Q4 2020 Earnings Call
Greetings and welcome to the Semtech Corporation fiscal year, 24th quarter Conference call. At this time, all participants Arnie listen only mode. A question and answer session will follow the formal presentation. If anyone should require operators the since the during the conference. Please press star zero.
On your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Sandy Harrison Investor Relations. Please go ahead.
Thank you Dr. and walking to send text <unk> talk to discuss our financial results for the fourth quarter fiscal year twice.
Speakers for today's call will be Mohan Maheswaran, Semtechs, President Chief Executive Officer.
No I cut you grew our chief financial Officer.
A press release announcing our unaudited results was issued after the market closed today and is available on our website <unk> dot com.
Today's call will include forward looking statements include restaurants certainty that could cause actual results could differ materially.
Unresolved anticipated in the statement.
For a more detailed discussion these rest of uncertainty. Please review the safe Harbor statement included in todays press release, and then the other risk factor section of our most recent periodic reports filed with Securities Exchange Commission.
As a reminder, comments made on todays call. Our current as of today only Semtech undertakes no obligation to update the information on this call should facts or circumstances change.
During the call we refer to non-GAAP financial measures that are not prepared in accordance with the generally accepted accounting principle discussion or why the management team considers such non-GAAP financial measures useful along with the detailed reconciliations of such non-GAAP measures.
The most comparable GAAP measures are included in todays press release.
All references to financial results the bonds in Americas formal presentation.
On this call refer to non-GAAP measures unless otherwise noted with that I'll turn the call over to Semtechs, Chief Financial Officer, and that could you go back up.
Thank you funded good afternoon, everyone.
For Q4 fiscal year 20, net sales decreased 2% sequentially to 100 and <unk> million dollars.
Toward aboard the midpoint of our guide.
Good grief 20.
So the creative.
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Driven by the challenging macro environment. The overall industry faced for more trabi year fueled by the trial that's already underway bad.
In Q4 shipments into Asia represented 17% off that fell.
North America represent that thought they'd prefer a Europe represented.
Perfect.
Total direct so represented approximately 24%.
I'm sorry, the distribution was approximately 76%.
Our distribution business remains balanced.
With 55%, probably popeo, where it's coming from the higher gross humor.
Brett computing end markets.
I'm, 45% Coca Cola, PR, where it's coming from the industrial.
Communication end markets.
While bookings declined slightly to open it probably airports.
Picked up the awards are both war.
[noise] thoughts bookings accounted for approximately.
What are 70% of shipments during the quarter.
Q4, GAAP gross margin came enough aspect that 61.1%.
How do we have to break our Q1 gross margin to be relatively flat suppressed Charlotte.
Q4, GAAP operating expenses increased 8% sequentially due to higher pressure that's bad shape.
Share based compensation express our new product that's bad.
In Q1.
Respect gap will pretty much breath to decrease between 8% equipped with that so your question.
Primarily due to lower amortization of intangible.
No I share based comp, especially on express no what percentage basis, no one new product asbestos.
Q4, GAAP interest on all go to express is increased to $3.1 million.
From $1.5 million in Q3.
The reason, but impairments off some of our minority investments.
On the rights helpful. Previously capitalized debt issuance costs from out if I love that.
Q4, GAAP tax rate was approximately 15 diaper effect.
Up from 16% in Q3.
Mostly due to the impact up on in total outfit.
Trust probably between.
The tax jurisdictions.
No. It does that there wasn't no significant cash tax impact from this auction.
We expect our GAAP tax rate for Q1 fiscal year 20 wants to be in the range of 23% to 20, So let's say.
Our GAAP tax rate forecast, its clues consideration off and the impact from discrete I'd say.
Including excess tax benefit thought deficiency from the exercise of stock options.
Moving onto the non-GAAP results, which exclude the impact of share based compensation.
I'm authorization of acquired intangibles.
Acquisition related and other North Dakota charges.
I suspect that Q4, non-GAAP gross margin declined slightly over prior quarter after 50% to 1.5%.
Oh, we expect our Q1 non-GAAP gross margin to be generally flat with Q4 levels.
In fiscal year, 21, and we expect our non-GAAP gross margin to Franklin through the year of demand from our higher margin growth engines recover.
Overall demand improves.
Q4, non-GAAP operating expenses increased 2% sequentially to $53.9 million.
Do you highlight new product asbestos.
In Q1, we expect.
Non-GAAP operating expense to be flat to down 4% suppressed Charlotte.
Mostly due to the timing of new product that's classes.
For fiscal year, it's what you want to respect our non-GAAP operating expenses to increase at the roughly half the rate of revenue growth.
Which is consistent with our target operating model.
In Q4, our non-GAAP.
The tax rate decreased to approximately nine per se.
Reflecting the favorable mix self religion or income.
We expect our Q1 fiscal year put your one non-GAAP tax rates to remain in the form 10%, so 60% range.
In Q4 cash flow from operations increased to 33% off net itself.
Up from 24% in Q3.
We repurchased approximately 546000 shares or $27.6 million off starting Q4.
And approximately a 1.5 million shares or 70.2 million the loss of stock your fiscal year two anyway.
And our stock repurchase authorization now stands at approximately a $110 million.
We expect to continue to use our cash to opportunistically repurchase our shares.
Make strategic investments I'm paid down debt.
Thank you for our cash and investment balance was $293 million.
