Q4 2019 Earnings Call

January 29, 2020

Yes.

Welcome to chorus call, please. Hold an operator will be with you shortly.

This is the operator. Which conference would you like to join?

Okay. May I have your first name and last name?

And your company also?

Okay, I will Journey Through the conference. Thank you so much.

That's from 2018.

Are we are disappointed that Revenue declined in 2019 We believe We out performed the broader semiconductor industry due to secular growth drivers in iot and infrastructure.

Iot revenue for the fourth quarter was $128 million dollars representing 7% growth year-on-year. This result was slightly lower than we expected primarily due to seasonal in the Smart Home Market following a strong Q3 partially offset by strength and broader industrial iot and markets.

For the full-year revenue increased to $400 and wireless products of around 14%

Weak industrial and Automotive markets combined with changes in certain trade policies have been disruptive to customers and suppliers alike causing a broad-based slow down and orders from ends market and channel customers.

for comparison World semiconductor trade statistics or wsts estimates that revenue for the broader Wireless industry for 2019 declined more than 16%

infrastructure revenue for the fourth quarter was $48 million dollars representing 5% year-on-year growth. We saw particular strength in isolation and Q4 with some improvement in a broad industrial markets driving growth and power supplies and Industrial Automation as well as strengths and solar

Infrastructure, Revenue was $183 or down about 8%

Broadcast revenue for Q4 was $28 down about 20% Year-on-year just decline was slightly more pronounced than we had expected primarily due to weakness in Automotive.

Full-year broadcast Revenue was $115 or down 19% access revenue for the fourth quarter was $15, which was about flat with your on your and slightly better than expected based on strength and Communications.

Access revenue for the full year was $51 down 19%

looking at fourth quarter Revenue by End Market. We saw sequential declines in consumer and Industrial offset by growth and Communications Automotive is about flat.

For full-year 2019 Nissan Juke lines and Communications and consumer end markets industrial was up year-on-year due to growth and wireless home Automotive was also a primarily due to growth and electric vehicles despite overall weakness in automotive markets.

By geography in Q4. We saw the most significant sequential declines in the Americas followed by Europe .

for the

We saw sequential growth in a pack due to broad-based Industrial recovery for full-year 2019. We saw year-on-year declines in all geographies.

Distribution sales for two for for approximately 74% of total revenue distributor inventory days declined slightly ending at 38 days down from 45 days in Q3.

This is below Target with end of your channel Inventory management negatively impacting fourth-quarter Revenue.

For full-year 2019 revenue from our top 10 customers was 21% and no single customer was greater than 10% of total revenue.

non-GAAP operating expenses were higher than we expected in Q4 due to an increase in medical insurance claims and travel expenses offset some by favorability in new product introduction.

non-GAAP . R&D expenses were $52 non-GAAP sg&a expenses were $39 million.

Our Q4 non-GAAP effective tax rate increase to 13.3% due to discrete adjustments related to our state income taxes non-GAAP EPS for Q4 or 84 cents, which was within our guidance range.

Earnings per share for the full year ended at $3.22 down about 13% from 2018.

non-GAAP , gross margin for Q4 with slightly ahead of expectations at 60.9% based on favorable product mix with strength and infrastructure.

Operating expenses for $120 for Q4 which were higher than we expected at the beginning of the quarter due to restructuring actions taken including the closure of several Design Center wage and offering a voluntary early retirement plan for long-standing employees.

These actions will allow us to better optimize our cost structure heading into twenty-twenty supporting the addition of critical talent to enable Simplicity and scale as we continue to drive funnel, and growth

Got all the expenses for $69 and nephew sg&a expenses were $51 million.

Operating margin was 6% of sales and around 7% for the full year. The Gap effective tax rate was 16.4%

Turning now to the balance sheet. We ended the year with cash and Investments totaling $732 up 18% from 620 million at the end of 2018 bank accounts receivable ended with Day sales outstanding holding it 31 days net inventory into the air at $73 million or terms of 4.6 times, which is in line with our expectations and down only slightly from five times in Q3 reflecting. Good Supply Chain management.

On a gaap basis gross margin was 60.7% for Q4 and 60.9% for full year 2019.

For fiscal 2019 cash flow from operations was $167 and capex was $16 million.

