Q4 2023 Synaptics Incorporated Earnings Call
Yeah.
Good day and thank you for standing by welcome to these dynamics, Inc. Fourth quarter fiscal year 2023 financial results conference call.
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I would now like to hand, the coverage over to your speaker today, Michelle Shah Vice President of Investor Relations. Please go ahead.
Thank you good afternoon, and thank you for joining us today on Synaptics fourth quarter of fiscal 2023 conference call.
And I'm the head of Investor Relations.
With me on today's call are Michael Holmes, our president and CEO .
Butler our CFO .
Call is also being broadcast.
It can be accessed from the Investor relations sections of the company's website.
<unk> Dot com.
In addition to a supplemental slide presentation.
Also posted a copy.
Mark.
On our Investor Relations website.
In addition to the company's GAAP results management will also provide supplementary results on a non-GAAP basis, which exclude share based compensation acquisition related costs.
Other noncash, but recurring or nonrecurring items.
Please refer to the press release issued after market close today for a detailed.
GAAP and non-GAAP results, which can be accessed from the Investor Relations website.
Synaptics Dot com.
Additionally, we would like to recommend you remind you that during the course of this conference call. We will make forward looking statements.
Forward looking statements give our current expectations and projections relating to our financial condition results of operation plans objectives future performance and business.
Although synaptics believes our estimates its assumptions to be reasonable they are subject to a number of risks and uncertainties beyond our control.
Prove to be accurate.
<unk> cautions that actual results may differ materially from any future performance suggested in the company's forward looking statement.
The company's current and periodic reports filed with the SEC, including our most recent annual report on Form 10-K, and quarterly report on Form 10-Q.
Risk factors that could cause actual results to differ materially from those contained in any forward.
Statement.
<unk> expressly disclaims any obligation to update this forward looking information.
I will now turn the call over to Michael.
Thank you and Joel I'd like to welcome everyone to today's call.
Completed a difficult fiscal year, where excess inventory led to topline revenue challenges.
The good news is that we believe revenue has hit bottom, we can clearly measure inventory reductions in the channel.
Seeing far fewer pushout requests.
While some area of our business our quarters away from a pronounced upturn we are starting to see a return to normalcy and others, specifically PC and mobile.
During the quarter, we opportunistically shifted our capital allocation to share buybacks and repurchased approximately 1 million shares adding to the 1 million shares purchased earlier in the fiscal year totaling out to be about 5% of our shares outstanding.
Before providing our normal quarterly update let me highlight the key aspects of our recently announced agreement with Broadcom.
Most important we get critical Wi Fi seven technology as part of the transaction, which represents a 30% ASP uplift over Wi Fi six.
It enables us to accelerate the high performance part of our Wi Fi Bluetooth combo roadmap.
<unk> got to sample Wi Fi seven products by the end of 2024.
The agreement not only stretches our lead in high performance wireless Wi Fi for Iot applications, but also allows us to focus our internal resources on the more critical low power broad market part of the roadmap.
In addition, the transaction gives us Bluetooth 6.0, and Bluetooth enterprise two important pieces that were on our technology roadmap.
Finally, it gives us a market leading devices to sell into our field of use.
Critical Bluetooth chip for enterprise headsets.
Bluetooth Standalone device that opens new markets for us and lastly.
Wi Fi six <unk> device that complements our existing high performance Iot portfolio.
As part of the agreement we extend the exclusivity of our license to Iot markets by an additional three years.
Coupled with our internal efforts. This new deal gives me additional confidence that we can achieve our 1 billion wireless revenue target.
Moving to the June quarter revenue was slightly above the midpoint of our guidance range with our Iot products, beating our prior forecast the mix within Iot continue to shift away from enterprise applications, resulting in gross margin at the low end of the guide.
We maintained our spending discipline and delivered non-GAAP EPS above the midpoint of the guidance range.
As stated earlier, we made meaningful progress lowering customer and distributor inventories in the June quarter.
We continue to under ship.
But still believe it will take the remainder of the calendar year for channel inventories to return to normal levels.
