Q2 2022 Semtech Corp Earnings Call
Earnings call at this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note that this conference is being recorded I will now turn the conference over to your host Sandy Harrison you may begin.
Thank you John and welcome to <unk> conference call to discuss our second quarter fiscal year 'twenty. Two results speakers for today's call will be Mohan My Husqvarna, Centex, President and Chief Executive Officer, and the macro chicken, our Chief Financial Officer.
A press release announcing our unaudited results was issued after the market closed today and is available on our website at <unk> Dot Com. Today's call will include forward looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements for a more detailed discussion of these risks and uncertainties. Please review the safe Harbor.
That is included in today's press release and in the other risk factors section of our most really see our most recent periodic reports filed with the Securities and Exchange Commission.
As a reminder comments made on today's call are current as of today only.
<unk> undertakes no obligation to update the information from the call should Baxter SEC circumstance.
All references made to financial results and Mohan than a macro is prepared remarks. During this call we refer to non-GAAP financial measures unless otherwise noted a discussion of why the management team considers such non-GAAP financial measures useful along with detailed reconciliations of such non-GAAP measures to the most comparable GAAP financial measures are included.
In today's press release.
I want to also highlight that <unk> will be hosting its first ever tech topic webinar that is scheduled for Wednesday October six where we will focus on our Lora platform more details on the event, including the agenda and sign them information will be coming soon and with that I will turn the call over to <unk>, Chief Financial Officer, a message Mecca.
Yeah.
Thank you Sandy good afternoon, everyone.
As is our practice I'll be focusing my comments on <unk>.
Non-GAAP financial results unless otherwise.
<unk> for Q2 of fiscal year 'twenty two.
Net sales grew.
9% sequentially, and 29% year over year to $185 million, which was above the midpoint of our guidance and represented a new quarterly record led by the secular momentum that contributed to new record achieved by several of our growth.
Key growth.
Our platforms.
In Q2 shipments into Asia represented 81% of net sales.
North America represented 11% and Europe represented 8%.
While these represent the ship to address this for our distributors and Oems, we estimate that approximately 35% of our shipments are consumed in China, 27% in the Americas and.
And the balance over the rest of the award.
Total direct sales represented approximately 10% of net sales.
Distribution represented approximately 87%.
I'll now pass was another quarterly record.
Our distribution business remains balanced with approximately 39% of the total <unk> coming from the infrastructure end market.
31% from the industrial end market and 3% from the high end consumer end market.
Q2 bookings remained strong and increased 75% year over year and resulted in a book to bill well above one.
Those bookings accounted for approximately 3% of shipments during the quarter.
Q2, gross margin increased 70 basis points sequentially to 62, 7%, which was at the upper end of our guidance range due to a more favorable product mix.
Our gross margin is benefiting from a higher mix of sales from our growth platforms, including Lora enabled data that's why it's Tom <unk>.
10 gig PON fiber to your wireless and broad based industrial protection.
For Q3, we expect gross margin in the range of 62, 8% to 63, 8%. So we anticipate a greater contribution from this group.
Drivers.
Q2 operating expense increased 3% to $74.0 million.
Driven by higher variable compensation expenses slightly offset by lower new product development expenses.
For the rest of fiscal year 'twenty, two we expect our operating expense to be in line to slightly above current levels.
In Q2, we were again pleased to see our operating profit on a sequential or year over year basis grow much faster than sales due to the gross margin expansion as stable up revenue expenses.
This drove a 270 basis points sequentially and expansion of our operating margin to 27, 1%.
We have continued.
Continued operating leverage as we make progress towards our target of 2% to 30 plus.
<unk> long term.
It's a good model.
And in Q2 cash flow from operations increased 53% sequentially to a record $53 million or 29% of net sales, while free cash flow increased 71% sequentially to 25% of net sales achieved in the lower end of our long term.
Cash flow target range of 25% to 30% of net sales.
In Q2 report just a profit, making your 1% of our outstanding stock for $42 million.
<unk> $322 million remaining in our outstanding authorization.
We expect to continue to use our cash to opportunistically repurchase our shares make strategic investments and pay down debt.
Our accounts receivable in Q2 increased.
The 10% from Q1, while days of sales decrease of three days from Q1 to 34 days I'll remains below our target range of 40 to 45 days.
In Q2 net inventory in absolute dollar terms include a 10% sequentially and days of inventory increased by three days to 129 days at the end of Q2.
We expect net inventory to remain above our target range of 90 to 100 days to support the stronger demand and tight supply.
Supply chain environment.
In summary, we are pleased with the strong first half momentum we are seeing from our higher margin growth engines, which we expect to continue in the second half we believe the sustainable secular drivers behind our growth engines, our expanding gross margins stable up revenue expenses are strong.
