Q1 2022 Semtech Corp Earnings Call
Beginning in fiscal year 'twenty, 2 we started using the normalized non-GAAP tax rate of 13% for the full fiscal year.
We believe reduces the variability of non-GAAP tax rates that can I'll call throughout the year.
We will of debt this tax rates annually at the beginning of each fiscal year.
In Q1 on our cash flow from operations increased 20% sequentially to $33 million on 19% of net sales on <unk>.
Free cash flow increased 61% sequentially to 16% of net sales compared to our long term of free.
Free cash flow target of 25% of 30% of ourselves.
In Q1, we repurchased approximately 361000 shares of outstanding stock for $25 million.
<unk> 354 million of remaining in our standard authorization that was funded by our board during the quarter.
We expect to continue to use our cash to opportunistically repurchase our shares make strategic investments on paid down our debt.
Accounts receivable in Q1 decreased 6% from Q4 wide days of sales increase the day to 37 days and remains below our target range of 40 to 45 days.
In Q1.
Net inventory in absolute dollar terms increased 7% sequentially and days of inventory increased to 126 days from 116 days at the end of Q4 and remains above our target range of 90 to 100 days.
We expect our net inventory to remain above our target range to support.
Stronger demand and to address the data supply chain of environments.
In summary of fiscal year 'twenty 2 is off to a strong financial stocks are growth platforms are showing strength, our gross margin side of spending driven by dose platforms.
And our optimized operating expenses, leading to a rapidly expanding operating margin.
Our cash flow generation remains strong and will continue to focus on the execution of those things that we can control and believe the long term secular nature of our growth engines position of nicely for strong growth on the record financial performance in fiscal year, 'twenty, 2 and beyond our.
I'll now hand, the call over to Mohan.
Thank you for Mecca good afternoon, everyone.
I will discuss our Q1 fiscal year 'twenty 2 performance by end market and by product.
And then provide our outlook for Q2 fiscal year 'twenty 2.
In Q1, net revenue increased 3% sequentially and 28% over the prior year to $174 million.
High demand across all 3 of that end markets drove the Q1 growth.
We posted non-GAAP gross margin of 62% and non-GAAP earnings per diluted share of <unk> 53.
In Q1 net revenue from the high end consumer market increased 8% sequentially and 52% over the prior year and represented 32% of total revenues.
Approximately 21% of consumer net revenue was attributable to the mobile devices and approximately 11% was attributable to other consumer systems.
Net revenue from the industrial market increased 1% sequentially and 41% over the prior year and represented 32% of total net revenues.
Net revenue from the infrastructure market increased 1% sequentially and 6% over the prior year and represented 36 percentage of total revenues.
I will now discuss the performance of each of our product groups.
In Q1 of fiscal year 'twenty, 2 our signal integrity product group grew 7% sequentially.
And represented 39% of total revenues.
Demand increased across our data center, PON and wireless base station businesses.
In Q1 revenue from the data center market increased as demand for 100 gigabit per second optical modules continued to increase.
Data center bookings grew strongly in Q1.
And we are expecting strong growth for the rest of the year driven by a 100 gigabit per second 200 gigabit per second and 400 gigabit per second optical modules.
Momentum for our Tri edge Pam for CBS in 100 gig 200 gig and 400 gig optical systems is increasing as the design wins transition to production over the next few quarters.
Our tri edge products experienced record bookings in Q1 as customers begin early deployments that are expected to ramp at global data center customers in the second half of this fiscal year.
We expect that revenue from Tri edge optical modules to grow nicely in FY 'twenty, 2 and over the next few years as more programs move to production.
Our fiber rich PMD platforms are also doing well as they complement our carriage and tri edge <unk> platforms and DSP based modules.
When customers are taking advantage of the higher performance and increased integration provided by fiber age.
We are pleased with our progress in the Pam for optical module market and are increasingly confident that the lower power lower cost and lower latency that tri edge provides together with fiber range is higher performance and integration should enable our hyperscale data center business to continue to grow and achieve of revenue record in FY 'twenty 2.
In Q1 of FY 'twenty 2 upon business increased led by another record quarter for 10 gig PON revenue.
In Q1, we had record bookings driven by demand from Chinese European and North American service providers debt that we believe bodes well for future growth from our 2.5 gig and 10 gig PON platforms.
<unk> provides the most comprehensive portfolio of available in the market and is the leading provider of 10 gig PON solutions for both the <unk> and <unk> segments. We believe we are well positioned to benefit from the increasing global demand for higher bandwidth access connectivity and expect the PON business to grow nicely in FY 'twenty 2.
In Q1 of the FY 'twenty 2 revenue from wireless base stations increased as our <unk> solutions achieved another revenue record in.
In Q1, we began sampling our recently announced 50 gigabit per second Pam for Tri edge platform targeted at front for optical modules for the 5 <unk> wireless market.
We expect <unk> wireless deployments to accelerate in the second half of fiscal year 'twenty, 2 and continued to ramp for several years.
In Q2 bookings for our signal integrity product group reached a new record as demand for high bandwidth global infrastructure continues to increase we.
