Q3 2022 Semtech Corp Earnings Call
Yes.
Okay.
[music].
Greetings and welcome to the <unk> Corporation Q3, FY 'twenty two 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. This conference is being recorded.
I'll now turn the conference over to your host VP of Investor Relations Sandy Harrison you may begin.
Alright, Thank you Paul and welcome to <unk> conference call to discuss our third quarter fiscal year 2022 financial result speakers for today's call will be Mohan Moss warm <unk>, President and Chief Executive Officer, and a macro trucco, 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 statement included in today's press release and in the other risk factors section of 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 and some tech undertakes no obligation to update the information from this call should facts or circumstances change other references made to financial all the references made to financial results and Mohan and <unk> prepared remarks. During this call we'll refer to non <unk>.
GAAP financial measures unless otherwise noted our discussion of why the management team considers such non-GAAP financial measures useful along with detailed reconciliations of the non-GAAP measures to the most comparable GAAP financial measures are included in today's press release and with that I will turn the call over to <unk> Chief financial.
Also in Mexico Mecca.
Yeah.
Thank you Sandy and good afternoon, everyone.
As is our practice I'll focus my comments on our non-GAAP financial results unless otherwise noted.
In Q3 of fiscal year 'twenty two.
Company delivered very strong financial performance that included achieving a number of Newport Nashville or thoughts.
Net sales of 194 nine.
<unk> 9 million that increase.
5% sequentially and 27% year over year.
It was above the midpoint of our guidance.
Our continued momentum our record results by several of our key growth platforms contributed to the strong net sales performance.
In Q3 shipments into Asia, North America, and Europe represented 78%, 12% and 10% respectively.
While this represented the ship to address this for all distributors and customers, we estimate that approximately 45% of our shipments are consumed in China, 27% in the Americas and the balance is all about the rest of the war.
Total do it so well represented approximately 12% of net sales.
Distribution and that's.
<unk> represented approximately it per se.
Our typical P. O S represented another quarterly record and the business remains balanced with approximately 41%.
32% and 27% of the total Pos coming from the infrastructure.
Australia, and the high end consumer end markets respectively.
In Q3 bookings increased 16% year over year those.
Those bookings accounted for approximately 3% of our Q4 shipments.
Q3, gross margin increased 110 basis points sequentially to 63, 8%, which represented the upper end of our guidance range and a new quarterly record led by a more favorable product mix.
Going forward we have.
Our gross margin to continue to benefit from the richer mix of cells from our key growth platforms that include Lora enabled our 10 gig PON, our triage panel for Cdos and our broad based industrial protection products.
For Q4, we expect gross margin to continue to expand as we anticipate a more favorable mix due to a seasonally lower high end consumer.
Fellas.
For planning and modeling purposes, we expect our gross margin to remain at current levels with an upward bias over the next several quarters.
They did benefit from the growth of our secular growth platforms.
In Q3 operating expenses increased 2% to 67 five.
$5 million.
And by higher new product development expenses.
For Q4, we expect operating expense to be in line to slightly above current levels.
Looking ahead to fiscal year 'twenty three we expect the op revenue expense to begin to trend back toward our target model of half the rate of net sales growth.
Yeah.
In Q3 operating profit increased 14% sequentially or nearly three times that of net sales.
The increased 51% on a year over year basis led by the higher gross margin represented a record operating profit.
Operating margin expanded by 210 basis points sequentially to 29, 2%.
Represented solid.
Progress towards a 32% to 6% long term target model.
As expected we are seeing the stronger operating leverage expected for the success of our growth platforms.
Q3 cash flow from operations was a record $66 $5 million.
26% sequentially and represented 44% of net sales as a result of the record operating profit and good management of working capital y.
Why free cash flow increase.
And 3% sequentially to 31% of net sales.
Free cash flow generation in fiscal year 'twenty.
Just wanted to have this wrong.
That's why the strategic actions to maintain higher levels of inventory.
And we expect to end the year around the low end of a long time.
The cash flow target of 25 to 30.
Push out of next steps, which would be a significant it's probably show up on the prior year.
In Q3, we reported approximately $3 million or 6% of our outstanding stock, resulting in 292 million velocity.
Our outstanding authorization.
Expect to continue to use our cash to opportunistically repurchase our shares make strategic investments and pay down the debt.
Q3 accounts receivable increased 2% sequentially to $74 million, while days of sales was flat with the playoffs.
Four days and remains below our target range of 40 to 45 days.
In Q3 net inventory in absolute dollar terms increased 2% to British sugar and days of inventory increased four days sequentially through how do I put it three days.
We expect net inventory to remain above our target range of 90 to 100 days to support the stronger demand and tight.
