Q1 2021 Silicon Laboratories Inc Earnings Call
Silicon Labs first quarter fiscal 2021 earnings conference call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw.
Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Austin, Dean Silicon Labs Investor Relations manager. Please go ahead.
Thank you, Matt and good morning, everyone.
Tuttle, Chief Executive Officer, John Hollister, Chief Financial Officer, and Giovanni for Chile, Senior Director of Finance are on today's call. We will discuss our financial performance for the first 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 in the Investor Relations section of our website at Www Dot <unk> Dot com.
This call is 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. 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 in 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 in any forward looking statements.
Additionally, during our call today, we will refer to certain non-GAAP financial information a reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and in the Investor Relations section of Silicon Labs' website.
I will now turn the call over to Silicon Labs', Chief Financial Officer, John Hollister. Thanks.
Thanks, Austin and welcome everyone.
Last week, we signed a definitive asset purchase agreement with Sky works solutions for the divestiture of our infrastructure and automotive business launching our transformation into a pure play leader of intelligent wireless connectivity for the Iot market.
We also announced organizational changes that will enhance our ability to capitalize on this exciting new opportunity in Iot.
Matt Johnson, formerly senior Vice President and General manager of Iot has been promoted to president of Silicon Labs, where he will be leading our day to day business operations as well as our product development activities.
Daniel Cooley, formerly our Chief strategy Officer will now serve as our Chief Technology Officer, where he will continue to develop our technology roadmap and align our products and solutions to the market opportunity before us.
Tyson Tuttle will continue as chief Executive officer to further evangelize, our products and platform to the growing Iot customer base.
Please note that the divestiture will include a small ASIC product line currently classified in the Iot reporting category, which accounted for less than $3 million of revenue last year.
Our comments today will focus on the consolidated operations of Silicon labs.
We expect to be in position to report on our continuing operations on an Iot only basis in the July call.
We are very pleased to announce this morning record revenue for the first quarter at $256 million up 5% sequentially and 19% year on year.
Significantly exceeding the high end of our initial guidance for the quarter.
Iot revenue for the quarter was $158 million above our expectations up 7% from Q4 and 34% year on year.
Iot wireless led the way with 44% year on year growth in Q1 with strong double digit growth across all our major wireless protocols.
Infrastructure and automotive revenue in Q1 ended at $97 million up 2% sequentially and about flat year on year.
Timing and isolation, both increased from Q4 offset by slight declines in other product lines.
Turning to end markets revenue from industrial consumer and communications markets were all up in Q1.
Automotive was down slightly coming off a strong Q4 recovery.
Distribution sales were 79% of total revenue for the quarter and we ended Q1 with DSI at around 41 days down from 47 days at the end of Q4 with strong Pos to end customers driving down the distributor inventory level.
Geographically, we saw particular strength in Q1 in APAC and Europe with sales in the Americas down in the quarter.
Total bookings were very strong again, this quarter and about 5% higher than Q4 bookings, which were already at an elevated level.
Non-GAAP gross margin for the quarter ended better than expected at 59, 1% due to strength in product mix as well as operational efficiencies with the upside in revenue.
Non-GAAP operating expenses in the quarter were $103 million up about 6% from Q4, primarily due to increased payroll taxes variable compensation and medical claims expenses.
R&D expenses were $61 million or 24% of revenue in the quarter and SG&A expenses were $42 million or 17% of revenue.
Non-GAAP operating profit for the first quarter was $48 million or 18, 7% of revenue.
Our non-GAAP effective tax rate for the quarter was 10, 8% non.
Non-GAAP earnings ended at 91 per share.
On a GAAP basis gross margin was 58, 9% GAAP operating expenses were $128 million.
Stock compensation expense was $14 million in amortization of intangible assets was $12 million both in line with expectations.
Turning now to the balance sheet, we ended the quarter with cash and investments totaling $578 million.
Our operating cash flow in the first quarter was $15 million with significant cash outlays related to seasonally high payroll taxes and increased levels of working capital.
Okay.
Accounts receivable was up on strong shipments in Q1, ending at $104 million or DSO increased slightly to 37 days.