And our debt balance was approximately a $197 million resulted in net cash position of $96 million.
In Q4 accounts receivable represented 41 days ourselves, which is that the lower end up our target range of 40 to 45 days.
Net inventory was sequentially flat at the 100 on 21 days on the remains above our target range of 9300 days.
In Q1, we aspect.
At the event for it to increase.
Slightly because of the macro driven uncertainties in demand.
In summary.
We were pleased to deliver strong Q4 results. Despite all the macro uncertainties.
Looking ahead, we believed that our secular growth drivers of Hyperscale data center Fiveg infrastructure on Internet of things.
Ill several gross margin.
Oh, well controlled operating expenses.
Our strong cash flow generation.
Now I appreciate capital allocation.
By far the platform for a strong financial performance in fiscal year 21.
Ill now hand, the call over to more on.
Thank you a Mecca good afternoon, everyone I will discuss our Q4 fiscal year 20 performance by end market and by product group.
Discuss at fiscal year 20 performance.
Then provide our outlook for Q1, a fiscal year 21.
In Q4 fiscal year 20, net revenues decreased 2% over the past quarter $238 million.
Softer demand from the industrial and consumer end markets was offset by stronger demand from the enterprise computing and communications end markets, which contributions you better than seasonal results for Q4.
We posted non-GAAP gross margin of 61.5% and non-GAAP earnings per diluted share of 40 cents.
In Q4 fiscal year 20, net revenues from the enterprise computing end market increased sequentially and represented 32% of total net revenues.
Net revenues from the communications end market increased sequentially and represented 10% of total net revenues.
Net revenues from the industrial end market decreased sequentially and also represented 32% of total net revenues.
Net revenues from the high end consumer market decreased slightly over the prior quarter and represented 26% of total revenues approximately 18% of high end consumer net revenues was attributable to mobile devices and approximately 8% was attributable to other consumer system.
Yes.
I will now discuss the performance of each of our product groups.
In Q4 fiscal year 20, net revenues from our signal integrity product group increased 1% sequentially and represented 43% of total revenues.
Stronger demand from the data center and base station segments contributed to the sequential growth.
In Q4 demand from the data center market increased nicely over the prior quarter.
Led by record revenues from our CDR platforms.
Strong demand for at Clearbridge TDR.
Using 100 gig NRG modules was driven by our Hyperscale and cloud customers. We expect this strength to continue throughout fiscal year 21.
Interest in our new try edge Pam four CDR remains very high.
This week, we received our first production order, we're at triage products and we already have numerous customers going through system tests with our latest triage pamfour silicon.
Advantages of analog sample implementations are very clear as a low power lower cost and lower latency provides that datacenter customers with a compelling advantage over existing solutions.
We expect to see at try edge revenues ramp throughout the year and Hyperscale datacenter customers deploying 100 gig 200 gig and 400 gig optical modules that require lower latency and lower power.
The open I must say consortium that was formed to support and promote interoperability of analog CDR platforms has seen its membership more than doubled to 40 plus companies since its founding and includes key chip companies as well as software and systems vendors of next generation Pamfour optical systems.
Our fiber edge PMB devices also continue winning designs in Pam four modules well, we have collaborated with DSP providers to deliver optical module vendors a highly optimized solution.
We recently announced the production of our newest Quad linear 100 gig for channel T. I a platform for 400 gig optical modules targeted at Hyperscale data centers.
Hi Fi bridge products complement our clearbridge and pry edge CDR platforms, which we expect to continue to ramp this year.
Following a relatively weak fiscal year 20 performance, we expect to see much stronger growth from the Hyperscale datacenter market in fiscal year 21.
In Q4 fiscal year 20 upon business declined sequentially.
Semtech remains a leading supplier to the upon market, providing comprehensive offerings for one gig 2.5 gig and 10 gig pawn, although LT and our new systems.
Recent macro events in China have limited our near term visibility, but we expect the ongoing rollout of 10 gig on deployments to accelerate in conjunction with Fiveg infrastructure build outs and to drive growth in upon business in fiscal year 21.
We anticipate a 100% increase in 10 gig on deployments in fiscal year, 21, driven by China, Europe and the U.S.
In Q4 fiscal year 20 demand from our wireless base station market increased sequentially as fiveg infrastructure deployments start to accelerate.
Our clearbridge CDR platforms are gaining solid momentum in the Fiveg market and we have began early shipments of at Clearbridge CDR into Fiveg base station frontal and mid whole optical modules.
We expect both our clearbridge and tranche platforms to gain momentum in Fiveg base stations as Fiveg infrastructure deployment increase globally.
In fiscal year 21, we expect our base station revenues to increase as we expect to see continued fourg spending and a meaningful increase in spending for fiveg, where our market opportunity could triple versus fourg.
The ever increasing demand for higher data rates by Datacenters passive optical networks and wireless broadband networks is driving greater demand for semtech signal integrity product platforms, which is a secular trend. We expect to continue for some time and we remain very confident now strategy and position in our target markets.
Yeah.
In Q1 fiscal year 21, we expect net revenues from our signal integrity product group to decline driven by softer demand across all segments, driven primarily by the impact on the Corona virus. We do anticipate that this temporary demand softness will turn into stronger demand in the second half at this.
Could you at 21.
Moving on track protection products group.