We expect these businesses along with our video business and our emerging Lidar business to drive sustainable long term growth for our signal integrity product group.
In Q2 of fiscal year 'twenty, 2 we expect our signal integrity revenues to increase and achieve a new quarterly revenue record on higher demand from the data center and PON markets.
Moving on to our protection product group.
In Q1 of fiscal year 'twenty, 2 net revenues from our protection product group.
Increased 5% sequentially and increased 13% annually and represented 27% of total revenues.
For Q1 protection smartphone revenue declined.
As some smartphone customers experienced supply constraints not related to Samsung impacting their ability to build complete systems.
The demand and bookings from our smartphone customers continues to increase and we expect revenues to recover in the next few quarters.
In Q1 demand for our protection devices from the broad based industrial market continued to grow and experienced record bookings as our diversification efforts into the broader protection market, including the automotive and Iot markets gain momentum.
Many of today's high Tech systems are using more advanced process geometries that require robust high performance protection technology to prevent damage to the highly sensitive devices.
We expect the secular trend to continue and drive increased adoption of <unk> protection platforms, and mobile systems and increasingly across broad based industrial automotive and communication systems that should enable our protection business to deliver double digit growth over the next several years.
In Q2 fiscal year 'twenty, 2 we expect our protection revenues increased nicely driven by strength from all segments.
Turning to our wireless and sensing product group in Q1 revenues from our wireless and sensing product group increased 7% sequentially and 78% over the prior year.
And achieved another quarterly record and represented 34% of total revenues.
In Q1 as expected our Lora enabled platforms delivered another quarterly record as the lure of momentum stocks to accelerate globally across multiple use cases.
We recently announced a number of new initiatives that further demonstrate the value of that lower technology delivers to emerging Iot applications.
These included Echostar joined the Lora Alliance and launched an initiative to use Lora Wan networks to bring newer new.
New lower cost satellite based connectivity services to the logistics asset tracking utility and agriculture segments.
SaaS a leader in Iot software analytics and services announced the use of lower land together with its a SaaS AI platform and in conjunction with Microsoft Microsoft Azure will offer a suite of end to end solutions to resolve real world issues associated with the fraud prevention precision AG.
The culture livestock, walnuts and smart energy.
In view of global leader in retail systems announced the integration of lower land into its in view of life platform to improve the retail shopper experience.
And the MFC Foundation announced the neuro and network using personal gateways similar to the recently announced helium network over which individuals can mine crypto currency.
We are seeing more of this type of share moorland network model emerge, which is contributing to the rapid growth in Norway on gateway deployments.
These are just some of the examples of the emerging use cases with the low power long range and flexibility of Lora is enabling a smarter more connected and sustainable planet.
The number of more of networks network operators grew to 151 on we are expecting 165, Lora network operators by the end of FY 'twenty 2.
The cumulative number of of lower end nodes deployed increased to $191 million and we expect this number to exceed 235 million cumulative end nodes by the end of fiscal year 'twenty 2.
The number of Lora gateways deployed increased to more than $1.7 million and we expect the number of Lora gateways deployed to increase to over $2 million by the end of fiscal year 'twenty 2.
The lower opportunity pipeline now exceeds $700 million and by the end of FY 'twenty..2 we are anticipating our opportunity pipeline to exceed $850 million.
We anticipate that on average 40% to 50% of the opportunities currently in the pipeline will convert to deployments over a 24 month timeline.
Our opportunity pipeline remains geographically well balanced with the use cases, primarily in smart utilities, smart logistics asset tracking smart home and smart cities.
These metrics demonstrate the growing adoption of lora across a broadening the low power wireless landscape with.
With the strong momentum and along with the continued influence of the Lora Alliance, we expect to continue to drive Lora to become the de facto standard for the global LPWAN market and what we expect to be a multibillion unit industry in the next 5 years.
In Q1, we experienced record quarterly demand for our proximity sensing platforms led by continued strength from our Asian smartphone customers.
As global RF power regulations become more broadly adopted driven by environmental and social health concerns leading smartphone manufacturers competing on a global stage are implementing proximity sensing technology into the <unk> devices, Semtex leadership and highly innovative proximity sensing platform.
Delivers the industry's most advanced lowest power and highly integrated proximity sensing technology.
With the increasing use of <unk> phones, and the increased deployment of high powered radios across the whole mobile industry. We expect the demand for our proximity sensing platforms to increase over the next few years.
The key for Q2 of fiscal year 'twenty, 2 we expect net revenues from our wireless and sensing product group to increase and delivered another record quarter led by New records from our Lora and proximity sensing businesses.
Moving on to new products and design wins in Q1 of fiscal year 'twenty..2 we released 11, new products and achieved 3036, new design wins, which represents a 38% increase over the previous year.
Now, let me discuss our outlook for the second quarter of FY 'twenty 2.
Driven by the record bookings in Q1, we entered Q2 with record backlog and we are currently estimating Q2 net revenues to be between $177 million and of $187 million.
To obtain the midpoint of our guidance range or approximately $182 million, we needed net turns orders of approximately 1% at the beginning of Q2.