We have no known bad debt exposures related to our accounts receivable.
The inventory balance grew in the quarter to $79 million on anticipated growth from the business with inventory turns declining to five three times, which is still higher than our goal.
So the overall supply chain in the semiconductor market remains tight our fabless business model efficient manufacturing techniques and outstanding relationships with our suppliers have enabled us to deliver upside results for Q1.
During the first quarter, we completed the redemption of our 2022 convertible notes and have no balance outstanding on those notes.
2025 convertible notes have a $535 million balance.
Our balance sheet remains very strong and well capitalized.
I will now cover guidance for the second quarter.
We expect revenue in the second quarter to be in the range of $262 million to $272 million with Iot roughly flat sequentially limited by supply and IAA up sequentially.
As we indicated last week, we expect the Iot revenue to grow 25% to 30% for the full year or between $640 and $660 million.
The demand for our products is very strong and our revenue outlook for the second quarter is supply constrained.
We are working continuously and aggressively with our suppliers to open up additional capacity.
We expect the tight supply conditions to persist for several quarters as factories need time to qualify new production capacity.
We expect non-GAAP gross margin to be in the range of 57% to 58%.
Based on the supply chain situation, we have experienced cost increases and expedite charges from a number of our suppliers, which is impacting our gross margin.
We are implementing additional price increases, but expect we will be slightly below model on gross margin for the balance of this year.
We expect non-GAAP operating expenses to be approximately $104 million we.
We expect our non-GAAP effective tax rate will be 11, 5% for the second quarter.
Based on current tax law and accounting rules, we expect our 2022 non-GAAP effective tax rate.
To be in the low to mid twenties on a combined company basis.
For Q2, we expect non-GAAP earnings per share to be in the range of 88 to 98.
On a GAAP basis, we expect gross margin to be between 57%, 58% operating expenses to be $130 million and GAAP earnings per share to be in the range of 28 to 38.
I will now turn the call over to Tyson.
Thank you John we are pleased to report record first quarter revenue.
The pandemic has led to an accelerated digital transformation, creating market opportunities, we've been able to seize through organic growth despite unprecedented global supply chain constraints.
The revival of economic activities stemming from the recovery signals greater market growth ahead, and we are well positioned to continue to capture share in 2021.
Our opportunity pipeline continues to be robust at $15 billion and our design win lifetime revenue achieved for achievement in Q1 was up 8% year on year.
Bookings have been very strong in recent months with the semiconductor industry poised to deliver an excellent 2021.
Turning to our Iot business wireless connectivity products continue to see surging momentum posting greater than 40% year over year growth in first quarter revenue.
In Q1, we saw strength across our entire wireless portfolio with robust and consistent growth in all of our major wireless connectivity protocols.
Security continues to be critical for the Iot expansion and Silicon Labs has established a clear and unique leadership position in protecting Iot devices against the bad actors.
In March Silicon Labs became the world's first silicon innovator to achieve PSA certified highest level of Iot hardware and software security.
Secure vault technology sets the standard for Iot security effectively protecting against hardware and software attack.
We've made strategic investments to ensure security is a core strength.
Becoming the first company to achieve PSA level three certification is strong validation of our leadership role in securing the Iot.
In addition to delivering superior security and our high performance parts, we provide strong security and our battery optimized devices like the <unk> 22, which just became the world's first wireless SFC to earn <unk> level three certification using the diabetes technology societies D T SEC sick.
Charity protection profile.
T SEC sets the security standard for protecting personal and confidential healthcare data transmitted through connected devices.
In addition to becoming more secure the Iot is becoming more intelligence in areas such as motion detection sound recognition image classification and preventative maintenance.
Developers innovating for these solutions faced obstacles and linking their machine learning models to real World information.
To help overcome these challenges we have partnered with edge impulse to enable the integration of their tiny ml solution into our Soc season. Mcu's. This is just one example of the ways that we are bringing the power of machine learning to developers of wireless edge devices.
Smart lighting continues to be a key growth driver for our Iot business and we have a strong position in the lighting market.