Supply chain bottlenecks.
In summary, this is.
First off our growth engine yourself Lora enabled.
Tri edge pad for 10 gig PON <unk> wireless a broad base protection platforms enabled us to deliver a record net sales.
Record gross margin record operating profit record earnings per share a record cash flow in Q3.
We expect this sustainable long term growth from these key growth regions and the underlying secular drivers to continue to drive record financial performance for fiscal year 'twenty, two and provide a strong one bedroom bathroom moved into fiscal year 'twenty three I will now hand, the call over to Mohan.
Thank you America.
Good afternoon, everyone.
I will discuss our Q3 fiscal year 'twenty two performance by end market and by product group and then provide our outlook for Q4 of fiscal year 'twenty two.
In Q3, net revenue of $194 $9 million grew 5% sequentially and 27% annually and represented a new quarterly record.
Higher demand from the industrial and high end consumer markets contributed to Q3 growth.
We posted record non-GAAP gross margin of 63, 8% and record non-GAAP earnings per diluted share of 74 cents.
In Q3 net revenue from the industrial end market increased 17% sequentially.
Led by record results from both our Lora business and our broad based protection business and represented 35% of total net revenues.
The infrastructure market decreased 1% sequentially as.
As record PON revenues and stronger base station revenues were offset by lower data data center revenues and.
And represented 34% of total net revenues.
The high end consumer market increased 2% sequentially and represented 31% of total revenues with approximately 20% attributable to mobile devices and approximately 11% attributable to other consumer systems.
I will now discuss the performance of each of our product groups.
In Q3 of fiscal year 'twenty two.
Our signal integrity product group increased 3% sequentially and achieved a new revenue record.
Led by growth from the PON and base station infrastructure markets and represented 39% of total revenues.
In Q3 revenue from our data center customers softened over the prior strong quarter.
Our tri edge, Pam for short, which platforms continued to gain solid design win traction with key hyperscale customers.
We expect this momentum to accelerate into FY 'twenty three as the power and cost benefits of triage become realized of course shorter reach links in the data center market.
The excellent performance of our short reach Tri edge platforms has also led to increasing interest in our longer reached triage panful platforms planned for release over the next several quarters.
In FY 'twenty, two we expect that data center Panful revenues too and in the high teens and increase over 100% in FY 'twenty three.
As you try edge products are released to production, we believe our complete portfolio of triage Pam four devices will enable very strong revenue growth over the next few years in 100 gig 200 gig and 400 gig Pam optical modules in the Hyperscale data center market.
In Q3 of FY 'twenty to revenue from the PON market achieved another record performance led by record 10 gig PON revenues as we continued to benefit from the most comprehensive PON PMD portfolio available in the market today.
We expect our PON business led by a 10 gig PON solutions to continue to grow as global service providers accelerate net deployments of higher bandwidth access networks.
In Q3 of FY 'twenty to demand from our wireless base station customers increased over the prior quarter.
Several five G. China tenders have been announced and carriers in North America, and Europe are expected to begin the <unk> infrastructure build outs over the next 12 to 18 months.
We are expecting demand for our five gig platforms <unk> platforms to accelerate in FY 'twenty three due to a significant design win momentum for our 25 gig clear edge family.
In addition, our industry, leading 50 gigabit per second Pam four triage platform targeted at 50 gigabit per second front haul modules is now being sampled for next generation <unk> wireless networks and receiving very positive feedback.
The secular themes driving the global demand for greater bandwidth are expected to remain strong and we believe our strong position in our key infrastructure markets will provide a sustainable tailwind needed to drive double digit growth for our signal integrity product group over the next several years.
In Q4 of fiscal year 'twenty, two we expect revenue from our signal integrity product group to increase and achieved another record driven by growth from the data center market.
Moving on to our protection product.
In Q3 of fiscal year 'twenty, two net revenues from our protection product group increased 14% sequentially.
And 36% year over year and represented 29% of total revenues.
In Q3 revenue from our consumer protection platforms increased sequentially as expected driven by North American and Asian consumer demand.
While consumer demand remains strong many of our customers our supply chain limited.
Which is impactful which is impacting their ability to build complete systems.
We anticipate that this constraint will remain for at least two more quarters.
In Q3 demand for our protection devices used by the broad based industrial markets grew 31% sequentially.
71% annually and achieved a new quarterly revenue record led by growth from our automotive communications and broad based industrial customers.
Our protection platforms deliver superior protection for systems, using leading process geometry devices.
We expect this secular trend to continue and contribute to the increased adoption of <unk> protection platforms across all technology sectors.
And helped deliver double digit growth with increasing gross margins over the next several years.
