Q2 2020 Silicon Laboratories Inc Earnings Call
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Good morning, My name is Nick I'll be your conference Operator day. This time I'd like to welcome everyone is looking labs second quarter fiscal 2020, <unk> earnings Conference call.
I'll like to turn the call over that Mr., George Flame director of Investor Relations and International Finance George. Please go ahead.
Thank you Nick and good morning, everyone.
Touching total Chief Executive Officer, and young Hollister, Chief Financial Officer on todays call.
It will discuss our financial performance and review our business activities for the second quarter. After prepared comments, we'll take questions.
Our earnings press release, any accompanying financial tables are available in the Investor Relations section of our website Www Dot celebs Dot com coal is also being webcast a replay will be available for four weeks.
Our comments today will include forward looking statements subject to risks and uncertainties. We based these forward looking statements on information available to US as of the date of this conference call and assumes no obligation to update these statements in the future. We encourage you to review our S. T filings, which identify important risk factors that could cause actual results could differ materially from those.
Contained at any forward looking statements.
Additionally, during our call today, we will refer to certain non-GAAP financial information a reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release, and then the Investor Relations section of Silicon Labs upside I.
I would now like to turn the call over to Silicon Labs, Chief Financial Officer, John Officer.
Thanks George.
Revenue for the second quarter ended strong $207.5 million near the top end of our guidance range.
Add up slightly year on year.
This was down on a sequential basis for Q1, which as a reminder, was a 14 week quarter.
Q2, I O T revenue was $115.1 billion, which was stronger than expected primarily due the upside demands of microcontroller products.
Revenue from wireless products was inline with expectations.
Infrastructure and automotive revenue was $92.5 million, which was slightly better than expectations for the quarter.
In particular revenue from timing and other communications products were strong and the up sequentially from Q1.
Partially offsetting this strength was a decline in revenue from broadcast products due to a week automotive market and they declined and consumer market based on some customer build ahead that took place on the first quarter.
By end market communications revenue was up sequentially.
Revenue from the automotive consumer and industrial markets was down from Q1.
Looking at sequential revenue by geography results were mixed with second quarter, APEC revenue up, whereas Americas in Europe revenue with Dell.
Our percentage of revenue from distribution was a record at 81%.
Distributor inventory days declined by one day to 53 versus 54 in the first quarter inline with our target range for distributor inventory.
Non-GAAP gross margin for the quarter ended up at 61.4%, which was slightly above expectations based on the strong product mix in the border.
Non-GAAP operating expenses were favorable in the quarter.
At $90 million, which was better than expected.
During the quarter, we have lower spending on medical claims due to the carota virus shutdowns, especially during the month of April.
We also had lower than expected spending on new product development.
Non-GAAP R&D expenses were $52 billion Sq inexpensive were 37 million.
Non-GAAP operating for Q2, non-GAAP operating margin for Q2 ended at 18% up 260 basis points from Q1.
Non-GAAP earnings per share were 74 sets, which was above the high end of our guidance range due to upside revenue strong gross margins and favorable operating expenses.
The non-GAAP effective tax rate for the quarter was approximately 13%.
On a GAAP basis gross margin was 60.9%.
GAAP R&D expenses were $71 million and GAAP SGN expenses were 48 million.
We reported a GAAP loss per share of four cents for Q2.
Stock compensation expenses for the quarter were $14 million.
Amortization of intangible assets were up in the quarter to 11 million, reflecting the increase from the acquisition of the connectivity business of Red Pony signals.
Turning now to the balance sheet, we ended the second quarter with cash and investments in $729 billion.
During the quarter, we issued $535 million at new convertible notes with a five year term maturing in 2025.
The 2025 notes have a coupon interest rate of 0.6% to 5% and a conversion price of approximately $123 per share.
As of the case with our 2022 nodes. The new 2025 modes are also provisionally callable after three years.
The use of proceeds with this new offering was largely to refinance our outstanding debts, including fully paying off our revolving line of credit balance, which was $310 million at the end of Q1.
We also used a significant portion of the proceeds from the 2025 note issuance to retire around 60% of the existing 2022 nodes.
Our GAAP reported debt balance at the end of Q2 was $572 million and this entire balances long term.
Underlying par values are now 163 million from the 2022 notes and $535 million from the 2025 notes for a total of $698 million.
The remaining balance of 20 to 22 notes may be settled at maturity upon exercise of the provision will call.
Through open market repurchases or through a combination of these steps using cash issuance of common stock or a combination of cash and stock.
Now having completed these various transactions our balance sheet is very strong from a liquidity perspective.
Our accounts receivable balance for Q2 declined by about $4 million ended at $70 million representing days sales outstanding of 31 days, which was stable from Q1.
