Q2 2022 Allegro Microsystems Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Allegro Microsystems Q2 fiscal 2022 financial results.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask your question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to Katie Bly.
Please go ahead.
Good morning, and thank you for joining us today, Okay, great second quarter results for fiscal year 'twenty two.
Joined today by <unk>, President and Chief Executive Officer Ray Ritchey.
<unk> Financial Officer, Paul Walsh.
He will review, our quarterly financial performance and provide a summary of our outlook.
Our earnings release, and the accompanying financial tables are available on the Investor Relations website.
The webcast isn't a recording will be available on our AARP shortly.
Please note that comments made during this conference call includes forward looking statements as defined by Federal Securities laws. These forward looking statements include projections and other statements about future events that are based on current expectations and assumptions and as a result are subject to risks and uncertainties.
Actual results could vary materially from our projection.
Please refer to the earnings press release issued today and other documents filed by us with the SEC, including the risk factors discussed in detail in our most recent 10-K filed on May nine.
2021.
The company assumes no obligation to update any forward looking information presented.
The non-GAAP financial measures that are discussed today are not intended to replace or substitute allegra.
GAAP and maybe calculated differently than similar measures used by other companies.
We're providing this supplemental information.
With that.
For comparison, our operating results and more clearly highlight the results of our core ongoing operations.
Conciliation of GAAP to non-GAAP financial measures referenced during today's call can be found in our earnings press release, which has been posted to our IR page.
I'll now turn the call over to labor as President and CEO Ravi Big right.
Thank you Katie and good morning, everyone.
Record revenue and profitability in F Q2 reflects our alignment to multiple growth vectors and very strong franchises in magnetic sensors and power IC as well as in automotive and industrial.
Revenue grew 3% sequentially to $193 6 million exceeding our expectations due to favorable mix relative to our available inventory as.
As a result of structural improvements from our transformation gross margin improved again relative.
Market model timeline.
We experienced broad strength across the magnetic sensor and power IC products in an increasingly diverse set of applications and end customers.
Kinetic sensor revenue was up nearly 50% year over year, achieving record highs due to growth across all product categories.
Current sensors in particular are experiencing tremendous market adoption.
<unk> were up 30% year over year with motor control products, achieving record revenue as customers adopt our leading embedded motion control solutions.
Finally design wins continue to be a key measure.
With potential.
Design win revenue increased nearly 50% on a rolling four quarter basis.
Emerging growth markets continue to represent the majority of these new design wins accelerating the company's transition to ex EV Adas industry portfolio and data center applications to enable outsized revenue growth and high levels of profitability.
We will discuss recent COVID-19 related supply chain disruptions present, what we expect will be a one quarter pause in our sequential growth in Q3, but supply recovery is already underway and we expect a return to growth in Q4, and approximately 24, 28% annual growth in fiscal 'twenty two.
<unk> of our franchises in power and Meg and auto and industrial give us confidence in our ability to deliver low to mid teens annual revenue growth in fiscal 'twenty three at nearly target model gross margins.
Now I'll turn the call over to Paul for more color on the financials Paul.
Thank you Ravi Q2 record results highlight the diversity and strength of our business model.
Customer demand remained strong across our served end markets and once again no single customer represented more than 10% of our revenue in the quarter.
Automotive revenue of $126 million represented 65% of revenue, which is a lighter percentage of mix than typical.
Although revenue was down 6% sequentially, but compares favorably to global car production, which declined 16%.
We attribute this to both content gains and the trend towards higher value feature rich vehicles, and the Oems production mix.
Including the accelerating shift towards electrified powertrains.
Our strategic focus areas of FCB and Ada has increased again as a percent of our automotive mix exceeding 35% of our automotive revenue in Q2, our critical metric.
Offsetting volatility in automotive due to industry supply chain challenges, our industrial revenue was up double digit sequentially to $36 $3 million.
Increasing to 19% of revenue.
The broad strength across all of our industrial categories, which all grew 20% sequentially.
