Q4 2022 Semtech Corp Earnings Call
Greetings and welcome to <unk> Corporation conference call to discuss the fourth quarter and fiscal year 2022 financial results.
Speakers for today's call will be Mohan Moss warrants, some texts, president and Chief Executive Officer, and a marker Chuck will send texts executive Vice President and Chief Financial Officer.
Please note this conference is being recorded.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
I will now turn the call over to some tax executive Vice President and Chief Financial Officer of Microchip will.
Thank you Alex.
The press release announcing <unk> results was issued after the market close today and you saw the level.
Website <unk> dot com.
Today's call will include forward looking statements that include risks and uncertainties.
Good cause actual results to differ materially from the results anticipated in these.
The statements.
For a more detailed discussion of these risks and uncertainties.
Please review the Safe Harbor statement included in today's press release.
And the other risk factors.
In fact of section of our most recent periodic reports filed with the Securities and Exchange Commission.
As a reminder, commencement ultra desk cost are current as of today only.
<unk> undertakes no obligation to.
To update the information from this call should facts or circumstances.
Change.
All of our associates met our financial results in my prepared remarks, and more has prepared remarks. During this call we'll refer to non-GAAP financial measures unless otherwise noted.
A discussion of why the management team considers such non-GAAP financial measure of useful.
Along with detailed reconciliations of sources.
Measure to the most comparable GAAP financial measures.
In today's press release.
In Q4 fiscal 'twenty two the company delivered net sales of $196 million.
A decrease of 2% sequentially and an increase of 16% year over year.
<unk> was once again above the midpoint of our guidance.
Fiscal 'twenty, two revenues grew 24% to a record $749 million.
While EPS grew 49% to a record $2 61.
Our more than two times the rate of net revenues growth.
The strength of the secular drivers behind our growth engines contributed to the strong net sales performance. Despite the challenges presented by Covid supplied.
Threats.
In Q4 shipments into Asia, North America, and Europe represented 78%, 10% and 9% respectively.
While this represented the ship to address this for our distributors and customers, we estimate that approximately sorry.
First of all our shipments are consumed in China, 29% in the Americas, 19% in Europe , and the balance over the rest of the award.
Total direct sales represented approximately 11% of net sales and distribution net sales represented approximately 89%.
Our distributor is represented another quarterly record and the business remains balanced with approximately 42%.
32% and 26% of the total Pos coming from the infrastructure industrial and high end consumer end markets respectively.
In Q4 of fiscal 'twenty, two net revenues from the high end consumer market decreased 22% sequentially, 6% over the prior year and represented 25% of total revenues.
<unk> now at 10% of high end consumer net revenues was attributable to mobile devices and approximately 12% was attributable to all that costumer systems.
Net revenue from the industrial end market increased.
10% sequentially.
<unk> percent over the prior year and represented 39% of total net revenues.
Finally, the infrastructure end market increased 3% sequentially and 14% over the prior year and represented 46% of total revenues.
Q4 bookings increased 5% sequentially and thought bookings accounted for approximately 3% of our Q4 shipments.
Q4, gross margin increased 70 basis points sequentially to 64, 5%.
Which represents at the upper end of our guidance range and a new quarterly record driven by a higher mix of our growth drivers that include Lora enabled.
Thank you Paul.
Our tri edge, <unk>, <unk> wireless and broad based industrial protection products.
For Q1, we expect gross margin to continue to expand reflecting the benefits of continued.
Strength of our growth engines.
In fiscal 'twenty three.
As expected our gross margins to trend higher by 100 to 200 basis points from a preferable richer mix of our growth platforms.
Q4 operating expense increased slightly to $68.7 million driven by higher new product development is passive.
For Q1, we expect our operating expense to increase.
By 4% due to higher compensation expenses, which is typical at the start of the new calendar year.
Looking ahead to fiscal 'twenty three we expect the upgrade they are supposed to trend back towards our target model of half the rate of revenue growth.
In fiscal 'twenty to operating profit grew 45% approximately two times the rate of revenue growth led by the higher gross margin and represented a record operating profit.
Operating margin expanded approximately 400 basis points to 27, 4%.
And represented a solid.
Progress towards a 42% to 36% long term.
Target model.
As expected we are seeing the strong operating leverage expected from the success of our growth platforms.
