Q2 2021 Synaptics Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Synaptics, Inc. Second quarter fiscal year 2021 financial results Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be.

<unk> advises on today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Jason Zhang. Please go ahead Sir.

Thank you and good afternoon, and thank you for joining us today on Synaptics second quarter fiscal 'twenty 'twenty. One conference call. My name is Jason sign on the head of Investor Relations with me on today's call are Michael <unk>, our president and CEO and Dean Butler. Our CFO. This call is also being broadcast live over the web and can be accessed from inverse.

Stir relations section of the company's website at Synaptics Dot com.

In addition to a supplemental slide presentation. We have also posted a copy of these prepared remarks on our Investor Relations website. The supplementary slides have also been furnished as an exhibit to our current report on form 8-K filed with the SEC earlier today and add additional color on our financial results.

In addition to the company's GAAP results management will also provide supplementary results on a non-GAAP basis, which excludes share based compensation acquisition related costs and certain other noncash or recurring or nonrecurring items.

Please refer to the press release issued after the market close today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally, we'd like to remind you that during the course of this conference call Synaptics will make forward looking statements forward looking statements give our current expectations and projections relating to our financial condition results of operations plans objectives, future performance and business, including our expectations.

Regarding the potential impacts on our business of the COVID-19 pandemic.

Synaptics believes our estimates and assumptions to be reasonable they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate synaptics cautions that actual results may differ materially from any future performance adjusted in the company's forward looking statements.

We refer you to the company's current and periodic reports filed with the SEC, including the Synaptics form 10-K for the fiscal year ended June 27th 2020 for important risk factors that could cause actual results to differ materially from those contained in any forward looking statement snapped.

Synaptics expressly disclaims any obligation to update this forward looking information I will now turn the call over to Michael.

Thanks, Jason and I'd like to welcome everybody to today's call. We had a strong finish to 2020 as we continue to make progress in terms of delivering sustainable growth with better predictability and higher profitability.

Our diversification strategy is paying dividends as Iot has become our largest business, resulting in the highest non-GAAP gross margin net income and EPS and Synaptics 35 year history.

Both our Iot and PC businesses individually achieved record revenue in the quarter.

As we turn our attention to aggressively driving growth, we will adhere to the principles that have guided us to this point.

Disciplined investments.

<unk> spending control and a focus on differentiation.

We are starting the year with a strong backlog of design wins across all our businesses that puts us in position to drive growth and further improve our profitability in 2021 and beyond.

Now, let me give you an update on our business.

First on Iot now our largest business, we are seeing broad based design wins across all segments.

We now have a diverse customer base that spans consumer enterprise service provider automotive and industrial end markets. We.

We anticipate the overall market for Iot will continue to grow at a 10% to 15% CAGR for the next few years.

Based upon the strength of our design pipeline and potential share gains driven by a strong product roadmap. We believe we have the opportunity to grow at least in line, but most likely outpace the overall market.

In wireless connectivity, we continue to enjoy solid design win momentum in home automation.

<unk> displays thermostats smart watches drones home surveillance and streaming devices.

We're on track to double the run rate of this business within the next 12 months and expect significant growth to continue in fiscal 2022 and beyond.

Our video interface business saw robust growth in universal and traditional docking solutions as a tailwind from the work from home trend continues.

Our new product introductions targeted at the portable docking and protocol adapter markets are also seeing strong adoption, creating additional opportunities in this business.

Further our video and data compression and content delivered content delivery technology that stem from our display link acquisition or expanding our market beyond traditional Pcs and into areas such as industrial handheld scanning systems and enterprise class control panels for video conferencing.

In automotive the first cars with our TDI chipsets are now on the road with a premium SUV from one of the Big three U S. Automakers, we expect to have several additional vehicles come to market. Later this year and believe our pipeline of design wins with over 13 major.

MS will drive this business to over $100 million in annual revenue within the next three years.

Finally, we secured two new service provider wins in Europe last quarter with our HFC products on top of previously announced wins over the past few months we.