In Q4 of fiscal year 'twenty, two we expect our protection revenues to decrease sequentially due to typical seasonality.
Turning to our wireless and sensing product group.
In Q3 revenues from our wireless and sensing product group grew 1% sequentially and 23% over the prior year and achieved another quarterly record and represented 32% of total revenues.
In Q3, our Lora enabled platforms delivered another record performance led by growth from the smart utility Smart building industrial Iot and smart agriculture segments.
We are also seeing the early ramp on the smart home Smart neighborhood and smart campus segments, which are driving further growth for our Lora business as we had anticipated.
As a result of this continued positive momentum we now expect our Lora enabled revenue in FY 'twenty two to exceed our 40% CAGR target.
Our vision for Lora is to see it deployed everywhere, where low powered sensors are needed, which we believe will result in a positive impact on managing and mitigating the impact of climate change in.
In Q3, we announced an and initiative and goal to connect 1 billion Lora enabled sensors by 2026 that have a positive impact on climate change.
We continue to see many use cases globally that will contribute to this goal.
Some examples of these new use cases include our collaboration with cloud energy, a leading Iot solution provider in Asia to develop and deploy Lora networks for rooftop wireless solar power systems.
Riot in cooperation on Lora solution in network provider announced a new zero carbon carbon solution, featuring a Renaissance microcontroller and our Lora edge platform to connect a battery lasts sensor directly to the Lora cloud, enabling geolocation capabilities for the tracking them.
Valuables logistics assets animals and healthcare assets.
And IQ Nexus and end to end Iot solutions and integration provider for building automation incorporated lora into its indoor air quality, and environmental quality sensors, which reduce carbon dioxide emissions.
These are just a few examples of the numerous lora use cases emerging to combat climate change.
In Q3, Microsoft announced it has joined the Lora Alliance and has accepted a seat on the Lora Alliance Board.
Microsoft Azure is widely considered a tier one enterprise cloud partner for many Iot deployments and we expect their participation along with other top tier cloud providers like AWS to further strength strengthened lora presence in the LPWAN market.
In Q3, our Lora business metrics continued to make solid progress against that FY 'twenty two targets.
A number of <unk>.
Global Lora Lan network operators grew 263, and we are expecting a 165 Lora network operators by the end of FY 'twenty two.
The cumulative number of Lora end nodes deployed increased to $225 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 $2 7 million and has already exceeded the goal we set for the full year. We now expect to have 3 million gateways deployed by the end of FY 'twenty two.
The Lora opportunity pipeline increased to over $900 million and has also exceeded our FY 'twenty two year end target.
We are increasing our pipeline target for FY, 'twenty $2 million to $950 million we.
Paint that approximately 40% of the opportunities.
Currently in the pipeline will convert to deployments on average over a 24 month timeline.
We believe the momentum of our metrics along with the increasing influence of the Lora Alliance and its members will help enable lora to become the de facto standard for the fast growing LPWAN market.
In Q3 demand for our proximity sensing platforms softened following last quarter's record revenues, our sensing platforms provide the industry's most advanced and highly integrated saw sensing technology for mobile and wearable devices.
The increasing adoption of <unk> phones, and the use of high powered cellular and Wi Fi radios.
It is expected to result in more stringent RF power regulations globally.
This trend is expected to contribute to increased demand for our proximity sensing platforms over the next few years as we anticipate that several countries in Asia.
Enforce strict to SAR regulations over the next two years.
For Q4 of fiscal year 'twenty, two we expect net revenues from our wireless and sensing product group to decrease as record results expected from our Lora business are expected to be offset by seasonally lower consumer revenue.
Moving on to new products and design wins.
In Q3, we released 23, new products and achieved a record number of new design wins of 3792.
Now, let me discuss our outlook for the fourth quarter of FY 'twenty two.
We entered Q4 with record backlog and are currently estimating Q4, net revenues to be between $184 million and $194 million.
To attain the midpoint of our guidance range or approximately $189 million, we needed net turns orders of approximately 3% at the beginning of Q4.
We expect our Q4 non-GAAP earnings to be between 65, and 73 cents per diluted share.
I will now hand, the call back to the operator, and Sandy <unk> and I will be happy to answer any questions.
Operator at this time, we'll be conducting a question and answer session. If you'd 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'd 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.
While we pull for questions.
Our first question is from tore Svanberg with Stifel. Please proceed with your question.
Yes. Thank you.
Great relations on the record results.
Our first question is on your comments about data center and specifically Pam four.
Hum.
I believe you said double next year.
Could you maybe talk to some of the specific deployments there are Mohan and it also sounds like sequentially, that's going to drive the signal integrity business. So again I assume that's the beginning of some new deployments that you're benefiting from there.
