Q2 2022 Cirrus Logic Inc Earnings Call

Results for the second quarter fiscal year 2022 at approximately four P M eastern.

The shareholder letter discussing our financial results the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information along with the webcast of this Q&A session are all available at the Companys Investor Relations website at Investor Cirrus Dot com.

This call will feature questions from the analysts covering our company as well as questions submitted to us via E mail at Investor at Cirrus Dot Com.

Please note.

That during this session, we may make projections and other forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections by providing this information the company expressly disclaims any obligation to update or revise any projections or forward looking statements whether.

As a result of new developments or otherwise.

Please refer to the press release and shareholder letter issued today, which are available on the Cirrus logic website.

And the latest Form 10-K, as well as other corporate filings made with the security and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.

Now I will turn the call over to John.

Thank you Kevin.

Before we discuss our results I would like to make a few comments on todays announcement that Simon is planning to retire from his position as chief Financial Officer.

I want to take this opportunity to thank <unk> for his outstanding dedication and commitment to Cirrus logic over the past 21 years.

All of US here greatly appreciate his many contributions to the company's growth and to the development of a world class Finance organization. During his nearly 14 year tenure as CFO.

Kevin will remain in his current role while we conduct a comprehensive search to identify his successor.

We'll work to help ensure a seamless transition to that successor in due course.

I want to thank them sincerely from all of us at Cirrus logic and wish him all the very best in his next chapter.

In other news before we get to the quarter's results I'd also like to say how excited we are to have recently welcomed <unk> Hussain to the company's board of directors.

<unk> has a deep knowledge of the semiconductor industry strong technical expertise and a track record of both operational and strategic success.

We believe he will be an extremely valuable addition to the Cirrus logic team as we look to continue our growth momentum through innovation and mixed signal products and expansion into new technologies and markets.

Turning to the results now Cirrus logic reported record revenue and earnings per share in the second quarter, while also delivering year over year operating profit growth.

Revenue was $465 9 million up 34% year over year, and our highest ever for the September quarter due in large part to the ramping of components ahead of customers' new smartphone launches.

Okay.

During the quarter. We also made great progress on the strategy that we've outlined to diversify a meaningfully beyond audio passing as we did several major milestones in the high performance mixed signal products area of our business.

These included increasing the attach rate of our camera controllers in smartphones, bringing a new power conversion and control IC to market and sampling new fast charging products to our general market customers.

These accomplishments represent a significant expansion of Cirrus logic technology and product mix with our high performance mixed signal business delivering 30% of total revenue in the first half of fiscal 'twenty, two up 117% from just a year ago.

As we discussed in the shareholder letter published on our website today, we continue to be very excited about the opportunities. These new technologies offer for further growth and diversification in the future.

Okay.

Before we begin the Q&A I would also like to note that while we understand there is intense interest related to our largest customer in accordance with our policy, we do not discuss specifics about our business relationship.

Operator, we are now ready to take questions.

Thank you at this time to ask a question you will need to press star one on your telephone.

And the first question comes from the line of Matt Ramsay of Cowen Your.

Your line is now open.

Thank you very much good afternoon, everybody first off from Thurman Congrats it's been.

Great to work with you down the years and all the best going forward.

For my I guess my first question.

John.

Congrats to the whole team on getting line Sammy.

Closed I wanted to pick your brain a bit if you think about your current.

Power IC roadmap and the technology and the people that you'd be acquiring from <unk> that are now within the company how.

Can you ballpark for us what kind of integration efforts might be underway to bring those two product lines together.

And what kind of timeline could we look at as sort of a minimum and then I guess a realistic timeline of when you can have product in market.

That would be fully integrated between the two companies.

Thank you Pat.

Yeah, I'll try to talk to that I wanted to explain some of the way. We think about this is that we really want to give more ammunition to the <unk> team and help them build out their their roadmap and expand across customers and into other new markets as rapidly as possible.

Of course integration is a goal because we believe the technology that the alliance team have developed can be highly complementary to other things, we're doing but actually the first priority is to execute on.

Any significant raft of opportunities they have in front of them. The second priority is continue to expand that and accelerate the roadmap and then the third priority is exploit the synergies between.

Those technologies and other areas of our business so right.

Right now.

Clearly lie in the team there has has seen a lot of interest within.

Said in smartphone vendors theyre running extremely fast to execute on that and then continue to expand it because that's still a market.