Our fiscal 'twenty non-GAAP normalized tax rate is 12% slightly lower than the 13% in fiscal 'twenty two due to a more favorable mix of regional income.
In fiscal 'twenty two.
Cash flow from operations was a record $203 million up 71% for fiscal 'twenty. One was 27, 4% of net sales, which represented 40 basis points expansion from fiscal 'twenty one.
This is the record of record op revenue appropriate and good management of working capital.
Correspondingly, our free cash flow increased 105% to 24% of net sales.
And the low end of our long term free cash flow target of 25% to 30% of net sales.
Cash flow generation in fiscal 'twenty, two was very strong despite the strategic actions to maintain higher levels of inventory because of our strong demand our supply.
Cost rates.
In Q4, we repurchased approximately $33 million of Australia stock.
For the full year, we repurchased approximately $130 million or two 7% of our standing stock and resulted in approximately $259 million remaining.
Outstanding authorization.
We expect to continue to use our cash to opportunistically repurchase our shares make strategic investments and pay down our debt.
Q4 accounts receivable decreased 4% sequentially to $72 million.
While days of sales was in line with the prior quarter.
35 days.
In Q4.
Net inventory in absolute dollar terms increased 8% sequentially and days of inventory increased 13 days sequentially to 146 days.
We expect net inventory to remain above our target range of 90 to 100 days to support the higher demand and tight.
Supply chain environment.
Yes.
In summary, we are very pleased to deliver a record financial performance in fiscal 'twenty two despite the supply.
<unk> core strength and continued our continued.
Pandemic headwinds.
We are pleased to see our years of investment in technology platforms that are nevertheless, Martha sustainable planet drive record revenues.
Record gross margin record earnings per share on record.
Cash flow from operations.
Our financial model is delivering is delivering.
Our strong leverage in fiscal year 'twenty three we believe the long term secular nature of our growth engines of Lora enabled tri edge <unk> for 10 gig PON <unk> wireless and broad based industrial protection platforms position us nicely for another record.
<unk> financial performance in fiscal 'twenty three.
I will now hand, the call over to Mohan.
Thank you America and good afternoon, everyone I will discuss our Q4 fiscal year 'twenty to performance by product group.
Discuss our fiscal year 'twenty two performance and then provide our outlook for Q1 of fiscal year 'twenty three.
In Q4 fiscal year 'twenty, two net revenues of $190 6 million represented a two 2% sequential decline, which was much better than our typical seasonality of 5% to 10% down.
We posted record non-GAAP gross margins of 64, 5% and non-GAAP earnings per diluted share of <unk> 70.
In Q4 fiscal year 'twenty, two our signal integrity product group grew 21% over the prior year and achieved a another quarterly record and represented 39% of total revenues.
Record demand from our PON business contributed to the growth.
Our data center demand remains soft as customers manage year end inventory.
Q4 data center bookings increased significantly in the quarter and we are expecting data center revenues to rebound nicely in Q1 led by growth from our Tri edge short reach Pam four platform.
We have continued to attain new tri edge design wins across multiple geographies and 100 gig 200 gig and 400 gig Pam for optical modules.
In FY 'twenty two revenue from our Tri edge platform increased over 700% to approximately $14 million and we now expect our datacenter tri edge revenues to triple in FY 'twenty three as more customers move to full production and we increased our market share over.
DSP solutions in the 200 gig and 400 gig Pam four segments.
In addition, we are now sampling our long reach Tri edge platform targeted at 200 gig fr for optical modules.
Potts approximately double our Sam in the Hyperscale data center market.
We are confident that <unk> ultra low power low cost and low latency together with fiber edge as high higher performance will enable us to continue to grow our Hyperscale data center business over the next few years.
In Q4 of FY 'twenty two revenue from our PON business represented another quarterly record driven by continued strength from our G. PON platforms as global demand for higher access bandwidth remains strong.
While the China market continues to lead <unk> demand.
Indian and European service providers have all announced upon deployments, which we believe bodes very well for future upon demand growth globally.
<unk> is the leading PMD supplier to the global bond market, providing the most comprehensive PON PMD portfolio.
We recently announced our first 25 gig PON PMD devices for 25 gig <unk> LTE applications, which has been designed to interface to semtex clearance family have cdls.