We expect our Q2 non-GAAP earnings to be between 57 and 65 per diluted share.
I will now hand, the call back to the operator of Sandy of macro and I will be happy to answer any questions.
Later.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad.
Confirmation tone will indicate your line is on the question queue. You May press star 2 if you'd like to remove your question kind of the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the psyche.
The time constraints, we ask that everyone limit themselves to 1 question and 1 follow up perfect day 1.
1 moment, please I'll the call for questions.
Our first question is from the Tories Stenberg of Stifel. Please state your question.
Yes, Thank you and congratulations on the strong results.
Mohan you just indicated data youll the need 1% churns should meet the net profit of the guidance.
Im just wondering why you wouldn't guide higher or is it simply because of the capacity constraints because I honestly can't remember the last time, you did 1% church.
Yeah, So towry I think since I've been the CEO of over 15 years now that's been that's clearly the lowest number of terms I think the key thing to remember so of bookings extremely strong demand is extremely strong what we are very we're monitoring very closely is consumption.
We want to make sure that whatever we ship is being consumed and so.
It's really we don't need any more turns for sure but.
Monitoring our pls activity to make sure that.
Everything we see from our customers on our distributors for servicing those customers is being consumed and that really is why we are being fairly conservative on the turns number.
On the guidance and the <unk>.
Outlook.
That's great and as my follow up the could you just elaborate a little bit on both for GM data center. It sounds like your visibility is improving quite a bit there.
Is that tied primarily to obviously continuous data center upgrades, but then also.
<unk> deployments in North America or is China is still on the next year.
So for <unk> for sure it's it's on.
All regions I would say China is definitely in the mix still and we are seeing.
Some indications of the second half is going to be quite strong for <unk>.
And then on the datacenter side yet.
<unk>.
The mixed bag of say 100 gig is doing extremely well at the moment, we're expecting 200 gig.
Start to pick up in the second half.
Actually starting Q2, and then picking up nicely in the second half as well. So we expect data center to have a pretty good year.
Great. Thank you and congrats again.
Okay.
Our next question is from interest in Gara of Baird. Please state your question.
Hi, good afternoon could.
Could you talk about the the gross margin drivers in the second half how much is debt is strengthened by mix and president of the data center versus the price increases and also if you could remind us.
Where does your.
<unk> gross margin for high relative to the corporate average.
So first of all.
As I said in my prepared remarks, we are seeing a lot of.
Gross margin uplift that we expected from our newer product areas are low.
No.
Our Tri edge platform saw industrial protection platforms. The wireless in the all of those things. So we are still of lot of gross margin of special from them on the expectation is that as we go through the second half of the year, we should continue to see accelerating revenues from those of our platform. So my expertise.
Later, we will cut in interest rate gross margin expansion story of forward with regards to the wireless side of the staff.
The gross margins for the wireless business is above for the corporate average at this point.
Great and are you supply constrained currently.
The pockets of supply constraints, Tristan I think.
The 1 thing about us is really about a year ago over a year ago, we made the decision.
Strategically to put in place more internal inventory, which you can see on our above our target range of our model range and the internal inventory and that has helped us for sure. So we're in a position where we're quite comfortable for this year, we will have the supply to grow significantly and probably for next year.
There are pockets of constraints, where demand suddenly it comes across awesome.
We see a sudden increase in certain areas and it's difficult to get the upside the supply to support that but in general I think we're in pretty good shape.
Hello first of the veterans on this.
As of Mega just wanted to make sure the buy comment on gross margin on the wireless that you understand what I'm talking about the wireless base station soil budget for.
<unk> is the correct.
Correct great. Thank you.
Our next question is from Karl Ackerman of Cowen. Please state your question.
Yes. Thank you.
Great.
Hey, Carl.
Carl for John will pick up on ladies for having a tough time here on yet.
Okay Sir.
Go ahead.
Great. Thank you.
Could you discuss the number of design.
Now half.
And for.
Particularly around 200 gig 400 gig.
Thank you.
For the greater adoption.
Gross profit 1 major of hybrid.
Paul talked about.
Thank you for the number of design.
There that'd be helpful.
Yes, I can.
Can't talk specifically of course, but we have about 25.
Kind of design in design win activity is going on at the moment and I think some of those are starting to move to the design wins and some of them even going to production. So.
And obviously, we're getting orders now so.
On the momentum looks quite good itself first set of products that are coming out now we have the opportunity to bring more products out that have a little bit longer reach in the little bit more variance of our tri edge platform. The other we've gotten through kind of the first cycle of learning from them.
So I expect over the next year, we'll release more products on I think of the next few years, we'll have some good momentum in 100 gig 200 gig of 400 gig and then B.
Beyond that depending on what the roadmap.
The roadmap looks like it looks like at that point.
Great Thanks for that.
For my follow up here on your protection business.
You have historically been concentrated.
<unk>.
You highlighted.
Per comment.
Sure.
Opportunities within automotive industrial and.
Detail that a bit more detail.
As reported here.
Great.
Okay.