That has some ways to go in terms of rising expectations and demands on performance. So we're excited about that but then we also believe that there are other product categories that can benefit from that charging technology.

No.

So all of that is by way of saying our initial focus is really just helping the lyon team execute scale up a bit and so there is more of the demand that they have in front of them and we're really it's an amazing group of people that we got there.

We're super excited to be doing that.

And then increasingly we do see further down the road opportunities for synergies between the Lion technology in some of the other IP that we've been working on.

I think we're we haven't laid out a timeline for that yet, but that's something we're very excited about internally just to give you a little bit of.

Flavor for that we really believe that.

Having the opportunity to innovate simultaneously both in the charge path and the discharge path around the batteries are really really being able to deliver the silicon that sits around the battery.

Can deliver great value to our customers products in due course, so the lion.

IP and technology clearly represents the charge part of that and then a lot of what we've been doing elsewhere is more focused on the discharge path. So it's highly complementary it'll take us a while to actually converge.

Given the number of opportunities that the team is.

It.

Is addressing in the near term.

Okay.

No I really appreciate all the color there John.

As a quick follow up.

And topical.

Over the last six to nine months.

In certain important portions of the notebook market and audio codecs from some other suppliers have been a bottleneck and you guys have called out in the letter and maybe on the I think on the last earnings call as well opportunities for Ya for Sirius to grow into into the notebook market I guess or.

Maybe you could help me quantify how large those opportunities maybe in the next 612 months 18 months and John do you consider that strategic business, our opportunistic business and how are you investing there. Thanks.

Yes, that's a great question. Thank you Matt.

<unk>.

The nature of the comments in the letter we're actually.

Intended to tease apart the opportunistic and the strategic elements to it because it is a bit of both and.

And I think when we talked about seeing revenue grow in our.

In a laptop engagements.

There was a.

There is a little bit of a reaction that yeah, well the supply chain disruption created opportunistic.

Situations, where that could occur.

Which to be clear has been true to date, but there are also some meaningful underlying factors that.

Strategic for us so.

We've picked up.

A reasonable amount of Kodak business, especially over this year, we will continue to build on that I think there are reasons why.

A number of those customers will want to continue using our technology, we tend to be fairly difficult to dislodge once we once we get in some way.

But the underlying factors, which is actually what we were shooting for originally.

<unk> transitioned more towards boosted amplifiers.

Transition towards potentially haptic track pads.

And the kind of growing requirements around audio and video those with things that we saw happening.

With or without any COVID-19 related supply chain.

Disruption so those represent a decent opportunity for for us to continue to grow.

Our estimate.

That over the next five years is that that looks like something along the lines of the $400 million.

Sam for us to tilt out so that's focused on the segments, where we would.

We would play it would tend to be at the upper end of the notebook market. It would tend to be the devices, which are really focused on premium performance and being stand and having very high power efficiency and so on.

But given that we see opportunities across audio maybe haptics, maybe power in those segments. It means the total ASP paid device. The total content per device may actually be pretty significant and thats reflected in that Sam.

Thanks, very much John Congrats again Thurman.

Thanks, Matt.

Next question is from the line of Tony.

Stifel. Your line is open.

Yes, Thank you and let me Echo <unk>.

In relations to Thurman.

Miss you.

And since this may be your last earnings call you will get the first question.

So could you elaborate a little bit on the $255 million payment.

For our global foundries.

How how is it going to work out as far as securing the extra capacity I mean is this a onetime payment and then what do you get in return.

Well I mean essentially.

There were two pieces of this we paid.

$225 million of capacity reservation, and wafer supply commitment of 175 of that was prepayments for wafers.

Further out in the history of it actually.

Forward in Italy that will last through 2006 and then.

There was a 50 million of a reservation fee and that will be amortized over the life of the contracts. So that's how those will show up in addition to that during the quarter, we exercised an option for.

A new Tech center for.

For a new technology.

Essentially resulted in $10 million more of non fundable capacity reservation, and the $20 million more prepayments. So and this was a technology that we did not have visibility when we it was part of the first agreement and as we got more visibility for the opportunities associated with this.

We decided to take that option.

By the way this type of <unk>.

Investment, we'll see revenue quite a ways down the line. So this isn't going to be something you would see immediately.

Great. Thank you for all that color and maybe as a follow up to John and kind of related to that agreement, obviously youre trying to drive the high performance mixed signal business much higher.