As palm systems, increasing bandwidth, we anticipate that the integration of CDL functions into PON modules will be necessary.
We are also in development of advanced <unk> technologies for 50 gig PON systems that will partner with our leading edge Tri edge Pam four platform.
As a result, we expect our PON business to continue to grow over the next few years.
In Q4 of FY 'twenty two revenue from our wireless base station business was approximately flat from Q3.
We continued to win new designs for both Clair Ridge, and Tri edge and <unk> base station front haul optical modules.
We recently announced the industry's first 50 gig Pam for CVR with integrated driver targeted at five <unk> wireless infrastructure, which is currently in field trials at several tier one system vendors.
We expect the wireless base station market to strengthen in FY 'twenty, three and we believe our five G momentum based on both our client Clearbridge and Tri edge wins should enable our wireless base station business to deliver solid growth in FY 'twenty three.
The underlying secular demand strength, we witnessed in FY 'twenty, two driven by the quest for higher bandwidth at the lowest power across all infrastructure segments is expected to continue into FY 'twenty three.
In Q1, we expect our signal integrity product group revenues to increase and deliver another quarterly record.
Moving on to our protection product group.
In Q4 of fiscal year 'twenty, two net revenue from our protection product group decreased 7% sequentially.
As expected due to seasonality and increased 11% over the same period last year and represented 28% of total revenues.
Demand from our consumer customers softened in Q4, however, as expected bookings from the consumer market strengthened nicely and we expect that consumer protection business to increase in Q1.
In Q4 demand from a broad based protection products grew 33% from a year ago our protection.
<unk> business continues to diversify into a broader range of segments, including industrial communications automotive and Iot.
As more systems designers use chips with advanced process geometries, we expect demand for <unk> high performance protection to increase across all market segments.
Our broad based protection business continues to grow nicely and is a major contributor to our increasing gross margins.
In Q1 of fiscal year 'twenty, three we expect our protection revenues to increase.
Turning to our wireless and sensing product group in Q4 of fiscal year 'twenty two revenues from our wireless and sensing product group increased 13% over the prior year and represented 33% of total revenues.
In Q4, our Lora enabled revenues achieved another quarterly record as the adoption of Lora in low power Iot applications continued to accelerate.
During the quarter, we announced several exciting use cases, which included a joint initiative with lacuna space to further increase Laura Lang coverage in areas of the world without cellular Wi Fi.
Tencent cloud, a leading technology company in China announced it has integrated our Lora cloud geolocation services into the Tencent cloud platform.
The city of Cary North Carolina is leveraging new lower <unk> sensor connectivity and predictive data analytics from system integrator SaaS together with Microsoft Azure to better monitor blood levels and provide additional community services to its citizens.
ICT internationals precision environmental sensors are leveraging <unk> to enable smart monitoring of the oven forest based on a data centric approach.
And <unk>, a designer of innovative energy transport and distribution networks in Europe together with a.
A switch distributor of electricity are leveraging lower one connectivity and integration into their existing SCADA system to monitor and fixed power grid failures.
Also in Q4, the lower wind protocol was efficiently recognized as a global standard by the international Telecommunications Union Itu.
We expect this recognition to enable global interoperability and enable massive scaling of Laura Lang.
<unk> low power long range and network flexibility is enabling the connection of billions of sensors to enable a smarter more connected and sustainable planet.
In Q4 of fiscal year 'twenty, two revenue from our proximity sensing platforms softened as expected due to lower seasonal demand following the strong first half.
Global RF regulations targeted at protecting users from increasingly more powerful radios are expected to drive more stringent radio power requirements on smartphone and wearable manufacturers.
We expect an expansion of these regulations in Asia towards the end of this fiscal year, which will benefit our proximity sensing business as five <unk> mobile devices proliferate over the next few years.
For Q1 of fiscal year 'twenty, three we expect net revenues from our wireless and sensing product group to increase and delivered another record quarter led by our Lora business.
Moving on to new products and design wins.
In Q4 fiscal year 'twenty, two we released 10, new products and achieved 3237, new design wins.
Now, let me comment briefly on our fiscal year 'twenty two performance.
In fiscal year 'twenty, two net revenues increased 24% to a record $741 million driven.
