Q3 2020 Earnings Call
Greetings and welcome to the Semtech Corporation.
Fiscal year, 2023rd quarter Conference call.
This time all participants are they listen only mode question answer session will follow the formal presentation, depending what should require operator systems. During the conference. Please press star zero in your telephone keypad. Please note. This conference is being recorded I will now turn the commensurate to your host Sandy Harrison director of business Finance and Investor Relations Mr. Wilson you may begin.
Thank you well walk into some tech conference call to discuss our fiscal results for the third quarter fiscal year twice.
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During the call we will refer to non-GAAP financial measures that are not prepared in accordance with generally accepted accounting principles.
Gosh know why the management team considers such non-GAAP financial measures useful along with detailed reconciliations of such non-GAAP measures to the most comparable GAAP financial measures are included in todays press release.
All references to financial results in Mohan and Americas formal presentations on this call refer to non-GAAP measures unless otherwise noted with that I'll now turn the call or a semtechs Chief financial Officer Am I correct.
Thank you Sandy good afternoon, everyone.
For Q3 fiscal year 20, net sales increased three professor pressure to $141 million, which was above the midpoint of our guidance.
Q3 shipments into Asia.
That that 75% off and that's true North America represented 16% to Europe represented.
90%.
Direct so its represented approximately 24% on sales through distribution represented approximately 76%.
Oh distribution business remains balanced with 55, plus another total Pos come it's probably higher consumer and enterprise computing end markets on 45% off to repeal where it's coming from the industrial communications end markets.
Bookings decline sequentially Bell, resulting in a book to bill above Wong.
Oh bookings to accounted for approximately a 42% of shipments during the quarter.
Q3, GAAP gross margin declined 70 basis points sequentially. It was 61.2% due to know what I was asked about associate that with our efforts to reduce our inventory levels.
Q3, GAAP operating expenses decreased 8% sequentially due to lower performance based compensation has passed on denoted caught us off restructuring charges got all caught in Q2.
Thank you for real estate GAAP operating expense to increase between 5% threat posed to ask your question is primarily due to higher share based compensation as process.
Q3, GAAP tax rate was 16.4% down from 63.
43% in Q2, which reflected additional reserves, resulting from the issue also.
No tax regulations related.
Students were 17 U.S. tax law changes.
We are spread thought gap.
The tax rate for Q4 to be in the range of 12% to 16% to remain in this range for fiscal year 2021, Oh gosh.
The tax rate forecasted goose consideration or any impact from discrete items, including excise tax benefit or deficiency or from the exercise of stock options.
Moving onto the non-GAAP resorts, which as cleared the impact of share based compensation amortization of acquired intangible opposition lets it on all the nonrecurring.
Chargers.
I suspect that Q3.
non-GAAP guest.
non-GAAP gross.
Gross margin declined 60 basis points sequentially to assist the 1.6% on.
And with that though Q4.
non-GAAP gross margin.
Gross margin to decline slightly approximately 10 basis points out the midpoint of guidance due to a higher mix of consumer revenue.
Fiscal year 2000, not 20, while we expect our non-GAAP gross margin due to talk to more normalized levels of demand from a higher gross margin.
The growth engines recall for an overall demand improves.
Three along GAAP operating expenses decreased 2% sequentially to $52.9 million due to lower performance based compensation.
In Q4, we expect our non-GAAP operating it's best to be flat sequentially for planning purposes, If we are especially our fiscal year 2021.
non-GAAP operating expenses to increase that's roughly half the rate of revenue growth, which is consistent with our target operating.
Model, we expect our fiscal year 2021, non-GAAP tax rate to remain at a 14% we had 10 percents range.
In Q3 cash flow from up ratios remained solid at 24% off net cells.
We repurchased approximately 400, a 47000 shares for approximately $22.5 million during the quarter.
Stock repurchase authorization now stands at approximately $148 million.
Respective called seats or use our cash to opportunistically repurchase our shares make strategic investments I'm pay down our debt.
In Q3 accounts receivable increased 5% sequentially due mainly to higher net itself and represented approximately 49 days ourselves, which is slightly below our target range of 40 to 45 days.
Net inventory in absolute dollar terms decreased 7% suppress surely and Dave off inventory decreased eight days to 121 days, which remains above our target range of 90 to 100 days in Q4, we expect net inventory to be flat in dollar of an days.
In summary.
We were pleased to delivered Q3 results above the midpoint of guidance, despite the difficult macro environment.
We remain focused on execution.
Turning to believed to settle the strength of our growth engines position us to return to growth in fiscal year 2021.
I'll now hand, the call over to more huh.
Thank you a mecca good afternoon, everyone.