In Q4 fiscal year 20, net revenues from appetite protection products group declined 6% sequentially and represented 27% of total revenues.
In Q4 fiscal year 20, our high end consumer protection business experienced a typical seasonal inventory reductions.
While net Tom smartphone demand has been impacted by macro events the prospects crop protection platforms in mobile devices displays and accessories remains positive as fiveg smartphones integrate higher performance interfaces and more advanced lithography devices.
Our protection business continues to benefit from it successful diversification into key industrial markets, including automotive Aiotv and broad based industrial applications.
In Q4 protection product group announced the latest member of our Calamp platform, a multi line protection array that delivered outstanding protection for a broad range of high speed interfaces and ports in industrial I O cheap and telecommunications applications.
In Q1 of the fiscal year 21, we are expecting our protection revenues to be approximately flat.
Turning to our wireless and sensing product group in Q4 fiscal year 20, net revenues from our wireless and sensing product group decreased 2% sequentially and represented 30% of total revenues.
Q4 was another quarter of strong achievements by our Lora business, We recently announced several new use cases and partnerships that demonstrate the benefits and efficiencies of Mora a few of these announcements in Q4 included wilhelmsen the largest marine network all networking operator on the plan.
Announced the use of 2.4 Gigawatts, Laura to deliver I O T solutions to the maritime shipping industry on both land and see nor will be deployed in ships for predictive maintenance temperature monitoring asset management and asset tracking.
Smart sole network ethnic announced a lorawan network to provide smart parking Smart Street lighting solutions and Geo location use cases in Seoul Korea.
Helium announced a new nationwide Lorawan network in the US that current network supports over 745 cities in the U.S.
And soft an Indian solutions provide up using more to come but order metering solutions to new advanced metering infrastructure, reducing waste and cost while increasing efficiency.
Elm measure up our utility metering developer and cloud pie and maker of long range sensor networks developing new line of prepaid smart meters based on lower technology that tracks and report usage data in real time for precise billing and reduced energy wastage.
These are just a few examples of the many news new use cases introduced during the quarter that demonstrate the value of more technology, and enabling a smarter and more sustainable plant.
In Q4 fiscal year 20 demand for our proximity sensing platform increased as global RF regulations and awareness of the dangers of RF signals continues to increase we expect that proximity sensing business to grow in fiscal year 21, as we see solid design win progress a new fiveg smartphones whether.
There was an increase in the number of high performance radios used.
For Q1 at fiscal year 21, we expect net revenues from our wireless and sensing product group to decrease due to the impact of the Corona buyers.
Moving onto new products and design wins in Q4 fiscal year 20, we released 26, new products and achieved 2184, new design wins.
Now, let me comment briefly on our fiscal year 20 performance.
In fiscal year 20, net revenues declined 13% over the prior years record performance, driven primarily by geopolitical headwinds, which negatively impacted all about product groups.
Fiscal year 20, we had 74, new product releases and achieved another design win record of 9909, new design wins.
Nf why 20 as signal integrity product group introduced several new disruptive platforms that should contribute to our long term growth. These include our try edge pamfour CDR and fiber rich pmdi platforms for the data center and Fiveg wireless markets are 10 gig on platforms and our new software defective.
Fine video a recent platform targeted at the probably the market.
And that's why 20 protection product group continued its diversification into new broad based industrial verticals, including the automotive and biotech markets, where the increasing use of advanced lithography devices are making systems more susceptible to damage from transients events, such as voltage spikes.
In addition, our protection business from US based smartphone manufacturers achieved the new annual revenue record.
The diversifying our mobile revenue geographically.
In Fytwenty, our wireless and sensing product group made significant progress in advancing Semtechs lower technology to be the global defacto standard for the LTE when market.
Our Lora enabled revenue declined approximately 5% to $74 million from $78 million in fiscal year 19, due to lower revenues from China.
However, our Lora enabled Pos group grew by 7% from fiscal year 19, and represented a new Pos record.
Nf why 20 are lower business met or exceeded all the metrics we targeted at the beginning of the year. These metrics included.
One of the number of countries with more networks grew to more than 91 countries from 70 at the end of fiscal year 19.
By the end of fiscal year 21, we expect over 100 countries to have lower networks.
To the number of public or private lower network operators grew to 133 at the end of fiscal year 20 from 101, Nf why 19.
We expect a 150 Lora network operators by the end of fiscal year 21.
The number of more gateways deployed grew 164% from 243000 gateways in fiscal year 19 to 642000 gateways at the end of fiscal year 20.
These gateways are capable of supporting approximately 2.5 billion connected and nodes.
We expect the number of Lora gateways deployed to increased to over 1 million by the end of fiscal year 21.
The cumulative number of lower end nodes increased 55% to 135 million at the end of fiscal year 20 from 87 million at the end of fiscal year 19, we expect this number to continue to grow rapidly and exceed 180 million cumulative nodes by the end of fiscal.
21.
By the lower opportunity pipeline exceeded $500 million at the end of fiscal year 20 within added an additional $200 million of leads feeding the opportunity pipeline.
We anticipate that on average 40% to 50% of this pipeline will convert to full deployment over a 24 month timeline.
Our pipeline remains geographically well balanced with approximately 65% of the opportunities coming from the Americas and Europe and includes a growing number of use cases in the smart home and consumer markets with the volumes could be significantly significantly higher.