What year 2019 we execute a $27 in share repurchases and we have $134 million in remaining authorization through the end of 2020 in summary. Our birth. She continues to be very healthy. I will now cover guidance for the first quarter.

gab earnings-per-share into two four at twenty two cents, which was the lower guidance due to the restructuring actions taken for the full year. Gap earnings were 43 cents per share.

One Revenue to be in the range of $209 to $219 with infrastructure up broadcast flats and declines in iot and access.

Based on the midpoint this represents 14% year-on-year Revenue growth.

In light of the recent Corona virus outbreak, please also note that our guidance assumes a return to normal business and production activities in China following the Lunar New Year celebrations with no major disruptions.

non-GAAP gross margin to be between $15 and $5 and 60%

Please recall that will have fifty three weeks with 14 weeks in the first quarter rather than a typical 13 weeks factoring in this extra week of opec's combined with our standard payroll tax reset. We expect q1 non-GAAP operating expenses to increase to around $97 million dollars.

20/20 we expect affects growth of approximately 6%

We expect you.

We expect our q1 non-GAAP effective tax rate to be 11:00 and a half percent and our non-GAAP earnings per share to be in the range of $57.67.

On a gaap basis we expect gross margins to be approximately $59 and half percent. We expect gaap operating expenses to be $127 and gaap results between a loss for sure to a $0.07 earnings per share result. I will now turn the call over to Tyson.

Thank you. John was a challenging year in broad-based industrial and Automotive markets as well as trade policy volatility and Export controls on key customers impacting growth total 2019 Revenue decline three and half percent from 2018 with wireless leading growth in iot offset by declines and infrastructure broadcasting access. Although these results are disappointing. We are pleased to have outperformed the market with secular growth drivers in iot and infrastructure providing some offset to Macross weakness.

In 2019, we saw strong design when activity which increased more than 30% year-on-year in lifetime Revenue providing a Tailwind for future growth and a validation of our strategy in iot infrastructure in automotive markets as we enter twenty-twenty. We anticipate continued design wind strength backed by a large and robust opportunity pipelines as we continue to drive funnel conversion and growth

turning out a product and Market updates iot delivered 488 million dollars in revenue for full-year 2019 up 5% from 2018 and 2019 Wireless products achieved more than 1 billion unit shipped to date and now represent more than 65% of total iot revenue secular drivers contributed to 14% growth in Wireless products for fiscal 2019.

Rose including ramps and smart home security and high volume lighting customers progress in the UK smart metering Market continued integration of connectivity of the gateways and Adoption of iot in the brake dust real market growth and wireless. I have a t more than offset declines in MC use which were impacted by broad-based macro weakness.

To look at Labs is the leading provider of iot Wireless technology for the Smart Home Market, which offers a tremendous opportunity according to Navigant research Global annual revenue from Smart Home plaque is forecast to grow from three point two billion dollars in 2019 to 14.3 billion dollars in 2028, achieving a compound annual growth rate of 18% off.

We're committed to standardization in the iot and are collaborating with leading ecosystem Partners to create alignment with the goal of advancing security reliability interoperability and compatibility in Smart Home devices off future success for the smart home industry relies on ecosystems working seamlessly together toward a common goal device makers chipmakers software providers developers retailers and consumers will benefit from this open collaboration while accelerating market adoption and driving growth.

Thank you for the alliance members joined together to promote the formation of a new working group which plans to develop and promote the adoption of a royalty-free connectivity standard wage increase compatibility among Smart Home Products the connected home over IP or ship project and body is a shared belief that smart home devices should be secure reliable and wage seamlessly together.

Goal is to simplify smart home product development for manufacturers and increase compatibility for consumers to enable a common out-of-the-box experience.

The project aims to enable communication across smart home devices gateways mobile apps and cloud services and to define a specific set of Ip based networking Technologies for device certification off. The industry working group will use an open-source approach to accelerate the development of this new unified connectivity framework as well as to deliver time-to-market benefits to manufacturers, which will drive Faith consumer adoption.

The connected home over IP project will leverage Market proven smart home Technologies, including Bluetooth threat and Wi-Fi to make it easier for device makers to build products compatible with Smart Home and Office services such as Amazon Alexa Apple Siri and Google Assistant.