I will discuss at Q3 fiscal year 20 performance by end market and by product group and then provide our outlook for Q4 fiscal year 20.
In Q3 fiscal year 20, net revenues increased 3% over the prior quarter $241 million.
non-GAAP gross margin of 61.6% and non-GAAP earnings per diluted share of 41 cents.
In Q3 fiscal year 20, the enterprise computing market increased 16% sequentially driven by a strong rebound in palm demand.
And represented 31% total net revenues.
The industrial market demand decreased 2% sequentially as growth from our Lora business was offset by broad industrial weakness and represented 34% of total net revenues.
Net revenues from the high end consumer market decreased 3% sequentially and represented 25% of total net revenues.
Approximately 16% of high end consumer net revenue was attributable to mobile devices and approximately 9% was attributable to other consumer systems.
Net revenues from the communications end market decreased 1% over the prior quarter and represented 10% of total net revenues.
I will now discuss the performance of each about product.
Q3 fiscal year 20, net revenues from our signal integrity product.
Increased 6% over the prior quarter.
Represented 42% of total net revenues.
Stronger demand from the Hyperscale data center, and ponds segments offset by weakness from the base station and broader industrial markets.
In Q3, we made significant progress without try edge Pam four platform.
Customer interest and activity is strong as that try edge platform delivers low cost low power and low latency performance ideal for emerging ample based optical modules.
At the recent European conference on optical communications, the interoperability and power savings about triage, Pamfour <unk> platform, which demonstrated.
Our first try as Silicon is currently sampling and then system trials in 200 gig and 400 gig pamfour applications.
Tier one datacenter customers.
We expect to have try edge production Silicon Q1 at fiscal year 21, now first Pam four production revenues in Q2 fiscal year 21.
We're very excited about the prospects for our analog Pamfour solutions.
Our fiber edge PMT platform also continued its positive momentum at Pam four optical module customers, we recently announced that fiber edge linear email driver targeting 100 gig and 484 optical modules.
What I've joined that whole platform of linear T. I a that are currently shipping which are also targeted at 100 gig and 400 gig pamfour optical modules.
Fiber rich products complement our Tri Ed I'm Claridge CDR platforms, and we expect to see fiber rich continue to ramp nicely in fiscal year 21.
In Q3 fiscal year 20 upon business, which is largely driven by China rebounded strongly following a week first half performance. We recently introduced out 10 gig X. Yes, LLC chipset that is expected to be a key driver for next generation palm deployments in China.
The overall upon market demand is expected to improve next year as fiber to the home and enterprise deployments increase in conjunction with Fiveg infrastructure deployment.
Semtech remains upon PMT market leader, providing highly integrated solutions, one gig 2.5 gig and 10 gig pump systems.
In Q3 fiscal year 20 demand from the wireless base station market weakened slightly over Q2.
Well base station demand enough why 20 has been weak we do expect both fourg and fiveg deployments to be stronger in fiscal year 21.
We believe that Fiveg market opportunity could triple that's just fourg future due to the higher Fiveg base station volumes and additional CDR content.
Our current Fiveg Fronthaul solutions are gaining good momentum with several design wins at top tier module suppliers.
Hi ship product group recently announced its new pro audio video chip platform, which is focused on transitioning the pro Avi industry from expensive proprietary equipment to standard 10 gigabit per second IP based equipment using software defined video over Ethernet or STV Ali.
We believe this you chip platform will be a key enabler and driving the industry transition due to its lower power and cost.
The primary target markets for our probably be business.
Enterprise healthcare and E sports infrastructure, and we expect our new chip platform to enable this business to grow significantly in fiscal year 21.
The ever increasing demand for higher data rates is driving greater demand for semtech signal integrity products.
We expect this secular trend to continue driven by the global expansion of Hyperscale data centers, the global transition to Fiveg base stations, the acceleration of 10 gig pawn and the emergence of software defined video over Ethernet.
We expect our Sip product group to benefit from this trend over the next several years despite significant headwinds this fiscal year.
For Q4 fiscal year 20, we expect net revenues from our signal integrity product group to decline.
Driven by broad based weakness across all segments.
Moving on to our protection product.
In Q3 fiscal year 20.
Net revenues from our protection product group were flat over the prior quarter and represented 28% of total net revenues.
Our protection business benefited from strength from our mobile business and increasing penetration of the industrial and automotive markets, while our broader consumer business softened.
Demand for high performance protection from the automotive segment continues to grow as an increasing number of high speed interfaces are deployed in new vehicles.
Semtech devices targeted at advanced driver assistance.
Controller area network and local interconnect network interfaces continued to see strong design win mum momentum.
In addition, we are seeing strong design win momentum from all the leading smartphone manufacturers across the globe with the exception of China smartphones were our position continues to be negatively impacted by the hallway ban.