Yes, I mean, our protection business, obviously historically, it's been very strong in the mobile segment and as you know we diversified within that segment. We used to have a lot of exposure to Samsung we now have exposure to other north American.
Smartphone manufacturers China manufacturers.
<unk> displays with diversified within mobile, but outside mobile, which is where the focus of our R&D a lot of focus of our R&D efforts.
For interfaces high performance interfaces come communications infrastructure like Ethernet ports in the auto.
The motive of infrastructure.
HDMI 2.1 towards USB C and what we found is across the whole industrial communications automotive space. There is an increasing need for those high performance interfaces.
New systems and so that's what a lot of our focus has been put.
We put a lot of folks into that area and clearly now that's about 35% of our protection business is now in that area and so that's starting to grow in the right direction. That's obviously the accretive to gross margins as well. So we feel good about the momentum there which is up to it takes time, that's not a segment that grew.
Rose rapidly, but it's very it's very.
Has much longer lifecycle. So I think of it will just continue to drive good growth for us over many years.
Thank you.
Our next question is from Quinn Bolton of Needham. Please state your question.
Hi, guys. This is Michelle on for Quinn.
Thanks for taking the question congrats on the results and solid execution.
So my first 1 just on the seasonality.
Typically have a slightly more back half weighted year.
But given the growth of you guys are expecting in the back half of fiscal 'twenty true, particularly ready on our signal integrity and the word businesses and would it be reasonable to think that the second half might actually be more than slightly above 50%.
The fiscal 'twenty revenues or.
And where do you think that's it the revenue let me.
Kind of in line with typical seasonality.
Well.
Obviously, we're still we're anticipating a very strong second half.
Well as a pretty the strong first half actually of Q2 guidance, obviously indicates that we're.
So we're comfortable with Q2.
We have very strong backlog for supporting.
The very strong Q3 in the reported Q4, we are starting to get very comfortable with that so it's looking like the seasonality the share will be tricky to kind of call. Normally Q4, we would expect Q4 to come down that's still the expectation to some extent but.
Given where.
Most of our growth engines are at the moment and some of the anticipation that.
Some segments like the <unk> and.
On data center are probably going to continue to be quite strong in the backend.
We may see.
Less of the decline, but that's a long ways off yet.
Yeah. Okay. That's helpful. Thanks, and then just.
Right on.
On your on the last call you guys had you mentioned the protection doesn't ask what's the expected Alright, I think you got the double digits in fiscal 'twenty 2.
Just wondering if you know the softness in the smartphone.
The business during the first quarter.
That has maybe changed your expectations for the year maybe.
Expecting slightly lower gross or what have you for fiscal 'twenty 2 just any update.
You might have there would be helpful.
Yeah actually as the country I think we are even more comfortable the protection is going to grow very nicely. This year.
Remember what I said in the in my prepared remarks on the consumer business, particularly the smartphone business.
Most of the.
There was a slight decline in our protection business, but a lot of that decline was driven by.
Not demand and not by customers not wanting the materials, but then not being able to get enough components from other suppliers and so.
That's not a demand issue and I think we will see a pick up throughout.
Throughout the rest of the year, so we're still expecting pretty good growth for our protection business. This year.
Okay, great awesome, Thanks, and congrats again.
Thank you.
Our next question is from harsh Kumar of Piper Sandler. Please state your question.
Yeah, Hey, Mohan.
The America and the team just fantastic job here a lot of what is happening in your business on a strategic question Mohan.
Youre kind of you.
The combination of coming and going the question is when do you see yourself coming to scale.
It's just the situation where.
What kind of op margins of passionate do you feel with the company like yours on the model like yours, and what revenue do you start to maybe get into the 30% range for the op margins of pick a number that you want to talk about I guess from the from aspirational strain pointing in op margins.
Yes, so harsh are versus the metallurgy et cetera.
The last analyst day, we had on a probably 3 years ago is something we've talked about our expectations of our operating margin on the non-GAAP EPS to be in Victoria, 2% for 36% range.
Given the traction that we asked for it from our growth platforms on the gross margins that come with it.
<unk>.
The wherewith typically manage our operating expenses, which we do expect to continue despite the effort.
Rx headwinds that we're seeing at this point, we do believe the rapid billions of revenue. So we should be at the low to the mid point of that range.
Okay, that's kind of America.
That's very helpful. And then Mohan I just wanted to share I've never I've covered your company for.
Over a decade I maintain the very few times that I've seen the Dutch optimistic a bunch of business.
I think I get the message that you feel extremely good about exceptional growth for much of the remainder of the year. If you can just reassurance that thats. The case based on whatever visibility you have in terms of bookings and backlog and also are you coming up on the supply to be able to meet the kind of exceptional growth in the other.
The words can we expect call it 5% to 6% sequential growth consistently through the rest of the year outside of the seasonally down fourth quarter.
So let me take the supply part of that first Harsha I think we are comfortable with the supply as I mentioned, we put in place inventory strategically for.
For this scenario and I think it's playing out to our advantage. Obviously, there are always mix issues and so 1 has to continue to manage that and monitor that and things do change but.
At this point in time, we feel quite comfortable that we can supply.
So the current <unk>.