Driven by strength from all of our product groups and FY 'twenty. Two we had 55 new product releases and also achieved a record number of design wins of 13093, representing a 16% increase from the prior year.
In FY 'twenty, two our signal integrity product business grew 14% over the prior year to achieve record revenues global infrastructure demand remains strong leading to record PON revenues.
Our Sip product group achieved record bookings in FY 'twenty, two and we expect our signal integrity product group to deliver another record in FY 'twenty three driven by strong growth from our Tri edge <unk> products for the Hyperscale data center market and <unk> wireless base station market and continued strength from the PON market.
In FY 'twenty, two our protection business grew 26% over the prior year driven by a broad based protection business, which grew 34% to achieve a new revenue record. We expect both our consumer protection and that broad based protection businesses to continue to grow as the needs of the circular economy.
Drive strong demand for <unk> Tec protection products in the automotive infrastructure, Iot and consumer segments.
We expect our protection business to achieve double digit growth again in FY 'twenty, three and delivered record revenues in FY 'twenty three.
In FY 'twenty to our wireless and sensing business grew 39% over the prior year and achieved record revenues.
Our Lora enabled revenues grew 53% annually to a record $134 million.
In FY 'twenty, two our Lora business continued to make solid progress on the growth metrics. We have established these metrics included.
The number of Lora network operators grew to 166 at the end of FY 'twenty two from 150 in FY 'twenty. One we expect 180 Lora network operators by the end of FY 'twenty three.
And the number of Lora gateways deployed increased 146% from $1 3 million gateways in FY 'twenty, one to $3 2 million at the end of FY 'twenty two.
We expect the number of Lora gateways deployed to increase to over $5 million by the end of FY 'twenty three.
We are delighted with the large increase in gateways deployed globally as this lower infrastructure is critical to enable the broad range of industry use cases that are emerging.
<unk> cell gateway deployments increased over 190% versus FY 'twenty to this.
This increase in Pico cell gateway deployments is being driven by the smart home and smart campus segments as Amazon sidewalk gateway deployments increased over 180% versus FY 'twenty one.
In addition, the helium People's networks is growing very fast and deployment should accelerate nicely in FY 'twenty three.
Both sidewalk and helium networks should drive an acceleration in end device deployments over the next few years.
In addition to Pico cell deployments are macro gateway deployments increased 43% over FY 'twenty, one driven by smart utility smart logistics and smart city initiatives globally and this infrastructure increase should also drive a rapid acceleration in endpoint and deployment deployments over.
The next few years.
The cumulative number of Lora end nodes deployed increased to $240 million at the end of FY 'twenty two from $178 million at the end of FY 'twenty one.
We expect this number to exceed 300 million cumulative end nodes by the end of FY 'twenty three.
With continued network expansion globally, we expect expect end node deployments to accelerate rapidly over the next three to five years.
The lower opportunity pipeline, which includes both opportunities and leads and in FY 'twenty two at approximately $950 million.
We anticipate that on average 40% to 50% of the opportunities currently in the pipeline.
We will convert to real deployments over a 24 month timeline.
Our opportunity pipeline remains well balanced with use cases, primarily in smart utilities, smart logistics and asset tracking industrial Iot Iot Smart home and smart cities at the end of FY 'twenty three we are anticipating our total opportunity pipeline to exceed one <unk>.
$3 billion.
For FY 'twenty three we are expecting another record year from our Lora business and anticipate a 40% CAGR for our Lora enabled business over the next several years. We also expect our wireless and sensing product group to achieve another revenue record in FY 'twenty three.
Now, let me discuss our outlook for the first quarter of fiscal year 'twenty three.
Following the very strong bookings in Q4, and entering Q1 with record backlog. We are currently estimating Q1 net revenues to be between $195 million and $205 million.
To attain the midpoint mid point of our guidance range or approximately $200 million.
We needed zero turns orders at the beginning of Q1.
We expect our Q1 non-GAAP earnings to be between $72 80 per diluted share.
I will now hand, the call back to the operator, and the macro and I will be happy to answer any questions operator.
Thank you at.
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Our first question comes from the line of Torrey Sandberg with Stifel. Please proceed with your question.
Yes, Thank you Mohan and <unk> congratulations on all the record metrics quite quite a few of them.
First question, you're expecting gross margin to expand 100 to 200 basis points. This year.