In Q4 fiscal year 20, we expect our protection business to be down slightly due to the customer end of year inventory reductions as our Korean smartphone customers.
Turning to our wireless Incenting product.
In Q3 fiscal year 20, net revenues from our wireless and sensing product group increased 1% sequentially.
Led by growth in our Lora business and represented 30% of total net revenues.
The adoption of lower up and numerous new I owe to use cases across the globe demonstrates tremendous value of Laura in the past emerging LP when market.
In Q3 notable additions to the Lora Alliance included Amazon.
Intel and dish, who are all respective leaders in their incomes.
Also in Q3, the wireless broadband alliance together with the Lora Alliance leased a joint White paper articulating numerous use cases that require both Wi Fi and Lorawan connectivity.
The primary use cases included smart building smart homes, Smart city, Smart transportation and smart asset tracking applications.
We are all we are already seeing new opportunities a much globally, driving lorawan and Wi Fi functionality to be integrated into the same gateway and we will comment on these opportunities and wins on future earnings calls.
Some examples of recent lower use cases include Alibaba released its Beagle GPS free track a system based on Lorawan that provides consistent geolocation data without GPS for cellular connectivity simplifying deployment at very low cost and power.
Radio bridge and industry, leading supplier of Io T. sensors released its new Lorawan based sensor platform. The common sense enables the tracking of accurate real time data for a variety of industrial applications, including oil and gas air quality and utility monitoring.
Did you Mondo, a leading provider of secure I OTI software solutions announced a new end to end smart utility starter package based on Lorawan, which provides customers the software and hardware necessary to create smarter more efficient and lower cost utility networks.
HM Pacific develop our loyalty technologies for the smart utility and building segments together with Andrea Informatics, developing new Lorawan based electricity metering solution for utilities and Submetering use cases targeted at Asia and Europe .
And Cahill group, a leading solutions provider for smart energy grids announced 50 rural land based Sentinel system that monitors faults and predicts failures in overhead voltage lines.
In addition to these use cases and numerous other partners announced solutions targeting smart home smart utility smart agriculture, and industrial loyalty applications.
Along with increasing number of use cases Laura's momentum is also being underscored by the key Lora metrics we track.
Our key metrics update includes the number of countries with Lora networks increased to more than 83 countries.
By the end of fiscal year 20, we expect around 90 countries to have more networks, which is up from 70 at the end of fiscal year 90.
A number of public or private Lora network operators increased in Q3, two approximately 123 and we now expect 133 Lora network operators by the end of fiscal year 20.
The third one at the end of fiscal year nine team.
The estimated number of lower gateways deployed increased to more than 500000.
These gateways will support approximately 2 billion connected then nodes, we expect the number of lower gateways deployed to exceed 550000 by the end of fiscal year 20.
The cumulative number of lower end nodes deployed increased 217 million.
Is trending to 135 million by the end of fiscal year 20.
And the lower opportunity pipeline is now over $500 million within with an additional $200 million of lead feeding the opportunity pipeline.
We anticipate that on average 40% to 50% of this pipeline will eventually convert to full deployment over a 24 month timeline.
Our pipeline of opportunities remains geographically well balanced with over 65% of the opportunities coming from the Americas and Europe and includes a growing number of consumer use cases with a volumes could be significantly higher and could move to deployment more rapidly than those use cases in the industrial.
Markets.
Several of these volume use cases moved out from fiscal year 20 to fiscal year 21, and as a result, we are expecting a lower enabled revenues to end fiscal year 20 between $70 million an $80 million.
We expect to exit the year at a quarterly run rate above the high end of this range.
Despite the weaker than anticipated fiscal year 20 based on a record Laura Pos in Q3.
And the continued positive global adoption of Laura we still anticipate a 40% see AG over the next five years as lower becomes the defacto standard for LP won use cases in what we expect to be a multibillion unit industry.
In Q3 fiscal year 20 demand for our proximity sensing platforms were stable.
While our worldwide smartphone business will continue to be a challenge our proximity sensing business is benefiting from increasingly stringent global saw regulations as health risks associated with increasingly powerful fiveg radios become fully understood.
Over the next few years, we expect the majority of smartphones and wearable devices shipped to North America and Europe to have saw senses included in net system designs.
For Q4 fiscal year 20, we expect net revenues from our wireless and sensing product group to be down slightly as strong the lora enable demand will be offset by broad based market weakness.
Moving on to new products and design wins.
In Q3 of fiscal year 20.
We released Ttwenty four new products and achieved 2381, new design wins.
In Q3 at Disti Poke Pls also achieved a new record.
Now, let me discuss our outlook for the fourth quarter of fiscal year 20.
