Q4 2020 Silicon Laboratories Inc Earnings Call
And then.
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I'm here, Yeah, Yeah, I'm not sure George are you on yeah, Yeah, Yeah, Yeah. So let's go let's go Kevin Cook line. My name is Keith and I'll be your conference operator today and.
At this time I would like to welcome everyone to Silicon Labs' third quarter of fiscal 'twenty and 'twenty earnings Conference call.
All participants will be on listen only mode and she didn't need assistance, placing it on a conference specialist by pressing the Starkey followed by zero.
After todays presentation, and there will be and opportunity to ask questions to ask a question you May Press Star then one on interest on phone.
Sorry. Your question. Please press Star then two please note today's event is being recorded on and off.
And the call over to George Lai, and director of Investor Relations and International Finance George from please go ahead.
Thank you Keith and good morning to everyone Tyson Tuttle, Chief Executive Officer, and John Hollister, Chief Financial Officer are on today's call. We will discuss our financial performance for the fourth quarter and review our business activities.
After our prepared comments, we will take questions our earnings press release, and the accompanying financial tables are available and the Investor Relations section of our website at Www Dot satellite and Dot com.
And this call and also being webcast and a replay will be available for four weeks.
Our comments today will include forward looking statements subject to risks and uncertainties and we base. These forward looking statements on information available to US as of the date of this conference call and assume no obligation to update these statements and the future.
We encourage you to review, our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained and 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 and the company's earnings press release, and and the Investor Relations section of Silicon Labs' website.
I would now like to turn the call over to Silicon Labs', Chief Executive Officer Tyson Tuttle.
Thank you George.
And the fourth quarter Silicon labs had record revenue bookings design wins and the largest opportunity funnel we have ever had.
Our Iot business had a second consecutive record revenue quarter with strong wireless growth our infrastructure and automotive business is also flourishing propelled by strong activity and the datacenter solar energy and electric vehicle markets.
Looking back on the year of the pandemic soften demand in certain markets starting in the second quarter or by the fourth quarter. We saw demand return across all markets in conjunction with the tightening of the supply chain.
Currently demand is greater than supply and we have made a significant significant investments to expand capacity and meet demand.
Looking forward, we believe our increasing demand trends are durable.
And the result of the acceleration of the digital transformation of our economy by several years.
And then there will be a greater need for semiconductors going forward we.
We see clear evidence of this accelerating demand and our 2021 bookings, especially in markets such as smart home portable medical retail industrial automation and solar energy and electric vehicles and fill it.
And labs thrived and 2020, as we increased our ability to support customers develop products and collaborate internally.
And our execution has put us in and even stronger position as we enter a period of accelerating growth in 'twenty and 'twenty one.
I will share more specific business results later, but now I would like to turn the call over to our Chief Financial Officer, John Hollister to review the results financial results John.
Thanks Tyson.
Revenue ended strong and the fourth quarter and $243 million up 10% sequentially, which includes a catch up adjustment of $12 million due to a change in accounting estimate where the returns allowance relating to district distribution inventory.
Despite the challenges of the coronavirus pandemic and its industry wide impact on both demand and supply our full year revenue was $887 million and fiscal 2020 and increase of 6%.
Iot revenue for the quarter was higher than expected at $147 million up 11% sequentially led by growth and wireless products, which were up 14% and the quarter and 34% year on year and.
On the fourth quarter, we saw the strongest growth and our industrial and commercial Iot products with a broad based recovery among industrial customers ramps and commercial lighting and electronic shelf labels and a rebound and building starts.
Art home and consumer products were also up in Q4.
For the full year Iot revenue was $514 million up 5%.
Infrastructure and automotive revenue in Q4 ended at $96 million up 8% sequentially isolation and <unk> products were both up and Q4.
Timing was about flat.
Overall broadcast was also flat with consumer down seasonally offsets by a recovery on automotive.
For the full year infrastructure and automotive revenue was $373 million up about 7%.
Turning to end markets revenue from industrial and communications and automotive were up on the fourth quarter, while consumer revenue was roughly flat.
Geographically revenue and the Americas was strong on the fourth quarter on Iot growth zone.
And to Europe, and APAC also increased from the third quarter.
Distribution sales were 80% of total revenue and the fourth quarter and we ended Q4 with DSI at around 47 days.