And you mentioned.

Moving to the 22 nanometer node.

Is this related to that or to <unk> point.

On that.

Yes, no I would think of those two things as being separate tolerate the 22 nanometer investment that we have been making and youre right.

Has been going for quite some time and is pretty well advanced so there isn't really additional.

Kind of technology enablement fees that we envisage relating to that.

There will be a place for 22 nanometer, we believe in both the audio and our high performance mixed signal.

Business area, so it kind of cuts across those two.

The.

Additional fees and technology enablement investment that we made with global that <unk>, referring to is outside of that it's not related to 22 nanometer it's related to some.

Some other technology, which which would sort of products in the in our high performance mixed signal area for us that.

That was something where as.

Someone says at any one time, we've got to we've got a bunch of new opportunities were working working on that should represent some sam expansion for us.

One of them was kind of we were working on it during the time, we were cutting that agreement with global but it wasn't something that we.

We felt we'd we'd landed.

So, but it was a significant opportunity for further diversification and revenue growth.

So we kind of put a provision in the agreement for it and then and then obviously much more recently activated that.

Given that we got.

More confidence and line of sight.

<unk>.

Our ability to win that opportunity and then go ahead and execute on product related to it.

That's in a new area that has not.

There is not covered by the 22 nanometer commentary we've previously provided.

Great. Thank you for that just just one last question.

Could you talk a little bit now about the attach rate of the camera controller. I mean are we talking about sort of one for one and as you mentioned next generation.

Area should we expect sort of like new devices every year or is it more of a two years.

That would be great.

Yes. Thank you for the question sorry, I don't think we know for sure what the cadence is going to be around the camera device updates I think and I say that because if you look across our other product lines. The cadence varies over time, they get when you go through a period of.

Accelerated innovation then it can be a fairly rapid evolution and then it can stabilize for a while in the case of the camera investment we've been making to date. It really what we've seen is a growing attach rate based on the same the same solution from us, but as I have indicated elsewhere. We've got a really good road map.

And a really solid might've investment across innovations in that area and I think I think it's a reasonable expectation here.

We don't want it.

The talk in detail about customers' product plans, but.

Im on fairly safe ground, given that for the most part I don't know them in relation to this.

This area.

But I think if you look at what we are planning to do and what we're investing in I think you'll probably see.

Some kind of patent whereby we are bringing in.

Increased functionality at the top end and then Theres some theres some mix of those devices.

Across the products.

Over time, the attach rate obviously on this cycle as has risen.

And that's been really.

Very positive for us.

Again as being one of the.

The drivers of that growth in high performance mixed signal revenue that we've seen which which is very important for the company and then also just if you look at the total content that we see across some products now at the upper end of that smartphones in the market now with eight of our products in them. So four of which are high performance mixed signal.

Category products, four of which are audio category products. So.

That's a really really positive trends in the point of view of driving that increased.

Our product diversity and technology diversity, obviously long run we want to continue that path and diversify the revenue.

As it grows.

As much as we can.

Sounds great congratulations on the results.

Thank you Terry.

Next question from the line of Blayne Curtis of Barclays. Your line is open.

For taking my question I'll offer my congrats to you as well as Thurman.

Maybe just first I wanted to ask if you look at the revenue outside of your largest customer it's up about 50 million Bucks I think thats around the level that you were talking about for alliance just kind of curious how that came in.

Post the acquisition and I'm kind of just curious as you look at that bucket you have a lot of moving pieces outside of your largest customer now I think theres a lot of thoughts that maybe the Android handset market might be a little weaker than it ended the year I think people are looking for things like Pcs and tablets to be a little softer. But then you have all these new wins and I know as someone.

Mentioned in prior call that the audio codecs than short so you might have some opportunities I wonder if you can just balance all of those as you look outside of your largest customer and any perspective into the end of the fiscal year. It would be very helpful.

Yes. Thank you Blayne, obviously, we guide for the current quarter when we look out to the end of the fiscal year I mean, it feels this year more than most it feels like an awful long time between now and March.

So.

There's a lot of uncertainty there I would say the biggest thing we've.

Got great design momentum.

We have.

Stronger and more diverse relationships across Android and other parts of our business outside of smartphones and we we've had in recent years.

The biggest.

Factor weighing on those areas really is supply so.

Thats.

We're still comparatively constrained I think.