Inventory ended up about 2 million to $70 million, representing turns or 4.6 times better than expected and in line with our working capital objectives.
Cash flow from operations was strong with the first half of this year, but approximately $100 million year to date.
Before I cover guidance for the third quarter I'd like to provide a brief update on the convert corrado virus and its effect on our operations.
The health and safety of our employees their family and our communities the dark top priority.
We remain at or near 100% work from home posture in the United States and will convince we'll continue to do so based on the status of Reopenings around the country.
Our global workforce outside the us has begun their transition to phase two or phase three of reopening depending on the jurisdiction.
In all cases, we're at a minimum following the direction of local and National health authorities.
We have a long history of global remote collaboration and this has served us well during the pandemic.
The semiconductor industry has been deemed and essential business and we have been able to safely conduct operations on site for certain engineering activities.
Our flexible phablets business model positions us well to effectively deal with a pandemic and our supply chain continues to be resilience despite global uncertainties.
Now I will cover guidance for the third quarter.
We expect revenue for the third quarter to be in the range of $208 million to $218 million with Io teed up on growth in wireless.
And the infrastructure in automotive Dell.
We expect non-GAAP gross margin to be approximately 60.5%.
We expect non-GAAP operating expenses to be $92 million and our non-GAAP effective tax rate to be 11.5%.
We expect non-GAAP earnings to be in the range of 67 to 77 cents per share.
On a GAAP basis, we expect gross margins to be approximately 60%.
We expect GAAP operating expenses to be $118 million and GAAP results between a one cent loss per share to a nine cents earnings per share result.
I will now turn call over to Tyson Tyson.
Thank you John.
Second quarter revenue was at the high end of our guidance range clearly the global pandemic has and will continue to impact the way people live work and play.
We are well positioned to execute our strategy and I are te connectivity in internet infrastructure in light of recent trends in the market, which we see accelerating as the world moves even faster to becoming more connected.
The pandemic has led to increased demand for many of our products with the need to stay connected through this and present precedented time.
Indicating the strength of our broad product portfolio and diverse customer base.
Design win activity remains strong in particular I'm very pleased to report that we've seen excellent market reception for our secure Bluetooth 5.2 associates. The BG 22, which was announced in January the BG 22 is experiencing among the highest levels that product adoption and opportunity pipeline growth we've ever seen.
In the six month since entering the market, we have identified over $1 billion and new opportunities with a wide range of applications and consumer medical and smart home applications.
I'd also also like to take a moment to talk about the effectiveness of our marketing efforts, which have adapted quickly to the pandemic.
While we are up we were already in the process of evolving our go to market strategy and programs through an expansion of our digital marketing efforts covert night teens impact on business travel and remote work has accelerated this developed.
In person customer engagements and and events have gone virtual and the results have been positive for our business.
Thousands of customers are spending dedicated time in virtual environments learning about our products as opposed to hundreds in prior in person engagements.
Our virtual BG 22, workshops and tech talks have been very popular and with more attendees repeat views and more accounts engaged than in person events of this nature.
The world was already becoming more connected whether its smart home smart retail smart medical or wireless industrial infrastructure technologies. The global Battle against Cobot 19 has accelerated this transition and made it abundantly clear that the technologies necessary to enable connectivity.
Our more important than ever.
Our strategy and products are well positioned in light of the strength Silicon labs offers the broadest portfolio of wireless connectivity solutions for the Io tea in the industry, our products are enabling enabling measure the connectivity and experiences people have increasingly come to rely on a daily life.
Our internet infrastructure businesses also enabling broadband suppliers to meet increasing demand for communications bandwidth.
One specific application of our I O T portfolio is the retail sector, where substantial changes to how we shop, we're already underway before social distancing and other measures.
Retailers are accelerating investments and implementations of smart retail technologies, which are now affordable effective and reliable enough to be deployed at scale at large footprint retail environment delivering value added benefits for retailers and consumers.
Silicon labs products, our powering electronic shelf labeled enabled with remote dynamic pricing intelligent merchandise security tags that push product features and promotions to shopper smartphones real time indoor asset tracking using Bluetooth angle of arrival technology precise tracking and location of inventory and.
Personnel and the ability to purchase products via smartphones without needing to wait in checkout line.
These and other Io t. enabled implementations in our portfolio are helping retailers shift more effectively to an omni channel commerce strategy, while delivering efficient value add contact with environments for shoppers and store staff.
Our I O T. In isolation products are used widely in ventilators glucose monitors pulse oximeter is another medical application.
Consistent with our core values, we have prioritized support for these customers to accelerate deployment of these critical devices in light of the urgent global fight against coated 19.