Cash flow generation have positioned us well to deliver a record financial performance in fiscal year 'twenty, two and beyond I will now hand, the call over to Mohan.
Thank you <unk> good afternoon, everyone.
I will discuss our Q2 fiscal year 'twenty two performance by end market and by product group and then provide our outlook for Q3 of fiscal year 'twenty two.
In Q2, net revenue increased 9% sequentially and 29% over the prior year to a record $185 million higher demand across all three about end markets contributed to the Q2 growth.
We posted non-GAAP gross margin of 62, 7% and record non-GAAP earnings per share of <unk> 65.
In Q2 net revenue from the infrastructure market increased 10% sequentially and represented 37% of total net revenues.
Industrial market net revenue increased 5% sequentially and represented 31% of total net revenues.
The high end consumer market net revenues increased 10% sequentially and represented 32% of total net revenues.
Approximately 21% of consumer net revenue was attributable to mobile devices and approximately 11% was attributable to other consumer systems.
I will now discuss the performance of each of our product groups.
In Q2 of fiscal year 'twenty, two our signal integrity product group grew 10% sequentially and represented 39% of total revenues.
Strength from the data center and PON markets drove the growth in our Sip business.
In Q2 revenue from the data center markets grew sequentially led by record revenues from our Pam four platforms.
Long design win momentum in 100 gig 200 gig and 400 gig Pam for optical modules is expected to contribute to a strong second half for our data center business.
We are very pleased with the progress of our Tri edge <unk> platforms, and we expect to introduce our new longer reach Tri edge platforms over the next 12 months that we believe will open up the full 200 gig and 400 gig Pam four data center market to us.
We remain confident in our strategy and as we execute on delivering our tri edge and fiber edge platform that deliver lower power lower cost and lower latency. We should see continued growth in our data center business in FY 'twenty two and beyond.
In Q2 of FY 'twenty two revenue from our PON products grew sequentially and achieved a new revenue record.
Demand for our 10 gig PON products remained very strong and achieved another record and now represents the largest revenue segment within our PON business.
<unk> provides the most comprehensive PON PMD portfolio available in the market today, and we expect to have one business to continue to benefit from the global demand for higher bandwidth access solutions.
We expect our PON business to remain strong over the next few years as global service providers accelerate their deployment of broadband access equipment.
In Q2 of fiscal year 'twenty to.
<unk> demand slowed as expected following the prior quarter's record results.
However, with several China tenders recently announced and carriers in North America, and Europe expected expected to begin <unk> build outs over the next 12 months, we expect to see demand for our <unk> platforms pick up during the second half of this year.
We continue to see design wins for both our 25 gig clear edge and 50 gig Pam for Tri edge platforms in <unk> optical modules and we believe we are well positioned to benefit from next generation wireless network deployments.
As users demand greater bandwidth, we expect the infrastructure segment to continue to grow and expect this to result in sustainable long term growth for our signal integrity product group.
In Q3 of fiscal year 'twenty, two we expect revenue from our signal integrity product group to increase and achieved another record driven by growth from all of the infrastructure segments.
Moving on to our protection product group.
In Q2 of fiscal year 'twenty, two net revenues from our protection product group increased 9% sequentially and.
And increased 49% year over year and represented 27% of total revenues.
In Q2 protection revenue from our consumer customers rebounded nicely over the prior quarter led.
Led by growth at our North American and Korean customers as their supply constraints improved.
Demand also increased across the broad based industrial markets led by stronger demand from North American and European automotive and industrial customers.
Many of today's automotive Iot and communication systems use advanced lithography chips that require higher performance protection.
Our latest protection platforms deliver technology that prevents damage to these highly sensitive chips. In addition, as part of the industry's ongoing push on ESG. We are seeing an increased focus on the reduction of electronic wastage, which we believe will further accelerate the adoption of some tax protection products.
We expect both these trends to continue to drive further adoption of some tax protection platforms across all market segments and enable us to deliver double digit growth with increasing gross margins over the next several years.
In Q3 of fiscal year 'twenty, two we expect our protection revenues to increase again nicely led by continued strength from the broad based industrial market.
Turning to our wireless and sensing product group in Q2 revenues from our wireless and sensing product group increased 7% sequentially and 61% over the prior year and achieved another quarterly record and represented 34% of total revenues.
In Q2, our Lora enabled platforms delivered another quarterly revenue record driven by the smart utility Smart city and industrial Iot segments.
The momentum from our Lora platforms has really started to accelerate globally and we expect to see continued growth. This year in line with our long term, 40% CAGR forecast.
We are also seeing a tremendous number of new Lora based use cases globally that support future growth recently.
Recently announced initiatives include LDP, a south Korean smart sensor network provider integrated Lora into its smart fire prevention system that provides real time analytics.
