applications and consumer and industrial and it's mostly industrial is.
It's about two thirds industrial in terms of the number of units and that's where our big focus. So you look at you step back and say, okay. Two thirds of 500 million.
That's that's a big number, but it's not that big of a number compared to 10 or $15 billion. Sam that we've got here over the next few years. So so you know we were trying to keep our eye on the ball in terms of.
You know, where I O T is going and developing our platform and driving into the market driving the channel and driving customer relationships and we believe that it's got a very bright future to be a much bigger business than what we're sitting out here today of 500 million.
Very helpful. Thank you.
Our next question comes from Suji de Silva from Roth Capital. Please go ahead with your question.
Morning, guys. Good morning, John So on the the timing market with the lifting 88 acquisition could talk about maybe the content increase opportunity for you does increase your addressable market and what end markets might the 50 needed product the most needed for near term.
So it's a tyson the on the on the timing Slide 15 88 is.
Really so think about it it's a it's a precision time protocol and it's doing timestamp. So think about an Ethernet type network, where each packet has you'd have to know precisely exactly what time.
Those pockets are centered receive.
And that's really important in Fiveg, you know as you're trying to drive you know very very tight latency, it's important in automotive, where you're trying to where you have autonomous driving and sensors.
It's important in just the overall networking.
In general So this is getting rolled out and it's not just did it's not just a chip. There's there's there's actually theres software and it a lot of applications. There are modules that are required.
We haven't had talked specifically about the market opportunity. It is in the hundreds of millions of dollars and it's the contest is in the you know it depends on the application, it's a pretty wide range, but you're talking you know 10.
To 52 to even more for high end module in this area. So it's it's a really exciting area. It's one that is very.
Related to the type of functionality and performance that we're able to achieve with our timing devices and we've done some optimization, we have been work working with Kols are.
With our products over a period of time to put together. This this system.
You know solution around this which has both software it has modules.
So, bringing that softer and those modules and those designs and that capability into the company, where we can then drive the road map. We think is is an important expansion of our timing business over time.
Yes, Suji. This is John let me just add on a little bit so.
This was an important move for us as Tyson said, it's a it's an area with culture that we've been working on for a few years and had a multiyear partnership with.
15, 88, as an area that were already addressing this augments and enhances our capability to be successful there, but it's relatively small from a financial perspective, and the market opportunity is already comprehended in our Sam data that we've had to out there.
Okay. That's helpful color guys and then the other question I have is on the I didn't hear you guys mentioned much about the wife opportunity does entry acquisition any update there is that still sort of and sort of early weight mode or is there any update in terms of ramp potential there.
So we've got we did this entry I acquisition, which was really around why Fi software and cloud type stuff and then we've also introduced a number of products around.
Why Fi.
2011, and and so those continue to be in the design phases, and we continue to.
To drive the roadmap and thinking around why Fi as it migrates to why Fysixteen and attitude that 11 a access.
And driving into more integrated solutions, where you've got true associates. We currently do not have a full SSC around why Fi.
So that's something that we're keeping our eye on in terms of.
Driving a higher level of integration around Wi Fi and see that isn't very exciting opportunity in the market, but today are our business around wildfires smaller than what we have on on Bluetooth and the 15 foreign Z wave standards.
Okay, all right. Thanks, guys.
Thank you.
And ladies and gentlemen at this point, we're going to conclude today's question answer session I like to turn the conference call back over to Jalene Hoover for any closing remarks.
Thank you Jamie. Thank you all for joining US. This morning. This concludes today's call.
Ladies and gentlemen, today's conference has concluded we do thank you for joining you may now disconnect your lines.