And you attributed that primarily to mix should we infer by that Bob.
Our signal integrity group.
Showed the strongest growth this year.
Sorry can you repeat the last section of your question.
Yeah. Good for your given your comments about mix and gross margin expanding this year should we infer by that that the signal integrity group will show the strongest growth this year.
We showed the strongest growth.
I think among the state grid.
I think I think we do expect all of the groups to grow very nicely. The Lora network is still going to probably.
Lead the way in terms of absolute dollars of growth signal.
Signal integrity with our Tri edge platform, and our 10 gig platform should grow very nicely for us.
<unk>.
I don't know that it is going to be.
Signal integrity, but I think.
Both Laura to Tri edge.
10 gig ports.
Great to lead the way in terms of year over year growth.
And the <unk> business and protection Tori so as we get more broad based protection business that suddenly also drives higher gross margins.
Very good and more on this time around you gave us a quarterly revenue for lower and you also gave US a number for the growth in Pico cell deployment.
I'm, assuming that that's sort of an indication that the technology is not really moving into more sort of the consumer world, but yes. I was just hoping you could elaborate on why you decided to give us those two metrics.
This call.
While the Pico cell.
Gateways I've been giving metrics out on gateway deployments, but I felt now it's gotten to such a large number that will start to break out a little bit the pico cells and the macro the macro does tend to be more industrial.
Utilities in smart cities and smart buildings.
That's not to say that Pico cell doesn't go into those type of segments, but a large part of the volume is driven by smart home and smart campus. So I wanted to provide that color because we do get that question a lot and then I think in terms of the quarterly number we won't give out quarterly number will continue to talk about 40% CAGR, but obviously, we'll try to give an indication of how.
How we're doing against that and of course for the annual number we said that we were going to grow at least 40%. We grew 53% and so we wanted to share that information with you.
Thank you. Our next question comes from the line of Tristan <unk> with Baird. Please proceed with your question.
Hi, good afternoon.
In terms of whether your pipeline. So I think the numbers you provided.
Sure.
A 30% increase year over year. So is that how we should be looking at whether you said this year as well.
So if you could remind us.
The exposure that you have in China.
So China has been tracking and Kenneth 55% range of clothing in prior quarter last year.
Yes, let me start with that.
And the 50 <unk>, China is about 50% of the revenue, but in terms of opportunity pipeline, it's about 30%.
It's much more balanced as we've been saying the pipeline now North America is also in that range so but.
From a revenue standpoint, still 50% is China.
And then in terms of the opportunity funnel and revenue and gateway deployments, you really cant correlated.
Because the timing is different when we ship products, we ship into distributors when we distribute to ship into module providers module guys, sometimes ship into the Oems and then the Oems.
Build the hardware and then deploy deployments of networks. So part of the reason why we give out these metrics is that the timing of these.
Deployments and when we see the actual revenues.
Thus as when the deployments actually occur.
It's different and it's difficult for us to exactly.
Determine the exact timing. So we gave an indication that each of the areas are growing nicely, which I think is what's important.
Okay, Great and then for my follow up wanted to talk a little bit about what youre seeing in China given that.
Yes.
About <unk> of your consumer business is small.
And most of that I believe is China now you said that you expect the consumer to rebound.
What are you seeing in terms of inventories in your China's smelting business and what is the risk of that.
Those inventory.
This inventory correction continues to to happen over the next couple of quarters.
And is that also something that could potentially impact your LOE at business I understand low has come down.
China as a percentage of the mix, but it's.
So is that kind of a near term headwind that you can think of for the next few quarters.
So China demand is obviously very important to us still for all areas of the business.
All product groups.
And as we monitored today to Mont is still strong consumption is strong there's nothing to indicate any weakness in our particular segments I think.
With the consumer.
As I mentioned Q4, typically is down and was down and so and the second one.
Second half of FY 'twenty, two was not strong for consumer so.
Bookings have increased or improved so we are expecting a little bit of a rebound.
The first half I think the second half is the big question I think not only for China, but really for the rest of the world in terms of demand and the macro events, but certainly for the first half we are not anticipating any issues.
Thank you.
Our next question comes from the line of Craig Ellis with B. Riley. Please proceed with your question.
