Q2 2023 Silicon Laboratories Inc Earnings Call
Hello, My name is Sarah and I'll be your conference operator today welcome to Silicon Labs second quarter fiscal 2023 earnings call.
All participants will be in listen only mode should you need assistance. Please signal our conference specialist by pressing the star key followed by zero on your telephone keypad.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I will now turn the call over to Giovanni, but Shelly Silicon labs.
Your director of Finance Giovanni Please go ahead.
Thank you Sarah and good morning, everyone. We are recording this meeting and a replay will be available all week on the Investor Relations section of our website at <unk> Dot com.
Yeah.
Our earnings press release, and the accompanying financial tables.
Wes.
Joining me today are Silicon labs, President and Chief Executive Officer, Matt Johnson.
<unk> financial officer.
They will discuss our second quarter financial performance.
We will take questions after our prepared comments.
Our remarks today will include forward looking statements subject to risks and uncertainties.
We base. These forward looking statements on information available to us.
This call conference call.
Assumes no obligation to update.
In the future.
Courage, you to review, our SEC filings, which identify important risk factors that could cause.
<unk> actual results to differ materially from those contained.
Okay.
Additionally, during our call today, we will refer to certain non-GAAP financial information.
Okay.
Based on of our GAAP to non-GAAP results included in the company's earnings press release and on the Investor Relations section.
Yes.
I'll now turn the call over to Silicon Labs', Chief Executive Officer, Matt.
Yeah.
Thanks, Giovanni and good morning, everyone. Despite a challenging market environment Silicon labs team delivered solid second quarter revenue and non-GAAP earnings per share in line with our guidance.
However, during the quarter, we saw further market erosion broad demand weakness and elevated customer inventory continue impacting both of our business units, although our industrial and commercial business showed resilience achieving record revenue in the quarter.
This demonstrates the strength of our position and the favorable impact of our strong design win momentum.
So far in the first half of 2023, our design win pipeline is up 23% year over year.
Looking ahead, we've continued design win production ramps in the second half of the year that will offset the ongoing market headwinds at some level.
How much is difficult to call given the dynamic market environment.
It's important to note that even with these short term market challenges, we're confident our mid and long term revenue growth potential and we are excited by the continued strong design win growth and an expanding opportunity funnel, which now stands at over $18 billion up 17% over the same time last year.
Now I'll hand, it over to John to cover the financials.
Thanks, Matt and good morning second.
Second quarter revenue was $245 million above the midpoint of our guidance range and down 7% year on year Asps in the quarter declined slightly on a sequential basis unit volume was.
Actually.
During the quarter, we saw strength in the industrial and commercial business unit.
Each ended at $165 million up 15% from the same period of last year.
All three segments of our IFC business performed well in the industrial segment, the connected equipment category with strong commercial and retail space, we had a strong quarter and electronic shelf labels and smart cities, we saw strength in smart metering.
So on the life business unit declined 33% year over year and up $80 million high levels of customer inventory continue to impact shipments.
Geographically during Q2, we saw the greatest strength in Europe , which was up 14% year on year revenue for APAC and the Americas was down year on year.
Distribution revenue was 77% for the second quarter that mixes down from the first quarter due to stronger shipments in Q2, two direct customers GSI was stable in Q2 at 79 days.
Our largest customer was under 4% of revenue in the quarter and our top 10 customers were about 24% of revenue.
With our historical results.
non-GAAP gross margin.
Ended lower than expected at 58, 9% on product mix there were no price increases in the quarter and we experienced no major changes in manufacturing input costs.
The sequential decline in gross margin from the first quarter is largely due to the onetime effect of price increases at the beginning of this year.
Thanks.
non-GAAP operating expenses were lower than we expected for the quarter ending at $104 million. This was primarily due to lower variable costs based on our expectations for the year combined with specific favorable items, such as lower fringe expenses.
United States.
non-GAAP operating income was $40 million or 16, 3% of sales.
