Q3 2023 Semtech Corp Earnings Call
Greetings and welcome to the <unk> Corporation conference call to discuss the third quarter of fiscal year 'twenty 'twenty three financial results.
Speakers for speakers for today's call will be Mohan my have sworn some texts president and Chief Executive Officer and America truthful some texture.
Vice President and Chief Financial Officer.
Please note that this conference is being recorded and at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
I will now turn the call over to some text Vice President of Investor Relations <unk> Shah. Thank you you may begin.
Thank you John .
Yes 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 recent uncertainties. Please review the Safe Harbor statement included in today's press release and in the other risk factor 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. During this call. All references made to financial results in our prepared remarks will refer to non-GAAP financial measures unless.
Otherwise noted a discussion of why the management team considers such non-GAAP financial measures useful along with detailed reconciliations of such non-GAAP measures to the most comparable GAAP financial measures are included in today's press release and with that I'll turn it over to our Chief Financial Officer, and Mecca Chick-fil-a.
Oh My God.
Thank you and those are good afternoon, everyone.
Q3 fiscal 'twenty three in line with our guidance centric delivered Q3 net revenue of 177 $6 million.
The sequential decrease of 15% year over year decrease of 9%.
We face a challenging macroeconomic environment.
So spend Softmax Fitbit Smart watch.
So I'm overall weakness in China.
We are beginning to see signs of stability or several bright spots.
I'll focus on regional whatever new diversification is showing signs of success.
We see excellent retina adoption in North America, and Europe for Triage for Lora, and our broad based industrial and automotive protection business due to our targeted growth reinforced with end customers.
Overall Q3 shipments into Asia, North America, and Europe represented 71%, 15% and 14% respectively.
While this represented the ship to address this for our distributors and customers.
We estimated that approximately 45% of our shipments are consumed in China, 28% in the America, but 21% in Europe on the balance or about the rest of the award.
Looking at our end markets, our infrastructure end market grew 5% over the prior year, but declined 17% sequentially and represented 49% of total net revenues.
Net revenue from the industrial end market.
<unk> grew 7% year over year, but declined 13% sequentially and represented 41% of total net revenues.
As I previously mentioned, we continued to see softness in consumer end markets, where net revenues for high end consumer decreased 43% over the prior year and.
And 15% sequentially and represented 20% of total net revenues.
Approximately 10% of high end consumer net revenues was attributable to mobile devices and approximately 10% towards attributable to other consumer systems.
Our sales channel remains consistent with distributions, representing approximately 83% of shipments and direct 17% our shipments.
Our distributor P. O S declined during the quarter, but remained balanced with approximately 38% of P O S coming from infrastructure.
Sort of 3% from the industrial segment and 29% coming from high end consumer end market.
So far in Q4, we see signs that our P. O S is stabilizing and no longer declining.
Q3 bookings decreased sequentially and represented book to Bill of left on the war.
Bookings were generally weak across all regions and end markets and just awesome P. O S. We are beginning to see stability in bookings over the past month.
Our gross margin remains resilient.
In Q3 gross margin increased 30 basis points sequentially to 65, 5%. This is a new quarterly record driven mostly by a lower mix of consumer revenue.
For Q4, we are projecting a small decline of gross margin to 64, 5% at the midpoint.
Driven by lower absorption due to the softer overall demand environment.
We expect gross margins to whole lot of color.
Current levels, plus or minus 100 basis points all through demand will recover.
Q3, operating expenses decreased approximately 5% sequentially to $68 million.
As we took steps to respond to a softening in demand.
For Q4, while maintaining our investments in new products, we would take additional measures to reduce our president expressed to us by approximately 10% sequentially in response to the weaker demand environment.
Managing our cash Florence or forecast in these challenging times.
In Q3 cash flow from operation was also unusually low at $10 million or 10% of revenue.
Reflecting elevated use of working capital.
Accounts receivable increased due to timing of shipments.
As we continue to pay for prior period long lived.