Due in large part to our unique combination of best in class S Ocs and industry leading portfolio.
Our 15 dot for mesh and Bluetooth low energy products are deployed throughout the smart lighting industry, which is growing at a CAGR of 30%.
A great example of this is our work with <unk> light, who recently launched a new smart led light bulb with our BG 21, Bluetooth Soc.
The smart lighting product enables users to connect and control smart home devices directly from the Google home App without the need for any other apps or software.
The exceptional user experiences our technology helps deliver are influencing the broader Iot ecosystem, which will help more and more Iot products become mainstream.
We are world leader in providing wireless connectivity solutions for the smart home.
The envelope to improve simplicity and ease of use.
We recently collaborated with Altair co to create a net the Shelly motion a new Wi Fi motion sensor with the world's lowest power consumption in mass production today.
Shelley motion features up to three year battery life before recharging and is ideal for a wide range of motion sensing applications like lighting and security.
Shelley motion is another Great example of our relentless focus on designing products specifically for the unique requirements of the Iot with built in compatibility with Alexa home assistant Smart things and other third party home automation platforms.
Our differentiated Iot product offerings are winning share and preferred by the marketplace versus competing products Architected on repurposed technology. Non originally designed to meet the unique requirements of the Iot.
Turning now to infrastructure and automotive as we announced last week, we are divesting our <unk> business day Skyward solutions with closing expected in Q3.
This transaction delivers significant value to our shareholders and we are excited about <unk> future under Sky works.
Andre results, we delivered first quarter <unk> revenue growth, both on a sequential and year on year basis, and saw continued recovery in both timing and isolation product lines.
The automotive market continues to see increasingly demanding requirements for timing solutions in the first quarter, we expanded our portfolio of automotive focused timing solutions with the introduction of new Smart clock features that actively monitor reference clock to detect potential faults and provide built in clock redundancy to ensure safe and.
And reliable operations.
To help emerging to help power emerging trends in the electric vehicle and industrial markets. We introduced a new gate driver Board and all in one isolation solution perfectly suited for the recently launched both speed Wolf pack power module.
This new board deliver superior performance to efficiently drive and protect power modules employing any switch technology, including advanced Silicon carbide based modules used in the most demanding high power applications.
During the quarter, we bolstered our management team welcoming Doctor Monesia, Qatari as vice President of Silicon Labs, India.
The niche leads the company's newest and fastest growing wireless development center in Hyderabad, and will grow our wireless engineering talent build scalable infrastructure and foster local and regional partnerships are.
Our hydro by development Center as a result of our acquisition of Red Pine signals, one year ago, adding more than 200 engineers with strong expertise in Wi Fi technology over 70, Wi Fi patents and a number of highly innovative Wi Fi products to our portfolio.
The acquisition further solidified our position in the market as the market leader in Iot wireless connectivity and the integration of the former Red Pine signals team has gone very well.
Under Monoecious leadership, we continue to hire world class talent and hydro Bob as we build the region's top Iot wireless development Center.
As we shared last quarter, we have implemented an internal program to empower employees to form resource groups, fostering a diverse and inclusive workplace aligned with our organizational values.
I am pleased to share that we have formed three employee resource groups and an additional two are being developed. These groups are employee led represent a diversity of interest and support our deep commitment to workplace equity and inclusion.
Additionally, we have launched an inclusive lexicon project to eliminate offensive terms, commonly used in the tech industry and replace them with inclusive language in our corporate lexicon.
In conclusion, our business is generating significant and strong momentum.
With another quarter of record revenue, a growing opportunity pipeline and strength in design win growth.
We are now positioned to capitalize on the Iot opportunity in front of us with a singular focus while supply chain constraints continue to impact our industry's ability to meet surging demand, we're still delivering upside results.
We are collaborating with customers and ecosystem to deliver compelling new products and we are enhancing our workforce by focusing on diversity and expanding management talent.
We continue to lead the market in wireless connectivity for a vast array of intelligent solutions and with a focused management structure, we are poised to capture share and lead the cutting edge of wireless connectivity.
