Q1 2023 Silicon Laboratories Inc Earnings Call
Hello, My name is Betsy and I will be your conference operator today.
Welcome to Silicon Labs first quarter fiscal 2023 earnings call.
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Please note. This event is being recorded I.
I would now like to turn the conference over to Giovanni Michelli Silicon Labs' Senior director of Finance Giovanni. Please go ahead.
Thank you Betsy and good morning, everyone. We are recording this meeting and a replay will be available for four weeks on the Investor Relations section of our website.
Forward slash investors.
Our earnings press release, and the accompanying financial tables are also available on our website.
Joining me today are Silicon labs, President and Chief Executive Officer, and Chief Financial Officer, John Hall.
They will discuss our first quarter financial performance and review recent business activities.
And take questions. After our prepared comments and our remarks today will include forward looking statements subject to risks and uncertainties.
<unk> forward looking statements on information available to us such as the date of this call.
And assumes no obligation to update these statements in the future.
We encourage you to review, our SEC filings, which identify important risk factors.
<unk> actual results to differ materially from those contained in any.
Payments.
Italy during our call today, we will refer to certain non-GAAP financial information.
A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section.
And last question.
I'll now turn the call over to Silicon Labs', Chief Executive Officer, Matt Jones.
Thanks, Giovanni and good morning, everyone.
Last quarter, we discussed the success of our strategy to focus on the Iot market strength of our position to scale and lead the industry.
Our accelerating design wins and significant market share gains our team continues to execute well we posted solid results in the first quarter driven in part by the performance of our Bluetooth portfolio, which was up 65% year over year, 11% sequentially.
Also drove a record level of design wins in the quarter up 36% over the design win level Q1 last year.
As anticipated weaker global market conditions are contributing to near term softness our home and life business, our industrial and commercial end markets are not immune to market weakness, but are demonstrating much more resilient.
Despite the short term volatility we remain confident in our ability to outperform the market underpinned by our breadth of our product portfolio the depth of our wireless expertise and our singular focus on wireless connectivity for the internet of things.
I'll now hand, it over to John to cover the financials John .
Thanks, Matt.
Revenue for the first quarter met expectations at the midpoint of our guidance range at $247 million as.
As expected we saw sequential declines in both businesses.
Units were down sequentially in the quarter.
Our asp's benefited from favorable product mix and modest price increase activity.
First quarter revenue for our industrial and commercial industrial and commercial business unit was $151 million up 19% from the same period of last year.
We saw year over year growth in Q1, and all of our major IFC subcategories, industrial smart cities and commercial with revenue from smart metering being a particularly strong growth driver up 39% year over year and 16% sequentially.
On the life revenue in the first quarter was down both sequentially and year over year due to a relatively weak demand environment for smart home products.
We continue to hear from customers regarding high inventory in the consumer space and we expect that to normalize as customers worked down their inventory balances.
Despite the overall weakness in home end markets, we continue to see durability and emerging applications with a life, particularly forceful level.
Geographically during Q1, we saw the greatest strength in Europe , which was up both sequentially and year on year.
Revenue was down for both the Americas and APAC regions sequentially.
Our largest customer was about 3% of revenue and our top 10 customers were only 18% of revenue representing the broad based nature of our customer base.
Distribution revenue in Q1 was 83% of our total sales and DSI grew in the quarter to 79 days.
Ill pass that some of our distributors was less than expected at the end of the quarter.
We expect DSI to decline modestly in Q2.
non-GAAP gross margin for Q1 was 62, 5% above our model and reflecting the modest price increase activity at the beginning of the year.
These price increases were related to further input cost increases like as in Q1 of last year, so more targeted and smaller in magnitude.
non-GAAP operating expenses ended favorable to our guidance of $107 million as we reduced our hiring rate dialed back certain flexible outside services costs.
non-GAAP operating income ended the quarter at $47 million or 19% of revenue.
Consistent with the fourth quarter, despite lower revenue.
Our non-GAAP effective tax rate was slightly higher than expected due to the geographical mix of income at 25, 6% non.
non-GAAP earnings per share ended at $1 12.
On a GAAP basis gross margin was 62, 3% GAAP operating expenses were $134 million.
Operating income was $20 million or 8% of sales.