<unk> levels.
And then on the on the demand side, Yes, we are very confident a lot.
Of the lot of the growth is coming from.
Platforms, we've invested in for many years as you know Laura.
Taken us quite a while it's not short term investment. This is something thats been invest we have invested in for many many years and.
When you build the foundation.
The structured that way.
It can be very successful obviously as you know we have.
Has to be very patient, but things are starting to play out quite nicely now in that business I feel very good about it we've said the.
We expect 40% CAGR and I think we're very comfortable with that number.
So the Lora enabled business is looking very strong.
On our other growth engines as you know proximity sensing and kind of and again another platform. We've invested in for many years starting to play out because of the <unk> and high power radio so a lot of trends going in our favor. The the datacenter side, we've invested heavily in 100 gig and algae platform, we've invested heavily heavily in.
Pam platform of Tri edge, <unk> and fiber engine and so those are playing out well as well 10 gig PON is another growth area, where we've invested in heavily for many many years and so that's playing out quite nicely that's going to be another good growth driver for us I mentioned <unk> wireless.
There is a bit lumpy as you know is comm infrastructure, but I think that also is going to do quite well and then on the protection side. I think this is 1 of the areas. We're really pleased to start to see the diversification play out and the the.
The broader protection business has a much larger tam potential it takes time, but as we start to see that gain momentum I feel very good about that business because it's a it's very accretive for gross margins, obviously and I think the more momentum we get there I think the better for the company.
Thank you Mohan and congratulations guys once again.
Our next is from Craig Ellis of B Riley Securities. Please state your question.
Yes, thanks for taking the question and congratulations team on the great execution of so Mohan I don't typically ask about the end markets, but I thought there was something interesting in them. So I wanted to direct my first question of that way so great to see high end consumer of <unk>.
52% industrial up 41% the question around infrastructure, which is up 6% as we can all see that the.
Enterprise spending backdrop was really severely impacted post COVID-19 and that we are far from firing on all cylinders with the cloud data center, but the question is this you know what.
More and more reports, suggesting an upturn in enterprise spending on the other 2 end markets is it possible that we'll see infrastructure.
Achieving similar year on year of growth rates, but maybe with the 246 quarter debt weighted.
Now seeing in high end consumer and industrial, especially given the product cycle of positioning that you talked about.
The true your prepared remarks and Q&A.
Yes, Craig we are very positive about infrastructure I think.
Infrastructure did quite well last year, and so I think thats, what part of the challenge with the year on year growth, but definitely the 10 gig PON PON in general I think.
So access bandwidth I think we're going to we're expecting very strong growth this year.
We are still expecting.
Some growth in Hyperscale data center this year and so for me that's the that's.
An interesting data point, given the inventory that was built up and so I think we're starting to see.
In general.
Some of the infrastructure space segments coming back in.
Second sand available more lumpy.
Sure.
Kind of a spate of investment and a lot of.
And then there's a kind of a period of.
The digestion and then it comes back again, but it'll be up into the right. There is no question that the need for infrastructure across all of our segments that we play in the Hyperscale <unk> 10 gig PON.
Is there of the leaders there and then when you add to that.
Some of the other emerging.
I think that for sure it's going to still continues to grow.
Okay, that's great and then switching gears over to Laura and types of price. There wasn't a question of already although many good ones SaaS, but with regards to Laura of their spend a lot of talk on.
On call similar to this sort of for the last 3 or 4 quarters about the potential for high volume.
And the <unk> wins in every deal we do still have that nice share and program bogey out there. So the question is how are you feeling about the potential for some of your bigger customers or partnerships to secure some high volume wins.
When would you expect to get some visibility, but those might ramp.
While we feel good about it I think.
My sense is we're going to have a very strong year, even without that to be honest with the frankly I think we've got a lot of momentum.
The business through just globally in some of the recovery from Covid.
From last years issues, and so I think a combination of some use cases really starting to to to grow nicely more new products that we with our Lora edge platform, that's driving new opportunities and I think with now with more gateways being deployed if you will.
To monitor the number of gateways deployed youll see a pretty large acceleration of the number of gateways, we had $1.3 million gateways deployed by the at the end of FY 'twenty..1 of the end of FY 'twenty..2 we already have $1.7 million gateways deployed so I think of.
That tells me that things are going on the right direction.
And yes, we continue to work obviously with some some very big guys were working some very nice use cases, and we will see.
The proof is in the putting in the sales use cases get deployed and how much business that can drive for us in the <unk>.
And I think when we look at lower up we look not just for 1 use case of 1 customer 1 region. We're looking across the whole landscape of low power wireless connectivity and really monitoring the progress across the board and I would say, it's very exciting.
Good day here. Thanks, so much of Mohan.
Yeah.
Our next question is from Gary Mobley of Wells Fargo. Please state your question.
Hey, guys. Thanks for taking my question I wanted to ask about your inventories and maybe what they are signaling.
So youre running what 26% above the high end of the inventory.
Sorry days target and it's up sequentially.
<unk>.
Speaking of of your own inventories.
We don't know Oliver of what Youre distributed distributor inventory of our can you I.