Yes, thanks for taking the questions I wanted to come back and follow up on Lora and do it this way Mohan. So if we were to rewind the clock about a year.
And think about the momentum that Laura has gained over the last four quarters. So it really did seem to build each quarter and then you had the very very strong fiscal fourth quarter. So my question is this I know the company has had for some time and retains the 40% growth target, but given the level were extra.
<unk> fiscal fourth quarter 'twenty two.
Why wouldn't we be seeing the potential for potentially.
Materially above 40% year on year growth in fiscal.
23.
Perhaps to the same degree that we did last year.
No reason, Craig but other than that.
It's difficult to.
Time exactly.
Obviously, the revenues as I mentioned the momentum sometimes in terms of network deployments and use cases being deployed gets ahead of when end nodes are being deployed and things like that so we had anticipated 40% growth. This last fiscal year FY 'twenty. Two obviously, we did 53% so we did significantly higher.
There's nothing to suggest that we won't have another similar last year, but I think in terms of the outlook for the next three to five years, 40% is a very good number that we feel good about and given the different types of metrics and how the.
Opportunity funnel is laying out and remember our opportunity funnel, we look at as real design opportunities and we're looking for the conversion of those opportunities into the into.
No real deployments and Thats really what drives our revenue model.
Got it very helpful. And then I don't know if its you or a mecca that I should congratulate for having a quarter's revenue guidance requires zero returns, but nice to see that kind of backlog coverage guys, but but I wanted to flip it to you and actually talk about another line items. So very helpful to get the.
The count or excuse me the fiscal 'twenty three gross margin color that tori asking about but my question. So if we look at the last four or five quarters, we've had very material sequential gross margin improvement.
And the color for fiscal 'twenty three would imply.
I think just 20 to 30 basis points from here through the year, so whats happening within mix that cause gross margins to expand so materially over the trailing four or five quarters and why would it not stay on that pace and instead moderate too.
Something that's more implied in the guidance. Thank you.
Yes so.
So Craig I think would be a failure for a while.
Lot of our investments have been going into markets that we expect to grow very fast and that we also expect to have very high gross margins.
It is very pleasing to actually see that as we get into play out Laura and their board 10 gig PON under protection industrial businesses that is very very pleasing to see.
As we go forward in FY 'twenty, two we saw about a 180 basis points of gross margin expansion year over year. There is nothing that says that we cannot duplicate that are getting the FY 'twenty three and Thats why the guidance for <unk> 200 basis point, but we'll have to see where help to see.
The expectation is that we will continue to see gross margin expansion, but we just have to see how things play out, especially that are still out there.
With the award in Ukraine, or we don't know what the impact is going to be on the supply chain that is already filling a lot of heat and things like that so but.
But we'll see but we're very hopeful that we're very excited with our gross margin story.
Thank you. Our next question comes from the line of Quinn Bolton with Needham <unk> Company. Please proceed with your question.
Hey, guys.
My congratulations as well and I guess really sort of a follow up to Chris' question on Lora.
Do the math you gave us the full year, you gave us the fourth quarter it looks like Laura in the fourth quarter was 41 seven.
And the average of the first three quarters of the year. It was closer to 31. So it looks like there was a pretty dramatic acceleration in the Lora business in the fourth quarter and I'm. Just wondering Mohan if you can give us some sense is that driven by just continued gateway deployments are you seeing a particular use case is it end nodes what really true.
That acceleration in the fourth quarter, yes.
Yes, I would say at this moment Quinn, it's more the infrastructure so more gateways the moment driving it but I think thats. The good news, which is for us that infrastructure is being deployed and then we would expect and notes to follow that.
The timing of which is the tough to call.
This is not unexpected I mean, if you go back a couple of years ago, we were running at 10.
$10 million a quarter now, we're running closer to $40 million a quarter or so.
It's been trending upwards and it's been trending upwards.
Not by a mistake covenants infrastructure going in gateways macro gateways deployments are real Iot use cases, we're seeing a lora ecosystem really expand we're seeing Lora Alliance has increased the number of companies in the alliance, but also the types of companies, we now have Microsoft Azure.
Amazon.
Really big players in the ecosystem that are now starting to drive use cases as well for us so.
The whole machine is moving in the right direction. We said it was going to happen. It's just a question of time now as we're starting to see it just really translating into into deployments and remember for US we generate revenue when we ship product into our.