Stock based compensation was $17 million in amortization of intangible assets was $7 million gap.
GAAP earnings per share ended at 41.
In line with expectations.
Turning now to the balance sheet, we ended Q1 with $1 2 billion in cash and investments.
During the quarter, we used $13 million in operating cash primarily driven by growing our internal inventory to $133 million with turns at quarter end declining to two eight times.
As I commented last quarter, we have invested in strategic growth in our inventory balance to ensure we have the supply chain capacity to deliver on our growth objectives.
During the quarter, we executed $14 million in share repurchases. We continue to have approximately $200 million in share repurchase authorization and intends to be opportunistic in the execution of our share repurchase.
In Q1, we also issued a redemption notice on our outstanding 2025 convertible notes.
We intend to settle the par value of the notes $535 million.
And cash.
And any in the money value assignable to the notes and shares.
The redemption process will be completed on June 20th.
We continue to have a credit facility in place at $400 million to fund the strategic liquidity needs in the business such as M&A.
Before I turn the call over to Matt I'll cover guidance for the second quarter.
We expect revenue for Q2 to be in the range of $238 million to $248 million.
Yes.
As previously described our revenue estimate comprehends a modest reduction in distributor inventory.
In Q2, our goal is to optimize the channel for efficiency and flexibility, while driving toward maximum success and customer ramps for both direct customers and a broad base of distribution customers.
At the same time, we are seeing that supply and demand continue to normalize.
And we are no longer facing severe capacity restrictions across process nodes.
We expect non-GAAP gross margin to be between 60 and 61%.
The decline in gross margin from Q1 as expected due to the effects of pricing variations similar similar to what we experienced last year at this time.
Yeah.
We expect non-GAAP operating expenses to be $106 million and non-GAAP earnings to be in the range of 98 to.
So $1 <unk> per share.
We expect the non-GAAP effective tax rate to be 25%.
On a GAAP basis, we expect gross margin to be about 60%.
We expect GAAP operating expenses to be approximately $131 billion and GAAP EPS to be in the range of 35 to <unk> 45 per share.
I will now turn the call back over to Matt Maddox.
Thanks, John .
We remain focused on disciplined execution as we navigate this time of economic uncertainty, we continue to deliver against our product roadmap, making excellent progress in expanding our series two portfolio.
This includes the new IC design for the smallest form factor Iot devices, the Xg 27 family and Bluetooth Soc.
The <unk> 27 offers Iot device designers energy efficiency high performance trusted security and wireless connectivity ideal for timing battery optimized devices like connected medical devices Wearables asset monitoring tags as far.
The FTC twenty-seven ssds are helping developers build exciting new products, while also simplifying their development processes.
While maintaining the low power and small form factor requirements for extremely small device.
We also announced general availability of our flagship FG 25 sub gigahertz, SFC, which is already being adopted for smart city applications long range deployments, including smart metering products that will transform India's electrical grid.
In conjunction with the launch of Amazon Sidewalk, we announced the availability of our pro kit for Amazon sidewalk.
Comprehensive solution designed to simplify the development process reduce cost and accelerate time to revenue for Amazon sidewalk devices.
As one of Amazon sidewalk only three qualified hardware partners for developing Amazon sidewalk devices are appropriate provides all the necessary tools for developing high volume scalable Iot applications.
Also designed to support the development of wireless Iot based devices on Bluetooth and sub gigahertz wireless protocols or Amazon sidewalk.
The probe kit for Amazon Sidewalk was awarded best in show at embedded World in March our global conference dedicated to embedded computing.
Silicon Labs' CTO D&O cooling delivered the opening keynote at the Congress outlining our vision for connected future and calling on the industry to join us in accelerating software development and security products to critical steps to achieve the full potential cloud connected embedded computing.
In addition to the keynote Silicon lab speakers deliver 10 sessions at the event covering a wide range of topics, including Bluetooth matter and machine learning.
Building on the success, we've seen with series to our design team is deeply engaged in developing a series III platform with more than half of our design resources already dedicated to its development.
We're employing the same strategy with series three albeit at a much larger scale and fully expect it will be even more impactful to us and to the industry than series too.
Silicon Labs has established itself as a leader in the Iot industry driving the adoption of important wireless technologies such as matter.
