Q1 2024 Semtech Corporation Earnings Call
Greetings and welcome to the <unk> Corporation conference call to discuss the first quarter of fiscal year 2024 financial results.
Speakers for today's call will be Mohan My Hush Warren.
<unk>, President and Chief Executive Officer.
In Mecca Chuckle with some text executive Vice President and Chief Financial Officer. Please.
Please note that this conference is being recorded 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 <unk>, Vice President of Investor Relations and those yourself.
Thank you operator, a press release announcing our unaudited results was issued after the market closed today and is available on our website at <unk> Dot com.
Today's call will include forward looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements.
For a more detailed discussion of these uncertainties. Please review the Safe Harbor statement included in today's press release and in the other risk factors section of our most recent periodic reports filed with the Securities and Exchange Commission.
As a reminder comments made on today's call are current as of today only and some tech undertakes no obligation to update the information from this call should facts or circumstances change.
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 is included in today's press release.
And with that I'll turn it over to our Chief financial Officer, and make a chip for Anika.
Well, thank you and good afternoon, everyone.
Before I begin I Trust you all saw the news that the board has completed its search for a new CEO .
We are pleased to welcome Paul P equal to <unk>.
More Hollywood a comment further but we are all excited about pause impressive mix of semiconductor and Iot experience and look forward to Houston arrival later this month.
And I also want to congratulate Mohan our historic tie up much more and have led the fintech very successfully for the past 17 years and we have all enjoyed working with him.
Like the many fintech employees, we wish you well on your next adventure.
Turning to Q1 fiscal 'twenty for.
The company delivered net sales of $236 $5 million.
Both the midpoint of our guidance and an increase of 41% sequentially, 17% year over year.
These numbers include a $136 million of revenue from our acquisition of Sierra wireless.
Our non-GAAP gross margin of 48, 5% was in line with our guidance.
Our earnings and our.
Earnings per share of two cents was above our guidance.
In Q1 shipments into North America.
China, Europe , and the rest of Asia represented 31%.
24%, 15% and 30% respectively.
The addition of Sierra wireless has increased our geographic mix towards North America and Europe .
Total direct sales represented approximately 39% of net revenue and distribution represented the remaining 61%.
Turning to our end markets.
As we mentioned last quarter, we expect to see macroeconomic challenges that affect our business in the first half of fiscal 'twenty for <unk>.
We did see in Q1.
Yeah.
Net revenues from the high end consumer market decreased 13% sequentially and 55% versus the prior year.
High end consumer represented 9% of total net revenues.
Net revenue from the industrial end market increased 130% sequentially.
125% over the prior year due to the inclusion of Sierra wireless.
The industrial.
And my kids represented a 75% of total net revenues.
And finally, the infrastructure end market to decline, 30% sequentially and 49% to prior year and represented 15% of total net revenues.
In terms of P. O S. We saw the majority of B O S, 60% comment from the industrial.
End market due to the addition of Sierra.
The infrastructure and consumer end markets, we are balanced with 21% and 19% respectively.
Q1 bookings grew 1% sequentially driven by strength in all.
Advanced protection on our sensing business.
On it.
Q1, non-GAAP gross margin was 48, 5% in line with the midpoint of our guidance.
For Q2, we expect gross margin to stay at roughly flat.
For the remainder of fiscal 'twenty, four we expect gross margins to trend higher through the year.
As material cost synergies achieved and revenues at a higher margin some tech organic business has increased.
These benefits will be slightly offset by lower absorption as we work to reduce our internal inventory levels.
We are still expecting there 100 to 150 basis point improvement in gross margin by Q4 of this year.
In Q1 operating expenses.
$93 million.
$6 million below the midpoint of guidance due to our strict management of discretionary spending.
For Q2, we expect further reductions to our op readiness press down another 2% sequentially.
Back to see continual declines throughout the remainder of the year as we execute on our integration plans and upright to optimize for financial performance.
In Q1, our fiscal 'twenty four.
non-GAAP operating margin was nine 3% significantly better than expected driven by actions, we took to preserve operating profit.
In Q1 with cash flow from op restaurants was 19 million velocity use of cash.
I said by the fiscal year 'twenty, three annual bonus payout and the payment of acquisition related expenses.
We expect our cash flow to recover in the second half of the year.
Acquisition related expenses taper off on demand improves, allowing us to improve profitability as current inventory levels are reduced.
Our gross debt at the end of Q1 was $1 $4 billion or approximately four three times.
Leverage on a net busiest.
We expected to see an increase in net leverage in the first half of the yes, we never get to this softer demand environment.
We announced today that we negotiated another amendment to our credit agreement to get further relaxation through our leverage on interest expense coverage.
The ratio of covenants.