The working group encourages device manufacturers to continue innovating using Technologies available today silicon Labs is one of two semiconductor companies joining the working group to contribute to this project participating. Zigbee Alliance board members include Amazon Apple Google Ikea LeBron nxp video Samsung SmartThings neither of signify. So with the labs something in Williams,

the projects

Ultimately in the creation of the connected home over IP project during the quarter silicon labs and the Z-Wave Alliance announced plans to open the Z-Wave specification as a ratified multi-source Wireless smart home standard package with this change semiconductor and software suppliers will be able to join the Z-Wave ecosystem contribute to Future advancements of the standard and develop and Supply sub gigahertz Z-Wave connectivity devices, software Stacks in addition to maintaining its certification program. The Z-Wave Alliance will expand to become a standards development organization helping to solve the interoperability challenges in during adoption a smart home devices alliance members will work together to advance a single sub gigahertz connectivity solution to expand the functionality needed to grow the iot.

With more than a hundred million interoperable devices deployed more than 3,200 certified products and over seven hundred member companies Z-Wave offers one of the most mature and pervasive smart home systems in the market alliance members and smart home consumers will benefit from Hallmark Z-Wave features, including interoperability backward compatibility the S2 security framework easy information with Smart Start low power functionality offering a 10-year battery life and long-range with sub gigahertz match.

Adoption of Wireless products in the smartphone market opening Z-Wave is the sub gigahertz smart home standard combined with our leading position and zigbee positions as well to leverage connected home over IP to drive interoperability and compatibility among all Smart Home wireless standards.

To further accelerate smart home market growth this September . We are hosting the works with smart home conference in Austin a premier one-of-a-kind event, exclusively for industry leaders designers and developers interested in creating products that work with the world's largest smart home ecosystems this groundbreaking three-day conference a first for the industry will feature Keynotes from Amazon Comcast and Google Executives Technical Training interactive sessions workshops around tables and exhibitor demonstrations.

According to the Bluetooth Sig total annual Bluetooth device shipments are forecast to grow to more than $5 billion units in 2023. Ninety percent of these devices are expected to include Bluetooth low-energy with secure connectivity and extremely low power consumption is fundamental requirements expanding our share in the Bluetooth Market is one of our most important initiatives in 2020.

Earlier this month at CES in Las Vegas. We announced a new low-cost Bluetooth SOC solution to meet the demand for high-volume battery-powered iot products.

Our goal is to accelerate.

These new bg22 Bluetooth soc's deliver a market-leading combination of security features Wireless performance Energy Efficiency software tools and stacks month. We significantly strengthened our Bluetooth offering in recent years the first of all get with Bluetooth and Bluetooth 5.1 direction-finding and we continue to lead the industry with new Innovations. Now including down to 5.2. Our new SSD is give developers the right balance of features security and performance at costs points to help Drive adoption of Bluetooth across a wide range of products targeted smart home consumer commercial and Industrial applications include low-power Bluetooth mesh nodes lighting smart door locks personal health care and fitness devices asset tracking tags beacons and indoor navigation also benefit from the Bluetooth angle of arrival and departure capabilities and sub 1 meter location accuracy dead.

Taking applications for industrial iot commercial and Retail use cases at CES silicon labs and Koopa the world leader and advanced location systems announced their collaboration.

to meet this is

to deliver a highly accurate indoor asset tracking solution combining Koopas intelligent location system with asset tags based on our best-in-class Bluetooth products including the new b g 20 mm series

turning out infrastructure full year 2019 Revenue declined 8% to $183 with weakness and timing and isolation due to macro factors offset some by secular growth in 5G solar and electric vehicles.

So look at the website solution products continue to replace traditional optic couplers and outperform competing digital isolators enabling Superior surge performance greater reliability higher education invest in class safety for system designs requiring protection from high voltages in 2019. We saw strength and solar and Automotive applications with some rebound and Industrial in the fourth quarter. We have established ourselves as the leading provider of digital isolation technology to the cloud Telecom solar and electric vehicle markets.

Bluetooth directions

Traditionally our timing products have targeted the core and Metro Optical networking markets over the past few years. We have expanded and diversified our timing portfolio to address adjacent opportunities in a Serial data center Wireless infrastructure and Automotive markets, which combined now represent more than 40% of our total timing Revenue.