Commented elsewhere.

Where we work with customers on a on a long time horizon.

We're in a very.

Our strong positioning from from a supply point of view.

But a lot of the Android demand over the past year has been a lot more erratic.

So we're kind of.

Very much focused on the upper end of the market there, making sure we can service those sockets.

And we could probably grow the business faster if we could.

Grow the wafer suppliers.

So fairly Universal challenge right now.

Thanks, and then maybe the follow up maybe the harder one to ask but.

Your your largest customer was talking about constraints.

Having impacting their shipments to their product kind of just curious is there a way you can talk about seasonality and are you also as you look to December.

Or any kind of constraints prohibiting what you can ship in that quarter, and then does that translate into any kind of different seasonality for March.

Alright, I think Thats a great question on the seasonality actually Blaine I would say when it comes to our own constraints. This kind of falls into the category I just referred to that.

That's an area of our business, where we tend to be very focused on the long term collaborative planning with the customer.

So.

We've generally been in a very good position to execute against some pretty pretty phenomenal.

Production ramps that we've been seeing.

And we've obviously got a.

A lot of volume through the end of the year.

This year, so it's not really any different from the way. It has been in the past where we've encountered challenges has typically been in the areas with shorter planning horizons as I've said.

Regarding how that how that maps onto seasonality I would say that.

That's where for us even to the point of guidance being challenging here, we see very strong demand, but there is volatility in the servicing of that demand gets schedule because we've been our long term planning with our customers.

Our long term planning with supply chain has really stood us in excellent stead as is our investment in capacity agreements at the supply chain level.

Yes.

But if there are other suppliers to our customers, who those customers depend on who who gating or who are constrained.

That can just mean that some of our materials is subject to rescheduling.

As a consequence of that in our COO.

Quarter like the present, one so a couple of a couple of comments about that in a quarter like the president what it does mean you have so much material during any given week, a small amount of rescheduling across the boundary you can have a pretty major impact.

But it also would appear and this would be consistent with what you've heard on.

Earnings calls last week.

The fact that there are some constraints in the present quarter suddenly teeing up.

Strong demand for <unk>.

First quarter next year. So, we're obviously not guiding that but the signals that we've been getting so far have been cut.

Customers are very keen to maximize the amount of material they can.

They can get during that first calendar quarter as well so that may actually have something of an impact along the lines of what I think you're getting at there. Thanks.

Thanks, so much.

Next question from the line of Christopher Rolland of.

Your line is open.

Thanks, guys for the question and congrats Thurman I really enjoyed working with you.

So I guess now that you guys have integrated line can you talk about.

Perhaps the quarterly contribution that you see but also.

The growth rate that we might expect going forward.

And Conversely should we think about our growth rate for your organic power business, our power products as well.

Yes. Thank you we haven't broken out growth rate specifically for those areas I think the.

The way to think about line on a quarterly contribution basis would be to date. It has been in line with with what we expected and we talked about.

Something of the order of $60 million contribution during the remainder of this fiscal year from deal close to fiscal year end.

We still believe that.

We're tracking to that.

And they were and I think we talked about this last time out.

Themselves they were on a relatively steep growth path they had.

A lot of momentum within within their customer base. So.

I think certainly over the next year or two.

<unk>.

Excited about what can happen with that part of our business even that even if we're not necessarily breaking out the individual growth rate.

The growth rate in the rest of our power business right now would frankly look completely meteoric given that it was.

It was pretty much zero.

Until a few months ago and now we've got a one to one attach rate with.

One of the best products on the planet so.

I think that's obviously going to stabilize a bit but what I would say is that that represents.

A couple of things for US one is just a really big.

Tangible step.

In the direction that we've been talking about diversifying.

Really meaningfully the technology areas, where we have proven expertise and leadership.

I think that can really help the business long term as well as well as obviously the revenue contribution that we see today.

But also that is really the first step in a a whole series of things that we want to accomplish there and theres, a theres a pretty well stocked pipeline of.

Of ideas and IP and test vehicles, which we're investing in to kind of continue to grow that so.

Much as I'm, not putting a number on it.

Youll be able to see from our comments that we're very excited about where that can take us in the medium term.

Okay, and I guess kind of tying into this as well can you talk about opportunities.

That you have captured in the phones today for some of these products, including your power product, but also things around cameras.

And the possibility to broaden into new devices, as well or whether they be tablets or laptops or.