Given our current projections for revenue and earnings we now expect to have adequate.
Through fiscal 2025.
The Q1 weighted average cash interest expense was approximately $5 six 5%.
And as we have said before the main priority for free cash flow will be to pay down our debt.
In summary, Q1 performance was better than expected, but still impacted by.
Macroeconomic headwinds.
Looking ahead, we continue to make progress on our integration of Sierra wireless.
Our synergies are ahead of plan and as a result, we still expect the Sierra acquisition to be accretive to earnings in fiscal year 'twenty four.
We are getting good customer feedback on our cylinder Lora integration plans.
Overall, we are seeing higher design wins and with the steps that we're taking to improve our financial performance.
We believe that our business with thrive as demand improves and channel inventory gets back to normal levels.
Now hand, the call over tomorrow.
Yeah.
Thank you America good.
Afternoon, everyone.
Thank you for joining us today.
On May 30, we announced that Paul Pickle joined as our new President and Chief Executive Officer for some tech I will ensure a smooth transition support and support him and the board as needed for the next 16 months.
You all for your support and interest in Symantec over my tenure as CEO over the last 17 years I've enjoyed working with you all and I'm counting on you to continue to support <unk> through the next phase of growth today marks my last earnings call as <unk>, President and Chief Executive Officer.
Onto our Q1 fiscal year 2020, full formants by product group as well as the outlook for Q2 of fiscal year 2024.
In Q1, our quarterly net revenue increased 41% sequentially and achieved a new record of $236 $5 million slightly above the midpoint of our guidance.
Also posted non-GAAP earnings per share of <unk>.
Driven by lower Opex as synergies were ahead of expectations.
Both net revenue and EPS were better than guidance.
While inventories remained high Q1 bookings for the organic business were up sequentially, increasing our confidence that the organic <unk> business has stabilized, albeit at much lower levels.
Yes.
In Q1, our signal integrity product group revenue was down 32% sequentially and represented 18% of total revenues.
As expected all our infrastructure infrastructure businesses were very weak in Q1.
Our China, PON and base station businesses were especially weak in Q1 as overall demand softened and inventories remain high.
Our Hyperscale data Center business data Center business was also weak in Q1.
We are expecting this business to rebound modestly in Q2 as inventories reduce.
We are anticipating a strong second half performance from our data center business driven by our North American design wins.
AI is driving significant demand at Hyperscale is and our Sip portfolio is primed to take advantage of the upcoming data center build outs, our triage fiber rich and copper rich platforms deliver lower power and lower latency advantages over DSP solutions, which are key requirements for fuel.
AI data centers.
We are growing our data center footprint with North American partners, and we are already well positioned in China, where we believe that data center build outs will regain momentum in the next 12 months.
In Q1, we announced the industry's first 200 gigs per channel fiber rich type Tia's, which are generating positive interest and design wins with tier one customers in North America.
In addition, our copper rich platform is in the early stages of penetrating the 100 gig and 200 gig per channel active copper copper cable segment in North America, which we believe has tremendous potential in the data center market.
We remain confident that our full portfolio of data center platforms, including Clair Ridge, and <unk> fiber rich P. M DS and copper edge, we drivers will enable us to rapidly grow our hyperscale data center business over the next several years.
While our PON business saw a sequential decline in Q1, we believe excess inventories are starting to reduce.
Increasingly we are seeing service providers outside of China, starting to deploy PON systems, which is very encouraging as it which is a very encouraging sign for our future business.
<unk> portfolio has recently been expanded with the industry's first 50 gig PON, Oh, LTE chipset, which already has design wins at tier one European customers we.
Believe out two five gig 10 gig 25 gig and 50 gig PON PMD portfolio offers customers the broadest and highest performance PON PMD portfolio in the industry and.
And we expect to have one business to return to growth in the second half.
Revenue from our wireless base station business was also down in Q1 on both a sequential and year over year basis as the macroeconomic slowdown in China has impacted demand for both <unk> and <unk> base stations. However.
However, new tenders recently issued in China should drive meaningful growth in this segment in the second half of FY 'twenty full and in FY 'twenty five.
In Q2 of FY 'twenty four we expect continued reduction of customer and channel inventories across our infrastructure businesses and we expect a modest improvement in revenues from China is that China demand begins to recover.
As a result, we expect our signal integrity product group revenues to increase sequentially in Q2.
Moving on to our advanced protection and sensing product group.
Q1, net revenue from our advanced protection and sensing product group decreased 25% sequentially and represented 15% of total revenues.
The drop was driven by lower demand from the consumer segment as we are faced with high inventories in both the China and Korean smartphone markets.
We expect inventory digestion to continue for several quarters.
However, we continued to achieve solid design wins on new smartphones without eating USB C protection platform across all tier one global smartphone customers.