Long lead time materials.
We expect our cash flow from operations to rebound in Q4 to normal seasonal levels.
Gosh.
Josh if we've lost him.
They're both securities increased by approximately $256 million to $610 million.
The increase is primarily due to the $319.5 million in convertible notes, we issued to help fund the proposed Sierra wireless acquisition.
Slightly offset by a $23 million payments on our existing line of credit.
The convertible notes resulted in net cash proceeds of approximately 280 million after expenses.
Selloff waters and the cost of the convertible note hedge funds.
Transactions were entered into in conjunction with the issuance of the notes.
These convertible notes carry an interest rates of $1 62, 5% and will mature on November one two.
2027.
The conversion price of the notes, including the hedge transactions is $51.15.
On a non-GAAP basis, there would be no dilution below this price.
In Q3, we did not report any stock because of our pending acquisition of Sierra wireless.
We have approximately $209 million remaining in our share repurchase authorization.
Going forward, we expect a formality.
To primarily use our cash to pay down do you expect that debt from completing the Sierra wireless acquisition.
In Q3 accounts receivable increased 13% sequentially due to the <unk>.
Due to the timing of shipments and days of sales increased 90 days to 49 days.
In Q3 net inventory in absolute dollar terms was up slightly sequentially and days of inventory increased 27 days sequentially at 350 days as we continue to receive previously committed long lead time materials. Despite the decline in demand.
We expect net inventory.
To be flat to slightly down in Q4, reflecting the weaker demand environment.
As we look forward to depending acquisition of Sierra wireless.
We remain excited about the growth potential of the two companies when combined.
<unk> reported revenue is consistent with our expectation.
When complete the transaction is expected to be immediately accretive to <unk> non-GAAP EPS.
In summary, our business continues to be adversely impacted by the broad slowdown in China and the sustained weakness in the <unk>.
In the consumer market.
Maintaining our financial health is Paramount during these uncertain times.
We have the management team has experienced managing through industrial downtown.
And I'm confident that the proactive actions taken.
I'll focus on new products design wins, working capital management, and geographic diversification, we strengthened suntech and prepare us well for the recovery.
Now hand, the call over to Mohan to share more details on the business.
Thank you America good afternoon, everyone.
Let me begin by providing a brief update on our proposed acquisition of Sierra wireless.
I will then share details of our Q3 fiscal year 'twenty three performance by product group.
And then provide details on our outlook for Q4.
With regard to our acquisition of Seattle Wireless as previously announced we received a second request from the U S Department of Justice.
We are cooperating fully with the Doj and providing them with a requested documents.
In parallel together with Sierra we have made significant headway with integration planning and are prepared to close immediately when approval is accomplished.
We continue to be extremely excited by the transformation, we can drive in the entire Iot industry by bringing together.
The ultra low power long range sensor benefits of Lora technology together with the low latency high bandwidth network benefits of cellular technology.
Our goal is to enable Iot deployment simplification through end to end connectivity and deliver a cloud chip Iot services platform that will accelerate our customers' digital transition to the internet of everything.
We continue to receive very positive feedback from our customers as they start to recognize the disruptive potential of the combination of the two companies.
A combination of optimizing Lora and cellular technology is a highly strategic opportunity that will position <unk> as the clear leader in the fast growing ultra low power Iot market.
Now turning to our Q3 performance.
Our Q3 net revenue was $177 $6 million slightly above the midpoint of our guidance range.
We posted record non-GAAP gross margins of 65, 5% and non-GAAP earnings per diluted share of <unk> 65.
Despite the challenging macro environment, we continue to execute well have solid new product releases and new design in momentum and are very excited by our future growth prospects across all our target market segments.
Let me begin with our signal integrity product group.
Revenue was up 2% from Q3 of fiscal year 'twenty, two and represented 44% of total revenues.
As expected the weak economic environment in China is impacting infrastructure demand negatively.
Our hyperscale.