And from 48 days at the end of Q3.
Bookings were very strong and Q4 due to healthy secular growth drivers and the business, particularly our Iot wireless products <unk>.
Combined with unusual customer ordering patterns based on the strength of the demand recovery low customer inventory levels and a tight supply chain situation.
We are experiencing increased manufacturing costs from our suppliers, which is negatively impacting our gross margin and to mitigate the effect, we have begun to implement price increases to our customers.
We ended the quarter with bookings more than 50 per cent greater than any previous quarter and saw our lead times extend from around nine weeks to 17 weeks.
We have bookings coverage well into fiscal 2021 at this point.
Non-GAAP gross margin for the fourth quarter ended slightly below expectations at 58, 6%.
Gross margin for the full year was 59, 9%.
Non-GAAP operating expenses on the quarter were $97 million about 2 million higher than expected, primarily due to increased variable compensation on upside revenue.
R&D expenses were $58 million or 23, eight percentage of revenue on the quarter and SG&A expenses were $39 million or 16, one percentage of revenue.
Non-GAAP operating profit in Q4 was $45 million or 18, 7% of revenue.
Our non-GAAP effective tax rate for the quarter was 15, 2% non.
Non-GAAP earnings ended at 84 per share on a fully diluted share count of $44 7 million shares.
Earnings per share for the full year ended at $3 and one day.
And about 7% from 2019 due to continuing investment and Iot.
Lower gross margins and an increase and other income and expense related primarily to a decline in interest rates.
On a GAAP basis gross margin was 58, 4% GAAP.
GAAP R&D expenses were 74 million and GAAP SG&A expenses were $50 million.
GAAP operating profit was $18 million or 7% of revenue and GAAP earnings ended at <unk> 20 per share.
For the full year GAAP earnings were 28 per share.
Turning now to the balance sheet, we ended the year with cash and investments totaling $730 million.
Our operating operating cash flow and fiscal 2020 was healthy at $136 million.
Accounts receivable was up on strong shipments in Q4, ending at $95 million.
Our DSO remains stable at 35 days inventory was relatively flat in Q4, driving our turn statistic up sharply to six one times. This level of inventory turns as well ahead of our target.
During fiscal 'twenty and 'twenty, we retired approximately $260 million of our 'twenty and 'twenty two convertible notes and earlier. This month, we issued a redemption notice to fully redeem the remaining balance of $141 million from the balance sheet. We.
We expect to complete the redemption process by the end of March.
I will now cover guidance for the first quarter.
We expect revenue and the first quarter to be on the range of $237 million to $247 million with both Iot and infrastructure and automotive approximately flat to fourth quarter.
We expect non-GAAP gross margin to be approximately 58, 2%.
And as we look ahead and see continued growth and our Iot mix, especially ramps of wireless products combined with cost increases due to the industry wide supply chain situation. We are adjusting our model on gross margin to a range of 58 to 60 per cent.
With the step up and seasonal fringe costs, we expect non-GAAP operating expenses to be approximately $100 million and we estimate non-GAAP operating expenses for the full year will increase approximately 7% with a full year of red pine and as we return to more normal spending patterns and 2021.
And the second half as the Opex benefit from the pandemic relaxes.
We estimate our non-GAAP effective tax rate will be 13% for the first quarter and <unk>.
Non-GAAP earnings per share to be and the range of 70 to 80 80.
On a GAAP basis, we expect gross margin to be 58, 1% operating expenses to be $126 million and GAAP earnings per share to be and the range of five to 15.
I will now turn the call back to Texas.
Thank you John.
And despite a tumultuous year.
Our efforts produced record fourth quarter, and 2020 revenue with 10% sequential growth.
Growth on the quarter and 6% annual growth.
Our business has played a pivotal role in connecting the world from helping expand internet capacity to improving smart homes, enabling contactless retail and powering medical devices that help fight the coronavirus.
And the fourth quarter, we set record for design win lifetime revenue bookings and our opportunity funnel.
And when lifetime revenue for the fourth quarter was $670 million up 10% from Q3 and annually. It was two and a half a billion dollars up 10% from 2019.
Our bookings were more than 50% greater than our previous record quarter and our total opportunity funnel is also at a record high growing to $15 billion and lifetime revenue and the fourth quarter with Iot and making up 65 per cent of the total funnel at $9 7 billion.