In Q1, we announced the expansion of our <unk> product portfolio with the release of a new soft sensor for <unk> mobile devices.
Some checks per se technology census, human sympathy and enabled smartphones to implement RF power control.
You saw that you saw regulations in China, starting in FY 'twenty five.
Getting to be a catalyst for new proximity sensing growth with bookings and Pos up significantly from Q4, we expect this to increase as adoption of our soft census continues in the second half of FY 'twenty four.
On the broader market for our protection products, we're seeing strong demand from the automotive segment as adoption of our high performance system protection portfolio is accelerating.
Specifically, we are seeing increasing adoption of Ethernet USB C and antenna protection from the automotive segment.
In Q1 for the first time in our history, a broader protection business exceeded our consumer protection business and represented approximately 55% of the total protection business.
The Q2, we expect our advanced protection and sensing business to see revenues grow sequentially.
Turning to our Iot business.
As a reminder.
Iot business has two sub businesses.
The first is the Iot systems products group, which is made up of Semtex Lora business.
Sierra wireless module business and the Sierra wireless router business.
The second product group is the Iot connected services group, which includes shares managed connectivity business and some sex Lora Lora cloud services business.
In Q1, total Iot revenues increased 170% sequentially to approximately $159 million.
Or 67% of total revenues.
While our Lora enabled revenues were down in the quarter.
Given by the lower demand for helium gateway chips.
Lora and Pos volume group.
A lora end node Pos volume grew 29% sequentially.
With strong growth in Europe , Japan and China.
This is a strong indication that our strategy is working.
We expect future Lora end node deployments to continue to increase as the demand for low power sensitive that works incorporating edge AI routers becomes mainstream in the Iot world over the next few years.
The adoption of Lora continues to grow across many Iot use cases globally, especially in North America and Europe .
Some of the recent exciting announcement this quarter included.
Sustainable harvest.
Deployed Lora enabled sensors and Lora land based gateways across its Dorian font fruit farms in Malaysia to improve farming practices lower operational costs and increased crop yields.
Leon is a challenging crop that each 24, some maintenance for high yield and Lora enabled sensus give farmers realtime data for the health of their farms every step of the growth cycle.
Secondly, a large European based IP system solutions provide them and that they have joined the lora ecosystem and we'll incorporate lora went into their strategic portfolio targeted at the retail manufacturing logistics health care and public infrastructure segments.
Cooler space the director satellite Lora wine company launched its latest satellite on Spacex raising its number of satellites to seven to bring low cost of connectivity to the most remote parts of the world.
In Q1, we launched a new multi band Lora transceiver for use in Iot endpoints, enabling a single low powered device to be used anywhere in the world.
The highly integrated Lora connect platform provides lora, one connectivity for terrestrial low power wide area networks as well as supports Lora two four gigahertz for global connectivity and S band for direct connection to satellites. This new bouncy band Lora radio is perfect for global logistics and ask.
Management use cases.
And in Q1 as the Lora Alliance launched a new Lora one accredited professional program to support the Iot industry's need for skilled Lora engineers and developers.
New loan opportunities continue to emerge across multiple end markets, including smart utility smart logistics and asset management and connected spaces.
While our Lora enabled business is expected to decline this year due to the negative impact of about helium gateway business and a weak China. We are expecting lora end node deployments to continue to increase globally.
And we expect our Lora enabled business to return to strong growth in FY 'twenty five.
In Q1, the Sierra wireless Iot module business increased 31% sequentially as demand for Iot LPWAN connectivity solutions increased.
Interest in Sierra routers, Sierra is routed in the public safety and industrial Iot segments continues to increase specifically, we are seeing increased adoption of our routers, where utility monitoring EV charging and precision agriculture.
In addition, we are pleased with the strong growth about Iot connected services business, which grew 10, 3% annually.
As we grow our managed connectivity subscriber base, we see a massive opportunity to deliver value added Iot services to our customers. We are investing in both our Iot managed connectivity platform and that future Iot cloud services platform.
As we start to marry our Lora ecosystem strategy together with our Iot module routes and services strategies, we expect to deliver a uniquely differentiated and highly attractive Iot portfolio to the low power Iot industry over the next few years.
In Q2, we expect our Iot business to decline sequentially as we continued to face high channel inventories and relatively weak demand across all our Iot hardware businesses.
In Q1, <unk> overall design win volume was up 32% sequentially and a module design win value was up 50% sequentially.
Both of these metrics bode well for a strong FY 'twenty five.
Now, let me discuss the outlook for the company for the second quarter of fiscal year 'twenty four.
As a result of our lower revenues and our increased leverage we are taking actions to ensure our operating profits remain at acceptable levels.
These actions are on top of that planned synergies.