<unk> connectivity and geolocation to protect commercial facilities, such as shopping malls and local markets.
Swiss post have deployed smart connected pens that leverage its nationwide Lora network to help digitally transform a Swiss postal service.
Offset in Iot solutions expert is collaborating with <unk> to support a number of new smart utility Iot initiatives targeted at the oil gas and communications industries.
And Skylab, a supplier of wireless sensors, and GPS tracking and measuring systems will be using our lower edge platform to develop a solution for indoor and outdoor asset management of vehicles vessels and containers.
This is one of many asset tracking design wins based on our edge platform. They are expected to convert to revenue in the next 12 to 18 months.
These are just a few of the new use cases that highlight the flexibility scalability and momentum on Lora that is enabling a smarter more connected and sustainable planet.
In Q2, our Lora business metrics progressed, very well against our FY 'twenty two targets.
The number of Lora Lan network operators grew to 156.
And we are expecting 165, Lora network operators by the end of FY 'twenty two.
The cumulative number of Lora end nodes deployed increased to $208 million and we expect this number to exceed 236 million cumulative end nodes by the end of FY 'twenty two.
The number of Lora gateways deployed increased to over $4.0 million.
And has already exceeded the goal we set for the full year.
As a result, we are increasing our gateway target for the year to $7.0 million.
The Lora opportunity pipeline increased nicely in the quarter and now stands at over $850 million, which also exceeded the target we had set for the whole year.
As a result, we are increasing our opportunity pipeline target for the end of the year to $900 million.
We anticipate that approximately 40% of the opportunities currently in the pipeline will convert to deployment over a 24 month timeline.
Our metrics demonstrate the growing adoption and deployment of Lora with a long range low power and low cost of Lora is being leveraged.
We believe that this momentum in our metrics along with the increasing influence and efforts of the lower alliance will continue to enable lora to become the de facto standard for the fast emerging LPWAN market.
In Q2, our proximity sensing platforms achieved another quarterly record led by strength at our smartphone customers semtex proximity sensing platforms provide the industry's most advanced and highly integrated proximity sensing technology for mobile and wearable devices.
The growing adoption of <unk> phones, and the use of high powered radios is contributing to an increasing number of social health concerns, resulting in more stringent RF power regulations globally. This trend is expected to result in increasing demand for our proximity sensing platforms over the next few years.
For Q3 of fiscal year 'twenty, two we expect net revenues from our wireless and sensing product group to increase and deliver another record quarter led by another record from our Lora business.
Moving onto new products and design wins in Q2 of fiscal year 'twenty. Two we released 11, new products and achieved 3019, new design wins, which represented a 16% increase over the previous year.
Now, let me discuss our outlook for the third quarter of FY 'twenty two.
Following very strong bookings in Q2, the increased 75% over the previous year.
And record POS we entered Q3 with record backlog.
We are currently estimating Q3 net revenues to be between $188 million and $198 million.
To attain the midpoint of our guidance range or approximately $193 million, we needed net turns orders of approximately 5% at the beginning of Q3.
We expect our Q3 non-GAAP earnings to be between 68, and 76 cents per diluted share.
I will now hand, the call back to the operator, and sandy and macro and I will be happy to answer any questions operator.
Thank you.
This time, we would like to begin our question and answer session.
Like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we pull for questions.
Our first question comes from the line of tore Svanberg with Stifel. You May proceed with your question.
Yes, Thank you and congratulations on the record results.
Mohan.
I think you mentioned that.
Lora is now basically on track growing at.
Over 40% of forecast.
Does that mean this year is also now tracking for lora to be up 40%.
It is it's trucking.
I would say, it's tracking ahead of that actually so but that is our expectation to be at least 40% yet.
Very good and as a follow up but just to clarify when you're talking about protection business.
Do you expect it to be at a double digit growth business going forward was that specifically for the non consumer part or was that for the entire category.
For the entire category I think.
Consumer obviously grow faster, but it can also come down closer it's a little bit.
More volatile.
Our broader and industrial protection is more stable growth I would say, it's not going to see that.
It's very high in a very drop it's just more.
Just kind of whatever the industry is growing at plus X percent and I think one of the things about this business is that we are really just starting to play in the broader industrial protection business. So we have a lot of.
The ability to increase penetration there I think is much better for us of some of those trends I mentioned.
In our favor so as a total we think we can grow double digits nicely.
The other thing to remember in this business is that the broader industrial protection business is much higher gross margin typically than the consumer protection. So that will definitely be a positive for us.
Very good. Thank you very much congrats again I'll go back in line.
Yeah.
Thank you. Our next question comes from the line of Tristan <unk> with Baird. You May proceed with your question.
Hey, guys.
Congrats.
40% of the 900 million pipeline and Noah.