Silicon labs is a leading provider of Bluetooth low energy solution and was first to market with Bluetooth mesh and the first to support Bluetooth direction finding our.
And our Bluetooth revenue grew 23% and design win lifetime revenue grew 58 per cent for the year.
We expect accelerating growth rates for Bluetooth and 2021.
And the fourth quarter, we introduced a new line of Bluetooth modules feature and cutting edge security and best in class performance with 10 year battery life on our coin cell mesh networking capability and sub one meter direction finding accuracy.
And October Silicon Labs won the prestigious 2020 Leap Award gold medal for secure connectivity we.
We are leading the way to deliver secure Iot wireless solution, adding security from chip to cloud and protecting against threats throughout the entire product lifecycle and.
Security threats are identified our teams work and real time to develop patches and updates so that we can deploy over the air units already and the field.
Silicon labs products with secure vault, where the first wireless S ocs and modules to earn PSA level, two security certification from turnkey to fully customizable, we offer secure solutions ideal for Iot applications.
And the fourth quarter, we announced Z wave long range called Z wave and how our which is backward compatible with our Z wave 700 series, including the installed base.
This is a significant expansion of the Z wave protocol to extend wireless connectivity beyond the home and the Iot markets, requiring substantially greater range and penetration such as commercial and multi dwelling unit and hospitality applications.
The new Z wave LR specification extends range up to several miles with scalability to support thousands of nodes from a single smart home network, eliminating the need for mesh repeaters, and saving time and money for developers and and customers.
Z wave LR complements the other long range wireless solutions, we are actively developing and supporting including Wi Sun and Amazon sidewalk.
And 2020, we saw increased activity and interest and the smart home market, where silicon Labs' plays a key role across the worlds most popular ecosystem and.
In December we announced a collaboration with or vivo, a leading provider and artificial intelligence driven smart home solutions to develop a new line of products leveraging silicon Labs' wireless gecko series two ex Oc.
So sees reliably connect smart home control panels and switches to many applications, including automated lighting curtains, HVAC systems and wireless home security devices.
We're also excited by the Iot industry is growing collaboration around efforts that make Iot devices easier to use and more interoperable both key elements to ensure the long term growth and success of the market.
And in November.
Theres it'd be alliance announced a new work and group focused on adding support for commercial buildings for the project connected home over IP or chip.
Silicon Labs is committed along with more than 50 other companies to participate and the important effort to build a standard that enables connected devices from different vendors to work seamlessly between our work and home environment.
Turning now to infrastructure and automotive this quarter, we announced clock builder probe.
Complete solution designed to simplify and accelerate implementation of <unk>, 15, and 88, and communications and smart grid and financial trading systems and industry applications.
Tripoli 15, and 88 is the industry standard for ensuring a reliable consistent time referenced between devices operating over Ethernet networks and it is critical to all of today's network communications and an increasingly broad range of emerging applications, where system designers have limited experience with timing and synchronization.
This quarter, we also announced a new high reliability isolation partnership with Teledyne technologies.
A leading provider of high performance high reliability semiconductors for the aerospace and defense market.
Under the new agreement Teledyne, and when market custom high reliability solutions based on Silicon Labs' isolated gate driver family.
Now I would like to discuss steps, we're taking to ensure silicon labs is a diverse equitable and inclusive marketplace and workplace.
And 2020, and we redesigned our D. I program to focus on building a strong foundation that will accelerate change and our organization.
We formalized a toolkit to empower our employees to self form and groups that serve as a resource and community for team members.
We are creating more pathways for underrepresented talent and building a diverse candidate pipeline to help ensure the technology leaders of tomorrow more accurately reflect our communities.
We also have again holding regular diversity equity and inclusion workshops that are available to all our global employees and we're partnering with external experts on understanding bias and promoting inclusion.
Silicon Labs is formalized a set of corporate and dei goals as part of our executive bonus program and the leadership team is fully committed and accountable for driving long term change.
2020 was filled with many challenges and also significant opportunities and achievements as we focus on all the great things in front of us and 2021 I want to take the opportunity to extend thanks and appreciation to our global workforce for their incredible dedication and focus displayed throughout the year as we rallied around the company's vision and values to uplift.