In addition, the <unk> board continues to carry out a detailed portfolio review.
And we'll discuss its findings and any actions with the new CEO, who will be joining some tech approximately June 30th.
We are currently estimating Q2 net revenues to be between $233 million and $243 million.
Retaining the midpoint of that guidance range or approximately $238 million, we needed tons orders of 39% at the beginning of Q2.
We expect our Q2 non-GAAP earnings to be between minus <unk> <unk> per share and plus six cents per diluted share.
I will now hand, the call back to the operator and in Mecca, and I will be happy to answer any questions operator.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
I'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is there any question Q.
You May press Star two if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Craig Ellis with B. Riley. Please proceed with your question.
Yeah, Thanks, very much for taking the questions Mohan.
Mohan I was hoping you could just start by providing a little bit more color on some of the things you're seeing out.
And in the end markets served one can you comment on what you've seen with order activity quarter to date, what are the pluses and one of the weaknesses and in areas where per the press release, you're seeing signs of stability, where do you and the people in the sales team feel more confident.
Things have stabilized square things still relatively weaker richer in inventory.
Yeah. So I think the obviously the consumer business now in China, particularly is starting to show some signs of life.
Of course, it's come down at very low levels. So that's not a surprise it was going to turn around at some point and we're starting to see improved orders from the consumer business.
Little bit of improvement in the China business, particularly in consumer and.
So that's how I would say probably the primary area I would say we are also seeing continued improvement in the automotive industrial area that one has not been so bad so I think in general those are the two kind of strong areas I would think the I would say the other areas in general.
Still relatively weak bookings are still relatively weak, but remember there's a lot of inventory out there. So we're expecting it's really looking at Pos in the digestion of that inventory. That's the key thing and there are some positive signs there as I mentioned in the in the infrastructure side and the datacenter side, specifically and.
And I think I would say also in the and.
And abroad.
Kind of a protection business.
Got it that's helpful. And then I met kind of wanted to follow up so.
A quarter ago, we were pacing very well on on cost savings and I think you've raised the cost savings target from 40 million to 50 million now we've had better operating expense in the quarter, it's better than what I expected in the guide so how should we look at that prior 50 million.
Our expense reduction targets and the potential for that to move up either now or with time.
Yes, so Craig.
Definitely we are doing very well on the synergy front the numbers that we're seeing is a little bit above the $50 million that we have upsides to last quarter.
Not ready at this point to quantify that body size coming in.
And nicely above that number we've also.
Definitely like I said in my prepared remarks, we are definitely watching every penny of Opex at this point, our discretionary spend and is something that Oh.
We are keeping very close eyes on and all of the.
Traveling expenses.
Some of all of our discretionary.
Supplemental compass, social we're keeping an eye on all of that so we are definitely very pleased with what we have seen.
The first quarter in terms of our ability to manage operating expenses and are different and where the business is right now I'll, let Mohan said in his prepared remarks, we're looking at all of that Samsung hopefully.
Continued to do a good job on that.
That's good and then if I could just sneak in one more you mentioned that you could achieve some incremental covenant flexibility can you just talk more specifically to that point, then and was there any incremental costs to our to our interest rates on the debt you how about.
Or what's that achieved with some other means thanks, so much guys. Yeah. So yeah. So definitely on the covenant side, obviously just given the.
Look for the business all the macroeconomic issues that we're seeing.
The fact that our inventory in the channel continues to remain stubbornly high we sort of anticipated.
The covenants might be challenged in the second half of the so we took proactive steps to get back to our banking group to work with them.
So yes, there was incremental costs.
Cost us probably about 50 basis points in terms of amendment fees.
Costs are de leverage is anticipated to be higher.
Yes.
Interest rates.
Together with those are going to be a little bit higher than what we originally had.
As communicated in the original agreement that we had out that theyre.
But having said that I think our expectation is that.
With all the synergies.
The fact that we're going to head on synergies.
And they're also looking at things.
<unk> continuously getting better in terms of demand in the second half of the year. We continue to believe that the acquisition is going to be accretive to our earnings in fiscal year 'twenty four.
Thanks, so much thanks Mohan.
Our next question comes from the line of Scott <unk> with Roth Capital. Please proceed with your question.
Hey, good afternoon, Thanks for taking my questions nice job on the quarter and more than I want to wish you all the best as Dan in your future endeavors with Zacks been a pleasure working with you over the past couple of years. Thank.
Thank you Scott.
Hey, maybe just to follow up on Craig's question on the covenant.
I just wanted to clarify a couple of things it sounds like there were some small penalty as an increase in interest rate.
But I want to make sure in terms of the guidance that you gave for the second quarter that is included in interest expense is already included in there and then going forward in terms of further reductions in the Opex structure <unk> evaluation of the portfolio and potential asset sales that is not being mandated by the bank that isn't that just part of their general.