That you expect to deploy over the next 24 months can you remind us of the average duration of those design wins.
So the opportunity.
Attrition covers.
Several years of design opportunity.
Some of those will move faster.
And can turn to revenue in 12 months, others wait may take 36 to 48 months, depending on what it is if it's a meter relative to maybe a smart home application. As an example, so you know on average we would say 40% of that total opportunity pipeline will convert over the next couple of years.
Maybe the way to think about is probably two to three year timeline, 40% of those opportunity opportunities will convert to design wins and revenue.
Okay, and then as a quick follow up if you could be concerned of you see you have very strong visibility very low net turns to meet your quarter guidance, but you also raising inventories internally how.
How much are you suffering from supply constraints right now and when would you expect ketchup.
Catch up shipments.
We our level of demand that youre seeing.
Well, we are shipping nicely to consumption, which is what we believe is the right thing to do so we don't believe any of our customers and customers are short to there are pockets of supply.
Supply constraints from certain businesses that are doing extremely well, but.
But in general we think we are quite comfortable we built a good.
The amount of inventory with anticipated the demand strength.
And that's what we're doing so I think we're good for this year to support the.
Consumption that we believe is required.
As we go into next year, we're going to have to take a closer look at it but we continue to believe the right thing to do is to is to build our own internal inventory and make sure that where we are shipping to consumption levels.
Great. Thank you.
Our next question comes from the line of Quinn Bolton with Needham and co. You May proceed with your question.
Yeah.
Hey, guys for me.
Echo my congratulations as well Mohan wanted to start with the with the Lora opportunity pipeline, which is expanding nicely can you talk about are you seeing a broadening out in that business and pipeline or are there a couple of specifics.
Park City Smart home applications that are really starting to drive a lot of the growth in the pipeline.
So I would say, it's very broad Quinn and it's also regionally quite well balanced which is important so.
I would say in the Americas.
Smart home, driven smart utilities and logistics.
In China, It's smart utility smart city and industrial Iot.
And in Europe, It's smart utilities logistics and industrial Iot so its different segments driving most of the opportunities.
Not a surprise that those.
Segments are the ones that are <unk>.
Driving driving the business, because that's where lora fits very well into those.
Categories and so we are that's.
That's what we expect and Thats what were seeing so not really a surprise I think over the last couple of years as you know.
The pandemic.
Some of the China trade issues the opportunity funnel has increased the way we would have liked it to have done, but we're starting to see that now and that's that's really a positive thing because that really will drive the future growth.
Great.
Okay.
Nice job on a gross margin expansion and particularly so on the guide and I guess, just looking forward. It sounds like a lot of the growth coming from our higher margin products and so I guess it just begs the question if you.
Thank you can be 62 way to 63 eight in the October quarter.
Where do you think margins could go over the next one to two years do you think you could see 64% to 65, what's what's the upper limit we should be thinking about.
Yes, so the.
When we look at our gross margin story, it's actually very pleasing to see it playing out the way we had expected right. We've always talked about this high gross margin growth engines that we have in our look at Lora look at the <unk>.
Tri edge platform.
So our 10 gig PON or <unk>.
Wireless so those things are really under industrial brought.
Brought belden industrial protection.
Really tracking very nicely.
So you can look at those just <unk> alone you would definitely make the case to for continued gross margin expansion.
One headwind that we have.
But I think we have managed it very well so far is all of this.
Supply constraints, we have right now and the fact that is driving a whole lot of.
Price increases in terms of wafer price elastic backend pricing as well so so far so again, we've been able to manage that but as you probably know there's been a lot of news in that space that there's going to be additional increases in that area. So we just have to see how that plays out but my expectation and this is a long winded.
With a faint but my expectation is that we should continue to see some gross margin expansion being driven by this new.
<unk> James that are really beginning to scale for us.
Great. Thank you.
Okay.
Our next question comes from the line of Karl Ackerman with Cowen You May proceed with your question.
Yeah.
Yes, good afternoon gentlemen.
Two questions for me please.
First could you discuss your ability to secure additional wafer capacity over the last 90 days and whether that might improve for the October quarter. Additionally, what kind of visibility do you have into Europe bookings pipeline across each line in the second half of your fiscal year.
So Paul let me start with that first the the visibility is very good we have obviously very good visibility into Q3.
By the tons numbers relatively low for us. We also have pretty good visibility I think into into Q4.
Bookings are very strong so customers are giving that.
Giving us the visibility into what they need into how really throughout the rest of this year, which is good and helpful for us.
The supply side as you know we built inventory over the last couple of years, we've made it our strategic goal to do that we knew this was going to happen and so we're in pretty good shape I would say.
But the other thing that we have done over the last couple of years is to build and try and build as much as we can parallel supply chains and mitigate against the.