And support one another and our partners our customers and the communities, where we live and thank.
Thank you for your time and attention before we take your questions I'd like to turn the call back to George George.
Thank you Tyson.
Before we open the call for question and answer session I would like to announce our participation and Morgan Stanley's technology media and Telecom Virtual conference on March three.
And William Blairs Annual Technology Conference on March 11th both virtual platform.
Additionally, I'd like to take a moment to talk about ESG during the fourth quarter, we disclose additional information around silicon labs and ESG efforts.
Including energy and water use.
Air emissions water waste and work related safety statistics.
For further details I encourage you to visit the corporate responsibility section of our webpage and the ESG section of our Investor Relations webpage.
The tenants of ESG have long been embedded and Silicon labs culture, and we look forward to expanding our disclosure efforts in 2021.
We would now like to open the call up for your questions to accommodate as many people as possible before the market opens we ask that you limit your questions to one with one follow up.
Thank you.
And as mentioned and we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing on keys to try a question. Please press Star then zero. This time, we will pause momentarily to assemble the roster.
And our first question comes from Gary Mobley with Wells Fargo Securities.
Hey, good morning, everybody. Thanks for taking my question.
And congrats on a strong finish to the year.
And I want to stop asking about.
Some of the revenue related variables for fiscal year 'twenty one.
Can you help me understand whether or not there's going to be maybe a 200 to 250 basis point growth headwind coming from the extra week and 2020, plus the $12 million and.
One time related revenue and the fourth quarter, and then as well just given how the fiscal year 'twenty, one starting now and does it need a reason to think that seasonality will be atypical this year.
Hey, Gary This is John I'll take this one.
On the book.
For fiscal 'twenty, and 'twenty had the extra week and it's hard to call. It just really depends on how customers are met and managing their own supply chains, but.
Maybe a 1% to 2%.
Effects from that as rational to think about.
And there is some catch up related to the change and returns allowance that we that we provided on the call and more broadly speaking given the strength of bookings that we are seeing.
And we very well very well may see some atypical behavior and the shape of our quarterly progression here with what is clearly a strong first quarter.
Customers are seeking to build some more inventory and theirs and their supply chains typically first quarter is down and.
And the industry and including for US So that will have some effect, we'll see how the year plays out but so.
Certainly have very strong durable secular growth trends and the business as well so we'll see how that shakes out as we worked through the year.
Okay.
And I went to ask about the automotive end market.
Is that and.
And market now approaching 10%, perhaps of your fiscal year, 'twenty, one and revenue and and.
Can you characterize the strength youre seeing from that end market and and as well how are your timing products for automotive and progressing thank you.
Yes, I can I can take that and and John can can talk about the exact mix or give a flavor on that we see a strong return on and demand from the automotive market across electric vehicles in particular, we see strong adoption of our isolation technology and things.
Like onboard Chargers and battery monitoring systems and motor controls.
As well as like things like.
And related things like power wall and and and.
And.
Full of energy type type of applications and then you've also got on the infotainment side radios, we're seeing.
Certainly.
And that's the factories ramp up.
A ramp on that side and then it's and it's early on the timing side, we have a number of wins and our shipping thats the smallest portion of that revenue.
But overall, we see very strong demand on the automotive side and really excited about the electric vehicle opportunity as we see the penetration of electric vehicles go from low single digits.
Over the next five to 10 years up to $25 to 30% of the market if not more and just it seems like.
The pandemic.
And a lot of the activity that's going out there and continue to accelerate that transition and we're really well positioned on the on the electric vehicle side.
Yes ill just add a auto books for Q4 and for the year was roughly 8% and Thats about flat from where we ended the prior year of 2019 and Thats. Notable given that there was a pretty significant impact from mid year from the pandemic. We saw of course, a good recovery there on the broadcast auto side, but the stabilization of that.
This really speaks to the strength of the EV ramp the types and was referring to.
Thank you guys.
Sure.
Thank you and the next question comes from Blayne Curtis with Barclays.
Hey, good morning, Thanks for taking my question.
And just kind of curious on the valuation allowance.
And that revenue impact one segment versus the other and I guess as they looked at the flat guide and March they get.
So and some growth just any kind of color on the on the moving pieces there.
Yeah, Blayne, you got that right about first quarter and the way to think about that obviously as the businesses that are more heavily distribution focus.