We are currently estimating Q4 net revenues to be between $130 million and $140 million.
So taking the midpoint of our guidance range or approximately $135 million, we needed net terms orders of approximately 35%.
At the beginning of Q4.
We expect our Q4 non-GAAP earnings to be between 33 cents and 39 cents per diluted share.
Our Q4 guidance assumes no further direct shipments to walk away in this fiscal quarter.
I'll now hand, the call back to the operator, and Sandy America, and I will be happy to answer any questions.
Operator.
At this time, we will be conducting a question answer session. If you'd like to ask your question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q4 participants using speaker equipment, they may be necessary to pick up or has that before pressing the star keys. One on the please while we pull for questions.
Our first question is from tore Svanberg Stifel. Please proceed with your question.
Yes. Thank you first question Mohan you talked about the.
Funnel or or pipeline up between Lora being about 500 million plus.
So it sounds like that that's growing and it also sounds like consumer is potentially adding to that leased 100 million could you elaborate a little bit more on that CNET is give us some examples in consumer where you're starting to see more lower adoption.
Yes, sorry, yes. It is.
Of the pipeline has significant.
Part of the pipeline are.
Tied to smart home use cases.
And I would say most in Americas, but also in Europe .
And.
Yeah. The smart home is really replacement of Zigbee replacement of Z wave.
Getting longer range beyond just the interior of the house outside the house.
So thats.
Number of use cases, including lighting smart lighting and security, but also smart irrigation things like that so we're seeing a lot of those across the globe I would say, but the vast majority I think our.
In North America in Europe .
Sounds good and as my follow up.
You mentioned that signal integrity, and I mean, PON, obviously, it was pretty strong this quarter, but I think you mentioned most segments are going to be down next quarter is is that just seasonal or is there anything else going on because we thought that especially datacenter. Upon we're starting to turn the corner, but it seems like that's not sustainable just yet.
I would say that they're all doing okay, toria datacenters pretty pretty reasonably healthy I wouldn't say its.
There's any significant issues there I would say PON is being soft full year is starting to come back and I think next year. We are few viewing that as being potentially very good growth the year for upon a base station as I mentioned I think is starting to pick up it's just general market kind of softness I would say.
Tied to just kind of more legacy equipments and things like that so that kind of bringing the number down little bit, but I I don't I think it's a one quarter event I think next year, we should see that all the all the segments the main segments.
But I talked about pickup pick back up.
Sounds good I'll go back in line. Thank you.
Our next question is from Mitch Steves RBC capital markets. Please proceed with your question.
Mitch Mitch Steve Your line is now live.
Thank you hear me.
Yes go ahead, Mitch, yes, yes, sorry, I just wanted to circle back kind of like that Fiveg ramp I think kind of the smartphone sales year to see you understand a little bit of a lighter guide for Q1 Q4, everyone a phrase rich I.
I guess you ended the year earlier next year, but can you maybe comment or what you're seeing in the smartphone handset side would you expect that to improve throughout 20 or worked what temperature that you guys expect your calendar 20.
Yes so.
First of all I think the smartphone market in general is doing okay. We see pockets of strength, but I would say that all of the regions are doing reasonably well, we do expect as normal in Q4 that the Korea.
Of particular Korea.
Hand smartphone manufacturers tend to bring their inventory down so we're anticipating some of that in our Q4 guidance. Obviously, we have some unique issues going on with China.
Our way as well so there is those two impacts I think in general, but other than that I would say.
It's fairly it seems like a fairly healthy smartphone business and certainly looking into next year looks like it's going to be a better year next year.
Our next question I got it thank you.
Our next question is from Karl Ackerman Cohen. Please proceed with your question.
Hi, Thanks, two questions if I may.
First question I.
I was hoping what have you may discuss what's sort of adoption or design wins you have garnered.
For your analog based Pamfour modules now that opened I has released a.
53 gigabit single mode spec.
I think one of them misperceptions by investors is that if dsps you become the predominant approach to Pam four you're out of luck.
I think you up but I think you have partnerships with at least the leading DSP provider. So you could just addressed perhaps at investor concern and kind of where you are with regard to the open I am I say that would be appreciated not hello.
Yes, so let's start with the DSP approach, obviously, we have fiber edge, which that pmdi platform.
Days laser drivers.
Those type of products that are partnered with DSP partners and we are seeing some momentum there.
The.
Try edge Pam four products as I mentioned would just sampling now.
We're very confident that once we have full production release parts, which will be in Q1 of this year you want to next year that.
Those are going to get good momentum, we are sampling tier one datacenter customers as I mentioned.
We just think the value proposition is significant over current DSP solution, so, but we have to produce to the products and get them out in.