None and medical is using one of our Bluetooth low energy modules in their 30 to 30 pulse oximeter, helping doctors and patients detect cobot 19 early and managed care remotely.
Connected pulse oximeter is like known and 32 30 send and receive data to doctors from patients in the and the comfort at our home.
Helping to free up space in hospitals and health care centers.
The medical device industry is becoming a more connected part of the Aiotv and we are pleased to see our silicon to software and solutions provide real value across a range of health care applications.
Our recent acquisition of Red kind signals and they are impressive Wi Fi portfolio and IP.
Hi, Fi products, and IP portfolio, especially Wi Fi six is the latest example of our commitment to expanding our position.
All right.
Going to pick up for Tyson here.
Statement is.
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Our recent acquisition of Red Pine signals in their impressive likewise product and IP portfolio, especially Wi Fi six is the latest example of our commitment to expanding our position as a leading provider of silicon software and solutions and Aiotv.
We have generated an opportunity pipeline for red line products that have already over $500 million and less than one quarter after closing the acquisition.
Going into the transaction, we sense strong customer demand, which has confirmed by the strong opportunity pipeline.
Our new Hyderabad, India Design Center is an important pillar of our slab port auto strategy as we continue to drive towards greater simplicity and scale.
We significantly increased our design head count with the acquisition, while maintaining discipline in our operating expenses.
We will continue to scale, the Hyderabad design center and look forward to expanding the team beyond Wi Fi Bluetooth into our other core growth businesses on operations.
Silicon labs have spent more than a decade, earning a reputation as the leader and proponent of multiple wireless protocols, which are enabling and unifying the internet of things.
We lead the industry in Zigbee and Z wave solutions, and we will continue to embrace some support open standards as evidenced by our decision to open the Z wave standard to all silicon and stack vendors this year.
We look forward to the community building on the existing interoperability backwards compatibility us to security framework easy installation with Smartstart and low power functionality of the way.
At the end of 2019, we joined the connected home over IP project known as Chip a working group originally formed within the Zigbee alliance, including industry leaders, such as Amazon, Apple, Google NXP, and Silicon labs as well as many other companies.
In the smart home ecosystem.
Chips mission is to develop and promote the adoption of a new royalty free connectivity standard to increase compatibility among smart home products with security as a fundamental design tenants.
We strongly support this initiative, which will simplify development for royalty device manufacturers and increase ecosystem compatibility for consumers everywhere.
In the second quarter, we joined Whitestone alliances board of directors.
Why Sun is an open standard which is what which is widely deployed for long range mesh networks and utility smart city infrastructure and industrial Iot applications, effectively enabling developers to extend wireless connectivity across many miles or kilometers of distance.
Why Salon also offer significant advantages versus other LP when standards given its scalability in multi multi vendor interoperability.
We will leverage our seat on the wise on board of directors to help accelerate the global adoption of this build proven industrial Aiotv wireless standards.
In May we announced a new line of energy friendly power management IC, serving a dedicated companion chips for our Fr 32 wireless devices and DFM 32 Microcontrollers.
The SP over one PMIC family provides a flexible system level power management solution enhancing the energy efficiency of battery powered applications, including LTE sensors asset tags smart meters home and building automation security and health and wellness products.
Turning toward infrastructure and automotive, we saw high sequential and year on year growth in our timing and access products as well as strong year on year growth in isolation.
Timing had record revenue driven by growth in all three strategic markets Communications wireless infrastructure and data center.
Timing also had a record quarter for long term design wins led by strong adoption of Silicon labs solutions in Fiveg wireless infrastructure.
Isolation had a strong quarter in the broad based market, particularly in China with both strong revenue and design wins.
Our infrastructure and automotive products are well positioned to capture increased market share and help solve problems and networking and health care applications that are increasingly important as the pen Pembina continues.
With many companies committed to extending periods of virtual work increases in bandwidth demand are accelerating.
Our timing in isolation products are being used in data centers and networking equipment to deliver increased bandwidth around the world.
Okay.
Over the past few years, we have expanded our timing portfolio from core and metro optical networking markets to address adjacent opportunities in wireless infrastructure industrial datacenter and automotive markets, which combines now represent more than 40% of our overall time of revenue.
The success of this strategy combined with accelerating bandwidth demands is reflected in our strong timing revenue and design wins.
The market for our isolation products is growing annual particularly in solely of solar industrial handled electric vehicle applications, which is the fastest growing segment of the automotive market.
We are well positioned to compete by offering advanced digital isolation, and superior integration, which improves the performance of footprint of systems.
Turning to our leadership team I am happy to welcome our new Chief Information Officer.