With the global economic recovery from the pandemic in full swing, we are very excited about capitalizing on the growing opportunities in front of us.
Thank you for your time and attention before we take your questions I'd like to turn the call back to Austin Dean Austin.
Thank you Tyson.
I would now like to open the call up for your questions to accommodate as many people as possible for the market opens we ask that you. Please limit your questions to one with one follow up.
Back to you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys at anytime your question Thats been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Gary Mobley with Wells Fargo Securities. Please go ahead.
Good morning, guys. Thanks for taking my question I wanted to ask a multipart question about gross margin.
It sounds as if you had a higher than expected mix of radio in Iot, which I believe is perhaps margin dilutive, but despite that you would be.
For the quarter I Wonder if you can give some.
Reason or rationale behind that and then as it relates to the.
Headwinds from from.
From higher input cost.
<unk> gross margin can you quantify the impact in the near term.
And as it relates to passing on the price increases.
Where might you be getting some pushback from customers.
Yes, Gary on the John on the first part of your question.
We've talked about before technology mix is relevant but what is also relevant is the end market and customer mix and we did see strong results in the first quarter in our industrial and commercial.
Part of the business metering was strong in Q1, which was it was constructive for Iot margins.
As an example of that.
Looking at the looking at the input costs.
Don't have a hard number to give you, but you clearly can see it.
A point or so of margin impact and as we.
Worked through our competitiveness in the market and desire to grow share we're continually assessing.
How how to trans transfer that onto the customer base and Thats, an ongoing process for us.
I appreciate that color.
And in your presentation from last week, you outlined a goal of achieving roughly $650 million in sales for the Iot business and you mentioned in your prepared remarks that you expect continued supply chain constraints for at least a few more quarters, but I'm curious to know whether or not in that 600.
$15 million revenue expectation for Iot you might have factored in.
The capacity you could strength extraneous too to slabs supply chain.
Yeah in the end the revenue guidance that we gave for Iot for the year, we are factoring in.
Known supply chain.
Jane constraints, so that is a supply constrained number.
Got you alright, thank you very much guys.
Thank you.
Our next question will come from Blayne Curtis with Barclays. Please go ahead.
Hey, good morning, Thanks for taking my question, maybe just following up on Gary's question there.
And the outlook for the year, you had Iot margin kind of 57.
It seems like from the June guide and for.
For structure spend kind of flat per event is up sharply from maybe you could talk about that and then specifically I guess the Iot margins are 57 seems like infrastructure margins going down maybe just talk about net Claire.
Yes Blayne.
First on the upside for infrastructure in Q2, we're seeing strength in automotive timing and isolation.
Sort of where you would expect that so that's very positive for the IAA business and great to see that.
And.
Similar dynamics at work with some input costs, increasing there related to supply chain situation.
Affecting <unk> as well as Iot.
Okay, and then maybe just a longer term question maybe.
Maybe an analyst day, but in the long term targets, you kind of showdown affecting doubling of that $2 50 in Iot.
The growth rate I mean, we've been talking about Iot, maybe even growth, 30% youre kind of their debt this year.
Scott maybe you can put some timeframe as to what that long term minutes or maybe what kind.
Kind of how you see the Iot CAGR going forward.
Yeah Blayne.
We tried to articulate that in the in the deal call last week of identifying 20% CAGR opportunity over time here. So hopefully that can can give you a sense of of.
For the doubling time that could be achievable, if we're able to sustain now which we believe is possible. So we did try to go out and call that out. This is a strong year for sure and we have a lot of momentum in the business right now.
Thanks.
Our next question will come from Greg Craig Hatton batch with Morgan Stanley. Please go ahead.
Yes, thanks on the strength that you're seeing in the wireless Iot in the quarter as well as your expectations going forward can you just talk about implications for market share and where youre seeing that the best momentum.
Yes, Craig this is Tyson the we're seeing strength in wireless really across protocols and across a number of different market segments. We outlined some of those things things like lighting industrial automation.
Retail.
Shelf shelf tags.
Smart home.
A lot of the mesh networking a lot of the Bluetooth applications and things like portable medical so it's kind of an across the board in terms of different applications and different different wireless protocols, where we're seeing.