The investments we've made in this area continue to complement our overall growth strategy.
Other represented 16% of revenue rising to $31 $3 million on stronger seasonal demand.
Backlog continues to grow sitting at historic levels and with extended visibility.
Like many of our peers, we have implemented actions.
To reduce polliwog and provide assurance for us to procure additional capacity we have.
<unk> been successful in maintaining considerable pricing power of our products, helping to offset rising input costs.
Demand continues to far exceed our ability to supply.
In this environment, we're pleased to share that we've now begun shipping TSMC products to customers.
Our three foundry partners are delivering at or ahead of planned levels.
Recently, we experienced COVID-19 related supply disruptions, particularly in Malaysia that are impacting our Q3 outlook and offsetting the current benefits of increased wafer supply.
Now with very high vaccination rates at our Assembly partners, we are already seeing supply recovery.
Giving us confidence in a return to growth in Q4.
We continue to make progress toward our target model, particularly with expanding gross margin.
Structural margin improvements from successful execution of our manufacturing and product portfolio transformations and increased mix towards our key investment areas are enabling us to make faster progress to our target model.
GAAP gross margin of 53% was up 300 basis points sequentially.
After excluding zero point $7 million of stock compensation expense and zero point $9 million of other charges.
Non-GAAP gross margin was 53, 8% up sequentially by 160 basis points.
We expect margins to remain at these higher levels in Q3.
GAAP operating expenses were 64 zero million dollars up from $61 9 million in fiscal Q1.
GAAP R&D expense was $29 6 million and GAAP SG&A expense.
$34 $4 million.
Total non-GAAP operating expenses for fiscal Q2 were $57 5 million or 30% of revenue an improvement of 30 basis points.
And at the lowest level as a percent of sales in recent memory.
Non-GAAP adjustments include stock compensation expense of $5 $5 million.
And $1 $1 million of other charges.
Resulting non-GAAP R&D expense was $28 6 million and non-GAAP SG&A expense was $28 $9 million the.
The sequential increase due primarily to higher variable compensation driven by outperformance on the top and bottom lines.
We expect non-GAAP operating expenses to be about flat in Q3.
GAAP operating income for the quarter increased to $38 $6 million or 19, 9% of sales.
Non-GAAP operating income increased to $46 6 million or 24, 1% of sales rising by 11, 3% sequentially significantly outpacing the solid top line growth of two 9%.
Revenue growth structural gross margin improvement and good operating discipline are driving meaningful progress toward our target model for profitability.
Second quarter GAAP net income was $33 $2 million with an effective tax rate of 15, 6%.
GAAP earnings per diluted share increased by <unk> <unk> over our fiscal Q1 to 17 in Q2.
Non-GAAP net income increased to $38 6 million or 20% of revenue.
Q1, non-GAAP effective tax rate was 15, 5% and is expected to be in the 16% range for the upcoming quarter and throughout fiscal 'twenty two.
Non-GAAP earnings per diluted share increased 11% to 20.
Exceeding our guidance.
Q2, delete diluted share count was $191 7 million and is expected to increase to $192 1 million in the third quarter.
Our balance sheet reflects strong execution and business fundamentals.
Cash and equivalents in Q2 were up by 26 point up by $26 million.
Sequentially to end at $256 million Historic high we generated $31 4 million in operating cash flow in the quarter.
Accounts receivable balances were $99 million and we ended the quarter with DSO of 46 days.
Consistent with prior quarters and in our target range.
Net inventory ended the quarter at $78 million, a decrease of $4 million and at 77.
Date versus a target of 100 to 110 days.
Our shipments into the channel continue to be strong at 39% of sales for the quarter channel inventories continue to hover at historic lows, while Pos sell through was at historic highs.
With that I'll turn the call back to Ravi for more color on the business and our outlook.
Thank you Paul.
Our Q2 performance highlights two key differentiators in the <unk> business model that provide us with a multifaceted growth and profitability engine.
Diversification into high growth markets and the transformation to achieve structural improvements in gross margins.