The ruler out of the Jello to Silicon labs.
As CIO Karuna now overseas it services for Silicon Labs Globe Global business operations, including strategic planning business application platforms, cyber security and service delivery.
The roadmap brings more than 20 years of progressive leadership, and strategic planning IC management and process improvement.
As part of our slab Board Auto initiative.
The winner will play a lead ROE and accelerating silicon labs efforts to simplify and streamline and scale our business for the VIP systems that touch every part of our company.
These systems enabled a rapid affected pivots your remote work and we will continue to bolster our IC resources moving forward to ensure our ability to execute a secure.
Our strong second quarter revenue performance reflects our agility and continued focus on our target markets and I would like to extend the leadership teams praising gratitude to all our employees partners customers suppliers and key stakeholders for pushing forward during during these unprecedented times.
I'm extremely pleased with how we have all work together to stay focus and in some ways of learns to more efficiently achieve our goals.
As we entered the third quarter, we are preparing to launch a number of new products and developer tools across our business extending our broad connectivity portfolio and leadership and Bluetooth Aiotv device security Wi Fi and timing solutions.
This concludes our first products implementing our secure vaults technology.
Secure vault is a new suites of security features that sets a new bar forgiving Io GE device makers state of the art tool to effectively meet escalating iOS key data privacy and device security challenges as well as adhering to evolving regulatory mandates.
Finally, we will be hosting our first ever works with Smart home developer Conference September 9th and 10th.
Works with is a two day virtual event, we're smart home developers will learn how to connect our platforms devices and protocols to work with ecosystems front from industry leaders, including Amazon.
Apple Homekit, Google Samsung and many others.
For works with conference features a number of keynotes panels hands on workshops and technical sessions led by engineers shaping the future of smart home technology.
Registration is free and available at works with Dot Sellouts Dot com.
We hope you will join us.
I also want to take a moment to acknowledge the turning point in history, we are seeing around the fight for in quality and racial justice.
The silicon labs inception, our corporate values have embraced diversity equity and inclusion.
Success in this important area requires sustained momentum.
We are committed to deal for us were positive change.
We are thinking about how we can build not only a smarter more connected world, but a more diverse equitable and inclusively.
Our company our industries and our communities are at their best when bright lines from every part of our society have the opportunity to contribute and succeed.
Thank you for your time and attention before we take your questions I'd like to turn the call back to two George.
Thank you John before we open the call for the question and answer session I would like to announce our participation.
And the Keybanc capital markets future Technology series on August 13.
And cities 2020 Global Technology Virtual conference on September nine Boes using virtual platforms.
Now, let's open the call it to questions to accommodate as many people as possible before the market opens we ask that you. Please limit your questions to one just one follow up.
Yes, the Tyson I apologize for dropping off I had a power outage here at the house and drawn back on so im here for Q and I and thank you John for finishing up the scrip formula.
Does that.
We'll now begin the question answer session task of question you May Press Star then one on your Touchtone phone.
Or using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then.
This time, we'll pause momentarily to assemble our roster.
Yes.
First question comes from Gary Mobley Wells Fargo. Please go ahead.
Morning, guys congratulations on a.
Strong execution and challenging environments.
John you mentioned that strong finish to the second quarter Sue Sue I'm curious to know how bookings trended during the second quarter.
Month by month, and as well what you guys had seen so far during the first few weeks at the third quarter.
Yes, Gary this is John so bookings have been steady as we indicated earlier.
In the last call.
We did see an extension of lead times on the booking those have been running around seven weeks and they have pushed out to a and then also around nine weeks of backlog coverage.
So in that that trend has persisted so weve entered the third quarter with an unusually high level of backlog coverage.
Yes, but all things considered bookings were fairly steady through the course of the border.
Okay. Appreciate that color and then is appointed clarification or is validation.
Red Pint believed is expected to contribute roughly $2 million to $3 million.
Revenue in the second quarter, and then roughly $5 million per quarter. Thereafter, it was that how it played out for the quarter.
Is that is there any change to your outlook.
Yes, the that is how it played out for the quarter.
At times now part of our overall wireless product portfolio, we think the amount of opportunity traction. We're seeing is in line with our expectations and we're very encouraged about the prospects for that portfolio.
Alright, Thank you guys.
Thank you the next questions from Blayne Curtis of Barclays. Please go ahead.
Hey, guys. Thanks to my question then a nice results you mentioned record just see revenues curious if you could points any products or regions that drove that and then for the outlook. You mentioned strengthen wireless same kind of question any color on what flavors. The regions are driving that strengthened as a.
Yeah, I'll take the Dusty part this John so.
We blame we clearly saw.
Upsides strength in China.
