Q3 2021 Allegro Microsystems Inc Earnings Call
Yeah.
Thank you for standing by and welcome to Allegro Microsystems, Turkey of fiscal 'twenty 'twenty, one financial results at the.
That's.
All participants line of resolution that will be about after the speaker's presentation. There will be a question and answer session to ask the question during the session you'll need to pass the star one on your telephone keypad. If you recall and you pulled your assistance. Please press the star is email. Thank you.
That would've liked the handy countries of which the Katy Perry. Please go ahead.
Good evening and thank you for joining us today for that growth third quarter results for fiscal year 2021.
I'm joined today by the way gross President and Chief Executive Officer, Rafi think kind of like what's the Chief Financial Officer, Paul Walsh.
The review, our quarterly financial performance and provide the summary of our outlook.
The earnings release, and the accompanying financial tables are available on the Investor Relations page of our website.
This call is the webcast and a recording will be available on the IR page shortly.
Please note the comments made during the conference call include forward looking statements within the meaning of federal Securities laws.
Looking statements include projections and other statements about future events are based on current expectations and assumptions and as a result for subject to risks and uncertainties that could cause actual results to vary materially from our projections.
Please refer to the earnings press release, we issued today and other documents filed by us with the SEC, including the risk factors discussed in detail in our final IPO prospectus filed on October 32020.
The company assumes no obligation to update any forward looking information presented.
The non-GAAP financial measures that are discussed today are not intended to replace will be a substitute for the presentation of the Lakers GAAP financial results and maybe calculated differently than similar measures used by other companies.
All of providing supplemental information because it may enable investors to make meaningful comparisons of core operating results and more clearly highlight the results of our core ongoing operations reckon.
The reconciliation of GAAP to non-GAAP financial measures referenced during today's call can be found on our earnings press release, which has been posted to our IR page.
I will now turn the call of virtual like gross President and CEO Ravi Ravi.
Bobby.
Thank you Katie and good evening, everyone. We're pleased to reported results well above expectations and a strong outlook for the March quarter.
The demand momentum accelerated throughout the fiscal Q3, resulting in $164 $4 million of revenue a record for our current business.
Strong customer demand was driven in part by the end market recovery, particularly in automotive coupled with the customer restocking.
Non-GAAP gross margin was up nearly 200 basis points sequentially and non-GAAP operating income was up approximately 38% sequentially.
Non-GAAP diluted EPS came in at the <unk> per share ahead of our guidance on.
All considered it was a great start in our first full quarter as the public company.
I'm also pleased to report the beam the remain on track with the strategic objectives, we have outlined in.
In the coming quarter, we expect to continue to benefit from these efforts and from the strong end market tailwind within the tightening supply chain.
With record backlog and bookings, we have extended visibility into the first half of fiscal 'twenty two.
With that in mind for.
The quarter revenue was anticipated to increase again sequentially to a new record for the business to $167 million plus or minus $2 million.
Non-GAAP gross margin for fiscal Q4 is also anticipated to move upwards of 50% to 51%.
And non-GAAP diluted EPS is expected to be in the range of 13 to 15 cents.
I'll now turn the call over to Paul Walsh for a detailed review of the financials Paul.
Thank you Robby net revenue in fiscal Q3 of $164 4 million was up 20% sequentially and 20% 21 per cent compared to the same period last year for our core end markets.
On an surged to record levels across all of our end markets, but particularly in automotive.
We saw bookings accelerate as the quarter progressed and backlog strengthened with the extended order visibility into the first half of fiscal 'twenty two.
Automotive revenue increased to 69% of on mix or $113 9 million, increasing 27% sequentially and.
15% year over year.
Our industrial revenue was also strong increasing 9% sequentially to $23 7 million or 14th for.
<unk> of total revenue.
It was up 11% year over year.
Industrial customer demand accelerated and we continue to see very healthy backlog.
Our other business was $26 9 million for the quarter or 16% of revenue. This was an increase of 5% sequentially. Despite.
Meaningful growth for across our top customers, we did not have any customers greater than 10% from Q3.
GAAP gross margin for the quarter was 45, 3% up sequentially and compared to the year ago period.
Our non-GAAP gross margin was 49, 6%, which does not include adjustments for 131 2 million in expected future cost savings related to the closing of our a M. T C manufacturing facility in Thailand, which total 0.7 per cent of net sales.
Non-GAAP gross margin adjustments include $4 7 million and mostly one time IPO related stock compensation charges for.
For the pricing of $1 5 million for the poll of fiscal 'twenty one commitment.