For out of the top five suppliers of Wireless infrastructure equipment use silicon Labs timing Solutions in their initial 5G deployments including a broad array of 5G wireless equipment from remote radio heads and thoughts and units to mobile backhaul and small stones. We are well positioned to address this large and emerging growth opportunity with current and roadmap products timing plays a key role in the transfer of data and wireless and Wireline networks, which rely on accurate class easy to access tools for validating timing Solutions accelerates development and Adoption of new Technologies Inc address. This need this month. We announced our collaboration with keysight a test and measurement Solutions provider to streamline the validation of timing Solutions critical the system level designs for Wired and Wireless Communications Medical Imaging and Automotive applications.

Conductor alliances most respected public Semiconductor Company award. It is a great honor to be chosen by industry peers based on best products vision and future opportunities.

Our commitment to empower and encourage employees to strive for excellence across all facets of the organization is reflected in the industry Awards. We received in 2019 including a product excellence awards that supplier of the Year recognition for culture and Community engagement Awards and a great place to work certification. Our dedication to Integrity across product development workplace culture and Community engagement set silicon Labs that part in the industry silicon Labs leadership team is created a hard to beat workplace environment resulting in a leading products for our customers and continued growth for our company.

We're pleased to see positive signs of some macro turn around in the fourth quarter with growth in broad-based industrial and Automotive markets some improvement in the trade environment and increasing system ISM for 2020 We Believe silicon Labs is strategically well positioned in long-term secular growth Trends iot and infrastructure now represent 80% of our total revenue mixes with each offering a double-digit growth opportunity back by our large Pipeline and strong Market traction.

During the quarter of silicon Labs one for the fifth year in a row the global.

For your time and attention before we take your questions. I'd like to turn the call back to Julian Julie. Thank you Tyson before we open the call for the question and answer session. I'm excited to announce that we are hosting and Thursday at our corporate headquarters in Austin, Texas on Thursday, March 12th. We would now like to open the call up for your questions to accommodate as many people as possible before the Market opens may ask that you please limit your questions to one with one follow-up. Yes. Thank you. We will now begin the question-and-answer session to ask a question. You may press star than one on your touchtone phone. If you're using speakerphone, please pick up your handset before pressing the keys to the try your question, please press * then two at this time. We will pause momentarily to assemble the roster.

And the first question comes from Cody acree with loop capital.

Thank you guys for taking my questions Tyson. If you could just maybe drill down into those segments that you believe are still being impacted if there is such thing still being impacted by our inventory drawdown where the term that you expect to see this year if that's the case and then those that you're more shipping organically to

If you look at our our inventory situation heading into q1, we actually came in with a very light level of inventory and we believe that our customers and this is based on faith on feedback from numerous Channel partners and and customers directly that that the inventory situation in the channel is actually quite healthy. Uh, we we don't believe that that we have a significant inventory build actually as we exited Q3, there was some inventory management which which negatively impacted our our Q4 Revenue by a couple of million dollars, but but overall we came out very light on on inventory and and and we see as we go through the year that that actually there's going to be the need for additional inventory to be built, uh, both International and and a customer's is demand picks up.

Thank you.

Do you believe that's also shipping to in demand or is there a bit of verse talking after quite a bit of applause?

I I I think that overall this is kind of across-the-board in in the industrial space in the automotive space and and in the in the communication space. I think the fact that we are in in good shape in terms of Channel inventory. We're we're certainly in a lot better shape than we were a year ago. Thank you. Thank you and the next question comes home cars with Barclays you guys think so my question just look gross. Margin. I feel bad asking this cuz usually it's why aren't you raising the range? I guess as you look into March guidance both sequential and year-over-year. It's just a bit but yet it seems like mixed kind of goes in your favor. So I just kind of curious to tell her there and any perspective on the rest of the year.

Yeah blame this is John . We're pleased with the result we had and and 2019 on on gross margin and the guide we're seeing for for the first quarter is you know toward the top end of our Target Model range. So overall happy with that. There are you know, a lot of puts and takes in that and mixed with in our categories as you know, fairly Dynamic from that perspective, but overall good results not in 2019, and the q1 guide is appropriate for beginning the year.