Production and get them designed in so that's going to be the goal in first half of fiscal.
Fiscal year 21, and then now we'll see how that plays out the it's our belief also that most of the customers have.
Moved out their timeline until towards the end of next year.
Most of the within the datacenter pamfour deployments and and so I think our timing is quite good we'll see how it plays out but I think that's the that's the view we have.
I appreciate that.
As my follow up.
One of your Lora members recently.
Our members introducing new LT when dubbed sidewalk.
Do you view that as commentary or cannibalistic to your lora offerings and if that is additive.
Is that would that be additive to this $70 million to $90 million lower revenue opportunity you have for counteracting. Thank you.
So.
Let me first of all sorry, we can't talk about specific customers or specific.
Partners.
Our system Alliance.
We can't do that but but what I can say is that every lora business.
That's out there benefit semtech consumption outperform either through direct chips either through.
Licensing IP royalties, all cloud services or something like that so so thats. The first thing to remember second thing is I think that part of our belief in why this is going to be a half a billion dollar business and next four or five years and go beyond that to become a billion dollar business is because of the value proposition that.
Lower brings to things like the smart home.
Smart home as an example is a extremely competitive space, it's very difficult to penetrate but the value proposition of Laura in terms of the range in the power and the cost in the network flexibility and the type of things that can do justice. It's just a question of time versus.
If and so yes, we do believe.
The pipeline.
Talk about the pipeline a lot because it is rather large but we're confident in the fact that we can turn that pipeline into revenue and that's what drives that confidence level. So.
And as I mentioned today, most of the revenue still I mean, 60% of revenues from China.
The pipeline is nicely balanced and if you consider the 65% of that pipeline is now outside of China.
It's really quite bodes quite well for our future revenue growth. So therein lies the 40% Chr.
Okay.
Growth vector that we plan on executing on thanks for years.
Thanks very much.
Our next question is from Craig Ellis B. Riley. Please proceed with your question.
Yes, thanks for taking the question guys Mohan I wanted to go back to.
The point you made about.
The expectation for revenue this year, so looks like the.
Thought is that.
Lower revenue could could go.
From a kind of a 90 million midpoint down to 75 million and I think you signaled that that was some consumer related pushouts could you provide some further color on.
On what those were in the extent, which there might have any ben any common denominator send that things that were going on out and the deployment base.
Or what you saw.
Yeah, I would say Craig it's largely to do you know when we have gateways installed in as you know you can see the number of gateways increased dramatically, there's an expectation that.
Endpoints will follow.
We know there's not many people she is going on and opportunities are there, but the timing of exactly when and how they deployed it's just difficult to call.
We tried to make a stab at it every year and project how the is going to play out to be honest review. This year was largely impacted by the first half, which was very weak and through the first quarter, which was very weak mostly driven out of China, So just being difficult to.
End of.
Cover that but.
That combined with some pushouts into next year of some.
Hi volume.
Used cases, I think has.
Made this year, a challenging year, but but I do think that we'll see that benefit next year. So yes.
And just a follow up related that Mohan is we think about that 40%.
Hi growth over a four to five year period of time, so clearly there's still a huge opportunity here are there. So there's some big blue chips that are jointly.
The Lora Alliance.
Question for next year is as we have some business that moves from 19 to 20 does that give you I'd just continuity with a typically large growth next year or is the global macro such that.
We should have expectations that would be closer to 40%, where the incremental 15 billion doesn't overlay what would be an underlying expectation for 40% growth and the rest of the business. Thank you.
Yes, I think what's difficult to call is China has to be honest with you I think how that demand is going to look next year in other she has been a challenging year. So many reasons and calling out what it's going to look like next year, but we're quite confident about our domestic thank you.
We're confident about 40% growth.
Based on our current opportunity pipeline and the momentum we have both within China and outside China. So.
That's the way I would look at it.
We think that.
Obviously, this still needs some broader macro aiotv kind of industrial use cases that were relying on but I think in general.
Confidence is is quite high still that we can we can drive the 40% growth.
Next year based on current market outlook.
Thank you.
Our next question is from Scott Cyril Roth.
Please proceed with your question.
Hey, good afternoon. Thanks for taking my questions Hey, just a quick clarification first off I was there any walk away in the quarter and I thought I heard there was no way in terms of the outlook and expectations for the fourth quarter and an additional clarification did you mentioned in terms of your China exposure on the smartphone front, either protection or proximity sensors that I had a follow up.
Yes so.
Scott you know what we have said is that we don't need any more walkaway tons bookings to make that quarter.
Number guidance.
And the reason why we do that and I said it last quarter as well is that there's just too much uncertainty around the Wally business.