And I know you don't normally disclose that but could you give us a sense of the sequential direction and your distributor inventory.
Seemingly you're having a little bit easier time than some of your peers in securing some of some wafer supply of finished product or whatnot and so the question related to all of this is <unk>.
Given that you seem to have adequate inventory is there less motivation for year end customers or your distributors too.
Double order or.
Order more product in the actually need.
Okay.
Yeah, that's a good question.
I think 1 of the things we're doing so first of all to answer your question on distributor inventory distributor inventory from our standpoint, it's pretty low.
<unk> to reduce.
Demand is extremely strong low and bookings are extremely strong.
The thing we do Gary as we monitor our pls for a closely so thats the shipments out of our distributors to our customers and we talk to our end customers and we try to get a gauge on consumption and consumption is really the key right because as long as you're shipping to consumption levels.
Which we believe we are and we believe we can continue to support consumption levels. Then I think we'll probably and we can continue to see.
Growth in the business and so thats the game.
We're playing on.
On a per macro you on add anything of that no I think adjusted.
Outside of my remarks for Gary.
The most of the bookends of the stronger demand as the British trucks. So we saw with regards to sort of your question. You have is the most of the pressure for our distributors to lead the double broker stuff I don't think were seeing any EBITDA some of that but we are definitely seeing the evidence of the cross sell.
On a by being able to get access.
Accessory of inventories in the loan growth. So we are seeing the skies, placing the orders and maybe requesting them out into the future on sales like that but.
Like Mohan said, we are managing the business very clearly very concisely I think we're very happy with where were half of what we have in terms of the internal inventory debt, we're very well positioned for the most part of supports the strong demand that we're seeing but at the same time trying to make sure that we're not just shipping to have staff.
For the Westin.
Terms of the distributor shelves right.
Sure I appreciate the color the follow up I wanted to ask about your TIAA Lidar products.
In particular with the recently announced extension or perhaps a new relationship with we can tell.
Is this lidar for industrial applications like ours for automotive applications and in general how would you size up your market opportunity for your TIAA eggs in particular in the.
Lidar market.
So some of them in market standpoint, it's very much a platform for Intel on Intel's use for all of our applications whether that be in industrial I think the first target of industrial slash consumer and then automotive eventually.
I would say that it's more of a longer term opportunity Gary. We've obviously, we're looking to work with 1 of them very closely.
But there is still technology challenges in the market validation and stuff like that but the technology development is what we call.
1 of our emerging growth engines. So if I look at our current portfolio of growth engines, which includes lower on proximity sensing and Tri edge and.
Some of the products that was eroding gross phase, but we have a number of.
A follow on technologies that are coming on and.
In light of ours, 1 of them, which we've invested in for several years now.
The continued investment for several years, I think and hopefully that will become.
A very good growth driver for us in the future of it but I think it's early days, but it's good to be working with a partner like Intel and hopefully it will turn into real business for us.
Thanks Mohan.
Our next question is from Christopher Rolland of Susquehanna. Please state your question.
Thanks, guys Mohan.
Mohan you would mentioned gateways and that 400000, a number which was pretty impressive.
Can you remind us on or update us on the content per gateway now.
And then also if you could talk about kind of the drivers of gateway I'm thinking of the debt.
Of those but talk about the mix of revenue.
<unk> vs nodes now.
And some of the changes that we've seen as of late and how you think those on a trend.
Yes, so we have $191 million in notes connected now it's a cumulative number sort of connected to those gateways. The number of gateways out there now with being $1.7 million actually that supports well over 5 billion sensors. So we have plenty of capacity out there for more sensors. So that's that's a good.
Good thing.
The thing to remember about gateways, we have different types of gateways, we have macro gateways, which go on on towers.
30 kilometer range.
<unk>.
Dollar kind of gateways on the other end of the scale, we have the Pico cell gateways that are.
100 Bucks and.
Very low cost and really target of that indoor use cases support 5000 sensors things like that in the bottom 1 mile range. So a range of different gateways and every use case on every customer has different.
Application and they can deploy different types of gateways, and some cases of where theyre doing.
Indoor and outdoor connectivity. So so it very much varies Chris I think the key thing, though what's driving the southern acceleration.
<unk>.
1 of the use cases I mentioned is this concept of building up a.
Network.
Then monetize as the person who is using the gateway of who has the gateway in the house or in the.
The enterprise and net.
Monetization through crypto currency as you know thats the helium approach and there are other companies now thinking about that and doing that so that's pretty exciting for us receipts of new use case, we don't know if it's going to really fly longer term, but it sounds like a very nice interesting opportunity and 1 on which youre doing real real stuff I mean people are using the gateways for.
For monitoring tracking assets on tracking important the things in their life or using it for special.
The kind of monitoring of low power sensitive so.
Yes, the real really interesting application there are other.
Use cases that are now starting to drive more gateway deployments I think across the <unk>.
I think.
Not only of the smart home, but the smart.
Asset tracking and logistics in general I think is driving the need for more gateways. So that also is another use case. So we're pretty excited by it and we'll see where it leads.
Great.