And then in in your infrastructure business with that turn that you're seeing someone here.

Thanks, and then you probably want to leave annual Guide to the analysts day. But I'm just kind of curious if you look at access and broadcast particularly with a flat q1. It's up here of year. You typically call those down for the year. I'm just going to confirm that still is Right range to think about those segments.

Yeah, you know we think the long-term trends are persisting here with the iot and infrastructure categories poised for continued growth in 2020 and with broadcasts and access on a more steady decline mode. We do expect the automotive market for broadcasts to be healthier here this year in 2020. Then what's the case in 2019. If you know if the forecasts hold that will be a positive change for the broadcast business in 2020.

Thank you. Thank you. And the next question comes on your model your clothes Fargo Securities. Good morning, everybody. Thanks for taking my question to ask about the same progression throughout 2020 in in more specifically, you know with the extra week in the first quarter. Is it a reasonable to expect the normal mid single-digit percent sequential Improvement in the second wage order in on the top line?

And we do expect to see the 14-week quarter have an effect. Uh, we're uh, you know, heading into second quarter, you will lose a week essentially making that transition the other thing to think about relative to the second half is the potential for some some seasonality in the fourth quarter ugh primarily on the broadcast consumer side. So am looking at the shape of twenty-twenty. Those are some items to keep in mind. Okay and based on your full year 2020 Outbacks guide growth of roughly 6% and just getting what we're starting the year. Is it fair to assume that? We'll see some step sharp step down in the second quarter in non-GAAP effects to roughly what $92,000 and then sort of progressing flat for the balance of the year.

Yeah, so, of course, the additional week does have an effect on topics which would account for about two percentage points on an annual basis of objects increase and then off the balance of our estimate is driven by hiring and Merit, etc. For the first quarter of the second quarter transition. We do expect that to result in a in a in a gift in topics in Q2, uh to a certain extent and then that would continue in the third quarter. We would expect third quarter to step down a bit more, uh, then fourth quarter, uh to be Flats up from Q3 as rough estimate and in part of what's going on with that as well. Gary is some of the restructuring actions. We understand fourth-quarter are are going to be fully implemented by mid-year. So you've got both the combined effects of the extra week as well as uh final completion and Club.

Yeah Gary, this is John .

I'll hop in the queue. Thanks guys. Thank you. Thank you and the next question customize and drove a key with William Blair.

Hi, thanks for taking my question. I believe last quarter you guys launched gecko to I was wondering if you could update us on the traction. You've been seeing there and then also if how long that's been primarily targeted at the lighting segments or how we should think about the target applications. We we announced the gecko to platform of dead. Last quarter. I were last year the first the first member of that family was Target at the at the high volume Lighting Market. And so that that product has sucked into production actually in Lighting in in a number of different other applications. It includes industry-leading costs as well as security features, uh home and and and was was a big success we've got very strong design when traction with that first part the bg22 part that we just announced at CES is the second member of that family.

Bluetooth market and that's got industry-leading power a number of very good features like the the location services that I mentioned in the script as well as as as security features and and and other things there so that the the b g 22 is is an industry-leading part. It's a one of our top priorities this year to go out and and take share off in the Bluetooth market and we believe that we've got both the part the software and the the cost position to to do that. I would also say that on the on the Bluetooth side. We've already got about two billion dollar opportunity pipeline that we're actively working. So we are you know, we are actively engaged out in the market both with our series one devices which continue to ramp right now our series two devices. We are we are filling out the portfolio of of parts and working hard on the software and the tools to make that easy to convert the the large opportunity pipeline wage.

On the restructuring actions of coming into effect in the in the first half of this year. Okay. All right.

So it was actually extremely helpful and then just lastly on the access line obviously trending better-than-expected is that really a function of continued share gains a better job market or you seeing less ASP degradation sort of what's been driving the upside there especially in the second half. Yeah. So Alice is John we saw some stronger activity. I'm trying to pawn Market in the second half of 2019 which drove some of the upside there. Yeah. So that's in the access area. I think you were mentioning also the the traction that we're seeing on the broadcast side. So the the TV tuner Market in Q4 is traditionally down a bit Q3 being the the peak there and we we see continued wage stability in our share on on the broadcast side. We exited 2019 with about 80% of the global television market, but that you know, you have a STD birth.