Since the fall release of matter, one data, 80% of the matter over thread certified products are built with Silicon labs Ssds.
Matter will simplify the consumer experience by enabling interoperability amongst smart home ecosystems and devices.
Looking ahead wireless connectivity in the Iot continue to advance while we navigate near term volatility. We are encouraged by the expansion of our opportunity funnel, which is nearing $18 billion.
And a significant amount of Greenfield design wins, we have secured and newly emerging applications and use cases.
As a team we are committed to strong execution with a focus on managing discretionary expenses supporting marine and.
And investing in the people and products that allow us to outperform the market and capture the tremendous growth potential ahead.
I'll now hand, it over to Giovanni for Q&A.
Thank you, Matt we will now open the call for questions to accommodate as many people as possible before the market opens I ask that you limit your time to one question with one follow up inquiry if needed.
We will now begin the question and answer session.
I ask a question you May press Star then one on your Touchtone phone.
Thank you and your speakerphone, please pick up your handset before pressing the key.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press star. Thank you.
In the interest of time, please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
The first question.
From Matt Ramsay.
Cowen. Please go ahead.
Thank you very much good morning, guys I.
I guess.
I wanted to start out with a question just sort of how youre seeing the year I think we talked.
<unk> talked on this call a quarter ago about strength in pricing anything so John's commentary.
And the script relative to increased input cost I think.
Still support a pretty strong pricing environment for you guys and maybe you could confirm if you see that continuing through the year I'm, but when we talked last quarter I think you guys said.
Talked about this year being a unit driven year in terms of growth just given the design wins that you had in the visibility that you had at that time. So I mean, maybe you could help us square the circle with that and and the commentary on some weakening end markets with the macro and the guidance there.
Much less than seasonal went down on a year over year basis are we still thinking about unit growth for the year I know the last two years <unk> had a really strong pricing year last year, a really strong unit year the year before that so the drivers of the business on pricing and units would be really helpful. Thanks.
Yes sure Matt.
So let me try to address each of those starting with the price increase in units for sure. The last few years have all been unit growth driven but 2021 was big unit year 2022 wasn't as big or bigger pricing dynamic, we still expect our unit growth in 2023.
On the pricing side we.
We definitely are seeing pricing pressure out there, which isn't new and people ask us all the time about that dynamic and maybe the easiest way to think about that as well.
We saw maybe a temporary reprieve during the supply crisis for demand was greater than supply, but we've been consistent that market forces will prevail and that.
We didn't raise our model during that time, and we don't plan to lower our model will you feel comfortable that we can navigate.
So no no major changes there.
We expect market forces will continue as they normally do and we mentioned in our prepared remarks, we're seeing strong design win growth.
<unk> gives us a good indicator of what future pricing is going to need to look like.
On the overall dynamics the.
The consumer piece is tough to call right. There is a lot of uncertainty and volatility out there on the consumer side.
Definitely not calling the bottom or anything like that I think what we have confidence in is that design win momentum we've been consistent about and the share gains we've been consistent about we have a lot of ramps coming in the second half of the year.
So you know.
What the consumer piece will be is difficult to see right now, but what we know is on top of that whatever that ends up being we have those ramps and those design wins and share gains that should position us to do better than whatever the end market ends up being.
Got it I appreciate there's a lot of moving parts, Matt and thanks for the color there and.
As a follow up I wanted to ask about a particular end market I remember.
Two three years ago, the smart meter build out in the U K was a pretty material driver for the company and.
Maybe you could give us a little a few anecdotes about your position in India.
What kind of partners, you're working with the size of the wins that you have obviously everybody can figure the population differences between what's going on in India, and what went on in the U K. So I'm just trying to.
Calibrate.
The position and the potential of that build out given how material. It was in a much smaller geography, a few years ago. Thanks.
Yes sure.
No.
For anyone not familiar we've always had a strong position in metering as a company.
And we see no change in that I think an easy way to characterize it is it's only gotten stronger over the last few years. So while we did see continued to do the build out the U K. What we've seen is the desire to replicate that in other geos globally.
<unk>.
We do see that in multiple geographies all over the world and we see ourselves as very well positioned in each of those.