Our non-GAAP effective tax rate was slightly higher than we expected the requirement to capitalized research and development costs for tax purposes continues to have an inflationary impact on our tax rate we.
We estimate that a normalized long term non-GAAP effective tax rate without the effect of the R&D capitalization requirement would be in the high teens.
Earnings per share on a non-GAAP basis ended slightly above the midpoint of our guidance range of $1 four.
Primarily on the upside in revenue favorability in Opex.
On a GAAP basis gross margin ended at 58, 7% GAAP.
GAAP operating expenses were $127 million, our GAAP pretax income was favorable to the midpoint of our guidance range by around $3 million.
However, due to the capitalization of R&D expenses and the timing of forecasted income for the year, our GAAP tax expense was unfavorable by about $5 million.
Accordingly, GAAP earnings per share were <unk> 33 for the quarter slightly below our guidance range.
Turning now to the balance sheet.
We ended the quarter with cash and investments of $506 million. Our accounts receivable balance grew in the quarter to 98 million with days sales outstanding of 36 days.
We added about $12 million and net inventory in the quarter to a total of $146 million as we continue to leverage the softer market accumulate strategic debate based on the strong design win momentum momentum seen in the past few years.
Inventory turns ended at two eight times.
During the second quarter, we finalized the redemption process for 2025 convertible notes.
As expected we funded the par value of the notes, which was $535 million in cash.
We settled the in the money component with shares total shares issued around $900.
We were also active in the buyback market in Q2 executing about $184 million.
Hiring about one three.
The net result of these activities in the quarter was a reduction of our share count and our fully diluted shares outstanding in Q2 ended at just under 33 million shares which is an all time low share count since our IPO.
On July 20th Board of directors authorized an incremental $100 million.
Purchases of the company's common stock, bringing the total amount authorized through the end of 2000 $23 million to $116 million.
At this point in time, we have fully deploy the excess capital of the company from the divestiture of our <unk> business two years ago, and we are on a normalized pattern or capital deployment.
To partially fund these various cash outlays in Q2, we drew $80 million from our revolving credit facility and we also renewed the facility with the existing banking syndicate for a new five year term.
Overall, the balance sheet remains very healthy and we have ample financial capacity to execute the business strategy.
Before I turn the call back over to Matt I will cover our guidance for the third quarter.
As Matt indicated in his opening comments over the past several weeks, we have experienced very low levels bookings.
This has impacted both of our business units. Accordingly, we are guiding revenue for the third quarter in the range of $190 million to $210 million.
And we expect both business units to decline in Q3.
Given the uncertainty uncertainty in this market environment, we are temporarily expanding the range to plus or minus $10 million from the midpoint.
We expect non-GAAP gross margin to be slightly higher in the third quarter at 59%.
We are taking additional interim steps to control our opex in the third quarter. Accordingly, we are expecting non-GAAP operating expenses in the third quarter to decline to $95 million.
We expect the non-GAAP effective tax rate to be approximately 23% in the third quarter.
Lower tax rate includes a onetime discrete benefit of approximately $3 million related to a pronouncement from the IRS last week.
Certain unfavorable rules related to foreign tax credits.
Our non-GAAP earnings per share is expected to be in the range of 45 to 73.
On a GAAP basis, we expect gross margin to be 59%.
GAAP operating expenses to be approximately $120 million.
And we expect GAAP earnings per share to be between a loss of eight cents and <unk> income per share.
I will now turn the call back over to Matt Matt.
Thanks, John disciplined execution remains a top priority as we navigate the current environment.
John mentioned, we've taken deliberate the temporary actions to appropriately manage expenses in a way that doesn't impact our mid and long term potential or ability to service all of the new business we've been secure.
We are confident that our series two portfolio of products is capturing market share and we have invested in securing strategic inventory ahead of our expectation for mark ever.
In the second quarter, we continued to expand our industry leading series two portfolio of products.
We announced a new dual band FG 28, S O C, which addresses key customer needs for developing and deploying low power wide area networks.