The other point 6 million of one time costs associated with exiting our a M. T C facility.
0.3 million up and tangible asset amortization for <unk>.
Fox total.
The strong margin performance occurred despite of rapid acceleration of demand highlighting the strength of our gross margin profile across all of our product lines.
Gross margin improvements also reflect the results of our mat manufacturing efficiency initiatives.
And we just completed the relocation of all production from a M. T. C ahead of schedule and we are now on the final wind down phase for this facility.
Gross margin was impacted by an increasing mix of wafer supply of bipolar, resulting from the rapid recovery in demand versus our prior expectations.
For the next few quarters, we expect to continue to source of higher mix of wafers from polar enabling us to quickly respond to demand, but out of higher cost and wait for source from our Asian foundry partners.
That said, we Fortunately made strategic investments in additional sources of capacity last year, which will provide some additional supply and cost benefits later in fiscal 'twenty two.
Taking into consideration of all of these factors, we expect non-GAAP gross margin to increase of the 50% to 51% range in fiscal Q4.
We continue to anticipate incremental non-GAAP margin improvements throughout FY 'twenty two.
Rob Lee in line with our prior expectations.
Resulting from the benefit of the backend manufacturing consolidation noted earlier.
Longer term, we maintain conviction in increasing our non-GAAP gross margins toward the mid 50% range as we meant.
Fracturing efficiency gains with ongoing revenue mix shifts towards higher margin and higher growth markets.
Total GAAP operating expenses increased sequentially to $98 6 million with R&D of 31 million of SG&A of $67 6 million.
The increase includes significant onetime items related to our IPO, including 38 million on stock based compensation acceleration and $3 7 million on onetime items associated with the transformational activities. We've discussed the result was the GAAP operating loss of $24 2 million from Q3.
Due to our strong performance on the second half Q3, non-GAAP operating expenses were impacted by of $5 million.
Dollar year to date catch up expense.
Variable compensation, increasing non-GAAP opex of $53 9 million.
Fiscal 'twenty, one is embedded of uniquely non linear year with revenue on the second half now expected to be 32% higher than the first half. This was Bob the anticipated even quite recently the <unk>.
Catch up of lines on variable compensation accrual to where we now expect the finished the year as.
As a result of non-GAAP R&D investment was $28 million of non-GAAP SG&A expense was $25 9 million.
Even with the variable compensation catch up non-GAAP operating and from increased sequentially by 38% for $7 7 million to $27 7 million, representing 16, 8% of revenue.
This does not include adjustments for the $1 2 million of expected future cost savings related to the closing of our a M. T C manufacturing facility.
The land, which totaled 0.7% net sales.
We expect non-GAAP operating expenses to come down in Q4 to be closer to 31% of revenue, which is below the levels of our core business operated at throughout fiscal 'twenty.
We believe this will be the beginning of improved leverage on the step function increase in revenue of experienced in Q3.
The fiscal Q3 effective tax rate was a negative 85, 8% and GAAP net loss for the third fiscal quarter was $5 1 million or four cents per diluted share.
Non-GAAP net income in Q3 increased to $23 million, which excludes the impact of two months of interest expense on the $300 million of the term loan repayment executed in late November.
Only 25 million of that debt remains and we expect interest expense of about $2 50 of 300 K per quarter as a result.
The Q3 non-GAAP effective tax rate was 15, 9% and is expected to be 15% to 17% in fiscal Q4 weighted.
Weighted average diluted share count for Q3 was the Hubbard 81 2 million shares as we only had two months of the additional 25 million shares offered in the IPO.
This resulted in non-GAAP diluted earnings per share of <unk> 13 cents above the high end of our guidance range of current diluted share count is about 192 million shares and we expect the the diluted share count to increase nominally for 195.
In the fiscal fourth quarter.
Our strong execution and business fundamentals continue to be evident on our balance sheet.
Cash and equivalents from Q3 were down $44 million sequentially, but operating cash flow has exceeded our expectations given the offset of 72 million and net financing cash outflows from the various transactions undertaken in the quarter.
We generated 35 million in operating cash flow in the quarter on our quarter ending cash balance was $164 million inclusive of restricted cash.
Accounts receivable balances were 89 million and we ended the quarter with DSO of 49 days, which was down two days compared to the second fiscal quarter and consistent with historical norms net.
Net inventory decreased sequentially by 11 million for finished at $94 million, reflecting accelerating demand.
Channel inventories remain at historic lows while.
Sell through was at historic highs.
In summary, we are approaching spending with the high level of discipline, while continuing to focus on our long term objectives related to our business transformation and margin expansion story.