One one wafer fab one backend.
Either struggling to pandemic or issues or in this case your question capacity constraints right. So we've been able to do a pretty good job. There. It's not the case in all products, but in most cases, we do have multiple supply chain now that said.
<unk> seems to be very tightened supply. So I don't think there's one foundry on one back end partner, it's really everybody in the industry seems to be very tight at the moment. So our job is to just kind of keep working through it and Thats why I said, we are shipping to consumption very important point and that is that we are shipping to what we believe our customers need.
And to.
To ensure that they can build their products and that's what our continuing goal will be for the rest of this year is to make sure we ship to consumption so that they.
They're not building inventory in our channel is not building inventory.
It's a healthy pipeline operational pipeline.
Yes very helpful.
For my follow up what I was curious what portion of your optical products now address Pam.
Pam four because it does appear that you continue to win incremental designs.
For power transmission rates, and then secondarily I was curious if you could I guess have you addressed that question.
I was hoping you might discuss the demand outlook you are seeing from module makers, who sell into the recently awarded.
700, megahertz and people one gigahertz tenders in China.
And perhaps how you would characterize the current spending environment for telecom operators outside of China. Thank you.
Again, I'll start with that.
<unk>.
We're seeing a obviously, there's a lot of potential growth here in <unk>.
China is still the driving force for this year I think starting to see more growth in other regions.
But certainly next year, we expect that to ramp up.
And I would say still today is that the rest of the world is catching up a little bit in terms of the service providers and even the Oems, but thats that globalization I think is really beneficial for companies like us because we are shipping into all of the module manufacturers and we would like to see a more balanced geographical landscape.
<unk> in terms of opportunity so I think thats good.
Coming back to the Panful question, we've invested heavily in our fiber edge in Tri edge.
Pam four products I mean for both for <unk> wireless and for data Center as you know.
And I think now we are just starting to release those products to production get design wins, and we're starting to see the ramp of those.
Is this.
Our limitations at this point because our products are mostly short reach at least on the Tri edge side of things and we'll have to develop we have to release our longer reach products as I mentioned, but as we do that I think will start to get more penetration of 200 gig 400 gig.
Pam four modules and start to see a little bit more of a balanced approach there in terms of growth in some of those are pretty attractive segments.
Again.
<unk>.
Focus of our strategy on the <unk> side is the analog side of things. So we are focused very much on our lower cost lower latency lower power.
And that's what our strategy is for now and that's what we'll continue to do.
Very helpful. Thank you.
Our next question comes from the line of Scott <unk> with Roth Capital You May proceed with your question.
Good afternoon, and thanks for taking my questions nice quarter.
Mohan just real quickly I wanted to get a clarification on the $850 million lower opportunity pipeline I just wanted to get a clear definition in terms of how youre defining that again is it is over the lifetime of the expected design win is there a specific time period associated with it once it goes live.
I'm not sure if you provided.
A percentage outside of China, and that opportunity pipeline I recall in the past I think you've gone over 50% just kind of wondering if we're in that same sort of ballpark and then as it relates to the applications on the lower front it sounds like more and more.
Expanding beyond what were more localized and campus applications into more pan regional opportunities be smart city and otherwise I was wondering if you could comment on kind of the evolution of how thats going from a I guess a geographic coverage standpoint.
Okay. So.
So a lot of questions there.
Let me see if I can remember them. So the first was the pipeline itself, yes. So the $850 million covers everything in our pipeline sites from concept through design through the production stage to the end of production. So we can capture everything of course wants it.
Going into design wins, our confidence levels start to increase quite dramatically.
Opportunity pipeline is going to lead to revenue, but until it does we don't really consider it to be a revenue. That's why I say, 40% typically is converting obviously once it gets into production then our confidence level gets very high in and then we monitor the production ramp. So so that's the first thing and then on the geographical.
And Scott, Yes, I think.
Revenue wise about 50% of our business is from China.
And.
<unk>.
The rest is the rest of the World Europe, and North America important to note that about 35% is consumed in China. So even though we are building in China, a lot of that may be shipped outside but.
But the funnel is interesting because a lot of the opportunity about 75% I would say.
Outside of China, and part of that is just the maturity of some of the regions now.
North America is starting to really ramp that's designing activity on Lora as Europe.
And as I mentioned some of the use cases for example in Americas.
Home is a very big opportunity in Americas, Smart utilities logistics are very big in the Americas, and China Smart utilities continues to be very big and Smart City also has a very big opportunity in China, and industrial Iot and then in Europe, It's utilities logistics and.
Industrial Iot, so it's a little bit.
Of a mixed bag across each different region, which is which is very nice to see actually on these are just some of the segments. I mean, obviously I'm, mainly the big ones, but we have a lot of other opportunities health care and agriculture, and all those type of things, but these are the big ones and I think that really starts to.