The <unk> 28 to dual band capabilities allow for multiple protocols on a single design, including radios for Bluetooth low energy and sub gigahertz, which supports device communications over one month.
It enables new edge applications and growth segments, like smart agriculture, Smart cities and neighborhood networks like Amazon side.
<unk> 20th built in AI ml hardware accelerators, the industry's first and a sub gigahertz SFC, bringing.
Bringing artificial intelligence and machine learning to the edge. The FY 'twenty eight also offers energy efficiency ideal from battery power and nodes as well as silicon labs secure vault support, allowing designers to choose this level security they need for their applications.
Within our product portfolio standout feature is our industry, leading security and our PSA level three certification serves as an advantage for silicon labs.
The recent announcement from the by the administration about the development of a cyber security certification and labeling program, coupled with the commitment of numerous device manufacturers and retailers to enhanced cyber security in their products positions us favorably to offer the most secure connectivity solutions in the market.
We've already seen customers proactively adopting higher levels of security for their products and we anticipate a growing trend of more customers following suit.
Also in the quarter, we opened registration for our fourth annual work Smith conference, which attracts over 8000 Iot developers every year virtual conference will be held in August 2023rd will feature more than 40 in depth technical sessions, covering every major Iot protocol and ecosystem.
Conference is incredibly popular with our developer community, who come away with practical knowledge and skills to accelerate their product development.
In my opening keynote at the conference I will share a preview of Silicon Labs next generation series two platform.
So.
The series III platform represents a major leap forward for the Iot and our already industry, leading series two platform.
The developer conference will also feature keynote from our CTO, Andrew Cooley, who will address what is needed to achieve the full potential of cloud connected embedded computing and the challenges that lie ahead.
Silicon Labs' senior Vice President niche Qatari will also showcase real world examples of the Iot being harnessed for the greater good such as caring for the planet caring for our health.
Other novel use cases that we would never would have imagined imagine of the decade.
In May we hosted a highly successful grand opening of that for our connectivity lab at our Boston.
Bringing together a wide range of important customers and industry partners.
Our connectivity lab serves as a cutting edge simulation of a modern smart home showcasing a diverse array of Iot devices applications ecosystems and networks.
With the aim of assisting developers in expediting the launch of their matter products.
<unk> offers an ideal testing environment and allows them to assess prototypes within real world scenarios accommodating a wide range of protocols and device brands. This invaluable resource empowers developers to refine their products efficiently ensuring seamless integration into the market.
In closing we are focused on maximizing the significant mid and long term growth potential ahead of us. Despite the current industry challenges are.
Our strong market positioning and incredible product portfolio allow us to capture this opportunity while maintaining profitability.
Despite short term headwinds we are confident in our ability to outperform the market through the effective execution of our long term strategic plan.
I'll now hand, it back over to Giovanni for Q&A.
Thank you Matt before we open the call for Q&A I'd like to announce our participation in two upcoming conferences Keybanc capital markets Annual Technology leadership Forum in Vail on August seven and Citi is 2023 Global Technology Conference in New York City in early September .
We'll now open the call for questions to accommodate as many people as possible with market.
I ask that you limit your time to one question one follow up if needed.
Sharon.
Thank you.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble the roster.
Our first question comes from Matt Ramsay with P. D. Cowen. Please go ahead.
Thank you very much guys and good morning.
I guess for my my first question I'm, just trying to I guess first I know you guys, usually don't guide specifically by segment, but just given the.
The delta in the outlook.
John if you could maybe share the two segments and what you're embedding in the guide and I guess the real part of the question.
Home and life segment got up to 125 million a quarter give or take at the peak and it's pretty clear now in retrospect that was maybe over shipping a bit.
And youre going to be under shipping I assume.
All through for a bit here to try to get all the inventory cleared out. So if you just kind of assess the end markets that you're serving.
At home and life segment, any sense as to what sort of a steady state sell through for.
Your end market looks like in that segment are normalized revenue. Once all these part of basins on the inventory get get sort of back to normal.
Yeah, Matt I understand it's you know it's hard to call it sitting where we are right now we.