Data center business slowed in Q3, following a strong first half performance.
Despite the softer demand.
Our fiber Reg revenues doubled over the previous quarter as we increased our PMD penetration in the 400 gig active optical cable segment.
In addition to solid fiber edge momentum our triage platform continues to make excellent design and progress in global data centers predominantly in North America.
We are pleased to report Tri edge has been selected by a major North American Hyperscale data center provider.
And a new high volume multi year program.
To enable low power low latency and low cost interconnects within their data centers, we expect to be in protection on this project in the second half of this fiscal year 'twenty four.
Sure.
The benefits of triage aligned well with our long term goals of Hyperscale is focused on lowering the power.
And cost of their interconnects within their data centers.
[noise] triage and copper rich are starting to gain traction in advanced data centers in North America that are focused on leading edge artificial intelligence or high speed computing applications with both low cost and low latency a critical requirements.
[laughter].
In addition to our current fiber rich and triage momentum.
We continued to invest in new higher performance solutions that will enable further system level innovation within the Hyperscale data center market.
We recently demonstrated our first 200 gig per channel Pam four fiber edge platform.
This innovative PMD platform will be used in 800 gigabit and one six terabits optical modules deployed by Hyperscale.
We also recently introduced our ultra low power 50 gig per channel Tri edge solution for both ultra low power 200 gig and 400 gig optical modules.
In addition, we are starting to see great interest in our new copper ridge redraw the platform.
Targeted at 100 gig per channel copper Interconnects.
We expect to announce most more significant copper ridge triage and fiber edge design wins throughout FY 'twenty four.
We remain confident that our full portfolio of data center platforms include Clair Ridge and try try it see yours fiber.
<unk> and copper edge, we drivers will enable us to continue to rapidly grow our hyperscale data center business nicely over the next several years.
In Q3, our PON business also declined sequentially due to weakening demand in China.
What was up approximately 36% on an annual basis and is on track to deliver another record year.
We continue to see relative strength in 10 gig PON <unk> and Owen use while gigabit PON demand is weakening.
While most of our PON revenues today are from China, we are starting to see increasing deployments of 10 gig PON outside China.
In addition, we are actively engaged with leading palm system providers globally, who are focused on higher bandwidth PON deployments.
We expect global pump deployments to continue to accelerate as demand for higher access bandwidth is expected to increase in the future.
While weakness in China as a major headwind at this time, we remain confident this business will grow nicely over the next several years as other regions deployed pump solutions and as our China business recovers.
Yes.
Revenue from our wireless base station business was down in Q3, both on a sequential and year over year basis.
This was mostly driven by economic weakness in China, which negatively impacted <unk> and <unk> deployments.
However.
Our <unk> revenues grew 75% on an annual basis as European customers start to expand their <unk> footprint.
In Q3, we announced the production release.
Of our triage <unk> base station platform targeted at 50 gigabit per second Pam for front haul links. This triage platform is a bidirectional analog Pam four <unk> with the integrated differential driver offering ultra low latency and low power and enables the use of low cost <unk>.
Five gigabit second the second optics to operate at 50 gigabit per second.
We already have numerous <unk> base station by station design ins with both at Clearbridge and Tri edge platforms, and expect continued adoption throughout FY 'twenty four and enough initial production revenues in the second half of FY 'twenty four.
While overall macroeconomic conditions continue to delay the rollout of fiber infrastructure, we are seeing more global deployments driven by European <unk> vendors, which will provide more geographical balance in this business.
As a result of demand weakness and excess inventory in China, we expect the infrastructure market to remain weak and expect our signal integrity product group revenues to decline in Q4. However, we still anticipate that our signal integrity product group will deliver record annual.
<unk> for FY 'twenty three.
[laughter].
Moving on to our protection product.
In Q3, our protection revenues were down 27% sequentially and represented 22% of total revenues.
Extreme softness from the high end consumer market negatively impacted our business lower revenues from our Asian smartphone customers and broad consumer weakness offset record revenues from our North American smartphone customers.