Would see more of that so you've got Iot as well as isolation, some timing being the primary product lines related to that.
Got you Yeah, I'd, just say I'd just also add Blaine that that that is revenue we would have realized.
Through the year otherwise.
Otherwise and it was.
And even when accounting change and the way we account for distribution inventory that we were being a little conservative before.
So it's real revenue for sure.
Thanks.
And then and you made the comment that demand exceeding supply and it's kind of curious any color in terms of are you is that impacting any revenue in.
In the March quarter, and kind of any kind of perspective as to when do you think you will catch up.
Yeah, I mean, our revenue.
And the March quarter is.
And as.
Is is limited by our ability to supply certainly our bookings right now are exceeding.
And our ability to ship, we have we have secured capacity.
Throughout the supply chain.
And they continue to support customers, but it's it's very tight right now and I.
That's a that's common throughout the industry.
But the back end capacity, we've been able to secure sufficient backend capacity and are really more now just just a limited on wafers.
And working working through getting additional allocation to support the ramps of new products and.
And and the run rate of activity. So we are being very well supported by our foundry partners, but.
For instance, TSMC is.
40% to 50% over booked for the year and that just makes it makes it very tight and we're all working through it to support customers and prevent line down situations and things like that but it.
We're working at a very very low inventory level, right now and and we could certainly do more revenue this quarter, if we could ship it John and your comments on that no nothing further debt.
Thanks Scott.
Thank you and the next question comes from Matt Ramsey with Cowen.
Thank you very much good morning, guys.
First question I wanted to ask you and this has been a theme of many of your peer company earnings calls as well.
Higher input costs due to the tightness that you guys just talked about on the supply chain and different management teams and I guess have taken different views of how quickly and how I guess fully to pass on those input costs and the customer base.
John maybe you could give a little perspective on that relative to the change and your gross margin targets is this something that you guys can pass on pretty quickly and fully is that something you may pass on only partially in an attempt to gain some share or any thoughts there would be helpful. Thanks.
Yeah, Matt and I mean, we definitely are seeing and effects of the supply chain situation and some higher input costs out out of the fields and we are taking steps you know fairly broad based and banner to pass that onto the customer base some of that as you know.
Well underway at this point there are some more forthcoming through the course of next year.
But.
And that is an effort that's ongoing.
And Matt I would just add that the.
The cost increases that we're seeing are.
Modest and nature, while they are real there's expedite charges there are some to secure additional capacity by additional equipment.
A bit on the wafer side, but it's not it's not.
That high but it is impacting the gross margin and and we are we do have pricing leverage.
And certainly we have a lot of customers that have asked for additional components and so working through all that.
With the customers, it's our goal.
To fully offset.
The the cost increase that we're seeing and supply chain with the customers on top of that just in terms of the gross margin we've got <unk>.
<unk> mix that's also.
And.
And is pulling that Iot gross margins or on the high fifty's and as that product.
Product line ramp.
Tends to drag a bit on the gross margin and then we've also had the Huawei situation, where our timing business.
We're not shipping to Huawei, and the timing mixes and a little bit lower than it was in the past and that was that's driving our change in the model.
Got it and no debt.
That's helpful guys.
Taking a bit of a longer term technology question I was interested in your comments about Z wave L. R.
And maybe you could expand on the technology a little bit high.
How would you compare and contrast, it to things like Lora or LTE cat one cat M.
And for wide area access and what kind of and market our industry partner sponsorship that you have for this new technology as it rolls out thanks.
Z wave is really an extension of the Z wave protocol, which is really focused on the smart home.
And and security applications.
So you've got let's say, you've got a security system and your house and you want to connect another building or you want to connect something and your yard.
It's really to extend the range of those to avoid having to install repeaters.
And to and to open up a whole new class of devices just in terms of battery life.
And he's an ease of install and that sort of stuff, it's not meant to be.
Competing with like <unk>, and LTE technology, where you're gonna be roaming around and creating an entire network, but the long range and nature of it does increase the desirability of Z wave and the technology that runs at a lower frequency. So it has a longer range just inherently being.
And being able to penetrate through walls and that sort of thing and the new Z wave technology.
Runs at a higher output level, and and and generates a longer range.