That that we have introduced and that is targeted at the low cost.

And you know, we do still see that business in that 10% decline range. We that's been our long-term goal. We underperformed that in 2019 just because of the macro situation that's out there. But but we do see our our share gain this year remaining stable. But as we go into into q1, it's actually a good thing to see the the revenue in q1 and broadcast topic a little bit and I think that probably reflects a bit of inventory ugh, you know build and on and on the in customer base has just because we came into the year so lean

That we see in front of us.

Great.

Great. Thank you so much. And the next question comes from Rodrigo with Needham & Company.

Yes, thanks for taking my questions a question on the iot business. So the the growth rate, you know decelerated this year to about five and half 6% from 17% in 2018 related to the softness and microcontrollers. Should we expect the overall iot business to to kind of accelerate in terms of its growth rate of our kind of indicating that some of the the situation in the China trade war is improving so that could help the broad-based MSU business and then you obviously got a strong pipeline of Wireless iot Solutions. Just any help in terms of understanding i o t r e accelerating things.

change over time and

If you look at a 2019 overall in the iot market the wireless business was actually up 14% in a down year wsts has the wireless and that that includes a little more than i o t it's the closest thing we can get that the overall Market down about 16% year-on-year. So we continue to see very strong traction walk-in Wireless continuing and accelerating into into 2020 because of the secular growth drivers around the smart home lighting running in the industrial iot. So the the opportunity and wireless is very strong the design when traction we talked about Bluetooth, uh, and and and the new parts that we have jobs that we've just recently introduced. So we feel very good about our growth prospects, uh, in in iot Wireless in this especially when you look at the ecosystems and and the growing momentum that that's happening in, Georgia.

So in that wireless business is about 65% of the overall iot business. The the MCU business is portion of that back in 2019 was adversely affected by the macro situation. We saw a similar results to other microcontroller vendors like St. And microchip that business was was dead. And in the overall result was about 5% overall iot growth as we go into twenty-twenty. We do see in the fourth quarters some resumption of strength in the office in the MCU business reflecting of a uh, a bit of a macro recovery that that you know is is positive but you know, we'll see how that turns out. So we we do think that certainly uh, let me see you should not be the headwind that it was last year in 2020 as were as we're looking at it right now and continued strength in iot Wireless wage.

Micro impact on on on the wireless portion, but we were able to to to grow significantly during the year despite that so I think you know you look at twenty twenty or set up pretty well. We've got you know, the q1 seasonality that we're uh, you know experiencing, you know, some of the consumer applications within iot take a bit of a pause, but we feel good about how we're positioned right now our our our overall growth Target, uh, long-term growth Target 20% on the iot business at least in back behind that.

Our home is very exciting activity there.

Very good. And by the way, that is not that is not the forecast for 20 20 20. That is our long-term Target. But but we will we'll see how it turns out.

I hear you. And then last question for me just you mentioned that the coronavirus you know that you expect to return to normal Productions in China following month new year with no major disruptions. I think I heard that correctly. Could you maybe elaborate on kind of put you've been saying if there's been any impact any kind of color there will be helpful.

There was an i.

You know that we we went into China Chinese New Year kind of on a fairly regular pace and and so, you know, we you know Chinese New Year and coronavirus kind of happens almost simultaneously, um, you know, and we're we're reading the news just like like everybody else and you know, we are currently our forecast, uh, and guidance takes takes a normal turn from Chinese New Year into account. We we have you know, things just shut down and we're going to see a things things start back up on a normal Pace off, you know, our hope is that that's the case but but right now I think it's it's anybody's guess.

Thank you. Thank you. And the next question comes in toys Van Berg with stifel.

Yes, thank you. So so Tyson, I I understand why you opened up Z-Wave the standard but I was curious on the timing so you know why that's why end of 2019. Were there any sort of uh, you know industry inflection points as to why the the the timing and perhaps you could talk a little bit about you know, how the design activity has been a in the symptoms.

yeah, so

So we have been looking at that opening up Z-Wave for quite some time. It's we are we are big Believers and Open Standards and to be able to you know to drive back option. And there there was some feedback from from customers. I mean the the adoption as has actually been quite strong Z-Wave performed very well in in in 2019. It was one of our fastest-growing product Lines within Wireless. So the it has very strong Market traction. We saw an opening and and it wasn't specifically the timing but it all kind of came together at the same time. So the connected home over IP project and that going into the zigbee alliance and uh a number of customers in an office, uh companies looking for the right solution for a sub gigahertz standard. So if you think you can zigbee is on zigbee thread Bluetooth and Wi-Fi are all dead.