Or perhaps some other devices.

Yeah, absolutely so when you look at.

In particular, those areas you talked about which constitute a lot of.

High performance mixed signal.

Business, so on the camera side.

Obviously, that's focused on smartphones right now we've seen a growth in the attach rate I think.

What we're doing there is highly applicable to.

To other products that contain cameras, obviously, what we're doing is kind of stabilization and focus related we've talked about that elsewhere. So it typically be a camera that moves around rather than one that.

Thats.

Fixed somewhere.

So we'd certainly like to find ways of expanding that.

<unk> of that technology into other products.

In the power space, So we launched during the quarter the.

Power conversion and control IC.

And our recently launched flagship smartphone.

So it is one of those pad device.

Right now.

<unk>.

Custom silicon, obviously, and we're very focused as a team on serving.

Biggest customer first and foremost.

And kind of continuing to execute on that is priority number one for the team.

It's also clear from everything we're saying that we're making a lot of investment in this area and we really believe we can be innovative around the battery.

So that certainly represents a great opportunity to broaden and expand our business.

Thank you.

You can certainly think some of the other devices that you mentioned.

Such as tablets and laptops and so it could certainly be places we would we would seek to land some of that technology as well.

Thanks, again, and congrats Thurman again.

Thank you.

Next question from the line of Ananda Baruah of loop capital. Your line is open.

Hey, Thanks, guys. Good afternoon for taking the question congrats on the strong result, and congrats as well.

Two if I could.

What may end up being a clarification, but in the shareholder shareholder letter when you guys spoke about accelerating in the laptop space accelerating ahead of your key objectives.

Is that a general comment or is that what you're sort of seeing as we go through the fall here.

But love to get complex there.

Quick follow up as well.

Thank you Amanda that comment relates specifically to the growth in our laptop business.

And what we're communicating there is that when we set out to engage.

Customers in the laptop space outside of our largest customer.

Where we already had business we were principally focused on what we see as an emerging opportunity to sell a boosted amplifiers into those devices those devices getting thinner and thinner.

They are moving from an HDA based architecture to a satellite based architecture.

All of that means that they are going in some regards to look a lot more like smartphones architectural lease than they have in the past and so it's a very close adjacency for us we've got a huge investment in boosted amplifiers for smartphones.

Really well established leadership there.

And so we.

Formulated a plan to go after that market, that's really where those strategic objectives lie that we refer to that it just happened that as we started engaging customers with that.

They responded very enthusiastically, but also we're very keen to.

To get our supply in codex.

And in fact had some.

More accelerated interest in haptic track pads than we were expecting so.

There are more moving pieces in a positive sense.

And we were initially anticipating and Thats what were.

Communicating so.

It's been moving quickly for us to the point, where as of today. We are designed into four out of the five largest notebook Oems and we expect to see it.

A fairly steady stream of new devices containing cirrus logic content in that category come to market over the next year.

That's great and is it something that you believe could become fairly meaningful overtime the incremental applications that you see.

I would put it as.

It's definitely going to be a really really solid addition, I think it has the potential to be a really solid addition to our overall revenue and it's it.

It's an area, where we can really leverage the investment that we've made in audio technology for smartphones.

In terms of magnitude.

The investment that we're making in the and the opportunity we see around the power and charging and battery space is going to be more significant for us long term.

Understood and then just my follow up quickly just when we look out.

Over the next handful of years.

Not asking for a guidance, but just anecdotally. So we can all calibrate our expectations directionally.

Can you remind us what our expectation for margins should be gross margin operating margin and <unk>.

Should we can we expect some expansion in the coming years and that's it for me I appreciate it.

Sure.

Gross margin target.

Our model target is 50%.

Most margin, we believe that that level. It is really important in order to fund the kind of R&D and innovation that we bring to our customers.

So we continue to.

Tissue for that or better as we bring new products to market.

I think the.

Any potential expansion of that we haven't communicated anything around that I think that that will require.

More market diversity and we have today.

Given that the economics of the markets that we're in a pretty well pretty well established and understood.

But I have been clear elsewhere that I think a lot of the investment that we've been making in the high performance mixed signal space.

Both organically and through the acquisition of <unk> and so on are really important.

Stepping stones to being able to broaden our market reach into into other product categories.

So that may open the door to it but we really not communicated anything about longer term gross margin expectations.

Next question is from the line.

He'll need him.