Bye Bye hotspot is on order.
Backlog as well for that.
But I'm actually speaking about that it does seem like theirs.
From the supplier at least there's a multi them off the backlog of gateways and the <unk>.
Hundreds of thousands of units actually.
So maybe you could talk about that are you severely constrained there.
When do you think you might.
The balanced out with the.
With demand supply demand balance there.
And then just to confirm are you, saying that there is between $101000 of some Jack.
The content.
In those cases credit in those gateways.
Thanks.
No. So the gateways on what are the prices I was giving you as kind of the.
The retail kind of price out there our content is.
3 to 5 bucks in the.
Small gateways and 30 Bucks in the larger gateway. So that's that's our content.
But coming back to the net.
The discussion on the supply demand for gateways, yes. The constraint is not our devices. The constraint I think that manufacturers are having is on microcontrollers and microprocessors and other components that go that makeup the gateway of course, we own the develop the radios right. So.
Our.
We have materials, but I think there's other components that are limiting the availability.
Thank you.
Our next question is from Rick Schafer of Oppenheimer. Please state your question.
Thanks, and I'll add my congratulations guys.
Maybe 1 more Lora question, there's been a lot.
Some some industry folks are calling for 2021 of the year of scale for Laura I think the number of more of certified sensors is up something like 35 or 40% over the last year.
We're on plan with the question is I mean are we are we finally of the tipping point with more of here I mean, I think if I heard you correctly volume.
You just talked about of exiting this year at about $850 million pipeline.
Something around 50% of that converting to revenue over.
Over the following couple of years, so I mean, if you.
You run the math on that.
Pretty significantly above your 40% CAGR, you've talked about for that business I'm just curious if you could maybe.
And I could have misheard because of I guess, but I'm just curious what.
What's changing and what kind of color you can add to that.
And I guess back to the just the question ago.
How big of an issue is the supply constraint for you in terms of capitalizing on that backlog.
So Rick I think you heard correctly I do think the momentum is accelerating now on I think we're starting to see.
Some of that funnel really convert to.
The 2 deployments and that's always been the challenge for US is trying to figure out okay. When we of this huge funnel and we have number of Poc's and customers love. The technology when are they going to really deploy and I think.
Obviously with the setback with pandemic in the China issues of the last couple of years, but I think now we're just starting to see that realization is this technology really.
Add value to.
Use cases related to climate change related to pollution control related to safety related to.
The asset tracking on logistics.
Smart home initiatives Smart city initiatives of the technology is really good for it and so I think what we're starting to see is just the realization that this is.
Some of the.
The POC sort of been going on now starting to remove the bottlenecks you mentioned sensors software is another 1 and with the announcement with AWS on the AWS Iot core platform things like that really moves it removes the need for software developments and remove some of those bottlenecks and so I think of.
The time.
Those bottlenecks will be removed and the.
Then, it's very simple to deploy and end to end.
The lower use case, and I think as that happens we're going to see.
Really this whole funnel that we have not only of the pond get larger but also I think the the funnel will have we will have a little bit more confidence about the.
Conversion on the <unk>.
Rate of conversion into revenue and then you add to that.
You had mentioned I had mentioned interest on it with his question that.
We're starting to see some of the big guys really.
About.
The technology.
Amazon really put a lot of.
The discussion around sidewalk of this last quarter.
Something that was driven by us.
Pretty much of them going out and talking about it and we're starting to see others now.
Utilize the technology and talk about their own systems and so this is all positive for US and then we add to that.
Some of the cloud services and other things that are coming along just makes us feel really good about where the businesses and where it's headed so we'll keep monitoring obviously, we want to keep growing the number of.
Gateways deployed the number of.
The notes that are connected and the number of services that are.
Connected in the value of those services provide and that should drive continued revenue growth for us.
Thanks for color.
In other areas.
That's really the shall I can take the.
The strive for you guys is proximity sensing.
Have a sense of.
What proximity.
Since the or what the penetration rate is today kind of where we're at.
Yes, I think.
Today, so most phone manufacturers.
Obviously, they have a range of different phones, and the high end phones, particularly the <unk> phones and the ones with.
Multiple high powered radios.
Tend to be the ones that the putting proximity sensing into.
And then that's for so that's 1 dynamic is where you have more power of high powered radios and then the other thing is depending on where you ship those firms to so if you're on a global player new shipped to Europe and North America.
Certainly need to have proximity sensing in those phones.
It's just because of regulatory regulatory requirements those regulations of starting to expand globally by the way. So I do think that the.
There's going to be an increasing need for more proximity sensing on these higher end phones as we go forward, but today I would I would estimate probably about 30%.
On the.
Our phones have proximity sensing.
Okay. Thanks for that color.
Okay.
Our next question is from Scott Searle of.
Roth capital. Please state your question Hey, good afternoon. Thanks for taking my questions just to go back quickly the lower I wanted a couple of clarifications Mohan I'm not sure if I heard it in your opening comments, but you talked about proximity sensors being at record levels was lower at record levels for the quarter. It certainly looks like it based on the numbers and kind of how you expect that to build over the.