We had our initial service provider customer in Asia begin deploying the worlds first nagra connect set top boxes powered by our SFC, enabling best in class Digital rights management and security.

Recently, we launched our new katana product family targeting ultra low power AI applications for consumer commercial and industrial applications.

Together with our wireless connectivity, we expect the AI enhanced Iot market to be a meaningful market opportunity, creating an additional avenue for top and bottom line growth.

Moving to our PC business. This was a record breaking quarter for us and we expect the momentum to continue into the March quarter and throughout 2021.

We continue to benefit greatly from greatly increased Tam.

Higher fingerprint attach rates and higher asps driven by more complex offerings.

We initially thought the strength in work and learn from home phenomenon would be short lived we now expect a higher run rate of this business to be more sustainable driven by a fundamental shift away from desktops to notebooks and a realization that mobile devices cannot replace the productivity of Pcs.

We have also introduced new products targeted specifically for expansion into the consumer and education markets.

Solutions are qualified across all the major chromebook path forms and we have already begun shipping to our first customer.

Before I conclude let me talk about our mobile business we.

We continue to see strong traction with our OLED touch products.

Our primary mobile customer recently launched two new flagship handsets with our touch controller.

In addition, as flexible OLED displays become increasingly prevalent we secured multiple new wins for our on cell touch solution with all the leading Chinese handset Oems.

I'm also excited to announce that while we are engaged with a large Korean handset OEM on multiple opportunities. We have now secured our first win and initial shipments are expected to begin in the fall.

Overall, I'm very happy with how we finished 2020, despite the channel challenging macro environment and the tough start to the year, we've made meaningful strides in our corporate transformation and have already hit many of the financial waste points, we set out just a few quarters ago.

While there remains a lot more work ahead, we believe our current portfolio mix is putting us on a trajectory to deliver predictable sustainable growth and better profitability in the long run.

Now, let me turn the call over to Dean.

To review, our second quarter financials, and provide our outlook Mr. Butler.

Thanks, Michael and good afternoon to everyone.

First I'll start off with a review of our financial results for our recently completed quarter.

Then provide our current outlook for our fiscal Q3.

Revenue for the December quarter was $358 million.

Above the mid point of our guidance revenue was up 9% sequentially, reflecting a stronger demand for our Iot and PC products.

Offset by a sequential decline in mobile.

Year over year December quarter revenue was down 8% driven by a decline in mobile revenue as our prior fiscal year still included our now divested T DDI business.

During the quarter, we had two customers above 10% of revenue at 18% and 13%.

The December quarter marks a defining moment in the company's history with Iot now squarely our largest business.

Counting for 43 per cent of revenue in the quarter, while PC accounted for 26 per cent and mobile accounted for 31% as Michael highlighted our corporate transformation is well underway and we are focused on accelerating the growth of our Iot business.

We expect our broad portfolio of products and customers in this business to deliver better predictability and consistent growth in the future on.

Our Iot business reported record revenue of $155 million this quarter and was up 36% sequentially and up 74% compared with a year ago quarter as new programs began to scale up across our entire Iot portfolio.

This was also a record revenue quarter for our PC products with revenue of $92 million up 14% sequentially and up 12% year over year as work from home demand continues to drive strong PC sales globally.

Revenue from our mobile products was down 17% sequentially and down 49% year over year.

The sequential decline in mobile was primarily driven due to the trade restrictions limiting potential sales to Huawei and a decline in LCD display driver shipments to our large mobile customer.

Offset by touch controller growth in this business.

For the December quarter, our GAAP gross margin was 42, 1%, which includes $22 9 million of intangible asset amortization.

$11 9 million in acquisition related inventory step up charges and 1 million of share based compensation costs.

GAAP operating expenses in the December quarter.

$91 9 million, which includes share based compensation of $22 4 million.

Acquisition and integration related costs of $9 6 million, consisting of intangibles amortization non reoccurring legal and integration costs.

Amortization of prepaid development cost of $2 5 million retention costs of $1 1 million and restructuring and severance related costs of $1 1 million.