Dean will talk about gross margins in his remarks, but we believe those two will return to our long term target of 57% as our product mix shifts back to Iot.
Finally, we initiated targeted headcount reductions to ensure that we don't exceed our stated $100 million per quarter non-GAAP operating expense target, while giving ourselves room to continue to hire into key investment areas.
On the product front, we have started the journey to expand our existing processor portfolio into more deeply embedded applications.
A few design wins now in this area leveraging both existing software and hardware differentiating with our AI capabilities.
With limited investment, we believe we can unlock opportunities outside our traditional operator space and applications such as video conferencing high end smart appliances point of sale terminals factory automation and security solutions.
We will also leverage work being done in human presence detection to introduce a chip that can serve as a basis for an M. 55 based processing device that has advanced AI features.
While we begin some critical future product advancements we are winning at present in both our traditional operator base with multimedia products as well as in headset customers.
Panasonic recently announced true wireless ear buds featured two of our audio processing devices that offer our most advanced ANC in E&C algorithms.
In wireless we continue to burn inventory at our key module partner in Cig signed a one time deal with a large customer to scrap parts in order to see order flow again.
As we begin to work our way out of the inventory challenges. We continue to enjoy sales success, winning new customers on both our high performance Wi Fi Bluetooth combos, and GPS product lives.
We have a number of design wins at key customers, such as Cisco, Google Honeywell very sure and are building market share and the security Smart speaker action camera and wearable segments.
Besides the traction we're seeing with our direct customers. We are also making progress in adding new module partners to extend our market reach we believe our wireless business has bottomed and should return to growth in the next quarter or so.
Automotive continues to be an area of relative strength with stable demand. Our pipeline continues to grow with new TDI based design wins for central information displays at Toyota.
General Motors, Daimler Volkswagen and Porsche.
While our design win momentum in competitive competitive position is strong in this market, we are experiencing pricing pressure for future designs.
We plan to navigate this environment by focusing on introducing value added enhanced solutions.
That vein, we are making progress with our smart bridge product, which has vastly superior performance, particularly around local dimming and can save OEM customers between 10 and $15 on their bill of materials.
Our enterprise sector has been a double edged sword.
We are winning new designs that are remarkable clip. We are also experiencing significant inventory challenges.
This quarter, we introduced our Carrera platform for enterprise docking stations.
I am pleased to report that we already have 10 different designs kicking off at the world's two largest docking station customers.
In addition, our first wireless dock will be available for retail purchase later this month.
We continue to do well in enterprise telephony, adding video conferencing and Wi Fi to a couple of platforms that have recently gone to production.
Unfortunately, this area of our business has been subject to inventory accumulation.
And while we were able to reduce levels in the channel full recovery is somewhat dependent on corporate spending budgets.
Moving to Pcs were seeing demand recover with the June quarter, marking the bottom.
Customer inventories have come down to normal levels, but overall PC sales are somewhat muted, particularly in the enterprise notebooks, where we have outsized exposure.
We're using the lull in the market to build share in our core fingerprint and touch pad technologies, while also introducing our leading human presence solution to more platforms and more customers. This feature extends notebook battery life by 20% or more so we are optimistic that it will gain traction and we'll be sampling and new device.
Later this year.
In addition, we believe the advent of larger force enabled touch pads, where we have a performance and technology lead.
Represents an opportunity for us to capture substantially higher asps.
And increase share.
In mobile the China Android market is stabilizing with channel inventory for our touch solutions returning to normal levels and our shipments are now more aligned with end demand.
We're benefiting from a larger Tam is more phone switch to flexible OLED technology, which requires our high precision solution.
We also continue to build momentum at Samsung with our first flagship phone launching a week or so ago the Z flip five.
This phone features two of our touch chips we.
We expect to build share with this customer during the next year.
Core mobile strength is offset by the decline of our legacy <unk> business, which will continue to asymptote to zero over the next two years or so.