Your line is open.

Yes, Thank you and congrats on strong execution in light of that.

It kind of volatile environment and I Echo my congratulations as Thurman best of luck.

If I could just start with you just on the gross margins a follow up to previous question.

In the last earnings call you mentioned that the gross margins are expected to kind of remain stable in the near term.

Lower slightly lower in fiscal year 'twenty three.

<unk> pressure.

So just wanted to get an update on your view on that.

Commentary fiscal year 'twenty three.

Broadly semiconductors are experiencing price increases across a lot of components given the constraints.

That's existing so just wanted to understand the pricing dynamic.

Yes, I'm going to step in on that.

There I think recognize what you're saying.

Market environment, we've seen.

We've seen costs increase during this year for us across a number of areas of the supply chain and we will see further cost increases as we go into the new calendar year.

Clearly our goal is to offset those increased costs.

Both through working hard on the supply chain side and through price updates to our customers.

Obviously, we've got some pretty unique products and our COO.

Customers really depend on us for innovation and World class engineering execution, and we require solid gross margins to support the kind of investment is required to deliver that.

And I think our customers understand that so.

Today, our team is focused on working very closely both across our entire supply chain.

Base and across all of our customers.

In order to minimize the impacts of those cost increases to our gross margins.

So that has to be balanced a little with the fact that we.

Cultivate and build really deep long term relationships with our customers. So we've obviously got to ensure that we seek to offset our cost in a way thats fair and it preserves and relationships with.

With the customers and is consistent with us managing the business for the long term.

Because thats, what we do.

But.

<unk> taken all those things together, we will continue to work on on pricing with our customers.

The way pricing updates.

Go they don't necessarily sync perfectly with cost increases and that can lead to a bit of volatility around gross margin.

And when you take all of that together, we felt it was appropriate to signal that we may we're likely to dip below the model target.

In FY 'twenty, three but we're very focused on preserving the gross margins and the gross margin target.

That we've laid out in our model and we believe is a reasonable one and an important one for the health of the business.

Yes.

Okay. Thank you for that information.

A follow up on the Globalfoundries.

Thanks for the breakeven.

Components, but wondering how the capacity additions that you are getting from the.

The prepayments that you made for the wafers.

Are you that amount of supply the capacity youre getting is that.

Enabling you to feel comfortable about kind of your growth rate.

Into next year.

I'm just trying to balance the near term capacity that youre getting from GF relative to your ability to support your top customer, but as well as expand.

Some of these other growth areas like tablets and Wearables.

With line as well the prepayments that you have made that you've gotten from those wafers.

<unk>.

Is that going to impact the capacity situation in calendar 'twenty two.

In calendar 'twenty two yes. It will we expect during calendar 'twenty two that additional capacity will be coming on stream as a consequence of some of the investments that.

The global has been making on the back of the kind of partnerships that we put in place with them. This year is of course.

More of the case, where that capacity hasn't really expanded yet so we are able to serve our big.

Biggest customers by virtue of.

Long term planning could we sell more if we could get more wafers absolutely.

And could we sell more next year, if global could expand that capacity faster, yes, absolutely.

But at the same time.

We are through that deal putting ourselves in a position, where we have greater wafer supply quite meaningfully larger number of wafers during next calendar year.

Relative to this year and that supports.

That would be supportive of a.

A healthy amount of business growth.

No yeah to your point that maybe areas of our business, which could expand more rapidly. If if we were able to get more supply.

But I think we are.

We're in a good spot relative to the actual capacity that exists in the industry.

Until until that starts to expand.

Thank you next question from the line of David Williams of the benchmark company.

Your line is open.

Hey, Thanks, guys. Thanks for letting me ask the question.

At quarter end.

And congratulations to them there so.

Quickly just wanted to ask maybe from a mix management perspective, you talked about the constraints earlier is there any part of the margin maybe benefiting from mixed management as you think about selling.

Alex on the limited wafers that you have available to you.

Well the bulk of our products.

By value in terms of share of our overall revenue are going to be driven by.

The.

Unit sales of.

<unk>.

Largest customers products so.

We don't really have a role to play in terms of managing the mix of that we are just focused on supporting our customer getting as many devices out there as as is humanly possible. There are other parts of our business, where we are we've been able to.

Sure.

Adjust pricing and.

And obtain capacity increases and drive fairly high margin.