Offset by a $34 2 million gain on the sale and license back of certain audio technology intangible assets.

Our GAAP tax expense was $2 4 million for the quarter.

In the December quarter, we had a GAAP net income of $49 6 million or GAAP net income of $1 36 per share.

Now turning to our non-GAAP results.

Our December quarter non-GAAP gross margin of 52, 1% was above the high end of our guidance range and reflects the continued operational improvements and our product cost structures and a positive product mix during the quarter as Iot product sales outperformed.

December quarter non-GAAP operating expenses came in slightly below the high end of our range at $89 9 million up $2 4 million from the preceding quarter.

The increase reflects a full quarter of operating costs of the newly acquired businesses, which are now fully integrated into synaptics.

Our non-GAAP tax rate was 12 per cent for the quarter.

We had a record setting non-GAAP net income and EPS for the December quarter of $83 8 million and $2 30 per diluted share respectively.

As our focus on profitable growth continue to drive better earnings for our shareholders.

Now turning to our balance sheet.

We ended the quarter with $317 million of cash and short term investments an increase of $73 million from the preceding quarter driven by $71 million of cash provided by operations during the quarter.

Receivables at the end of December were $249 million and days of sales outstanding was 63 days.

Our days of inventory dropped significantly.

<unk> 38, and ending inventories were $73 million.

$41 million decline inventory was largely the result of supply chain delays at our vendors cash.

<unk> expansion expenditures for the quarter were $8 3 million and depreciation was $5 million.

Now turning to our outlook for the third quarter.

Based on our backlog of approximately $341 million entering the March quarter.

Subsequent bookings customer forecasts product sell in and sell through timing patterns as well as expected product mix. We anticipate the revenue for the March quarter to be in the range of $310 million to $340 million.

This reflects a significant impact from supply chain shortages that will likely prevent us from fulfilling additional upside demand for our products in the March quarter.

We believe this supply chain constraint is pervasive across the semiconductor industry.

Specifically for US. These constraints are most prominent in our Iot business as many of these new products are just beginning to ramp adding additional supply chain pressures.

We expect revenue mix from Iot PC and mobile products in the March quarter to be approximately 43%, 30% and 27% respectively.

Iot in PC will perform better than historical seasonality.

Reflecting the broad based wins in Iot and the continued strength in the overall PC market.

We expect our mobile business to decline to be consistent with our normal seasonality in this business.

Now I'll provide GAAP outlook from March quarter, and follow with non-GAAP outlook, we expect our GAAP gross margin to be in the range of 43, 5% to 46, 5%. We expect our GAAP operating expenses in the March quarter to be in the range of $117 million to $123 million.

Which includes acquisition related charges for intangibles and prepaid development cost amortization stock based compensation and restructuring costs we.

We expect our Q3 year to date GAAP tax rate to be approximately 15% to 20%.

Finally, we expect our GAAP net income per share for the third quarter to be in the range of 20 to 50.

Now for the non-GAAP outlook for our March quarter.

We expect our non-GAAP gross margin in the March quarter to be between 51, 5% and 53, 5% as contributions from our Iot product mix continues to drive improvements.

We expect non-GAAP operating expenses in the March quarter to decline slightly from the second quarter and be in the range of 86 million to $89 million.

We anticipate our long term non-GAAP tax rate for fiscal 2021 to continue to be in the range of 11% to 13%.

Non-GAAP net income per diluted share for the March quarter is anticipated to be in the range of $1 75.

To $2 and <unk> <unk> per share on an estimated $38 5 million diluted shares for Q3.

Reflecting the anticipated impact of a higher share price used to determine shares potentially issuable related to our outstanding convertible notes.

Lastly, I want to give an update on our long term financial targets.

Based on our performance in the December quarter, and our guidance for the March quarter, we are.

Met or exceeded the majority of the goals, we laid out at our last analyst day.

As we continue to drive operational improvements and focus on our investments in Iot.

We believe there remains meaningful improvements to our long term financial model from here.