Yeah, that's right Yeah, we got a quite a few things going on in the data center business, but specifically in the Pam four area for us the only products we have out there at the moment all the short reach.
Factors that go into optical modules.
Mostly 200 gig four by 50.
And some 400 gig.
Applications, we have as I mentioned, a new series of products that are planned to come out over the next few quarters for longer reach and I think when we have that broader portfolio, we're going to see even more momentum there, but the momentum on short reach alone is going to drive very very significant growth for us next year now as I said, 100% growth and then.
Beyond that for sure so very excited about the opportunity there.
And not only triage Pam four for our data center business, but also our 50 gigabit per second Pam four Tri edge platform for base station optical modules is also getting extremely good feedback from the marketplace. So we're very optimistic about that also.
Very good.
All up that your com business has been on a tear.
Okay.
In one of your stronger businesses on a year over year basis.
Is there anything that you can share with us to give us conviction that theres still upgrade cycles happening there.
The momentum in tandem pump.
Yes for sure I mean, PON and General Festival globally, I think one of the nice things about <expletive> as it's become a lot more of a global technology you know for a while it was very.
Very much China that was driving.
The business in the deployments.
But what we've seen and while we've seen China tenders continue and driving good deployments. We're also starting to see North America, and Europe now starting to to drive tenders.
<unk> tenders out there and that's going to drive further growth and so we're definitely seeing that kind of globalization across many different Oems now building PON platforms. So pretty excited by it I think obviously.
Access bandwidth is critical.
You can have all the.
Bandwidth you want coming to the access point, but if you are a bottleneck. There then that defeats the purpose and I think.
<unk> 10 gig PON as Guyana is definitely seeing good growth and we'll continue to and I think we're likely to see a higher bandwidth PON.
Developments over the next few years so.
Very encouraged by the growth in PON.
And just one last question on Lora so.
It sounds like the smart home Smart neighborhood is starting to ramp.
Is that primarily in North America or are you seeing that ramp in other regions as well.
We're seeing it ramp across the board I would say.
The majority of the strength is in North America.
I would say that it's.
A number of different players obviously, the Amazon sidewalk initiative is yet to come. So that's still I think something that probably second half of next year, we're going to see that ramp, but definitely we're seeing a whole bunch of other initiatives, including the helium rollout.
We've seen.
Sin.
Kind of this emergence of this campus networks now one of the things that's really transpired and really exciting for us is that Lora, which is predominantly a range driven technology and low power long range driven technology, but we are seeing in that kind of a half a mile to two.
Five mile rate range.
Lora really starting to get adopted as well, which is pretty exciting because it opens up a whole bunch of use cases that makes the market essentially the LPWAN market.
Come much bigger and I think will grow faster.
Thank you for that one and congratulations again thank.
Thank you.
Our next question is from Tristan Garrett with Robert W. Baird. Please proceed with your question.
Hi, good afternoon, you've talked about both PON and data center, increasing sequentially and I know.
You've mentioned you just mentioned in that pond is now diversifying away from China. So it looks like your skin.
Weathering it the China slowdown.
Better than the way some of the other companies have characterized it recently could you talk about what youre seeing there in that geography and weather.
Indeed, you are seeing a slow down it would have met him.
Higher outlook for this quarter at the top line.
Yes, I think Tristan it's a very segment.
Dependent on which segment you're focused on we've definitely seen a slower slowing down in China smartphones for example in the consumer business in general.
Would say infrastructure is quite healthy so I would say Iot is still quite healthy. So it really does depend on which segment and I think that's we're seeing that across the board and that's the beauty of being a balanced business like we are and having diversification and having and market diversification, but also geographical diversification is that.
One area is doing we kept other areas are strong and so just.
Just having the diversification helps that so yes, but to answer your question I think it really is a segment specific and we've seen.
More weakness in the China consumer business than we have in other areas.
Great and then could you talk about your expectation about the pricing contributing to your top line.
Over the next few quarters.
You were mentioning earlier this year about your expectation for price increases in the second half, which also could benefit gross margin.
And as those price increases.
Continuing in and with the ones that you've already done.
Is that going to contribute.
Next year to the growth in addition to whatever you're going to see in units.
Possibly trust him, but I think most of our price increases have been really driven by increases in our supply chain costs. So we we are focused very much on you know when we had an increase in wafer costs or specifically.
Cost for a specific product, whether it be fab or assembly or test related.
Turning to pass that onto our to our customer base. So that is definitely helping us.
Some of the <unk>.
Supply chain cost increases by by by providing ASP increases I don't think that we will.
Necessarily continue to do that unless we are seeing more supply chain action, which is possible because.
Our supply chain our cycle times are extremely long.