Higher frequency Z-Wave is the standard down at the sub gigahertz band which has longer range and less interference. And so it's it's a very robust, uh wage standard and it's widely deployed. You've got a hundred plus million units devices that units of devices deployed out in the market and as companies are looking for a sub gigahertz standard. It was our belief that we have an opportunity to make sub gigahertz V wireless standard for the iot. And in order to do that. It needs to be a bit needs to be an open standard and and and we felt like the right thing to do is to drive consumer adoption. And for the industry was to put that out there with us being certainly the leading provider of of of those Solutions today and and stands to benefit from the adoption of that as the standard around around sub gigahertz. So that's that's going to be a big topic of discussion within the zigbee alliance this year. It's certainly going to be a big topic wage.

2.4 gigahertz, which is a

That we hold later in Q3. And you know, we're we're really excited about being able to to unify the Smart Home Market with all the ecosystem players coming in and out of the growth in consumer adoption that we seen.

It's very helpful in as my follow-up on the on the chip project. You know, you mentioned there's two semiconductor companies yourselves and then next p a m. I read into that as that you guys being exclusive there or you know can any other semi that the company, you know joined that working group to Define products. Yeah. So this was just these were the founding members of of the working groups of these were the the chip companies. I mean, you also have apple Google and Amazon and Ikea and you know a number of other companies that I mentioned in the earnings in our in our prepared remarks, so you have a lot of leading companies that have been working on this within the zigbee alliance and and coming together to you know, figure out exactly how devices will talk to one another it is an open standard and actually the the layer that sits on top of the wireless standard is standards is going to be developed as an open-source framework. Think about that as basically the log

discussion at our works with conference

Regardless of the wireless protocol that is actually going to be based primarily on the the zigbee application profiles. So think about you know a door lock off each door lock has to talk the same language or a lightbulb has to talk the same language so that when something tries to control light bulbs they know exactly what to say and off and everyone realized that that was a major obstacle to the adoption and and interoperability within the smart home. So this is going to be done in an open framework and I I anticipate multiple other companies jumping to this as the big companies really, you know, Drive the standard and and and start driving the market.

Okay. Thank you.

Thank you. And once again, please press star and then one if you would like to ask a question.

And the next question comes to the server with Roth Capital, like I said, hi John first question on the infrastructure side the timing and wireless infrastructure. Those for customers was curious, Are they all 5G or is it some 4G there? And is there a quarter or time frame in which they be inflection in the order patterns from your perspective, or would it be steady more 21 verses twenty benefit any color there would be helpful. Thank you.

which that devices talk to one of the

Quite a bit or a number of wins on the 4G side the the four customers that we or, you know, the four out of five that we mentioned. Those are 5G, uh applications and those are our beginning of ramps right now. So that will be a continued ramp as we go through 2020.

Okay, great. And I know you might cover this the analyst day but you talked about topics being up 6% year-over-year. I know you're not guiding twenty revenues, but I just want to get a sense how you're managing. You managing toward an operating. Margin Target your 19% now, he's Target twenty 25% Is that the way to think about it and with the op x-flex, depending on the revenue just some some color there be helpful. Yeah, so do this John so, you know, our operation margins are are going to be below model here in the first quarter. We do see an opportunity to get closer to model. If not at model in the second half as the objects can tail off according to the factors. We talked about earlier in the call. But you know, our goal is to return to model operating margin profitable. As soon as we can taking into account that we are coming off of a downturn here and and need to continue to invest for success for the long term.

Yeah, we have.

Thursday

thank you, and the next question comes from Matt Ramsey with Colin.