We believe growth in Iot will continue to significantly outpace our other businesses driving higher overall growth potential gross margin expansion opportunities and greater profitability longer term for the company.

Taking this into consideration we expect our long term revenue growth will increase to be in the range of 8% to 10% with long term target revenue contribution from Iot a 55%.

25% from mobile and 20% from PC.

With our long term target of Iot contributing more than half of our total revenue.

We believe our long term non-GAAP gross margins can further improve to 57% over time.

And our non-GAAP operating margins can reach an industry leading 30%.

We continue to manage to a long term leverage target of one five times of EBITDA adjusted EBITDA as our target capital structure.

This wraps up our prepared remarks.

Now I'd like to turn the call over to the operator to start the Q&A session operator.

Thank you Rajeev reminder, to ask a question you're on mute Chris Star one on your telephone.

On your question on Crystal Tom Pete Please send volume from Bally Q&A roster.

Our first question comes from Kevin Cassidy with Rosenblatt you May proceed with your question.

Thanks for taking my question and congratulations on the great results.

And the new target.

Model, it's very stunning.

On the <unk>.

Gross margin improvement that you saw quarter over quarter.

You said it was related to product mix, but was there some improvement even let's say within the Iot market.

Iot products.

Yeah, Kevin within I mean, it actually was was both mix product mix within Iot and the other businesses.

So we did have a gain within product mix, but also as you know for quite some time, we've been hard at work on operational improvements and we've been able to benefit part of the improvements in the quarter were from our own operational improvements that we've made.

And we expect that to continue going forward.

Okay, great. Thanks.

Everyone has talked about the problems on the supply chain can you narrow down where the problem is is it just getting wafer starts or is there even something in the packaging and the supply chain is there relief coming I guess as anyone expanding capacity.

Yeah, Kevin it's pretty broad based to where certainly it starts with the wafer starts and Youre right.

The linchpin, but it exists in packaging it exists in test, it's a pretty broad based problem.

And I think what Youre seeing is a confluence of a number of different phenomenon.

I think all of the semiconductor companies are seeing pretty good demand.

We are seem to be maybe seeing more demand than most but we're really happy with the businesses that we're in I don't know that the picture changes until one.

The segments.

Sort of hits, a speed pocket, an air pocket, meaning the automotive sector. The PC sector, the mobile sector until something happens that thats a significant air pocket.

I think the supply chain tightness is going to continue to exist.

Okay, Yeah, and I thought it was going to just ask one another and Thats what it was.

Next going to ask about the PC market some of the growth you're seeing there.

Clearly the demand for the work from home and.

Maybe converting to notebooks from desktop but are you also getting a higher dollar content in the new Pcs.

Yeah, we talked about that I think that the new form factors that we're seeing are more complicated you've got these larger touch pads in some instances that are driving dollar content up.

I think Dean mentioned that fingerprint attach is going on maybe I said that the fingerprint attach is going up which enhances dollar content. So.

The long pole is certainly that the volume the number but if you look one click below we're actually increasing dollar content in the fingerprint attach is certainly helping us out.

Okay, great. Congratulations again, thanks, Kevin.

Thank you. Our next question comes from Rajiv Gill with Needham <unk> Company. You May proceed on any of your question.

Yes, I think on my congratulations as well great momentum in the business.

Dean on the long term financial targets that you outlined quite impressive I'm wondering if you could give us a timeframe.

And how do you define long term.

And the shift to.

57% gross margin.

Is this mainly driven by by the mix of Iot.

Are there other additional kind of operational improvements that you that you anticipate.

And how do you intend to kind of sustain the Iot gross margins from say competition or from other other factors. Thank you.

Yes, good questions Rajeev.

So first on just timeline to get there I mean generally we view this as you know three years or beyond to get there I think.

We are really putting out a <unk>.

Model that we're striving to go chase down and given the amount of mix change that we expect going forward out of Iot and the other two businesses.

It actually will evolve over time, so that's the rough timeline.

In order to.