From a day to day standpoint to to build it into our guidance, obviously that provides upside if the Wally balanced to go away, but if it doesn't than I think.
We've already built it into our guidance the risk into the guidance and then the.
The second bulk which wasn't.
In Q3 in Q4 looks like so so the Q4.
Guidance builds in about 3 million, we've shipped about 3 million or about one half million into that so that's what we have a backlog and that's that's currently the position.
Gotcha and thank you and then looking out to fiscal 21, I don't think you gave us an aggregate number that you're looking for in terms of growth, but certainly there there are starting to see some improvements in certain areas and I was wondering if you could kind of puts on benchmarks around some of the key product growth areas specifically.
Datacenter looks like we're starting to more normalized do we get back to 20% plus growth when you start to figure in consumer or excuse me commercial revenues on the Pam four product lines and some of the other new product portfolios what is lower it looked like it sounds like we're starting to see that recovery is fiscal 21 than a 40% growth here.
And smartphones.
Are we flat we up we down how are you feeling, particularly given as you should be having more content. So we're going into a fiveg cycle. Thanks.
Yes, My 21, obviously, it's a bit early to guide to what's going to happen that by 21, but currently if we kind of layer out the different markets and opportunities clues data center. As you say is has been inventory has been kind of normalize now and I think thats coming back and should have a good year, especially the hyperscale.
Segment and.
We're confident in both our clearbridge and try edge and Pamfour and.
Fiber rich platforms, there pawn so difficult year. This year, we expect that to come back next year as I mentioned more fiber to the home more fiber.
The enterprise deployments secondly, in China, but also the 10 gig as 10 gig pawn starting to accelerate we feel good about our position there and the growth.
Prospects them base stations I'm sure you've heard it from from others as well that we think next year I was going to be a little bit better than this year and both for Fourg and fiveg, but.
Mostly obviously fiveg growth and then our pro HIV products and the Sip business should.
Start to really accelerate that thats, a small business for us today, but we're expecting very strong growth in that business for if why 21.
Nor as I mentioned, we expecting that to grow nicely next year.
And then on the protection side, yes, a little bit more challenging too.
Really called out what's going to happen on the smartphone side, but as I mentioned that there are good design wins across the globe and we feel pretty good about.
The tier one smartphone manufacturers.
Shipping more volume and with the Fiveg growth in the Fiveg side, we should see a good mobile year next year as well. So again lot depends on China, a lot depends on the macro but we feel good about where we are today.
Thank you.
Our next question is from Quinn Bolton Needham and company. Please proceed with your question.
Hey, guys quick clarification, perhaps I missed it did you say what types of applications it pushed.
From see when I came to see why 20 in the lower business was that more some of the traditional China smart metering or is that some of the newer consumer applications and then I've got a couple of follow ups.
Yes, I would say, it's more the consumer applications.
The the China US Lora business was really weak in the first half came back I think to know more normal levels in the second half and it's more industrial it's more metering and.
Environment in those markets tend to take longer time anyway, but they once the there. They just a will go on for quite some time.
I think the the more consumers smart home smart.
Asset tracking a little bit more difficult to predict the timing of those but when they come I think it will be significant.
Great and then second question as you mentioned a growing demand in the Fiveg front all for your Clearbridge.
Got it family just just wondering.
Are those typically going to CW m. for type modules are they single lanes at 25, how big is that opportunity as we deploy the fiveg networks in much greater scale next year.
Yes, I think it's up.
Actually all.
All the links the front haul and mid hold link so we'll probably requests CDR house and then so it's more content for us that's the probably the main driver versus Fourg base stations, and then I think just the number of base stations drives more more of a.
Volume increase as well.
You know it's early days, but we feel good about the fact that these are these 25 gig links follow.
Going to use clearbridge.
Platform, which has a proven platform for us in the datacenter market and so we feel really good about how CDR position in the base stations and.
Most of these have integrated.
Drivers and.
Things like that so really the differentiation is quite clear for us in the market. So yes, I think we're in good shape.
And then do you see any applications.
For the for the fiber edge or the Pamfour base modules and.
That front haul mid hall, or do you think thats, mostly NRG signaling for the foreseeable future.
I know, we see Highbridge as well I think.
Again.
Fronthaul, mostly.
I think at the moment, we are seeing clearbridge and fiber edge is being the opportunity in base station. Eventually we think also try edge and Pam four Cdrs will play a role in the base station as well.
Great. Thank you.
Our next question has from Christopher Rolland Susquehanna. Please proceed with your question.
Hey, guys. Thanks for the question.
So on lower and I guess, China in particular, I know you said.
As a bunch of maybe non China consumer but.
Just looking over the past year would you say that trade tensions and.