To conclude the business performed as we had anticipated in Q4 and our expectations for a gradual coverage going into 2024 remain we remain enthusiastic about our wireless opportunity, particularly in light of the new agreement with Broadcom.
We are increasing our processor opportunity by moving our high end products into adjacent markets and by introducing a mid tier solution that features a complex neural network and target low power applications.
While the enterprise market is experiencing abnormally high inventory levels. We continue to be excited about the complete platforms. We are introducing with numerous synaptics semiconductors.
I'm looking forward to seeing you all at our Investor Day on September 7th in New York, where we plan to update the investment community on our strategy to accelerate the Iot portfolio provide insights in our investments and highlight our future growth opportunities.
Now, let me turn the call over to Dean for a review of our fourth quarter financial results and first quarter outlook.
Thanks, Michael and good afternoon to everyone.
I'll start with review of our financial results for the recently completed fiscal year, and then provide our current outlook.
We completed our fiscal year 2023, with net revenue of 1.3 dollars 6 billion, which was down 22% compared to $1 74 billion in the prior year.
Largely due to 36% year over year decline in our mobile and PC product groups.
And a 14% decline in our Iot products.
Nearly all of our markets were affected by demand and inventory corrections throughout the fiscal year.
Despite this revenue decline, we maintained a profitable business with non-GAAP gross margin at 61% 10 basis points higher compared to the prior year as our mix continues to be dominated by our Iot products.
GAAP net income for the recently completed fiscal year was $73 6 million or $1 83.
Per diluted share compared to $257 5 million or $6 33 per diluted share in the prior year.
non-GAAP net income for the completed fiscal year with $326 4 million or $8 12 per diluted share.
The $551 2 million or $13 54 per diluted share in the prior year.
Revenue for the recently completed June quarter was $227 3 million above the midpoint of our guidance.
Revenue from Iot PC and mobile.
58%, 19% and 23% respectively.
This was largely in line with our prior expectation with our Iot products and higher than forecast.
Year over year consolidated June quarter revenue was down 52% as of June 2023 quarter is now directly compared to our June 2022 peak revenue of $476 million.
June quarter, Iot product revenue was down 60% year over year, and down 43% sequentially, reflecting soft demand across consumer and enterprise end markets and.
And continued inventory depletion as previously discussed.
In PC, our June quarter revenue was down 21% sequentially and down 48% year over year.
We expect the June quarter represents the bottom for the PC market as customer inventories are largely depleted and normalization is likely to begin in the September quarter.
Paul and sustained recovery will be dependent on corporate enterprise, it spending trends, given our higher mix and commercial notebooks.
Our June quarter mobile product revenue was up 26% sequentially and down 17% year over year.
Largely in line with our prior expectations.
Android smartphone sell through those volatile has improved recently and inventory is returning to normal levels.
As we see a near term turns orders and occasional customer order escalation.
We expect this area to remain volatile on a quarterly basis as the strength in our high touch solutions offsets declines in our legacy mobile customer.
During the quarter, we had one customer greater than 10% of revenue at approximately 14%.
For the June quarter, our GAAP gross margin was 44, 5%, which includes $24 5 million of intangible asset amortization $1 million of share based compensation costs.
June quarter non-GAAP gross margin of 55, 7% was below our guidance range, mainly due to product mix and some additional inventory write downs as our forecast continue to remain weak in some specific products.
GAAP operating expenses for the June quarter were $139 2 million, which includes share based compensation of $29 2 million intangible asset amortization of $8 5 million.
And the vendor settlement accrual of $4 million.
June quarter, non-GAAP operating expense of $97 5 million was down from the preceding quarter and slightly below our guidance as we continued to maintain vigilant expense control.
We had a GAAP tax benefit of $20 9 million for the quarter.
non-GAAP tax expense of $4 million.
June quarter GAAP net loss.
It was $23 4 million or a GAAP net loss of 59 per share.
non-GAAP net income in the June quarter was $19 5 million a decrease of 74% from the prior quarter and 88% decrease from the same quarter one year ago.
non-GAAP EPS per diluted share was <unk> 49.
And was above the midpoint of our guidance range.