Again put a.
Real some real clarity behind why we believe lora is going to be extremely successful great.
Great very helpful and if I could on the protection front I think historically, it's been more skewed towards smartphones mobile devices I Wonder if you could calibrate us in terms of where that mix is today and where when you would expect non mobile applications to surpass mobile applications on the protection front and lastly seasonality fourth quarter typically is <unk>.
Seasonally a little bit down it's been anywhere from I think 4% to 9% depending on the year. This is certainly an unusual set of circumstances, given demand and supply header.
Headwinds so I'm wondering what's your early thoughts are as we are starting to look out into the fiscal fourth quarter. Thanks.
Yes so.
Protection business 65 percentage of consumer 75% is broader industrial roughly just kind of.
Kind of high level and those broader industrial.
Include calm crude Iot include automotive, so so anything thats non consumer really.
And so as we see.
One of our investments historically have been in the consumer consumer protection space. We've now kind of switch that in a lot of our investments are going into the broader industrial protection space, especially automotive and calm and Iot and so.
Expect that.
Mixed shift slightly.
Probably 40, 45% protection business eventually maybe.
Maybe 55 consumer, but it's going to take time and I'm one of the reasons why it can take time, we're doing extremely well it's still in consumer.
Shying away from that business and we are continuing to do very well in some of the trends are going in our favor so.
We'll see how it plays out but yes. That's the that's the goal is to try to get a little bit better balance in terms of broader industrial.
Versus consumer.
And then the seasonality, although seasonality, yes, I mean, so the seasonality typically for US Q4 will come down in a lot of that is driven by the consumer business you guys like Samsung will bring down their inventory levels.
End of year.
That tends to be the case and consumer will start to see companies.
Addressing inventory levels and things like that.
You said this year is going to be different I think probably because of.
Lead times on supply so.
I'm not sure that we're going to see such an aggressive reduction. So we will still expect some decline in Q4, but I don't know exactly how much.
Great. Thank you.
Our next question comes from the line of Rick Schafer with Oppenheimer. You May proceed with your question.
Thanks, I'll add my congrats.
<unk> picking up.
Nicely, obviously I'm curious if you could level set us I think last quarter, you talked about triage.
It was at 24 evaluations.
Just was curious if you could maybe update us on what that number looks like now and maybe give some color around.
But either in terms of design wins or revenue pipeline might look like for <unk> in particular.
And I don't know if it was part of your answer if you could kind of also level set us on sort of what's your expectations are for the analog Pam four market I mean, how big you would expect it to be compared to DSP and <unk>.
And sort of what realistic share assumptions are for you guys. Given you are.
Such a dominant position in data center today in things like CVR. So it seems like youre kind of getting off on the right foot. There. So I'm just curious sanders several questions in there, but I'd be curious what you think.
Yes so.
It's early days for Us Rick I would say we are getting a lot of good design wins. The momentum is good particularly on the shorter reach obviously, the short reach Aoc kind of stuff.
It's fairly global as well, we're doing quite well.
In Asia are doing quite well in North America and some of the.
Hyperscale <unk>.
<unk> is kind of related stuff I think we're analog wins and where we have a good chance is where there's latency needs.
And when cost requirements are low and when the power.
As important in those three.
If those are three critical elements of our deployment then we stand a very good chance with the analog Pam four products, we have in triad, you're doing while fiber rich also which complements DSP also is doing well.
For us I think once we get a longer reach platforms out which is towards the.
Some towards the end of this year and maybe some early next year I think we then we will open up to 200 gig 400 gig market.
The whole market and then we'll really be able to see.
Sit down and evaluate what we think our long term position in this market will be but for now I think it's just kind of getting out there and blocking and tackling trying to win as many as we can in the shorter reach.
Use cases.
I'm delighted with the progress I mean, obviously this is going to be a nice growing business for us at least for this year and for next year quite rapid growth, we're expecting some good share there. So we'll see how it plays out.
Okay, Thanks, and maybe one for Matt if I could I mean, your topline is accelerating.
That sort of $1 billion, you've talked about being optimized for annual revenues is there any reason as we start looking out I know youre not guiding to calendar 'twenty two 'twenty three but any reason to see investment pick up as you guys.
I need to add more capacity year, where should we think sort of for the.
Foreseeable that opex kind of continues to grow sort of roughly half past top line. Thanks.
Yes, yes. So that is our model has worked out for us a very lastly on we've been able to make more of a for the most part so that's what we still expect this to continue.
We continue to see very nice topline growth from other growth drivers that we're talking about see gross margin expansion on Ben have operating expenses come in at about half the rate of revenue growth. That's how we manage the company and we expect to continue to do that.