With a strong recovery in that market in particular from a product portfolio perspective, the microcontroller products timing products were strong there as well as isolation.
So.
Looking to the second quarter, we're seeing some recovery in the wireless business in areas like smart metering.
And some other other products that was.
Down on the second quarter due to the pandemic, we're seeing some of those opportunities come back off the pipe and heavy with anything that.
Yes, I'd say, you don't really to strengthen in Iowa. She is in particular on wireless as we move into Q3, and it's it's pretty broad across the the application ranges on you got John mentioned wireline wireless. We've also got smart home, we've got some smart medical.
Stuff that is that is ramping a lot of this is.
Both run rate stuff, but also some we've had a very strong design win momentum in our in our wireless portfolio and so that's that's starting to to layer on there. So we were seeing a nice nice ramp on wireless side as we're moving into Q3 and that once we indicated that in the guidance.
Thanks, and then I just want to ask on infrastructure side, you're coming off a record at these timing as you look into September.
What areas are you.
Tend to be down and then is there any areas that are up.
Yes, so if you look at that infrastructure.
In automotive.
Certainly as we were in Q2, we saw the automotive piece and also some of the consumer stuff in broadcast was down and then if you look at timing was timing in isolation were both really strong in particular timing was very strong and we see that that customers particular customers in China have been.
Ordering ahead and.
Our our well stock at this point those dose.
Those ramps are moderating as we're coming into Q2. So it's really the timing is going to to moderate a bit.
Which we saw very strong in Q2 and isolation keeps keeps doing pretty well and then you have the consumer ramp in.
And in broadcast which will come back a little bit, but then we still see the automotive market.
As shown as fairly weak so it's really.
Overall infrastructure in automotive is going to likely be down here in in Q3, but it's holding in pretty well.
With particularly the strength that we saw in timing in Q2, that's that's hard directly.
Thanks, guys.
Our next question comes from Raj skills needed and company. Please go ahead.
Yes, thanks, and congrats as well.
On the and the competitive landscape, particularly around kind of Wi Fi six.
There's been some recent acquisitions.
Private acquisitions carve outs by other players in the space trying to develop.
A stronger life by portfolio to target I know T. Obviously red Pine Breeze, some valuable assets on that front, just wondering how you're looking at the the competitive landscape how is it evolving as you see it as potentially new players enter into the market.
Right, we've seen a number of acquisitions on the on the wireless or certainly on the Wi Fi side.
First thing to point out is that really you've got two ends of the link you've got the access points.
Hi, which if you look at Quantenna that went on.
And then some of the Marvell products that went to to NXP and then certainly Intel going into Max linear those are all really focused on the access points side, whereas our focus is on the Io key the end nodes the client devices and in particular.
All of the various things not not mobile phones, not handset all of the Aiotv type devices.
And then refined products that came in.
The silicon last last quarter.
Really they had a leading esso c. So a single chip solution that integrated why not just Wi Fi, but also Bluetooth low energy and Bluetooth audio.
In a fully integrated form factor and that is very very well suited to these client type devices.
We saw that Synaptics acquired or license for the second time.
The the Broadcom portfolio.
Which is really a.
Mobile handset devices that theyre going to apply to some number of.
Devices some of it the NXP devices are also client side and then certainly you've got competition from what is now infinium cypress going into any on but our instantly is extremely low power is the lowest power solution on the market and there's a lot of applications that are low power and we're going to target that and as well as higher higher power device.
Is your things like appliances or things like door locks.
Theres a lot of smart home devices that that have this technology a lot of industrial applications that integrate Wi Fi and Bluetooth and we have a very good solution as a Wi Fi for solution today, and then the technology and IP that we are working to integrate and with our platform in our portfolio to be able to introduce Wi Fi fixed.
Over time.
The Wi Fi six rollout is just if the early early stages and we see that as an important inflection point in the market going forward and to be able to to drive success with customers and to drive growth. So we're very excited we think we are very well position.
With the Red Prime products, both near term during just since the acquisition, we created about $500 million of pipeline.
For those products so we.
We have talked about significant revenue ramp for those as we go into the years ahead.
And then longer term very excited about Wi Fi six and our ability to compete with all of the various providers out there in the market not just on that and acquired but also companies like Qualcomm.
I had been out there for a long time, so hopefully that provides a little bit of clarity on that on the Wi Fi side very excited about our what are the red find acquisition and also though the design center, we have over in Hyderabad now.
Yes, Thats very helpful. In for my follow up on the timing the record quarter and timing, which was very impressive you did mention fiveg wireless infrastructure driving growth. There I was wondering if you could talk about the potential silicon content increases.
That you're doing a.