Of course of the sheer should we be thinking about sequential growth or even flattish because it looks like you're you're basically honing in on 40% plus growth, where we are today and it doesn't sound like you are counting on any sort of large scale consumer contribution outside of China kicking in in the current fiscal year.
Yes, Scott so.
Yeah. The Lora was the record then I expect Q2 to be of record and actually we expect every quarter Laura to have.
Record.
Quarter, this year and to achieve that 40%.
Both.
At least on that.
Momentum is very good for Laura as well as it is proximity sensing and then yeah in general I would say that the.
The business is.
Just kind of.
Kind of firing on all cylinders, it's been for.
The last couple of years, it's been challenging I think theres been a lot of headwinds, but I think now we're starting to see that momentum build up and that's just playing out well for us great and lastly, if I could on the protection side of the business you talked about a long term or intermediate term double digit growth rate certainly in the near term of the handset market has been challenged and constrained by.
Other component availability and I would expect that the bounce back, but when you think about the 10% plus kind of growth and the mix of your current business being more skewed towards mobile.
The smartphone market is expected to grow mid to low single digits on a normalized basis over the next several years. So are you expecting to grow faster than that in mobile or the non mobile components in terms of <unk>.
Industrial and auto are expected to see such strong double digit growth that's kind of how you get to the 10% plus gross number thanks.
Yes, a little bit of both Scott I think within mobile.
We are expecting.
The more diversification of NSO. So we include displays in mobile for example will include Wearables and mobile so it's not just Samsung phones. So we expect that the continues to grow but clearly our investment.
Most of our R&D investments going into the broader protection market and our hope is that that can grow.
Well above double digits, we'll see.
How the market itself may not be growing that fast, but the Tam is large and it's converging on a lot of the segments within that space of converging converging.
To the point, where they need to use higher end protection because of some high performance interfaces that theyre, bringing into the into their systems and I mentioned HDMI 2.1 USB C.
Ethernet infrastructure.
Some of that requires more protection higher on protection. So.
That's our goal is to try to grow our broader business at a faster rate.
Great. Thank you great quarter.
Thank you.
Our final question is from tore Svanberg of Stifel. Please state your question.
Yeah. Thanks, just the sort of follow up first of all of.
Mohan now debt a matter sort of unifying some of the other Iot standards.
Should we should we view zigbee and some of these other standards are still competitors to Laura or weighted matter can you start to see more cooperation between lora and matter because of that because I know on the past you've talked about sort of Lora plus Wi Fi of Lora was Bluetooth and I'm. Just wondering also if there is a is the way to <unk>.
Laura was matter.
Yes, we don't really.
Worry about ore mined who we're partnering with and it's 1 of these.
Driven by customers of customer says well, we want to build a system, where it's Laura plus Zigbee Lora, plus Wi Fi or whatever we'll work with them and that's 1 of the reasons, we license the IP out certain companies. So they can build different solutions. Our goal is simply to make Laura the de facto standard.
The royalty line in the industry, how we achieve that goal, there's obviously various ways to get there so.
What.
When we look at more of the the uniqueness of Lora makes it a very valuable additional radio to have in our system.
<unk>.
Compared to.
When it is added to <unk> wireless for example, you have of very high bandwidth video and then you have.
The low power <unk>.
Connectivity.
Radio there are some technologies, where there is some complement but it's more of an overlap and I would say zigbee Z wave in.
The Wifi as it pertains to.
The low power.
The sensor connectivity I think all areas, where there's maybe more overlap than complement but most of the technologies and the other radio technologies are very complementary.
That's very helpful and just 1 last clarification on for <unk>.
When you talked about the opex sort of staying at this level could you clarify what you meant for that as a percentage of revenue.
How much of an impact is the exchange rate, having on the Opex I guess for what percentage of perspective.
Yes, So my comments were accurate.
More towards the absolute dollar amount of the Opex I think for a second quarter part of.
Q2 guide of Softbank non-GAAP operating expenses would get it for 6 day.
$5 million of something like that if I remember correctly. So that's what I'm, referring to of that I should expect that all of the output of asbestos for the rest of the year interest.
The saltwater around.
That area of dose levels.
With regards to the FX impact.
Interest areas actually if you think about the.
The operating expenses of being a slightly above half day rates of revenue growth that we've talked about before which you saw on model. Most of that is being driven most of that of excess. If you will is being driven by the impact of the week. The U S dollar.
Very helpful. Thank you.
We have reached the end of the question and answer session I will now turn the call back over to Mohan.
The florin for closing remarks.
In closing we are pleased with our Q1 results on the strong start to fiscal year 'twenty..2 the company is benefiting from the strength of our growth engines addressing the infrastructure smarter planet and mobility markets that we believe will produce provide sustainable long term growth.
Of being successfully navigating through the pandemic and more recently the challenging supply chain environment. We are also double down on our commitment to sustainability efforts and our human capital development, given the diverse product offering balanced end market approach and strong customer relationships, we expect to deliver a record financial performance in FY 'twenty 2.
2.
That we appreciate your continued support of <unk> and look forward to updating you on next quarter. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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