Now turning to the balance sheet.
We ended the quarter and the fiscal year.
With $934 million of cash cash equivalents and short term investments on hand.
This is unchanged from the preceding quarter cash.
Cash flow from operations was $94 million.
Capital expenditures were $5 2 million and depreciation for the quarter was $7 2 million.
Receivables at the end of June were $164 million and days sales outstanding were 65 days up from 60 last quarter.
Our ending inventory balance was $137 million down $11 million as we continue to reduce our inventory purchases.
Given lower topline sales the calculated days of inventory on our balance sheet was 22 102002.
We bought back approximately 1 million shares in the quarter for an aggregate cost of about $83 million.
Our cash balances at a healthy level, even after the recently announced broadcom transaction with ample flexibility to navigate our capital deployment needs.
We continue to prioritize our capital allocation between M&A share repurchases and debt management.
Now, let me turn to the September quarter outlook.
We remain consistent in our view of the near term outlook and the dynamics in our business.
Our focus continues to be on reducing customer and distribution inventories further in the upcoming quarter.
The June quarter reduced inventory levels consistent with our expectations.
By market area inventory levels have returned close to normal levels, and our PC and mobile products as many customers appear to be moving in a positive direction on product orders.
In Iot areas, where inventory levels were highest.
We're still working through excess channel inventories, but are now seeing signs of meaningful depletions.
Within Iot demand for our consumer facing application has begun to stabilize.
While enterprise focused customers demand continues to be weak.
The resulting mix shift is expected to be unfavorable to our gross margin profile.
We expect the product mix to return to a more normal profile as recovery begins in early calendar 2024 and margin should a correspondingly improve.
Given these end market dynamics and expected channel inventory burn in the September quarter, we anticipate revenue to be in the range of $215 million to $245 million roughly.
Roughly flat with the prior quarter as we expect this to mark the lowest trough point and is now behind us.
We expect our revenue mix from Iot PC and mobile products in the September quarter to be approximately 58%.
22% and 20% respectively.
We expect GAAP gross margin for the September quarter to be in the range of $43 five to 47, 5%.
We expect non-GAAP gross margin in the range of 52% to 55% a decline from the previous quarter due to the mixed dynamics I highlighted earlier.
We expect GAAP operating expenses in the September quarter to be in the range of $139 million to $147 million, which includes intangible amortization share based compensation and restructuring costs.
We expect non-GAAP operating expense in the September quarter to be in the range of 97 million to $100 million.
In response to the demand environment, we're reallocating investments in de prioritizing certain projects, but ultimately believe a robust pipeline of new products will be critical in shaping our future success. Therefore.
Therefore, we plan to maintain roughly $100 million per quarter.
The recently announced transaction with Broadcom is not expected to affect our financial outlook for the quarter.
GAAP net loss per basic share for September quarter is expected to be in the range of 55 to 95.
And non-GAAP net income per diluted share.
<unk> be in the range of 15%.
<unk> 55 per share on an estimated $39 5 million fully diluted shares.
We expect non-GAAP net interest expense to be approximately $7 5 million in the September quarter.
Finally, we expect our non-GAAP tax rates to remain unchanged in the range of 16% to 18%.
This wraps up our paired remarks I'd like to now turn the call over to the operator to start the Q&A session operator.
Thank you.
Now conduct the question and answer session. As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Our first question is from Kevin Cassidy of Rosenblatt Securities.
Thanks for taking my question.
Just a couple of questions first one is <unk>.
Last quarter, you thought you're under shipping demand by $75 million to $125 million.
Do you know what was it for the June quarter, how much under shipping did you do and are you expecting more in the September quarter.
Yes, Kevin you remember that correctly.
<unk> still maintain that is still approximately right in the June quarter actually Atlanta about in that expectation and like we said last quarter. We continue to marine consistent this quarter, we think that range probably continues to persist throughout the calendar 2024, and thats probably consistent.
Okay.
Excuse me.
The new agreement with Broadcom.
Okay.
It will be just as successful as the last of the agreement but.