Receive when you're going to Fiveg base station is or kind of an uptick in terms of timing and clock solutions does that translate into higher silicon content for some of these base stations. Thank you.
Yes, so traditionally we have not had.
Much market share in wireless so in the Fourg.
Base stations, we didnt really wasn't requiring our timing solutions and as we've gone into four and a half an hour fiveg.
Have a number of our clock and oscillator products that go into.
The.
The radio heads that part that connects to the antenna as well as the base band unit, which connects back to the add to the main network and so we've got multiple sockets when within each one of these than we have share with four out of the top five suppliers and we're we're continuing to just applying to ship into into to all of.
The regions.
In terms you are talking about what could be.
Five to 10 clock chips and tens of dollars of content.
In terms of each wireless base station sold.
But potentially even more in that more than that depending on the architecture. So so et cetera.
So substantial growth opportunity for our timing business. We we've traditionally been strong in the in the more optical high speed backbone communication networks, and we've also been expanding and datacenter and we're seeing a nice nice ramp of our business into datacenter as well as a lot of industrial applications and even in automotive.
Even though that market is not very strong right now longer term, we see nice growth potential for timing is as the data networks within cars become even even faster and faster so.
Really we view this year as the year, a five year a lot going on in Fiveg. Both from a design win perspective in the revenue perspective, and really excited about the revenue growth opportunity and timing.
Yes.
Thank you for that.
Okay.
Thank you. The next question some Tory Sonnenberg Stifel. Please go ahead.
Yes, Thank you and congratulations on the results.
As as we look at this work from home economy.
You talked about quite a bit of new design traction and I understand what's happening in the home.
But what about on the industrial side or perhaps the enterprise side.
What are some of the trends that you're seeing there that could potentially benefit your connectivity portfolio.
Okay.
Just like we May have lost type of this is John.
Yes, I think Tory one notable item and we've talked about this little bit in our prepared commentary, but if you think about smart retail and the changes that the pandemic is bringing about in terms of contactless shopping and also remote operation of retail systems. This is.
Notable area, where we're seeing.
I would say celebration of trends that were already underway.
And one particular application areas to think about his electronic shelf labeling where.
The company has enjoyed a very strong design win traction and that application and it is accelerating.
We are.
You know realizing our very strong market position and electronic shelf labeling where vendors can remotely change pricing.
Both for 10 titles purposes, but also to adhere to certain.
Government mandates to manage that effectively particularly in Europe. So thats that is a good example of where we're seeing additional traction.
Great. Thank given that John and and as my follow up that was going ask about the lights on technology that I realize that's not fair to you John.
So.
You have had quite a bit of design wins now in Bluetooth and and.
Im just wondering from a revenue perspective, when do we see the big inflection or perhaps the ramp there is is that going to be at 2021 story or are you already stacking here in the second half.
On a bit a contribution from the new Bluetooth business.
I think types and maybe back on that so much let's pick that one.
Yes, I am in back on so the white sand is that there's a long range network admits that so widely deployed in metering and industrial type applications.
And we're we're currently shipping Weiss on solutions into the market based on.
The existing standard and we just joined the standards organization and are actively work of new products in software.
Ted Ted to continue in this market and to add to drive it into even higher performance. So this is competing with cellular and with the with Lora Pike type of.
Application, but the number of units that have been deployed in each one of those technologies white sand.
He is actually very close and in.
In terms of market share there has been.
100, plus million units shipped on why Sun. So we're actually quite excited about that.
That technology.
Being broader adoption in the market and very happy to support that as part of our IC overall, Iowa wireless platform.
Yes, sorry, let me let me address the Bluetooth question, we are seeing a pickup in Bluetooth and expect.
That portfolio to increase sequentially here in the third quarter on the specific new product that we've announced where the customer interest is off the charts very strong that would be more of a 2021 store in terms of the actual revenue as the customers are finalizing their qualifications and getting into production, but overall we.
We are seeing strength, both sequentially and year on year and Bluetooth this quarter.
Great. Thank argument I would I would just mentioned that are the Bluetooth attraction that we've seen with the BG 22, and the growth in the funnel and the engagement with customers in a variety of new applications that we're seeing is really on.
Unpriced.
In the history of the company understood the speed at which this has been coming in.
And then the customer engagement has been very very high on the due to side. So we're really excited about that product. If you just put that in context. Our series one devices for really optimized for multi protocols and our BG 22 is really the first device that we had been is really truly optimized for the high volume segments of the Bluetooth market and.
So we had a very good software stack in a very very amateur tool suite and now we really have a very competitive pieces silicon that has the lowest energy consumption very good performance excellence.
Integration very very small size and thats seeing really really good reception out in the marketing, we're really pleased to see that.