Pruning of operations and optimizing things going forward is that correct.
So does that kind of what I will just take that yes that is adjusted.
What is a very good business in that time like this and.
We already have that setting.
In motion.
It wasn't it wasn't something that was mandated by the banks.
With regards to the interest.
Yes, our guidance has factored into new agreement thinking.
In Q1 the weighted.
Cash interest, which was about 565% in Q2, we anticipate that based on our guidance to probably be about six 1%.
Great very helpful. Thank you.
I'm not sure if I heard your comments looking into the second half of this year, but are you expecting some relief in the inventory work boots at that point in time it sounds like the design activity remains very high so we're getting back on a path to normality and then just to clarify your comments around data center.
And this amount of interest and activity as it relates to AI and what that's doing in the demands of the data center.
Do you get back to you given the new products since you have given those demand dynamics by the end of this fiscal year fiscal year 'twenty five as we start to get backwards surgical approach the levels that you would see two or three quarters ago. Thanks, so much.
Yes, Scott So let me start with the on the Iot side.
I think.
There's some tax our Iot business, we saw softness in China, we saw.
Softness in general probably a little bit earlier, the Sierra business now yes.
In some weakness and continues to see some weakness, particularly on the modules and the router side on the hardware side to liberate some of that is North America and Europe catching up of.
The softness in Asia.
And I think we're going to see that in Q2, and maybe Q3, but after that I think we'll start to see.
It's a little bit more positive momentum on.
And this is speaking about kind of the traditional <unk> modules that they've been selling obviously theres a lot of design win design in activity around.
Did you approach that we're taking now with modules and how we're thinking about things.
And that could generate some some interesting opportunities I think going forward.
We've got the data center I think yes.
Our expectation is that are you know obviously.
Obviously Q2 Q1 was very weak Q2 will be stronger.
And we're expecting the second half to be stronger than the first half could we get back to the levels of the first half of last year I think we need to see some of our design wins that we've got going on.
We have good momentum in North America as we've stated.
And we have some some new opportunities with <unk>.
<unk> as I mentioned in the in the prepared remarks that probably more FY 'twenty five kind of drivers, but we're hoping to see some of that in the back end of this year.
Okay great.
Thanks, so much and best of luck going forward. Thank.
Thank you.
Okay.
Our next question comes from the line of harsh Kumar with Piper Sandler. Please proceed with your question.
Yes, Mohan I wanted to also wish you best of luck with your retirement enjoyed working with you all these years.
I just had a couple of questions. The first one generally speaking kind of if I had to pin you down and say you know how many quarters of inventory do you think there is an on an aggregate basis <unk> <unk> per share in a wireless combined.
Would you be able to tell US you know is it a quarter or two quarters and are you, losing any design wins or is it just the slowdown it's just purely a function of the fact that there is excess inventory in the channel.
Yes, I'm not aware of any design wins, we've lost.
Harsh I think most of it is just inventory buildup.
And it's difficult to say when you look at inventory you obviously have to look at consumption parallel with inventory right. Because you know as consumption increases and inventory comes down and you can you start to see.
The opportunity and that's kind of what we are seeing so in consumer is an example of that where I think most of the inventory is we are starting to see a few positive signs now as I mentioned on the China consumer is starting to look a little bit more positive. So and as you know is consumer it comes back quickly that can absorb the inventory very quickly so I think in the.
Other areas like infrastructure I think the same commentary applies to the PON business, where we have some inventory in base station business, where we have some inventory that they those can be quite quite quickly.
Depending on as tenders come out there and demand picks up in China. For example, I think where we're currently seeing demand I would say data center is the strongest in the infrastructure areas and I would say on the industrial side, it's probably still the automotive area and then the consume.
<unk> and <unk>.
<unk> has been extremely weak for a long time, so that's not a surprise right.
Yeah, Yeah, no totally and then Mohan I had a follow up.
But I'll ask a two part question if you don't mind.
On Lora side is helium all completely played out and do you think it's bottomed out and your guidance at this point in time.
And what would make it come back so is that the funnel or are you seeing so pretty good design activity here and then secondly, if I was to make a statement. This is part of the question.
I think your maybe your businesses about about bottomed out in the last quarter that that happened.
What would you say would you agree with that statement in general based on all the commentary or would you would you say that maybe there's some color on acquired there.
No I think the same type of organic business is definitely you know Q1 was probably the bottom line.
And we'll see any further decline from that and that's clearly why we are.
Guide in Q2.
Yep and part of that is the improvement in the organic business.
And that kind of narrative is the same on the Lora side, yes.
The helium was he was kind of an opportunistic business came.