When you have long cycle times like that typically one of the things that does that drives us is higher pricing generally so at least until all the capex. Some of the investments are in place and that typically takes several years. So so its possible we see it but we're not counting on that.
Great. Thank you very much.
Our next question is from harsh Kumar with Piper Sandler. Please proceed with your question.
Yeah, Hey, guys first of all congratulations very solid results Mojado had two for you you mentioned there was softness in the data center business last quarter that you just reported and then do you expect things to improve I was curious in your opinion what might have caused that softness and then also.
What are you seeing that gives you the confidence that things are improving in the data Center, then I had a follow up.
So I think it's a format standpoint.
Uh huh.
The ship.
Shifting.
And what's going on in the market, So 100 gig optical modules.
Maybe there's some excess inventory out there of of product, but the newer Pam four deployments, where they have no inventory I think we're starting to see those ramp up quite fast and we have pretty much those design wins in the bag and so it's really design win driven so I think we are fairly comfortable that with Q4.
Prism and also next year for our data center business. It does tend to be lumpy.
All the infrastructure businesses.
A little bit lumpy and youll get a quarter or two of deployments or capex spending and then there'll be some management of inventory and then youll see it come back again, but for sure at least for now.
At 100 gig Pam.
For 200 gig 400 gig and then <unk> base stations and for 10 gig PON, it's going to be up into the right Theres. No question that those deployments are going to continue to grow year on year. It's just a question of timing on it.
Okay understood. Thank you and then I had a question on <unk>.
I seem to recall in one of your patients patients that but 10 gig PON you guys are playing on both sides of the wire where ash for one gig corn in two and a half you were just on one side of the wire show.
Curious if that is that is an accurate assessment, which would imply if that's correct that your content.
Went up quite a bank and then as a side question to that is I was curious you would be you would be willing to give us how much pond is as a percentage of revenue.
So everything you said is accurate harsh.
<unk> 10 gig PON, we are playing on both.
Central office and on the <unk> and our new decide.
And obviously the Asps are higher on the <unk> side. So that's good. It also is if you sell a broad chipset like that the complete chipset that gives you a very strong position with your customers and so that's also a very good thing I think and so strategically we are very comfortable with where we are.
With regard to percentage that Sandy I don't know if you have that you can provide that.
Yes, so harsh.
It's typically been somewhere in sort of the low to mid teens, it's probably running at the upper end of that this year year to date.
That's good enough for me I'll get back in line Congrats guys. Thank you.
Okay.
Our next question is from Craig Ellis with B Riley Securities. Please proceed with your question.
Yeah, Thanks for taking the questions and congratulations on the very strong quarter and outlook.
Mohan I wanted to start just by getting some further.
Color on what you're seeing with the order activity and backlog growth backlog is clearly very strong with just.
3% turns coverage needed to to meet guidance. So.
What are you seeing there and are there particular areas of the business, where youre seeing more significant.
Order intake and backlog expansion.
Yes <unk>.
To be very strong backlog is obviously very healthy given the what we just mentioned on tonnes. There. So everything is looking quite good there I would say.
You know there are pockets of extremely very good strength in PON is clearly one of those.
Lora, obviously is another area our protection business, which is very broad very very strong. So there are some nice pockets areas of weakness I mentioned, China smartphone consumer.
Not totally unexpected coming towards the end of the year.
It's kind of been a funky couple of year's CSO. So some of the <unk>.
Typical seasonality that's what we expect to see so there is not totally unusual but I would say.
At the moment everything is still very very strong.
That's real helpful. And then I wanted to go from there and just talk a little bit a little bit about the industrial activity inside of protection, So great to see the 31% sequential growth.
I was wondering if you could point out some of the things within that very broad end market that are.
Seeing particular strength and how sustainable do you think that strength as we look out into the.
The first half of calendar, 'twenty, two and and and where do you think is driving that shrink.
Yeah, So I do think it's sustainable.
Q4, we'd expect to be a little bit soft, but I think as Q1. So in the first half of next year I would expect it to be strong again, it's in multiple segments. So its communications it's automotive.
It's broad based.
The faces USB C. HDMI. So it's a very broad set of interfaces being protected as well as different segments.
Automotive, particularly I think is strong and communications.
There is quite strong.
Now if you think about what's.
This kind of sustainability of it this is really the mass market, it's not 10 customers, it's thousands of customers and so what we're really seeing is the.
The broad market now starting to use advanced lithography processes and controllers and DSP and are they starting to use those advanced.
Rafi devices I think.
It really kind of fits.
Our strategy and our the adoption of our protection into those segments very well and so that's really what's driving it Greg the the adoption of these leading edge.