Great. Thanks again.
Thank you next question from.
Any perjury asked Mbcs. Please go ahead.
Thank you good morning, guys.
John first on the Disti inventory came down by a day little bit and I'm, just curious as to how you're thinking about it as we head into the second half of the year.
Yeah sure any I mean, this is the normal level for us and.
We would expect to operate at approximately this level I mean, plus minus a certain amount of variants that would be natural but this is this is in the range of what we consider normal and actually we had very strong Pos.
Shipments in the second quarter, which which allow that to end it isn't it.
Hi, good place, but we will be considered to be a good target range.
Got it and then move for Tyson Tyson on on the Red Pine Wi Fi business, you mentioned 500 million in design pipeline.
When do you expect that to kind of translate into revenues and when do you expect this business to inflect and maybe if you want to but let's say I think you you're doing a low single digits in revenue terms. When do you see that go into double digits on how you're thinking about next year arena potential contribution from that business. Thank you.
Right. So if you look the pipeline as you create pipeline of opportunities that $500 million is the lifetime revenue of those those opportunities and then as you engage with customers you.
You have to design in the product you have to they have to start to ramp their production and those that process can take anywhere from 12 or 18, sometimes even 24 months to go from an opportunity to actually the beginning of the revenue ramp. So the pipeline that we're adding now on top of Wi Fi will impact really 22.
Many too.
Possibly a little bit in 2021.
But Brett line also came in with a number of really interesting opportunities and some tier one sockets and you know the and they had about this 20 million a year 5 million a quarter type run rate and those those opportunities that they came in with we continue to service and so that will then be.
Layering on top of the revenue for next year. So we do anticipate strong growth.
In the Wi Fi products as we as we go through the rest of this year and then, especially as we enter into 2021 and then following on that at 2022, we'll see an even stronger uptick based on the deployment of those products into our channel and then the design win activity that we're able to generate here in the next.
Over the next year. So so thats, what we see that this is kind of just building you know it comes in at a certain level builds next year and then continues to build as we go into 21.
Thanks, guys. Good luck.
Good.
Thank you next question for Matt Ramsay with Cowen. Please go ahead.
Yes, thanks, good morning, guys.
Thanks, and I wanted to ask a question about your isolation business, particularly in the electric vehicle market.
I've been remarkable that.
Political momentum.
Hi, I'm, referring to maybe even a base.
Over 19.
Situation and pandemic and I've been pleasantly surprised to see the momentum of those ecosystem sort of sustain themselves and maybe even accelerate.
I Wonder if you might talk about the engagements you're seeing and the timeline to revenue of somebody engagements for isolation franchise in the auto market. Thanks.
Yes, so we've we've been the leading supplier of isolation technology into electric vehicles and this goes into really three main subsystems within an electric vehicle you Scott.
The battery monitoring so as you interface with the 400 or 800, both batteries you've got to have isolation technology for the communications buses you've got the devices that the traction inverter that is powering the motors and so those require handling these high voltages and that requires isolation and then the onboard charger.
That charges from the AC line into the car and then there's also opportunities within the charging infrastructure for electric vehicles, as well, where you're you've got high voltages and and doing charging so we're participating in all of those areas.
Of the electric vehicles, and we've been engaged with a lot of the.
The early providers and these companies like be widely in China, or Tesla and we've now seen a whole series of design wins with other tier one automotive makers large large automotive makers, we haven't announced to those those names as of yet.
But we were seeing very strong market uptake of our isolation products in terms of share gain and just winning these platforms and that it's really the.
The pandemic, but really even before that you've seen the acceleration I think really an inflection point in the market, where the electric vehicle is now reaching cost points and functionality.
That makes it very competitive and its disrupting the entire automotive market.
And that really plays into our hands, we don't have a lot of share.
Their internal combustion engines, but we have a very strong share on the electric vehicle side. We just saw our recently here in Austin Tesla building a billion plus dollar factory for the model why in the and the new truck and that yeah. That's that's great news you see a lot of activity with all of the major major carmakers and that provides a subs.
And as we see that is the largest revenue opportunity growth opportunity in isolation and that's on top of everything we're doing in industrial and and motor controls and power supply and all the other area. So the isolation. There is a very broad product line, but this electric vehicle opportunities and the content per vehicle is very very.
Attracting and significant source.
Thanks for the color there Tyson on that as my follow up John I know you guys and.
Raised the gross margin.
Outlook for I guess, the long term model of the company at the Analyst day, a few months ago.
With all the different moving parts and the business just over the next couple of quarters, how you how you're thinking about margins given.
That's a stronger mix to channel and.
On a bit of uncertainty and they end markets still in the back half of the year. Thanks.