Now gone away and so it's yes, clearly in the guidance that its not going on in that could it come back we're not banking on helium coming back I don't think that was ever the strategy for Lora and we're banking on low power Iot sensors growing and as I mentioned Lora end nodes are growing.
We're still seeing a lot of demand for lora across the globe. We're seeing a lot of use cases are being deployed all the dashboard metrics that I've been giving out for years and years now.
I think that's still doing well, obviously, China is weak at the moment and.
Because of what's happened with helium, but you know the metrics don't look as good but I think one of the things to remember anyway. It was part of the strategy as we integrate Sierra.
Looking at a very different playing field now the opportunity to go in there.
Tap a much larger space.
Space and with a broader portfolio. So so I think that's the way you should think about it but yes to answer your question I think it's pretty much built into the guidance any any weakness from from helium.
I appreciate it and best of luck. Thank you. Thank you.
Our next question comes from the line of Torrey Seven Berg with Stifel. Please proceed with your question.
Yeah. Thank you congratulations on your retirement Mohan its been great working with you. These last 17 years.
Let me start with a comment on working capital and you guys did a really good job there.
Inventory days now back down to $1 59, Dsos 56, as we think about this new combined entity, where would what would those metrics ideally be I know you mentioned that you still expect to you know lower internal limits are somewhat but you know where where do you think eventually the business will land.
So is it inventory days.
So sorry.
As we continue to get very familiar with the new CEO of that business.
My expectation would be that the inventory days will continue to come down both in terms of CNS and pain.
And some synthetic organic inventory right.
I'll, probably I wouldnt be surprised to see those days of inventory probably get down to the $1 20 or something like that by the end of the year given the plans that we have so we just have to see how it plays out of course demand is going to be key.
Our embedded equation with regard to receivables.
<unk> typically have longer payment terms for their customers.
And then the same type of organic business that 69 days you know, it's not just not that bad, but I think I would expect to see that come down I would like to see that maybe come down to $50 to 55 days.
Okay, that's great perspective, and Mohan you talked about you know expectation for growth resuming in data centers second half of the year I mean, I think that that makes sense given all the dynamics there, but you also mentioned you expect the base station to actually grow in the second half any data points. You know that gives you that conviction.
Just new tenders in China.
We know about what we don't know exactly how that's going to affect our business, yet, but we know that's happening.
Yeah.
And the base station business and the pawn business.
It's all about service provide us a little about tenders and it's all about how many how many systems are going to be deployed and so when you see tenders going out and you see quantities of.
You know unit volume quantities then it just becomes a question of how the share was allocated were pretty much as you know in most.
Most of these five G systems in China, where we are unfortunate systems, we have very good relationships and very good.
Good penetration on the same on the PON side, So I think.
Our expectation is that if those come to fruition and then let's say.
That's always a question of sometimes with timing.
In the second half will be stronger if not FY 'twenty five is going to be very strong.
Great. Thank you I'll get back in line.
Our next question comes from the line of Quinn Bolton with Needham. Please proceed with your question.
Hey, Mike and I will Echo my congratulations and great working with you wanted to searches just on a follow up on <unk> question on the base station business I think in the past you guys have said you get much higher content and sort of the three to six.
Gigahertz bands rather than the 700 megahertz band just wondering if these tenders coming out in China or in those higher frequency bands, where you might have a greater dollar content in those base stations.
I believe so.
So I don't know exactly the detail, but I.
I believe they are.
Perfect and then on the turns percentage I may have missed what turns was in fiscal.
Q1, but the 39% I think is back up towards the higher end of certainly recent ranges you know with visibility still being pretty low.
How comfortable are you with with with turns up near near 40%.
For for the second quarter.
Yeah, I think you know.
Actually this is kind of closer to our historical levels. So we actually if you go back.
Pre Covid, we were timing you know, 40%, 50% as you know consumer business, that's kind of normal. So you know this is kind of getting back to normal levels. I think so we're quite comfortable obviously, we have a mechanism. We look at backlog we look at what's on the books, we look at channel inventory and you know we have to make some adjustments there depending on what we <unk>.
To happen to pass in the consumption levels. So that's oh, that's driving the tons.
Tons number, but we are quite comfortable yet.
Great and then lastly, a quick one for America just on the Opex reductions you know it looks like they are coming in nicely ahead of plan how much of that is in the near term just lower variable comp or lower selling expense or you mentioned watching travel expenses pretty closely that you know as the business recovers may come back versus cuts that.
Our more permanent whether its head count reductions or just you're being.
Streamlining of R&D expenses.
And those expenses don't necessarily come back as the business recovers.
No I think as saw roughly for a green or in terms of all seen higher levels of synergies and then some of the other opportunities that I spoke to so.
But I think even if anything is going to come back we're not expecting them to come back in.