Seeing the strength in wireless and those are trends that are that are going to just continue year. After year. If you think about Iot. It is a long term trend. It's not just something that's going to happen in one area and then and then dwindle away the projections are that the Iot wireless market.
It will grow at a 15% CAGR over the next decade, and so our target of a 20% CAGR.
It means that we will be gaining share over that timeframe, while the market continues to grow.
Got it thanks, and then just a follow up question on tax kind of going from that.
Low to mid <unk> on a combined basis anything to note on just the Iot piece for from a tax implications longer term.
Yeah, Craig Similarly facing the.
Dynamics around the increase with the change in the tax law will be further refining that as we as we move to our continuing operations model, but a similar similar type of increase based on current law and I will I will add that obviously, a lot's happening in D. C. Right now, we're watching that carefully and the landscape could change.
Depending on what happens with legislation.
Thanks.
Our next question will come from Rushee Gill with Needham <unk> Company. Please go ahead.
Yes. Thank you.
Just a question if you did not have supply constraints related to Iot any sense in terms of what the Iot growth rate would have been in 2021.
Yeah Rajeev.
We're not able to provide a hard number to you, but suffice to say that we exited the first quarter as we did exited the fourth quarter with the unusually high amount of unmet demand.
So.
It would be a big number rajiv but.
The entire.
The industry is as is constrained and we're working through that best we can.
And you talked about supply constraint lasting persisting for several several quarters.
Any kind of insight or color in terms of how the industry is.
Progressing in terms of supply and capacity. These are kind of lagging edge nodes, whether it's supply constrained.
We gave it somewhat of a timeframe.
But any sense in terms of.
What steps the industry is taking in order to try to increase the capacity, particularly on these lagging edge nodes.
Yeah, so the the the.
The industry is TSMC is announced.
A number of investments in mature technologies.
And this is really 28 nanometer and above so this is.
It's not the three nanometer and five nanometer and seven nanometer at the advanced nodes, but what's happened is that a lot of the.
In addition to strong demand. We've also had a focus of all the capex.
Into the advanced nodes and then because Moore's law is pushing the limits here. There are a lot of a lot of products have gotten left behind.
And the N minus one and minus two and minus three nodes and so that has also filled up the mainstream.
Technologies right now its safe to assume that for the remainder of the year, we are going to be in a supply.
Constrained situation.
Incremental.
Improvements that debt.
That can be had but it takes a little while to get other.
Other sources of supply qualified and certainly to the extent that we have to build new fabs in mainstream which is not the way it used to work it used to be that they would focus on advanced nodes in the mainstream nodes would would empty out, but we're getting into a situation where the demand for semiconductors is exceeding that that model and the slowing pace of Moore's law migration.
<unk> is adding to that so so it's I believe that this will will persist.
Into 2022, but certainly for the remainder of the year, we're going to be in a supply chain.
Constrained.
Situations.
And just for a follow up in terms of your kind of long term strategy in Iot.
For your.
Pretty much dominating wireless by servicing all the different type of standards that are that are available there.
Protocol multi radio Soc.
There are other.
Connectivity technologies, such as failure massive Iot that youre, considering when you are now thinking about.
Iot and becoming kind of the leader in Iot going for.
Yes, certainly we look at.
Lot of the other technologies in cellular but you know I think when you when you think about strategy and and.
One other things that we're accomplishing with the sale of our.
<unk> group is is to obtain focus.
To be able to focus on this massive opportunity in Iot and I think even within Iot, it's very important that we focus on the most important things in that we don't get spread too thin and one other you look at the standards that we are addressing from Wi Fi Bluetooth all of the mesh networking Z wave zigbee thread.
And then all of the industrial proprietary protocols that we can also run those onto our chip.
There is a massive opportunity for that and if we focus and execute on our vision and continue to push that into.
Into the next process technology nodes and to really build up our Wi Fi business and our Bluetooth business we have.
A long runway of growth without having to necessarily add another protocol and in fact, adding another protocol, especially going after cellular.