One we called out today is in India, where over the next few years, India has a substantial amount of tenders that are out there that as a company.
We are very well positioned to serve.
And with multiple positions with multiple suppliers and the technology that we have helped drive for the industry is pretty fundamental piece of the rollout in India. So we're very excited about that it's early days, but that should be a multiyear growth driver.
For us in India as well as other geos.
<unk> metering, whether it's water electric or gas continues to be deployed.
I'll jump back into queue. Thanks, very much guys. Thanks, Bob.
Your next question comes from Cory <unk> with Stifel. Please go ahead.
Yes.
<unk>.
Let me start with Matt, Matt you talked about series three.
Mentioned steam strategy, but at a much larger scale I was hoping you could elaborate a little bit of that especially as we start thinking about asp's and I'm not asking about pricing I'm asking about more value more Isps. So if you could elaborate on that comment about scale that'd be great.
Sure so.
A quick way to characterize it we are incredibly excited about series two right now and the way that's positioned and performing.
We couldnt be at a better time in the portfolio in the market and we're really excited about that that is helping drive. These design wins that we mentioned last year's growth was incredible and we're already starting this year off at a faster pace and Thats really based on series too.
An easy way to think about it as our customers do not only design us in.
The current generation they need to see that roadmap and future that gives them confidence they're betting on the right horse moving forward.
And that series three so we're off we've been working on series three for a long time now.
Concurrently with series two and the intent is inventory easy way to think about it takes all of those learnings for multiple generations and put that together in a way that allows us to do things for the industry and the company.
Haven't been possible in the past so that is already visible to a lot of our key customers and partners and is helping fuel not only the current series two design wins, but also their confidence that they picked the right partner moving forward in terms of <unk>.
Asps and that for sure no comments around that except that this will allow us to not only service the markets for servicing more effectively but even more effectively at a greater scale and more efficiency than in the past.
That's very helpful and as my follow up I.
I know the last couple of years have been.
Sort of years of strong Bluetooth share gains.
I know you bought a Wi Fi asset several years ago, that's probably not probably about to hit that inflection point. So could you comment a little bit on your design win pipeline when it comes to your Wi Fi business. Please.
Sure.
I'm going to answer it directly Tory, but I just want to comment on the Bluetooth piece first because it gives a lot of color and perspective on the Wi Fi piece. So.
Bluetooth if you went back.
A few years, we made a very public statement that we have decided to.
Increase our focus on the space double or triple down and really bring all of our development capabilities and knowledge and domain expertise and Iot to bear and Bluetooth.
And that is exactly what we've done we've seen incredible growth in Bluetooth over last few years, we've seen share gains and we see no sign of that abating at all so we're really excited about that and you saw that come through in some of our Q1 numbers keep me honest guys, but I think it was over 60% year on year growth.
In Q1, so what we've said now so we've done that in Bluetooth and we're going to continue to focus there what we're adding.
Is the Wi Fi focus and the intent is to do the same thing in Washington.
And we've been clear that we've done acquisitions in this space and we're moving large chunks of our R&D onto Wi Fi and that's going to help US do the same thing in Wi Fi. It's already started we're seeing strong growth in Wi Fi <unk>.
Last year. This year, we expect to be strong growth years in Wi Fi.
And we see that.
Easily able to continue now granted on a much smaller numbers than the other areas. So it is easier in the early days.
So questions about it that we get asked how are we going to compete how are we going to operate there are simply said, we're going to bring the benefits that we bring to the other spaces to the Wi Fi space the ability to integrate all the protocols for our customers.
<unk> industry, leading power and security we've shared that the 907.
One of the first devices that we brought out has the strongest momentum.
Any launch we've ever done, which is incredibly exciting and thats driven in part by bringing industry, leading power consumption to the space along with our other capabilities. So it gives you a way to think about it we see good momentum there.
Actually record momentum for any launch we've ever done we do see this being a growth year for Wi Fi and there'll be a lot more products and our capabilities coming out of our portfolio moving forward and I would expect to see US do what we did in Bluetooth and Wi Fi in the years to come.
Very helpful. Thank you.
The next question comes from Cody Acree with Bernstein. Please go ahead.
Yes, thanks for taking my question.
Maybe if I could start with.
The health of the channel inventories for the.