To sustain gross margins at this new target 57. So one we're at 52 in the December quarter, which we just announced.

Up a little bit here guiding into the March quarter.

It actually is three factors I would say so one is mix with Iot being greater than 50% of our revenue once we get there that's a contributing factor.

We have been successful and taking down the cost structures and our products and we expect to continue down that path going forward.

And then finally, what are the key to longer term is to maintain the new product launches that are consistent with a higher gross margin profitability targets that were laying out.

And that really comes around the differentiation and high end products that we aimed to take to market.

Thank you for that and my follow up question is kind of a long term target on mobile.

Kind of coming down to 25 percentage of sales.

Yes.

<unk>.

So how do you.

Just a question from Michael So how do you kind of one investors and kind of customers to view synaptics.

On a long term basis.

Is there kind of one cohesive strategy across the end markets that you that you want to kind of convey to the marketplace.

Synaptics historically has been kind of a PC mobile business. It clearly isn't change going on in Iot and other areas, but is there kind of an over.

We're all kind of cohesive strategy that kind of links all three segments together.

Yeah, I mean, so if you think about it Roger our touch and display products come from mobile today.

And we think that we certainly applied those successfully to automotive which is in our Iot bucket. We think that we can apply them successfully to applications like Pcs. So you have a clear cross over there. We think we can apply it to AR VR glasses theres a lot of emerging technology.

E <unk>.

Transitions in the display business with micro OLED micro OLED coming on.

And those will feed into AR VR glasses that can feed into games. There's a lot of other sort of Iot ish segments, where we can apply technology that we historically applied to mobile.

We intend to leverage what we've done in mobile.

Two different end markets and I think that's why you see the mix change now that's not to say that we're going to ignore mobile phones. We still think there is some business for us in the mobile phone area, but.

We really do intend to apply that technology in a way that's going to be more consistent with a PC and Iot kind of centered company.

Got it thank you.

Thank you. Our next question comes from Karl Ackerman with Cowen You May proceed with your question.

Yes, good afternoon, gentlemen, two questions if I may.

Dean.

First for you I appreciate your commentary on bookings and know your seasonality is typically down in March but.

But could you speak to your order visibility over the next few quarters.

And I guess, given the additional supply chain pressures how are these dynamics driving your discussions on both pricing and volume commitments to your customers.

Yeah, so the the.

Order visibility on the backlog is probably a little bit better than it had been historically given there is a consistent supply crunch not only from us but from others semiconductor vendors.

So we are deeply engaged with our customers to understand their demand to make sure that we are booking our supply chain to an equivalent level to support them.

So we do see that.

Probably a little bit better visibility than we normally would.

Unfortunately, the supply chain right now is just extremely tight.

Is really limited to the upside even with this added visibility.

As you know the supply chain in semiconductors is relatively long.

Free long lead time from order to production and then finished goods out the other side on the manufacturing flow.

It does take a while for the manufacturing supply chain to respond and I think that's probably going to continue for a little bit of time.

There was another element I think that you touched on around.

Yes.

I will just summarize it as pricing and sort of what's what's happening there.

Number of our suppliers are investing new capital expenditures as we understand it.

To try to support this upside in demand that they see broadly.

I think there is some price raising happening on from our suppliers.

Responsibly look to pass those along to some of our customers to the extent we can.

Understood understood I appreciate that maybe.

For a follow up to Roger's last question.

Your gross margins continue to impress despite the fact that hey mix is probably a little bit of decent factor here with mobile shrinking.

In terms of the March quarter on your longer term outlook, but as you begin to secure these new programs for OLED touch controllers are those accretive here overall model I guess, what I'm really getting at is you beat expectations, Despite mobile being down nearly 30% year over year on an organic basis. So.

<unk> mobile does come back is that somewhat of a headwind from a either a gross or operating margin standpoint. Thank you.

Yeah.

Wouldn't call it a headwind I mean from where we are today, it's certainly not a headwind I mean, if you look further out to the long term model at 57%, it's certainly below that level.