We believe we are very well positioned in the consumer protection market with a strong USB C protection portfolio, which is expected to be the high speed interface of choice across most futures consumer segments.
Our broader industrial protection business, which represents a wide range of end markets across all regions showed resilience in the Americas and Europe markets.
We are seeing continued positive traction in the automotive segment as our Ethernet shield display shield and antenna shield products are all gaining momentum as our customers integrate more advanced lithography technologies with highest speed interfaces into their vehicles.
A protection Shield solutions also have solid design win momentum at several of the top global EV makers, which is the fastest growing sub segment of the automotive market.
We recently announced a new hot switch platform for industrial and communications applications.
This truly innovative system protection platform provides you protection features that will safeguard systems prolonging the life span of electronic devices and reducing electronic waste.
As the overall macro environment improves.
We remain well positioned to grow in the broader protection market with a well rounded.
<unk> portfolio for high speed interfaces, such as 10 gig Ethernet USB type C touch displays and antennas and expect a broader industrial protection business to deliver record revenues in FY 'twenty three.
While we are starting to see demand levels stabilize.
Due to high consumer inventory levels, we expect our protection business to further decline in the fourth quarter.
Turning to our wireless and sensing product.
In Q3 revenues from our wireless and sensing product group declined 3% from the same quarter, a year ago and represents a 34% of our total revenues.
Our Lora enabled revenues grew 36% annually driven by growth from the smart building industrial Iot and smart cities segments.
Lora revenues increased nicely in North America, and Europe remained weak in China due to ongoing Covid Lockdowns and general economic softness in the region.
Lora continues to be utilized across a broad range of exciting use cases.
And we are seeing increasing global adoption of Lora due to its ultra low power long range and low cost connectivity.
Here are a few exciting announcements from this past quarter.
Sure.
Extra Joe is is integrating lora edge with a unique solar cell technology for indoor and outdoor asset tracking and global supply chain logistics.
Binding semtex Lora edge asset management platform with.
With <unk> power foil solar cell technology significantly extends the battery life of asset tracking and environmental sensing devices.
CW D introduced a new module, combining lora and Bluetooth to bring the lower wind capabilities to hazardous work environments, such as oil rigs mines and construction sites.
Employee safety is the first priority.
Easy to deploy Iot modules enable the tracking and monitoring of employee safety.
Intent technologies announced its lora enabled smart property solution, which enables improvements in the operating performance of the building is being adopted by <unk>, a leading real estate service provider to optimize performance improved quality of service and reduce the carbon footprint and residential.
And commercial properties. The platform has already achieved a 10% savings in overall building operational costs key.
<unk> technology introduced a new fully autonomous Lora enabled network control unit for gas metering. This new comprehensive MCU will enable multiple remote meter reads per day and allows customers access to their real time and historical gas consumption trends.
To identify cost savings.
And discover waste reduction opportunities.
<unk> also anticipates and remotely shuts off gas and potentially dangerous situations Kiwi technology expects these meters to remain fully autonomous for 10 years.
This week at Amazon's Reinvent conference, we announced that Amazon Web services is integrating our lora cloud geolocation capabilities into their AWS Iot core platform.
And launching a new service to simplify asset tracking solutions using AWS.
Customer adoption is already beginning and we will expect and we expect this will enable the broad expansion of our Lora cloud geolocation services, and our Lora edge silicon platform in the future.
Lora Global adoption continues to make very positive progress.
And our metrics dashboard indicates solid momentum.
These metrics include.
The number of public Lora network operators.
Grew to 178 up from 173 at the end of Q2.
In addition to public networks private networks are also experiencing significant growth as evidenced by many new use cases and applications.
We expect approximately 180 public Lora network operators by the end of FY 'twenty three.
Yes.
There were $5 6 million Lora gateways deployed at the end of Q3.
Ahead of FY 'twenty, three targets of $5 5 million.