Ravi.
Thank you Paul straw.
The strong third quarter demand supported the early innings of the market recovery has put us about a year ahead of our prior internal revenue expectations as Paul mentioned, our operations team responded well to the rapidly increasing demand and we were able to maintain good margins.
Revenue is at new highs, we are raising our outlook and we expect the year over year of growth that our year on year over year growth will outperform market forecast in fiscal 'twenty two.
Unique to our leg of it will be the benefits of current manufacturing transformation.
That are expected to reduce cost on our costs and improve our profitability, while maintaining of supply flexibility in fiscal 'twenty two and beyond.
Coming back to the third quarter.
Power IC products were up 8% sequentially and 25% year over year, representing 23 per cent of the revenue.
As you know, we're the market leader in magnetic sensor Ics, which represented 67% of revenue per.
Third quarter automotive strength helped drive 27% sequential mcnett ex sensor IC growth and 19% year over year growth.
Taking a closer look at our automotive end markets. Our revenue was up 27% two of $113 9 million.
Believe that of half of our growth reflects automotive production rates.
Industry automotive production forecast to increase by about $2 million during the quarter and the consensus now is that about 23 million cars per produced.
Based on the customer history, and the relatively low inventories at customers coming into the quarter. We believe that the remainder of robust sequentially automotive revenue growth reflects market share gains and restocking in about equal measure.
Out of automotive customer order rates continued to be well ahead of car production suggestive of continued restocking into fiscal Q4.
While the global recovery provides a nice tailwind we are focused on long term sustainable growth and I'm happy to report the design wins increased over 60% sequentially in Q3, overall and 81% for automotive.
This type of momentum is indicative of real progress towards the market share and growth objectives.
Eight as an ex EV represent approximately one third of for our automotive business and these applications continue to grow it long term rates that outpaced the foundational business and Eitan safety comfort and convenience.
Last quarter, we had some terrific design wins on both eight as an ex TV.
Hearing in electric power sharing program for customers in Korea, including both on the kinetic sensors and power Ics.
We also won new ex EV inverter and steering system business at multiple of Japanese tier one customers of the global vehicle platforms.
These program wins are expected to start contributing to revenue as soon as the fourth quarter.
Our foundational business of ice and safety comfort and convenience both grew double digits sequentially and year over year in Q3.
And believe we are gaining share in these applications, giving us further confidence in the longevity of this revenue.
We also see market share momentum as we expand our leadership position with our innovative ex tomorrow on silicon technology that enhances the energy efficiency and powertrains for both electrified and ice vehicles.
On back biased G M. Our speed sensor ic's offer market, leading the installation flexibility and.
Improving performance and reducing the overall system size complexity and cost and transmission systems.
Last year, we began servicing production and orders for these products and we believe the rapid adoption of this emerging technology demonstrates we have further distancing ourselves from the competition.
Our industrial business was up 9% sequentially and 11% year over year. This includes the strategic focus areas like industry for Plano Green Energy data center, and the long tail of business.
The call broad based industrial heightened global customer demand across our industrial end markets exceeded our supply of incoming order rates remained strong during the quarter.
With signs of pent up demand exiting Q3.
Within industrial broad base grew nearly 50% sequentially in Q3, addressing a broad range of small customers and applications.
This business is mainly serviced through the distribution channel the missing great pull through as Paul mentioned the record P O of less Pos levels and declining channel inventories.
When Chile datacenter of industry for point of growth took a pause as expected, but we see continued future momentum.
Data center was double the revenue level compared to the same time last year. This reflects the market share growth, resulting from our unique IP and the high voltage capabilities that are perfectly intersecting the demand for higher efficiency and 48 volt datacenter cooling.
And finally renewable energy was up 10% sequentially.
We also as we sell of current sensors and motor drivers into renewable energy applications like solar Inverters photovoltaic combine of boxes.
All of the panel tracking systems and wind Inverters.
These are the applications they reduce power dissipation high voltage isolation and small form factors ex.
Our important exactly where our product shine.
A key element of the industrial story, it's a market leading current sense of family with the.
The recently released the second generation of our innovative power of monitoring chip, which has been a game changer in the energy measurements.
The new device further simplifies power measurement, and AC and DC power applications, particularly Iot devices building and home automation and even silver in telecom power.
This product like many in our portfolio of supports our mission to leverage technology to deliver a more sustainable future.
In the third quarter, we were acknowledged by the 2020 carbon disclosure project, but taking coordinated action on climate and water issues of Lego the is proud to be committed to <unk>.