That level is Iot and that's significantly growing for us we see Iot.

Growing in this 15% range.

<unk> really garners the better gross margins for us.

And that's where you're going to see the significant tailwind of gross margin longer term and to the extent.

Mobile has compression from there.

It's really in.

In line with our corporate averages.

We think the mobile business is fairly consistent from here and it's certainly not growing at that 15% CAGR that the Iot market is so just as a percentage revenue mix.

It's probably lower.

As you go out into the future on our long term model.

Thank you. Our next question comes from Christopher Roland with Susquehanna. You May proceed with your question.

Thanks, guys and congrats on the results and nice to see this more aspirational long term model.

I guess my first question is around some of the M&A you've done recently, perhaps you can talk about the.

Yeah.

You guys have for connectivity and also display link.

And then.

Total.

On the mainline.

You've given us a 2019 number.

I was wondering now that 2020 is closed if you guys could update us on.

Just give us a broad idea of what kind of growth, we could see from display link as well. Thanks.

Yes, let me Chris Let me take the first part of it and <unk> talked about the display linked numbers I mean on the on.

On the Wi Fi asset and the comments, we said that we see that revenue doubling.

From where we initially set the benchmark in the next 12 months and we're really pleased with the pipeline that we're seeing there.

As Dean has said our biggest limiter I think a Wi Fi business is supply.

Could do really really well on that business. If we had the supply that's probably where our biggest challenges are quite frankly in the business on the supply chain side is in Wi Fi. So we're modeling based on what we what we think we can get out of the supply chain that doubling number.

On the display link side again, it surprised us I think we've done really really well with that business, obviously work from home and the shift to notebooks is leading to a higher rate of adoption of docking stations.

Within that the Universal Doc that display link drives has done, particularly well, but then as we mentioned there has been a set of other design wins, where we've been able to apply that technology. Some of the in room conferencing systems and some industrial applications again, thats kind of surprised us had been pleasant.

So both acquisitions have been.

Better than we expected.

It could be quite a bit better than expected modulus of some of the supply challenges.

And Chris maybe I'll, just give you the quantification on where display link is today.

We got that business.

Calendar 2019 was somewhere in the $95 million a year revenue range.

Where it is today, it's probably up 20% from there on sort of in the 120 range and going forward, we think thats, probably not going to sustain 20%, but it's probably more like 10% to 15% going forward.

Fantastic. Thank you Deane.

Second question.

In your prepared remarks, you talked about.

Our lead customer that you guys had.

And the fact that you are powering perhaps two of four skus there.

I guess first of all.

Maybe talk about the propensity to go four for four here.

How you feel about your chances of expanding that opportunity.

And then secondly.

Your ability to service.

On the customer if they did decide to go for a floor.

Yeah I mean.

Of course, the current situation is exactly like you described it Chris where we have two or four.

One of those two skus has not sold as well as I think anybody.

Projected in overall.

This design win has a lot of fanfare.

Because of the Asps and other things.

Certainly not a material piece of business for us I think it's kind of a less than 5% type of number so.

It gets a lot of a lot of attention and things like that but at the end of the day, it's been a nice nice thing for us to kind of create some buzz around the company, but maybe not a lot more than that as we go forward.

We are concerned we think that there is some.

Churn in the market that our competitor has developed a cut.

Custom solution.

For that customer.

We're still very much engaged with them on touch products at the moment, but.

I think that it's a lot less clear than it has been how thats going to shake out for the next model year, given that custom solution.

Understood. Thanks, so much.

Thank you. Our next question comes from Harrison Barrick with.

Sir you May proceed with your question.

Hi, guys. Thanks for taking my questions.

But I'd like to ask about the industrial Iot opportunity.

How are you approaching sales into this market.

Could this be an area, where you look to make an acquisition to add to the customer base and then just when can we see this when can we expect industrial to be a significant part of the Iot mix.

Yes, I would say two things so first of all.

We are lucky enough to have.