This was driven by growth in Amazon sidewalk gateway deployments, which were up 14% sequentially and up 120% annually.
And private network gateway deployments, which increased 13% sequentially and 45% on an annual basis.
Macro gateway deployments also increased 10% sequentially and 33% on an annual basis.
We expect these global gateway deployments to drive an acceleration in <unk>.
<unk> device attach rates.
Over the next several years as numerous new use cases increasingly adopt low power sensor networks.
The cumulative number of Lora end nodes deployed increased 15% sequentially to $280 million at the end of Q3.
We expect this number to exceed 300 million cumulative end nodes by the end of FY 'twenty three.
With the increased interest in adopting digital technologies to monitor and preserve our natural resources and to help mitigate climate related issues. We expect end node deployments to accelerate rapidly over the next three to five years.
Excluding China excuse.
Excluding China, we expect our FY 'twenty <unk> Lora enabled end nodes to increase on an annual basis by approximately 60% confirming the increasing attach rate of lower end devices to installed gateways globally.
Our lora opportunity pipeline at the end of Q3 was approximately $1 1 billion.
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.
Over 82% of our Lora opportunity funnel is currently from regions outside of China.
In Q4, we expect our wireless and sensing business to decline as weakness in China, and a weak consumer business negatively impact both our lora and proximity sensing business.
However.
Driven by record Lora enabled revenues, which we will expect which we expect will grow approximately 39% in FY 'twenty three we anticipate our wireless and sensing business to deliver another record revenue year in FY 'twenty three despite very weak consumer revenues.
In Q3, we released 12, new products and achieved 2189, new design wins positioning us very well for future growth as macro trends improve.
Looking forward to the fourth quarter of fiscal year 'twenty three we see continued demand challenges in China, resulting in weaker than normal seasonality.
We are starting to see signs of stability in both demand and Pos including from China.
As a result, we expect that Q4 net revenues to be between $145 million and $155 million.
To attain the midpoint of our guidance range or approximately $150 million, we needed turns orders of approximately 27% at the beginning of Q4.
We expect our Q4 non-GAAP earnings to be between 44, and 52 cents per diluted share.
I will now hand, the call back to the operator, and Mecca and I are happy to answer any of your questions operator.
Thank you, Sir we will now be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue and.
And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, while we poll for questions.
Our first question comes from the line of tore Svanberg with Stifel. Please proceed with your question.
Yes. Thank you.
The first question is on your turns number there for the <unk>.
Great quarter.
I think last last quarter I think you expected zero percent turns obviously now quite a bit higher.
Does that mean Mohan that kind of like the supply and demand is back in balance because I think historically, you turn about 20, 30% on any given quarter and as a follow up to that what gives you the confidence that you can actually achieve the 27% terms.
Yes, I think that is correct torey, it's supply lead times are starting to normalize and get back towards the kind of historically have been.
There are also there is also inventory in place so.
Meeting short lead time.
Orders is not going to be.
Difficult as it has been in the past I think also with the Pos stabilizing.
The general.
Feeling that consumer for example has been extremely weak for a long period of time.
And starting to see some improvement in bookings that gives us that confidence.
And as you point out historically, we've done 30%, 40% a quarter.
<unk> fairly frequently.
Very good and as a follow up to <unk>.
When you talked about Opex next quarter.
The 10% number so is that total opex down 10% sequentially.
And with this sort of be the new run rate going forward for as we model the rest of the year.
Yes, it is 10% down sequentially as.
As you know it's hard.
Bob.
New fiscal year, there are additional expenses that will come on right.
Higher tax rates and things like that so.
The upfront investment fits our spreads.
For what.
It's probably going to be a little bit up in the fourth quarter and the first half of next year, but I think.
The run rate is going to be significantly down from what it was for fiscal year 'twenty three.
<unk> five hour or probably expect the quarterly auto rates to be about $66 million to $4 million per quarter.