Please go ahead and utilize open. Thank you very much. Sorry a tech analyst. I can't use the phone. The Tyson I wanted to ask in your script you you mentioned growth in Bluetooth and and Bluetooth LE as being I think you called it out as being really important in 2020 as a driver of the business. Maybe you could could has the importance they're gone up and and if so, why and maybe you could talk a little bit about the the competitive position and and the market dynamics there in the Bluetooth Market. Thank you. Yeah, let me give you a little bit of background. So are we we entered the Bluetooth Market in 2015 with our series one devices in our series one devices for highly flexible. They they they addressed some gigahertz they had drafted they addressed Bluetooth. Ugh. They addressed it be stopped gigahertz a lot of a lot of different jobs.

You know, but they did not have they were not cost optimized. In fact, we had a number of customers that would use zigbee and Bluetooth together in in various combinations. So often that time we were really maturing our software stocks and and the the interoperability and coexistence and performance of of Bluetooth, but we did not have a solution that wrong could address the low-cost high-volume segments of the market. So we uh-huh bg22 that's coming in and actually the the the the first member of the the uh, the family the the uh, the 21 both of those support Bluetooth, but the BG twenty-two now has the cost that's required to to be able to really go after the the heart of the Bluetooth market and and so, you know, we didn't we didn't chase the low-cost stuff but now we've got a solution to the cost is about half of what we had before so it's dead.

Okay. Thanks guys looking for.

Bluetooth devices and feel really excited about having huge Market opportunity share gain, you know, we've got competitors in their Nordic semiconductor is the is is the leading supplier. You've got TI wage in in others in the Bluetooth marketing think that given the maturity of our solution the cost. The feature said the the energy consumption the battery light and get ten years off of a coin sell, you know, watch batteries the direction-finding capabilities. I mean, we've got a fantastic solution and and we've got, you know Channel and customers that are really pumped to to be able to you know to design them in so we think given the size of the market given the fact that we have a modest chair today that share gain there is one of our top priorities in 2020 and we're quite optimistic about our future and Bluetooth Market.

so, uh

Got it. Thanks. Thanks for for all the color there as is. I guess a follow-up question and maybe a similar type of question on on your Automotive business. I know there's a wage a radio business and also the the isolation business for V's. If you could just kind of sees out what you're seeing for you mentioned I think in the script about that as being stronger than than 2019 there was obviously some Automotive macro headwinds, but if there's any way to break out that business as to concentration in those two buckets and and drivers for 2020, that would be helpful guys.

It's uh, you know, we can go after the broad market for four.

At and let me break this down. We basically, you know in automotive. We're targeting the automotive radio targeting V's with our isolation products and we just last year introduced off the whole set of products for timing in automotive. As you see a lot of the higher speed data networks and and AI capabilities going in there's a lot of Need for additional electronics and timing and the cars off the the automotive radio cells into all cars in because the automotive Market was was was soft in in in June 2019 in particular in in Europe where we've got some designs and in China are automotive radio business was down year-on-year. So that was that was pointing result. We landed some very good design wins for automotive radio, but those take time to to ramp into the market, but we do see some returned uh of strength in the authors.

As we're entering twenty-twenty. I think that's a healthy sign on electric vehicles. We have just a fantastic solution and it electric vehicles are isolation products go into battery monitoring systems battery charging systems and the motor controls that convert the battery voltage to the electric, uh, you know to the to the motor and and and we we've been working in motor control pills and and a lot of these high voltage systems for a long time. But as we see the adoption of electric vehicles increase the the uh, you know, Tesla and byd, we've we've landed some very long swims in in future electric vehicle programs that are that are going to be ramping in twenty-twenty and and and into the future. It's a tremendous opportunity for us. Our technology is perfectly aligned to the requirements. You know, you've got four hundred eight hundred volt batteries you need protection you need, you know, High reliability and you need a high level.

Yeah, if you look at.

if radio Market

See these systems. So the isolation products going to EVS big opportunity for us. It was one of the reasons why we were able to offset some of the macro weakness in our infrastructure business this year I'd say on the timer side that the automotive. Those are our it's it's fairly nascent. We do have some Revenue in there, but that would be the the third largest category with an automotive.

Thanks. I appreciate it.

Thank you, and that's a good question and answer session. So I would not like to return the Ford a management for any closing comments. Thank you Keith and thank you all for joining us this morning. This concludes. Today's call log.

Thank you. The conference has now concluded. Thank you for attending today's presentation, you know disconnect your lines.

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