One product and that's the Wi Fi product, where we typically modularized that product and sell through our module partners into the industrial segment. So we don't have to develop the broad based supply chain and broad based sales force that you would think that you'd need.

We're able to sell into a module partner.

We're now expanding the number of module partners that we work with and then that module partner fans out from there. So we.

We are really able to get leverage on the Wi Fi business. We have other businesses that we're getting into now in industrial we talked a little bit about some of these handheld skus that we're able to leverage our display link products into and again those have done very very well so far.

Finding ways to apply technology that we have to that industrial segment doing so in a way that doesn't drive up our sales spend and doesn't make us go particularly wide.

We've got a new product to that we're applying to the industrial segment and it's new it's an emerging segment I talked about it in my remarks and that is this low power AI solution.

That low power AI solution, we're actually really.

Really excited about we think that we can leverage some development that we did in the audio area.

Attach our wireless to it.

Again create a modular solution and sell it into.

Industrial applications people counting types of applications and really open up a whole new frontier for us in our industrial segment.

Great. That's very helpful and I appreciate the on the OLED touch commentary you gave just now but can we get an update on.

OLED TDI have you had any more engagements with customers and is there any update on web.

When we might see a best product in the market to that.

Yeah. Good question, we obviously continue to develop there I think what's been a change for us is given the supply crunch.

We've seen an opening an opportunity for us for OLED DDI sees theres been a lot. Even today there were probably three or four comments talking about how the current supply base in OLED DDI seas has been compressed we have always had technology.

That is conducive to the OLED display market in display driver.

And we see kind of see a near term opportunity to apply that technology at Asps that are sort of consistent with our corporate gross margin, which is a change that hasnt been true in the past.

And presents a near term tactical opportunity so while still focused on OLED TDI and we think that's an opportunity for us further out we've actually kind of shifted a bit into OLED DDI sees that we think represent a better opportunity for us near term.

Great. Thanks, guys.

Thank you. Our next question comes from Derek Soderberg with Colliers Securities. You May proceed with your question.

Yes, thanks for taking my questions I also want to touch on mobile so you have touched chips and display chips now.

Now that youre sort of gaining traction and touch on I was.

I'm wondering if you could speak to the mix between the two.

Where that mix is trending as we look into calendar 'twenty one.

And then I'm wondering if you can give us an indication of when you think that LCD display chips business will base out.

Sure.

Yeah, maybe maybe the last question first I mean, I think that certainly over the next couple of years I think the LCD display driver has sort of based out right. I think we've talked about that in previous calls where we've essentially got one customer on LCD DDI.

The handsets that that goes into the LCD based handsets have done relatively well. So we've we've enjoyed that business, we think that theres going to be refreshes down the road and we think we're the incumbent we think we're going to continue to enjoy that business on a go forward basis certainly over the next.

Handful of years.

Your second question does it go is certainly near term, we've seen a tip toward touch.

In the sort of the non.

In the non.

The large handset customer segment, we've had some great momentum I talked about it in my remarks in Korea. So first time, we've ever had design win certainly in the last five years I think people have told me in Korea with a large Korean handset OEM and then we've just done really really well and over.

<unk>.

We are touch controller has just just done phenomenally well so certainly in the near term, we believe that that's going to be we're going to mix our business towards touch controllers.

And.

Call. It the second half of the year is as I mentioned, we do see a frontier opening up on OLED DDI sees today, we have no revenue there.

We don't think that.

And a backward look we thought the margins were going to be challenge there, but the dynamics have changed very significantly in that market and we think that there is going to be a tactical opportunities. So depending on how that plays out we could see a remixing towards <unk> in the second half of the year, but right.

Right now it's been a great touch story mixing toward a bunch of new customers in.

Depending on how you view Huawei right now, we don't have Huawei baked into our numbers at all but we had historically done very very well, there and depending on whether they come come back on line there is upside to our numbers.

Great and then just a quick question on set top boxes.

Morning, if you can give us an indication on the size of those opportunities any dual sourcing asps and sort of when do you expect those opportunities to ramp.

Thanks.