Could be could be seen as a distraction from the success in these other large areas. So it's something that we're keeping our eyes on but also being very careful to make sure that we maintain that focus on what the really big prizes, which is the standards that were on is there is a massive growing market.
And we've got to make sure that we ensure success in that.
I appreciate it thank you.
Yeah.
Our next question will come from Matt Ramsey with Cowen. Please go ahead.
Thank you very much guys good morning.
John I wanted to ask a little bit about the after the <unk> sale, the pro forma business and.
The concentration for the Iot business on distribution is that materially different than the combined company has been I think my observation would be probably yes, and then secondly.
With the supply constraints I imagine youre on books inventory and your inventory in the channel are below levels right now in the Iot franchise that you'd like to run that business sat in a steady state basis. If you could talk a little bit about where the Iot businesses from an inventory perspective versus what inventory might be need to be rebuilt.
As we get back to supply demand parity at some point here. Thanks.
Yes, that's certainly on the first question Iot is a relatively distribution heavy business with a broad base of customers outstanding support from our distribution network.
So we expect that to be.
On the on the high distribution side of of how we operate.
And on the inventory question Youre right.
Channel inventory is lean.
And we'd like to see some build in the channel inventory levels.
And the Iot business would normally operate with a relatively higher level of inventory inside than the company average you tend to see faster turns on more vertically oriented businesses with a broad based business like Iot. It it makes more sense to carry a bit more inventory.
And we're not there right now.
Got it thank you.
Thanks, and then just a bigger picture question and just I guess, a reflection of some investor feedback ive gotten in the last week or so since the <unk>.
Deal was announced.
You look at the Iot franchise, 20% growth going forward as you've outlined a $15 billion Iot Tam.
I would imagine you guys would agree that we're in the early innings of this Iot market phenomenon.
And then you get $2 billion in the door that you've earmarked to give back to shareholders I wonder what the debate spin.
Within the management team and the board feedback from shareholders as to use of that proceeds my observation is.
A bit of a scarcity value of high growth quality and your market cap range and public companies and I Wonder if investors might ask the question. What other uses of that cash could there be to grow the business further versus returning it to shareholders. So any big picture thoughts there would be really helpful. I appreciate it.
Yeah, I mean, we're going to have a substantial cash balance hereafter.
After completing the sale of <unk> and <unk>.
You don't want to have cash sitting on the balance sheet and it's our belief both the staff.
My staff and the board that returning that to shareholders is an important priority.
That being said, we have a massive opportunity in front of us and the Tam will go to on the order of.
$10 billion plus.
And we want to ensure success so we will be.
<unk> focused on execution I think as we as we execute the transaction and we are.
Move our RNA team over to Sky works, we've got optimization and execution within the company that is going to be very important for us to focus on and.
There are a lot of efficiencies to be gained by having this pure play.
Focus and both in terms of brand in terms of culture in terms of engineering execution in terms of systems and we've got to make sure that we take full advantage of that and do not want to get.
Distracted with other <unk>.
Immediate.
Acquisition I would also just add.
Two other points.
One is that with our narrowed focus on Iot that necessarily narrows the range of of targets that we would.
Potentially be interested in and certainly we've been active and done a number of acquisitions within the Iot area, but now that would that would be our pure focus in terms of M&A and even after we return that money, we will have a substantial cash balance to continue.
To continue that so.
I think overall.
The right message to send is that is that we're going to return this either in the form of dividends.
Dividends or share repurchase we're going to be getting feedback from our investors.
And welcome feedback on on.
The mechanism and exactly how to deploy that but we do think that that's the right thing to do and really focus on execution and optimization around our Iot business.
Thanks, guys I appreciate it.
Our next question will come from <unk> <unk> with SMB Nikko Securities. Please go ahead.
Thank you good morning, guys.
John on the guidance for Iot being flattish for next quarter, if I take the run rate I think you pretty much get to your low end of your $6 $40 million to $660 million for cash for the year. So is that how you're thinking about the second half and also if you could remind us.
And if there is any seasonality to this business that we should think about and how that might change and as you get more supply over the next few quarters.