We do think there is excess of inventory in the channel as you indicated and I think the market is in a period of digesting that and clearing it out.
Suffice to say over the mid and long term as we indicated we feel good about the business exceed the 20% long term CAGR.
The goals that we have for ourselves.
A very realistic.
As you can.
<unk> talked about in the past the industrial and commercial business. How is the market that intermodal itself is growing slightly higher than the home and life business overtime, and we expect that trend to persist, but we do have some very exciting.
New wins in applications in the life business in particular looking at for example, portable medical.
Applications as well.
Scott just to follow up there John any anything on the guidance split between the segments.
It's roughly split Matt in terms of what we're seeing sequentially from third quarter.
Got it the only addition, I'd add to that Matt What John said as you know and as we've been saying, we're not immune to macro and <unk> definitely seen that here, but we do expect that over time that will definitely perform better and that's what we're seeing in industrial and commercial.
That's what we saw in Q2.
But we're definitely seeing each of those end segments have their own unique experience one definitely most impacted with that consumer exposure life showing itself to be I think more resilient.
And then within industrial and commercial overall, performing stronger than home and life, but still within it depends the broad industrial is softer or softening I think and then the other spaces, where you see more strength on big trends within those like metering continuing to grow ESL continuing to grow.
So each of those big picture <unk> weaker industrial commercial stronger both being impacted overall by the market and then underneath the next level.
It varies by the sub segments, if you will.
Got it no. Thanks for all the color there guys, Matt maybe a bit longer term, you're going to be ramping up all of the series two stuff and you've talked about strength in design win so what I'm trying to do.
Get an idea about it.
The inventory burn that needs to happen.
Current generation and maybe legacy products versus how quickly.
The design wins for the new programs can ramp and really contribute to revenue and what that balance looks like so I just kind of time to revenue across the different segments for the series two platform, adding security design wins any color there would be helpful. Thanks, Yeah sure. So a few things.
The series two ramp.
As already started so I think that's important if you step back and look at the opportunity funnel of $18 billion. It's the driver of that funnel growth over the last few years easily if you look at our design win performance over the last few years. Its series two has been the driver of that design win growth.
And our revenue growth over the last couple of years.
Series two has been the biggest contributor to that growth. So it's important to recognize that's already happening.
That being said, it's still very early days in that ramp if you look at the funnel. If you look at the design wins.
We're just at the beginning of that cycle and Theres. Many many more years to come of that growth.
I think it's important to frame it that way. It's already started I think one of the difficult things that we're seeing is you know.
As we keep saying, we're not immune to macro but we think we can do better it's hard when we have these different ramping businesses and design wins ramping and the soft macro environment and to synthesize those two things into the picture that we're seeing I think the two things that give us the most confidence or what.
One if you look back over last year, and even first half of this year I think we've performed very strong relative to other Iot businesses out there and if you look at that design win performance.
Even this year in the first half up 23% year over year versus last year, which was an incredible year for design wins, so that gives us confidence that not only do we have we've been able to do that but it gives us confidence we'll be able to continue to do that.
It's just.
Tough to reconcile with the current market environment that we're seeing right now.
Understood. Thank you guys.
Our next question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.
Hey, guys. Thanks for taking my question.
Here with me as I set up this question ultimately what I'm trying to.
Your standards.
By how much we're expecting revenue to trend below the knee.
The long term trend line.
So as I look at your distribution inventory, it's about 29 days above I believe your long term target.
Which is about you know translates into about $50 million in revenue headwind.
About the same amount in terms of the expected sequential revenue decrease so my question is.
Is that expected sequential decrease in revenue in the third quarter primarily.
Right sizing the distribution inventory or does it also had to do with just.
Generally weak weak booking trends.
I'll start I think you should add John Thanks, Gary.
So quick answer.
It's more than just inventory.
The market as well as we were getting towards the end of Q2, we just saw bookings really slow and it's just so much I guess uncertainty with customers of visibility is low. So there is also a market component to that as well.