Yeah, I mean, we're ramping well obviously, we've been engaged in the set top box area for for a while so we've got we've got production revenue coming from that business today.

All the all the sockets are single sourced its very difficult just given the software complexity to dual source and set top box a customer may dual source or run two suppliers. One on one model of the set top box another on another model, but the way we think of second sourcing is.

Truly interchangeable across models and that doesn't necessarily exist here.

New hands, the new set top boxes that lead times on these are relatively long you typically have a year from a design win to actual ramp so the actually the new two new design wins that we talked about in the remarks are probably a year away from ramping.

Each of our set top box customers I mean think about it is on on first order kind of between five and $10 million not huge numbers, but it's a business that we try to aggregate and leverage across software and hardware such that we can accumulate a set of these 510 million.

Our wins and build a decent sized business, but.

Each individual win is somewhere on that order.

Thank you and as a reminder to ask a question you're on mute press Star one on your telephone.

Our next question comes from Martin Yang with Oppenheimer. You May proceed with your question.

Okay.

Hi, Michael and team. My first question is about continuing on can you talk about some of the early customer feedback supers and maybe go into more details on the applications for venue.

<unk>.

Yes Martin.

So let me ask the second question first answer the second question first what a lot of people have done in this low power AI is focussed on visual wake words.

And what we think we're going to do in a very different fashion as Brent sorry.

Verbal wake words audio wake words, what we think we're going to do differently is going to actually have a product.

It's based on visual wake words, it will trigger on motion it will trigger on seeing people. It will trigger on identifying an object. So it's a very different approach, it's a unique product.

One that has a lot of demand now because people are very interested in counting people in buildings.

But as a previous caller asked about in the industrial setting you are trying to detect whether people are in a room and then turning the air conditioning on or off right. Turning we have television screens and a lot of our offices, turning the TV screens on or off depending on whether people are there. So our primary focus in our.

<unk> is around the visual concept and really applying a camera based solution. So we really like that and of course, we've got a neural network in there we have artificial intelligence. We can train. It we can do object detection based on training algorithms in inference.

We really like this we think it's a truly differentiated product. So we have an early engagements in some of the segments that we talked about but again I think we're probably.

A year or more frankly away from real meaningful revenue here.

It is early both in the market and frankly in our product development cycle.

But we.

Based on our early engagements with customers. We think this could be a biggie for us Martin.

Thanks have on another question on your long term Iot growth.

When you look at a different target markets you're addressing.

Do you internally prioritize growth to conform to that long term target or do you.

On.

More prioritize margin expansions.

We're pretty neutral.

With the two different goals.

Yes, I mean, we we obviously are trying to stay disciplined as I said in my opening remarks toward the gross margin and spending and we think that where we have our investments and you touched on one this katana IC, we think that we can go.

ROE and we're going to grow consistent with gross margin and consistent in the spending envelope that we've outlined so.

We think theres growth, we obviously think theres growth the growth is going to be coming largely from our Iot business and in some senses on a previous caller had asked about that we're going to take on apply technology that we have today and with that we've applied to mobile toward Iot businesses, and we think that those are faster.

Growers better gross margin.

And we can hit the long term targets that dean outlined by containing to not just chase revenue for revenue sake, which I think is the gist of your question, we think theres enough piles of revenue out there.

That we can maintain our gross margin numbers on it.

And still hit the 8% to 10% growth that Dean outlined.

Yeah, Martin maybe I'll just add that.

If you look at our Iot portfolio, they're generally fairly high end products that.

Nice differentiation in the marketplace.

So really when we're thinking about our product roadmap.

How we think about it is.

Growing a differentiated portfolio and.

Executing growth.

Where we can book staying disciplined within the margin compliance that we've outlined.

Got it thank you.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Michael Grossman for any further remarks.

I'd like to thank all of you for joining US today, we look forward to speaking to you at our upcoming virtual Investor conference during the quarter. Thank you.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Good day.

Okay.

Yes.

Good day.

Okay.

On a go.

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Yes.

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