Great. Thanks for color.
Our next question comes from the line of harsh Kumar with Piper Sandler You May proceed with your question.
Yeah, Hey, guys first of all strong congratulations very nice quarter very nice guide.
And I had one for you.
Very impressive something at a very impressive.
Infrastructure increase I'm, just curious if 10 gigabit PON is a bigger driver of that increase or is it the.
The data center side, and then as a part of the data center side are you able to sell to Huawei at this time, we've heard a couple of Comcast Sterling optical components there.
And maybe just give me an idea of is your data center business, Marcia U S centric or China centric.
So let me take that first.
Harsha.
Mixed it's actually quite well bounce between Americas and <unk>.
Asia Asia.
Probably have more design wins and I think momentum is good there.
On the PON side PON is extremely strong at the moment 10 gig on particularly is very very strong I would say that's probably the.
Strongest outside Lora the strongest growth.
Area for US and then data center is also doing extremely well.
In the pockets of course more so in the 200 gig in area four area is growing nicely.
But yes I.
I think.
Across the board, we're very pleased with the infrastructure growth and I think we anticipate that it's going to continue to grow whether it's on the access side, which will help porn whether it's on the kind of base station side as <unk> deployments occur or in the data center side, we would expect that those three areas to continue over the next.
Three to five years to get quite sizable investments.
Around the world just for <unk>.
We should see the benefit of that.
Mohan I also had a question about Huawei are you able to sell to Huawei at this point, where they are or they are part of the revenues.
Each one is.
Actually Huawei has very little revenue for us at this point in time I think we each product we apply for a license and it's hit and Miss actually we don't really understand how the decisions are being made but I would say most of the most of the businesses at the moment, we're not shipping a lot into Huawei themselves I think.
Yes, that's probably the case right now because you have got it from their last fund.
So Lora you had records all around I was wondering if you could address the U S based activity with large customers and.
You feel like the U S revenues have started to kind of mobilize in a meaningful way are we there at this point or you feel like Youre still.
We still have to wait for a little bit of momentum in the U S market from a revenue standpoint, so in the U S. There's a lot of activity.
The board utilities logistics Smart home.
Is all going very well.
I would say that we haven't yet seen the benefit really of the activity.
Yes.
And I anticipate that really it's probably going to be first half of next year, maybe when we start to see it we're starting to see some second half I think but I think the real pickup is going to be next year. So yeah. I think it's still a lot of activity a lot of good activity lots of momentum.
For sure you will see and hear some announcements over the next.
Quarter here of more.
Our things that are going on but in terms of revenue I think relatively small today.
Okay. Thanks Lora.
Our next question comes from the line of Gary Mobley with Wells Fargo. You May proceed with your question.
Hey, guys, let me extend my congratulations on strong results.
I had just one multipart question for you guys and that relates to supply chain constraints and the price increases we bought in.
Hearing and reading about coming out of Taiwan.
I presume correct me, if I'm wrong, but I presume that that isn't going to immediately pose a margin pressure for you given that you were able to.
Grow your inventories and you're maintaining the inventories of historical ranges.
But when that day comes that you start to face these inflationary pressure pressures from your supply chain.
Have you communicated to customers.
The possibility of raising prices and can you maybe share with us what the feedback has been from from those customers.
So again, that's a very good question and I think I would like to ask both by further than that.
So far this year, we've actually received our price increases from some of our foundry partners and backend partners.
And I think for the most part we have been successful in shedding that board and with our customers.
With regards to some of the new announcements coming out of Taiwan like you mentioned, it's still it just came out.
<unk>.
The other aspect that sort of impact to our current quarter.
Yes.
We are going to handle it the same way and we're going to try to share some of that with our customers.
Hopefully we can see it the same type of success.
We saw before but of course it has to play out.
Okay and that goes for.
Clarification, you said your days of inventory were 129 days that was up three days sequentially is that right.
Yes.
Alright, great. Thank you guys.
Our next question comes from the line of Craig Ellis with B Riley Securities. You May proceed with your question.
Hey, guys. Thanks for including me, a nice job with the quarterly execution Mohan I wanted to start just by following up on part of the question that.
That was recently asking it's about lora so it seems like.
After some of the.
Work that was done to get the Lora pipeline in place in U S and Europe, we had COVID-19 in and we're coming off of that with continued.
Strong pipeline growth and where we're entering a period of acceleration and I think you mentioned that that your expectation is that lora would grow above 41 or excuse me about 40%. This year, so above that long term CAGR.
<unk> is this if we now have two big geographies the U S and Europe that are hitting.
Their stride in uptake acceleration and given that with wireless technologies.
That part of the adoption curves can accelerate on a multiyear basis. What are the gives and takes with are actually performing above the 40% CAGR. When we look out to next year calendar 'twenty two year fiscal 'twenty three.