And could could drive deployments more rapidly than from industrial markets.
At the end of fiscal year 21, we are anticipating our opportunity pipeline will exceed $700 million within an additional $300 million of leads feeding these opportunities.
We expect the strong momentum in our Lora metrics to continue in fiscal year 21, as the LP when market stops to grow rapidly and as our new Lora technology platforms are adopted.
These new Laura platforms include.
Our Lora Smart home platform designed for LP, when based smart home community and consumer applications, providing low power.
Broad coverage for indoor neighborhood, and Tampa area I O T devices used for safety environmental and convenience use cases.
Our Lora global platform that uses a 2.4 gigahertz version of Laura to enable global used cases, requiring higher bandwidth.
And our lower edge platform, which is a highly versatile and extremely low power software defined lora platform that enables a broad range of asset management applications targeted at industrial building home transportation and logistics segments.
Lower edge platform includes Wi Fi sniffing.
And GPS location features enabling the most versatile LP when geo location platform in the industry.
This platform will also drive our future cloud services business with the first service being a geo location service for asset tracking applications.
Armed with the new platforms, along with increasing influence our momentum of the Lora Alliance, we expect to continue to drive Laura to become the defacto standard for the global LP when market and what we expect to be a multibillion unit industry in the next five years.
For F. Why 21, we are expecting a lower enabled revenues to be between $90 million and $120 million.
Despite the ongoing headwinds in China, and the uncertainties associated with the Corona virus with a positive momentum from our lora metrics and growth in our opportunity funnel.
We continue to anticipate a 40% CA GR, where our lower enable business over the next five years.
Now, let me discuss our outlook for the first quarter fiscal year 21.
While the near term visibility remains challenging.
And despite the ongoing headwinds headwinds associated with China demand, the while we ban and the uncertainty associated with the Corona virus, we believe the underlying demand for our products remains very strong.
Based on our backlog entering the quarter. We are currently estimating Q1 net revenues to be between $125 million and $135 million. This guidance assumes a $10 million negative impact due to the Corona virus.
And assumes no more direct shipments to walk away this quarter to.
To attain the midpoint of our guidance range or approximately $130 million, we needed net turns orders of approximately 27% at the beginning of Q1.
We expect that Q1 non-GAAP earnings to be between 30, and 36 cents per diluted share.
I will now hand, the call back to the operator, and Sandy and mechanized, we'll be happy to answer any questions.
Operator.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation tonal indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset.
For pressing the star Keith one moment, please while we pull for questions.
Okay.
Your first question comes from line of Christopher Roland with Susquehanna Financial Group. Please proceed with your question.
Hey, guys. Thanks for the question, Yeah, just any more details on lower.
What percentage of Laura today is China, and where to peak out I'm just trying to get a sense of how this is diversifying outside of China, China and what gives you confidence in in your outlook looking forward. Thanks.
Well Laura.
Used to be said about 60% of the revenue was from China I think.
It's still close to that it's it's being it's that definitely diversifying now and the opportunity pipeline has as I mentioned about 60, 65%.
Gee pipeline is outside China. So.
That.
Diversification across the different regions is is.
Is happening I would say that though that.
China from being a.
Headwind for us last year.
Continues to actually be quite strong as we look at it now bookings are stronger and I think tighter in general.
May be the first region to kind of over overcome all the corona virus maintenance issues and as we see capacity coming back online that seems to be strengthening the demand in China. So.
No it's difficult to call. The next year will play out, but I think going forward definitely with the opportunities being more geographically balanced I think we'll expect to get a little bit more.
More of a balanced revenue geographically over the next few years here.
Great and then your guidance.
Kind of looks like it's in line with others in terms of the.
Effects from the virus.
You also called out, but this was probably mostly supply chain and less about demand destruction.
Maybe you can talk about the supply chain, what you're seeing there is it upstream downstream.
And also what gives you confidence that that demand comes back.
And that Theres no actual demand destruction. Thanks.
Yes, I would say first of all I don't think yet we've have really seen any major supply.
Chain issues I think whats.
Clear is that.
China as a region.
We're struggling with the grown a virus and with the move outs shift of Chinese new year that impacted overall demand for sure and it's slowly coming back online maybe not somewhere around between 70 and 80% capacity I think so the man fully isn't isn't there yet but all indications.
Prior to the Corona virus was that demand for Q1 was going to be strong.
Still remaining relatively strong I would say bookings have been pretty healthy.
Our tons required is fairly.
Low compared to what we've done historically so.
That will gives us a fairly good feeling and then also when we see the different segments. We plan, we see datacenter strength than we see.
Fiveg infrastructure.
Strength that we see generally.
Infrastructural aerials areas doing quite well plus one would anticipate some type of stimulus both in Asia and maybe in other countries that will again impact infrastructure. So.
Yeah, we're anticipating once the.
The demands environments settles around.
After the current a virus.
Kind of stabilizes, we're expecting the demand to pick up again.
Thanks for the color.
Your next question comes from line of Quinn Bolton with Needham and company. Please proceed with your question.
Hey, guys I guess, just just wanted to follow up on that it sounds like you haven't seen any major supply chain constraints.
Bookings are starting to recover especially in China.
As current virus, there seems to be getting a little bit more under control. So I guess when we look at your April quarter guidance and the $10 million that you adjusted for Corona virus, where did that come from is that you're sort of lost demand is factories were offline or just the near.