The other thing I'd add.
That's important.
The DSI or that those days of inventory.
They are higher than historical for us, but they're also not alarming for us either.
We are going into.
Ramps that are.
<unk> substantial for us that are not just one.
One quarter of ramps, but its quarters and years of ramps.
And if anything over the last few years has taught us we need to be better prepared for that so while it is higher than historical and we're not trying to drive that up by design.
Definitely it doesn't scare us that its at a higher level than historical given the confidence we have in future ramping business, Dan anything you want to yes, just one quick point.
A point of clarification, perhaps but as Gary as we refer to bookings we're talking about in the customer demand. So that's really what we're referring to when we refer to weak bookings.
To round out Q2, and so far here in third quarter, we are referring to end customers.
Okay. Thank you for that color with.
With respect to.
Some of the levers on the cost side, specifically opex.
How much of.
The reduction recent reduction in operating expenses is structural or permanent and how much is variable.
John You go first yeah sure yes, Gary It is it is variable and it's temporary.
We did take some limited structural actions earlier this year.
But that is not comprehended at moments.
Referring to for third quarter and second half is discretionary spending we have frozen hiring.
Our executives are reducing their base pay.
And other similar items like that but that is that should be considered temporary in nature and as we hopefully get through this downturn and start to see more of an upswing heading into next year, we would reversals that inspire temp.
Temporary in nature and temporary by design.
You keep saying the design wins that we're ramping.
We need to be able to support them. That's why everything we're doing is setting ourselves up for that ramp.
Whether it's strategic inventory, having the resources to support these ramps.
We don't want to do anything that diminishes that on the other side.
Got it thank you guys.
Yes.
Our next question comes from Blayne Curtis with Barclays. Please go ahead, hey, good.
Morning, Thanks for taking my question just I had two I just wanted to understand they.
They are spending on industrial like home and life has been correcting now it's the fourth quarter I'd always takes longer to work through things industrial being down the substantial double digits. So just kind of curious if you could just comment on the inventory position of industrial and commercial and is this a start of a longer correction.
Yeah.
Aye.
Aye.
We would characterize it a little different on the industrial and commercial we've seen and we've said this multiple quarters industrial commercial has definitely not been as impacted as home and life I mean, that's clear, but it has been impacted and it's been impacted consistently.
Yes, we had a record quarter last quarter that quarter, we've been way better.
Because it has design wins ramping and things that have been helping it have.
Have a record quarter, but it's still diminished from what it should have been if it wasn't for this market environment. So I think what's going on is not a new phenomena, it's actually been a long March end.
And we're continuing to see that going into Q2.
Sorry Q3.
And then I wanted to ask on the gross margin. So in June topline was okay, but actually you had a higher mix industrial commercial margins I think were worse than your guidance I'm just trying to understand I know you mentioned the timing of pricing and cost, but I think that was something that you should have contemplated I guess when you gave the guidance I'm just kind of curious what changed in <unk>.
June and then when you looked at September .
Huge revenue rebound ball, but the margins are flat. So can you walk me through that and is there any further headwinds does it take some time for the higher priced inventory to flow through.
Talk about what happened in June .
Kind of any perspective beyond September for gross margin.
Sure Blayne.
Yes.
The explanation for the sequential decline was referring to the price increase activity.
The variation against the guidance was really a result of products mix in terms of specifically, what we shipped out in the quarter.
Certain products have lower gross margins than others, and there was a slightly higher mix of that.
In the second quarter Ste.
Stable trend in third quarter, but.
Top level comment here is this is very much in line with our expectations and longtime commentary that over time.
We should expect to see some modest erosion of gross margins.
That's a message that we have.
Yeah, I mean it.
It seems like a long time ago now and we are in the supply chain crisis.
If we were getting pressure to increase margin models in these types of things and there was some commentary in the industry that this is a new normal.
Our view was it was temporary and that's what we at least are experiencing playing out that if anything the easiest way to conceptualize things as they are back to normal now on just normal pricing pressure that we saw pre supply chain crisis, and that's what we're seeing now and the.