Let's start with the product transformation is paying dividends in both the top and Bottomline.
Magnetic sensor ic's represented 66% of revenue in Q2, all of our magnetic sensor portfolio has experienced sequential growth with current sensors growing the fastest up 16% sequentially as the number one supplier in the market Allegra continues to be the customer supplier of choice across end.
<unk> for example, our current sensors are being designed into next generation applications, including Green energy Evs and EV charging infrastructure, we have excellent market penetration in SCV, inverters, which are rapidly growing opportunity for us today one out of every.
Two ex EV Inverters sockets user and Allegro current sensor.
We also achieved record revenue levels with a magnetic position sensors in Q2.
Customers value, our motion control expertise and position sensing.
Particular on Adas, where a high speed anchor position technology for steering systems provides unmatched levels of safety and accuracy and beyond automotive magnetic position sensors are growing in a variety of broad based applications. The result of our successful transformation to improve our scale and focus in the broad market.
Alright fees have been a key investment area, we have targeted developments that are highly differentiated from the competition.
That are complementary to our magnetic sensor business.
Revenue was up 30% year over year, representing 34% of our revenue in the quarter.
We are seeing strong growth in key applications, such as 48 volt mild hybrids, where we have the broadest portfolio of AC compliant products.
And we continue to leverage our innovative high voltage technology to expand our power IC content in adjacent applications like power tools, but we see a strong transition to battery operation with an alignment to our motor drivers and 100 volt process expertise.
Moving to end markets industrial performance was strong across all categories from Green energy to factory in building automation.
We expect to see continued growth across our industrial categories.
Linked quarter, but particularly India.
Sure.
Okay.
Center applications is a great example of the technical leadership I was speaking about without power Ics.
Over the last two quarters, we have successfully secured long term agreements with three of the largest customers to support major hyperscale build out and <unk> applications. As a result, we expect to see a step function increase in our industrial revenue, which we believe will allow us to more than double the data center.
Revenue over the course of the contract.
Further strengthening and diversifying our FY 'twenty three.
Within automotive revenue was up 41% year over year and end customer demand remains very healthy even extraordinary.
Carmakers have had to become very nimble adjusting production lines as parts become available.
<unk> insignificant variability in demand and product mix.
Accelerating transition to feature rich vehicles, and EV has not slow and continues to benefit allegra and increase our content per vehicle.
While the production forecasts have been revised to reflect the industry wide supply chain challenges that continues to be pent up demand and from our vantage point customers still did not have the luxury of building inventory.
We continue to see acceleration in electrification and advanced safety feature adoption by Oems and we continue to seek to win new strategic high value sockets.
Last quarter, we secured additional sensor wins and SCV inverters at a major Japanese OEM displacing a competing solution thanks to our market, leading accuracy and proven track record in this application.
We also launched our latest automotive grade battery cooling fan driver IC for advanced EV and hybrid battery cooling systems.
We're already designed in at a market, leading battery manufacturers using our solution to reduce fan noise and improved cooling performance in miles per charge.
It's a great outcome for our customer for that for their customers and for the environment and Thats. The type of impact we aim for with that innovation.
As we look ahead I see great alignment with our differentiated technology and the value it brings to our customers across all markets, but particularly in FCB Adas industry for Plano and datacenter.
We've made outstanding progress towards our long term financial model as a result of strategic transformation and are well ahead of our initial plan.
Our asset light model allows us to be nimble and supports demand at record levels.
While also enabling our gross margin expansion.
Our regional diversity customer diversity, and strong product and end market franchises enables us to deliver strong.
And any macro climate.
As Paul mentioned, despite healthy demand and backlog, we expect to see a temporary impact on our revenue outlook for fiscal Q3 from the sole supplier of factory closures we discussed.
We expect Q3 revenue to be in the range of $180 million to $185 million.
For Q3, we expect automotive and industrial will be down mid single digits sequentially, while other will be seasonally doubt returning to prior revenue levels. We expect non-GAAP gross margin to be roughly flat at the new higher levels. We anticipate non-GAAP earnings per diluted share will be in the range of 18 sets.