Solution. So it really improves the robustness and increases the applicability and Z wave as the standard.
It's not meant to be like a metro area type network.
But it is it is a step in that direction.
And if your dog gets out of the yard.
You'll be able to find the dog.
If you run too far you might not be able to get it but.
But it's a nice edition and it's something that the customers have asked for for a long time, and we're able to support that increased range on the existing product and it's cash.
And over the air update that we're able to deploy.
And certainly offering that going forward.
Thanks, I appreciate the thoughts.
Thank you and the next question comes from Craig <unk> with Morgan Stanley.
Yes, Thanks, and can you talk about just how the Red line acquisition is going and and particularly versus your initial expectations, whether it's design funnel and and some of the momentum that you're seeing and that business.
Yes, the Red line acquisition, we completed that in April and have have fully integrated their products into our supply chain and their teams into our and.
Our overall wireless Iot Engineering group.
Group.
And we and we continue to support.
Number two that they came in with a fair number of design wins that we have continued to support.
And are starting to see the ramps of those products.
Here as we enter into 2021.
We're very pleased with the technology and our <unk>.
<unk> forward on the on the roadmap driving towards $802 11, a ex and fully integrated <unk> and all the software and tools and everything that goes around that and expanding our engagement with the market. So I don't have the exact numbers on the growth on the funnel and we had about a three.
Quarters of revenue and we came in about about in line to what we had guided last year and.
And the.
And $10 million to $15 million range.
And certainly we will see significant growth on that I don't have a specific number for you on on growth, but as those new products ramp with the $91 16, and then moving into the roadmap and we will.
Certainly see the path and continue to be confident.
Within that three year timeframe getting up into the $100 million range plus of revenue on Wi Fi and continue to see Wi Fi and very important and key technology to be able to to.
Fully serve the Iot market.
And Ah and expanding.
And number of applications and and.
See that as one of the most important Iot wireless connectivity technologies out there. So we're very pleased with the.
With the acquisition are extremely pleased with the team at the site in India.
And hydro bought is gonna be and important part of our ability to efficiently scale.
The company's R&D and support and software efforts going forward.
So that we can drive more leverage to the bottom line and.
And we will continue to update you as we as we March through the year.
Got it thanks, and then just as a follow up within the communication market can you talk about any trends, you're seeing specific to kind of data center versus wireless.
Yes.
Certainly with the with the.
Pulp and shipments to Huawei.
The <unk>.
On a component of the timing revenue.
<unk> is somewhat diminished.
And so it's more focused on the core network.
And.
Getting the ramps and five G with other customers going again, we're engaged with four out of the five vendors.
Yes, you could say three out of the five and.
If huawei is not a picture.
And on <unk>.
And then we ship broadly into the into the into the overall communications market and and also into the data center, we see strong activity and comms and data center.
Lot of that pandemic or digital acceleration.
Related and.
And that continues to drive the predominantly the main driver.
The timing increases that we're looking at for the year.
Got it thank you.
Thank you and the next question and that's on for Neil <unk> with <unk> Nikko Securities.
Thank you good morning, guys and.
And I think last quarter, you told us that your expectations for this year is.
To grow the business at a double digit pace with the Iot, especially the wireless part of the Iot potentially growing 30% and given the strong start that you were seeing any any update on that and are you feeling better about that target or I mean, I don't want us to take the target but I'm.
Are you feeling better worse or the same compared to last quarter.
Certainly as we as we entered the year strong and.
And <unk>.
Q1 is.
Guiding seasonally flat and on top of the revenue adjustment and we're actually seeing pretty significant growth coming here into Q1 and see that continuing into.
And the Q2, we think these demand trends are durable.
And our ability to.
To continue to drove.
And so you got durable demand trends and then you've also got.
Increasing adoption and.
Particular, and Iot and and the wireless area I think that that 30% target.
On wireless growth this year is and certainly.
And within range if not.
And if not being able to overshoot that we'll see how the how the year turns out and the second half and then you've got demand trends and and.
And electric vehicles.
And then some of the.
Give applications and some of the some of the timing applications as well so.
And we're feeling good about 2021, as we entered the year that double digit growth and getting up and the model is certainly within range. It really depends on how and how the second half plays out but right now our view is that the demand for semiconductors and the.