The skies and of course reflect the outperformance for our sector and regional languages.
Ah Legros the other business was up sequentially by 5% the near term growth is due primarily to the end market recovery with notable growth in Iot applications. We expect the COVID-19 specific momentum in printed and peripherals that has contributed to a higher run rates on the other business look steadily decline as the end markets normalize.
Now for the fiscal Q4 guidance.
As we discussed we continued to see strong momentum to date in the fourth quarter with record backlog. However.
As you know we're closely monitoring demand in navigating through the supply chain challenges created by the rapid recovery in the industry.
Balancing these factors, we expect both automotive and industrial revenue to be up low single digits sequentially and we expect other to be flat with the company revenue expected to be in the range of $1 $65 million to $169 million.
We expect non-GAAP gross margin to be in the range of 50% to 51% trending upwards from Q3.
We expect non-GAAP operating expenses declined to 51, 5% to $53 million, we expect non-GAAP diluted earnings per share to be in the range of 13 to 15.
Per share.
Just to wrap up we're extraordinarily excited about the teams the ability to respond to the increasing demand and contribute to a record quarter.
Good visibility and backlog on giving us confidence in delivering another record quarter in fiscal Q4.
With progress on the manufacturing efficiency initiatives driving margin improvements and strong momentum in the design funnel I continue to believe we are well positioned to deliver on the long term objectives.
We'll be we will now be happy to take your questions Katie.
Thank you Ravi operator will you. Please review the question and answer instructions with our participants.
Thank you.
The reminder, if you would like to ask the question you May Press Star one on your telephone keypad.
To withdraw your question press Japan.
Well.
Both suggests a moment to compile the kidney for hospitals.
And your first question comes from the line of Gary Mobley from Wells Fargo. Your line is now open.
The one thanks for taking my question and let me extend my congratulations on a on.
On a strong finish to the calendar year.
I wanted to start out by asking about.
Gross margin. So so Paul you did a pretty good job of it sort of walking us through the variance in the reported December quarter relative to your gross margin guide.
And you're obviously expecting the improvement, but I was wondering if you can break down for us.
What sort of capacity.
Past the limitations you have would you see how that maybe force you to take more than your purchase commitments with polar and how that overall played out in the gross margin impact in the December quarter and into the March quarter, and then have the follow up.
Sure. Thanks Kelly.
Yes, we are one of the the drivers for gross margin in the quarter was the mix of wafers towards polar.
We consider ourselves fortunate to be able to have that.
As a as the.
The safety belt of if you will and you know we've indicated.
Takeda debt in the coming quarters will rely on us on a heavier mix from polar.
Hum.
Long term we're committed to.
Continuing to expand at UMC in and with the.
Other foundry partners as well.
So I think it's something that we can walk through are we don't have any.
The capacity limitations necessarily that will impede us.
Our near term growth, so we feel pretty good about it.
Okay.
As a follow up and related to the topic I wanted to ask you guys about your of qualification.
On your.
Eventual transition of manufacturing of TSMC could you give us some sort of update there. Thank you.
So Paul I'll take that sure yes, so our TSMC activity has been the ongoing we expect to have revenue from that activity in our next fiscal year in fiscal year 'twenty to.
Getting wafers to supply demand in the second half and we expect it to ramp up into fiscal 'twenty three.
As expected given the long qualification cycles that we have in automotive we had projected Hum this particular stock range.
I appreciate it thanks guys.
The next question from Mark sympathies with Jefferies. Your line is now open.
Hi, Thanks for taking my questions.
So first question on the backlog side of it sounds like the backlog is one of a lot of Paul can you talk about to the extent.
How does the profile of that backlog has changed.
Maybe like from 90 days ago to what extent do you have of backlog visibility into that goes into the June quarter, two quarters out instead of just the the first.
And then and I think.
I'm, hoping that you can help me reconcile the backlog is and there's not it doesn't it's not obvious that there's a lot of constraints from your suppliers like youre guiding for about 2% growth at the midpoint in the I'm wondering if you could just help me about the difference reconciling strong backlog growth in the backlog and and lower sequential.
The growth outlook. Thanks.
Thank you Mark.
Yes, we have.
And.
Ordinary times, we have very good visibility into our backlog we.
We continue to have.
Excellent visibility into what we see certainly the demand has accelerated like everyone has seen so we have good visibility.
Certainly.
And it gives us great confidence in the current quarter, but we do have good visibility into into the until the June quarter as well so I think.
It gives us a lot of confidence and it certainly helps with our planning going forward.