Supply chain prices was the anomaly I think.
As a way to look at it and it's you know steady if theres no step functions or anything like that going on.
And the other dynamic that's worth pointing out that as substantial as the strength of the product portfolio and series too that we keep talking about we're going to be announcing series three.
In a few weeks, but series two is still early days in this ramp and the strength of its product cycle and I just mentioned the <unk> 28, a new part that came out just to give you all some perspective that part is.
It's a solution that integrates both sub gigahertz.
And Bluetooth.
And it brings new to industry capabilities, AI ml capability industry, leading security that has incredible effect that in helping us navigate the market.
While there is in just normal industry price pressure. It Blayne. This is John again, one more comment that point of emphasis again is that we see ourselves delivering a premium gross margin to the Iot market and I just felt it was important.
That doesn't that's been consistent throughout and Hasnt changed.
Okay. Thanks, guys.
Our question comes from <unk> <unk> with Raymond James. Please go ahead.
Thank you good morning, guys John .
John just to clarify the I guess, the seven to nine days of D. S. I E.
Thinking that's going to be the new normal or do you expect that to come down a bit over the next few quarters.
Yep screening, we'll monitor that over time here.
Certainly it.
It may come in and they May go up a little bit.
Modern answering that and not really I'd almost matter not overly concerned about where that setting our focus is more on the demand that's really the basis of our commentary on the state of the market.
Okay got it and then Matt maybe you can talk about the environment looks like at the units are actually up sequentially. So obviously you know you said demand is weak.
Is it more of a pricing commentary because.
In a cyclical correction, we tend to see units come down quite a bit.
Quite meaningfully so I'm just wondering as you look through the September quarter, what does your guidance I guess contemplate in terms of units in Asp's and you know how are you thinking about just the units you know correction or the next I guess a quarter or two.
Yeah, I think the easiest way to think about it is we're now in a.
A demand challenged environment.
That's the primary driver, we just mentioned the pricing dynamics are pretty much as we expected and we're not seeing anything new or anomalous. There. So it's really a story of end demand, which is really a story of units ultimately.
That we're navigating if that helps frame it.
Yeah. That's helpful. And then maybe one last one for me and Matt and obviously you know you've been in the market for a few quarters now with your Wi Fi solutions. Just curious you know if theres any update on the progress there how are you thinking about that particular product line. Thank you yeah sure.
So I guess, we didnt mention that in our remarks.
If you go back Big picture.
Cancer is good and strong and we're happy with the progress let me be clear its never big enough fast enough.
The World, we live in but ultimately as we've said we made a focus years ago to increase our focus on Bluetooth.
We loved our progress their fastest growing space for the company, we expect that to continue with the design win momentum to continue that and then we added the Wi Fi piece and now we have the benefit of Wi Fi.
One of our stronger growth areas as well. So we are seeing the progress that we wanted to see there.
Even with the market.
Environment that we're in we're still seeing strong Wi Fi performance.
Happy about that.
Thank you.
Your next question comes from Jeremy Kwan with Stifel. Please go ahead.
Pardon me is your line on mute perhaps.
Yes, sorry, good morning can you hear me.
Yes.
Great.
Yeah, I guess a couple of questions first one.
I guess, if you look at the.
Can you cyber security labeling.
What kind of impact do you see.
But like our win win.
Or is this something that.
Sure.
As expected to impact over the next couple of months or when do you see customers really kind of clamoring for for this type of solution.
When can we expect to see more of an impact on the top line here from that initiative.
Sure.
A quick answer is it'll be a while I'd love to say short term that'd be awesome.
I don't think that's realistic the way these things usually play out for anyone who's not familiar by the administrations.
Cyber security labeling program.
Creates a lack better term some standardization of our end markets for consumers and companies around security on these devices, which is exactly what you'd want to see and what's needed. So to answer the question directly I think youre going to see this take time to ramp as the industry starts to deploy it.