Curt we've caught back up to the curve, we maybe a little bit over the curve, but that curve has moved up and that per turn.
Solid year, and 'twenty 'twenty, one and.
And even going into 'twenty two based on the design win traction that we've been able to.
Put forward last year and continuing into this year.
Got it and then John on the Distillate inventory I think you said, it's 47 days.
Given the strong bookings you know on.
50%.
And compared to the previous I guess peak.
Are you implementing any changes to your bookings or cancellation policies and also if you kind of take it a little bit longer term view do you think you know the current.
And the severity of the shortages you know do you think that's going to change the behavior at this stage or are you are.
Are you planning on increasing your inventory levels on a long term basis going forward and the channel.
Yes.
No not really I think.
We continue to operate on on standard terms.
And.
This will moderate both in terms of the strength of these bookings as well as the tight supply chain situation and we've.
Definitely got a bubble out on the market not just us, but pure companies that will that will sort itself out over time here.
Definitely we are we are not carrying the level of inventory that we watch and.
That will take some time, but overtime and I.
I expect our inventory levels to get back to a more normal level, Scott and it works through this bubble situation that we're in.
Got it. Thank you good luck.
Thank you and our next question comes from tore Svanberg with Stifel.
And thank you first question for Tyson.
And we've been talking about secured it for a while it sounds like secure vault is ready for prime time.
How should we think about the financial impact on you.
And our security technology, whether enhancing gross margin and the Iot business or whether it impacts the revenue profile for Iot.
Security is an essential technology.
For the deployment of Iot and and we've been able to integrate.
<unk> class, leading security onto our devices.
Think about it as having payment grade security integrated secure elements onto the devices. So you don't have to have one externally that leads to a <unk>.
Selling price.
We've been able to do that and energy consumption and.
Industry, leading and so it gives us a higher level of differentiation. So I think it has both a gross margin and a revenue impact.
Going forward and this is a standard standard feature that we are enabling.
Across our Iot portfolio, so we and we continue to enhance the capabilities of that integrate that into our supply chain. You have keys, we will have the ability to enable software and features in the field that we can charge incrementally more money for.
And we will have the ability to sell software.
Those are things that are not significantly impactful in 2021, but we see that as a significant long term value creation.
And value that we can deliver to the customers.
As these devices are connected to the cloud and a secure manner.
And our individually addressable.
And and and you can control the features and and.
Control of the <unk>.
Software that runs.
And manage the update basically device management.
And.
There's significant opportunity and that if you think it's that you're not just selling hardware you're also selling services, but that is something that we are dipping our toes into right now and mostly we're selling chips that are highly differentiated and they have a great set of features but the ability to have this this bulletproof security integrator.
On to a large number of devices creates additional business opportunities for us going forward.
That's very helpful and and that was my follow up you mentioned TSMC 40, 50% over book and then.
And it doesn't sound like.
Hum.
No.
And is gonna be some and mediums there anytime soon so do you have contingency plans or at least starting to think about perhaps working with a few other foundries and cause.
It sounds like the overbooking is going to stay around for a while.
Yeah, and I wouldn't say that that situation is confined.
And some fee and I'm not sure that the Bulks are at other foundries are doing any better and we look we do work with we do work with with multiple foundries, depending on the product mix.
<unk> has been a great partner for us for the history of the company and are and and as we're entering the situation.
On a great partner for Us and.
Helping us to secure additional capacity where possible and.
And we think that we will be able to.
To manage through this in a manner that we can continue to serve the demand and the customers very very tight right now.
And.
But to be able to navigate through this you can't just move a design into a new foundry very quickly, but we certainly have the ability to do that long term.
But TSMC has a fantastic partner and we are looking.
Looking at.
How do we make sure and ensure it really looking at this on a longer term basis, how do we make sure that we ensure the capacity that we need to grow the company from.
Close to $1 billion right today.
On 1 billion and a half $2 billion and making sure that we've got the partnerships in place to be able to drive.
On the ramps and new products.
That we see in front of it and it's all right.
And have confidence that that's the Fabless model and.
And the partners that we have.
And in particular on the foundry side and certainly on the on net on the test and packaging side.
That will be able to execute on that.
Sounds good thank you.
Thank you and the next question comes from Rajiv Gill with Needham and company.
Yes, thank you and congrats on the momentum.