Okay, Great. That's helpful. And then the you know a lot of times when you get into demand environments. Like this of people start worrying about double ordering.
And the building inventory of safety stocks.
A pretty high can you can you give us a sense of what kind of visibility do you have.
On to your products. Once you once you ship them do you do you have visibility all the way into the.
Now to the production line.
Does it end of.
Before that and you know how.
You've been through the cycles before of how do you how do you kind of manager of SaaS. When you get to a point, where you are you you get concerned about the risks of double ordering and inventories building up out there.
That's all I had.
Well, I mean, our ordering patterns or demand patterns in back log of something we monitor every week and that's just been of discipline. We've had for a long time the visibility that we have the most do have is we have great visibility into the distribution channel and as we alluded to earlier.
And in the call.
Those inventories are quite lean and so.
But beyond that into two of the not until the non distribution level of customers I think it's it's a different.
The fifth.
The ability certainly different minutes.
I would probably ask Ravi the for if you wanted to share any color on what we see there.
From that type of from that channel.
Yeah, you know I think as Paul said, the the we have been monitoring customers. What we know is that we are on.
In constant communication with many of our customers given the rapid.
Acceleration of the backlog and we've been trying to monitor the demand.
Hum.
We do know that there is a substantial and customer of pool at this point.
There there is substantial.
The restocking of the end customer, but also their production rates have been increasing so it really is a blend but I think cash we could expect debt in times like this we've all been through the semiconductor cycles and in times like this we do have the risks of of.
Of of backlog of.
Actually all of our shipments.
Getting ahead of themselves. So we monitor this very carefully and we are very cautious in making sure that.
To the best of our ability that.
Customers are not getting ahead in terms of their order patterns.
That's very helpful. Thank you.
[laughter].
And your next question from Blayne Curtis of Barclays. Your line is now open.
Good afternoon, and thanks for taking the question just kind of curious what kind of gross margins on inventories inventories came down.
Obviously your.
I'm trying to many of them I'm, assuming some mix of polar obviously, its a headwind on gross margins I'm just kind of curious how you're thinking about.
On managing the inventories back up and then you know just a little color as to the improvement you're seeing in the March quarter.
And then kind of just if you could help us a little bit more with the trajectory. You you learn you can get back to more normalized levels, but can you just give the more granularity on on the timing of when the the polar mix could could come up and when.
You could get some better allocation of that.
Sure Blayne I'll I'll take that.
So yes inventory came down.
Really wasn't a surprise given the acceleration in demand and revenue.
You know where we are.
Good.
Very focused on ensuring that we have the appropriate levels of inventory.
So we continue to look at that both for the March quarter and beyond kind of ball.
From a capacity.
<unk>.
Perspective, with art with UMC, but also with being able to manage.
Anything we might need from polar as we alluded to.
The long term the strategy.
As to when that May happen, when we would roll off for it's a little unclear at the moment.
Just because of the of the demand environment, but it's not a it's not a long term strategic goal to affect our long term strategic goal is to.
Line continue to wind polar down which would create a significant.
And sustainable tailwind on the gross margin long term.
Okay, and then I did want to ask you I know the small part of the business, but photonics actually was almost the last two quarters little under a million Bucks the just any day.
The comments on on the it seems like it's coming in a bit better than at least what I had drivers of photonics and kind of the outlook.
No. It's a small segment, but it seems like its tracking a bit better versus what I had.
Okay.
Yeah.
Think of Photonics is.
Segment, where I'm at this point, it's really and then the reinvestment phase. So we are focused on product development and re architect that business to be more applicable to the two automotive lidar.
You know as we said in the past a real metrics for this particular business will come down to a product releases and customer engagements on in the automotive front.
Yes, we have we have small revenue.
But our real revenue is going to come from and the real focus is on on on the automotive Lidar, which which we expect to start progressing in terms of products from design wins over the next couple of quarters.
Yeah.
Okay. Thank you.
And your next question from Chen that center of Credit Suisse.
Your line is now open.
Yeah. Good afternoon, Paul Congratulations on the solid results. Thanks for let me ask the question Paul I wanted to go back and just revisit.
Fiscal third quarter gross margins to make sure I understand the Delta that's going on just relative to where the street was versus where you reported.
Was most of it the 70 bps from the closure.
If that's it why couldnt you recognize that on the December quarter or is this all being driven by incremental costs from things like Poland.
Got it.
Good question, John basically when I think of the the <unk>.
Revenue guidance range, we anticipated happiness of miles the 70 bps or thereabouts.
As we entered the quarter and it was.