Yeah, Matt that we're very pleased with these second quarter gross margin performance with the product mix and channel mix, both the being favorable and seeing that moderate a little bit here in the third quarter outlook, but still above the midpoint of our updated.
Long term model for for gross margin. So overall, we feel good about it will continue to trust with our operations team and focus on sustaining and improving our gross margins that remains a core focus for us.
Thanks, guys appreciate it.
Thank you next question Suji de Silva of Roth Capital. Please go ahead.
Jason Hi, John a couple of questions on infrastructure I'm not sure if he covered this but whereas a mix today of the the wireline optical versus the other markets you've been diversifying into and how does that makes a trend in a year from now it sounds like other parts of growing pretty well.
Yes. It is now we are those you. This is high grade we mentioned on the call that the optical mix is about 60% right now we've got about 40% in these other areas with the other areas, particularly fiveg being faster growing.
And how do you think that trends that you're out of that stable makes this plant or the other part is growing much faster.
I am I I mean, given given that fiveg is growing our.
Rapidly beat we see the the mix shifting from 40% going to higher than 40% over time, although I would say that the core network upgrades or that we're seeing are also very significant so.
I think it's you're going to have growth in both areas, but given the size of the fiveg opportunity as that mix will probably ship closer to 50 50 as we.
As we move forward here.
Okay and a question on the Red Red find life I can you remind us.
What slabs competitive advantages here in who maybe your top competitor most maple competitors here to understand how you differentiating there.
Right. So that the direct line products in particular have extremely low power consumption. It's about like so if you're running an application off of the battery you'll get about three times the battery life by using a by using our Wi Fi products and that's a Wi Fi for products and we'll have a follow on Wi Fi PTX product, it's in the pipeline right now.
And we'll be one of the early early companies out with Oh, a Wi Fi six enabled device that would be 10 compatible with the existing products that we have.
It's also a high there's a high level of integration with this card it integrates the processing the energy management all of the RF power amplifiers. So the level of integration is very high so it's and it's so you have a lot of the devices will have a separate processor and separate Wi Fi.
And so being able to integrate all those high performance manner in energy optimized manner is really the core of our differentiation. We are competing with companies like like Qualcomm and mediatech not with the.
The same type of product, but for Wi Fi technology at somewhat with Cypress, We're now and Finney on and then there's a there's a another company called expressive which has done very well into maker market kind of at the low end and we have higher performance lower power consumption better integrated.
Type of part compared to that as well and I'd say that our party is also very very cost effective in terms of the implementation. So.
Both at the board level as well as to the chip level. So we feel like we've got a very very competitive.
You know technology are very competitive set of products today, and then really compelling road map as we move into why prices.
Okay. Thanks for the color a nice job on a quarter guys.
Thank you. Thank you.
Again, if you have a question. Please press Star then one.
Our next question comes from Alessandra Senici of William Blair Company. Please go ahead.
Hey, everyone. Congratulations on a fabulous quite our I apologize for the housekeeping question, but I had some connection issues I say catch on quite a few times, but and I am just on the operating expenses. You know again. Congratulations you can you guys have done really asked why mineable job there.
Especially in terms of starting to make progress tries to long term target again.
If I heard I simply you mentioned and.
Maybe some lower R&D expenses, Judy just product launches, but it it sounds like there is quite a few things so as the omnicom and on the docket could you could you maybe help us understand that puts and takes as we as we think about opex in R&D over the next few quarters.
Yes, Alex this is John So we did have some tape outs.
That were planned for Q2 that will now I will take place in Q3, so that cost pushed from for the second quarter into the third quarter that accounts for some of the Opex increase in the third quarter.
And we also.
Again had an unusually low of benefits costs and the second quarter related to the shutdown activity and thats beginning to come back as well so we expect.
Second to third quarter to be up a couple of million dollars. The guidance was 92 million.
The fourth quarter to be up a few million more dollars, but you know ending the ending the year roughly in line with where we had indicated at the beginning of this year and thats, even taking into account the red wine acquisitions that we've been able to now we expect fully absorb red lion into our for into our Opex plan for the big.
Going into this year.
Heading into next year, we're going to look carefully at this here in the in the fall cycle as we go through our annual operating plan and talk further with our management team the board of directors and should be able to provide color as a as we form or have you on 2021.
Okay, perfect and Thats quite helpful. That's it for me. Thank you.
This concludes our question answer session.
I'd like to turn the conference back over to Mr. George line for closing remarks. Please go ahead.
Thank you Nick and thanks, everyone for joining us. This morning. This concludes todays call.
The conference is now concluded. Thank you for today's presentation you may now disconnect.