With recovery already underway at a third party assembly suppliers augmented by new ramps at additional third party wafer suppliers.
We expect a return to sequential growth in Q4, ending fiscal Q fiscal 'twenty, two with about 28% revenue growth.
When combined with content increases in high growth applications significant new design wins ramping.
<unk> gross margin expansion and accelerated earnings. We believe we are well positioned to deliver low to mid teens revenue growth and strong gross margins for fiscal 'twenty three.
That I will turn the call back over to Katie.
Thanks, Ravi is that concludes our prepared remark.
The call for questions operator.
Operator would you. Please review the question and answer instructions for participants.
Thank you at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Once again Thats star one on your telephone keypad will foster a moment to compile the Q&A roster.
Our first question comes from the line Quinn Bolton Needham <unk> Company. Your line is open.
Hey, guys. Congratulations on the nice results and strong margin performance I guess a couple of questions.
You look into fiscal 2023.
It looks like Youre expecting pretty good revenue growth in the loan.
And I'm wondering as you look across both to your foundry and Assembly and test networks do you feel like you have the capacity support today in place today in place.
Located to you to support that growth are you still working to secure capacity to meet that kind of revenue outlook for fiscal 'twenty three.
Thank you Quinn.
As previously discussed we have had a long term development project with TSMC.
TSMC has been installing the wafer processes to our specification. We just started begun the shipments of wafers from TSMC. This quarter last quarter, and we will continue down a slow ramp until middle of next year, where we've secured.
A higher run rate.
For these processes. This was a long term strategy for us not a reaction to the near term market conditions and has been supported by TSMC. So in short the projections that we have aligned with the commitments. We have received from our foundry partners.
Understood. Thanks, and then the second question I had is obviously your revenue growth in automotive I think is up something like 40%, 41% year on year, while auto production, maybe down mid teens, given some of the supply shortages. We all know about I guess, it's hard for folks to think that there is perhaps some.
<unk> building going on when your revenues are up that much in <unk>.
Actual production is down I'm, just wondering if you could help US bridge the gap to your comment that you don't think inventory is accumulating either of the channel or at customers. Thank you.
There's been a tremendous transition this year to hire the feature rich vehicles. So when you look at production that's been displaced in automotive, it's really over the production thats been foregone.
It's been predominantly in the low feature a low content vehicles.
And what we see is that the products that we.
We support and the systems that we support both an ex EV and Adas.
Driving tremendous content expansion in these higher feature rich vehicles.
So while there may be dislocations in the entire supply chain, including our customer.
Peter profiles.
Just just given the nimbleness of the.
Of the car production switching platforms, where components are available we don't believe these.
These dislocations are significant and at this point, we believe that the industry is challenged.
Yes.
Basic demand for car production.
Great. Thank you Ravi.
Thank you next question comes from the line of Gary Mobley of Wells Fargo Securities. Your line is open.
Hey, everybody. Good morning, Thanks for taking my question.
I wanted to ask about sort.
What are the constraints surrounding your third quarter revenue guidance.
I presume, it's the constraints just simply related to the fact that you don't have enough inventory of your distributors don't have enough inventory.
My question is.
Is that loss revenue in the third quarter fully being made up.
In the fourth quarter and sequential revenue gains in the fourth quarter and I guess more importantly, when do you think you and your distributors will be in a position to start to replenish inventory.
Okay.
Yes, Gary this is Paul.
So it would be.
<unk>.
The guidance that we have for Q3 is really relates to specific instances that occurred.
Our sub cons in Malaysia.
As we pointed out they are already back online and they are ramping and so.
So we have confidence in the fact that we will return to growth and that our 28% year over year.
Growth compared to fiscal 'twenty one.
Should allow us to achieve the growth targets that we had we've had in place for much of the year.
As it relates to <unk>.
Yeah.
This distribution is a good.