This is IP only.
I guess.
Elephant in the room is what what was the cost or what was the finance is behind us.
Yes, Kevin.
Was $130 million. So we felt like we got a very good price on the on the deal and <unk>.
<unk> has a bunch of things as we outlined it there are few finished chips that they've done since our last deal concluded that come to our side for use in our field of use.
There is the Wi Fi seven technology that we talked about and then a couple of pieces of Bluetooth technology as well as extension of the deal.
So we feel like.
All of those elements together this is.
Obviously broadcom likes the transaction, but we really like the transaction, we think it's a good price for it.
All the elements that we got as part of us.
Yes, I agree with that that's much lower than I was expecting $130 million congratulations.
Thanks, Kevin.
Thank you please hold for our next question.
Our next question comes from Christopher Christopher Roland.
Pina International group.
Thanks, guys.
So I didn't quite follow everything on the channel inventory side.
I wanted to know where you thought they were most acute and where they might have normalized it sounded like PC and mobile was high but also <unk> mentioned maybe enterprise.
I thought skewed towards Iot.
So if you could put that all together and then I think you mentioned.
Some module deal on connectivity, where some more scrapping parts.
And any.
And any commentary there would be great too. Thanks.
Yes, a couple a couple of pieces and I'll have dean follow so number one in terms of inventory I would say.
We still have a couple of quarters of burn to go through because of the over shipment problem, but that burn is now skewed to Iot. So we feel a lot better about where PC and mobile inventories are.
We're feeling better about some aspects of Iot, but as you highlighted in your question enterprise, which accompanies compass as things like our documentation business some enterprise telephony.
There's some issues in set top box, we are still projecting that we're a couple of quarters away from burning through all of that inventory, so pretty good PC mobile Iot a bit of a mixed bag, but Iot for the most part is where the issue is in the US is deemed characterize the over.
Raul drag on gross margin.
Okay.
So I'll just.
Take the last part of your question, Chris which was around the scrap at a large customer.
So we did enter into a onetime scrap agreement, which is a cost of goods charge.
Scrap as much it.
The parts that are specific for their use.
So that answers that piece for you.
Okay, what kind of schedule I mean, your question sort of led to a module it was separate.
One module customer we are burning inventory in our large module customer that's more of an inventory situation and then as dean talked to the scrap situation as a direct customer.
Yes, I see now okay. Thank you for that clarification.
And then pricing pressure.
Was that I wasn't quite sure what that was that just automotive.
<unk> was that all of touch when you were talking about pricing pressure and then pricing pressure.
Are there other parts of your business, where you have seen this for example in connectivity with this extra kind of inventory out there I think everyone on the connectivity side has seen a downtick with over inventory.
Are you seeing pricing pressures, there or any other part of your business. Thanks.
Yes fair question.
A comment in the prepared remarks was very specifically pointed at automotive and we're certainly seeing some pricing pressure in our automotive business, which has actually held up really really well for us but these are designs that would be shipping in multiple years in order to bid and win on those designs, we're seeing quite a.
Bit of price price pressure.
But to your question, we're certainly seeing some pricing pressure as you alluded to on Wi Fi and a bit on our touch technology.
But overall remember as we've sort of characterize on previous calls our Iot business is largely pockets of strength or were sole sourced in many instances and we have some pricing power in areas that are more competitive like Wi Fi like the touch in mobile we're definitely seeing some pricing pressure.
Fantastic. Thank you Michael.
Thank you please hold for our next question.
Okay.
Our next question comes from Nick <unk> of Needham.
Hey, guys. Thanks for taking my question for the Cogs charge did you guys quantify the impact to the margins.
Do you anticipate any further write downs for other parts.
Yeah, Nick So we didn't quantify I mean, there is obviously lots of moving pieces I wouldn't focus so much on.
What the Cogs charge is for the scrap portion the largest piece of the movement around gross margin, which I think is the thing that you want to just sort of get focused on is really around the imbalance of the mix of the products specifically with some of the enterprise focused customers.