Home and life in industrial and commercial.
Yes.
Sure. This is John So we did we did ship what we expected to ship in the first quarter in line with our with our expectations. What we what we saw late in the quarter was weaker Pos out from the distributors.
Particularly notable in the Asia Pac region.
We do expect that moderates in the second quarter and come more in line as we progress through Q2 and I will also note that.
The inventory staged in the channel is a good thing as we look to ramp customers across multiple new platforms.
In both parts of the business on the distribution side as well as have an organic inventory in house on the direct side.
Yeah.
And then just with your internal inventory plans can you talk about where you're comfortable.
And also just your order linearity through the quarter.
Yeah. So.
Order patterns.
We're relatively linear through the quarter and Thats typically the case again in line with our shipments we did ship in line with what we expected to ship on a linear progression of orders.
On the internal Linda to review, where we comfortable.
Not changing our longer term strategic model of three to four times on the inventory returns.
We are looking across our process nodes and mindful of some of the structural issues around legacy process nodes that remain intact.
We're benefiting if you will in the current time from a lull in the market that is allowing us the ability to accumulate some strategic inventory.
That said some of the structural issues around capacity limitations are unchanged.
So what are we doing about that well we are diversifying our supply base to a certain extent and we're also building. Some inventory ahead of what we see longer term a significant customer ramps on numerous new greenfield opportunities.
Any risk of obsolescence in that inventory build yes.
Cody it's a good question, we store inventory and die bank form and that allows us tremendous flexibility to customize the products and software.
Different security protocols. According to the actual customer demand as it comes through.
So we believe the risk of inventory obsolescence is manageable and view.
Investing in this inventory is a wise use of our available capital given the various factors at work that I described.
Yes, the only thing I'd add to that Cody that Jon said.
It's exactly right.
So much of the customization happens post silicon on top of that through through software.
And you also have to remember the amazing diversity of the end demand across customers Geos applications.
So we don't have one part one customer dynamics at all.
That helps as well in terms of reducing the rich good question Cody.
Alright, thanks for the color.
The next question comes from Ravi Gill with Needham <unk> Company. Please go ahead.
Yes, good morning, and thanks for taking my questions.
First question is on the commentary.
About the expectation for still unit growth this year.
Just wondering if you could maybe elaborate on that.
Given the fact that we saw units down this quarter.
And there is still uncertainty around the consumer.
I know industrial commercial is resilient, but.
There is concern with industrial production potentially coming down.
So I'm curious, how we're kind of thinking about unit growth this year and.
Are you still kind of expect to grow this year.
Kind of based on previous conversations.
Sure Rob you understand the question.
One thing Thats important to point out.
We've commented earlier, we don't see industrial and commercial as immune to this environment, but it's been much more resilient so that.
We don't see industrial commercial growing this year like we have in the last couple of years just to provide some context, but definitely.
Incredibly different experience then.
Straight consumer just to give perspective.
On your point again like I said earlier, it's really difficult to know what the overall market environment in the second half.
Don't think anyone knows for certain there's a lot of uncertainty around the consumer side of things, but what we do know is this.
Our customer inventories are working down.
We haven't seen China come back yet, but we're seeing some encouraging signs.
And to be clear, China is still down in Q1, but we expect that will slowly work its way out and most importantly, we know what our ramps are in our design wins, we've been very consistent last year and even right now that our design win momentum is incredibly strong and.
Some of that is greenfield new applications, new customers some of that is share gains.
And while we don't have a lot of those ramps in the first half of the year. We do have a lot of those ramps in the second half of the year and for sure they're not immune to macro but they will ride on top of whatever that market ends up being and that's that's what's giving us confidence that whatever that market ends up being we think we'll do better than the work yeah. Roger This is John I just wanted to.
A quick point here a key takeaway from all of US is the cost and price inflation dynamic in 2023 is much less than what it was in 2022, that's really a key point to take away from us.
Yes, I appreciate that John and thanks, Matt for that just my for my follow up it really has to do with.
With pricing as well in and also the impact on margins. So you've guided margins down to 60, 65% you've been telegraphing to the street that margins will drift lower.
Over time.
But I am curious to see.
Fact that prices have kind of held up.