Proxy for the broader market and we get we get data from distribute our distribution partners every month, we know what the channel level inventory are they remain at historic lows, while the Pos or the end sell.
<unk> continues to be at Kantar.
<unk> continues to be historic highs.
We currently don't see that changing anytime soon.
So whatever we ship them basically it goes right to the end customer.
And we don't foresee that changing anytime.
Near future.
Gotcha Okay.
So you're running close to 54% gross margin currently.
Which is pretty good considering that I believe you're.
Somewhat forced to take.
A lot of way.
Wafer supply from maybe a lower.
Rather higher cost source.
And.
And so my question is under sort of a blue Sky scenario, where you get things back on track you source more lower cost wafers from.
External.
UMC.
TSMC specifically.
Is 55% gross margin, which I believe is your historical targeted that.
Best case or with more wafers flowing from these lower cost sources is there potentially upside that to that in the out years. Thank you.
Thanks, Kelly, yes.
We're very pleased with how we've done it gross margin.
It's certainly indicative of the structural transformation, we have undergone in manufacturing. It's also indicative of the increasing shift towards.
Higher quality or not higher quality, but more feature rich products.
And our and our mix.
We certainly believe 55, but clearly we are on target to achieve 55% and as we've talked about it in various forums.
When we get to 55%.
We're not going to stop and so.
We will continue to seek out ways to drive margin higher than that.
And push towards the upper <unk> and the out years.
Thanks, everyone.
It while it's hard to predict exactly what's going to take place in queue for we do expect a return to growth.
And as I mentioned that were these these factories are already back in in full production and we expect too.
Catch up and <unk> and John just as an additional clarification and.
In fiscal Q3, if it wasn't for the impact we would have been on target on our growth trajectory. So the.
The impact is is is real but it's it's one time.
We are we already see the factories running we already see the vaccination rates.
At the extraordinarily high levels.
So we're not concerned at this point.
Of of this this part of the supply chain, but as you know as we go on I think the second part of your question was do we.
Augment on next quarter with what has happened this quarter.
We continue as every other semi manufacturer continues to be challenged with with.
But with limitations across the entire supply chain in the supply chain at this point is unable to make up.
Mrs.
So what we what you see is are we factored that into our expectations for the year and we're expecting to be in that 28% year over year growth rate.
That's helpful.
That's a good segue into my second question, which is just.
The visibility you have on fiscal year 2003 to to be able to talk about kind of low to mid teens growth that would imply kind of a quarterly run rate of revenue off of the implied fiscal fourth quarter guide that up north of.
$25 million from a run rate perspective, and I'm kind of curious if you could just help us understand the profile of that confidence is this the design wins to what extent.
ASP play play a bigger role because there's often time of lag effect.
As we negotiate pricing with customers and are you confident and you have the supply actually in place to be able to drive that growth for next year.
Yeah, let's let's just start with the supply so we've we've factored in supply availability into our expectations.
The supply availability that we speak off is already based on commitments that we have from a from a foundry partners.
In terms of.
There, we see the growth coming we see a great tailwind says automotive Bill <unk>.
Rebound off its low production levels, it will give us the tailwind along with the increase adoption of <unk> <unk>.
Systems as well as the.
The increasing sophistication of <unk> systems or the increased sophistication of Ada systems in vehicles. So both of them drive content. We've spoken about data centers, where we expect really a step function growth next year.
Coming through to the contracts that we have secured so we expect that to be.
Fairly legitimate and much of our activity has come through.
Working with our customers aligning our capacity and.
Ensuring that there is a there is there is enough coverage from a from a order perspective too too too back our commitments are backup targets.
Perfect. Thanks, guys I appreciate it.
Thank you next question comes from the line of Alessandro Vicky.
And Blair lines open.
Hey, guys congratulations on the strong results.
Just to circle back on inventory levels, you touched based on customer and channel inventory, but can you needing walk us through given the constraints. How we should be thinking about you are on balance sheet inventories and sort of what level you are comfortable with and what the long term target there.
It should look like once we get back to a more normal iced tea.