Very good just one last housekeeping one you mentioned the 82% of the Lora funnel is outside of China, which means 18% in the funnel is China.
What would that would be currently as far as revenue is concerned.
Revenues are closer to.
45% to 50% of total revenues up from China.
Tori, obviously I think can.
The last quarter, it's probably a little bit lower than that but I think it's still most of the a lot of the revenues from China. The funnel, obviously takes time to transition into.
Into revenue.
But the important point there is that we are seeing a lot of success outside China now China also is still doing very well and Lora is growing in China and I think it will continue to grow in China, but the other regions, particularly North America.
It has taken a while to catch up but I think now is the funnel.
If we execute on the funnel transition to revenue.
Then we will start to see a little bit more balanced geographical business for Lora.
Very helpful. Thank you.
And our next question comes from the line of Richard Schafer with Oppenheimer. Please proceed with your question.
Hi, This is way mark on the line for <unk>. Thanks for letting me ask a question. So in regards to your agreement to license more cloud to AWS was wondering how does the ex euro and node forecast.
And the long term, 40% CAGR is this already embedded and could we see accelerated growth in Europe , 40% CAGR.
Well.
Yes, it's kind of embedded in the 40% CAGR I think because it.
It drives a lot of end use.
Connectivity that the whole goal here is to use AWS is channel and market power on presence to go out and drive more and node connectivity and more assets that need to be tracked and managed in and we feel pretty good about.
The combined.
Find company's efforts here in the thinking here and in the platform.
But suddenly.
That's the expectation obviously it will drive in addition to Lora edge and devices. It will drive cloud services revenues for us and that's significant.
Great. Thank you my.
Second question is on Lora Dot Com is there any way you can help parse out how big bar is for the unlicensed sub gigahertz.
And how does this comparison of two four gigahertz variety.
A majority of the revenues are sub gig.
The two four gig is relatively new.
So I would say, 90% and above is probably.
Sub gigahertz at the moment.
Thank you.
Okay.
And our next question comes from the line of harsh Kumar with Piper Sandler. Please proceed with your question.
Yeah, Hey, Mohan and <unk> got a couple.
Mohan I'm looking at your commentary you talked about <unk> talked about signs of demand stabilization, but when I sort of square that against your common Chi I kind of concur.
Concur that both industrial and infrastructure are down. So my question is if youre seeing signs of stabilization.
Where are you seeing them and do you think this is happening because of some of the new products that you guys are launching like triage getting some traction in copper that is getting some traction are you seeing sort of broadband sort of broad based.
Is that a pickup in demand, which suggests that maybe you're on your way up from here.
Yes, I think obviously, how should we guided down for Q4.
Yeah.
And any.
Bookings Pos demand stabilization is really going to impact the first half of next year right. So as.
As we start to look at it I would say that the stabilization is more on the existing business the existing business in China. It looks like it's going to recover in the <unk>.
Starting to recover in the first half.
The existing consumer business, which has been down most of the a good part of the year. It looks like it's starting to bottom out here. So so.
Hopefully Q1.
Maybe Q2, we'll start to see pick up there.
Now you add on top of that some of the new growth engines and design wins I talked about.
Starting to feel pretty good about certainly the second half of next year from a growth standpoint, but the.
To answer your question the comment on the stabilization is more on the existing revenues today.
Understood and then.
You talked about a couple of growth rates for Lora. So I just wanted to understand you talked about Mohan I think you said all in all out you can end up with about a 39% growth rate for Lora for this year, which I think is pretty respectable given your exposure to China, and what's really happening in China, and then you talked about a number ex China of 60% that I didn't.
Catch.
You could clarify that and then probably you are thinking about the real question is how do you think store growth for next year.
Yeah. So the the 39% is our estimate for this year's growth.
Thats correct of our Lora enabled business.
The 60% refers to end nodes and I simply commented on the fact that if you extract China, if you take out China, whereas the slope of the growth has been a little bit slower.
And nodes would have grown 60% so and nodes.