You saw a modest price increase but with supply and demand coming coming back in balance you're starting to see potential pricing pressure from competitors. There is more capacity coming online.
How do we think about margins in the face of potentially unit headwinds in men.
Pricing potentially reversing later this year any thoughts on that would be great. Thanks, so much.
I'll start and John It would be good for you to add so.
<unk>.
This topic like I said earlier, one important way to think about it is there's not a lot of new out here on price.
What was new in the last couple of years was the demand greatly exceeded supply and because of that the pricing pressure that was normal and typical in this market took a temporary reprieve I think we're reverting back to <unk>.
Demand is not as strong and theres more supply out there you're just seeing the market revert towards normal pattern of behavior.
Always operated and it always has to navigate so I think thats where were getting now.
I've always been an ultra competitive market from a pricing perspective, we.
See that out there and Thats exactly the reason why we didn't change our margin model during the supply crisis, because we expected it to be temporary.
That's market forces are there we're navigating it we don't see any changes, we expect continued competition and pricing pressure, but nothing that changes our long term outlet outlook. Our commitment in this space you actually don't have anything to add Roger.
I appreciate it thank you.
The next question comes from Blayne Curtis with Barclays. Please go ahead.
Thanks for taking my questions I had two just curious by segment.
You actually kind of fun similar declines in both segments in March.
Just help us with the outlook, it's not down much but I'm curious if there's any difference between the two segments.
Yes, Blaine we would expect in seats have performed better than home and life in the second quarter.
So what we see.
Okay, and then I.
Just trying to understand the difference in the.
And the weakness in the just the channel at the end of the quarter I mean, if its just Asia. It seems like Youre, saying it was fairly small I mean, I guess I'm looking at the big build in inventory and trying to reconcile the two.
Can you just give us a perspective on that magnitude in.
What was that size of inventory build perpetual or was it more.
Hoping for a bit better in June and September .
Yes sure.
Good morning. This is Matt so first of all.
We didn't just ultimately we didn't expect it to go up as much as it did in Q1.
We did expect it to go up but as we enter towards the end of the quarter Pos went down a little more than we expected. So it ended up higher.
Than we expected at the end of the quarter.
It's not alarming to us just very openly as John said.
We want to build internal and external as we prepare for ramps.
The World has changed in terms of being able to be ready for these ramps and supply as we all know but because.
It's as high as it went we do plan on working that down in Q2, and Thats influencing our guide as you can see so we'll bring it down modestly.
That's baked into the guide in Q2.
Thank you.
The next question comes from Gary Mobley with Wells Fargo. Please go ahead.
Hey, guys. Thanks for taking my question.
Drill down on planes question about distribution inventory.
You correctly that at 79 days I understand that the normal range is 45 to 55 days. So if we work that distribution inventory days down to the.
The upper end of the normal range does that imply that you have to digest roughly $45 million in inventory before we're back in that normal range.
55 days.
Yes, Gary this is John understand I understand your logic, there and you are recalling some of our prior commentary on this we are operating as we are with our internal inventory above target.
That is by design the level of increases not just articulated is more than we expected in the first quarter, we're indicating this morning, a modest decline in DSI, but nowhere near the magnitude of what you are describing ticket.
All the way down to say 55 days thats not what were indicating this morning.
Okay.
And in China indigenous demand, if I recall correctly that has historically been somewhere in the low 20% range of your of your total sales, but more recently it has probably been and what roughly that mid teens percent. So clearly more than 500 basis points off pace can you speak to sort of the tailwind that China maybe.
Represented the geography when things.
Things begin to normalize there.
Sure.
Sure Gary This is Matt.
Big picture those numbers are right. So I think if you go way back.
A couple of years ago, I think China was around.
Mid twenty's percent of our business and as we shared last year, we saw that go down significantly.
Closer to around 15% and we continue to see that decline even in Q1 of this year I think China was down around 10% of sales. So that decline has continued.
We're not calling it in terms of.
That's the bottom in China, but all the indicators say that.
We're seeing encouraging signs of strength and recovery there and you know.
As we have been consistent with its not baked into our plan but.
That could be a tailwind if we start to see some more strength, but haven't seen it yet.
Thanks, guys.
Okay.
The next question comes from Matt Ramsay with TD Cowen. Please go ahead.