You know this this Chinese domestic semiconductor policy do you think that that played in two adoption for Laura for this year and then also if you could give us an update on where you think Comcast is in the you asked on the network build out here as well that be great. Thanks.
Yeah, the China issues, obviously concerned and continue to be.
Headwind for us in all of our business to be honest with you I don't think it's just Laura.
Mora is not.
Immune to that I think even though we have good momentum in China.
There are NVO tea.
And competitive pushes some.
More local kind of Chinese technologies that.
Give us some headaches, but I think the Laura value proposition is very clear.
The Chinese.
And customers clearly supporting the design ins and continued design ins of Laura So I don't see any any long term issues, but for this year for sure. There was some impact in the first half.
That seems to have gone away now I think we've come through that and we should see continued growth in China.
But that's one of the reasons I point out that the opportunity pipeline, which is very large is quite is little bit better balanced and I think 60%.
But unity, 65% of opportunities being in Americas in Europe enables that too.
To kind of create a better revenue profile for us going forward on Laura.
And then Comcast and then Comcast step Comcast is really focused on the enterprise space now.
And I think is focused on building out.
Partnerships with.
Enterprise larger enterprise customers in those markets not only in the markets, where they have a network funding but another.
Segments of the market I think it's still early days I think they use cases are still.
Playing out for them, but they do have pockets of very nice success, where they have them.
Some.
Some value they bring to the market such as in the theme parks and.
Enterprise play where they already have.
Partnerships in those.
In those locations so.
So it's still early days, but moving well on the enterprise front I think.
Great and then also if I heard you correctly, I think 50 at 76%, but seemed a little bit high I guess.
What's behind that.
Were there some direct customers typically weren't there in the quarter or was this de particularly heavy for a reason for some reason or another.
Just what's behind that.
Yes, Chris I think that was just a function of.
The slowed business that we have with wild way.
While were highlights for the most by being a direct account for us on saw with them not with a business with them not being our strongest has been into pass because update.
Because I had a bad situation.
The different mix of our revenue saw somewhat elevated asset as part of that.
Yes that that's fair. Thanks, so much guys.
Our next question is from harsh Kumar Piper Jaffray. Please proceed with your question.
Hey, Thanks, So a quick question mine on the Lora side, you mentioned a couple of the wins had gotten pushed out from call addition to the next I'll call. It two to the next year curious if you expect to kind of a quick ramp.
In the first fiscal house or would you expect most of these consumer type U.S. and European begins to ramp in the second half of fiscal 21.
That's difficult want to call harsh I would say, we'll start to see the momentum in Q2, probably and then probably the the real volume ramp will be in the second second half.
Great. Thank you and then add another one.
So we have hearing from the guys that do our ash that the Chinese.
Tier two Oems.
Our sort of gearing up for export quality phones for European market, but the five year applications.
Im curious, they're not deploying your products for production protection.
Anyone proximity sensing would you say that that do you think that's a function because you.
He did this there is some local Chinese competition in those products for you or is there something else going it's just an opportunity that hasn't happened yet I.
I think it's an opportunity that's happening.
Harsh but.
A lot of these guys. They don't understand the value of protection you understand the value of saw yet I think that's starting to get educated on it.
And specialty for.
Outside China region, and one of them haven't been successful in North America in Europe , and so when they start to deploy phones in these regions I think they'll realize that they need a.
Better quality phone a phone that.
Doesn't that meets the saw regulations for example than in some cases phones that can last longer and are protected well and so there's a little bit of a learning process. If you recall you go back in history. There are times when customers have taken out protection.
Semtech protection and taken out the protection to save cost and then realize that there.
We are getting a lot of returns back and then they have to go back and put the Sun protection and things like that so no. It's not a surprise to us that not all the manufacturers will put the protection in or put the proximity sensing in four saw but they will eventually get that we think.
Thank you Michael.
Our next question is from.
On that of course and Vws financial. Please proceed with your question.
Hi, just a couple of questions one is on a.
Try edge is that are you seeing customers take longer with the trials or is there just to delay in adopting the technology in deploying it.
Well now we just we just sampling now hommage. So it's the first products. We we did some true.
Constructions that Rusty Coke show and.
Now, we now sampling and so we have we don't have production silicon yet we will have in Q1, so it's really up the timing is.
Is such that I think we have an opportunity because pamfour.
Has been pushed out and within the datacenter and I think now is the time to.
Get the customers.
Starting to use triad, you testing it out and in their system test is a real system trials going on so once the comfortable I'm sure we'll see some some ramp up in the second half of the.
Okay, Okay, and then last quarter, you're suggesting that you might see revenue in Q4, that's why I was asking.
I think just sample some kind of engineering sample revenue very small, but I think the production ramps will be in Q2 and and beyond.