Our term demand destruction within the China market.
In the month of February or are you anticipating potential cancellations or push outs or.
Something in the March and April order book that you may not have seen yet, but you are just being conservative and yelp.
Yes, well, allowing for some potential push outs or cancellations over the next couple of months and then I got a couple of follow ups.
Yes, Quinn, it's a little bit of everything you said actually it's some some.
Some data points to suggest that some of that.
Upon tenders and proof of concepts and Laura being slightly pushed out. So so we see a little bit of push outs of those we haven't seen any cancellations or.
Revenue demand push out so we are a revenue for shells we've seen.
More indications that things are just kind of.
Being delayed clearly there's some softness.
As I said because of Chinese new year was delayed and some delay in just bringing up capacity.
In China, so that impacted it and clearly there is some nervousness and uncertainty around the grown a virus.
Around the world and so I think all of those.
Kind of.
Gave us up food for thought as we were planning our Q1 number and we anticipate kind of approximately a 10 million dollar impact.
Which is reflected in our numbers.
Great and then just wanted to switch over to the.
The datacenter market it sounds like you're you're expecting to stronger year in fiscal 2001, just wanted to confirm that.
Her that correctly.
Following up on the try edge sounds like you get your first production order so congratulations on that.
Just wondering as you look through fiscal 21 for try edge to does that ramp to any kind of meaningful level I mean could it be.
Few million Bucks a quarter by the ended the year could it be larger or is it kind of a slower ramp any any sort of magnitude of how quickly you think that that business takes off could be would would be helpful. Thank you.
Yes, when the actually the NRC CDR is as I mentioned, we're still that's doing extremely well, which suggests to us that the probably the Pam four stuff will.
It'll be a little bit slower, but I think one of the compelling.
Value propositions, all try edge is the low power lower cost. So a lot will depend on how fast the customers want to transition I think.
So, but we had planned on a strong us kind of second half. So maybe 3 million 4 million in the and the second half Yep.
The gear and then really ramping up next year.
Great. Thank you.
Your next question comes from line of Karl Ackerman with Cowen and company. Please proceed with your question.
Good afternoon, gentlemen, two questions if I may.
Yes, I know you guys don't want to go out in the Lam and talk about a preliminary guide for fiscal 2001, but.
I'm curious to the extent you could comment or willing to comment it's too early to suggest that you can grow topline this year just given the.
Strong growth opportunity across Laura.
And your data center business.
And despite your view that Opex will grow halfway to sales I guess, how flexible can opex b.
In the event growth turns out to be a little bit lessen your current expectations have a follow up.
So let me take the revenue one in their Mecca can talk about Opex I mean, if we look at across our portfolio datacenter I expect to still grow this year. It comes off a relatively.
Like in fiscal year 20, we're expecting 10 gig pawn to grow.
This year, mostly driven by China, but other regions as well so that's our anticipation it may or may not be as fast because of the corona virus in the first half so but I'd expect second half the Shaul Fiveg infrastructure, we know is being pushed out there.
Once in every region the world and so we're expecting base station infrastructure up to to grow versus last year again. The timing is is the quick question.
Then of course, if we look at our OTI business and Laura Thats.
We still expecting that to grow we have the pipeline and Laura remember many of the use cases are really.
Energy efficiency productivity improvements cost reduction kind of approaches.
Even smart health kind of.
Segment, So lora should should in many ways still be able to grow I think.
[music].
Regardless of what what transpires at least from an annual standpoint, and then not protection business. As you know we are slightly diversifying that business diversifying both in the mobile area geographically and industrial.
Area and so we're expecting that to also do reasonably well if the general macro does well and distributors replenish on the inventory at least again in the second half.
And so pretty much across the board we are seeing all of that product groups. We're expecting growth of course, a lot depends on what transpires over the next.
Quarter here with the Corona wires indications are that in China things are improving and certainly we're seeing that from a demand standpoint, how sustainable that isn't how over what period of time.
We'll just have to wait and see but the moment I think over more positive than negative on it.
Okay. So call with regards to reopen in us both as one of the things that we've actually been able to do very well into historically if.
My message, our operating expenses and Atlanta with water popularity of grower.
Another key favorite I've always tried to call investable cash registers that about 20% of operating this process is variable. So we do have a few opportunities that would get.
Merger lets you know depending on what's going on water topline, having said that go we really very excited about some of the growth opportunities that we have within the company.
Yes, mess, we're making in those areas and so.
We still believe on years, but guess what is that those growth drivers, Florida set to come to fruition right here and.
There wouldn't be any needs to pick any drastic actions with regards to operate asbestos.
I appreciate that Mohan and then okay. Thank you for my follow up if I may.
Double click on certain protection for a moment.
Are there new opportunities you see growing certain protection and proximity sensing beyond your key South Korean OEM you had mentioned on prior calls design wins around wearable. So just curious if any updated thoughts there. Thank you.
Yes, all we actually that's been a strategy allows for a while we want to see being strong in Korea for some time, but a few years ago. We made a conscious decision that we're going to really go aggressively tried to diversify.
Good.
Smartphone business in China smartphone business in North America.
So many sensing business as well as protection business in these areas and then look at smartphones and Wearables and accessories, and and I would say, we've been successful or not with all of those strategies I mean, if I look at the business today, we have a fairly balanced.