In this current fiscal year.
Definitely imagine still solid, but its tight basis for the rest of the year.
I think I think the other point on that Quinn is.
You know as if you go back and look at our history you know the.
A lot of the variable comp is driven by our ability to generate profitability. So it's dictated by the revenue right.
The growth in the revenue. So you know a lot of those expenses won't won't come back if the revenue doesn't come back.
Got it okay. Thank you.
As a reminder, ladies and gentlemen, it is star one to ask a question. Our next question comes from the line of Matt Ramsey with Cowen. Please proceed with your question.
Yes. Thank you very much guys I appreciate you taking the questions I guess.
The first one that I wanted to get to and and obviously, there's some within the new CEO coming in and the board doing different evaluations.
Things I wanted to ask sort of a nuts and bolts question.
Just with the.
The non Iot businesses, so the signal integrity, and the protection and sensing segment.
What's the operational overlap between those two.
Business segments from a R&D perspective from a go to market and sales perspective from a.
F AE perspective, I'm, just trying to understand Theres, obviously synergies and things, but how independent of all of those businesses are how integral to do they need to be to be run together just general Big picture thing.
Yeah, So Matt I think if you go back and look at some tax history, we've always had a business that you know.
Large fee discrete businesses Standalone, that's what analog companies do it's a portfolio of different analog businesses in each of these analog business as we largely don't do the whole system. I mean, we are doing analog functions. So advanced protection has advanced sensing functions advanced protection functions in our Sip business, we do.
<unk> P M D, but we don't do some of the digital functionality. So so that's the way we run it but they are very different independent businesses. They don't really have a lot in common with each other.
But we target attractive markets and and you know that's most high performance analog companies do you look for opportunities to continue to.
And in those businesses and that's what we've done with our well integrity product business, which used to be the old Gennum business that we acquired that's what we've done with that protection business for many years now and even the Iot business for <unk> organic centric business was largely just a radio business, our low power radio business with Lora, we had some other functions analog functions around it.
The difference now of course with the acquisition of Sierra We have bought in a modular router and a software and services business.
Those of you who've kind of tapped in the.
Aware of what we were doing with Lora as we expanded from our radios from a lora end node radios into the gateway radios and connected to systems and networks. We started to look at cloud services as an opportunity and you know part of the rationale of course with the services was to try to accelerate that.
<unk>.
Bringing a sensing a service our business.
Business and really build on the edge capabilities that we have and so those.
A slightly different than kind of the chip business.
Our approach that we have but I think can really take subject to a whole new level and that's why we did the acquisition but to answer your question the protection business on the signal integrity product business and the IC business of Iot are very different businesses.
Yeah no. Thank you for that I appreciate the perspective, I guess as my follow up question and in the Iot business largely came from Sierra there. There were obviously cloud infrastructure pieces or connected services business that were affiliated with the old Lora business and also with.
Hey, Guy with your franchise that came in from Sierra.
The intention to integrate those cloud platforms into one and how is that evaluation started and is it progressing well I guess, what kind of overlap is there an opportunity to sort of put those two cloud platforms together.
So when you look at the Sierra.
Software services business, it's really a managed connectivity businesses managed network business, It's really managed network services with some with some elements solve.
Services around the managed connectivity with <unk>, it's all about the end nodes and and managing those end nodes.
And thinking about sensus and so marrying the two together, we're essentially saying we're building a higher value platform for our customers. So a customer that wants to build a private network for example, and manage its sensors on that network and have managed connectivity.
And understand where the security holes are and understand the provisioning of those sensors on the network and understand the.
Location of the sensors on the network and the health of the sensor I mean, that's really the kind of end game I think for us and I think we're not where we really have a very nice platform to do that now the Sierra advantage platform a software platform that they had which they've had for many years combined with our cloud Lora cloud platform.
And you know obviously, there's work to do on the integration side, but really once we've done that I think it's going to be a very unique and very differentiated platform.
Alright, Thank you very much guys I appreciate it.
Yeah.
We have a follow up question from the line of.
Tories Fernberg with Stifel. Please proceed with your question.
Yeah. Thank you just two quick follow ups the turns 39% that was at the beginning of the quarter.
How would that number be now you're almost halfway through the quarter.
Yeah, we don't normally give that out sorry, yeah.
Given that number out we normally talk about tons at the beginning of the quarter I would just tell you that we're confident that we'll make.
To make our guidance.
The guidance right.
Got it but I mean is it safe to say that you know the world is back to turn so I because that is the industry hasn't had a lot of it towards the latter yet so we're sort of back to that right.
So you remember during Covid I mean, the tonnes went to zero right. So you basically have the backlog and that was an unrealistic such situation in and so now we're getting close to I don't think we're quite there yet, but we're getting closer to the pre COVID-19 levels, where we were routinely tonnage 45%.