Geometries and the need for our kind of high end protection, which is what we've been saying for a while but we have obviously in the consumer segment, we've proven that.
That capability, but we've been waiting in a sense for the broader market to kind of come to us and now and I think it's coming.
Yeah, nice to see the market coming to you, especially one that has real nice margin characteristics I don't want to ignore it Mecca and that got great to see the the real strong gross margin I just wanted to see if there was any further color you could provide on some of the some of the particular pluses in the quarter sense.
Since we were at the very high end of guidance and at least 50 basis points above what I was expecting.
So thank you Craig.
I do not feel ignored at all.
Oh.
Sure.
Our gross margin story has definitely been a.
Highlight for US and is actually very pleasing to see these numbers play now to give you and the expectations that we've had for a while.
Recall in the past we've talked about the growth drivers right now from Lora.
And get corn.
Japan for CDI was it broad based.
Protection devices with talked about all of that to come in with much higher gross margin than the corporate average so it's nice to see that playing out.
And that's essentially distorted right at our gross margin expansion story is pretty simple. It is just our mix.
That's great. Thanks, guys I appreciate it.
Our next question is from Christopher Roland with Susquehanna. Please proceed with your question.
Thanks, guys I guess, Oh my questions are mostly around Lora.
So I guess for Lora.
In terms of like an innovation treadmill, what kind of improvements do you think we might be able to see with Lora and then you know with helium for example, it's so backlogged right now it seems like you guys would have a ton of pricing power, particularly for gateway chips.
You know maybe talk about your pricing power for those chips today, and and and and remind me what the average ASP per per base station as well. Thank you.
Let me start with that Chris I think it varies but I think for the.
The lower end base stations, the kind of home base stations, we're talking between five and 30 Bucks, depending on which version and things like that and Youre right. The pricing power is Stephanie with us, but remember our strategy is to deploy gateways everywhere in the world and we want to Williams distributed wireless network.
To be very successful and to be.
Essentially you know connect.
Connectivity to be out there in every country in the world in every neighborhood in the world.
And Lora connectivity to B b.
No.
Just not a niche.
Nishu four use cases, and that's been always been the goal that we've had so that's why I comment on the number of number of gateways out there and the number of sensors that can be deployed because the real goal for us is to get sensors deployed and connected to those gateways.
Calm happening if you don't have gateways and so.
Now the beauty about the helium kind of decentralized network because it it kind of is allows really viral connectivity if you like to to the network and so we're very excited by it but yes.
If I look at all the other networks around the world today than now starting to get really utilize the way we had envisioned and visit them being utilized we got roaming agreements we've got.
Companies using networks for private enterprise, we've got also public network stuff going on.
It just really is starting to play out the way we had anticipated so very excited by it but yes, clearly the helium network as momentum is very very positive.
Yeah, I I have been Super impressed Mohan and I agree with your <unk>.
The viral statement around helium I have one minor I love it.
Have an order for three more out there and and and that kind of brings up my second question here and that is in terms of Lora gateways are I guess entering the year. If my numbers are right. I think you had maybe 1.3 million gateways and you're adding that's in.
Your entire existence and now you're adding 1.7 this year.
Just massive growth on the gateway side.
So I guess my question is how confident are you.
Or into the visibility in between what is actually helium and what are in these campus programs or neighborhood programs or industrial programs. How confident are you that these arent helium orders like for example, the three that I have on back order for example.
You know or are you sure that if the helium network growth were to slow down that that it really wouldn't affect you know the growth.
For Lora like we've been seeing.
And I kind of answer that question, Chris because our focus is on the sensor connectivity. You know we just started an initiative for example to get 1 billion sensors connected to.
To combat climate change is an example of that and the sensor connectivity can be.
Obviously, the macro gateways, which are the bigger gateways to sit out on a tower can connect to many more sensors and have much more range and so you know I think it's more for US use case, driven we do have fairly good visibility into where the gateways are going and what they're doing.
But frankly I think it doesn't matter that much I think it's more a question of are they use cases and all the use cases really are starting to be utilized in the way that.
<unk> demonstrates the value of Lora sidewalk is a good example of that and I'm sidewalk you know obviously, we're anticipating at some point here in next year.
Amazon will start to roll it out and we'll start to get census connected to it and then there'll be.
New use cases emerge because the beauty about lora and the world of Lora one here in the LPWAN market. That's going on is a lot of the use cases that just beginning I mean really just beginning and people are starting to see Oh I can use lora for this and I can use it for satellite connectivity or I can use it for agriculture I can use it for smart home deployments or I can use it.
Four.
Geolocation and tracking an asset.
And this type of kind of as I said viral use case offers the opportunity to to really expand the market quickly.