Growing 60% in North America, and Europe , and actually it's about 17% to 20%, including China. So it's still pretty good but I think.
It shows that the acceleration in other regions is quite good.
Our next year.
Going to depend on the second half I mean, obviously, China is continues to be weak.
And but we have some.
Very good things going on like Amazon.
The announcement, we just made we think sidewalk and some of that is some of those areas are starting to get some momentum.
We have a few headwinds I mean really what happened in the last couple of years with the helium gateways.
There is going to give us a little bit of a headwind for our growth next year, but still we haven't given up we think next year should still be a reasonably.
The growth it won't be close to the 40% CAGR, but I think if we can get some momentum on some of these other use cases I think we'll still see good growth.
<unk> very helpful.
Mine I'll ask another one I promise I'll get off the line after this.
I had a question on the deal you got a second request so that changes the timing of the deal I guess my question is where do you think the timing of the deal will lie and then for Mike.
$319 million raised do you think that's enough to close the deal and then.
What are you looking at 10 months the entire time of where you are looking at straight debt and then given the interest rates you sort of pivoted to convert and if these are kind words would you would you have an intend to buy these these bonds back so they actually don't come down in value.
So let me start with the timing.
Harsh it which is obviously out of our control to some extent.
I can tell you what we are hoping which is that towards the end of the year and early next year, we will be closed and we're ready to close and we are ready to move to the integration, we're very well prepared for that we're excited about doing it.
And so far there's no indications that that timeline shouldn't be achievable.
I'm sure a harsh with our wet gas to push our we do have the financing that we need to close the transaction.
<unk>.
A combination of.
Our line of credit from our commercial banking partners, where we have a term loan from our commercial banking partners.
Then we do have.
This.
Convertible debt in addition to internal cash so the financing is pretty much in place for the acquisition in terms of what we were looking at when we're looking at all the offshore so we're looking at everything.
We're trying to where we had to make the decisions that we thought was best in terms of the cost of capital.
Things like that with regards to.
Being able to retire that we'll just have to see how fair saw how fast.
Play a long here, so, but we do have a lot of options on what we can do with regards to Arctic overboard, but we will make those decisions outside of the right time.
I appreciate it guys. Thank you.
And our next question comes from the line of Trevor Genocea with Needham. Please proceed with your question.
Yeah, Hi, this is Trevor on for Quinn Bolton. Thanks for letting me ask a question here.
So given your comments on demand stabilization does this mean, you will see fiscal <unk> and fiscal <unk> 24, as the possible revenue trough with the step up in the second half of 'twenty four thank you.
That is the hope from what we see today, we certainly see the second half as being.
Sequentially up from the first half.
If you look at FY 'twenty, three we had a very strong first half.
It looks like it's going be a relatively weak second half, but as you see from our.
The comments that we expect FY 'twenty three to be a record year for us.
So when you look at it as a total.
It looks like a pretty good year now going into next year. We know the first half is going to be relatively weak.
The question is how strong is the second half going to be if it comes back and how it comes back in.
The main drivers of the weakness have been China and consumer.
There is some inventory.
Yeah.
Buildup I think from the very strong first half.
So as those bleed through and China comes back and consumer starts to strengthen a little bit.
We could hopefully see a stronger second half next year.
Awesome. Thank you and you spoke about relative resilience in North America, and the EU and broad industrial do you expect this to.
To continue moving forward.
Automotive playing a big role in this as well.
Automotive is one of the stronger segments today for sure.
And we expect it to continue to be.
I would say the other industrial markets in North America, and Europe are holding up relatively well.
It's all relative consumer has been extremely weak, particularly Asian consume up business.
I guess, it's well documented that China consumer and.
Samsung is an example of being very very weak.
And I would say that the broader consumer market and computing market.
Pcs laptops tablets is also very weak and then China itself is definitely.
Going through some some challenges.
<unk> economically and through its still through Covid issues and so demand is weak I don't anticipate those will remain but for sure at the moment North America and Europe are stronger regions.