A quarter right.
Got it and the 67% that's not.
I O T. What what percentage of that is services at this point.
Oh, let's see.
Got that.
No I don't have that number I'm, sorry, but I can get it to you.
Okay.
We can follow up thank you yes, okay.
Yeah.
Our next question comes from the line of Rick Schafer with Oppenheimer. Please proceed with your question.
Hi, This is William lock on the line of Eric wanted to wish you. The best in your retirement, it's been a pleasure working with you.
My first question in your prepared remarks, you guys mentioned, the bookings increased 1% quarter over quarter from the organic syntech.
And more particularly from advanced protection and sensing segment.
Wondering if you could parse that out a little bit further are you seeing more of this strength from the protection business or more from the proximity sensing side.
We're seeing both actually it's the.
The consumer business in general has been really soft over the last few quarters as you know, particularly in China, and I would say that we're starting to see.
Improvements in both the consumer business consumer protection business on the consumer <unk> sensing business.
But I would tell you on the proximity sensing because there's a lot of it is now as I mentioned in China.
New regulations for FY 'twenty five to start in calendar year 'twenty four are driving design more design wins, so so I would say that.
The consumer protection business is what's driving the current a demand increase.
Got it great. Thanks for my follow up, particularly within protection it looks like the broad market side.
5% of your protection business.
That makes.
But given the higher growth of this segment do you expect this mix to shape out for the rest of the year compared to the consumer side.
No I expect consumer to come back actually and be kind of be a larger percentage again.
What it demonstrates is the is the value of having that diversity.
And the fact that we have momentum in the broader protection business bodes really well for the future because that's the business that I think will go on for the next 10 years growing as we start to just get broader industrial penetration.
Consumer business of course is very volatile right. It goes up and it goes down.
It's very down which is why our protection industrial businesses become a larger percentage, but I do think that once that protection businesses and we've got good design wins. So once the demand comes back I think.
That will come back quite quickly and be a larger percentage.
Great. Thank you.
Yeah.
We have a follow up question from the line of Craig Ellis with B. Riley. Please proceed with your question.
Yeah. Thanks for taking the follow up and since I missed it in the initial round Mohan.
Congratulations great pleasure working with you and good luck and.
Your next phase.
Wanted to follow up on a couple of longer term things one.
I think China is implementing proximity sensing our standards that go into effect in January of 2024.
As as the team works with with smartphone companies surround designs for our.
Early next year, what are you seeing in terms of.
10, 10 proximity sensing win rates versus where you might have been in other generations of phones et cetera is this looking something like something that could be a meaningful incremental driver.
I support the run rate of the business.
As you have it.
Yeah. So first of all it's something that we've been working towards and hoping for for quite a few years now it's been actually.
Probably two years later than we had liked but it's but it's finally coming to fruition and the main reason for that and the reason why it's valuable for US is it means that most of the smartphone manufacturers that sell into China well now.
<unk> proximity sensing will soar functionality in their phones as you know with samsung's in on some of the.
Companies that we have partnered with.
Penetration with they have multiple phones and some of their phones that don't have proximity sensing and they ship into China, but now that that will change. So we are starting to see that momentum already in China and outside China. So that's good. So it's more design win of course, we don't have.
That's helpful and then.
From time to time, we talk about Amazon sidewalk initiative, but I know that's something that the companies work done.
Just any color on how you feel like the team is progressing with Amazon and prospects for that to monetize as we go through the year.
Yes on the sidewalk side.
Great.
Yeah, Yeah, Yeah. So I think it's early but I think.
We see the smart home World.
Hum.
T is really just beginning I think in many ways and I think.
Amazon's vision and with their sidewalk initiative is something that we've always.
To support it and feel like we feel very good about and I think as we start to see some of the use cases and applications that are there that are out there. We're excited about it and that we're excited about it from a smart home standpoint, regardless of Amazon sidewalk. So I think it's going to continue we're going to continue to see lora kind of become a mainstream tech.
Apology in the smart home connected spaces areas. Obviously, we are really hopeful that the sidewalk.
Also has tremendous success they already have a lot of gateways out there in the ecosystems and and now it's about end devices and so I haven't got any kind of major update but I think that we're still very positive about it.
Got it thank you very much Mohan.
Keith.
Yeah.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Thank you before we close I want to share that we delivered our inaugural ESG report this quarter showcasing the many ways our low power products, having a significant impact on society as the world adopts technology to monitor and manage our scarce natural resources you can find this report on our website.
Closing our global teams are executing well in a challenging economic environment I know I'm, leaving the company in excellent hands with the arrival of Pope Paul Pickle, <unk>, President and CEO . Thank you all again for the many years of support.
Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.