And to make it very very large show, which is obviously our intent right.
Yep, well, great great growth in <unk> and thank you Mohan.
Thank you.
Our next question is from Karl Ackerman with Cowen. Please proceed with your question.
Yes, two questions. Please thank you gentlemen.
The first one.
Is.
It's piggybacking on Lora, it's great to see that Lora is now integrated into AWS.
AWS and Azure, but is the is the go to market is still predominantly driven by your own sales force.
Curious how do you see the go to market changing if at all now that you do have broader ecosystem support.
From the larger Hyperscale.
Yeah, you know the.
The.
Our Salesforce, obviously has a critical role to play in the adoption of Lora and the marketing of Lora in the communication of how Lora is.
Seeding in the market, but we have a lora alliance so the alliance.
As mentioned before 400 to 500 members, including Microsoft and.
AWS and Cisco and IBM and many many companies out there at all levels of the value chain. So you've got a sensor company chip companies Gateway companies software companies system integrators, and so Lora is just simply a technology right. That's just a technology platform here, but the use cases typically require.
Several members of the ecosystem to participate and get together and figure out an end to end to figure out an end to end solution and so I think it's really the.
The power of the alliance and the kind of pervasive nature of what's happening with Lora now thats driving the momentum.
I don't know that it's.
If we added a sales guy or a 10 salespeople that that would necessarily you know have a massive additional benefit I think it's more about getting the right system integrators in getting the right use cases. So people can look at the use case and say hey, that's that's interesting I want to do that.
Getting the right sense of technologies out there.
Software, making sure there is no bottlenecks in the software you know I always talk about bottlenecks in the ecosystem and those bottlenecks have moved they used to beep sensors and it used to be.
Hardware related now it's more software related and so the addition of Microsoft Azure and AWS really really does.
A tremendous value because many companies would have struggled to build a backend software platform for their use case, but having the ability to go to Microsoft or to go to AWS and partner with them to get that to access I think really.
Changes the time to market aspect of it.
Yeah.
Yep understood or.
Hmm.
My follow up is more of a clarification if Pam four is high teens as a percent of sales. This year does that mean NRC is equally as large this year.
And is there a notable margin difference between the <unk> and optical IC supporting each technology. Thank you.
Yeah <unk> is larger.
Obviously, it's been around for a while and I think that's.
The key point to make is that when you look at Pam four.
At least for US it's fairly new platform Triage is just really really been released to production a short reach use cases, and so we got good design win momentum and really the point being that as we see.
Get the momentum the growth in that business is fairly significant so we expecting Pam for 200 gig Pam for 400 gig Pam for deployments next year to accelerate quite nicely.
Thank you.
Our next question is from Quinn Bolton with Needham <unk> Co. Please proceed with your question Hey.
Hey, guys. Congratulations on the nice results, maybe just a quick follow up on that last question on the Pam four one did you say high teens in terms of absolute millions of dollars or is it high teen percentage of revenues, maybe I missed it and then does it does it is that only tri edge or does it also include the fiber rich PMD and then I've got a couple of follow ups.
Yes, it's high teens in terms of millions of dollars.
And that does include fiber rich, but I would say the majority of the growth is coming from triage.
Got it thank you.
And then.
Looking to just the overall supply chain I know you mentioned some of your business is constrained, especially on the consumer side.
By component availability of other manufacturers just wondering if youre seeing any supply constraints in your own.
Perhaps more backend and front end.
Supply chain, but I know a number of analog companies through the fall experienced shutdowns are covered related effects out of southeast Asia wondering if that had any impact on your business this quarter.
Not really.
I would say that it's kind of been pretty consistent for us over the last couple of quarters same type of issues. Obviously, some fabs are full.
And the cycle times are.
Quite long.
I'd say in general across the whole.
Supply chain cycle times have doubled over the last you know.
Year or so so we've gone from an average of 20 weeks to maybe 40 weeks.
Michael time, so that's significant.
And so but that's across the board and Thats, an average there are pockets where.
It's longer than that and there are pockets, where it's not such a big problem, but I would say in general.
Supply chain is still a major challenge, but we're okay.
We built inventory.
Planned on building inventory, we are using that inventory to continuously make sure our customers up.
The manufacturing lines are running and not to win the bottleneck. We do know as I mentioned in my prepared remarks that some of our customers are struggling to get all of the components to build a complete system and so that's.
That's has an impact on kind of a short term demand impact, but I think in the medium term that will clear up.
Got it and my last question Mohan just any update on the <unk>.
Lora micro services part of the business.
Yes, so the cloud services.
<unk> is going well I think.
Lora ages, the platform, there and bringing onboard Microsoft Azure and now AWS I think we have partners that we can work with very closely and our customers and we started to now.