Alright, thank you.
And our next question comes from the line of Craig Ellis with B Riley Securities. Please proceed with your question.
Yes, thanks for taking the question and I appreciate all the transparency on what Youre seeing in the markets and with the different products group guys. Mohan I wanted to start just digging a bit deeper into China.
Understand what Youre seeing there you were early in flagging the weakness that started in China back in August and.
In.
Interpreting your comments I'm trying to discern if.
Signs of stability that you may be seeing in consumer really related to lunar new year builds and therefore more of something that might be near term oriented versus something that might be related to product cycles. It would be up beyond that so can you just go a little bit deeper into what's actually happening in China.
And the confidence that you have in consumer and elsewhere that were narrow bottom there.
Yes, I think.
I would say the.
<unk>.
The key thing to remember Craig is that.
Down significantly right, so consumer and China.
Across the board has come down quite significantly in Q3 comes down again in Q4. So we guide down in Q4, and so the indications are that Q1 will start to <unk>.
Stabilized and we're seeing demand stabilization. So demand has started to level off we're also seeing Pos.
Starting to improve and also bookings so I would say its fairly broad I wouldn't say, it's one specific thing, but just remember that it's off a very low base right. So.
The hope is now we will start to see I think inventory consumed I think that's the key so Pos increasing and.
Some of the even our customers inventory is starting to flow through over the next two quarters and then we'll start to see the kind of more of a real.
Demand supply environment I think in the Q2 Q3 timeframe hopefully.
That's helpful. And then the second question is more of an intermediate term question as you look out over the course of calendar 'twenty three really fiscal 'twenty four for the company what businesses in the portfolio do you have confidence that can grow year on year, we clearly have a challenging start.
Given where react said fiscal 'twenty three but as you look ahead. It seems like Lora would be set up for good growth you talked about some real momentum in Tri edge.
What are the businesses that you think are going to be year on year growers next year.
Yes, so I do think.
The data center business is a good chance of being a very strong grower next year, obviously second half driven but we mentioned the significant win.
Sure.
<unk> actually we have in.
Both triage and fiber rich.
In my script, and if you look at that second half certainly drive growth in data center on the wireless side, it's been fairly muted so I think.
The question. There is is really more of a macro kind of comment on an <unk> base station deployments in some of the <unk> stuff coming back again, China is a key player in that but.
That could certainly grow again, it's been very weak.
This fish.
This fiscal year. So next year could be could be a strong grow up partners will have a record year in FY 'twenty three for us So not sure we'll see the same level of growth it will grow but probably it will be.
A smaller lower growth.
Low growth rate.
The other segments.
And then.
The consumer is the big question, because I think it has had such a.
For fiscal year 'twenty three.
One has to believe that that has a good chance to come back in FY 'twenty four and that includes our protection business and our proximity sensing business in Asia, particularly in Korea.
And then of course Lora as I mentioned.
If you take out the.
Helium.
The.
Challenge that we have.
The business should should grow.
And Craig I also think our broad based industrial and automotive protection, which is a record wishes I expect it to have a record. This year should also grow on next year that is the anticipation great.
Great and then my last question is for you in Mecca and it's just a follow up to comments made three months ago around the capital costs are really the debt interest costs for the square deal I think three months ago, you were thinking five to five 5% would be a reasonable reasonable blended interest cost is that still the expectation or is it chain.
I think it's going to move to slightly because of all the increase in the rates at this point and are dependent on where the rates are at the time, we close the transaction.
Do you expect it to be between $5 five and 6%.
Okay, so pretty close, but a little bit higher got it thanks guys.
Thank you.
And our next question comes from the line of Christopher Roland with Susquehanna. Please proceed with your question.
Hey, guys. Thanks for the question.
E either of you guys.
<unk> you can illustrate the weakness we're seeing in China, perhaps you can illustrated for us.
I think for the full year, you're expecting third.
Okay.