Returns on those devices, but that's comparatively small volume and small amounts of revenue for us. So it doesn't really move the needle.

In the overall scheme of things for us.

Important thing for us really is getting as much capacity as we can focused on the products of our largest customers because thats.

Yeah.

The bulk of our revenue is tied up.

Sure Thanks for that.

And is there maybe any way to quantify your customer diversification as you kind of think about the line products coming in and maybe the diversification efforts that you have how do you think about that diversity as you look out maybe a year or two.

Where you are today in terms of your mix of customers.

That's a great question I think this is this is a part of the story.

Because our we have.

So much of a successful business and a growing business with our largest customer based around their largest selling products that it can kind of overshadowed the progress we've been making elsewhere to some extent I alluded earlier in the call to the fact that we.

We went from close to a standing start to having multiple products in design with four out of the five.

Notebook Oems.

We're in three out of the top five tablets Oems.

Two out of the top three truly wireless.

Yeah.

Oems and all of those were in flight prior to the Lion acquisition in line certainly brings us additional products that we can.

We can leverage to increase diversity, both in revenue terms and engage new customers. So I think there is a path there that we're on which is which is a very encouraging story and one that we'll continue to grow.

As we reach beyond audio and drive more high performance mixed signal growth with.

The general market as well.

Thank you next question is from the line of <unk> <unk>.

Both the security your line is open.

Thanks for taking my question and best wishes.

Just two from my side as well.

I had two questions.

First one John what are your sales from the non smartphone tablet market right now and where do you think they can hit two over the next one to two years.

Yes.

We don't break that out.

Vivek so.

Yes. It is comparatively small relative to are you asking specifically tablets.

That's right.

Healthy, but comparatively small part of our business relative to the smartphone.

Contribution.

And for the second one.

Our balance sheet is still strong, but when I look at the.

The payment to the foundry your cash balance would be under $300 million exhibiting the December quarter. If my model is right is that a comfortable range for you since you typically like to operate at higher levels.

Cash so any puts and takes.

Would be very helpful. As you model the cash.

And if there is any need for financing et cetera going forward.

Sure.

Basically we would say that $200 million to run our off.

Our operations and manage our operations over a period of time is an area where as long as we're at that level or above we're comfortable.

We did see the cash drop.

The last quarter reflected.

Our deal with Lion and.

Also then.

Included in this quarters.

Numbers will be if the global foundry deal, so youre not going to see us building it but we have really really strong cash flow we have no need for financing at this point in time, we may go.

Have that need if we go down the road of M&A or some things like that but for running our business right. Now we're fine we won't draw on our revolver or need financing and you will see as we move through the end of this year the March quarter in the December quarter or much.

Our highest generation for cash or you'll see us start moving back up towards the end of the.

Fiscal year.

Thanks very much.

Next question is from the line of Derek Soderberg.

Colliers Securities Your line is open.

Okay.

Hi, guys.

Congrats as well on the results in <unk> as well as Thurman.

Just one question for me on Haptics Theres been sort of a lot of talk lately about this matter versus and movement to a digital world I'm curious John how we should be thinking about that opportunity for cirrus as it relates to haptics or maybe elsewhere.

Potentially things like full haptic body suits and things like that I'd be curious if you are investing in new products for these opportunities there.

Anything you'd like to comment on for your haptics opportunity, there and timeline for when those opportunities my tenant that'd be great. Thanks.

Yeah. Thank you Derrick that's a really interesting question I think our expectations unit wise.

A very modest there, but we are actively engaged with a lot of the folks who are.

Blazing trails in this area so.

I think we've commented elsewhere that we have a great track record of engagement and being designed into most of the AR and VR equipment, that's being on the market to date.

We continue to talk to those customers about both the audio haptic and certain other areas.

It really is a long term bet I think it could take a long time before we're all wearing haptic suits.

But I'm also a big believer from our haptic perspective for example, I think haptics have the potential to make.

The virtual objects real so it really does seem like it has a role to play in that.

In that particular kind of user experience.

So we have some very cool technology around haptics I think we have the right customer relationships I think our expectations are that it's a long road there, but we feel that it's an interesting one too.

To keep.

Certain amount of investment and engagement.

Focused on.

Awesome. Thank you.

Thank you again, you have to ask a question you will need to press star one.

Again to ask a question you will need to press Star. One next question is from the line of Matt Ramsay.

Cowen Your line is open.