You know youre talking quarters and years of impact here and easy way to frame the positioning.
<unk> been betting focusing on security now for a long time.
The strongest portfolio of capability out there in the industry and this is good for US this serves us well.
And we're already known for this for our customers we win business because of this.
To our customers.
And this will only help it gives us a tailwind, but it won't be short term as much as I'd like it to be it'll be a long game, yes. Jeremy This is John just a.
A good example, once again silicon labs advancing the state of the yards in an important area for Iot and being known as a thought leader in our space.
So.
I would think of it the same way as you know think about our security years ago. We were offering these features and capabilities and some people are scratching their heads now Neil that we win designs because of it look the administration's updating policies to help enable these things that are already built into our inherent capability.
Of our entire portfolio.
I think the same of AI ml.
Introducing capability in devices that today some people say.
How is that going to that is the same concept just a few years later down the road, where youre going to see multiple applications and devices, taking advantage of these processors and their efficiency to enable new capabilities on the edge So same way.
Further down the road.
Great. Thank you. Thank you for that color that's very helpful.
Maybe just a quick question on geographic expectations. It sounded like Europe was quite strong in the second quarter here. How do you see this playing out in the third quarter is there any areas of relative strength or weakness that you can call out. Thank you.
Sure Jeremy I think.
First thing to note and we did not talk about this in the prepared.
Remarks, China or China.
Revenue again has been weak and impacted by the Chinese economy in the second quarter.
We need about 10% level.
For the full first half of the year end.
We have not seen signs of recovery there.
So that said the weakness we're seeing really is global at this point.
Widespread overall weakness in demand.
Isolated.
Great. Thank you very much.
Yeah.
Okay, and then I would like to ask a question. Please press Star then one our next question comes from Mike Doyle with Needham. Please go ahead.
Hey, guys, Nick Doyle for Rajiv Gill just wanted to focus on the September margin guide again.
Just kind of ask more directly how youre able to keep that margin declining from declining when we're seeing such a.
Sequential revenue drop and is that.
An indication of mix or ASP strength.
Yeah.
Sure Matt It's John .
As a fabulous company and we really operate strictly on our variable manufacturing costs.
The model, we do have a limited amount of internal fixed costs, but it's pretty pretty modest compared to a full bomb of chip. So.
That's to say that our gross margin really is not.
Influenced by the revenue level, it's variable.
Based on what we're seeing.
At that point in time.
That's really the main explanation to your question.
Okay got it.
For the bookings commentary can you just expand on which markets or applications youre seeing more of that slow down and then also do you think that customers are may be hesitant to order.
Related to this new insurer intra quarter cancellation policy.
And could that be a positive in terms of.
Over ordering on the next up cycle.
Yeah I'll start.
Good for John to add as well.
The bookings pattern right now is pretty broad.
You have to remember you know, we don't have any one or two major customers that make up a big chunk of our revenue less than 5% of our biggest and what we're seeing is broad across customers brought across the channel broad across segments and geos.
It's really difficult to do.
Still out or tease out a clear pattern there.
What you can see is a clear pattern as customer there certainty there visibility their confidence.
Strong in terms of current demand and their ability to work through inventory.
Think their confidence in the long term is shaken, but they're trying to navigate this as well and ordering with very shortly I mean very short.
We've easy way to think about it is our current backlog position has now reverted all the way back to pre supply chain prepaid debit.
We're in.
And that free environment tons of backlog work to navigate supplier now we've got all the way back to that but wondering with even shorter lead times because of their lack of visibility and certainty as well. So I know it doesn't help answer what you're looking for but that's what we're seeing and second part of your question Mehdi because.
Not really I don't see the policy affecting things overall.
Our approach is to try to gain as much visibility and confidence we can short term, but the.
Customers are managing their inventory levels on their own experience over a longer horizon.
Sure.
Alright, thank you.
This concludes our question and answer session I would like to turn the call back over to Bonnie Kelly for any closing remarks.
Thank you Sarah and thank you all for joining this morning. This concludes today's call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.