Look at.
What elements of the cloud service geolocation performance needs to be changed to.
To make sure.
We have an end to end solution, but I think at the moment.
No real significant breakthroughs, there, but I would say good momentum and I think you're going to have a lot more about that next year.
Great. Thank you.
Our next question is from Rick Schafer with Oppenheimer. Please proceed with your question.
Thanks, and I'll add my congratulations guys.
Good questions already but just if I could sneak one more in on Lora.
I was hoping you could give a sense maybe as expected Lora linearity next year I mean, it doesn't seem like seasonality is really relevant at this point for for Lora.
You kind of look at just the run rate you're on now it seems like 40% growth sort of makes lot makes sense right.
Next year, so I was.
I'm just curious if you could comment on that and give a sense, maybe what type of backlog or just general visibility you have on that business today.
Yes, I think it's pretty good Rick I would say for the first half.
But a lot depends on the funnel and the how.
How quickly that funnel.
Moves to deployments, obviously, it's grown now to large size the funnel and.
We're anticipating some of those tend to go into full deployments, but the momentum is very good and I think everything we had anticipated in terms of design ins and design wins from these from the funnel.
I think in general the number of use cases that are emerging and starting to get deployed without our help I think is very encouraging so.
I think the 40% for next year is looking pretty good as well.
Thanks for that one and then just a quick follow up on gross margin I mean, obviously looks looks fantastic.
I mean, it seems like mid <unk> is sort of a new baseline and I was just curious there as we look forward to.
Not that far out I mean looking at the kind of growth that you guys are putting up.
We're not that far off from your $1 billion top line run rate kind of goal.
I'm curious sort of where you think or where you see gross margin once were at that billion run rate in <unk>.
And then just a quick clarification on next year I know you talked about ESP, but I'm curious do you see that as a tailwind for gross margin next year.
So Rick This is America. So the gross margin like I said before and in my prepared remarks is mostly being driven by the mix of revenue.
As we have seen a higher revenue contribution from our growth platforms.
And that is helping us to drive gross margin expansion.
We are definitely looking at where we have a target range for gross margin on a billion dollar software revenue.
It is going to be driven by how that revenue is coming in but in terms of bids.
Bids mid sixties or stuff like that is that is a possibility, but we just have to we just have to wait before we start setting those expectations. So we have to wait to see what's going on with the current supply chain.
Right.
That is if we continue to see price increases from your supply chain that you saw that.
So much about our customers will be able to absorb so so that is something that we're keeping an eye on but I.
I share your sentiments about as we've continued to see revenue contribution is growing from the new product platforms that we've talked about that we should continue to see gross margins headed into the mid <unk> and maybe beyond but we're not going to but we're not going to sign up for those at this point.
I understand that thanks, so much thanks Paul.
As a reminder, if you'd 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'd like to remove your question from the queue.
Our next question is from harsh Kumar with Piper Sandler. Please proceed with your question.
Yes Mohan.
Interesting one not specific to your company, but just more so on the industry a lot of companies.
That our reported numbers results you know in the last three to six months have basically buck seasonality.
There's been just because the demand has been so high.
That it's kind of like up to the right I noticed that you guys are guiding seasonal particularly.
It seems like from consumer and a couple of other small things, but I'm curious if we are back to <unk>.
Demand supply situation, where seasonality is coming into play or is it just you think something specific to some of your businesses that you have.
Well the seasonality is tied to consumer.
As you noticed our harsh and I think that it's not a surprise.
Some of that as I mentioned I think in my prepared remarks is.
Our customers not being able to get all the parts they need I think so.
There's a little bit of that playing into it but I do think theres going to be some seasonality here youre right, though I mean, the demand environment is very strong now that people are constrained and so to some extent you can play that game. We typically are shipping to consumption. That's what we're trying to do we're not trying to.
Do anything more than that.
And we keep a club very close eye on Pls.
So that's kind of our thinking.
Channel is shipping into customers and demand continues to be strong in Q1 will be very strong.
Appreciated Mohan thank you.
We have reached the end of the question and answer session and I will now turn the call over to CEO and President Mohan Maths Warren for closing remarks.
In closing we were pleased to deliver a record performance in Q3 that included record net revenues record gross margins record operating income record earnings per share and record operating cash flow the secular demand trends driving our growth engines in the infrastructure smarter planet and mobile.
The markets remain strong and are expected to provide sustainable long term growth.
We expect our diverse and growing product offering and balanced end markets to drive a record financial performance in FY 'twenty, two and provide strong momentum going into FY 'twenty three.
We appreciate your continued support of <unk> and look forward to updating you all next quarter. Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
Yeah.
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