Part of what I would characterize our guidance range of 50 to 51 back in November.
Without that.
I was.
The guiding towards 50%. So this so with $49 six we were quite close.
To the <unk>.
And the reason we can't really included because it's viewed much more of as you have more of the pro forma adjustment of rather than the non-GAAP adjustment.
We don't agree with the hole with a M D C.
The Thailand facility being essentially complete with production and in the wind down phase, we really won't have that.
Going forward.
So effectively the fiscal fourth quarter gross margin guidance includes the benefit from the Thailand closure.
Yes. It is.
Exactly yes, that's the way the perfect yet we should see some benefit we're in the wind down phase.
All of those things are on there's a little bit of ramp up but we should be seeing that.
And then my second question for for Ravi just on the auto side, you talked about kind of half of the strength.
Think being restocking I'm just kind of curious I think this is the first time that I can remember where major auto Oems are being forced to shut or capacity.
Because they can't get semiconductors, which tells you of bolthouse cyclically strong things are but perhaps more importantly, how much more structurally important ships are to building cars I'm kind of.
Curious do you think this will change.
The auto guys view inventory and will they just hold structurally more inventory and especially given that your cost side of the equation is moving up how do you think about pricing.
The B, you rising costs and tight supply right now.
Yeah. So you know.
I think we are already seeing the impact of.
The tight the tightening of the belt buckles on the part of the automotive supply chain.
The the cold the quarters, and I think inventories got down to extraordinarily low levels. I think this was the trend actually that started.
The in the prior of year. So we came into this year with extraordinarily low inventory levels and and we continued through the COVID-19 quarters with the inventory kept of kept declining.
And no one forecasted the recovery.
This rebound in the automotive in this large recovery has completely depleted or is it has it has been depleting the.
The the supply chain, the semi supply chain and as you rightfully Adas that semi as you know are becoming more and more critical to the operation of vehicles and that's what we are seeing now I think we are seeing the backlog trends change as we speak we're seeing on our visibility go.
Out of a couple of quarters, maybe sometimes of more which is something which is quite unusual for us. So I think there is something going on in the automotive supply from the part of our automotive customers, where they are giving us for the bigger visibility and I think they are trying to address the shortfall by increasing the.
A restocking.
It doesn't really apply to us.
But what you see is that the high end processors are competing against the.
The trend so the demands created by cellular and <unk> and I think the automotive customers of ending up recognizing this.
I'm sorry, what was the second part of your question there's sort.
Did you price your philosophy right now if you can can you take pricing up to cover cost increases can you take it up beyond that how are you.
We're trying to manage incremental costs with long term customer relations.
So so we typically we announced transaction with both for the suppliers or with our customers.
That means is that we were not of commodity company and we don't.
Commoditize, either of our approach of saying or selling.
So we have long term agreements with our suppliers on or at least our critical suppliers in terms of pricing, which we expect will help us.
Whether this this.
There's constraints that everybody that a lot of companies are seeing.
But on the other hand, the also have agreements with our customers that we that we look at them.
We win win situations occur that are out of our control, we do have conversations with customers on pricing.
We are addressing.
The pricing.
On the in a limited fashion right now while we continue to monitor the market we continue to monitor the.
The supply chain and <unk>.
Continue to monitor.
The supply chain costs. So yeah. It is a it is the it is the.
Invitation that we're having with our customers, but some of our customers.
Perfect. Thank you very much.
Sure.
And next question is from training Apache F. F N B C. Your line is now open.
And congrats on the being the.
Being a public company and solid execution Ravi.
The Ravi I just wanted to go back to your comment about design wins I think you've mentioned your designers are up about 80% or so.
And you also said that your of ice business is up double digits, which is a little bit surprising to me. So if you could talk about give us a bit more color on the design win pipeline and where you're winning these designs and if these are for ice versus ex JV on a dash and also I think in the past you said you were optimistic about improving gross.
<unk> with the new products, if you could talk about it for.
These new design wins are going to drive any incremental margin opportunity.
Yeah. So in terms of design wins, we were up.
60% of.
Kill the Q and the bulk of those design wins for <unk> ex E V or a das areas and when I say ex E V. It could be hybrid electric or or.
Battery electric and.
Some of these design wins on our our impactful do you expect that they will actually have meeting total revenue impact starting.
This particular quarter on accelerating beyond.
So.
And similar to it to the Adas wins that we're having.
Typically are our ex EV and Adas business is.
Is our emerging business and is is has.
Higher margins than our.
Then on ice business, which is a more mature.
Sure.
So.