Sure Alex This is Paul.
As I.
We pointed out channel inventories remain at historic lows and.
And this question was also raised spot earlier today and then.
Near term, we don't really foresee that changing.
Given the supply situation.
But there is a lot of activity on that channel.
And as it relates to our own inventory, where we're at.
At 78 days.
77 days $78 million, we would like to be considerably higher than that.
A limited to 100 to 110 day target.
At the moment, we don't foresee that.
Getting to that point.
In the near term, but.
Because essentially what we get for supply will will address the strong demand that we have.
Over the longer term, we would expect to get back to the levels.
In that range.
Okay. That's helpful. And then just on the data center growth and the wind there can you go a little bit more in depth on on many what products you're gaining traction. There's this really some of the <unk> stand announcements or does it extend beyond that product portfolio lies.
Thank you Alex here now it is exactly as you expected the year, we've been talking about our three fame three phase.
Embedded motion controls story over the last few quarters.
The fact that we've been gaining traction and and.
And we are now talking about real.
Real contracts associated with those products so.
It is specifically in that in that motion control area.
Great and just as one extension of that if I can I think I think earlier, Paul you said that design wins were running.
Up 50% on a rolling for quarter base it can.
Can you tell us what percentage of sort of died.
Increase story accelerated design with momentum coming from from <unk>, maybe some of the industrial.
Newer platform.
We.
We haven't.
Pretty open to disclose that.
Publicly Alex at this point.
That's fine.
With that I'll pass it on.
Thank you next question comes from the line <unk> perjury.
<unk> Your line is open.
Thank you good morning, Rovian, Paul couple of questions first on the auto.
And the quarter, Robbie it's down 6% I think which is much better than the production as you pointed out but at the same time I have a difficult time, believing that your customers are not are lowering their orders given all the disruptions that we're seeing so I'm just curious as to use this is supply issue.
Why'd auto declined sequentially.
And what we.
Straining our challenge right now is to match the available supply with.
With real demand.
We are aligning.
Our supply.
To where customers most need the products. So when we located auto for example, there has been this.
Great inflection between moving from which platforms are shutting down which ones are going to now be focused on et cetera, and so we've been pretty nimble in reallocating our material associated with these with the true production and we've also been able to take.
Use the opportunity to fulfill some of the seasonal growth requirements of our other other parts of our business. So.
We have been.
Really cognizant about not.
Not focusing on building inventory into our customer chain.
At the expense of supporting.
Key demand.
Demand certainly.
In general and all segments in all markets for us exceeds supply.
Makes sense.
And then my next question is on gross margins in pricing et cetera.
Obviously very strong performance here and.
And a couple of things on the cost side.
Get more wafers from TSM and UMC.
I know you said, they're going to be lower cost, but also at the same time recently there has been.
Some speculation that the foundry started raising their way for prizes for next year. So just curious you know if that's going to have any potential impact as we think through the next year's gross margins and then a broader question.
Ravi on the pricing.
Some of your peers are talking about.
Potential cost mitigation actions by raising prices selectively and some folks are more broadly. So I'm just curious as you look out to your customer base in your product mix et cetera.
How do you think about potential I guess in mitigation actions.
Given that some of the design wins that you have maybe longer term in nature to what extent do you have the ability to pass through some of the incremental costs.
That you might be seeing.
I try any of this is Paul I'll take I'll start this.
The response to this.
Everywhere in an inflationary environment everyone's aware of that we are seeing input costs rising we've seen that throughout the year.
And what we've been able to do is is.
Offset that with price increases where it makes sense strategically.
And it does and we are well aware of what's coming and balanced all of those.
Puts and takes and we remain very confident in our in our 50.
55% target.
For gross margin.
And Paul maybe if you could clarify for the quarter.
You said in a mix.
Help the gross margins when you talk about the mix are you referring to the mix within the segments or is it just the auto versus industrial because as we look through the next few quarters I'm suspecting auto and problems rebounder at some point.
Will that have any impact on gross margins as auto rebounds. Thank you.