Actually driving that mix, even within the Iot a little bit more unfavorable.
So that that is probably what I would sort of guide you to.
I appreciate that yeah, I was trying to get a little sense there.
When you're talking about the Broadcom deal there was a line that said youre trying to focus on the broad market part of the roadmap can you just expand on what products that is.
Yes, I mean today our product line is very much targeted to high performance I think we've discussed it on.
Previous calls where for the most part we're moving video from one device to another and that requires very high bandwidth. It requires quite high performance, where we're aiming our roadmap over the next couple of years is a more basic connectivity simple.
Point to point connections, whether that be over Bluetooth, whether that be over zigbee technology, whether that be over Wi Fi.
There is a kind of a margin rich and high Tam area. There that we have totally not tackled so our engineering investment right now is very much geared toward retreat tuning our roadmap to go after that broad market.
Eventually, we think that theres going to be opportunities for us to bring in RF Soc sees our processors and either through integration or through bundling type of scenario, where you can pull through a lot more content in that broad market area.
No.
No.
Thank you.
Please hold for next question.
Our next question comes from Eddie Ravi of TD Cowen. Please go ahead.
Hey, guys. This is Eddie brokerage congrats.
Congrats on signing the deal with Samsung pretty interesting. It seems the industry has been spending more towards foldable phones, especially on Android. So can you remind us about synaptics opportunity there like what percentage of mobile revenues go to portable phones and whether the competitive environment is different.
There than the regular phones and I have another question. Please.
Yes, I don't know if we actually breakout.
The specific revenue that's attached to Foldable and I don't know if I have it on hand, but what I would say is.
We're very much on the flexible OLED displays which are 100% of the fold market and of the flip market. If you will so.
More and more attach is coming into the.
Flexible OLED is becoming a much bigger portion of the market and Thats why I think we're we're doing unusually well on the Samsung deal and particularly as we mentioned on the on the in the prepared remarks, we actually ship to touch IC as one for the front panel and then one is it flips out and opens up into the full path panel.
<unk>, we're not in the fold today it represents an opportunity for us as we look out at the landscape and we agree that there definitely is a trend line to more of these foldable phones, which play to our strength for sure.
Got it thanks, Michael and just on the Bluetooth fixed IP.
Just a clarification do you have a standalone Bluetooth products today for the Bluetooth five.
Second you talked about tableau to six expanding product line to the enterprise headset market are there any other new markets. That's quite by seven ample quick fix kind of opened for you.
Like in health care, industrial et cetera, yes.
Your question is a good one so today before this particular transaction, we had no standalone Bluetooth offering.
We still need to work on the Bluetooth engine to make it truly truly competitive.
We can ship into certain markets today.
<unk> human interface devices, we can ship into remote controls, we can ship into it opens up a bunch of new markets for us.
But to get into industrial and into medical and some of these other things we are.
This is where we intend to go we have now with the Bluetooth technology.
<unk> technology, we're already much closer to our competitors today than we were before this deal. So we've actually really close the gap on on Bluetooth.
We will continue to evolve that and our intent is to open up some of the markets that you alluded to the industrial medical.
Gaming there is a lot of things that we think we can do with Standalone Bluetooth. It today, we do not do.
Thanks, Michael.
Just a quick follow up.
Competitors in this market would be silicon lab, and Nordic semi right yes.
Yes, perfect perfect pair Eddie.
Thanks, a lot Michael.
Thank you.
Please hold for next question.
Okay.
Our next question comes from Gary Mobley of Wells Fargo.
Hey, guys. Thanks for taking my question.
In your earlier comments, you mentioned that you might ship to actual customer and demand by I believe you said the fourth.
<unk> quarter of 2024 did you mean the port.
Counter <unk>.
Quarter of fiscal year, 'twenty, four because I think thats, what you previously communicated and I just wanted to confirm.
What's normal when you actually begin to ship to.
Actual customer demand thats roughly in the ballpark of.
$325 $330 million in revenue.
Yes, Gary I think you have it right.