So our customers right, but the deployments take a little bit longer and so we're monitoring that.
And then the use cases get deployed and the good thing is that really if you look across the globe now more is very well.
I mentioned the it.
<unk>.
Laura Lang being standard now in the ITU recognized by ITU, That's really significant because now the whole globe can use lora land and knowing that there's interoperability there we're starting to see roaming agreements across these networks.
Pico cell I pointed that out because.
It drives different types of use cases, some of which we've been talking about for a while like tags and things like that but there hasnt been the infrastructure in place and I think thats starting to change now so very exciting to see that.
And then just a follow up to that which I believe you had mentioned two application sidewalk and helium network driving some of those gateway deployments in fiscal 'twenty. Two do you have line of sight into sort of the nodes.
Maybe not the exact timing of the ramp but do you feel confident that those end nodes are being designed and it's sort of just a matter of time before we start to see a.
Pretty meaningful pickup in the end nodes on those particular networks.
Well, what I know Quinn is that there would be no end nodes. If we don't have infrastructure in place. So now the infrastructure now the infrastructure is going in the gateways that going in and starting to get deployed in.
Sensors are being developed for these networks I feel pretty confident about it but I think it's going to take a few years I don't think its something thats going to happen overnight.
This is the type of.
These are the types of use cases that can drive very very high volumes very quickly.
In other cases, it might take some time, so as I mentioned.
A lot of use cases need density of network and so by.
By having these type of networks and there is no roaming agreements come into place. It does drive different use cases. So so that's the exciting factor that I think we yet to see which I think we will see over the next couple of years here.
Thank you. Our next question comes from the line of Rick Schafer with Oppenheimer. Please proceed with your question.
Yes. Thanks.
And I'll add my congratulations guys.
Just maybe.
Laura but more what I think you've spoken in the past about your long term plans for that business and then you've talked about moving to more of a licensee and royalty type model.
I was just curious if there were sort of what metrics you need to see.
To consider opening lower up as is.
Standard and sort of making that shift away from.
Silicon as your primary source of revenue for Laura I think and correct me, if im wrong, I think still over 90% or so.
Revenue is still coming from the on the chip side, so is that sort of when we get.
$500 million kind of target in the next sort of three years or four years or just curious kind of how you are kind of how you're thinking about that business. So Rick. That's a good question first of all most of the revenue is today just ship sales we are starting to CIP royalties come in a little bit the key drivers the cloud services revenues, which we just started it really has.
Just early days, but we I mentioned on the.
My prepared remarks.
We have signed a relationship with Tencent in China, we're starting to look at more relationships to see if we can get our cloud services revenues based on our lower edge chip.
Chip platform, starting to really grow and the goal is to get that to $100 million of recurring revenues as well Thats. What I have said, we will then trigger a discussion about.
Is that a business that we can start to look at the chip business in the in the cloud business separately, but I think were ways off that yet.
At least three years, probably more like five years.
Okay. Thanks for that and then on <unk> I mean, thanks, a lot for the color on that business I mean $40 million to $45 million. This year. I think you said expected I mean that business seems to really be sort of taken off I know we've talked about that the last last couple of years.
Were there any like obvious hurdles that just needed to needed to be overcome I mean are we sort of at that tipping point now for that business.
And how do you look at it in terms of like how do you size of the market opportunity that our guests for analog Pam four thanks.
Yeah, well the good news here is that we.
We didn't really have any Pam four.
Products until Tri edge, and so we were a little bit behind the DSP solutions out there and so it's all share gains for us in this space I think the way I look at it and so with our first 50 gig Pam for short reach products. We knew we had limitations on reach but we knew that also the power consumption is going to be an extremely.
Beneficial to data center customers that Ken about Powell and care about cost and so we're starting to see that momentum now in the short reach side and as I mentioned, we're just sampling now the longer reach products for 200 gig <unk> <unk> modules, which is.
Two kilometer kind of range, which really opens up the whole data center space for us and we're excited by that.
And obviously we have.
Quite a few developments in this area as well so.
More to come but yes, very exciting and we expect data center to be quite strong for us over the next few years.
Thank you. Our next question comes from the line of Gary Mobley with Wells Fargo. Please proceed with your question.