Geographical.
Spread of.
Protection in mobile devices and career in in China, and Asia and also in North America.
You asked specifically and then also proximity sensing where it used to be just Korea is also starting to now spread it's up wings into into Asia and into other us.
Manufacturers and not only in smartphones, but also in Wearables as well. So yes that is a strategy continues to be a strategy and we are being quite successful that's running.
Your next question Jeff. Your next question comes from line of Tories Vandenberg with Stifel. Please proceed with your question.
Yes. Thank you Mr. little housekeeping I think you mentioned, 27% turns or where does that number today kind of one of them. We're in a month since before the.
Tony We can give you that number but what I can tell you is that the bookings have been pretty strong and we feel very good about where we are.
Okay. So it's not like you've seen strong bookings at the beginning of the quarter and those are now tailing off new tenants correcting steady linear bookings, okay. All right. Thank you.
Second question on on Laura So you gave us all the metrics for the fiscal year. Thank you for that by the way litigated information.
It just seems like all all in all the categories. There's there's growth obviously your revenues did not grow so.
Can you just talk a little bit about that I mean is this because of certain China customers going to MBS royalty or.
Well, what doesn't understand a little bit why why youre business, while down wall.
Structure were up for the year.
Yes, I think part of the thing you have to remember.
This is why I mentioned that Tory, our Pos did grow some percent so and thats it thats.
Really the measure of deployments of end nodes right. So our revenues when we ship them. We may camera revenue when we ship industry distribution, but it has excess channel.
Inventory and or something like that then we may not to you may not get the full picture. So that's one thing to remember the second thing to remember is that the reason I give out all these metrics is to indicate momentum and momentum is really the indicator of future revenue when you look at.
How many gateways deployed use cases, how many nodes are being deployed or how many countries are different being deployed the assumption is that.
Customers are going to.
You know deploy once they come completed a proof of concepts and they go to full implementation, they're going to deploy more and knows and more devices and that will drive revenue. So the timing of the revenues is quite challenging for us, especially when.
We had like we did last year, one region of the World like China. Initially early in the first I'll, just just really struggled and kind of it was difficult to catch up in the second half of the year. We don't think that will happen. This year, we think thats is going to be little bit more stable.
And.
We are projecting reasonable growth this year and beyond.
Very good just one last question.
Sure.
Type on revenue increased 200 million year over year.
I was just hoping you could talk a bit about the mix of that 200 million again from a geographic perspective that I do I do appreciate that.
There is a much higher percentage outside of China, but if you could add over there more color on North America versus you asked versus other countries. The citigroup.
Yeah.
Let's see so I would say.
About 30% is Americas that includes.
In North America, South America.
Now 36% is Europe.
And then the rest.
Is 11% about 11, and 12% is a is rest of Asia, and Japan Korea, and then about 23% is 25% is China something something like that those are approximate figures for you, but that will give you an idea of the opportunity pipeline.
That's really helpful. Thank you.
Your next question comes from line of Gary Mobley with Wells Fargo. Please proceed with your question.
Hey, guys I guess, it's probably were saying congratulations to strong finish the year and.
And perhaps a better than tiered start to its current fiscal year 21. My question relates to your your turns business requirements embedded in your and your first quarter guidance.
Yes, my calculations correct, you're assuming Buckley.
10, $12 million and lower turns requirement for the embedded in the in the midpoint of the revenue guide and I'm assuming much of that is related to walk away. So my question is.
Did you generate any turns business from while way in the just for the fourth quarter and what's sort of a best case scenario in terms of what you can actually shipped away based on the current restrictions.
So I remember Gary So our guidance assumes no more shipments to walk away. So we don't need any more tons into one way to get.
To achieve our number sure having said that having said that I think we plan on shipping every quarter about 10 million.
To to walk away.
I think thats, what we did last quarter.
My math about M&A last quarter and.
It's a mix of all the different products and.
Obviously, it takes into consideration, what we can and cannot shape and if they if the restriction is in.
Further squeezed to than we have to relook at it but that's the reason why.
As we give out our guidance I've made the decision not to to communicate that we don't need any more tons from one way to make our number.
So.
Because we just don't know exactly what's going to happen with the restriction.
Bars were concerned we're just assuming that the restriction will continue as it is.
Gotcha, Okay and.
Did I see a roughly $2 million restructuring in.
The non-GAAP reconciliation in and what does that relate to that of an actual head count reduction or you refocusing your investment and perhaps a different area.
No no is a bit to has mostly to drill with.
An actuarial valuation of our defined benefit obligations under fee on a phase but are there was no restructured and it comes off letting people go and stuff like that going to come during the quarter.
Gotcha, Okay. Thank you guys.
Your next question comes from line of trusting Gara with Baird and company. Please proceed with your question.
Hi, good afternoon.
Club, the 10 million impacting the current quarter guidance.
China is that pretty much head of state it across all the businesses you have in China.
What would you say.
The majority of that is actually related to lower and any general habit should see step back. Thanks.
The situation in China is impacting you.
Revenue coil assumptions follow our that you did this fiscal year.
So interest in the $10 million is really a corona virus impact and I think it actually majority of it is.
Impacting our signal integrity product group at least 40, 60% and then maybe the rest of it is split between our protection our wireless sensing business. So it's it's a broad.
Impact that we've estimated there.