Yes, I think.
So a good question Craig.
Back to the past suddenly over the last.
Five years, I've always been saying that I expect this business to double up here for a long time and obviously in the last couple of years it didn't it didn't grow that well.
The pandemic reasons.
The China related issues and whatever so I'm, a little bit more cautious about how a project to the growth, but what I would say is that when you look at the market the LPWAN market a lot of the <unk>.
LPWAN drivers are things like climate change environment.
Efficiencies utility management things like that which around the world. You. Just you just see it every day that there is a need for it and.
And Thats whats transpiring in my view is that it's going from being a nice to have a real need and that need is I think is going to drive.
Foster adoption adoption of some of the LPWAN technologies, and I think lowers the best and the most capable technology. So that's what I think is going to.
Drive the growth in addition to that if we look at.
Our new segments like the Smart home segment, we talk about sidewalk and Amazon, we don't even consider that to be healthy land, we consider that to just be low power wireless market. We are seeing in the lora is starting to find its way into other low power wireless segments and so I.
I do think the growth can be can be greater but I think we will stick with a 40% CAGR.
Our goal in.
Make sure we execute on that right yes.
Yes.
10 of sense, and then America I just wanted to clarify that I was.
Hearing you correctly in terms of how you're characterizing the impact.
<unk> supply chain issues that are out there and admittedly I missed the prepared script part of the call, but I think what I gathered was that you're conveying that there is.
Impact to gross margin in the business, even though you do have some success ensuring some of the price increases that are starting upstream from you with your customers, but I thought I heard you say that there wasn't a revenue impact in either the quarter or the outlook is that correct and if not please set me straight. Thank you.
Okay. So.
What I was saying there was that we have actually had price increases so far this year right.
We have been able for the most part have been able to pass that onto our customers, we've been able to share that the board and with them and so the answer that I was giving was say of that.
As we go forward with some of the new news, but in new news that is out there, especially out of Taiwan.
Go into increased wafer prices.
Our expectation will be that we should see the same kind of success that we saw in the past with regards to how we've shared our board and with our customers. Obviously, we have to see how it plays out right, but we're very hopeful that that is something that should not significantly impact gross.
Our gross margin expectations, one of the things to remember Craig is that when you look at a lot of our growth is in Mecca pointed out it's coming from new platforms.
Really drive are driving higher asps for us the <unk>.
10 gig PON is an example of that.
Data center products.
<unk> and <unk> wireless Iot that will the lora related products.
Protection.
Our broader protection products. So as we see these supply chain increases now part of our goal is to make sure that we are pricing appropriately right. So.
Because we have new products coming out at the same time, I think thats an opportunity for us to take advantage of that.
Yes, certainly the new strong new product cadence is something you can leverage in this environment I. Appreciate the input guys. Thank you very much and good luck.
Okay.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Our next question comes from the line of tore Svanberg with Stifel. You May proceed with your question.
Yes. Thank you I just had a follow up on Lora and then one of the metrics.
The one metric that really caught my attention was the gateways.
Gone up quite dramatically the last two quarters.
Mohan is that simply because of the Lora is becoming more and more of a consumer technology.
I would say, it's a little bit of both Tory I would say that it's not so much consumer, but we are getting some smart home.
Deployments and of course, if you think about <unk> in the home or if you think about the helium gateways, which are.
Smart home type of initiatives that drives a higher volume of gateways, but yes, you're right I mean, even for us it's a surprise to see.
Quite aggressive.
There we had to as we as you mentioned.
The target for the year was 2 million gateways, and we're already at $4.0 million gateways.
So we've raised that to $11.0 million, but.
I mean to me the beauty about the gateway deployments is it really just drives the capacity to support billions of sensors and that to me is the key so if you have infrastructure out there.
And then it's just a question of time for the census, and the use cases to catch up.
There's a couple of bottleneck still I mean software.
<unk> and I think census has a bottleneck in some cases, but as those bottlenecks get removed.
Then.
There's no reason to <unk>.
Question the growth in the in the.
The opportunity there.
Yes very helpful. Thank you.
At this time there are no more questions I would like to pass the call back over to management for any closing remarks.
Yes.
In closing we are pleased with the strong first half results as we saw increased adoption of our growth engines in the infrastructure smarter planet and mobility markets that should provide sustainable long term growth.
We have been successfully navigating the challenging supply chain environment and expanding on our sustainability efforts, including our commitment to human capital development.
Given our diverse and growing product offering balanced markets and strong customer relationships, we expect to deliver a stronger second half and record financial performance in FY 'twenty two.
We appreciate your continued support of <unk> and look forward to updating you all next quarter. Thank you.
Operator.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
Yeah.
[music].
Yes.
Okay.
[music].