So we are we are really happy about this trend.
You've seen where R. R.
Our ex U V in Adas products.
<unk> deemed as the best in class on being picked up by the market leading customers and this is worldwide. We are seeing it in Japan, we're seeing it in Korea, we're seeing it in Europe.
So the second part of your question was on <unk>, So the ice quarter over quarter growth is really representative of the.
Bounce back and car production and the restocking that's going on right now, it's not really of content growth at this point.
Got it and then one for Paul Paul in a gross margin of lot of questions have been asked on the topic, but if you look beyond the fiscal Q4 as we look out to the next fiscal year can you talk about the puts and takes of gross margin.
I guess, what I'm trying to get is if if.
The benefits related to the Thailand factory of fully baked in in our fiscal fourth quarter of just to still have any additional benefits.
Coming in in June and beyond and then.
Are there any other drivers beyond that.
The next for scope next half.
Thank you.
Sure.
Yes, as Thailand rolls off and we'd become basically of singles that have a single backend manufacturing facility.
In fiscal 'twenty, two we expect to see incremental improvements throughout the year.
Certainly.
Ware.
So that's that's the that's a strong tailwind and the pulp.
The poll of away from mix as something more of a short term tailwind or headwind of that offsets that and I think you know as we go through it like many of many of our peers as we looked at.
Different areas, where costs may be rising we're looking at how we offset those and so and we also anticipate the assortment efficiencies.
It would help throughout the next fiscal year.
Got it thank you.
And the next question from pitching the cash.
Mizuho Your line is now open.
Tired of being part of the congrats on a good 2020.
Just kind of question on the other are those are when you look at the convention and ice versus TV wondering what the speechless of faster than autos from September and how it trended in December the mixed shift significantly.
Of note.
Yeah, so visually on so as we've spoken before.
Ice.
<unk> dominate the market in terms of car production in car volume. So it has a much larger established base.
EV is an emerging segment.
Thirdly growing the.
The extraordinarily excited about it but it's still coming off of small car production base. So best the best thing I can tell you is that our ex CV business grew 57% year over year.
Which is which for the quarter. So its talking about the extraordinarily strong momentum we are seeing rapid acceleration in the adoption of our products from this particular area.
We're very excited about some of the new products that will be released and we will continue to focus on R&D in this particular area.
Got it and then look at your December quarter. It looks like auto was I think you said grew 15% year on year it'd be the electrician L V P.
So on year on year.
Or would you expect.
As you go forward any thoughts on how Oh.
Investors should be looking at the outperformance versus L V P.
Yeah.
So we were we were looking at this data ourselves and what is always difficult and the as the semiconductor suppliers that on our numbers in terms of the clear multiplicity of L. L. D. P. They get modified the modulator by supply chain strategies on our customers so inventory bills tend to.
Tend to boost things up and inventory declines of our burn offs tend to.
To put the things down so.
And in 2019 calendar year. It was a very large pullback in automotive.
Especially in the analog and sensor space and a lot of it was the result of inventory pullback. So some of the data might look a little larger than expected because of the because of inventory of pullbacks, but you know we are seeing content growth.
Is it just for.
For example of my ex the statistic. It so it's a wonderful the statement on on how we see of things growing we've seen growth on a das again, that's a content story for us.
So we do expect to continue to outperform the LDP market I mean, the the.
The auto the auto production market.
Statistics.
Got it thanks.
And next question from <unk>.
Barton.
The <unk> company. Your line is now open.
Hi, Ravi and Paul Congratulations on the nice revenue and strong backlog I wanted to ask Ravi I think you mentioned in the script that that auto production is back the 23 million units in the fourth quarter, if I annualize that it looks like for kind of back to pre COVID-19 levels wondering as you look forward into March and June do you expect some of the.
Victor shortages that are pretty well known does that take the auto production down for for a couple of quarters until the supply chain can work through those issues. Just wondering if you had any thoughts on kind of where production goes the next couple of quarters.
Yeah, I mean, it's it's a good question of you know we.
Follow IHS and <unk> and we are we use them. We believe that there are probably a little smarter than we are projecting on automotive production.
You know.
The expectation for this coming year is still running between 85 and $88 million.
Given that we ended last quarter with the 23 million vehicle.
<unk> quarter.
They will be the or they're projecting a little bit of flattening of the act.
At the projected flattening in terms of of the production rates.
We're seeing the demand at this point.
The auto customers are one thing every product that we can every every unit that we can ship at this point so.
The demand is strong we see the visibility out of next couple of quarters.