Yesterday to you, but we're going to see if we can drive some sequential growth in the second half that's certainly possible.
But I think youre thinking about it the right way Directionally and yeah, there's really.
Less seasonality in the Iot business than some of our other product categories. Like broadcast video for example that which has more of a consumer focus.
You do tend to see the general first quarter softness that's simply common in the industry, but apart from that it's more of a broad based secular trend.
Got it and then.
And just going back to the.
Acronym.
Our net divestiture.
Could you remind us of some of the mechanics. John you said you expect to close the deal in Q3, and when do you anticipate receiving the cash in and how soon after that do you anticipate making the decision about demand the potential uses of the cash whether it's a buyback or dividend.
Something else.
Yes for any we'd expect to receive the cash at closing and.
Capital deployment will be <unk>.
After that we will be consulting with.
The board further as well as taking input from investors as Tyson just indicated depending on the technique. That's finally put to work here that can affect the time horizon I think we can measure that in months and quarters of time not years of time, that's sort of how we're thinking about it.
Got it and then one last one on the.
Red point acquisition.
The last time we.
We spoke he said you know the progress has been pretty much as expected. If you could just remind us how that's progressing and water.
Some of the Mileposts debt.
And are you kind of looking at and.
There is any revenue contribution that you want to highlight I think that I think that would be helpful. Thank you.
Yeah, we believe that we are on track to the.
The targets that we set out with the Red Pine acquisition, and I would say.
We talked in the script about.
Manish Qatari joining us as VP of India.
So we are investing in that design center.
I want to make that the leading wireless design center in India.
And we have a strong team there are over 200 people.
With experience in Wi Fi.
Continuing to.
Integrate those products into our platform and into our roadmap both from a hardware and a software perspective.
Continuing to execute on the.
The next generations of Wi Fi technology, and so we expect to be bring.
Bringing those new.
New more optimized products out into the market here over the next year. So it's.
Overall very pleased with the team very pleased with the technology.
And in really the most important thing is that we take back integrated into our platform and make that accessible to a broader range of applications and customers and I think that that will allow us to really.
Turbocharged the Wi Fi revenue beyond what we talked about initially.
Got it thanks David.
Our next question will come from tore Svanberg with Stifel. Please go ahead.
Yes. Thank you.
Congratulations on the on the revenues and also to net Daniel for their promotions for.
First question.
Is on.
On the PSA certified level three day.
Cheap with secure vault Tyson.
The first one is a company that gets that could you just elaborate a little bit on how important that is from and how do you intend to monetize the security here.
Whether it's monetizing it itself from perhaps getting higher content from or higher asps with your Iot products.
Yes.
The TSA certification was it was a pretty big deal in the industry in terms of really hitting the <unk>.
Top levels of security that are required in this is that this is both software and hardware, making these devices.
Kind of impenetrable from <unk>.
Hackers and endpoint attacks and in that sort of thing and so we've built in a number of features into the chip and also the way we have designed.
The security architecture and.
The software and the way it connects to the cloud and exchanges keys.
And all of that so it's the entire we've thought about kind of the end to end security all the way from the silicon all the way to the cloud and are implementing implementing that in our series two devices and then certainly we'll be further enhancing that in our series three devices.
In term once you have.
Security at this level and you can think about it like your credit card you have the little the little chip on your credit card or within your phone you have a sim card.
In Iot each device will have a unique I'd.
And that.
General concept not only can you communicate securely, but you can address those devices in terms of.
<unk> or in terms of enabling functionality and those create additional revenue streams and we are seeing a small amount of our revenue from security and device management and that stuff today, but that is that is something that over time as we roll this out and as we.
We mature our software stacks and get further penetrated into a lot of these applications, we believe that that can be.
Additional revenue stream it's it's.
Not something that we're necessarily forecasting yet at this point, but the ability to address these devices individually in a in a completely secure way.
And.
To have updates in and functionality.
Enablement is something that we're looking very carefully at.
Very good and as my follow up I know you work with several different foundries today, but as you go through with the divestiture.
Does that really change in a material way or do you expect to continue to work with the same foundries.