John you talked about long lead times and bookings coverage well into 2021, and just wanted to raise the issue about double ordering what are your thoughts there as a follow up to <unk> question about extending the cancellation window at your customers.
How are you kind of managing through that potential risk of double order and I know the demand is extremely strong and it's probably going straight into production, but just wondering how youre thinking about that given the tight supply.
Yeah, Rajeev I mean.
It's really just ensuring that our customers are being served to the to the best possible extent here given the given the strength and the broad recovery.
Really looking back we saw the pandemic suppressed demand and the second quarter and customer inventory levels get drawn down significantly and.
And in reality some of the demand drivers did not really settled back as much as people had had concerns about back mid year and know that.
The demand has even increased from there it is.
Put a real strain on the overall supply chain.
It's difficult to ascertain.
Double ordering and certainly could be happening, but our goal right. Now is to is to maximize customer service and ensure that everybody is getting get what they can and get what they need to the best possible extent.
On the.
Iot growth.
A lot of the trends that are happening there, particularly on the wireless side and.
Just a question on kind of the microcontroller component of it below that eight bit sold into China.
Wondering what your thoughts on there theres been kind of rebound.
Rebound and that area post the trade war post the kind of Covid and how does that fit into your overall Iot strategy.
Yes, well first of all you have to remember that all of our Iot products have and integrated microcontroller. So all the wireless stuff and system of wireless microcontroller and we're providing the microcontroller functionality for.
Classes devices. The MTA is that we have on where you turn on turn off the the R.
The wireless component of that we also have a strong eight bit market I mean, some of that and China.
So globally, our eight bit product line and the 20 plus year product line with with a lot of very high quality designs, and we actually did quite well and grew our both our eight bit and 32 bit microcontroller.
Products in 'twenty and 'twenty.
We think that.
In 2021 that that will moderate will probably be flat.
And single digit type numbers.
On the MCU side, and certainly the focus and Iot in terms of the new product development. We are developing a few new eight bit and she used to continue to drive.
<unk> and an opportunity and there, but the predominant growth and the focus for the company is on the wireless side and again, those all contained microcontrollers and security and sensor interfaces and.
And all of that stuff, but that's where we're specializing in products, but our microcontroller revenue is going and going to hold on their saw.
And we do continue to invest.
And Opportunistically and there.
You know, where where it makes sense and particular on the flip side, but still has a long life and a very large market opportunity and farnell.
Very good thank you.
Thank you and once again. Please press Star then one if you would like to ask a question.
And the next question comes from Bill Peterson with Jpmorgan.
Yeah, Hi, Thanks for taking the question and nice job on the quarterly execution I was hoping you can help us understand within the industrial and automotive.
The infrastructure and automotive segment, where do you see strength versus weakness I guess directionally and the first quarter should we assume.
Access broadcast consumer down again broadcast auto and.
And the isolation products up and.
And and timing and of course as well as another impact, especially the margin what where does that go directionally and the first quarter.
Yes, Bill this is John so.
We expect some of the some of the legacy access products to decline moderating a bit from the fourth quarter and then that would include the slicks, which had a strong a strong fourth quarter here, we expect timing to grow and the quarter and also see some continued strength in isolation.
So it's.
Just with the trends that you would expect for first quarter.
Okay, Great and then I guess related to the the.
Questions on gross margin you changed the target model, but you know I guess a lot of these things and you can think about at least becoming I guess better over time, the supply constraints and so forth, especially as we look into next year.
And so I guess.
What's the strategy for change and that now and should we assume that you could get back into the 59% to 61% next year, assuming that the supply constraints.
From here.
Yeah, Bill you know really it's it's it's a function of mix as well as types and indicated earlier in the call with Iot and wireless Iot coming up.
That I.
I mean, that's.
And it could change if we saw something.
Additional happened with Huawei or saw.
Timing really.
Take off but at this at this point given the given the strength of Iot and how that's affecting the overall mix. In addition to the cost situation, we talked about earlier.
We felt it prudent to go ahead and adjusted the model.
Okay. Thanks for that.
Okay.
Thank you and I would now like to turn the call back over to George line.
Okay.
Yeah.
Yeah.
Thank you Keith George and me.
Morning. This concludes today's call.
Yeah.
Thank you.
This does conclude today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
Yeah.