And then the second part of your question is we believe that.
More enabled business is going to do very well this year in China is it's going to come back and already we're seeing indications are that it may take.
The first quarter as I mentioned because of Chinese new year, and because some companies are not coming back at full capacity in China.
And because some of the proof of concepts are definitely going to be delayed because of that and just.
Travel and people not being able to move around in China as much is going to push out some of the.
Activity, that's why I mentioned that proof of concepts and some of the new tenders and things like that may be shifted but I don't think it changes the underlying.
Demand or the need out there and so thats why we feel that any.
Loss of demand in Q1, probably will pick up assuming things get back to normal we picked up in the second half.
Okay, that's useful and then.
As my follow up question Youre.
Quarter guidance.
What changes in distribution inventories are you assuming if any are you assuming that inventory stay flat or.
On the on a relative basis at Disties or is your assumption for point of sale different from what's embedded in your guidance for Disties.
No I think it's same assumption pls has been doing quite well as I mentioned.
Certainly for Lorenza grow it grew last year, and so thats a positive sign.
The one thing to remember is if the supply chain.
Impacted by Corona virus.
And we can't get enough material lead times.
Extend out.
I would expect our us to try to actually increase our inventory levels. Both internally and then our channel but at this point in time I don't think there's any reason to do that I think at the moment, we would expect the same type of.
Pos and channel inventory numbers.
Great. Thank you.
Your next question comes from line of Craig Ellis with B. Riley FBR. Please proceed with your question.
Yes, thanks for taking the question guys. Thanks for all the information on the comp regarding lower and the other businesses and Mohan I just wanted to start with a question up with what floor.
First just asking about them at the midpoint of this years revenue said 105 million.
As you've talked about the business potentially picking up some high volume design wins do you.
Do you forecast that any of that type of revenue conversion would be in the 105 million or how do we think about when some of those higher volume wins might hit.
Yes, we're anticipating higher volume.
And of home consumer wins to be more second half.
Craig and really the not yet I think.
Heavily in the numbers, so I would say that theres upside there but.
The current numbers this guidance assumes a continuation of the good progress in most of the smart metering Smart building smart.
Recall that.
Kind of more.
Longer term.
Kind of use cases, and industrial loyalty and things like that so it's still pretty good growth, but obviously, if smart home and smart consumer starts to.
To play and then that could impacted and certainly we believe that in the second half Wallace will start to be able to see some of that.
That's helpful. And then the second question is really about the endpoints in the range. So at 90 million sales would be up about 16 million or 22% at the 120 46 million or 62% year on year.
As we look at those endpoints what are some of the bigger swing factors from blow into high end is that macro is it some of the high volume items before macrocure can just help us sort that out that would be quite helpful.
The macro.
I don't think really plays into other than if theres a.
I really a really big shift in something like like we saw at China.
First off of last year.
I don't think that.
Such a huge impact I think the bigger impact is in conversions running the PEO sees the proof of concepts that the pipeline that we have that which is fairly fairly substantial it's converting those into into.
Deployments and.
Real revenue and we've already seen that that can be pushed out sometimes and obviously with the krona virus and things like that we we are seeing a little bit of up.
Delay in some of the proof of concepts and things like that so I think thats, probably the bigger impact.
Then.
Over anything else at the moment.
We just have to wait and see how it plays out but certainly in the second half we're anticipating that most is up.
The kind of macro issues would have gone away the corona virus, hopefully, we'll be stabilize at least that by that point and I think we should be in.
Good shape to see kind of a return to regular no what we consider normal growth for our I O T business and more business.
Thank you and then a couple of clarifications from Mecca Mecca regarding the.
The new product impact on Opex in the fiscal fourth quarter was that mass said service that was that something else can just clarify what's going on there.
Yes, but it's mostly has to do with just the timing off yet where we set that last fall for tech cost there. So it had to do mostly within mask.
Effects.
Great and then with regards to gross margin and I think you'd indicated from the first quarter you'd expect gross margin to rise to the year can you provide some further color.
Giving us a sense for the magnitude of increase that's possible and and it seems like signal integrity and integrity should build quite strongly through the year.
Is that really the primary variable or would it be the degree to which floors either at the low end or the high end to the range or other factors. Thank you.
So what we're looking at a gross margin in March really excited about it because when I look at the growth of drivers that we've talked about you've talked about Laura will talk about in data center, even within portfolio. We've talked about industrial applications I was hoping to see a lot of growth out of that for protection. So all of those.
I think that as opposed to ask about helped drive gross margin expansion. The only thing, though we have a headway into for gross margin, especially if you're will is the fact that overall demand is at lower levels. So we have some manufacturing at Britain print operations group. Some so fixed expenses that we have two.
So my expectation would be about a combination of more revenue from a growth drivers and then see.
In our overall demand coming back that should be pretty good for our gross margin fast food. The exact number at this point I'll, probably expect us to ignore to head more towards the 62% and hopefully.
But in haptics proceeded with what we might actually exceed go above 62%.
That's helpful guys. Thank you.
Your next question comes from line of Mitch Steves with RBC capital markets. Please proceed with your question.
Hey, Thanks, So two questions. The first one just clarify just on the guidance for the $10 million.
To be clear about what's what's in there or is that entirely China are you guys, making an assumption that.
Thats, some demandware road and other geographies outside of China.
Yeah Thats the.