Sure so.
The strengthened gross margin we've seen is along the lines of what we've been talking about for a long time on the <unk>.
Dr. Shaw transformations, we've seen in our own supply chain and manufacturing certainly we've also talked about mixed with an auto.
That's a benefit.
And then the auto industrial.
Thanks.
Also had some.
Some benefits as well, but we are well on track.
Two two achieving our targets that we've talked about.
On gross margin, we'd make tremendous progress and.
In the past 12 months and we're we're <unk>.
Excited.
Continue to drive improvements there.
Alright, Thanks, Paul.
Thank you.
Next question comes from the line if Blane courteous of more police your line is open.
Taking my question I, just wanted to fall back about Covid private question just for the September quarter.
At a lot.
Ended up down a bit but I just thought I was curious if that would.
You said demand so exceeding.
<unk>. So I was just trying to is that.
<unk>.
[noise] factor for that being down or was it the customer behavior.
It's pretty much that the customer.
Blaine the customer.
That firm strategy as you've seen that they have been.
Sporadic.
Lying down set at customers created due to a component availability and as these factories have have readjusted production level as far as from one platform to the next we've taken the opportunity to to.
The service.
The two demand in other segments. So.
At this point, we don't see our ability from our capacity perspective too to manufacture for the purposes of filling inventory.
The native demand in the market and all segments is extraordinarily strong and we are a.
Ah highest priority is to keep production lines running first.
Across all all market segments.
That's right and then just a follow up on the.
Issues in Malaysia is that impacting any particular and market more than other I mean, you got I got guiding them all down in December but I was just kind of curious.
And one birthday other.
Yes, we do have.
Quite a bit of assembly activity done in Malaysia, and so it is quite broad in terms of where it is affecting we.
Half of our assembly is done in the Philippines. So that particular piece of the business is not affected but.
Malaysia will affect.
Our higher pin count packages.
Some of the more commercially available packages that we.
That we service, which basically go across all market segments for us.
Thanks, Rob.
<unk>.
Thank you. Thanks to question comes from the lineup VJ Rakesh of Missoula line is open.
Yes, hi, how ya that'd be great.
Great quarter good execution.
Just wondering when you look at and a good to give DSM ramping obviously part of your long term strategy, but as you exit next year's calendar Granny to any thoughts on what the mix would be between.
Paula and TSMC UMC, etc.
So.
A good.
<unk> this is Paul.
And as we exit the year.
We've been fortunate to have polar.
That's provided us.
A strict strategic source of supply.
The.
<unk>, we will continue to grow throughout the year, we haven't publicly said what percentage TSMC would be as say a year from now bye there will continue to grow in.
And basically be additive to the supply that gives us confidence in our fiscal twenty-three.
Outlook.
Got it.
And it looks like automotive you had a pretty solid color.
30, 40% versus maybe be down 20% I guess.
And obviously has some concerns inventory build in the supply chain and fixes since two six if we're going to fucking do it but I think where you guys differentiate is your leadership and you might be sole source and many of your current sensing and.
Magnetic sensors, Florida E V a desk and so to that point as wondering because I think when there's also less opportunity to double order auto auto X is silly because he knew exactly what the customer wants but to that point wondering how much of your.
Mantic sensing into <unk> was prepared to kind of socialist desk. Thanks.
Yep, Thank you VJ.
In terms of.
Our products.
<unk> products are typically.
So source that typically very specific to applications designs and when our customers utilize them. They have to do quite a bit of work, whether it's mechanical or whether it's.
Software to to interface with our product so.
They are not easily replaceable are interchangeable so.
TR or to your question.
So they are predominantly sole source.
So it gives us visibility in the market that helps us engaged very closely we don't really have.
We get to understand a little better than most even though we don't have clear visibility, but we do understand better than most on what the customers inventory levels are and what the usage rates are et cetera.
Okay. Thanks, a lot.
Thank you once again, if you would like to ask a question. Please press star and then the number one on your telephone keypad once again that star one on your telephone keypad.