And my last question was that regarding Laura the pipeline that you're talking about is now 65% outside of China is that do acceleration from outside of China or is that just purely some weakness in China and then.
Taking in some of the pipeline.
I would say, it's more acceleration outside China, we have if you recall one of the reasons why China is being so strong for us and Laura is just they were very early adopters of the technology and Houston metering use that in a number of different use cases in China very early on and that's why we are they are the most.
Terrific and revenue driver for us today, the other regions, particularly North America has been a little bit less.
Late two.
Really understand the value of the technology and adopt the technology, but it's coming and it's.
Our view, it's going to be significantly large up once that occurs in the once the.
The really larger companies start to roll out their use cases in America in Europe .
Okay. Thank you.
Our next question is from Christian Gebara Baird. Please proceed with your question.
Hi, good afternoon.
So looking at your January quarter guidance, it's actually be better than seasonality. So.
So it sounds like it's all driven by continued we'd down to.
No I love you sequentially, even though.
Revenue guidance for the license down.
More than what you provided a quarter or.
Is there anything else in terms of puts and takes trading desk the guidance.
No I think Kristen that's a fair comment I think.
Sip business.
The base station is still a little bit week.
Although coming back up I think PON is.
Going to come back up but still waiting on tenders and things like that so in Q4 is kind of a little bit of unknown and then on the smartphone side a lot depends on how much inventory.
Samsung brings down it's.
Regional usually Q4 is the quarter, where it brings down its end of year inventory and just how much is going to happen.
The impacts of that also I would say I would say those are the kind of main things, we're not sure about tools wait and see how that plays out obviously, the Wawa Bank continues and we've.
Kind of taking that out of my guidance as well so.
Yeah, we have a few things going going positive as well and.
Should be beyond Q4, and I think certainly after Q1, we expect.
Next year to be pretty good.
Okay, and then as a follow up I know you guide on the quarter at the time, but.
Based on current visibility in backlog is there any reason to believe that the April quarter with track differently than normal seasonality at this point.
Or is there any new program the land.
Yes.
Make sure that seasonality.
And then how much seasonality.
Not really I would say, there's a lot of good positive things going on the uncertainties are still are around kind of macro environment. The.
The trade war stuff and China related stuff and the while we band related stuff, but outside those I don't see there's any any major reason to to be concerned about there.
The business.
Great. Thank you.
Our next question is from tore Svanberg Stifel. Please proceed with your question.
Yes. Thank you just two quick follow ups first of all you talked about the broadband alliance sort of Wi Fi in Lora no working closer together can you maybe elaborate on what that could mean for.
In a lower adoption down the road and middle maybe that gives them. Some examples of where this is happening.
Yes, there's a there's a white paper that then the joint alliances did and that kind of covers quite a few of the use cases and things like that but fundamentally the the thinking is that there are plenty of Wi Fi boxes already established out there and the Wi Fi.
Usually is being used for high bandwidth.
Interconnect Internet connectivity and video streaming and those type of things.
Adding laura to those boxes enables a lot of smart functioning around the enterprise spaces or retail outlets and things like Thats things like security things like lighting things like.
Just a occupancy just smart building kind of things.
So there's a lot of use cases, where lora makes a lot of sense than than rather than using Wi Fi, which has limitations when it comes to range and when it comes to the power consumption on the end mode. So if you think about an area where you may want to have a we already have a Wi Fi install installation like an airport or something like that.
But you would like to start the Io Te connectivity.
For low power in nodes, adding lora makes a lot of cents versus trying to do that in Wi Fi.
Very good and my follow up the you mentioned, you're starting to see some share gains for Laura to expense of Z wave and sick B.
Is that primarily in the lighting area or in other devices as well.
I would say it's across the board.
Story, you know the limitations all zigbee are really the range and the power consumption associated with the end devices and so where you have those.
Requirements and you need more range are you need more lower power devices and things like that then it just is.
It's on your question of time that Laurel.
Probably replace the technology, it's going to take time, but I think eventually thats whats will level, that's what will happen.
Great. Thank you.
Our next question is from.
Harsh Kumar Piper Jaffray. Please proceed with your question.
Actually my question the been answered thank you.
Operator reached the end of the question answer session and I will now turn the call back over to Mohan Maheswaran for closing remarks.
In closing despite macro headwinds and the ongoing uncertainty from the geopolitical headwinds and weakness from the Huawei E band, we remain confident in the underlying strength of the secular drivers behind our growth engines.
T datacenter and mobile markets and we remain confident that our overall end market geographical and product balance should enable us to deliver double digit growth in fiscal year 21 with that we appreciate your continued support of Semtech and look forward to updating you will next quarter. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.