It's a unique situations of right now where are the the backlog of exchange is giving us extraordinary visibility.
Beyond the 90 day typically the visibility that we have so it's looking strong for now I think there is it is a combination of for us of content story.
We've got content, increasing its a combination of some restocking that I believe that's going on.
You know and.
I don't believe it's an L D P growth story.
So it's going to be either flat or just mildly declining, but not not of any real significance.
Yeah.
Great and then the follow up question on how does you you'd mentioned the restocking activity and it sounds like we've gotten down to very low levels through the supply chain here on the second half of 2020.
You know from your your experience going through past auto cycles, how long does that restocking activity. Typically play out is that is that of two to four quarter kind of phenomenon because it does it come back quicker.
Just any any sense on how long that.
Restocking could could you go over how many quarters do you think that plays out.
Well you know, it's interesting, but I'm not sure that history really applies to this because.
I think with the increased current.
Reliance on semiconductors, I think they may be I'll be maybe seeing a change in the near term strategy near to midterm strategy on the automotive customers.
They may be looking to have higher levels of inventory at this point just to protect themselves against the supply constraints that the it seems today.
Okay.
I really don't have a better answer the last of it. So we're just going to have to wait it out or you're going to have to see how it goes.
We don't see it pulling back much throughout this year.
We seek continued we see debt our fiscal 'twenty two will be strong so were pretty excited about that and we're pretty happy about the visibility we have.
Great. Thank you.
And the last question for Mark led the seats of Jefferies.
Your line is now open.
Hi, Thanks for what can be back into the queue. So.
So I had a question on the industrial markets.
You know I know.
When you were doing the road shows this is the seem to be like a greenfield opportunity.
Largely of Greenfield opportunity.
And youre expecting very healthy growth in that market can you just remind us in this market to what extent are you you're taking chips from you know.
Of that you had originally designed for the automotive market and just opportunistically finding opportunities for them in the industrial market versus designing products from scratch.
For.
For this market and can you talk a little bit about the sales cycle.
On the sales process here in the industrial versus versus orders is it a shorter should we think about of shorter sales process. There. Thank you yeah. So yeah.
Yeah, It's a great question.
Our industrial business is actually a mix of both.
Target of design products as well as the leverage of products that apply very well across the automotive and industrial spaces. So for example on our current sensors that we do for automotive the they have similar types of requirements in the industrial space day.
They are in the solar inverters as well as in the ATV Inverters and vehicles. So there is some synergy there's more synergy than we would expect in our in our electrification product portfolio. There's also more synergy that we would expect in the motion control product portfolio, but the.
We are particularly proud of the activities that we've done in datacenter way, we've developed and released a family of quiet motion. Pam drivers include embedded algorithms and and address the three phase fan cooling needs for for <unk>.
Datacenters and servers and this.
Of this particular product line is growing dramatically.
It is.
It is up substantially year over year, I think it's almost up.
200 per cent and it speaks to both the increased needs of data centers cooling needs of data centers, but it also speaks to the adoption of our technology and how well it's been targeted targeting this particular market space. So it's a blend of we see the should we see both types of activities.
On a 48 volt automotive activities lineup very well with the 48 volt industrial activity. So of wafer technologies line up very well, we do not work.
Very very deeply in the five volt and sub five old levels. So so there is a lot of synergy over there the design cycles, certainly quicker and.
What I would say is that once you get designed into a platform at one of these large industrial customers.
The selling cycle then all of a sudden becomes very quick when you. When you win the new project on that same platforms on the ramps happen very very quickly, we sometimes get very little notice in this particular space.
Yes.
Katy.
Great.
The operator, I think that of our last call.
The question. So thank you all for joining us today.
Yes.
And I just wanted to thank everyone on the soccer on our first.
Uh huh.
Earnings Q&A session as a public company, we're very excited.
Talked a lot today about our bookings on.
On our visibility and it's we feel fortunate debt.
This is <unk>.
Where we are happy.
Happiness.
And our initial launches of public company.
Very exciting for us and we look forward to speaking with you soon.
And thank you Paul and I, just wanted to wrap up I wanted to.
Second policy commented is a extremely exciting journey that we've been on and we're particularly proud of the of the quarter. We've had the particularly proud of the visibility we have into the next year.
The both on the top line as well as on gross margin and the continued initiatives that we have that hopefully helps us deliver good quarters in the future.
Good and great quarters in the future. Thank you all for attending and.
Have a great evening.
Sure.
Thank you gentlemen.
Today's conference call. Thank you everyone you may now disconnect.
Okay.
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Yeah.
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