Hey, guys. Thanks for taking my question.
If I look at the midpoint of your Q1 revenue guide, it's about four 9%.
<unk> growth.
Im curious to know if that's benefiting at all from.
Ported purchase increase or would you expect a commensurate increase in your point of sale as well.
So point of sale is also records for us at the moment and we're expecting another record in Q1 so.
Yes.
Your question Gary.
To ASP increases in the moment, we're thinking about it was that.
Any type of cost increases, we get will pass onto our customers.
But yes, we do expect Pos to increase.
In correlation with that yes.
Yes.
I guess it would encapsulate.
Some price increase it does really more so asking it that way.
A function of distributor inventory increasing.
So I think our pls.
Pls is very strong as we mentioned on the call. It's a record in <unk>.
Cycle times supply chain cycle times have not changed they are very extended at the moment and so.
Youll see our internal inventory has increased.
That channel inventory to increase a little bit but at the end of the day as long as Pos is up.
So increasing in other words the consumption is increasing then I think we're in good shape.
Okay.
And could you just clarify did you say bookings were up 35% quarter over quarter and it related to.
Supply.
I presume with the 13 day increase quarter over quarter in your in your DIY.
And where they are running above <unk>.
Historical levels.
That's really not dealing with any supply constraints and if that's the situation. How have you guys been able to escape this while others everybody else in the industry is dealing with it.
Yeah. So.
If I go back a couple of years.
Probably prior to the pandemic.
We had actually were anticipating.
Start seeing the ramp of some of these new product platforms that we're seeing now so we did pay attention to our supply chain.
We made sure we had.
<unk> focus on all of our stuff all lined up so we're very fortunate that we're battling the pandemic hit we were already there for in a good position with regards to the supply chain.
We've managed that very well I think it doesn't mean that we don't have any supplier cost first of all in order a neutral.
Total potash here a bit but on the average.
We are regarded as a very good position with.
Inventory levels are and are very pleased to see that we are able to supply to support.
A lot of the strong demand that we're seeing at this point.
Yes.
Thank you.
Our next question is a follow up from tore Svanberg with Stifel. Please proceed with your question.
Yes. Thank you.
I just had a follow up question is on older products that you introduced at OFC. It was a pretty impressive lineup.
And specifically in relation to <expletive> Mohan.
That market has always been a bit volatile, especially because of China, but.
There's going to be a second consecutive year with very strong growth how should we think about that market and your new products for that market as we go into fiscal 'twenty four.
Yes, I would say inventory.
Observation is exactly right.
Upon has become a totally different space now, it's a totally different market and I think what's really driven that is the pandemic. When we look at the pandemic and what drove more access bandwidth that were clearly bottlenecks in the access side and so PON is a really good way to solve that problem.
And I think China has demonstrated that and continues to demonstrate that but the rest of the world is also now started to accept that and so we're seeing North America, Europe , and India as I mentioned in other regions starting to really look at <expletive> as there as the key access bandwidth and so we.
We've seen an acceleration of G. PON, we seen an acceleration of 10 gig PON. Obviously, that's also helping gross margins.
We are playing obviously in both <unk> and our new site and then the other is really intriguing thing for US which is very exciting for us is the expansion into 25 gig PON.
And 25 gig PON modules as I mentioned on my prepared remarks, we will likely need CVR functionality as well so that opens up.
More content for us, we're obviously leaders in PMD side.
One of the leaders in <unk>. So the combination of the two <unk> gives us a very very good.
<unk>, there and we're even and I mentioned, we even have development 50.
<unk> 50 gig Pam so so very exciting generally I would say good space to be in now and probably for the next five to 10 years. This is a space that is going to get a lot of investment and I suspect.
Very good congrats again, thank you.
Ladies and gentlemen, we have reached the end of our question and answer session and I will now turn the call over to Mohan mouthwash for closing remarks.
In closing we were pleased with our strong Q4 and record fiscal year 'twenty two results. Despite the challenging pandemic and supply chain environment, We believe our multi sourcing initiatives and our investments in infrastructure and tools has enabled us to maintain best in class business operations.
Our key growth engines targeted at broadband infrastructure, creating a smarter planet and enabling mobility are all doing very well and we expect FY 'twenty three to deliver another record year for <unk> with that 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 and have a wonderful day.
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