I think it's yet to be seen exactly what that trajectory looks like and what quarter marks that you'll return to sort of for normal end consumption.
Starting to see we're getting pretty darn close on the PC side and the mobile side. It looks like a lot of that inventory is sort of now work through.
PC, specifically it looks like Thats, probably behind us mobile still sort of a little bit volatile bumping around a bit.
Iot, though is going to take a few more quarters as you indicate Gary and like we talked about last quarter on last quarter's call.
So I think what Youll see is inventory burn.
For the next couple of quarters somewhere around the current range and then youll start to see as inventory gets depleted.
Topline start moving back as you approach and a true end demand over the subsequent quarters.
Okay. Thanks, Steve.
With respect to gross margin. So your guidance implies that youre going to run about 350 basis points below your long term view and I get the mix within the mix headwind in Iot.
But is there also a factor playing playing here and that maybe it's a little bit more difficult to pass along price inflation from your foundry partners.
And in a world, where your enterprise Iot business bounces back to its previous level do you still see 57% as a long term gross margin target.
Yeah, and I don't even think it's.
That necessarily far out where we are today midpoint of the guide actually I think is the bottom of the gross margin.
This incorporates probably the worst amount of of mix that we have been confronted with specifically these.
Enterprise sort of facing customers, which come with a little bit better gross margin for the company.
We will actually move back up toward that long term rate of 57% gross margin really as we get through this inventory burn and as the mix sort of rights itself and there was actually an interesting chart. If you want to take a look at it Gary in our supplemental slides posted on the.
Investor website that actually gives the history, that's sort of how gross margins do in fact track with the product mix of the company.
And therefore.
I am not really concerned about gross margins and sort of their return as the Iot mix returns.
Okay, and then as far as.
Offsetting higher boundary quotes.
I imagine that's not much of an issue any more or less of an issue, but maybe you can just talk about that.
Ability to pass along price increases.
Yes.
It's lesser Gary and I think that sort of coming from our historic 60%.
Run rate $2 57, contemplates that so I agree with what you said.
We were running I think for the year Dean gave the number of 60% as we think about long term.
57 contemplates.
Input prices changing and contemplates.
Much less ability, we do have pricing power as I mentioned to a previous questioner.
I think our ability to pass on a significant majority of those increases those days are gone.
Thanks, guys I appreciate it.
Yes, Thanks, Gary.
Thank you please hold for our next question.
Yeah.
Our next question comes from Martin Yang of Opco.
Hi, Good afternoon. Thank you for taking my question My question.
Sure.
Signs of recovery and the timing for recovery across different sectors.
Definitely understand the PC dynamic where it could stay in.
In part as the longer time do you see mobile recovering.
From the current bottom or normalized inventory much faster than the other two.
Yes, Mark I mean, I think what.
What we're trying to get people oriented around is mobile and PC.
Largely recovered I think in PC, we see inventory levels now close to normal.
The complication is that the demand, particularly from enterprise has not yet picked up we forecasted picking up in the fourth quarter and into early next year, but it has not yet picked up so although inventories in pretty good shape I think demand still remains a question.
And thats largely hinging on on enterprise spending.
In mobile we had a good quarter. This quarter I think we've got a tailwind with with Samsung we expect to do some additional business with Samsung in the ensuing quarters.
I think both Dean and I characterize the one headwind we are experiencing in mobile is not necessarily to do with inventory are to do with end demand. It has to do with the roll off of our display driver with our large customer. So that's as I said, it's now.
Increasingly immaterial part of our business, but it's still there it's still a piece of the business. So we have work to do to offset that as it asymptote to zero as I said in my remarks.
How material is the legacy the IC business mobile if you measure on the last 12 month basis.
Yes.
Single digit percentage Martin.
Got it thank you.
Thank you.
Yeah.
I am showing no further questions at this time I would now like to turn the conference back to Michael for closing remarks.
Yes, I would like to thank all of you for joining us today and we certainly look forward to speaking to you at our upcoming investor conferences during the quarter and more importantly, our investor day in September .
<unk>.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Okay.