Thank you very much guys for letting me jump back in for a follow up.
Matt it's around some of the pricing commentary that you made my a few things happened in my inbox. During a couple of your comments so I wanted to clarify something.
I don't think its a big surprise to a lot of folks that the pricing the relative pricing environment might return towards normal as you described there was a lot of commentary during the pandemic and the.
Supply shortages that we were sort of entered a new era in sami's, where they weren't going to be price downs.
And I think a lot of us were skeptical on that and it sounds like you'd agree that we're going to go back to some normalcy. The question I got from a few folks was.
Hum.
Given that the input costs have gone up as much I wouldn't expect those input costs to revert back quickly. So are you talking about pricing.
Pricing from here at these elevated levels going back to modest year on year declines on a go forward basis or are you talking about pricing going back to levels, where we were pre pandemic I just wanted you to be.
On that those dynamics thanks.
I got it Matt is the former not the latter.
It's that we expect pricing pressure.
On the levels that we're at and we expect that those will continue.
As they always have we do not expect pricing to revert to those pre.
Pre pandemic levels that wouldn't be possible for other cost structure wouldn't support that that's right.
Got it so we're back to.
The old days on a relative basis off a much higher base is that a fair assessment, yes, that's exactly right and.
For every every major customer every major market. We go after you know pricing is a key component along with everything else that we bring to the table and we expect that will continue.
So yes.
Exactly you got it alright.
Alright, Thanks, guys I appreciate it.
The next question is from tore Svanberg with Stifel. Please go ahead.
Yes, Thank you Tory from Stifel.
I just had a follow up for John on Opex.
Opex came in quite a bit lower than.
And we had at least modeled.
Just wondering if there's sort of any any seasonality or any one time. So we should be aware of or is this kind of the baseline for the year and perhaps going forward.
Opex will be flat to up.
Yes, sorry.
Yes. It is it is not affected by onetime items.
We did manage our opex carefully in the quarter, primarily around slowing the rate of hiring and reducing our discretionary spend on outside services.
And.
Pulling that down a little more in the second quarter by $1 million. So you got it right. This is a new base.
We'll see how the year progresses, but.
Yes.
With growth in the business, it's safe to assume modest growth in opex commensurate with that.
Just a reminder, that our long term financial model remains our compass, our north star our operating.
We're ahead of that now.
Strive to continue to operate out of a guardrail, but that is that was a couple of supposed to be operated by <unk>.
And tore just just a reminder that.
Last year, I think everybody expected that the strength of the market that we're in continue.
Exactly the way it was.
And we had been very aggressive give.
Given the strength of our series two portfolio and our ability to give customers assurance on supply to go win as much business as we could and you saw that come through in the greater than 50% year on year growth in our design wins and that was by design are possible because of the portfolio strength and supply, but it positioned us well.
Into this year and next year and.
And at the same time we.
Did to the extent possible make our opex growth as flexible as possible so going into this year, we could adapt as the market in Europe , Oleds and that's part of what Youre seeing here as well so not perfect, but hopefully we have as much flexibility as possible navigating this environment.
Great. Thank you again.
The next question comes from Ravi Gill with Needham <unk> Company. Please go ahead.
Yes, Thanks for taking my follow up question I. Appreciate it just a question again on the full year and the shape of the recovery first half versus second half.
You indicated that we could see some normalization in the Asia channel.
We could see some.
Normalization with the customer inventories.
But to grow this year, it's going to really imply double digit growth in the second half versus the first half so any color there in terms of how we're thinking about the second half I know it's.
We only guide one quarter out, but any color there would be appreciated. Thanks. So much yes. It is a one quarter guide so we're not going to provide annual guidance. This morning.
What we're trying to indicate is that there are positives and our demand profile around factors that you've mentioned as well as a major greenfield opportunities that are representatives and new customer ramps. That's a third item. In addition to the ones you mentioned.
But a lot of it depends on the macro and we're not immune in either one of our business units business units from the macro. So we'll just have to wait and see the shape of that we've got some positive drivers, but also we have the macro effects that we have to be mindful of.
I appreciate that thank you.
I will now hand, the call back to Giovanni Charlie.
Thank you Betsy and thank you all for joining this morning.
Today's call. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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