Yeah actually.
These supply chain for our infrastructure and automotive business and our Iot businesses were actually somewhat different so the fact that we are divesting.
Actually simplifies our supply chain to a to a significant degree and that is that is one of the benefits that we get so there were a number of foundries that were used on the <unk> side that are not used on the Iot side.
We are we have a very close relationship with TSMC.
A 25 year partnership with those guys and they've done.
A good job for us in a while at the same time everybody's stir.
Struggling with capacity and so we're looking at.
Additional relationships there that could could expand capacity and also continuing to work with TSMC to ensure that they are making the investments.
And we have access to sufficient capacity to support our growth.
Let's go thank you.
Thank you.
Our next question will come from Bill Peterson with Jpmorgan. Please go ahead.
Yes, hi, good morning, Thanks for taking the questions I was hoping can you can you help quantify where the lead times are currently are they extending from the last quarter and is there a difference between.
When lead times between Iot and industrial.
Construction automotive businesses.
Hey, Bill. This is John Yes lead times are definitely extended out I mean, we've had in the past lead times running around seven weeks for so order book coverage. We're looking on average now of half a year, even on some product lines of longer than that and.
That's pretty well across the board on that.
Across the other various businesses that we have.
Okay.
And the second part of some other multipart question on Iot.
Following that earlier question of the 25% to 30% growth expected I guess, where do you see more contribution from end markets home home of consumer industrial and commercial you talked about some other drivers, but I guess with supply constraints are you focusing more on long lived.
Industrial and commercial focused and I guess, just kind of longer term.
Sort of one reporting segment, but we report more granularly on the type of let's say protocol growth or our market growth I guess anything that can help measure the progress on your share gains in relative performance versus peers.
Yes, Bill it's John again.
We're seeing consistent growth in the two areas between.
The home and consumer home and life and industrial and commercial.
And par.
Part of our part of our strategy here in the upside <unk>.
Performance with the supply limitations as to be fair and really treat customers well in this in this scenario, we have a long tail of smaller customers. So we need to be mindful of as we allocate scarce capacity and that's something that we're also doing as we also deliver upside.
With with larger customers. So they have to be mindful of those things and as far as the forward reporting.
We're working through that and we'll have more to report later on exactly how we're going to break that out going forward starting up around the next call.
Thanks.
Again, if you have a question. Please press Star then one our next question will come from Alessandra Vecchi with William Blair. Please go ahead.
Alright, just as a clarification question on the Iot side of the business.
Any color on how we should think about microcontroller growth going forward over the next 10 years.
Alexandra This is a this is tyson.
The.
The big the big growth in Iot is on the wireless side. So.
This last quarter, we were 44% up in wireless.
Year on year end.
If you if you just look at the mix between MCU and wireless the mix is going to more and more shift towards wireless over time.
We continue to make incremental investments in our MCU portfolio on the eight bit side have been refreshing some of that and see good opportunity on the eight bit side and we also you have to remember that all of our wireless chips have a microcontroller in them and so to the extent that those can be redeployed into the microcontroller market we.
<unk>.
Sell those devices with microcontroller functionality in cases, where you might need a microcontroller as well as a wireless chip or something like that so we do see empty use is an important.
Business for onto itself, but also as an important component of wireless so in.
In reality all of our Iot business is microcontrollers, but the the attach.
Rate of wireless to those products is going to continue to rise as we see the proliferation of wireless connected Iot.
Okay that helps and then meeting just one for John well somewhat of a moot point, but until the model transition over a kid to Iot only.
Should we still be thinking about roughly that 7% opex growth on a combined basis. Thank you Dave.
And annual guidance last quarter.
Yes, Alex Thanks for the question, what's the upside in revenue we are seeing some increase in variable compensation and a 9% to 10% is a more rational view on opex given the strong upside in revenue that we're seeing.
Makes sense.
Perfect. That's it for me thank you.
This concludes our question and answer session I would like to turn the conference back over to Austin Dean for any closing remarks.
Thank you, Matt and thank you all for joining US. This morning that concludes today's call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.