Question comes from the line of March sleep Patsies of Geoffrey's your lines open.
Hi, Thanks for taking my question.
Maybe the question for for both Rob and Paul.
Do you think that it's up to the supply chain challenges that that you and the whole industry experienced over the past year.
Is it gonna lead at the end of the day to any kind of structural change about how you are your customers or suppliers do business or.
Do you think when we come out the other side of the the analysis is.
Or the or the behavior doesn't change that it's just all of that was just a fluke.
Continue to do things.
Things like the way, we've always done I can imagine that maybe.
Your customers decided to.
Elevate their own inventories to try to mitigate something like this in the future you you talked to battle Longterm supply agreement I don't know.
If that is anything to do with.
The challenges that the but that's the whole supply chain experienced or do we do we see permanently longer orderly times are orders on your books or.
Maybe you can just talk also about you know structurally about how are you thinking about changing how you do business. So do you do are you thinking about longer term supply agreements with your suppliers.
That's the first question I have a follow up.
Thanks, Mark and.
In general will be always focus on long term supply agreements with especially a foundry partners.
In order to secure capacity given that we have such a heavy automotive business. We believe that we have an obligation to ensure that.
That the supply flow is.
Is adequate.
Problem is you know is that the the transition that's occurring with two higher value added vehicle to hire electronic content vehicles. It's one that's accelerating far beyond what.
What what's it was anticipated.
From a from a from a supply chain perspective customers for sure would like to start building inventory.
That's for sure but at this point.
It's not a customer's desire issue right now it is more that the availability both had foundries as well as it at the assembly houses and as you know.
These these are very high investment levels.
Within the supply chain and everybody's really conscious about overinvesting to see the bubble. So so this one so they're not.
That is going to be a disciplined ramp in the supply, which will probably limit the ability of the customers to go off and build a very large amounts of inventory quickly.
So we don't see that in our own profile, we see that our supply availability that we've been able to negotiate.
In the near term is is being consumed by by real demand.
But.
For sure at some point in time, there will be a little more discipline in the in the in the in the entire chain and customers will have a little more cushion and and the way they operate.
Great. Thank you and follow up if I may.
Is this.
The recent issues in Malaysia for Ya notwithstanding.
My impression is it seems that you have been actually.
In a better position or you've been able to react to the upside into and demands perhaps better than some of your competitors.
Just based on how you had at the at the time been transitioned in your supply.
Has this do you think that this has changed anything in the.
Last year anything has changed on the competitive.
From a competitive.
Standpoint, like maybe on the market share basis or how.
Your own market share of how you have been.
You're competitive position at your customers relative to your.
Traditional competitors.
The market share data is is it's a little too early to tell but for sure. We've been extraordinarily focused on the resilience of our own operating model I think over the last few quarters, including at the point became out of the IPO, we spoke about having.
III foundries that are capable of running similar wafer process technologies that allow gives us a little bit of nimbleness and an ability to to expand capacity wherever possible and I think this resilience of this model has allowed us to.
Two.
To take limited advantage I would say of.
Oh.
Of of the opportunities that are presented to us.
When we look at the backend again.
Re re alignment into a single facility in the Philippines has really helped us with efficiencies. It's helped us being nimble, it's been able to help us move equipment around within a single facility to take advantage of of mix changes et cetera, and so that's also really helped us from a from.
Ending to the marketplace.
For sure our customers value supply at this point this is something in their mind that they value with technology and forever.
We are supremely confident of our technology differentiation.
Wherever we can support them and supply.
They have come to us so it's a complex world right now in terms of how do you manage this whole supply demand imbalance in along with the growth trajectory of the company.
Thanks for having very helpful.
Thank you once again, if you would like to ask a question. Please press star one.
Once again to ask you a question please press star one.
No further question at this time and I would like to turn the call back to Katie Bly for closing remarks.
Okay. Okay.
It does conclude today's conference call.
Everyone for joining us.
The Lego.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating human now and disconnect have a great day.
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