Total that's the global picture, so it's not just China.
I would say that because China was the first to be exposed to the Corona virus. The impact is it's more easily measurable because they delayed new year by a week and that's been taken time for their capacity to come back online, whereas other regions haven't really been impacted yet and I think thats still potentially to come but I.
I think across the board what we've seen is 10 million is about right number for our Q1 demand.
Okay and then the second one is just on the overall kind of full year I realize you guys talk of guide a four year, but.
How do you are you guys thinking about the smartphone shipment environment now for calendar year.
20.
Yes, that's a smartphones is a tough one metric, mostly because we're actually quite optimistic that.
The the changing work landscape as people become more mobile and maybe do less social interaction will drive a need for more.
Devices, particularly phones and tablets and Pcs and that type of stuff. So and currently the demand looks looks fairly healthy from what we see so.
We are getting more positive I think I'm not only.
The device mobile devices smartphones, but also on kind of other peripheral wearables and accessories and that type of thing.
Perfect. Thank you.
Your next question comes from line of harsh Kumar with Piper Sandler. Please proceed with your question.
Yes, Hey, guys. Thank you for squeezing me in.
Two questions couple other companies that have sort of pre announced that talked about demand in China.
Going back to normal levels, our peak around our wise. So as I was curious if you have also seen that I've got another question on Laura.
Yes, I would say harsh that it's definitely improving I'm not sure I would say it's back to pre.
Buyers levels, but I, but I think it's it's improving bookings are strong indications are strong indications of.
Potential stimulus is also therefore infrastructure and as we know typically when China invest in infrastructure. It's normally advanced technology kind of stuff. So we'd expect to fiveg and pawn and datacenter and Aiotv and those type of things to get up the.
Heavy influx of monies and so that would be helpful. But yes, I would say that it's.
It's improving remember the Corona virus.
Impact.
The Chinese just coming out of that I mean at least get improving and so they're not back at full capacity, yet and I think thats important to understand so I don't think that demand levels are quite what they were.
I would say their best 70% to 80% of the moment.
Okay, and then Mohan. Thank you for all the color you gave on Laura by funnel type.
Maybe to talk about what kind of applications youre seeing a pickup and expect to see a pickup in this year wouldn't it be mostly consumer or would it be most industrial and is this the year calendar year call. It 2020 that we see the U.S. inflection.
Yes, so the use cases, I think I still more in metering smart building smart environment.
Smart water industrial OTI kind of applications Harsha moment, but the pipeline of opportunities we have.
Suggest to that.
We're going to add to that very quickly in the.
In the smart home area.
And I think thats predominantly a U.S. driven.
Segment, Southern Europe, and then I thinks supply chain logistics.
Smart logistics, which is predominantly a European driven.
Region.
Dryer Europe is the major driver for that segment.
And then smart city, which is fairly broadly spread so encouraging thing about Laura really is it it really truly is a geographical.
A true global technology, we see use cases across every single region.
Including likes of rest of Asia, and Australia, and Taiwan, Malaysia, and Singapore, and so very very broad range of applications and a very broad.
Geographical base so.
And that's part of the goodness about the opportunity. We have of course, there are some really big opportunities that will be the catalyst and as I mentioned before when they happen I think you'll you'll you'll see the impact of it but at this point in time I would just say that they are now more us based.
Thanks Juan.
Your next question comes from line of Hamid course course on with Vws Financial. Please proceed with your question.
Hi, this is.
Thanks for taking my question.
First one I you were mentioning the Laura growth out of China was wondering if you could provide some color on what the growth looks like outside of China right now.
Moral growth outside of China is looking positive I think it was I would say that it's it's relatively small depending which we do you look at but China is still the biggest revenue driver for Laura.
And so thats why I focused on it but yes across the board I would say Laura is still doing quite well from a.
Gateways deployed standpoint from a number of networks deployed.
Type of use cases were seeing the opportunity pipeline as I just mentioned is very.
Broad geographically spread in fact, if I take out China is about 23% to 25% if you take out China. The rest of the 75% is spread across the different regions with Europe being the second largest region and then.
Americas, and then rest of the rest of Asia.
Okay. Thank you for that and then the next question.
You've been saying about how.
Your seem to recovery in China, I'm, just curious what youre seeing outside of China had only in America and in Europe and general.
The last few days and.
Yes.
Well.
Outside China, I as I say, I think it's a little bit difficult to call what demands what's what can happen when demand.
We don't see a slowdown in datacenter market at the moment, we don't see a slowdown in I O T.
But I think that.
In general the us in Europe.
Just kind of getting to grips with the Corona virus and so we may see some softness there I think and that's kind of why we guided.
Taken out $10 million about Q1 guidance is really to to try to ensure we encompass any of that because there will be some we don't know exactly how much right.
Okay. Thank you very much.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks.
In closing our fiscal year Twentytwenty proved a challenging year for Semtech, we believe the strength of the secular drivers behind our key growth engines remain intact, we enter fiscal year 21, with a number of exciting new product platforms targeted at the data center Internet of things and mobile seconds given out.
Diverse product offering balanced end market approach and strong customer relationships, we expect to see another strong financial performance Fytwenty one with that we appreciate your continued support of Semtech and look forward to updating you on next quarter. Thank you.
This concludes today's conference you may now disconnect. Thank you for your participation and have a great day.
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