Thank you very much guys for.

Let me jump back and for a follow up hopefully a quick one.

But it's something that I do get asked about so on the last call you guys sort of talked about this 50%.

Gross margin target and you just reiterated it may dip a little bit below that in fiscal 'twenty, three but theres three things kind of going on at the same time right. There is the broad based foundry industry raising prices.

Theres the GF deal for wafers that you guys are doing and then there is the integration of lying and I just wanted to explicitly ask if the new gross margin targets that you guys have talked about over the last couple of quarters incorporate all three of those.

I guess, it's just.

Some worry in the Investor base, if there might be another shoe to drop I don't think there is but I just wanted to clarify thank you very much.

Right.

Matt Yes.

The commentary that we provided last quarter.

Is pretty much identical I think to what we reiterated this quarter and so even though.

As you point out.

Couple more cards got turned over during that period.

So at this point what we're.

Messaging around gross margin there is fully embraces everything we know and everything we think about.

The current environment and what we can see about the coming fiscal year.

So from our perspective.

2021 feels like a crazy to say hey, there is no other shoe to drop but from our perspective, we're really embracing.

All the information we have there and that obviously includes everything that you just alluded to.

So yes, I think that think that answers your question, but let me let me just check that.

Thanks for clarifying.

John Perfect very clear thank you.

Alright.

Thank you.

Sure.

Again to ask a question you will need to press star one on your telephone keypad.

Next question is from the line of Christopher Roland.

Your line is open.

Thanks, guys for the follow up.

My question is on Opex, it looks like Opex be a good guide going forward.

A nice kind of higher level here for <unk> to above your target at least for next quarter. It seems like you guys have had a lot of new products that you've been ramping and supporting recently plus Hawaiian integration.

Are we done with.

With Opex spending and this this.

Kind of better Opex that we have here do you think we can maintain this for a while or is there a reason to believe there could be some catch up in spending.

Well I think that.

We've talked about and we will continue to talk about we will continue to invest in R&D.

It'll be focused R&D on particular technologies or products or customers that we want to invest in and I think John's touched on that a bit in the meeting already.

So as you look for this quarter.

That is the guidance for us.

It's right around flattish to the last quarter, but if you look at Q4, we would give you a heads up that.

Q4, we're going to see payroll taxes and.

Health funding and a lot of those things that happened only in the March quarter. So you can expect.

An uptick there and you can expect that we will continue to invest in R&D. What we can do is leverage our SG&A line, we think that we have the infrastructure.

In place that will allow us to leverage that as we grow revenue.

And the future and.

And it will become a lesser percentage of our overall operating expense yes.

Yes, Thank you, Tim and I'll, maybe just jump in with a quick quick additional comment there to add a bit add a bit of longer term color.

Chris I think our.

On this all might take on this is we want to be really strategic about about opex. So when you look at Youll see in the head count number.

Rise quite significantly in the last quarter relative to the previous quarters messaging.

Every single one of those headwinds related to power engineering.

So.

And from our perspective, that's where we see a really great raft of opportunities ahead of us. So it's the right thing to do for the business.

To go go attack those opportunities as best we can.

Accelerate the Lyon team and grow in the other power areas that are in front of those.

Bye Bye contrast, I think is as.

We.

Continuing to grow revenues I believe we'll see increased leverage from opex, especially on the SG&A side is to them and said and that should be favorable to operating margins as we go forward.

Thanks, guys.

Thank you.

And I will now turn the call over to.

<unk>.

Chelsea Heffernan for additional.

Please continue.

Thank you operator, there are no further questions today, so I will turn the call back to John.

Thank you Chelsea.

In summary, we delivered record revenue and earnings per share for the September quarter ramped shipments in numerous new devices and passed major milestones and some of the key strategic initiatives that we expect to drive revenue growth and profitability as we go forward.

With a rich portfolio of high performance products today, and a roadmap that will continue to strengthen our position as a leading supplier of innovative mixed signal solutions.

We are really excited by the opportunities in front of us for the future.

I'd also like to note that we will be participating in the Barclays Conference on December eight please check our investor website for the details on that.

And if you have any questions that were not addressed today, you can submit them to us via the ask the CEO section of our Investor website.

Finally, I'd like to thank everyone for participating in today's call Goodbye.

Thank you and that concludes today's conference. Thank you everyone for participating you may now disconnect.

Yes.

Sure.